A Primer On The Forex Market

With the widespread availability of electronic trading networks, trading currencies is now more accessible than ever. The foreign exchange market, or forex, is notoriously the domain of commercial and investment banks, not to mention hedge funds and massive international corporations. At first glance, the presence of such heavyweight entities may appear daunting to the individual investor. But the presence of such powerful groups and such a massive international market can also work to the benefit of the individual trader. The forex market offers trading 24 hours a day, five days a week. It is the largest and most liquid market in the world. According to Bank For International Settlement, trading in foreign exchange markets averaged 5.3 trillion per day in 2013.

Trading Opportunities 

The sheer number of currencies traded serves to ensure an extreme level of day-to-day volatility. There will always be currencies that are moving rapidly up or down, offering opportunities for profit (and commensurate risk) to astute traders. Yet, like the equity markets, forex offers plenty of instruments to mitigate risk and allows the individual to profit in both rising and falling markets. Forex also allows highly leveraged trading with low margin requirements relative to its equity counterparts.

Many instruments utilized in forex - such as forwards and futures, options, spread betting, contracts for difference (CFD) and the spot market - will appear similar to those used in the equity markets. Since the instruments on the forex market often maintain minimum trade sizes in terms of the base currencies (the spot market, for example, requires a minimum trade size of 100,000 units of the base currency), the use of margin is absolutely essential for the person trading these instruments.

Buying and Selling Currencies

Regarding the specifics of buying and selling on forex, it is important to note that currencies are always priced in pairs. All trades result in the simultaneous purchase of one currency and the sale of another. This necessitates a slightly different mode of thinking than the way required by equity markets. While trading on the forex market, you would execute a trade only at a time when you expect the currency you are buying to increase in value relative to the one you are selling.

Base and Counter Currencies and Quotes

Currency traders must become familiar also with the way currencies are quoted. The first currency in the pair is considered the base currency; and the second is the counter or quote currency. Most of the time, the U.S. dollar is considered the base currency, and quotes are expressed in units of US$1 per counter currency (for example, USD/JPY or USD/CAD).

Forex quotes always include a bid and an ask price. The bid is the price at which the market maker is willing to buy the base currency in exchange for the counter currency. The ask price is the price at which the market maker is willing to sell the base currency in exchange for the counter currency. The difference between the bid and the ask prices is referred to as the spread.

The cost of establishing a position is determined by the spread. Most major currency pairs are priced to four decimal places, the final digit of which is referred to as a point or a pip. For example, if USD/JPY was quoted with a bid of 134.3919 and an ask of 134.3923, the four-pip spread is the cost of trading this position. From the very start, therefore, the trader must recover the four-pip cost from his or her profits, necessitating a favorable move in the position simply to break even.

More About Margin

Trading in the currency markets also requires a trader to think in a slightly different way about margin. Margin on the forex market is not a down payment on a future purchase of equity but a deposit to the trader's account that will cover against any future currency-trading losses. A typical currency trading system will allow for a very high degree of leverage in its margin requirements, up to 100:1. The system will automatically calculate the funds necessary for current positions and will check for margin availability before executing any trade.

Rollover

In the spot forex market, trades must be settled within two business days. For example, if a trader sells a certain number of currency units on Wednesday, he or she must deliver an equivalent number of units on Friday. But currency trading systems may allow for a "rollover" with which open positions can be swapped forward to the next settlement date (giving an extension of two additional business days). The interest rate for such a swap is predetermined, and, in fact, these swaps are actually financial instruments that can also be traded on the currency market.

In any spot rollover transaction, the difference between the interest rates of the base and counter currencies is reflected as an overnight loan. If the trader holds a long position in the currency with the higher interest rate, he or she would gain on the spot rollover. The amount of such a gain would fluctuate day-to-day according to the precise interest-rate differential between the base and the counter currency. Such rollover rates are quoted in dollars and are shown in the interest column of the forex trading system. Rollovers, however, will not affect traders who never hold a position overnight since the rollover is exclusively a day-to-day phenomenon.

Conclusion

As one can immediately see, trading in forex requires a slightly different way of thinking than the way required by equity markets. Yet, for its extreme liquidity, multitude of opportunities for large profits due to strong trends and high levels of available leverage, the currency market is hard to resist for the advanced trader. With such potential, however, comes significant risk, and traders should quickly establish an intimate familiarity with methods of risk management.

How To Pump Up Your Portfolio With ETFs

Similar to mutual funds, exchange-traded funds (ETFs) allow access to a number of types of stocks and bonds (or asset classes), provide an efficient means to construct a fully diversified portfolio, include index- and more active-management strategies and are comprised of individual stocks or bonds. But ETFs also differ from mutual funds, and in ways that are advantageous to investors.

Unlike mutual funds, ETFs are traded like any stock or bond and offer liquidity throughout the day. Moreover, ETFs generally do not pay out dividends and capital gains - instead, distributions are rolled into the trading price, allowing investors to avoid a taxable event.

In this blog, we'll show you how to add these funds to your portfolio to make it more liquid, user-friendly and profitable.

Portfolio Construction

Modern portfolio construction theory (MPT) is centered on the concept that asset classes behave differently from one another. This means each asset class has its own unique risk and return profile, and reacts differently during various economic events and cycles. The idea of combining various asset classes, each with unique attributes, is the basis for building a diversified portfolio. ETFs provide small investors with a vehicle to achieve asset class diversification, substantially reducing overall portfolio risk.

Risk reduction is a concept that means many things to many people; therefore, a brief discussion of its use, in this context, is warranted.

Reducing Risk

Many investors believe that by holding a portfolio of 30 or more U.S.large-cap stocks, they are achieving sufficient diversification. This is true in that they are diversifying against company-specific risk, but such a portfolio is not diversified against the systematic behavior of U.S. large-cap stocks.

For example, U.S. large-cap stocks' monthly returns, as a whole, averaged in the high teens, as seen in the S&P 500's 15% average return between 1997 to 2007. So, this means that if you held just U.S. large-cap stocks, you should reasonably expect to see volatility in your portfolio of plus or minus 15% on any given month. Such a high degree of volatility could be unsettling and drive irrational behavior, such as selling out of fear or buying and leveraging out of greed. As such, risk reduction, in this context, would involve the minimization of monthly fluctuations in portfolio value. 

Many ETF Asset Classes

There are many equity asset class exposures available through ETFs. These include international large-cap stocks, U.S.mid- and small-cap stocks, emerging market stocks and sector ETFs. Although some of these asset classes are more volatile than U.S. large caps, traditionally, they can be combined to minimize portfolio volatility with a high degree of certainty. Simply put, this is because they generally "zig" and "zag" in different directions at different times. However, in times of extreme market stress, all equity markets tend to behave poorly over the short term. Because of this, investors should consider adding fixed-income exposure to their portfolios.

ETFs also offer exposure to U.S.nominal and inflation-protected fixed income. Unlike equities, fixed-income asset classes generally offer mid-single-digit levels of volatility, making them ideal tools to reduce total portfolio risk. However, investors must be careful to neither use too little or too much fixed income given their investment horizons. You can even purchase ETFs that track commodities such as gold or silver or funds that gain when the overall market falls.

Investment Horizon

An individual's investment horizon generally depends on the number of years until that person's retirement. So, recent college graduates have about a 40-year time horizon (long-term), middle-aged people about a 20-year time horizon (mid-term) and those nearing or at retirement have a time horizon of zero-10 years (short-term). Considering that equity investments can easily underperform bonds over periods as long as 10 years and that bear markets can last many years, investors must have a healthy fear of market volatility and budget their risk appropriately. (Read more about time horizons in Seven Common Investor Mistakes and The Seasons Of An Investor's Life.)

Let's look at an example:

Example - Investment Horizon and Risk

It could be appropriate for a recent college graduate to adopt a 100% equity allocation. Conversely, it could be inappropriate for someone five years away from retirement to adopt such an aggressive posture. Nonetheless, it is not uncommon to see individuals with insufficient retirement assets bet on equity market appreciation to overcome savings shortfalls. This is the greedy side of investor behavior, which could rapidly turn to fear in the face of a bear market, leading to disastrous results. Keep in mind that saving appropriately is just as important as how you structure your investments. 

ETF Advantages in Portfolio Construction

In the context of portfolio construction, ETFs (especially index ETFs) offer many advantages over mutual funds. First and foremost, index ETFs are very cheap relative to any actively managed retail mutual fund. Such funds will typically charge about 1 to 1.5%, whereas index ETFs charge fees around 0.25 to 0.50%. Consider the benefits of saving 1% in fees on a $1-million portfolio - $10,000 per annum. Fee savings add up over time, and should not be discounted during your portfolio design process.

Additionally, index ETFs sidestep another potential pitfall for individual investors: the risk that actively managed retail funds will fail to succeed. Generally speaking, individual investors are often ill-equipped to evaluate the prospective success of an actively managed fund. This is due to a lack of analytical tools, access to portfolio managers and an overall lack of a sophisticated understanding of investments. Studies have shown that active managers generally fail to beat relevant market indexes over time. As such, picking a successful manager is difficult for even trained investment professionals.

Individual investors should therefore avoid active managers and the need to continuously watch, analyze and evaluate success or failure. Moreover, because the majority of your portfolio's return will be determined by asset class exposures, there are little benefit to this pursuit. Avoiding active managers through index ETFs is yet another way to diversify and reduce portfolio risk.

Conclusion

Index ETFs can be a valuable tool to individual investors in constructing a fully diversified portfolio. They offer cheap access to systematic risk exposures, such as the various U.S. and international equity asset classes as well fixed-income investments. They are traded daily like stocks, and can be purchased cheaply through your favorite discount brokerage firm. Index ETFs also avoid the risks of active management and the headaches of monitoring and evaluating those types of products. All in all, index ETFs offer unsophisticated investors the opportunity to build a relatively sophisticated portfolio with few headaches and at substantial cost savings. Consider them seriously in your investment activities.

The forex trading basics you will always need

The beginner strategy is just the start of a whole world of trading. From indicators to chart analysis, there are many opportunities to learn and improve your trading.

However, there will always be a core group of principles that you need to comprehend. 

Technical analysis

Technical analysis is a method of analysing price movement on a chart to determine possible future price action by using things like indicators, channels, divergence, and much more. At tradimo, we teach you how to analyse Japanese candlestick charts using many different methods. The strategy you use will depend on your personal trading style.

For example, one trader may prefer to use moving averages while another may choose to use the Fibonacci indicator.

Money management skills

Money management, also called risk management, is a core concept that protects your trading capital from losing trades. It should be part of your trading strategy immediately when you begin your trading career.

Money management encompasses concepts like stop losses, scaling in and out of trades, and risk to reward. Understanding these methods can help you maximise your profits and avoid losing your trading account.

For example, most professional traders do not advocate risking any more than 1% to 2% of an account on a single trade. This protects your account from performance downturns and allows you to trade safely with leverage.

Trading psychology

It is not analysis of the markets alone that allows a forex trader to become successful, it is the psychology of a trader. By overcoming psychological influences, such as fear and greed, a trader has a better chance of being successful.

A trader must stick to the rules of their system and not let psychological influences distract them. The path to becoming a good trader is not necessarily an easy one, however, working through your psychological issues will allow you to trade with a disciplined approach.

Introduction to Commodities and Futures

The terms “commodities” and “futures” are often used to describe commodity trading or futures trading. You can think of them as generic terms to describe the markets. It is similar to the way “stocks” and “equities” are used when investors talk about the stock market. To be more specific, this is what they really mean: Commodities are the actual physical goods like corn, soybeans, gold, crude oil, etc. Futures are contracts of commodities that are traded at a futures exchange like the Chicago Board of Trade (CBOT). Futures contracts have expanded beyond just commodities; now there are futures contracts on financial markets like the S&P 500, t-notes, currencies and many others.

Example:

• Commodity: Corn
• Profiles of Commodities

Futures Contract: December 2007 Corn, which is a contract of 5,000 bushels of corn that trades at the Chicago Board of Trade with a contract expiring in December 2007.

A hypothetical price for this contract might be $3.60 per bushel.

How do Futures Work?

Futures are standardized contracts among buyers and sellers of commodities that specify the amount of a commodity, grade / quality and delivery location. Commodity trading with futures contracts takes place at a futures exchange and, like the stock market, is entirely anonymous.

For example: the buyer might be an end-user like Kellogg’s. They need to buy corn to make cereal. The seller would most likely be a farmer, who needs to sell his corn crop. They create a contract of December Corn futures at the current market price. A contract of corn at the CBOT consists of 5,000 bushels. Therefore, the farmer would have to deliver 5,000 bushels of corn to Kellogg’s in December at a designated location.

Futures Contract Specifications

• Futures and Commodities Exchanges
• Making Money in Futures

A speculator is someone who invests in a business with the goal of turning a profit. In the case of commodities, speculators are traders who try to buy futures low and sell them high to make money. The reason why speculators can do so with futures is that traders aren’t required to hold the futures contracts for the duration of the contract; they can buy or sell anytime they want. So, to use the Kellogg’s example above, a speculator could buy the corn contract from the farmer at a certain price, then wait for the price of corn to go up before selling the contract to Kellogg’s, even if the contract won’t come due for another couple of months, turning a profit in the process.

Commodity Trading Strategies

• Managing Your Commodities Portfolio
• Players Involved in Commodities Trading

There are three different types of players in the commodity markets:

1. Commercials: The entities involved in the production, processing or merchandising of a commodity. For example, both the corn farmer and Kellogg’s from the example above are commercials. Commercials account for most of the trading in commodity markets.
2. Large Speculators: A group of investors that pool their money together to reduce risk and increase gain. Like mutual funds in the stock market, large speculators have money managers that make investment decisions for the investors as a whole.
3. Small Speculators: Individual commodity traders who trade on their own accounts or through a commodity broker. Both small and large speculators are known for their ability to shake up the commodities market.

How to Start Trading Commodities

In order to trade commodities, you should educate yourself on the futures contract specifications for each commodity and of course learn about trading strategies. Commodities have the same premise as any other investment – you want to buy low and sell high. The difference with commodities is that they are highly leveraged and they trade in contract sizes instead of shares. Remember that you can buy and sell positions whenever the markets are open, so rest assured that you don’t have to take delivery of a truckload of soybeans.

Russian Interests

Tensions between Russia and Ukraine remain high, and have spilled onto the international stage. The Western world seemed to be caught off guard by Russian President Putin’s reaction to civil unrest in Ukraine, leading to Russia’s annexation of Crimea and spreading into a broader question of regional sovereignty. The situation remains fluid, so it’s difficult to predict just exactly how it might play out. But given escalating conflict in Eastern Ukraine, we do not envision an easy or quick end to the conflict.

The United States has imposed a number of sanctions on Russia and has taken a stronger and harsher stance than the European Union (EU) simply because Europe would suffer more if it did the same, in our view.

The West has held off on true “sectoral” sanctions – applying sanctions to every company in an industry sector. However, should Russia intervene militarily, we would expect that position could change. Sectoral sanctions could cut the Russian economy off from the US dollar-based global financial system, but would be extremely challenging to implement and could cause collateral damage to Western economies, particularly the Eurozone. Sectoral sanctions also could play into Putin’s hands, increasing his control over the oligarchs and their enterprises, resulting in the oligarchs’ moving money outside of Western control, perhaps to China.

We could envision an agreement whereby the Ukrainian government agrees to a federal system giving the Russian-speaking areas of the country considerable autonomy.

Business on both sides – Ukraine and Russia—should be able to continue despite the conflict. We believe there is considerable trade and investment flow that won’t be interrupted, even with some sanctions. Russia is a major supplier of oil to Germany and the Netherlands in particular, and of natural gas to Western Europe generally. Disruption to energy trade would be in neither side’s interest.

It has been our view that Ukraine’s finances, although under pressure, are likely to be supported by the EU, United States and World Bank. There is a possibility of Russia being able to achieve some financial benefits as well, including gas contracts.

We have been investing in Russia for a long time, and have found that Russian equities have often presented themselves as potential bargains during various stressful points in time. In our view, this is true even more so today. That said, we believe a steep valuation discount is required in Russia given the current geopolitical risk involved in investing there.

We have continued to be interested in long-term opportunities in select companies within Ukraine and Russia and we will continue to monitor the situation. Any future investment decisions that are made in Russia—as in all markets in which we invest—will be made on a bottom-up, stock-by-stock basis resulting from our internal research, which includes an assessment of each stock’s macroeconomic and political risk factors. Our hope is that if there is a resolution of the conflict between Russia and Ukraine, it can restore some investor confidence and allow companies to continue doing business in both countries.

Mutual Funds- Minimize Your Risk

Mutual Funds: Minimize Your Risk While Building Your Wealth

If you're new to investing, are following a dollar cost averaging plan or are simply interested in minimizing your risk in the market, mutual funds may be your answer.

Simply speaking, a mutual fund is a group of diverse investments that includes stocks, bonds or money market instruments. When you invest in a mutual fund, you own a portion of those investments, and can make money either by receiving dividends and interest from your investment or by the rise in value of the securities.

Advantages of Mutual Funds

There are many reasons to consider investing in a mutual fund instead of individual stocks and bonds. The main reason is the diversity of mutual funds, which can increase your potential returns while decreasing your overall risk. When you invest in mutual funds, your money is spread across many different companies. Mutual funds are also a good choice for small investors, because the fees are relatively small compared to the fees for buying stocks and/or bonds individually. Mutual funds also have the advantage of being professionally managed, so they're ideal for investors who either don't have the time to research their own investments or who don't feel they have the experience to make their own investments. Liquidity (the ability to readily access your money) is another benefit of mutual funds. Funds can be sold on any business day at that day's closing price - or at the following day's close if the sell order is placed after the market closes.

Types of Mutual Funds

• Stock Funds - These funds mostly invest in the stock of publicly traded companies. They are also known as equity funds. There are numerous types of stock funds, including blend funds, small-cap, mid-cap and large-cap funds and growth funds.
• Bond Funds - Bond funds invest in bonds, which are also known as debt securities. Bond funds are usually safer than stock funds, but the returns are also lower.
• Municipal (or Muni) Bond Funds - These mutual funds invest in tax-exempt bonds that are issued by cities, states and other local governments. They provide tax-free income to their investors. Bond funds tend to go up in value when interest rates decline, and go down in value when interest rates rise.
• Balanced Funds - Balanced funds, also called hybrid funds, combine a mixture of stocks and bonds, and a small money-market investment into a single portfolio. This type of fund generally appeals to investors who are looking for a combination of low risk, income and modest capital appreciation.
• Money Market Funds - Money market funds invest in short-term, interest-bearing securities. They are usually less risky than either stock funds or bond funds and are designed to trade at a constant $1 a share. This type of fund is usually a short-term investment.
• Index Funds - Index funds can be either bond funds or stock funds. They invest in companies that make up a given index, such as the S&P 500 or the Nasdaq 100, and attempt to mimic the returns of that index. Index funds usually have lower costs than managed mutual funds because index funds do not need research analysts or money managers to pick their stocks.
• Sector Funds - These mutual funds invest in the stock of a specific industry sector, such as technology, health care, transportation or energy. Sector funds are usually much riskier than general equity funds, but they can also generate higher returns.
• Global & International Funds - Global funds invest in both foreign and domestic companies, while international funds invest only in companies based outside the U.S.

Remember, if you're new to investing, mutual funds provide you a low-risk investment option while still allowing you to enjoying the benefits of a professionally managed portfolio.

Stock picking – get started

There are thousands of companies listed on stock markets and picking which stocks to trade can be confusing, especially if you are new to stock trading.

In this module, we will bring together all you have learned in the previous stocks modules and guide you through the share selection process.

This lesson will cover how to start picking companies and the following lessons will show you how to perform the right kind of analysis to suit you.

Start with the time horizon

The longer the period that you want to hold a position, the more detailed the analysis has to be.

This is because when you look at a longer time horizon, you need to make sure that there are solid fundamental reasons why the price of a share will continue rising – or falling, and this requires detailed analysis. For a short-term time horizon, you will only be looking to take advantage of short, quick price movements, and so such a detailed level of analysis is not needed.

Choosing a time horizon can depend on how much time you have. If you have a lot of time to trade and watch price charts, then you can trade on a shorter term time horizon.

If you only have an hour a day, or a week, to dedicate to trading, then you would be more suited to longer term trading.

At the end of this lesson, you will be able to choose which kind of analysis you want do.

Picking your stocks – start simple

If you're new to trading shares, it's best to start simple. Rather than diving straight into riskier, companies that have a small capitalisation, or obscure start-ups, try your hand at trading big, well-known companies.

These stocks are very liquid, meaning it's easy to get in and out of trades at the price you want. They’re always in the news and there’s plenty of research material available.

It may be a good idea to watch their price for a few weeks before committing any real money to the market. A demo account can be great for this.

Go for what you know

Once you're ready to begin stock-picking, start with something you know.

If you've worked in a particular industry, you will have useful background knowledge that will help you understand what issues are important for a company.

Even if you're a regular customer of a company, you might find it easier to understand their business model than a company that you do not know.

Being able to witness first-hand when a company's business is slack, or when its product range seems better than usual, can help you start thinking about whether now could be a good time to trade its shares.

Don't forget about shorting stocks

Remember too that choosing a stock to trade is not only about working out which one you think will rise in value – traders can make just as much profit by shorting a stock – selling it to profit from its anticipated price decline – as they can from buying one.

So if a company strikes you as a disaster waiting to happen, you may have just spotted a trading opportunity.

Pick a sector

Many professional traders decide which stocks they are going to trade through a top-down process of elimination. To start with, pick a sector or an industry that either has good growth opportunities – to buy stocks – or may look like they could be in trouble – to short-sell stocks.

During an economic downturn, for example, retailers, holiday companies and restaurants tend to suffer as consumers are less willing to spend. Consumers may, however, flock to discount retailers, fast-food chains and voucher companies, pushing up their stocks.

There are also certain goods and services that people will need however well off they are. For example, defensive sectors, like pharmaceuticals or waste-collection, will tend to at least hold firm during a downturn.

Weed out the best companies in that sector

Once you have settled on a sector, you need to start looking at many different aspects of the various companies in that industry and find one or two you believe will present the best trading opportunities.

How you do this takes us back to our original point about time frames – the level of analysis you apply will be very different depending on how much time you have and how long you wish to hold the position for.

Where to find the information you need

There are numerous resources to help you with your research.

For fundamental analysis of a company’s performance and prospects, read its quarterly and annual financial reports.

You can usually find these on the Investor Relations section of a company's website.

There are also regulatory bodies in each country that require public companies to file their financial statements for public viewing.

If a company is listed in the UK, for example, it will file its earnings and other announcements with Companies House, whose website you can search.

For US-listed companies, you can search the Securities and Exchange Commission (SEC) website.

For a mix of fundamental and technical analysis, you can also use a stock screener – a software program or online subscription service that helps you pick stocks based on a range of criteria that you can customise.

Fundamental traders could, for example, customise the program to compare companies based on their sales, profits and any of the other yardsticks listed above.

One example of a free stock screener is YCharts, that is available in English. Alternatively, you can simple enter "free stock screener" into Google.com.

Forex Trading Strategies that Actually Work

Investing is an exciting opportunity that can provide short-term gains and long-term financial security when done properly. Just like a football team does not go into a big game without a plan, you should not enter into investing until you decide on one of many effective strategies to increase your chances of success.

This is especially important in volatile markets like the foreign exchange (Forex) market. If you are unfamiliar with Forex but would like to learn about this exciting investment opportunity, check out FOREX: The Complete Trading System to learn more about the potential opportunities available to you in the currencies marketplace.
In this article, you will learn about three strategies that are especially useful for beginning Forex investors. They are relatively easy to follow and can produce significant profits when done correctly.

Please note that you should practice Forex trades using a free dummy account from one of the large brokers to learn how to effectively use these strategies before you begin investing with your hard-earned money. Once you are comfortable with using these strategies, creating a live account is very simple and you will be ready to enter the Forex market with the knowledge and skills necessary to become a successful investor.

Currency Analysis

One of the easiest Forex trading strategies to master is known as currency analysis. This is a relatively foolproof method of predicting market movements and currency fluctuations. There are two different methods used to analyze currency: technical analysis and fundamental analysis.

Technical analysis relies on the price of currency pairs to identify trends and measure the price volatility of a given currency. With this information, you’re able to detect the trading signals (when to buy and when to sell). Check out the Technical Analysis and Chart Reading Skills Bundle course for more information about technical analysis.

Fundamental analysis takes a different approach. Instead of evaluating the currency pairs, fundamental analysis requires that you look at outside factors such as the unemployment rate of a specific country and the stability of the current political situation in that country. Politics can have enormous impact on the value of currency and many fortunes have been acquired by relying on the techniques of fundamental analysis.
Both of these currency analysis strategies are excellent for beginners because the analysis process is not very complicated and trading signals are usually easy to spot.

Day Trading

This is one of the most popular Forex trading strategies and it is employed by both beginners and experienced investors alike. As a day trader, you will not hold any trading positions overnight. You may make multiple trades within a single day but you will liquidate all of your trading positions before the market closes.

If you decide to use a day trading strategy, remember that the longer you hold a trading position, the higher your risk of losing on the trade. By studying the currency fluctuations on a daily basis, it becomes apparent that practically every currency fluctuates throughout the day. Although these price fluctuations may be small, many trades over the course of a single trading day can result in significant profits.

Many experts recommend that day traders use significantly more investment capital than some of the other strategies mentioned because the fluctuations are magnified with larger amounts of money. Since Forex relies on leverage, it is relatively easy to make large trades without having a lot of capital on hand. The drawback to this system is that you can easily lose money that you cannot afford to repay if leverage works against you during a particular trading day.

You can learn more about the power of day trading in The Fast Track to Forex Candle Pattern Trading course.

Range Trading

Sometimes also known as support and resistance levels, this popular Forex trading strategy is easy for beginners to learn and implement. This system relies on the fact that each currency has price fluctuations throughout the day and the week that remain relatively constant.

Many commonly trading currencies have relatively predictable price movements and by studying the charts for a few days, identifying the trading signals is straightforward. For instance, if a currency generally fluctuates between $1.20 and $1.54 throughout the day, these would represent your trading signals. The support price is $1.20 – this is when you want to purchase this particular currency. The resistance price is $1.54. As the currency value approaches this number, you want to trade out of the position and cash in your profits.

As you can see, the key to this method is studying the average fluctuations of your target currency well enough to identify the support and resistance prices. Although the profits generated using this range trading strategy are typically not as significant as traditional day trading or currency analysis, the consistent profits you can reap using this method make it one of the better options to consider as a novice Forex investor.

These three strategies represent the most basic Forex strategies that actually work. There are hundreds of other strategies and there are even more “systems” that claim to guarantee profits. Unfortunately, these systems are often plagued by failure and do not work in many situations.

Currency analysis, day trading, and range trading rely on sound investment principles. Instead of gambling your money away haphazardly, you can use these strategies to create quantifiable profits in a relatively short period of time.
Once you understand these techniques, you can learn more complex trading techniques in the Comprehensive Forex Mastery Program.

If you have never traded Forex before, please remember to set up a free dummy account where you can practice these strategies prior to investing real money. Although adopting these strategies isn’t difficult, there is risk inherent to any investment opportunity and currency exchanges are considered one of the more volatile investment opportunities available. Of course, great risk comes with the potential for significant rewards but there are many more people who have lost fortunes trading Forex incorrectly than those who have gained a fortune.

By practicing these strategies and looking for trends that can guarantee small but consistent profits over a long time period, you significantly increase your chances for long-term success as a Forex trader.

Forget Market Timing, and Stick to a Balanced Fund

Investors were stung, badly, by the financial crisis of 2008. No one wants to go through an experience like that again, which has led to renewed interest in an investing approach called tactical asset allocation.

These tactical strategies have been around for years, and their claim is simple: The tactical manager or mutual fund retains the flexibility to move quickly among different types of stocks, bonds and cash so the manager can participate in market upswings while avoiding much of the pain on the downside.

Traditional, rock-star fund managers usually claim they can pick the best individual stocks, but tactical managers make a different promise. They are not interested in finding the best individual stock or bond. Instead, they offer some supersecret, black-box algorithm that can analyze macroeconomic forecasts and valuation formulas to identify the ideal time to get in and out of broad asset classes like stocks and bonds.

Let’s be clear: This is nothing more than market timing. It’s a fancy way of saying, “We plan on being in stocks when they’re going up, and we plan to get out just before they go down.”

Of course, that’s a wonderful promise. That’s what all of us want, really — if we could only buy low and sell high.

The problem is, none of us knows exactly when these turning points will happen. Nobody rings a bell right before the market goes down, and nobody rings a bell to say, “Hey, get in,” right before the market goes back up. No matter how complex your forecasts or how big your spreadsheets, tactical asset allocation strategies are just market timing by a fancy — and very expensive — name.

If you’ve ever tried to time the market, you know firsthand how hard it is. And past research shows us that traditional market timing doesn’t work. In 1994, John R. Graham and Campbell R. Harvey published a paper that analyzed the advice of 237 investments newsletters.

“We find that over 75% of the newsletters produce negative abnormal returns. Some recommendations are remarkably poor. For example, the (once) high profile Granville Market Letter-Traders produced an average annual loss of 5.4% over the last 13 years. This compares to a 15.9% average annual gain on the Standard & Poor’s 500-stock index.” (Joseph Granville died last year.)

But what about this new breed of fancy market timers? Are they any more successful?

Fortunately, in February 2012, the research company Morningstar decided to update a previous study of tactical asset allocation funds. While this update added only 17 months of data to the original study, it was an ideal time to check on the performance of these funds, because the new period covered the rally of 2010, a sharp correction and the continuation of a rally again.

To demonstrate whether tactical asset allocation funds were able to deliver on their promise during this volatile period, Morningstar compared the results of 210 tactical asset allocation funds against the performance of a simple default investment choice, the Vanguard Balanced Index Fund. This fund has a fixed allocation of 60 percent stocks and 40 percent bonds, and the managers make no attempt to change that allocation based on the direction they think markets are headed.

So how did these 210 fancy market-timing funds perform against a diversified, very low-cost choice that anyone can own? Well, the study didn’t tell us anything we didn’t already know:

“We found that tactical funds generally struggled to deliver competitive risk-adjusted returns when compared with a traditional balanced fund. With a few exceptions, they gained less, were more volatile, or were subject to just as much downside risk as a 60 percent-40 percent mix of U.S. stocks and bonds.”

When we actually look at the results instead of the marketing claims of these funds, it turns out that tactical asset allocation is just like market timing — because just like market timing, it doesn’t work.

Believe me, you’d be better off if you stopped trying to time the markets and just stuck to a simple strategy of picking a low-cost, balanced fund, like the Vanguard Balanced Index Fund, and holding on to it.

Now, in case you’re not a big fan of research, here are a few succinct quotes about the value of market timing.

“The only value of stock forecasters is to make fortunetellers look good.” — Warren E. Buffett

“A decade of results throws cold water on the notion that strategists exhibit any special ability to time the markets.” — The Wall Street Journal

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” — Peter Lynch

“Whenever some analyst seems to know what he’s talking about, remember that pigs will fly before he’ll ever release a full list of his past forecasts, including the bloopers.” — Jason Zweig

“Let’s say it clearly: No one knows where the market is going — experts or novices, soothsayers or astrologers. That’s the simple truth."— Fortune

Don’t get me wrong, it’s only human to find the promise of market timing so appealing. It seems so obvious in hindsight. When we look back, we can see clearly that we all should have been selling stocks in 2007 and buying them again in 2009. But if you go back to that time period, the facts show that most of us weren’t, because we didn’t know at the time that we’d reached the peak or the bottom. That’s the reality.

Still, there will always be this temptation to believe that we can get into an asset class when it’s going up and get out before it heads south. So we have to keep reminding ourselves that, while it’s not impossible, it’s highly improbable we’ll be able to do it successfully over a long investing horizon. Why not just take the simple, balanced choice and get on with your life?

Trade Forex using Skills in Stocks

When it comes to currency or forex traders, they have a distinct advantage over the average investor because they have an intricate knowledge of the economic repercussions of exchange rate fluctuation. Typically a forex trader will use this knowledge only for buying and selling currencies, but in this article you will learn how a savvy trader can pick certain companies to buy and sell based on the exchange rate values.

However as I have recently found out, when it comes to your knowledge of the global economy and your day-to-day knowledge of the exchange rates of all the major currencies, you can apply this knowledge outside of forex trading and make money by investing in companies that have a certain business plan. This stock picking strategy is the topic of this article, and I have personally used it to make tens of thousands of dollars all by trading the forex as I normally do and then finding companies who have a business plan that is heavily dependent on international trade.

This investment strategy works because of a very simple principle: For companies that operate internatonally, a factor of doing business in different countries is that you must exhange currencies, and costs and profits can be greatly affected by changing exchange rates. This is why I mentioned the background in economics because for a man or woman who has spent years learning macroeconomics, they have no trouble understanding the different effects that the appreciation or depreciation of a particular country's currency will have on their international trade.

As for how long you should keep your stock position open, this is really up to your own personal trading strategy but you might look to capture a 2-5% price change in 7-10 days. Those of you who thrive on daytrading may not be happy to hear this, but the fact is that it takes at least a week for the increased or decreased costs of doing business (due to exchange rate changes) to affect the price of that company's stock in any noticable way. If you do happen to be a forex daytrader, you are in a position that most other traders are not because you have an up-to-date knowledge of where the current exchange rates are for all the major currencies, which shows you whether business is getting cheaper or more expensive for certain companies.

For this stock picking strategy to work, there are a few things you need to know. The first thing you will want to do is find at least one company that either operates internationally or does a lot of importing or exporting of supplies. An example of what you could look for in a company might be a American cell phone distributor that imports supplies from European manufacturers. If a stock is publicly traded then all of this information should be readily available, and you want to find a business model that is largely centered on only two countries (or rather, only on two currencies such as the Euro and the dollar, so that any large movements of this single currency pairing will affect the costs of this company).

Once you have found at least one company like this, and it is obvious to you that a large change in the value of one currency (such as the USD appriciating) will significantly impact this company's profits, the next thing to determine whether the specific currency pair that you have isolated is trending or not (in our example it would be EUR/USD). If the currency pair is moving sideways then that might not do you much good, but if the currency pair is in an obvioud trend then this should work to your advantage. We are looking for a trend that is at least one month long, and during that time we are looking for a change of about 100 pips per week or more.

In our example of the American company that sells laptops, if the USD was appreciating against the EUR (meaning that EUR/USD was in a downtrend), then it would become cheaper for the company to import parts since their dollars will now buy more Euros. This would mean that costs for this company have recently been declining, and it is likely that these lower costs (and higher profits) are factored into the stock price. So if you met all of your trading conditions and the EUR/USD was in an obvious trend for at least one month and was moving at the rate of 100 pips per week or more, then you would want to buy or sell the stocks of companies that rely on importing or exporting.

I began applying this strategy recently in my own trading, and it was relatively successful and intuitive application of my forex knowledge to the stock market. I have been trading forex for years, but I have only recently ventured into the stock market because I discovered a way to apply my currency market knowledge to stocks. Hopefully reading through this article has got your brain working and now you can more easily come up with ways that you can pick stocks based on exchange rate values.

For Individual Investors, These May Be The Best Of Times

The raging debate on high frequency trading generated by Michael Lewis’ controversial bestseller “Flash Boys: A Wall Street Revolt” may lead the average retail investor to think that he/she continues to get a raw deal in a stock market increasingly dominated by institutions and hedge funds. Coming as it does on the heels of scandals like the ones surrounding the fixing of benchmark rates for LIBOR and foreign exchange, the controversy may reinforce the impression that financial markets are rigged and unfair. Though there will doubtless always be areas of the market that are relatively inefficient or not the fairest of forums for individual investors, the reality is that these are probably the best of times for them. Here are five reasons why:

• Transaction costs are the lowest ever: Transaction costs have two major components – commission costs and trading spreads. The surging popularity of online brokerages from the late-1990s onwards has driven commission costs relentlessly lower, to the point where it has become routine to trade hundreds of shares for a dollar commission in the single digits. As for trading spreads, the advent of “decimalization” since April 2001 for U.S. equities has resulted in one-cent spreads for the most liquid stocks, rather than 1/16th of a dollar ($.0.625) which was the minimum spread prior to 2001. The dramatic decline in transaction costs since the 1990s generates significant savings for investors and enables them to retain a bigger proportion of their trading gains. It also allows them to manage their portfolios more actively, since high trading costs are no longer a deterrent.

• Plethora of investment choices:  Investors currently have no shortage of investment choices, thanks to the pace of innovation in financial products in recent years. Investors can now invest in most categories of financial assets, even obscure ones and investments that were formerly not available to them – currencies, commodities, foreign markets, real estate, options, hedge funds and so on. Most of these investment choices are available through exchange-traded funds (ETFs), the market for which has grown tremendously in this millennium. Global ETF assets as of October 2013 amounted to $2.3 trillion, of which over 70% comprised U.S. ETF assets. On the derivatives side, the introduction of special options such as mini-options and weekly options gives investors more tools for hedging and speculation. Overall, investors now have a much wider range of investment choices than they did even a few years ago, and the sheer number of these choices continues to expand.

• The Information Age: With investors now having access to a vast repository of market information, the days when the only sources of information were brokers and other market professionals are long gone. Most companies now promptly upload on their websites a wealth of valuable information such as their quarterly results, financial statements, corporate presentations,   and even transcripts or recordings of conference calls with analysts. Online portals like EDGAR in the U.S. and SEDAR in Canada give investors access to other information such as prospectuses and corporate filings. Then there are blogs and micro-blog services like Twitter that often beat newswires to the punch in terms of breaking news. Plus the thousands of websites on stocks and markets that can be accessed by investors at no charge with a mere mouse-click. Lack of timely information is no longer a handicap for the individual investor.

• Better regulation: One consequence of the two savage bear markets in this millennium has been better regulation to protect the small investor. Widespread accounting irregularities and “tainted research” – whereby analysts published glowing reports on dot-com companies that they privately disparaged – were two features of the 2000-02 “tech wreck.” In its aftermath, Sarbanes-Oxley legislation was enacted to improve corporate governance, while new regulations were also introduced to preserve the independence of investment research. Similarly, the LIBOR and forex rate-fixing scandals erupted as a result of financial institutions' excessive risk-taking coming under the spotlight after the 2008-09 bear market.

Concerns about regulation are now centered on two aspects – (a) regulators typically clamp down on abusive market practices only after they have already occurred, and (b) some regulations have unintended consequences, such as Regulation NMS (National Market System); “Reg NMS” was introduced in 2007 to ensure that certain orders are executed at the best available price, but many believe it has contributed to the surge in high-frequency trading.
The fact remains, however, that investors’ rights are presently well protected. As well, efforts continue to level the playing field between individual and institutional investors, thanks to regulations like Reg FD (“Fair Disclosure”) which requires all public companies to disclose material information to all investors at the same time. That said, savvy operators will always be around to exploit loopholes, just as fraudsters and charlatans will always exist to dupe the unwary; but although regulators may occasionally be a step behind, they eventually catch up.

• More tools for the DIY investor: Plenty of tools exist for the do-it-yourself investor, ranging from trading simulators and technical analysis charting services to free educational sites (like this one) and portfolio management software. These tools can range from free basic ones to sophisticated suites that can cost a packet, depending on one’s requirements. The availability of these tools can greatly enhance learning of investment concepts and help one become a better investor.

Record low transaction costs, a wide range of investment choices, access to timely information, better regulation, and more DIY tools – for individual investors, these are the best of times, despite the debate on high frequency trading and recent price-fixing scandals.

The Bottom Line 

Why Invest In Shares

Studies have proved, time and again, that shares (or equities) are one of the best long-term investments in the financial market place. They tend to outperform government bonds, corporate bonds, property and many other types of asset. 

Share prices can go down as well as up so buying shares is not without risk, but over the long term, they can generate good returns. If you want to double your money in a year, for example, buying shares is not the best way to do it. But if you want to invest for ten or 20 years, shares may be a rewarding investment.

Shares are designed to provide investors with two types of return, annual income and long-term capital growth.

Most shares offer income in the form of dividends, which are typically paid twice a year. Dividends can be seen as a reward for shareholders. They are paid when a company is profitable and has cash in the bank after it has satisfied all its obligations.

In most cases, the more profitable a company is, the higher the dividend payments. If a company is making substantial amounts of money and making significant dividend payments, it is usually considered a good investment so the share price rises.

Investors may buy shares specifically for income. Many companies generate substantial amounts of cash every year. They may use some of that money for general corporate purposes, such as paying rent and wage bills, and they may use some of the money to invest in equipment, research and development. But a proportion of that money may be paid to investors as a dividend. As dividends are usually paid out twice a year, they can provide investors with a regular income.

Companies that pay generous dividends are known as income stocks.

Some companies have heavy investment programmes so they plough their profits back into the business. These companies are often at an early stage of their development and they are keen to expand and grow. They are known as growth businesses and, if their plans succeed, their share price will increase substantially. 

Long-term capital growth comes about when a share price increases over a period of time.