Archive for the "Trading" Category
George Soros: “I always had a strong feeling that I am an exceptional person.”
Is it possible that an ordinary trader can have an influence on the economic climate of the whole country? Trader can do anything he dares! This is the philosophy of a quite modest Gorge Soros who became immodestly well-off on Forex and went down in history of the international exchange market as “the man who broke the Bank of England.” A famous combination with the British pound made him prominent all over the world. The genius deal helped Soros to make the way from philosopher to millionaire just in some weeks.
George Soros is a son of Hungarian immigrants of Jewish background. His mother, Elizabeth Sutz came from a well-off family, while Soros’ father, Tivadar Shvartz, was not so reach but had an extraordinary mind and outstanding personality. That was a man, who went to the front on his own accord as he “did not want to lose such opportunity”, but not because of true or artificial patriotic feelings. Probably, Soros inherited his extraordinary mind, bravery and thirst for risk and interesting life from his father.
Black Wednesday – that is how was called the day of September 16, 1992. After a successful currency speculation deal, a 42-year old fantasist posed a threat to economic situation in the Great Britain. Having opened a short position for pound sterling totaling more than 10 bn US dollars, Soros earned more than 1.1 bn dollars in a day! He lost a lot during his trading career but the luck went with him. Soros’ strategy can be called a bearish one as he was selling shorts. Soros is ambiguous and contradictory person who does not favor long term investments: all his deals are of short and of speculative nature.
Being a financier by profession, Soros had passion for philosophy and even developed a theory based on the ideas of Karl Popper. It was called Theory of Reflexivity and posited that currency value is formed due to its expectations and one can put a pressure on them. However, Soros appeals to intuition and tries to develop with the help of hypnotizers. Despite a huge working experience on currency market, successful trader admits that he is still emotional about both bad and good deals. But he does not advise to give way to emotions.
Three years of economics school, internship in London Arbitrage, attempts to earn on investments and, finally, worthy life of a millionaire who can afford writing books and sharing experience, doing charitable work and even participating in the political life of the country. All this is the American dream as it is and the life of the most successful trader in Forex history George Soros.
As all processes in the world economy are closely interlinked, it is not a good idea to consider Forex market separately from other ones. Any changes on the currency market can have great influence on currency quotes. That is why it is important to know peculiarities of their interaction, common and distinctive features.
Today we are going to compare both currency and stock markets. Recall that the trading instruments of the stock market are securities – shares, bonds, derivatives (warrants, futures, and options), savings accounts and certificates of deposit (CDs), and promissory notes.
Two markets are compared by the following parameters:
The main difference of stock market is that the buyer and seller must find each other. This is complicated by the fact that the liquidity on the stock market is much lower than on Forex, so the probability of losses increases markedly. After all, if a trader would not find a buyer for shares in time, they will drop significantly in price.
2. Locations of Trade
Unlike Forex, which has no spatial restriction, trading on stock market takes place only on stock exchanges. Due to their locations in various spots around the world, share price on different stock exchanges can differ. So there is arbitrage with securities bought on one exchange and sold on another one. Forex market does not have such option. In fact, there is no need as Forex does not provide central location where trading takes place.
3. Features of Deals
Stock market operates on the principle: buy cheaper – sell more expensive. On the contrary, Forex trading focuses either on currency rise or fall.
Margin Trading is available only on Forex. Whereas you can buy or sell on stock market using only the amount of money you have.
5. Working Time Limits
You can trade on Forex 24/7, while stock market has its opening and closing time.
Stock market surely has a number of its advantages. They are, for example, dividends and the right to manage companies, coupon payments on bonds, and redemption of government securities. Therefore, it is you to choose your market according to your own interests, goals and objectives.
Every time we take up something new, we have doubts. And this is normal! Doubts are the result of estimating yourself, of searching personal features that are needed for this new activity. At the beginning of the journey a trader cannot avoid being unconfident of his/ her abilities, knowledge and skills. This is exactly what urges to look for more information and for the advice of the experienced, to visit courses and webinars, and in fact, to being extremely cautious. It is concerns, that trigger our self-development, that appear to be the signs of success in the future activity.
Of course, for a totally green on Forex trader it is significant to master technical and fundamental analysis. This is needed to understand the way the international currency market operates, as “trader” is a very difficult occupation, which requires skills of analysis as well as special knowledge. The sign of that the work is effective can be non-randomness of profit, ability to explain what stands behind every step on Forex market.
It may seem that having realized the rules of the financial markets and read a lot of books, i.e. having acquired sufficient information about trading and Forex, one can easily add funds into a bank account merely sitting in front of the PC connected to the Internet. But it is not that simple!
The main part of people sees the most attractive feature of trading in the easy way to earn money and fast speed of getting rich. And of course, these ideas cannot but worry and evoke powerful emotions. A novice trader is so much captivated by a zest to yield, that he / she is incapable of realistic estimation of personal actions on Forex. Aside from knowledge and logics, in order to profit on Forex, discipline and cold reasoning are necessary. An ability to stop in time, to enter the market at the correct moment, to be very attentive, to monitor carefully the currency exchange rates and to behave with no hazard – all these skills are the main supporters of a profitable trader. Being absorbed by emotions is considered as the main obstacle for the newbies.
Emotions urge to act, help to go forward and never stop. But being overwhelmed by emotions disorient and has a negative impact on the attentiveness. Huge expectations from the trades conducted increase their importance so much that they cause a trader’s lack of self-trust. In this case, this self-doubt prevents from gradual development as a professional.
So, emotions or logics? Both! The Golden Mean Rule has never been cancelled.
Using knowledge and skills of analysis will definitely help you to work on Forex, but a certain share of emotions urging you to accomplishments will not be excessive.
Good luck in conquering new highs!
Added by Andrey Misyuk,
InstaForex Clients’ relationship manager
Each trader has his personal approach to the situation on currency market and his own trading methods and trading system. Each one chooses the strategy that to his mind is the most effective. As a rule, the opinions of traders on that subject are different.
But today we will focus on the most popular strategy appreciated by traders all over the world.
Carry trade is the trading method based on the difference between low-yielding and high-yielding national currencies. The main principle of the strategy is to purchase a currency yielding a lower interest rate and sell it at higher interest rate. In other words, you open a position with a large swap point trying not to close it as long as possible in order to get a maximum profit with the help of swap points.
The bigger the difference between the interest rates of currencies in your pair is, the bigger is the size of swap points. Therefore, you should choose currencies with the biggest difference in interest rates. The most popular currency pairs are AUD/JPY, NZD/JPY, and GBP/CHF.
You can get the necessary information on exchange rates any time. The detailed information can be easily found on the websites of central banks and Forex-brokers.
As any other trading strategy, Carry trade has its own peculiarities. Firstly, in order to gain profit you should use the large initial deposit and keep a position open as long as possible. Secondly, the interest rates are subject to fluctuations. They can change sharply which is quite risky.
Thus, in order to use the strategy Carry trade successfully, it is crucial to follow the changes of exchange rates and focus on long-term trade. In this case patience is the key to successful trade.
Added by Andrey Misyuk,
InstaForex Clients’ relationship manager
Traders analyze Forex market in order to make a forecast that will enable to increase the profitability of transactions. Forecast is the part of a trading plan. Different methods of analysis are used to define long-term trends, favorable conditions for opening and closing of deals, prospect price rebounds etc.
As a rule, there are two main methods of analysis on Forex:
- fundamental analysis
- technical analysis
Fundamental analysis is based on the investigation of different economic indicators as interest rates, inflation, business activity indices, employment, GDP. The instruments of the fundamental analysis include news, directly or indirectly connected with world financial markets, economic calendar, various statistical reports, statements of main politicians and even rumors.
Traders that follow this type of analysis must know how to separate the key aspects from secondary ones and find cause-and-effect relations between events. To make the proper use of the fundamental analysis one should be aware of the global economy and financial markets, knowing what factors and what information may affect the price of currencies and securities.
The technical analysis is based on the historical data of prices. The study of previous price changes enables to forecast the future situation. The instruments of the technical analysis are price charts, technical indicators and trade advisors. This type of analysis allows to define trends, support and resistance levels etc.
There are several types of price charts: linear, candlestick, bar. It is possible to place various indicators on charts. Most of them are integrated in trade terminal. Indicators are mainly subdivided into two groups –trend indicators and oscillatory indicators. Trend indicators define the current price tendency, oscillatory ones work better while the sideways movement indicating the oversold and the overbought market.
Also trading advisors enable to automate the trading process partially or completely. These are certain programs aimed at performing operations on Forex without trader’s participation, i.e. that advisors (robots or experts) can make deals basing on the received signals automatically.
To compile the trading forecast many traders combine different types of analysis. It is crucial to keep in mind that the forecast is just the forecast: it may not be justified. Even professional analysts sometimes make mistakes in their analysis as Forex market is not stable. The usage of various methods of analysis is crucial for successful work, but the main task of a trader is to trade in accordance with the market and respond quickly on any changes.
Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager