View more presentations from Rahul Tiwari.
March 26, 2009
March 18, 2009
Why people TRADE?
Why do people trade? To make money and just to make more money, or you could also say to try that they don't lose money. It can be classified in just three simple reasons:
Hedging: Hedging means attempt to mitigate/minimize/offset your risk. When someone tries to get in to a future agreement/contract or do a trade so as he can try to possibly reduce his risk (of losing money due to change in market value). The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another. Technically, to hedge you would invest in two securities with negative correlations. Hedging techniques generally involve the use of complicated financial instruments known as derivatives, the most common of which are Forwards, Futures, Options & Swaps. An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.
Speculation: Speculation is like inverse of hedging, the process of selecting investments with higher risk in order to profit from an anticipated price movement. A speculator generally tries to take advantage of another speculator or a hedger by getting into a deal/trade contract with him for future, as he is hoping that the other party would probably be wrong about future so the contract will turn in his favor. Financial speculation involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains.
Arbitrage: The simultaneous purchase and sale of an asset in order to profit from a difference in the price. Arbitrage is the practice of taking advantage of a price differential between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. An arbitrageur would, for example, seek out price discrepancies between stocks listed on more than one exchange, and buy the undervalued shares on one exchange while short selling the same number of overvalued shares on another exchange, thus capturing risk-free profits as the prices on the two exchanges converge. Arbitrageurs also play an important role in the operation of capital markets, as their efforts in exploiting price inefficiencies keep prices more accurate than they otherwise would be.
March 15, 2009
March 05, 2009
March 04, 2009
Forex Review
What is Forex? Forex is an abbreviation of Foreign Exchange (also referred to as FX) and it is the largest financial market in the world. The Forex market is the place where currencies are traded (currencies are money that is used as an exchange medium). In other words, it is the place where currencies are being sold and bought. In the Forex market all currencies are traded in real time. Trading with currencies always means that there are two simultaneous transactions taking place. If a currency is being bought, it is also being sold. To better understand this notion, think of currencies as both the goods you are buying AND the method with which you're paying for the goods.
Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen. While Forex trading may sound daunting, it really isn’t. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.
Some Forex Basics:
• The first currency listed in a currency pair is called the "base currency".
• The “base currency” is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the “counter currency”.
• Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
• When a quote increases, it means that the “base currency” has risen in value and the “counter currency” has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)
Since the Forex market is the place where currencies are traded in real time, people may trade one currency for another and make a profit off of this transaction. Profits are made when one is able to determine which currency's value will increase by the end of a pre-determined time period (such time periods may be short or long). The Forex market is open 24 hours a day, five days a week and it is based in four major cities: New York, London, Sydney, and Tokyo. The Forex market is open to individuals over the age of eighteen. While Forex trading may sound daunting, it really isn’t. It can be easily comprehended and understood without prior experience in finance or economy. It is challenging and exciting, thought provoking and manageable, stimulating and filled with opportunities.
Some Forex Basics:
• The first currency listed in a currency pair is called the "base currency".
• The “base currency” is usually the U.S. Dollar. Traders will generally trade the U.S. Dollar against another currency, which is called the “counter currency”.
• Currencies are quoted in pairs. For example: The pair U.S. Dollar and JPY will be quoted in the following way: USD/JPY equals to 2.5 (This means that 1 U.S. Dollar can buy 2.5 JPY).
• When a quote increases, it means that the “base currency” has risen in value and the “counter currency” has weakened in value. For example: If the USD/JPY quote used to be equal to 2.5 but is now equal to 2.6, then this means that the dollar has strengthened (because 1 U.S. Dollar can now buy 2.6 JPY as opposed to the mere 2.5 JPY it could buy beforehand.)
(To read more click here. You may also read & enjoy my personal-blog here)
February 25, 2009
Forex Glossory... FX Terms You Wouldn’t Want to Live Without
Ask Price: The ask price (right quote display) is the price at which traders can buy the base currency. If you think that the EUR value will increase then you can choose to buy it for USD at the price displayed in the ask quote (also called as Buy Price).
Aussie: Dealer slang for the AUD/USD currency pair.
Base Currency: The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency’s value. For example, if the rate of the EUR/USD pair is 1.3525, then the EUR is the base currency and it is worth 1.3525 USD.
Bear: A Bear market is a pessimistic market with declining prices.
Bid Price: The bid price (left quote display) is the price at which traders can sell the base currency. If you think that the EUR value will decrease then you can choose to sell it for USD at the price displayed in the bid quote (also called as Offer Price).
Bull: A Bull market is an optimistic market with rising prices.
Cable: Also known as Sterling. Dealer slang for the GPB/USD currency pair.
Counter Currency: The counter currency is the second currency in any currency pair. Its value is determined against the base currency’s value. For example, in the following currency pair EUR/USD, the counter currency is USD. (also called as Pip Currency)
Cross Rate: A price quote consisting of any currency quoted against a currency that is not the USD. The quote is made up of the individual exchange rates of the two currencies against the USD.
Currency Pair: The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time.
Day Trading: The practice of opening and closing positions within the same trading day, so that at the end of the day the trader has no open positions.
Fed: The Fed is short for Federal Reserve, which is the central banking system of the United States. The Fed issues announcements regarding U.S. monetary policy which can have significant effect on the Forex market.
Forex: Forex, or FX, stands for Foreign Exchange. Forex is the simultaneous buying of one currency and selling of another. Since you purchase money with money, there are two transactions (buying and selling) happening at the same time.
Fundamental Analysis: This type of analysis focuses on the macroeconomic factors that influence the value of a country’s currency. Traders open positions based on how they think changes in these factors are bound to affect different economies.
Hedging: The practice of opening several positions at once where one position minimizes the risk of another position. Click here to learn more about hedging.
Kiwi: Dealer slang for the NZD/USD currency pair.
Leverage: Leverage is a loan from your broker, which enables you to trade with a small amount of capital. It can increase your potential profit, but it can also increase your risk. Click here to learn more about leverage.
Long Position: Going long means opening a position in which the trader buys currency in hopes that this currency’s value will increase (buy low, sell high).
Loonie: Dealer slang for the USD/CAD currency pair.
Lot: The standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units. eToro’s standard trade volume is the mini lot.
Margin: The minimal cash deposit that you have to put up for the transaction. Trading forex on margin increases your buying power, but it can also increase your losses. Click here to learn more about margin.
Pip/Point: Pip is the smallest price increment in the last digit in the rate – usually the fourth digit after the decimal point (apart from the USD/JPY).
Price Trend: A consistent movement of currency prices in a certain direction. Traders try to spot trends in order to capitalize on their potential. Click here to learn more about trends.
Rate: Rate or quote, is the price of one currency in terms of another.
Risk Capital: The amount of money that a trader can afford to risk, the potential loss of which would not affect their lifestyle.
Short Position: Going short means opening a position in which the trader sells currency in hopes that this currency’s value will decrease (sell high, buy low).
Spread: The spread is the difference between the bid price and the ask price.
Stop Loss: A trade order which automatically closes an open position at a specific price in order to prevent losses in case the market moves against your position. Click here to learn more about Stop Loss orders.
Swissy: Dealer slang for the USD/CHF currency pair.
Take Profit: A trade order which automatically closes an open position at a specific price realizing a specific amount of profit. Use this order to realize your gains. Click here to learn more about Take Profit orders.
Technical Analysis: This type of analysis focuses on chart patterns of currency movements. It assumes that a currency’s future movements can be predicted by looking at past behavior. Click here to learn more about technical analysis.
Aussie: Dealer slang for the AUD/USD currency pair.
Base Currency: The base currency is the first currency listed in any currency pair. Its value is determined against the counter currency’s value. For example, if the rate of the EUR/USD pair is 1.3525, then the EUR is the base currency and it is worth 1.3525 USD.
Bear: A Bear market is a pessimistic market with declining prices.
Bid Price: The bid price (left quote display) is the price at which traders can sell the base currency. If you think that the EUR value will decrease then you can choose to sell it for USD at the price displayed in the bid quote (also called as Offer Price).
Bull: A Bull market is an optimistic market with rising prices.
Cable: Also known as Sterling. Dealer slang for the GPB/USD currency pair.
Counter Currency: The counter currency is the second currency in any currency pair. Its value is determined against the base currency’s value. For example, in the following currency pair EUR/USD, the counter currency is USD. (also called as Pip Currency)
Cross Rate: A price quote consisting of any currency quoted against a currency that is not the USD. The quote is made up of the individual exchange rates of the two currencies against the USD.
Currency Pair: The two currencies that the exchange rate is comprised of. One of the currencies is bought, and the other is sold at the same time.
Day Trading: The practice of opening and closing positions within the same trading day, so that at the end of the day the trader has no open positions.
Fed: The Fed is short for Federal Reserve, which is the central banking system of the United States. The Fed issues announcements regarding U.S. monetary policy which can have significant effect on the Forex market.
Forex: Forex, or FX, stands for Foreign Exchange. Forex is the simultaneous buying of one currency and selling of another. Since you purchase money with money, there are two transactions (buying and selling) happening at the same time.
Fundamental Analysis: This type of analysis focuses on the macroeconomic factors that influence the value of a country’s currency. Traders open positions based on how they think changes in these factors are bound to affect different economies.
Hedging: The practice of opening several positions at once where one position minimizes the risk of another position. Click here to learn more about hedging.
Kiwi: Dealer slang for the NZD/USD currency pair.
Leverage: Leverage is a loan from your broker, which enables you to trade with a small amount of capital. It can increase your potential profit, but it can also increase your risk. Click here to learn more about leverage.
Long Position: Going long means opening a position in which the trader buys currency in hopes that this currency’s value will increase (buy low, sell high).
Loonie: Dealer slang for the USD/CAD currency pair.
Lot: The standard unit of trading. One standard lot equals 100,000 units of the base currency, a mini lot equals 10,000 units, and a micro lot equals 1,000 units. eToro’s standard trade volume is the mini lot.
Margin: The minimal cash deposit that you have to put up for the transaction. Trading forex on margin increases your buying power, but it can also increase your losses. Click here to learn more about margin.
Pip/Point: Pip is the smallest price increment in the last digit in the rate – usually the fourth digit after the decimal point (apart from the USD/JPY).
Price Trend: A consistent movement of currency prices in a certain direction. Traders try to spot trends in order to capitalize on their potential. Click here to learn more about trends.
Rate: Rate or quote, is the price of one currency in terms of another.
Risk Capital: The amount of money that a trader can afford to risk, the potential loss of which would not affect their lifestyle.
Short Position: Going short means opening a position in which the trader sells currency in hopes that this currency’s value will decrease (sell high, buy low).
Spread: The spread is the difference between the bid price and the ask price.
Stop Loss: A trade order which automatically closes an open position at a specific price in order to prevent losses in case the market moves against your position. Click here to learn more about Stop Loss orders.
Swissy: Dealer slang for the USD/CHF currency pair.
Take Profit: A trade order which automatically closes an open position at a specific price realizing a specific amount of profit. Use this order to realize your gains. Click here to learn more about Take Profit orders.
Technical Analysis: This type of analysis focuses on chart patterns of currency movements. It assumes that a currency’s future movements can be predicted by looking at past behavior. Click here to learn more about technical analysis.
(All information courtesy ETORO. You may also read & enjoy my personal-blog and a funny entry on Management CRAP)
February 07, 2009
Trading & Risk Management
At first I want to define TRM but I do not have a one line definition. So I'll try to do a dissection of the term TRM and see what we come up with...
Trade: A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses. The advent of money as a medium of exchange has allowed trade to be conducted in a manner that is much simpler and effective compared to earlier forms of trade, such as bartering. In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security. So, trading can also refer to the action performed by traders and other market agents in the financial markets.
Risk: The quantifiable likelihood of loss or less-than-expected returns is Risk. The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. Risk has two components:
1. uncertainty
2. exposure
If either is not present, there is no risk. In engineering, the definition risk often simply is:
Risk = (probability of an accident) X (losses per accident)
Or in more general terms:
Risk = (probability of event occurring) X (impact of event occurring)
Management: 'The group of individuals who make decisions about how a business is run' or 'The initiation and maintenance of an investment portfolio'. Management in business and human organization activity is simply the act of getting people together to accomplish desired goals. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. Risk management is activity directed towards the assessing, mitigating (to an acceptable level) and monitoring of risks.
Financial Risk Management: The practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly Credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.
Trading (Financial or Commodities) always involves some risk and that risk needs to be managed (minimized and still attain maximum profit), that's TRM in a nutshell. The nutshell will break and I'll try to spread the TRM knowledge much more soon!!!
Trade: A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses. The advent of money as a medium of exchange has allowed trade to be conducted in a manner that is much simpler and effective compared to earlier forms of trade, such as bartering. In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security. So, trading can also refer to the action performed by traders and other market agents in the financial markets.
Risk: The quantifiable likelihood of loss or less-than-expected returns is Risk. The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. Risk has two components:
1. uncertainty
2. exposure
If either is not present, there is no risk. In engineering, the definition risk often simply is:
Risk = (probability of an accident) X (losses per accident)
Or in more general terms:
Risk = (probability of event occurring) X (impact of event occurring)
Management: 'The group of individuals who make decisions about how a business is run' or 'The initiation and maintenance of an investment portfolio'. Management in business and human organization activity is simply the act of getting people together to accomplish desired goals. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources, and natural resources. Risk management is activity directed towards the assessing, mitigating (to an acceptable level) and monitoring of risks.
Financial Risk Management: The practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly Credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.
Trading (Financial or Commodities) always involves some risk and that risk needs to be managed (minimized and still attain maximum profit), that's TRM in a nutshell. The nutshell will break and I'll try to spread the TRM knowledge much more soon!!!
Subscribe to:
Posts (Atom)