The Forex is the abbreviated name for the Foreign Exchange Market. In the United States, there are several branches of the stock market, each with their own name. For instance, some stocks trade on the Dow Jones, others on Nasdaq. Of course, all stock market transactions in the United States take place on the New York Stock Exchange. In other countries the same is true. There may be one or more distinct markets.
However, international trade takes place on the market termed the Foreign Exchange Market, or Forex. Several countries across the world in almost every time zone participate in trade on Forex, with multiple currencies being utilized and stocks and commodities from all participating countries being offered for trade.
Because there are so many nations and time zones involved, Forex does not function as a business day entity like most domestic stock markets. It remains open for trade 24 hours a day, 5 days a week.
Of course, these additional hours increase the risk factor intensely for those of us who are human and obviously cannot monitor our investments 24 hours a day. This means that the value of your holdings could potentially plummet overnight, while you sleep, because other countries are still trading while you are in a dream world.
This is one reason for several safety options, like limit orders, which we will discuss later. This is also why it is strongly recommended that your first attempts to make money on the stock market are not transactions that take place within the Foreign Exchange Market but on a standard 9 to 5 domestic trading market.
In our car analogy, this would be comparable to having asked someone who has never driven or even changed the oil in a car to rebuild the engine.
While the functionality of Forex is the same as a domestic stock exchange, the commodities and prices are more volatile, and there are additional factors to take into considerations besides the typical risks associated with a domestic market.
You will have to contend with not only the value of your stocks and your currency, but also the foreign currencies involved in any trades or exchanges on Forex, as well as the inconsistencies of values of particular goods and services across international borders. It is like driving a car with a standard transmission as opposed to an automatic.
On the domestic front, the work is mostly done for you, and all you have to do is navigate, much like an automatic transmission. However, shifting gears is quite similar to having to constantly take part in the currency conversion. It can be distracting, and it certainly complicates the act of driving.
Because the financial situation of many countries is not as secure as that of the United States, this can pose a formidable problem in determining where to invest your money and what to expect next in the international market. Knowing what countries and currencies are involved in Forex can assist you by allowing you to more closely monitor the financial situation in the nations with which you will be interacting.
The History Of Forex
When foreign trade began, it was not an international trade market. It was borne out of the Bretton Woods agreement in 1944, which set forth that foreign currencies would be fixed against the dollar, which was valued at $35 per ounce of gold.
This precedent was first put into practice in 1967, when a bank in Chicago refused to fund a loan to a professor in sterling pound. Of course, his intention was to sell the currency, which he felt was priced too high against the dollar, then buy it back later when the value had declined, turning a quick profit.
After 1971, when the dollar was no longer convertible to gold and the domestic market was stronger, the Bretton Woods agreement was abandoned, and the currency conversion process became more variable.
This allowed for a stronger backing in the foreign markets, and the United States and Europe began a strong trade relationship. In the 1980s, the market hours and usage was extended through the use of computers and technology to include the Asian time zones as well.
At this time, foreign exchange equaled about $70 billion a day. Today, about 20 years later, the trade level has skyrocketed, with trade equaling $5 trillion daily.
Originally, trading across international lines was more difficult, with several different currencies involved across Europe. Though the major players in the European market were deeply involved in and veterans of international trade by the time other markets joined in, there were more currencies to keep track of the franc, the pound, the lira, and many more than was reasonable.
With the birth of the European Union in 1992, the wheels were set in motion to create a single currency that would be used across most of Europe, and the Euro was finally established and put into circulation in 1999.
The Foreign Exchange Market(Forex) is a worldwide market. The market is open 24 hours a day, 5 days a week, to accommodate all of the time zones for all of the major players. These now include most of Europe, the United States, and Asian markets, especially Japan.
Even Australia has joined the international trading markets, and since such nations are halfway around the world from some of the other top players, time zones obviously must be taken into consideration.
Another completely separate but perhaps more important concern with trading in Forex is understanding how trade works in multiple currencies. How can you compare the value of a stock across international lines if the values are expressed in 2 separate, non-equivalent currencies? And how do you measure gains and losses when conversion rate is constantly changing?
Understanding Currency Conversion
When you begin trading on Forex, you have to learn how to convert currencies and note the difference in values, as well as how currencies are exchanged between international lines. This means studying not only domestic market trends and currency values, but also those of foreign markets.
Since Forex is the Foreign Exchange Market, you obviously cannot expect everyone within the market to trade in U.S. dollars. With so many variables and volatile currencies being exchanged, how can you know a good buy or sell when you see one without complete awareness of the value of foreign currency?
The first step is to find a source that will give you a basic idea of the current exchange rate between your domestic currency and the foreign currency in question. You should do this as a base listing for any currency that with which you might become involved.
Of course, this will not be consistent down to the cent or fraction of a particular currency throughout an entire business day, but at least you will have your starting point from which to begin, almost like North on a compass. Such sources can be found all over the Internet, as well as through many brokers, both online and in person.
Following charts, listening to the advice of market analysts and learning to make educated predictions yourself will help you keep track of various marketing trends.
Will it be a clear, calm day with little activity, or is there a storm brewing with winds of change and uncertainty? How can you tell what will happen with your holdings the following day or even further into the future?
Simply learning to read market trends can remove a lot of natural apprehension and uncertainty for beginning traders. In fact, sometimes the best first step to entering the market is to watch shows about it, look it up on the internet, or read books about it.
You have now become somewhat familiar with how the stock market works, and you understand to a point what is involved in trading on the Foreign Exchange Market. Now, you would like to know how to gauge market trends in order to profit from your business ventures on the open market. We are no longer discussing penny stocks and playground games. You want the real goods.
The name of the game is statistics, and the first rule is that you must be aware there is no such thing as a sure thing on the stock market. While you can never be 100% sure at any given time of the next move that will be made on the market as a whole, being able to read statistics and interpret them will place you ahead of the pack in regards to guessing what will happen next.
Investing is a lot like gambling. If you can keep track of the cards that have already been played, you are more informed, statistically, regarding what is likely to be dealt next, meaning you can place abet with greater insight than someone who has no clue what has already been played.
With the open market, if you have information as to what has already occurred over the past few days, months, or even years, you are again placed in a better position to more logically conclude what will happen next. You simply learn the pattern and follow it to the end, reaping the financial rewards.
Wait, did you think you were going to have to research and map out the markets past all by yourself? Of course not! There are people who get paid to do that sort of work. They monitor the market hourly, daily, weekly, monthly, and yearly so that they can provide big-time traders with the same knowledge mentioned before.
The more an investment company knows about the market, the more money they can make. The same is true for stockbrokers. They make money when you make money, and they want to do the best they can to make sure that you make intelligent decisions.
The best part of this is that you have access to the same information as these VIP clients. These charts are basically a combination of a line graph and a bar graph that show the trend of various stocks, indexes, or other interests over a specified period of time.
Therefore, you can easily determine if the commodity is on an uptrend or if it is taking a downturn, when the last major change occurred, and how long it is predicted that the stock or bond will continue on the current path.
You can actually find information on most commodities and their market trends for years in the past, and some even all the way back to their introduction to the open market. Using this information can help you decide whether it is a good idea to buy or sell the stocks or securities in which you have interest, or if it is better to hold off for a peak in the market trend.
Understanding Market Trends
Understandably, as economies vary, the value of various commodities can change. This is because, when an economy is strong and flourishing, a nation is wealthier and has more purchasing power. Along with that power comes a higher value for the items purchased.
In other words, if people have more money to spend and are spending a greater amount of that money at Walmart stores, the value of stock at Walmart is going to multiply at a considerable rate. Therefore, stockholders become wealthier in terms of assets, simply because the shoppers are driving the market with their purchasing power.
When stockholders are wealthy, and the value of their holdings is on the rise, they continue to purchase stock, which again, pumps the economy. A strong upward trend in the stock market is an excellent sign for any economy.
However, there are also things that affect the market in a negative fashion, causing stock values to plummet. For example, warfare rarely has a positive effect on the stock market. On September 11th, 2001, when terrorists attacked the World Trade Center in New York City, the economy of the United States took a huge dive, and the nation was threatened with a depression. Some analysts were sure that it would never properly recover. The same thing typically happens any time there is an attack or act of war within a nation. However, the critics proved to be wrong, and the United States began to rebound.
This quick recovery occurred mostly because the people of the United States continued to push and spend, forcing money and wealth back into the economy. In watching the reaction of the stock market, you can learn to read trends based on world events.
Forex Volatility & Market Expectation
Volatility, or the tendency for fluctuation that can affect your earnings within the stock market, is typical within a domestic market but even more evident and much stronger on the Foreign Exchange Market. What factors affect the value of currency on Forex, and is there any way to control this?
Devaluation & Revaluation
Devaluation refers to the purposeful decline in value of a currency in relation to other currencies as charged by a government entity.
For example, if the U.S. dollar is worth ten units of a foreign currency that is then devalued by 10%, the U.S. dollar is now equivalent to only nine units of the foreign currency. This makes any items purchased in the foreign currency more expensive for those trading in U.S. dollars, as the exchange rate is lowered. It also makes items in the foreign country less expensive to trade in U.S. dollars.
An opposite change in value can also occur, raising the value of the foreign currency. This is referred to as revaluation. While it may seem that purposely adjusting the value of a nation’s currency is like cheating or taking an unfair advantage by making foreign products cheaper to purchase and increasing the value of exports, there are regulations in place to prevent the manipulation of exchange rates for such purposes. The International Monetary Fund assists in prohibiting such occurrences and enforcing the policy.
There are ways in which you can take advantage of devaluation and revaluation, which will be discussed later on. However, what happens when the value of a foreign currency changes due to market fluctuation rather than purposeful reductions or increases by a federal government or federal bank? What effect do appreciation and depreciation have on the stock market?
Appreciation & Depreciation
Depreciation can be easily related to the life of a car. As soon as you drive a new car off the lot, the value is almost cut in half. This is extreme depreciation. However, over the next few years, the car continues to lose value at a more gradual pace. This is considered to be depreciation as well.
Currency appreciation and depreciation are changes in the value of the currency that are driven by market forces rather than by government mandate.
For example, in an attempt to repay certain loans, in 1998 the Central Bank of Russia announced the coming devaluation of the ruble. The exchange rate, which was currently 6 rubles per U.S. dollar, would over a period of time change to 9.5 rubles per dollar, effectively a depreciation of 34%.
However, prior to the change, there was a widespread panic within the former Communist nation, and the value of the ruble dropped due to many people in Russia opting to trade in their securities prior to maturity. In a single day, following the announcement, the Russian ruble was depreciated by an amazing 25%.
The same sort of crisis occurred in the 1920’s with the crash of the U.S. stock market. In that time, a nationwide panic set in, and people rushed to the banks to withdraw cash that was not available or to trade in securities and stock options that were not matured. In running to the bank, people actually caused the crash rather than escaped it.
On the flip side of the coin, too fast of an appreciation sets up a country for inflation, or an increase in the retail value of products sold to the public based on currency valuation. While inflation is bound to occur, it can be minimally tempered through the use of the currency valuation.
Appreciation can be related to a vehicle as well. Often, men enjoy taking old cars and restoring them to their original beauty. In doing so; they drastically increase the value of the vehicle or appreciate it.
The ever-changing rates of currency conversion and volatility of the market create an inherent market risk, or a day to day potential to experience loss due to fluctuation in securities prices. There is no way to diversify this type of risk, as it is always going to affect investment to a certain degree.
However, some risk can be offset by particular types of investments or ways of investing that are more secure or protected. These options include the ability to preset your purchase or sell price for a specific commodity, as well as using various predetermine order levels to place orders and complete transactions.
Of course, do not delude yourself into thinking that you can rid yourself of all possible risk factors on the market. There is always a cloud hanging over your head waiting to burst, and all it takes is one little pinprick. You must always exercise caution, though the idea of playing the stock market entails danger and excitement inherently.
Aspects Of Trading
You are now versed in the functionality of the stock market and have decided that you are willing to accept the risk factors involved. That said, you want to know everything you can about balancing the risk with intelligent investment options. How can you be sure that the risks you take are more likely to be rewarding in the long run than destructive?
Long & Short
One of the most important parts of making money on the stock market is to determine your position. The long position is basically the purchasing position that you are about to take on a long-term commitment for ownership of some stock, security, or other traded commodity. The short position, by contrast, is the selling position you are shortly going to dispose of the same sort of ownership and any responsibility toward it.
The best time to take up the long position is when stock prices are low. This will get you into the market at a reasonable price and increase your chances for profitability as new offerings go up in price and older investment options recover or rebound.
In fact, as others take the long position and purchase at the same time you do, this will actually drive the value of securities up through the standard rule of supply and demand, causing the beginning of what could be a bull market.
You may equate this with the end of the month at a car dealership. The prices tend to drop on the cars left on the lot for sale, and the dealer is more often willing to bargain because he or she wants less inventory on the lot.
Likewise, when stock prices are low, some will panic and dump all of their holdings at these low prices, thinking that their shares will never recover the value.
When prices are high, it is likely time to turn around and sell your shares to bring in a profit, not losing anything on unrealized gain.
You should never sell for a price that is below your cost, as this brings negative equity and loss of funds. You should always sell for the greatest amount of profit that you feel is safe.
In other words, if you buy a security at $15 dollars per share, and it quickly rises to $25 dollars per share, you may very well feel that it could hit $30 dollars per share within a week.
However, you must determine if you are willing to risk losing your already secured earnings of $10 dollars per share to wait that long, should the price actually fall, so you may decide to sell at the current high price.
Market-Makers & Selling Short
What if the stock values are up incredibly high, but you did not get in on that particular commodity and own no shares? Your first step should be to visit a market-maker or to make a deal with a broker for a short sell.
A market-maker is literally a stockbroker who purchases keeps a certain amount of shares of several securities or stocks on hand, which are purchased during a time when the market rates are low.
The firm will then turn around and sell those shares to an individual at that low price, regardless of the market rate, in effect making its own market. The individual who purchases from the firm can immediately sell the commodities on the open market at market rate making an incredible amount of profit in a short period of time.
A short sell is another option for a quick profit. In this scenario, you will borrow a particular number of shares from a stockbroker to sell when the market value is high. Your job is to then wait for the stock price to go down, purchase the same quantity of stock, and return the holdings to the broker, keeping the profit from the sale, minus the broker fees.
The way that a car dealer works with trade-ins is very similar. They will purchase the car from you at a very low price, then turn around and sell it on the lot for a high profit margin.
One of the most positive aspects of a short sell is that you never actually take possession of the stock, meaning that you are never in a position to lose money. Because you have sold shares for a high price, you have already profited, and in the worst-case scenario, the particular stocks will not drop in price.
Rather than return the stocks to the broker from whom they were borrowed, you can simply pay back the amount for which they were originally purchased, along with the premium.
How can you be sure that you will not overshoot the best price options or miss a good rate because you are unavailable to place a buy order or sell order with your broker? Is there a way to set limits on your trades? Next, we will discuss ways to protect your investments and limit your risk factors.
A limit order is a standing amount at which you have agreed to buy or sell a particular security or other commodity. For instance, you have designated to your stockbroker that you will not sell X Security until its value reaches a minimum value of Y dollars. At the same time, you will not purchase the same X Security if it exceeds a value of Z. Setting limits for the price you pay for a particular security, as well as the price you will accept to sell it, protects you and your investment in several ways.
First of all, you are maximizing your gains, but mostly, you are avoiding loss. Any loss that occurs with limit orders will always be unrealized loss, or a loss that is not measurable in liquid assets or cash.
In other words, until you sell the stock and reap the net loss, it will not affect your net worth. Since you have set a limit that does not allow your commodities to be sold for less than the original cost, you cannot possibly have a loss in your net worth.
At the same time, you are also assuring at least a certain amount of profit by setting your sell point high enough to reap that particular profit.
Another way to protect your assets is to hedge. This means that you create and sell a futures contract stating that, when your shares reach a certain value in the future, you will sell your holdings at this predetermined price.
When that price is reached, the order will be processed, and the transaction completed. Of course, if you ever change your mind about a limit that you have set, you can place a stop order with your broker, which designates that you no longer wish to trade at the specified dollar amount.
You can also buy on margin. This is very similar to short selling, but instead of borrowing stocks to sell, you are essentially borrowing money to purchase stocks on your own when the market value is down.
Then, when the value of the securities you have purchased rises and you are able to sell for a profit, you repay the loan and keep the excess from the sell, minus the broker fees.
Of course, all dealings with a stockbroker incur a premium, or fee for services rendered, and it is nearly impossible to trade without a broker or broker service. However, online services are often less expensive than live agents, but you can research to determine what your best option is.
How To Handle A Whipsaw
A whipsaw is market trend that defies the odds. It can be thought of as the fender bender. Despite how careful you are as you learn to drive a car and become coordinated, sometimes you can’t do anything to avoid being rear-ended.
Whipsaw is a term for what happens when everything points toward a specific direction in market trend, causing you to buy or sell then the opposite effect occurs.
For example, if you purchase a security at $5 dollars per share because the stock seems to have fallen as far as it can go and appears to be starting an upward trend, then unexpectedly, the stock plummets to $1 dollar per share, this is considered a whipsaw effect. If this happens to you, as it surely will if you play the market long enough, the best thing to do is wait it out.
The stock will do one of 2 things it will either dissolve entirely, and the company will go bankrupt, or it will rebound, and you can opt to wait for a chance to turn a profit or you can get out as soon as the purchase rate is reached.
Whipsaws are not the end of the world, and no one can expect to gain with every stock market purchase. However, if you find that you are involved in several of these instances, you should seriously reconsider your investment options.
You may be reading the signs incorrectly, or you could be picking bad stocks. You should seek advice for any future investments you expect to make prior to purchasing any further stocks or securities.
Another way to overturn a bad investment like this is to proceed with an offset transaction a purchase or sell that offsets the loss of a previous transaction.
You could either purchase additional stock in the same company at the lower price if you expect it to recover, or you can opt for another hot commodity that is about to explode in price, either of which will help you offset your loss. You could also sell shares of a security in which you have a large amount of unrealized gains that can’t be measured in liquid assets or cash due to the increase in value of stock/security holding/holdings in order to replace the lost cash value.
All of these are viable options to recover a loss, but waiting for the share value to rebound is always the first choice. It avoids the loss of funds already invested, retains the option to pursue profit, and reduces the risk of further investment into the market.
Margins & Spreads
In order to understand the stock market, or the Forex, you need to speak the language/understand it. For instance, when you think of a margin, for many this means a variable, like the margin of error in a statistic.
However, in trade, it refers to the sum of money borrowed from a broker in order to purchase stocks when the market is on a downtrend. Then, when the value begins its next upswing, you sell the stock at the higher price, pay back the margin and retain the profit.
When you buy on margin, the money lent by the stockbroker is referred to as a margin account. The margin account is provisional based on the value of the stock. Occasionally, if the value of the stocks purchased should drop too low for the safety margin set forth by the broker, the agent will request that more money be deposited into the margin account to make up for loss. This is referred to as a margin call.
In some trades, the market value does not come into play. For instance, a forward trade is set up between 2 individuals or 2 companies outside the open market. It involves a process of negotiation and an eventual compromise in price.
There is usually a bid made the offer to buy a commodity at a certain price and an asking price or offer the price for which the other business entity is willing to sell the securities or other holdings. The difference between these 2 purchase numbers is referred to as the spread.
If the spread cannot be narrowed and eventually closed, no deal can be made. This agreed-upon price is called the forward price, and all details involved in the trade process when this type of transaction takes place are detailed in a contract and referred to as forward points.
Usually, the forward price is outlined as available for a particular date, and should the transaction not be completed on this date, then the trade must be renegotiated.
One of the major foreign markets that Americans trading on Forex will encounter is that of the British. While several other terms relating to the stock market will be similar because of the common language, there are some specific terms that are very different in the British trading vocabulary.
For example, in the United States, stockbrokers who hold onto securities purchased at low prices for the purpose of selling them to clients in a higher priced market are called market-makers. In Britain, this type of investor is simply referred to as a jobber.
Another term you will want to be familiar with is yard. This does not refer to a green patch of land, a measurement in inches, or even 36 of something. The term is used in reference to quantity of currency rather than value and is equivalent to one million units of the currency in question.
In other words, you can have a yard of dollars or a yard of yen, and though it is the same quantity of bills, coins, or whatever physical currency is used, it is not necessarily equivalent in value.
Open & Shut
In the stock market, there are various types of orders that can be placed to help protect you from making a bad investment or to limit the amount you pay for a certain security or other commodity. For instance, if you have made a bad investment and do not want to reinvest in a particular security, you should sell all shares of that stock, regardless of taking on a small loss. This action is referred to as closing a position.
On the contrary, if you are doing well with your investment, you might participate in a rollover, simply reinvesting any earnings in additional shares of the stock or security.
An open order is exactly what it sounds like, meaning that the order remains pending until it is either executed by your stockbroker or canceled by you as the client. A stop order would cancel any pending orders you have placed with your stockbroker.
You also have options like One Cancels the Other Orders. These allow you to have interest in several commodities, leaving orders with your stockbroker to buy all of them, should they drop to a certain price.
Then, should one of those reach this preset low price, your stockbroker will follow your direction and invest your money in that particular security, followed by a cancellation of all additional orders.
When a broker gives you an estimate on the price for a particular stock or commodity, it is considered a quote. A quote is never completely accurate and is usually referred to as a spot price, as the value of a security can change within a few seconds. However, it is as close to accurate as can be expected. When you put in an order, the broker then processes the fill, or completion, of that order. The actual value at which the trade is completed is called the fill price. The completion of a trade or purchase, referred to as a settlement, can also be called the execution of a transaction or realization of an order.
As you see, there are a lot of terms to take into consideration, and we have not even begun to consider terms used in some of the tougher areas of the market.
Expert Trading Options
After spending a lot of time buying and trading on both domestic and foreign markets, you will find that the process becomes easier and almost intuitive. You no longer have to work so hard to determine currency conversion or find the next big explosive commodity. It will be like second nature for you.
What, then, becomes the next big challenge for someone trading on the open market? What keeps things from becoming monotonous and boring? Well, don’t worry, because there is always something new and different happening on the Forex.
There are some commodities that are traded in multiple currencies on multiple markets on Forex. Although computers have made worldwide communication almost lightning fast these days, all of these markets can trade together with fairly equivalent values for the securities shared across currencies.
However, the system is not perfect, and the value may rise or fall in one country and currency prior to the same change in value reaching across another border. Seasoned traders have learned to take advantage of this lag in the market trending by using a process called arbitrage.
In this transaction, you purchase the particular stock or security on the market at the lower price while simultaneously selling the same in a market where the value is higher.
The process can be a bit complex, so let’s do an example. Let’s say that one U.S. dollar is equivalent to .5 British pounds, meaning that everything is going to be twice as expensive in British pounds.
Now, let’s take a look at the price of a stock that is traded on both markets. If they were equivalent, then the stock would trade for $2 dollars in the
United States and one pound in Britain. However, if something happens and the stock value drops in Britain, it is 6 hours ahead of the United States, and this drop may not hit the American market immediately.
If the value of the stock drops in Britain to .8 pounds, the purchase price is now below that of the price in dollars due to the currency conversion.
In this case, arbitrage would take place when you bought shares of the stock in on the British market in pounds and sold it on the U.S. market in dollars, benefiting by the slow communication of the fall in value of the stock. In effect, you will make $.40 per stock.
Volatility of Currency Conversion
Another way to take advantage of the ever-shifting value of each individual currency is to trade based on the changing rates. What exactly does this involve?
When a currency conversion rate changes drastically, it is time to make a move. This is very similar to arbitrage, but the area is much riskier due to high volatility.
For instance, if you have purchased a stock in the scenario above on the U.S. market for $2 dollars a share, and suddenly the British pound gains value, dropping to a conversion of only half a pound for every $2 dollars, you would want to sell your shares on the British market because the value of a pound is higher and now has greater purchasing power.
One piece of advice to keep in mind, though, is that it is best to immediately dispose of all liquid assets in foreign currency, usually in the same day.
Other Trading Options
Besides the expert options described above, there are other nontraditional ways to make money on the stock market. In considering these options, however, you should consider making a career of trading stocks and securities. Some types of trading are simply not for the faint of heart, and that means you must have complete motivation and an adventurous spirit to take part in these areas of the market.
The chances of taking a giant hit and experiencing a big loss are multiplied.
Day traders take on some of the greatest market risk of all. Because day traders work with investments that change drastically within hours, they are by nature playing in the lion’s den. These stocks are extremely volatile, and for most, day trading is a quick way to lose a great deal of money. It is difficult to make a great deal of cash in this manner, and it is even more difficult to forecast the outcome of these day trade stock options.
Day trading is very dangerous and is not recommended to newcomers. Most of the people who partake of this volatile part of the industry are extremely seasoned in trading. If you decide that you want to day trade on the Forex, make sure that you know the risks, you have a good strategy in place, and that you have the time to watch the markets during the trading day.
Secondary markets are interesting in that they are created by the government to help redistribute money that is used for loans. Fannie Mae and Freddie Mac are 2 of the major corporations from which stocks are purchased on a secondary market.
Here is how it works. When a person purchases a home, he or she requests a loan from the bank, usually for about 80% of the cost of the house.
This is granted, and the house is purchased by the bank for the individual or family, who begins to pay off the loan to the bank.
Meanwhile, to assure that money is available at that bank for the next person who needs a mortgage loan, Fannie Mae or Freddie Mac, 2 entities originally established by the United States government, will purchase the loan from the bank. Therefore, the money is returned to the bank for use in the future.
What do these agencies then do with the deficit they have acquired? They sell it. On the secondary market, they break up the loan into shares that are backed by the mortgage itself and sell those shares, recovering the money from investors.
Eventually, those securities mature, probably about the same time that the original loan is paid off to the bank, and the investors reap the benefits of their investment with the interest earned.
Another way to take advantage of a volatile international stock market is to make a swap. This is the exchange of securities or bonds in order to take advantage of lower interest rates.
For example, if a business entity in Britain is in possession of one security, and another in Japan is in possession of a different security, the 2 commodities may be beneficially traded or sold to each other in order to save on the interest rates, if the currently held bond or security is kept at a lower interest rate in the opposing market.
For example, let’s say one business is in possession of a bond A that is paying out only 2% interest in its current market, and another is holding bonds B in its market at 3% interest.
If bond A is actually paying out 3% on the foreign market, and bond B can be cashed in for 4% on the first market, both parties can make more money on a trade of bonds. They can mutually benefit from a sale of the securities to each other due to a gain of more interest.
This is more often processed between businesses on the foreign market rather than individual parties, though with the correct broker, it could be accomplished.
However, should you work the deal, you need know little except that you are looking at a higher profit margin than previously, and your broker will take care of the rest.
If you determine that you should have stock options as a business, you will probably decide to hire a full-time consultant/professional for all your financial needs, including the handling of your share holdings.
The Basic Trade
A share is a holding of a company that varies in value based on the desire or need for that particular company’s goods or services. As a shareholder, your net worth increases and decreases based on taking a short position when values are high and a long position when prices are low.
As long as the stock or security is in your possession, the change in value is considered unrealized gain or loss because you cannot measure it in liquid assets.
When most commodities traded on the market are on a strong upward trend for a period of time, this is referred to as a bull market. Should value take a sharp downward swing and continue on that path, it is called a bear market. If no such trend is recognized, and the value of stocks and securities is fairly even, this is referred to as flat.
The Foreign Exchange Market
The Foreign Exchange Market is the stock exchange on which several different countries across several different time zones trade their domestic and international commodities in various currencies. Currency is the denomination or monetary division used in a particular land.
When multiple currencies are in use, they are typically expressed as a ratio called a cross-rate that shows the amount of a second currency that is equivalent to the first listed. Determining what the equivalent is would be referred to as currency conversion.
Several countries in Europe, which have now consolidated their currencies to agree on the Euro trade on Forex, as it is called for short. Britain, which to this point has opted to continue using the pound sterling, also takes part in international trade, as well as the United States, Japan, and Australia.
Each of these countries utilizes its own currency for standard trading purposes, with options for investment in foreign currencies.
Determining whether or not this is worthwhile depends on the currency conversion rate.
The value of a nation’s currency is determined by its government and the federal reserve bank. Interest rate of conversion by a government is referred to as valuation/devaluation is taking value and strength from the currency, and revaluation adds strength and purchase power to the currency.
If the same change to the rate of conversion occurs naturally through events and the volatility of the market, it is then called appreciation and depreciation.
Careers In The Market
Without the assistance of professionals, it is nearly impossible to trade on the open market. Market analysts track trends in the stock market that affect the value of shareholdings. They use such information and basic history to help predict the outcome of different aspects of the market in the future.
Other individuals create charts and graphs that interpret all the data various numbers, statistics, percentages, etc., into an easy to read candlestick chart that tracks the trends of specific commodities on the market.
A stockbroker is an individual or a company that assists you in making your investments. A broker can aid you in making smart financial decisions, helping you track your and place your orders, and following trends in the market.
A market-maker does the same job as a stockbroker, with the exception that this individual or company retains an investment in a particular variety of securities and bonds that can be sold in short order to a client for a lower price so that the client can make money by immediately selling the same shares at the higher market price.
Other individuals can assist with loans, allowing you to buy on margin. This involves the opposite approach borrowing money to purchase a stock or security that is at a low market value so that the client can later resell the commodity at a higher price.
Protecting Your Investments
There are several ways to protect your investments. By placing limit orders, you guarantee to the best of your ability that you will not lose money on the market and virtually guarantee at least a minimal profit.
However, if you change your mind about those limits, you can always place a stop order. If you leave standing instructions with your stockbroker, these are referred to as open orders that remain such until the transaction is executed, and the order filled.
Try to set your limit orders just above the support and just below the level of resistance. Also, set a value date a date at which time you can take an average of the value of a particular commodity and review your options. This should be reviewed at least every 6 months, if you plan to retain any holdings of a particular security.
There are always ways to turn around when you have begun to walk down the wrong path. Much like moving on to a new car after purchasing a lemon that has been nothing but a nightmare, you can reverse your direction.
“A penny saved might be a penny earned, but a penny multiplied, makes dollars. Dollars multiplied, makes a living. Dollars multiplied effectively, makes you financially independent!” Michael “MJ The Terrible” Johnson – Founder & Owner – Masters of Money, LLC.
Good luck with your trading and investments!
7 Reasons To Consider Trading On The Forex Currency Market – https://www.mastersofmoney.com/7reasonstoconsidertradingontheforexcurrencymarket/
Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.