Tuesday, April 28, 2015
What You Need to Know About Short Selling
With every market drop you will hear lots of words like short selling, going short or shorting. And many times you can also hear the experts blame short-selling for the drop. This article is a brief description about shorting, ways for that and its effects on different markets.
The best explanation one can give to shorting is that it is opposite of going long. When you go long you buy a financial instrument, can be stock, futures, Forex currencies, EFTs, mutual funds, etc, hold it for a period then sell it. If the selling price is higher than that you bought, then you made a profit; and if it dropped against the buying price then you suffered a loss. Now going short is the opposite process; you first sell the instrument, wait for a time period and buy back the instrument. If the instrument price drops when you buy back then you profit and if it rises against selling price you loss. But there is a problem, how can you sell an instrument if you don't have it? The answer is short sellers first have to borrow the instrument from others, usually from a broker. This borrowing process can be costly as it usually includes a margin charged by the broker.
As said early, experts are not much favorable to short trading. Many markets and countries have strict regulations on short selling. Many believe that excess shorting can create a negative confidence in the market. The opinion is that when there are many traders hoping for a price drop then the overall market sentiment can drive the price down. And if there is a market crisis, then shorting can add to that crisis and can trigger an even bigger crisis. Regulators of US and most European markets have placed restrictions on naked short selling - selling without actually borrowing the stock within the set timeframe.
Shorting can cause vastly different impacts on contract markets. In trading of contracts like futures, options and currency pairs, usually you don't find any restrictions. In futures market short selling means your obligation to deliver a commodity at the expiration date of contract; and in options market it means your right not obligation to sell the underlying instrument at a fixed price. In currency trading, the scenario is a whole lot different. There you don't find any short selling restrictions of any kind. This is because there is actually no real shorting as in stock trading. In a long Forex trade you buy the first currency of a pair using second currency and in short Forex trade you just buy the second currency using first currency; in any way you are buying (going long).
Apart from just profiting from expected price drops, short selling is widely used as hedging and arbitrage tools. Some traders can use it as an 'against the box' tool to lock the profit they already made in a long-position, which they want to hold continue.
Tuesday, March 24, 2015
Gold and Currency Relationship
Gold is one of the most widely discussed metals due to its prominent role in both the investment and consumer world. Gold was also used as the world reserve currency up through most of the 20th century. Even though gold is no longer used as a primary form of currency in developed nations, it continues to have a strong impact on the value of those currencies. Moreover, there is a strong correlation between its value and the strength of currencies trading on foreign exchanges.
Financial markets price movement prediction is basis of successful trading. And Experienced traders know, that trading the currency market requires not only knowledge of the forex area. Currency price movement depends not only on macroeconomic developments and other economic news, but also from other financial instruments movement.Trader, knowing that the currency with which the market is concerned, can predict some of the forex market movements before they happen.
It is undeniably true that the price of gold is related to the value of the currency, so it is essential to understand how this association has come about and exactly how the currency influences the commodities markets if you are considering making an investment in gold. Understanding how the relationship between the currency and the price of gold works can help you to make the most advantageous investment decisions.
The traditional logic here is that during times of economic unrest, investors tend to dump the greenback in favor of gold.Unlike other assets, gold maintains its intrinsic value or rather, its natural shine.Investors generally buy gold as a way of diversifying risk. The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. Gold price has shown a long term correlation with the price of crude oil. This suggests a reason why gold is sold off during economic weakness.
Gold prices are often used to measure the value of a local currency, but there are exceptions. Many people mistakenly use gold as a definitive proxy for valuing a country's currency. Although there is undoubtedly a relationship between gold prices and the value of a fiat currency, it is not always an inverse relationship as many people assume.
if there is high demand from an industry that requires gold for production, this will cause gold prices to rise. But this will say nothing about the local currency, which may very well be highly valued at the same time. Thus, while the price of gold can often be used as a reflection of the value of the U.S. dollar, conditions need to be analyzed to determine if an inverse relationship is indeed appropriate.
Tuesday, February 24, 2015
A Successful Forex Trader
Most people who are dealing with Forex trading have lack of knowledge and experience
about the processes and procedures related to currency trading. The lack of
experiences force them will often ultimately open another live account, and
experience a little more success. In most cases, the trading will be end as not
profitable for them.
To become a successful Forex trader is not a easy job
compare to those other professions. The expert has to acquire an adequate
knowledge regarding the currency trading. Now a days, the currency
trading is not a difficult task for new comers as there are structured, formal
training available for all levels from beginners to expert Forex traders,
unless you start your carrier by working for a professional institution like a
foreign exchange bank, which is not an option for most retail Forex traders.
The Forex industry has established this as a custom for what
is needed to get on with your trading and they market it as being sufficient to
acquire success. There's nothing exceptionally risky or hard about the forex market in comparison to any other trade
market; currencies usually don't go to zero, and the unleveraged account is
actually in no danger at all of being wiped out under normal conditions.
Currencies are the basic structure of all kinds of economic activity; big
profits are possible in the forex market.
Labels: currency trading, Forex Trader dubai, Successful Forex Trader
Thursday, January 15, 2015
A Forex Trader Enjoys Advantages Only
Thanks for the lack of centralized exchanges and regulatory bodies, forex traders definitely enjoys much more freedom in trading than stock, options, futures and fund traders. Most of these privileges are only available in the world forex market. Some of the most important advantages are given below.
- There is no difference in going short or long. Every trade is shorting a currency and going long on another. Hence no uptick or similar rules are applicable.
- Traders can adopt any style they prefer; can practice any strategy on minute, hourly or weekly charts.
- Customizable leverage options allow traders to trade both aggressive and conservative based on their trading strategy, market performance and trading goal.
- Automated margin calls lock the loss to the money you put in.
- There are no trading commissions hence the loss or gain of every trade can be accounted as traders profit or loss. Also when trading high interest rate difference currencies, traders can receive interest on daily basis.
- The market stays very liquid round the clock. And there is a great information flow; traders can enjoy real-time news, charts, research and analysis usually for free.
Labels: forex, forex advantage, forex advantages, forex benefit, forex broker, forex dubai, forex trader, forex trading, forex uae, trader advantages
Thursday, October 16, 2014
How Volatility Affect Investment Returns?
Volatility is one of the most noticeable characteristic of any financial market. Actually, volatility is one of the main factors which determine the profitability and popularity of an instrument or a market. It is defined as the deviation or dispersion of the price of a product or value of an index from the mean value. Volatility is usually measured using standard deviation. The value changes of the instrument or index is grouped and plotted using moving average. The standard deviation is small when there is low volatility and is large when there is high volatility.
Intraday price volatility affect short term traders and scalpers and long-term price volatility affects position traders and investors. Researches shows that volatility affects market performance. Generally, in rising markets have relatively low volatility and declining markets have higher volatility. Volatility is also directly proportional to risk. The overall return from the market also declines when the market is volatile.
The fact that price volatility is influenced by lot of factors in addition to the supply-demand. Some common factors include interest rate changes, oil price changes, inflation trends, industry or company or market performance reports, and economic policy changes.
This blog is published for Orient Financial Brokerage Services
, the leading UAE based online forex, CFD, Gold and Commodity broker with a range of investment account features
for middle-east traders.
Labels: Commodity trading, financial market, forex trading, investment return, market return, price volatility, stock trading, trading volatility, volatile market, volatility