Archive for the ‘Trading’ Category

Metal trading

Wednesday, January 25th, 2012

Forex is the international currency market. However, besides currencies there are other financial instruments traded on Forex. They are metals: gold, silver, platinum, etc.

The international market includes different types of metal operations: spot, swap, and forward deals, operations with derivatives (futures, options). If we are talking about Forex, we mean spot market as assets are not delivered to the purchaser. Metal trading is conducted using trading or web platform, so it does not differ from trading other financial instruments. Prices on the spot market depend on demand and supply, and buyer possesses proprietary rights as soon as he buys an asset.

goldsilverPrecious metals have dual character: they are both valuable industrial commodity and reliable investment instrument. Precious metals are considered by private and institutional investors to be instrument of speculation, hedging, and risk diversification.

The largest centers of metal trading are London, New York, and Zurich. The gold price is daily influenced by the fixing – estimation of equilibrium price based on the current demand and supply.

Compared to currencies, metals are also traded 24 hours a day, but one of the symbols in the pair is precious metal. Here are examples: XAU/USD for the gold/US dollar pair, XAG/USD for the silver/US dollar pair. Traditionally metal prices are quoted in the US dollars for troy ounce (31.1035 gram) and traded in lots. If the rate rises, it means that an ounce becomes more expensive and costs more US dollars. If the rate falls, the metal becomes cheaper against the US dollar.

The first place by trading volume is taken by gold. It is the safe haven for investors to wait out an economic turmoil.

The second place is taken by silver. It is cheaper but it can save its value. Sometimes silver price grows faster than the gold one.

As metal trading technique has small difference from the currency one, it does not require separate strategy. Methods of fundamental analysis and various technical indicators can be applied to metal trading. However, price of any financial instrument has its own dynamics. Precious metal market also has its ups and downs: metal prices are interrelated with the economical and political factors as well as the major currency rates. For example, Eurozone debt crisis has influenced the gold price: the precious metal price declined amid the euro rate plunge down. The gold price and the US dollar prices have invert correlation: growing concerns about the reserve currency force the gold price to rise, and when the US dollar strengthens, the gold price moves down. High volatility on the currency market can cause sharp movements on the metal market.

Nevertheless, investments in the precious metals are rather safe. During the crisis investors often choose gold or silver to keep their money safe.

Added by Svetlana Degtyareva,
InstaForex Clients’ relationship manager

Is teamwork possible on Forex?

Saturday, January 14th, 2012

Speaking about Forex trading efficiency, people often mention teamwork. Who is more efficient on Forex: individual trader or a team of traders working in a synch? Traditionally, every private investor is for himself on Forex. However, teamwork may vary a bit, being formal or informal. Traders have not agreed on teamwork efficiency though. Some say that a team is totally unsuitable on Forex while others find good reasons in defense of a collective mind. We will consider pros and cons as well.

Physiological aspects of team and individual trading are considered as the most controversial issues. Trading alone, you are alone responsible for your decisions which you do not need to coordinate with other traders. You spend on market analysis as much time as you deem necessary to make a trade. Still a possibility that you make a wrong decision is high. A man has limited capabilities, and provided that you are not enough skilled, a risk to lose is much higher.

komandaIn a team, responsibility is shared by its members both psychologically and econominally. A team collectively discusses a problem and elaborates a decision that will satisfy all its members. It does not annul risks though. Collective decisions may be even more risky than individual. It is again associated with psychology of teamwork: a team may overestimate the value of a profitable trade and underestimate the risk of losing. Working as a team, people normally tend towards positive risks. Moreover, members may confide decision-making in their experienced co-member or leader thus decreasing efficiency of collective work.

Fortunately, a team may incorporate different people with different skills who can provide together a comprehensive evaluation of challenges. In addition, a total capital of a team is generally more that a capital of an individual trader.

A sort of hierarchy is recommended even for informal teams. Members should share coordinated purposes rather than seek personal profits. The main challenge is time which is required more to make a collective decision, especially when members disagree. But a team may have a formal or informal leader with a decisive vote. Team members can also set certain limits and divide scope of activity.

There is no categorical answer on whether it is better to trade on Forex alone or in a team. Nevertheless, most traders agree that if you work in a team, you should better make sure that your team consists of professions only who know their business and can follow rules.

Added by Kristina Leshkevich,
InstaForex Clients’ relationship manager


How to keep a trading journal?

Tuesday, January 10th, 2012

Is there any sense in recording your observations and conclusions? This question is answered affirmatively by many traders. They believe that keeping a trading journal contributes to self-discipline and helps to systematize the experience gained.

Apart from a traditionally used journal, there are other ways to record your observations. It is a well-known fact that people are divided into auditory learners, visual learners and kinesthetic learners (also known as “tactile learners”) on the basis of the prevalent cognitive channel.
Auditory learners perceive information through listening. They tend to utter their thoughts and conclusions. Music means much for these people; it sets their mood and emotional state. People of this type are even likely to use a dictation machine to record and reproduce their thoughts.

Pictures and images dominate the mind of visual learners. Visual materials are crucial for cognition of these people. That is why charts, schemes and figures are the most powerful perception tools for them. In this context the Mind Mapping method introduced by British scientist Tony Buzan appears to be effective. The essence of this method is establishing associative relationships among concepts and visualizing these relationships. According to T.Buzan, associative thought processes are the most efficient in learning and memorizing, as our mind stores information in the form of associative maps. Mapping is based on employing graphical representations, colours, three-dimensional images, letters etc. A cognitive map is supposed to be a consistent hierarchy of concepts. An example of a mind map is represented below. It hardly reflects peculiarities of your trading system, yet it might facilitate the process of knowledge systematization. The mind mapping technique is applicable in numerous spheres of life indeed.

mind_mapping

As for kinesthetic learners, they rely rather on their feelings, emotions and tactile sensations. They need more time for pondering and making a decision. Kinesthetic learners attach great significance to atmosphere and comfortable overall environment.

Try choosing a way of keeping a trading journal or data memorizing proceeding from your own personality type.

What are techniques of other traders? Many have a special notebook to record parameters of each particular trade, describe a trading strategy, including indicators employed and signals considered. In such a notebook you can also explain why a decision to open or close a trade was made. Later these records will be helpful for you to revise and correct your strategy. If you are a short-term trader, you can draw conclusions at the end of each day. Such a notebook allows fixing effective strategies, capital management methods, principles of indicators functioning and useful recommendations. It is also worth taking notes while testing new strategies and software products.
Some make screenshots with comments and store them in folders bearing certain dates. Many traders employ Excel for necessary calculations. Others prefer blogging in the Internet.
A journal of any format is especially important to keep at first stages of work so that you could systematize information, analyze your mistakes and trade sticking to the scheme elaborated. If you plan to trade on several accounts or with several brokers, you certainly need to keep records to avoid confusion. One can have on mind just a few ideas at once, since the human brain capacity is not unlimited. We tend to forget information, so well-structured and logically consistent records appear to be useful for recalling something important and putting thoughts in order.
As you can see, there are numerous ways of record keeping. It is up to you whether keeping a journal is helpful on Forex.

Added by Anna Shubina ,
InstaForex Clients’ relationship manage

Interventions in the Foreign Exchange Market

Monday, December 26th, 2011

After the gold standard was cancelled, the world economy switched to the floating exchange rates. Since then every currency price is the result of the free interaction between its demand and supply. The demand for the currency is formed under the influence of such factors as the necessity for goods import, investment attractiveness of the country, currency reliability, etc. The supply is determined by the national export volume, loans, etc. intervencia

However, it does not mean that there are no exchange rate regulation measures. Each country government is interested in maintaining their currency price on the acceptable level (to avoid the negative influence on the national economy). Previously IMF watched over exchange rate policy of counties in order to maintain the economy stability and consider common interests. Now this supervision has become less strict, so, when carrying out any intervention, counties should follow only several principles developed by IMF.

Currency intervention is a strong instrument of central banks. It is interference in operations on the exchange market in order to influence national currency exchange rate. It is usually a result of currency selling or purchasing. There are also coordinated interventions when banks are operating together.

Reasons and consequences of intervention can be absolutely different. Currencies are traded in pairs, so everything is interconnected on the market. When some currency appreciably loses or strengthens its position it influences other currencies. Sometimes sudden movements happen on the market because of some circumstances. In that case carrying out gradual adjustment is impossible and banks must give quick response to the market circumstances by making currency intervention.

Traders should take in account such events because interventions can contribute both to the investment capital growth and reduction. If there is a probability of intervention skilful traders can be ready for profitable positions opening and taking considerable profit.

When waiting for an intervention, sometimes it is necessary to act against the trend, and it is always a risk. That is why it is better to use a low leverage, put stops and remember capital management rules.

Very often interventions are sudden or hidden. Not always central banks divulge information about interference in Forex, sometimes such information is delayed. However, a trader has several instruments which help forecast intervention probability. The fundamental analysis and news tracking are necessary to be aware of the world economy events. Secondly, often international leaders hint at intervention possibility, so it is very useful to pay attention to their declarations. Thirdly, read analytical reviews and forecasts of professional analysts who represent large banks and companies. Finally, experts note that often banks vary out interventions when the price reaches the level of the previous intervention.

By the way, intervention can be carried out to curb or strengthen the trend. Interventions against the trend are not always successful because sometimes even banks cannot resist the market.

Added by Daniel Shchagin,

InstaForex Clients’ relationship manager

Money management for beginners

Tuesday, December 20th, 2011

Volumes of Forex trading exceed 4 trillion dollars a day. Forex brokers can help to invest in foreign exchange market almost anyone willing to obtain benefits. Hot-eyed and hot-blooded beginners often rush into trading in an eager for a desirable piece of cake. The purpose is quite understandable, though difficult to reach if you are unaware of basic rules. These rules are related to the art of money management.

You will increase your chances for successful trading by using well-checked trading algorithms, calculating possible results and trying not only enrich but also save your money. For a couple of loss-making trades may deprive you of the whole deposit, a size of losses is often more important than of profits. Beginning traders often watch their expected profits turning to substantial losses. The reason is that they cannot get to close positions ahead of a good deal of money. If they use a margin, they face even worse disaster. Self-confidence and market’s favour are questionable training wheels. It is better to aim at small but constant profits and work out a strategy and follow it.

You will definitely need some time to elaborate a strategy. Who says it would be an easy score? Start with demo and then try a cent account. Go to a classic live account after that. I would not recommend you to begin with a margin for any misfortune may deprive you of the whole deposit. money

Trading with fixed volume is an easy way to manage your money. Set a fixed limit (e.g. 0.5 or 1 lot) and trade within it. Do not open numerous positions at a time. Even if this strategy will not give you extra profits, you will save most of your money and get a foot in the door to solid profits. Always analyze results: make some calculations, monitor charts and study the market. Find mistakes and try to fix them. If the results are positive, you may increase the volume of trade and use a minimum margin.

Another method of money management is to choose a part of deposit you are ready to risk. For example, 5 per cent for a trade. An advantage is that you will have the same risk portion for all trades. By increasing your deposit, you will be able to raise a volume of trades and reinvest the money including profits. However, it is not recommended to invest more than a half of your deposit.

Contrary to self-confidence, self-discipline is essential for Forex trading. You should know exactly where to enter and exit the market. Set up stop loss levels and move them if the market favours you. Close positions if you got the profits you expected. Close positions if your losses reached the limit. Control your emotions. If you failed and suffered from stress, take a time out and have a rest for a few days.

Later you will know how to diversify risks and elaborate the most appropriate trading and money management strategy.

Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department