Introduction to the Forex Market

The foreign exchange market, also known as the FX or Forex market, is the largest and most traded financial market in the world.

The FX market has grown to a daily trade volume of over $5 trillion a day which is over 200 times bigger than the New York Stock Exchange.

Historically, the major players in the FX market were large central banks, multinational firms and big financial institutions.

While these organizations are still the major players in the market, the growth of online brokers and technology has made it possible for individual retail traders to access this market and trade on a level playing field with the big players.

Advantages of Trading Forex

1. Liquidity

The FX market has huge appeal for the retail trader as it is an extremely liquid market. A liquid market means that there are a huge number of buyers and sellers resulting in swift trade execution – both buying and selling – at any time within market hours.

2. Continuous Operation

The FX market is open 24 hours a day, 5 days a week meaning we can open and close trades at any hour of the day unlike other markets e.g. commodities and stocks.The highest volume of trading usually takes place as the various global markets open throughout the day – starting in Sydney, then Tokyo, then London and finishing in New York.

3. Leverage

Due to the high level of liquidity in the FX market most brokers will offer a higher leverage than other markets. We will discuss this in greater depth later. The basic concept is that a trader only requires a small percentage of the overall price of the position. For example, if we had leverage of 200:1 and have $500 to invest, we could take a position of $100,000.

Therefore smaller movements in the price of a currency have greater weight which can lead to greater gains on smaller investments. However, leverage does work both ways and can magnify losses.

4. Low Entry Level

Due to the high level of leverage it is possible to open accounts with FX brokers from as low as $100. This is a much lower entry level than other types of investments.

5. Low Transaction Costs

An FX broker mainly generates their revenue from the difference between the buy and sell prices. This is called the spread and due to the high trading volumes it is quite a small fee when compared to the fees charged by a traditional stock broker for example.

6. No Market Manipulation

It is impossible for one big player to corner or manipulate the FX market due to its size. Unlike other, smaller markets where a large institution may be able to affect the price by placing a big order, the FX market is so big this will not have a major impact. Government decisions, policies and reports, along with other global news stories are the most likely cause for large movements.

Participation in the Forex Market

Many of us will have participated in the FX market before if we have ever travelled to a country that has a different currency to our own. We have all seen the foreign exchange booths where different exchange rates are listed on a digital screen.

As an example, assume we are going on a holiday from the United Kingdom to the US and we see that the exchange rate on offer is 1 Pound for $1.50. This is the equivalent of $1 equalling approximately 67 pence.

We decide to exchange £1,000 for $1,500 dollars.

Now assume we didn’t spend all of our $1,500 dollars and return to the United Kingdom with $500 dollars one week later. The exchange rate has changed and now £1 equals $1 dollar 25 cent. This is the equivalent of $1 dollar equaling 80 pence.

This means that the dollar strengthened against the pound over that period of time. So we exchange our $500 dollars back to sterling at a rate of $1 dollar for 80 pence and get back £400 pound. We get more pounds for our dollars.

By default we have just made a profit in the FX Market.

What is Traded?

A country’s currency is a direct reflection of what the market thinks about the current and future health of its economy. A recessionary, stagnant economy will result in a weak currency, while a surging, growing economy will result in a strong currency. We are therefore speculating on the strength and weaknesses of one economy or country against another.

Major & Minor Currencies

When trading FX, currencies are abbreviated into three letter symbols. For example the euro is the EUR, the US Dollar is the USD, the Japanese Yen is the JPY, the UK pound is the GBP and so on. Currencies are generally split into two categories – the major currencies and the minor currencies.

As you would guess the majors are the currencies of the major global economies – the US, Japan, UK, Euro Zone, Canada, Australia, Switzerland and New Zealand.

A noticeable absentee is the Chinese Yuan as the Chinese government restricts trading of its currency. The majors are by far the most frequently traded currencies and make up around 90% of the FX market.

Minor or exotic currencies are so-called as they are the currencies of less prominent or emerging economies such as the Hong Kong Dollar, Mexican Peso, Swedish Krona, Hungarian Forint and so on. They are traded in smaller quantities when compared to the majors and often the cost of trade is much higher due to their illiquidity.

Introduction To Basic Trading Functions

We mentioned short selling several times in our first article so let’s further discuss the two ways we can trade a financial instrument.

Selling Short:

The term ‘selling-short’ or ‘short-selling’ often confuses many new traders. Short selling allows traders to benefit from a fall in the market value of an instrument. But how can we sell an asset we do not own? We borrow it.

Buying Long:

In traders’ jargon when we want to buy an instrument it is called ‘going long’. Going long is a concept all new traders should be familiar with. We’ve all heard the phrase ‘buy low & sell high’. That is exactly what we are doing. By buying or going long we want that instrument to rise in value. So if we buy 1 share for $5 and we sell it for $6 we have made a profit of $1 – simple.

The easiest way to explain is with an example:

So say Apple stock is currently trading at $500 per share and we believe that the price of Apple stock is likely to decline in the future to say $400 per share. We would like to profit from this fall in value and are willing to short sell 1 share so we can make $100 on this trade if it falls to this level.

Say John owns one share of Apple and is happy to hold on to this share as he is a long-term investor or he believes it will rise in value. We approach John and ask him can we borrow his one share and we will give it back to him at a later date. He agrees.

We instantly sell the share we have taken from John at the current market price of $500. Sure enough, we were right and the price of Apple fell the next week to $400 per share. Now we can buy back the one share of Apple we sold for $500 for the new price of $400. We can give John back his share and we can keep the $100 profit we made.

Now you may be thinking that is a complicated process for a beginner trader. But as we are trading CFDs and futures contracts it is made as simple as possible. We do not have to find someone on the other side of the transaction (i.e. John) to lend us his share. Our broker will arrange that for us hassle-free and all we have to do is click on the SELL button if we believe the instrument will fall in value and alternatively click the BUY button if we believe it will rise in value.

The Trading Platform

Since the rise of the internet the financial markets have become much more accessible for individual, retail traders. We can now use online brokers to open and close trades in these financial instruments using a trading platform provided by our broker.

Brokers have evolved to offer platforms for tablets and apps for smart phones so we can always have access to our trading account wherever we have an internet connection.

Our trading platform will consist of all the live prices of the various instruments we can trade, their relevant charts which show their price movements over time and the ability to buy or sell an instrument with the click of a button. We can also choose the size of the position we would like to buy or sell and set price levels where our positions will automatically open or close.

Demo Accounts

Most brokers will allow us to open a demo or practice trading account before we open a real account. A demo account should have most of the same functions and features as a live account and most importantly have the correct live prices. Becoming familiar with the trading platform is essential so we are comfortable trading on it with a live account.

Cost of Trading – The Spread

The cost of placing a trade with our broker is called the spread. Our broker receives a spread for providing us with the services of their trading platform, software and access to the market.  All instruments will quote two slightly different prices depending on whether we are buying or selling the instrument. When we want to sell an instrument we are offered one price and when we want to buy we are offered another slightly higher price.

This difference between the buy and sell price is the spread. The spread is usually quite a small difference but the cost to us will depend on the size of our position. Larger positions will mean a larger monetary amount. We will discuss spreads again in greater detail but for now all we need to know is that this is the cost of placing a trade.

Starting Capital

Due to the high level of leverage offered on various financial instruments, we do not need a large amount of capital to start trading. Most brokers allow us to open a trading account with as little as $/ €/ £ 100 although most traders will start with a few thousand so they can cope with the volatility in certain markets.

Leverage essentially means that our broker lends us the money to trade larger positions and we only have to put down a small portion of the investment as collateral known as the margin requirement. Leverage allows us to open larger positions by using a relatively small amount of capital (or margin). This means we can make much bigger gains but also bigger losses.

So for example $100 can give us the buying power of $20,000 on an instrument if the leverage offered in 200:1. Various instruments have different levels of leverage depending on the liquidity of the market.

Leverage is an important concept of trading which we will discuss in greater detail in a later article.

Where to start?

To be a successful trader, either on a full-time or part-time basis, it is important that we put the time and effort into educating ourselves.

Continue reading the beginner articles so you understand the basics, watch the beginner video content to understand some beginner technical and fundamental concepts and start practising on your demo trading account.

Understanding how to read charts is essential and having a good grasp of what economic, political and social factors move the instruments we are trading is equally important. These two elements are what are known as technical and fundamental analysis and are both covered in much greater depth in our beginner video section.

So get learning and good luck with your trading.

Introduction to Trading the Financial Markets

If you are new to trading the financial markets your first thought will be “Where do I start?”, many new traders may be overwhelmed when they open their demo trading account for the first time and might try to run before they can walk. Understanding the basics of trading is an essential starting point and in this the two part article we will cover the key characteristics of trading, the various financial instruments we can trade, the concept of going long and going short, trading platforms, starting capital and what it takes to succeed.

What is the Difference Between Investing & Trading?

Investing and trading are two different ways that we can profit from the financial markets. Many people new to the world of finance can be confused over what is the difference between the two. Here we will describe what we mean for each.

Investing

The aim of an investor is to gradually build up their net worth by buying and holding a portfolio of stocks, bonds, mutual funds or other investable instruments.

Investments are often held for years or even decades. Investors take advantage of certain perks such as dividend payments, coupon payments and/or interest during this time. When the markets fall in value, many investors will hold on to their investment in the expectation that the price will rebound. Investors are therefore looking at the long-term value of their investment and aren’t too concerned with the day to day volatility in the market.

Investors take physical ownership of the instruments they have purchased. So for example, if an investor buys shares in a company they will physically own a portion of that company and will receive a certificate of ownership. A shareholder can carry certain privileges such as voting rights on certain corporate actions, as well as benefit from dividend payments on the profits..

Trading

Trading, on the other hand, is the more frequent buying and selling of financial instruments with the aim of outperforming buy-and-hold investments. There is no ownership of the underlying asset so traders are merely speculating on the price movement.

Traders can therefore profit from falling markets as well as rising ones. A trader can buy an asset just like an investor but traders also have the ability to sell an instrument without owning it. This is known as short selling and is why many people are particularly attracted to trading. It is a key concept to understand and is a major reason why traders can outperform buy-and-hold investors. (We will discuss buying and selling in greater detail later.)

While investors are often satisfied with annual returns of up to 15% depending on the risk element of the investment, some traders seek to make returns that are a multiple of this, as they can benefit from the dips in the market as well as the increases because of the ability to short sell.

The length of time a trader has a position open for can range from seconds to years. This timeframe is entirely up to them and relates to their objectives, account size, risk profile and time they can commit to trading. Trading requires a more hands on approach than investing and regular assessment of market conditions is essential when traders have open positions.

What Can We Trade?

A financial instrument is a tradable asset of any kind i.e. it is an asset we can buy or sell at a monetary value on a financial market.

Examples of financial instruments include currency pairs (i.e. the foreign exchange/FX market), commodities, stock indicesand the stock of companies (also known as individual equities). As we do not take ownership of these assets when we are trading we are actually speculating on the price of futures contracts for FX instruments and Contracts for Difference (CFDs) for shares, commodities and stock indices. The price of these contracts is directly related to the price of the underlying instrument. So any movement in price of the physical asset will see a similar move in the price of the contract.

The reason we trade futures contracts and CFDs is mainly due to the ease at which they can be traded and their cost-effective nature. For example if we physically owned a share in a company we may be liable for additional costs such as stamp duty in certain countries. There is no such cost with futures contracts and CFDs (We will discuss the costs associated with them later). CFDs can also be sold short. This is something that other types of instruments are prohibited from doing.

Day Trading Strategies

When you day trade, you buy and sell stocks, commodities or currencies within the same trading day. This means that when you’re day trading, you’re attempting to make profit by leveraging large amounts of capital. This way, you have the ability to maximise and take advantage of small price movements.

However, because you’re using leverage, day trading can be dangerous, so you need a number of day trading tips to help. The best day trading tip is to use thorough and well thought out day trading strategies.

Day trading strategies can help you navigate your way through the trading markets, allowing you to come up with a plan for when you face certain trading scenarios.

What is a Day Trading Strategy?

A day trading strategy outlines a specification for your trades, including rules for trade entries and exits.

If you properly research your day trading strategy, then it can provide you with a mathematical explanation for the specified rules, which will provide you with an indication about whether your potential trade has the ability to be profitable.

Why Do I Need a Day Trading Strategy?

Day trading techniques allow you to set rules for your trades to prevent you from making emotional decisions. By extracting emotion from the trading equation, you’re more likely to make a better informed decision, leading to more successful trades.

Plus, by sticking to your strategy, you’ll be able to tweak and refine it based on your personal trading experience, creating something that works perfectly for you.

The best way to do this is to also keep a trading journal, documenting your trades, profits and losses. This way, you’ll have a complete record of what happened and when, so you can work out why.

How Do I Create Day Trading Techniques?

In establishing a day trading strategy, you create rules that designate conditions that must be met for trade entries and exits to occur. As such, your trading strategies should be very specific, including specifications for:

  • Trade entries
  • Trade filters and triggers
  • Rules for trade exits
  • Money management
  • Timeframes
  • Order types

This means that your day trading strategy must be based on quantifiable specifications. By doing this, you’ll be able to analyse historical data and trends to predict future performance of the strategy and assess whether it will work for your trades.

 

Follow these day trading tips and you can help limit the level of risk that you’re exposed to.

 

How to Day Trade

Day trading is a very popular type of trading. It can occur in any marketplace but is most commonly used in the forex markets and the stock markets. Here, we take a look at what day trading is, how to day trade and how to become a day trader.

What is Day Trading?

Day trading is defined as the process of both buying and selling an individual security in a single day. The position is never held overnight.

Because the position is only held for a short period of time, day traders traditionally use high amounts of leverage and short-term trading strategies. This means that day traders have the ability to capitalise on even the smallest price movements.

How to be a Day Trader

We’re often asked how to become a day trader. The answer is relatively simple. To be a successful day trader, you have to have certain characteristics. These include:

  • Knowledge and experience of the marketplace
  • Large amounts of working capital
  • A set trading strategy
  • High amounts of self-discipline

If you’re sat wondering how to be a day trader, then the onus really is on you to learn. Knowledge and experience are two things that you cannot day trade without, so you really need to brush up on your skillset before you take the plunge into trading.

What Do I Need to Become a Day Trader?

You can become a day trader from home. After increasing your knowledge and creating a strategy, you’ll need to open an account here at Sharp Trader. First make the most of a demo account to hone your day trading skills and once you feel confident enough you can begin trading for real.

Trading tools such as an economic calendar and calculators are essential for day traders. These can help you plan and adapt your strategy throughout the day. Together, these tools will help give you the edge over other day traders and the rest of the marketplace.

If you’re interested in becoming a day trader, ensure that you read carefully and expand your knowledge base. By learning the tricks of the trade and ensuring that you have all the software you require, you stand the highest chance of bypassing risk and maximising your profits.

Litecoin – Open source P2P digital currency

Litecoin was launched as a fork of Bitcoin source code by Charlie Lee in 2011, using different transaction processing settings (block generation speed) and a different cryptography algorithm (scrypt vs. SHA-256). Similarly to Bitcoin, its supply is limited by design.

Litecoin’s trading ticker is LTC.

Why CFDs make sense for Trading Litecoin:

  • Security – You don’t have to worry about your Litecoins being stolen. CFDs are a derivative product. Your potential profits are based on the movement of the Litecoin price but no Litecoins are bought or sold in your name.
  • Simplicity – Buying digital currencies directly can be complicated. With AvaTrade CFD trading it’s as easy as selecting Litecoin from a menu and clicking to sell or buy. It’s so simple you can do it on your mobile or tablet too.
  • Get leverage of up to 10:1 – As a financial derivative you can trade CFDs on leverage, meaning you can open a larger position in the market.
  • Diversify – As one of the world’s leading CFD brokers AvaTrade offers a wide range of CFD products for you to trade, all from a single platform.

Litecoin – Silver to Bitcoin’s Gold

Litecoin is a peer-to-peer, decentralised digital currency (also known as a cryptocurrency) based on the Bitcoin system. The creators of Litecoin sought to adapt the Bitcoin model to develop a more stable and efficient currency.

There are several key differences between Bitcoin and Litecoin, including the way coins are “mined”, security procedures, and the total number of coins destined to be produced.
In 2013 Litecoin’s value rocketed from less than $0.01 to more than $20. Could Litecoin follow Bitcoin’s lead and keep on rising in value?

How does Dash Cryptocurrency work..?

Dash is a cryptocurrency network built as a decentralized autonomous organization. Originally launched in 2014 as XCoin by Evan Duffield, it became known as Dash in 2015. It uses Bitcoin-like code at its core but adds other features. The most important of them is PrivateSend, which enables anonymous transactions. Like Bitcoin, Dash is designed to have limited supply (deflationary model).

Unlike most cryptocurrencies, the trading symbol for Dash uses four letters: DASH.

What is Dash

Dash is considered the next generation digital currency. Traded and transferred by an open source platform, from peer to peer, it reduces the need for people being totally dependent on banks to transfer funds. Transfers are controlled and authenticated by a distributed network. It has the same features as Bitcoin with a few additional features such as instant transactions, enhanced private transactions, and a decentralized governance system.

Dash is currently the 7th biggest digital currency on the market, and has been accepted on the App store. This proves that the demand and ranking of the currency is growing. A major factor impacting the price rise is the supply and demand of the coins available for use.
With Bitcoin priced at a very expensive rate, people are looking at Dash as an alternative option with potential growth rate.

Why do People Choose Dash?

1. Dash keeps a person’s transactions and balances very private with its enhanced security measures.
2. Dash has an innovative technology which gives users the ability to send money instantly and irreversible within four seconds
3. Its global, anyone can send money anywhere for the same fees and with the same speed, there are no variation
4. Its inexpensive to use, most transactions cost only a few cents which is much cheaper than other services
Dash is the first digital currency to have a 2-level network. The first level is made of miners who write transactions to the blockchain, and the second level are masternodes. These are servers that allow the privacy features and instant transactions. In the future, they will most likely be able to offer features unique to Dash which can keep them in a unique category of their own by providing things other digital currencies cannot.

Effects of the Dash Price

The Dash coin price has been rising in early 2017 lately and part of the reason is the plan to upgrade the user experience. More investments with the programme could potentially drive the price higher. Dash is not accepted by many retailers yet, but a good number of independent businesses do accept it.

About Dash

  • The middle man in the Dash network is the masternodes. A masternode is a miner that purchased 1000+ or more Dash.
  • The Dash blockchain is public like all other blockchains in digital currencies. A person can send small denominations to various masternodes and they will respond and send you different coins. This way the trace is lost.
  • The main feature which is attracting people to Dash is known as the “Darksend System”: This makes transactions untraceable. No account is required, no registration and no identity checking. For anonymity purposes, this is better than Bitcoin and makes Dash the most privacy-conscious cryptocurrency available.

Moving forward, Dash developers hope to announce new features and increasing circulation. Dash’s unique capabilities seem to pushing it towards a leading position in the market, which could make for a profound trading option.

Ripple – The Ultimate Beginner’s Guide

Ripple is quite different from conventional cryptocurrencies. It is a payment protocol built on top of a distributed ledger. Ripple was launched in 2012 by the Ripple company. Even though the protocol is open-source, ripples (the currency used in the Ripple network) have all been premined by the developer company and cannot be mined by the network participants. However, it is not very important if you only plan trading ripples speculatively.

The common symbol for ripple units on exchanges and brokers is XRP.

What is Ripple

Ripple Cryptocurrency is an open payment system in beta. Its goal is to allow people to break free from the financial institutions like the banks, credit card and other networks that enforce fees and delays. As per market size and capital, Ripple is the third-largest cryptocurrency, sitting just behind Bitcoin and Ethereum.
Ripple now has billions of dollars’ worth of cryptocurrency on account. It was built as a digital payments network for real-time financial transactions, and is also the core owner of Ripple XRP, the digital coin which increased 40 times in 2017 alone.
To avoid confusion, the network is referred to as Ripple, and the ripple coin as XPR – Ripples. The frequency of releasing new coins into the system influences the price and rate. In total, there are 100 billion XRP that exist, and Ripple owns approximately 60 percent of the XRP. If you take all this valuation into account, it would be worth more than several US tech startups put together. XRP is majority owned and tied to a single company.
Ripple is constantly investing in its network and growing partnerships with global firms and financial institutions. Some of the banks that have signed on to use Ripple include BBVA, SEB, Start One Credit Union, and Cambridge Global Payments. As the market and network continue to grow, Ripple’s value has potential to further increase.

Ripple Model

Based on the Ripple website, their concept is a “basic infrastructure technology”.

The idea of Ripple was developed in 2004 by Ryan Fugger from Vancouver, Canada. During the following ten years, the digital was being developed until finally in 2014 various large banks started using Ripple and the payment networks. The Ripple system, for them, has advantages like the distributed legers, price and security. They offer this alternative to “remittance “or a “settlement system” option.

The company behind Ripple is “OpenCoin”. There are two separate entities that make up the Ripple; There is the payment network and the actual currency on the payment network. Building on the decentralised digital system, Ripple’s main idea is to work with different payment systems worldwide.

Ripple allows businesses to perform transactions within 3-5 seconds. The payments are processed and received automatically, and are irreversible. Various financial institutions worldwide have established partnerships and started using the Ripple system.

In many ways, Bitcoin and Ripple are similar. Like Bitcoin, the Ripple coin has a limited number of units that can be mined. Both can be transferred from peer to peer, and both have digital security keys to prevent face transactions of coins. Payment information on the ledger is private, however transaction information is public.
Ripple insists that they provide faster transaction times than Bitcoin, because confirmations of transactions can go through their network very quickly. There is no waiting on block confirmation, and transactions go through the network very fast.

The Differences Between Bitcoin and Ripple

Similarities:

  • Both are open source – not owned by any one company or any individual
  • Transactions for both can be anonymous and free on the internet

Differences:

  • Ripple is faster in processing transactions and more energy efficient than Bitcoin
  • Ripple is a decentralised transaction network which has a digital currency, Bitcoin is a decentralised digital currency
  • There is a set number of Bitcoins which is still slowly increasing
  • There is a defined number of XPR (Ripples) of 100 billion

Main difference: 
Bitcoin wants to change what we are paying with; Ripple wants to change how we are paying.