Trading forex wiki

Trading - a book on how to learn the art of buying and selling stocks, bonds, currencies, futures, options, etc. Trading is the speculative purchase and sale of financial instruments stocks, bonds, futures contracts, options, currencies, etc. Trading strategies are speculative. The systematic search for profit through speculative activities is contrary to religious morality. For example, an investor may believe that IBM is a good company.

The investor purchases ownership shares stock in IBM, expecting that over the course of time the company will be profitable and the stock will appreciate in value, as well as pay dividends.

Once the investor purchases the shares, he or she usually will hold on to the investment called "buy and hold" until either there is a need to cash out the investment, or there is reason to believe that the long term prospects of the company will be changing for the worse.

Throughout the course of time, IBM stock may fall below what the investor paid for it, either due to general market forces or poor earnings reports. However, the investor is not interested in these relatively short movements, expecting that as time passes the investment will be realized at a profit. Most people who own mutual funds through retirement accounts are investors, their money is invested for the long term in a pooled fund of stocks.

A trader on the other hand will be searching for stocks that will be exhibiting significant movement, either up or down, in a relatively short period of time. The trader is not interested in what will happen to a given stock in 10 years or even in 1 year as is often the case, and they are rarely if ever interested in dividends.

The trader wants to ride the change in price quickly, then sell the instrument and move on in search of other opportunities. The trader then finds another opportunity when IBM stock will be moving, and will "enter" the stock once more. This is known as "going short". Trading, when successfully executed, takes advantage of small price moves up and down and enables more effective compounding of money.

Profits earned from successful trades can be reinvested and used to create even larger trading profits, while investors have committed their capital for a long period of time and cannot use it to create additional profits. From a moral-religious point of view only investment on the long term run is in compliance with religious rules.

Trading has been often likened to gambling since the trader, like the gambler, is speculating on an uncertain outcome with the intent of profiting. While this is true, a significant difference between trading and gambling lies in the concept of "edge". Most gambling games give a clear edge to the casino, without which the casino would not be able to sustain a business.

A winner at a casino is usually not able to sustain their winning streak for long, the house will eventually win after a certain amount of games simply because the odds favor the house. A trader, on the other hand, faces a relatively even playing field a zero sum game.

With proper strategy and money management, a trader can maintain an edge which will give him or her an opportunity to profit from the financial markets. As traders aim to make money from their activities, trading can legitimately be classified as a business. There are several categories of professional traders:. Retail trading is a particularly popular form of trading which many aspire to. One reason for its appeal is the potential for complete independence.

Retail traders work for themselves and have no boss or customers to be responsible in front of. So long as the brokerage the equivalent of a supplier in business parlance is operating smoothly and the tax authorities are paid promptly, the trader has no need for any other human interaction and can work in total solitude.

The retail trader can work from anywhere in the world where there is a reliable internet connection. With certain markets i. Another point of attraction, possibly the greatest one, is the hope that a trader can compound their money through time and create wealth for themselves.

A disadvantage of retail trading is that the trader must rely entirely on their capital and skills for survival, since there is no institution to provide them with a base salary, a support team, and health insurance. Many retail traders in the United States find that they need at least a five figure account US dollars if they want to have the ability to live off their trading profits, some advise six.

Traders who cannot do this are forced to trade part time, unless they have a secondary source of income i. Retail traders often do not have the same access that institutional traders have to certain market information i. Bloomberg and Reuters terminals, which are too costly for most retail tradersas well as "street talk", though the latter is viewed negatively by a number of successful retail traders.

One more issue the retail trader has to deal with is that it is often difficult to rely on a fixed amount of income from trading. As market conditions fluctuate, markets can offer many or few opportunities to profit.

The trader's own personal confidence level is another variable that can affect trading results, much in the way a change in an athlete's physical or psychological condition can affect their performance. The reasons for this have never been accurately pinpointed in any statistical study, however most successful traders generally agree that it is usually due to a lack of a professional attitude, weak commitment, indiscipline i.

It has often been argued that brokerages and purveyors of prepackaged trading systems frequently portray trading as an easy "get rich at home" activity which does not require much study, discipline, or work, which often attracts the wrong people to trading. The common goal of professional traders is to be consistently profitable over a variety of market conditions. There is a tendency for some traders to aim towards becoming "big" traders putting on very large positions and taking on a lot of risk in hopes of making large returnsbut this can run counter to the goals of consistency, increasing the risk that a trader will deplete their account.

If every month were so consistently profitable, and the trader increased their position size each month in accordance to their profits, their account could grow over 14 times in size in one year, before taxes.

Traders who aim for very large returns, by contrast, can in some cases achieve even higher results over a much shorter period of time, but at cost to considerably greater risk. In most such cases, such high risk traders who manage to initially succeed often end up losing or "giving back" their huge gains just as quickly as they made them.

Many traders report that it takes anywhere from six months to over a year of full time trading in order to become profitable. Many would indicate that it takes an even longer period of time to learn to become consistently profitable in different market conditions. As an example, many day traders began trading during the Internet tech bubble of the 90's. When the bubble finally burst and tech stocks began to fall precipitously, many of these traders failed to remain profitable and were left out of business.

A number of traders report that they have "blown up" depleted their accounts once or even several times prior to becoming profitable. Most finance programs are not specifically geared towards trading and may feature only one or two classes that relate to trading. Those who trade for an institution often undergo a basic training program at the institution and forex brokers firms in uk mt4 be required to pass a securities license exam usually the Series 7 and Series 63, the Series 3 for futures contracts.

Retail traders traditionally study trading from books. There are commercial seminars and mentoring services that are marketed at new traders. Many traders find it challenging to discern the quality of a given trading teacher, as there is no professional accreditation system nor is there a way of independently verifying if the teacher is a consistently profitable trader.

The industry aimed at servicing traders selling education, news letters, and trading systems is often viewed with considerable skepticism. The logic of this criticism stems from the fact that a successful trader will likely find that trading is a more profitable activity than selling trading goods and services. Consequently, many trading services are not reliable since they originate from traders who are either unprofitable or fell from profitability after having a "lucky streak".

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Certain retail traders are fortunate enough to find a professional trader who is willing to mentor them, sometimes out of mere good will. Most retail traders begin with "paper trading" trading demo accountsthen switch to trading real cash once they feel confident that they can be profitable with some level of consistency.

While many traders chose to specialize in one time frame, many will learn to trade in several time frames.

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Traders tend to find a time frame that is best suited to their personality and consequently gives them the biggest edge in scoring profits. Beginning traders tend to usually begin with the trading emini s&p futures time frame swing trading and then move on to experiment with the other time frames.

It is usually not recommended to begin by day trading, since day trading requires very fast decisions and calls for more astute analysis of price which often features more randomness than the longer time frames. Prior to entering a trade, a trader must go through a decision making process which he or she has worked out in advance.

After answering these questions which must sometimes be answered very quicklythe trader will place the trade. Thereon after, the trader is constantly asking him or herself:. Do I stay in as is, do I add more, do I take some money off the table, do I get out entirely? Prior to learning how to put together a trading strategy, a trader needs to grasp some of the basics of the financial markets in order to understand the dynamics of price movements, which are all based on supply and demand.

This is called "fundamental forex etoro. While short term traders do not rely heavily on fundamental analysis, understanding the basics is helpful when parsing news and trying to understand why prices move in response to it.

Afterwards, a trader proceeds to study "technical analysis", which is the study of actual price movements, in isolation from any external information earnings reports and other news that is "fundamental data".

Technical analysis enables call options csco trader to make some sense out of the squiggly price lines he or she sees on a trading forex wiki chart, and find areas where there is likely to be decisive price action. These are areas where the trader will be looking for "setups", opportunities to trade.

Extraordinary events such as hurricanes or infestations can cause a shortage of supply in crops, terrorist attacks can cause a spike in oil prices, etc.

The movers of options are the "underlying instruments", in other words an option on a stock will be affected by fundamentals that affect that stock. Technical analysis is the study of price movement, or "price action". The technical analyst sometimes called a "chartist" bases their premise that traders often remember significant price levels and usually respect these levels if there is no conflicting fundamental data.

Based on this premise, technical analysis aims to predict more likely price movements by trying to locate a "trend" the general direction in which prices seem to have been moving. The "trend" is based on the idea that when prices are set in motion up or downthey seasonality in the stock market what are futures to stay in motion unless disturbed by an outside force fundamentals.

Trends are seen as a movement in a distinct direction, either overall up or overall down. Prices will often trend and then pause, briefly moving in the opposite direction known as a "retracement" or "correction"then resuming their original direction. The trend can take a more trading forex wiki pause, sometimes moving up and down briefly or "consolidating", then continuing their direction.

Finally, the trend can stage a "reversal", at which point it will move opposite of its original direction. Ranges occur when prices move up and down within a confined price zone, staying within those confines over a large period of time. It is interesting to note that a market that is ranging does in fact have trends within the range: Eventually, the price may "break out" of the range, and begin to establish a new overall trend, either upward or downward.

One of the main aims of technical analysis is revealing whether the prices are in a range or in a trend, in order to determine the best possible trading strategy. There are a number of trading strategies in use.

They can be generally grouped into the following categories:. Profitable traders adhere to a specific plan before earn money by referrals in india each trade.

The lack of a plan or violating a plan is what causes many traders to lose, consequently self banc de knock binary options broker is a vital instrument to success "plan your trade, trade your plan". Some traders work out a rigid set of rules for entering and exiting trades, these are known as system traders. Many will even program this system into their trading software in order to entirely automate the process.

Traders who prefer more personal leeway in decision making are known as discretionary traders. They too follow a specific plan, but allow greater human intervention in making decisions while adhering rigidly to their risk parameters.

Traders resort to a number of different money management systems, which dictate how much money they may risk on a given trade.

Some traders believe that even a mediocre trading strategy can be very profitable if proper money management is exercised, while a high probability trading system can be devastating without proper money management. A few traders resort to the "Martingale" strategy, otherwise known as "doubling down" increasing one's position twofold with each loss. This strategy has been heavily criticized as being ineffective as it tremendously increases the risk of a margin call forced liquidation of trading positions with each progressive loss, and can lead to very rapid losses in account equity.

This is often cited as the most difficult aspect of trading, and a reason why most traders fail to be profitable.

The two emotional extremes that traders frequently cite are fear and greed. Balancing these two emotions is critical for successfully executing a trading plan. Professional traders treat their trading as a business.

They keep regular records of their trades and will analyze them to learn and self reflect. Traders must also keep records for tax purposes, some will retain the services of an accountant to help them reduce their tax liabilities the US taxation authority features a professional designation for traders. Retail traders will usually be working from their home, although those who trade with a prop firm will be trading from an office unless it is a "remote" prop firm.

Successful full-time traders may earn very large sums of money, yet a significant number adhere to a fairly frugal lifestyle. A main reason for this is that many traders find it advantageous to apply a portion of their profits towards compounding, enabling their account and subsequent profits to grow significantly.

Some traders choose to manage other people's money, and may work for or start their own hedge fund or investment management firm. This permits the trader to earn an income as a percent of trading profits and total assets under management. Such traders usually trade their own money together with those of their clients, sharing in the risk and consequently demonstrating to their clients faith in their own abilities referred to as having "skin in the game". Others aim to trade their own money up to a sum that is sufficient for retirement financial freedomor to use trading as a supplement to other income.

Initially, trading was popular with people from high paying professions, i. With the advent of computer technology, significantly reduced brokerage fees, and smaller sized trading contracts, trading has become accessible to a much larger pool of participants. Today's traders come from various social and professional backgrounds, operating from all different parts of the world.

Adding to a Loser - the process of adding to a position when it is moving in a non-profitable direction. This is also known as "averaging down", since adding to a position at a lower or in the case of shorting, higher price will allow for a potentially greater profit if the trade turns in a profitable direction, providing a better "average entry" cost.

Averaging down, when part of a specific strategy, is considered an effective method. However, traders who average down without planning are often attempting to psychologically justify a losing position, which can greatly magnify their losses.

Arcade - a trading arcade is an establishment that features multiple monitor computer setups, fast, dedicated internet connections, and office space, usually targeted at day traders. Arcades have grown less common after the proliferation of broadband internet, faster computers, and less expensive hardware.

Blow Up - driving your account equity down to the point where you cannot place any more trades. See "out of business". Bucket Shop - a brokerage that resorts to unethical practices, trading against its customers and manipulating price feeds.

Catching a Falling Knife - trying to buy when prices are rapidly falling. This is also referred to as "bottom fishing". Choppy Market - when the prices in a market move in an extremely unpredictable and volatile manner. Fading - buying when prices are falling, and selling short when prices are rising, with the anticipation that the trend is about to reverse. Financial Freedom Figure - a sum of money that is sufficient for a trader's retirement, enabling a trader to no longer work and live off of passive income.

Gunning for Stops - a practice by market makers and dealers most common in the spot currency market to intentionally bid down or up prices in order to trigger stop orders. Meat of the Move - capturing a move in price after the move has already begun, and exiting while the price is still moving in the trader's favor.

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Such traders tend to earn a fee from their services see Two and Twenty. Scared Money - money used for a trading stake that would significantly worsen a trader's financial condition if it were lost. Scared money is usually a significant portion of one's savings that exceeds what would be normally allocated for speculative activities. It also can be borrowed money that needs to be returned i. It is usually suggested that traders do not trade with 'scared money' as the psychological effect will negatively impact their performance.

Stake - your trading capital. To "stake" someone means to give someone capital to trade with, usually in exchange for a share of the profits. The price will test this level by either breaking through it or bouncing back from it. Two and Twenty - a standard compensation formula used by many hedge funds.

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The table below illustrates the possible profits from trading, with the assumption of consistent performance. This particular table is most suitable to day traders. The figures in the following columns show the possible return from a given account size, in monthly and annual terms, as well as an annual return with "monthly compounding" abbreviated as month cmp.

The annual "monthly compounding" figure is the annual return possible if the trader does not remove profits from the trading account, but at the end of each monthly cycle re-invests it into the account. For example, the trader who is able to produce a monthly return of 0. This assumes the trader is consistently able to produce a 0. As the table illustrates, the monthly compounder does not win when their performance is as poor as 0. From Wikibooks, open books for an open world. The latest reviewed version was checked on 4 February There is 1 pending change awaiting review.

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