I think its fair to say that we are still relatively green when it comes to this whole blogging thing and we haven’t quite figured out what our readers really want to read. So, you can imagine the shock we got when we saw the reaction to the first “trading” post I put out on the Iraqi Dinar Revaluation. I really had no idea how this would be received by people. Did anyone even care about what I had to say when it came to topics outside of travel stories? Believe it or not, yes, and an overwhelmingly YES! Turns out, even Forbes was interested in what we had to say (see here)! I had other people contact me that I didn’t even know were reading our blog with even more questions relating to the topic of trading. Although I think the height of forex interest has passed, the burst of questions from readers and a quick Google Trend search shows that forex trading is still quite popular.
Without further ado: Welcome to Trading Tuesday. Because I now know that people are in fact interested in what I have to say about trading topics, and more importantly I have already received a string of questions to answer; I am going to try my very best to post every Tuesday (more realistically every other Tuesday) on trading topics.
Initial topics to discuss:
Credibility:
First off, what gives me the credibility to step up on soap box that I am about to step up on? Well, I have been trading currency and commodities, you know, like pork bellies, soy beans, feeder cattle, euro, yen, all those lackluster items for over 10 years now (yes, I actually was trading spreads on ES at age 17). No, us commodity traders are not buying and selling Google and Facebook, and whatever the latest Pink Sheet is (thanks Wolf of Wall Street)! No, we are trading the real stuff, the stuff that shows up on your table and goes into your gas tank; oil, gold, corn, orange juice etc. I also ran a small forex brokerage for a few years. I’m not claiming to be an expert by any stretch of the imagination, but I have made my fair share of mistakes that I learned from that I am willing to share with you. Hopefully, we will even share some forex success stories along the way.
So what is this currency trading you speak of?
Currency trading is relatively new compared to the likes of stocks, commodities, and even penny stocks. Trading currencies in the commodities market has been around for some time now, but trading currency in the forex market is fairly new. Forex is the newest way of trading currency. Did I loss ya’ yet? I hope not, put simply, currency trading is the trading of different country’s currencies. Every day the exchange rates between different country’s currencies are fluctuating. That is, every day the value of a US Dollar, Australian Dollar, Euro, Japanese Yen, British Pound etc are changing. Those rates that are fluctuating are the rates that we trade 24 hours a day, 5 days a week. A currency is just like any other commodity out there, there are buyers and sellers and price is based on perceived value. Therefore, if a country is viewed as in a bad economic situation, their currency will lower in value compared to others currencies who are judged to be stronger.
But the change is so small, how can you even trade something so small?
If you’re asking this question, you are one step ahead in the world of trading. Yes, currencies move in small increments. However, the size of positions traded are large enough to justify those small changes in price. In our world, a currency moving a whole penny for example is a monumental move. Some of you may have even heard of that evil word leverage. Leverage is what makes the forex world spin ’round. Or maybe even speculation, “those evil speculators drove the price of oil up”, I am sure you have heard that on you’re favorite nightly news program. In fact, if it wasn’t for speculators the price would be even higher, but I’ll save that rant for later. Suffice it to say, currency trading is the trading of small incremental changes in the exchange rates between currencies. That is, if I have $1 US Dollar, how many Australian Dollars, Euros, British Pounds etc can I buy right now? That is forex trading, and that amount you can buy is continuously changing.
Ok, so you are trading these exchange rates, but how does it work?
Forex trading is usually done electronically on a platform used to access the market. The most popular forex trading platform is MetaTrader4. This can be compared to the likes of eTrade, ING, ScottTrade, whatever you might use to place your stock trades. Same principle.
Here is what MT4 looks like. Don’t worry, it looks way more complicated than it really is.
Sounds good, I’ll start tomorrow!
Not so fast, the odds in the forex market are not so hot in terms of success. Mostly because of that evil word I mentioned earlier, leverage. Many who want to get rich quick becoming a day trader trade way beyond their means, and poof – there goes their account. However, I have somehow managed to make this work for me, so it is possible.
Like I said, I plan to start posting regularly on varying topics that have to do with trading and current economic events.
What questions, tips, advice about trading do you have? Leave us a comment or send us an email.
To make all the lawyers happy:
Forex trading involves substantial risk of loss and is not suitable for all investors. Forex trading is highly speculative in nature which can mean currency prices may become extremely volatile. Forex trading is highly leveraged, since low margin deposits normally are required, an extremely high degree of leverage is obtainable in foreign exchange trading. A relatively small market movement will have a proportionately larger impact on the funds you have deposited. You may sustain a total loss of your funds. Since the possibility of losing your entire cash balance does exist, speculation in the Forex market should only be conducted with risk capital you can afford to lose which will not dramatically impact your lifestyle. Everything in this post is purely my opinion, and should not be used as investment advice.
