Forex Trading

After shoveling through piles of information and taking in so much knowledge, you probably feel like you are swimming in terminology and cannot remember just where to begin.  The best way to retain knowledge is through repetition, and having a quick reference guide is never a bad idea, either.  The following pages are a brief overview of the in depth discussions in this book, allowing you to quickly reference a topic in a bind.

The Basic Trade

A share is a holding of a company that varies in value based on the desire or need for that particular company’s goods or services.  As a shareholder, your net worth increases and decreases based on taking a short position (selling) when values are high and a long position (buying) when prices are low.  As long as the stock or security is in your possession, the change in value is considered unrealized gain or loss because you cannot measure it in liquid assets (cash).

When most commodities traded on the market are on a strong upward trend for a period of time, this is referred to as a bull market.  Should value take a sharp downward swing and continue on that path, it is called a bear market.  If no such trend is recognized, and the value of stocks and securities is fairly even, this is referred to as flat.

The Foreign Exchange Market

The Foreign Exchange Market is the stock exchange on which several different countries across several different time zones trade their domestic and international commodities in various currencies.  Currency is the denomination or monetary division used in a particular land (such as the U.S. dollar or the Euro).  When multiple currencies are in use, they are typically expressed as a ratio called a cross-rate that shows the amount of a second currency that is equivalent to the first listed.  Determining what the equivalent is would be referred to as currency conversion.

Several countries in Europe, which have now consolidated their currencies to agree on the Euro (since 1999) trade on Forex, as it is called for short.  Britain, which to this point has opted to continue using the pound sterling, also takes part in international trade, as well as the United States, Japan, and Australia.  Each of these countries utilizes its own currency for standard trading purposes, with options for investment in foreign currencies.  Determining whether or not this is worthwhile depends on the currency conversion rate.
The value of a nation’s currency is determined by its government and federal bank (the Federal Reserve, better known as the FED, is the federal bank of the United States).  Purposeful change in the rate of conversion by a government is referred to as valuation – devaluation is taking value and strength from the currency, and revaluation adds strength and purchase power to the currency.  If the same change to the rate of conversion occurs naturally through events and the volatility of the market, it is then called appreciation and depreciation.

Careers In The Market

Without the assistance of professionals, it is nearly impossible to trade on the open market.  Market analysts track trends in the stock market that affect the value of share holdings.  They use such information and basic history to help predict the outcome of different aspects of the market in the future.

Other individuals, referred to as chartists, create charts and graphs that interpret all the data – various numbers, statistics, percentages, etc – into an easy to read candlestick chart that tracks the trends of specific commodities on the market.

A stockbroker is an individual or a company that assists you in making your investments.  A broker can aid you in making smart financial decisions, helping you track your and place your orders, and following trends in the market.

A market-maker does the same job as a stockbroker, with the exception that this individual or company retains an investment in a particular variety of securities and bonds that can be sold in short order to a client for a lower price so that the client can make money by immediately selling the same shares at the higher market price.

Other individuals can assist with loans, allowing you to buy on margin.  This involves the opposite approach – borrowing money to purchase a stock or security that is at a low market value so that the client can later resell the commodity at a higher price.

Protecting Your Investments

There are several ways to protect your investments.  By placing limit orders, you guarantee to the best of your ability that you will not lose money on the market and virtually guarantee at least a minimal profit.  However, if you change your mind about those limits, you can always place a stop order.  If you leave standing instructions with your stockbroker, these are referred to as open orders that remain such until the transaction is executed and the order filled.
Try to set your limit orders just above the support levels (the lowest levels of value to which a stock can drop) and just below the level of resistance (the upper level above which it is difficult for the value of a stock to rise).

Also, set a value date – a date at which time you can take an average of the value of a particular commodity and review your options.  This should be reviewed at least every six months, if you plan to retain any holdings of a particular security.