How technical analysis is born
In the early 1900s, Charles Dow devised one of the most important approaches to financial investment: technical analysis. Through Dow’s theory, financial concepts were introduced at the beginning of the twentieth century that are now indispensable for understanding the trend and trends in the market and its prices.
Today we mean by technical analysis the science that tries to understand the psychology of the mass of investors, through the performance of the market, its price targets and trends; consequently understand the points of entry and exit prone to gain. The technical analysis is considered in part as an inexact science – which must be interpreted – since it does not provide results that can be quantified nor at least precise numbers.
The analysis aims mainly at the observation of charts, prices and volumes, trying to catch the trend signals to understand when to buy, sell or eventually maintain their position. This is one of the reasons why technical analysis is integrated with the observation and experience of a Trader.
So we need to understand:
- With which market to interact
- What is it's trend?
- Analyze it's history
Once all the points have been focused, it is possible to integrate the information of the technical analysis, for an effective market study.
The price chart and its interpretation
Time frame and Trend
The price graphs are commonly represented through a model called “Japanese candle” (Marubozu line), useful for understanding the price trend according to the time unit considered.
On the left side of the table a decreasing candle is represented, with the closing price higher than the opening price; which means that in the time unit represented by the candle, there was a price increase. Vice versa for the right side of the table, where the spark plug is decreasing since the opening price is lower than the closing price, causing it to lower. Upper Shadows and Lower Shadows represent the trend that the price has had during the day, with the respective maximums and minimums.
Usually the candles are represented with different colors on the table: the green color represents the phases of growth or rise, different from the red color that better recalls the downward phases. For Real Body it means the interval (called Range) between the closing price and the opening price.
For an accurate reading and interpretation of the graph it is necessary to choose a Time frame to observe. Time frame means the time interval present on a candle, or how much time is condensed on a candle (one day, one month, one year …).
The higher the Time frame, the more data will be derived from the graph and therefore more reliable. For a correct interpretative analysis of a chart, we recommend a procedure called “scale”, that is, we start with an analysis of the larger TF and then go down to the details whether it is a day or a couple of hours.
Prices always follow an oscillatory pattern. The oscillations are due precisely because, after an impulse to increase, there is always a diminishing re-tracking. The tendency of a price to increase or decrease is called Trend. The price trend can be:
- Increasing trend - Uptrend: when maximums and minimums are always higher.
- Decreasing trend - Downtrend: occurs when maximums and minimums will always be lower.
- Neutral trend - Trading Range: when oscillations occur around a horizontal line, the average price does not change.
Forex market trends
There are 3 basic types of trends:
- Short term
- Long term
First you need to establish what type of trader / investor you are. You have to decide if you keep your positions for a long time or if you buy and sell in a short time. This decision will determine which graphics to use. Daily traders or those who make rapid inbound and outbound investments will use the “day” and intraday charts more than investors who buy and maintain their positions for long periods, such as in the btp bund spread. A list of the trading indicators most used by investors, choose the indicator that best fits your trading strategy and implement it on the Metatrader4:
- Levels of support and resistance
- Trend lines
- Moving averages
- Bollinger bands
- Fibonacci tracing
- Stochastic Oscillator
Levels of support and resistance
A support level could be the lowest point of the previous day. The resistance level could be the highest point of the previous day, better known as a peak. After a resistance level has been broken, it usually becomes a support level if the tool you are trading online loses value again. If the level of the instrument is lowered further and breaks the support level this becomes the new minimum point. On the contrary, if the level of the instrument increases beyond the resistance level, this becomes the new highest point.
What are Supports and Resistances?
A correct analysis
In technical analysis of financial markets, supports and resistances have always been one of the main arguments of the matter. Both represent the price levels that are perceived by the market, offering a trading opportunity. Entering more specifically, we can define the supports and resistances as a straight line (both horizontal and inclined) on which the price “bounces” or is touched several times by reversing its direction.
- The supports are intended as areas in which the price, after a downward phase, has rebounded several times by reversing the direction.
- The resistances are areas in which the price, after a phase of growth, is rejected several times downwards, reversing the direction.
Imagine if a price is touched from above, it drops by touching a support, to then “bounce” back up. This means that price level has not been breached. Similar, but with the reverse procedure, is resistance: where the price rises reaches the level of resistance it bounces over it and then falls back down. The higher the rebound of a price on a resistance, the more significant its value will be.
From this we can guess an effective indicator: through support, a good point of purchase while for resistance, a good selling point. It is also important to remember that the reliability of a support or resistance is greater as the unit of time in which they are identified increases (Time frame); this is why it is preferable to consult the daily charts rather than the hourly ones.
Trace supports and resistances
To trace a support it is enough to identify and combine two or more points of minimum that have been touched by the price. Once you have drawn the line on the table, you can see how the price rebounds on it several times. A similar procedure takes place to trace the resistance: in this case it is necessary to combine one or more maximum points touched by the price, depending on the chosen axis. In both cases a possible break should be taken into account. That is the possibility that once the support is traced, the price may fall even more compared to the traced axis; vice versa for resistance. It is understandable that when a price breaks the axis of resistance, it is more likely to have a higher bullish movement. If it breaks down a support there is a bearish movement.
How to insert supports and resistances in MT4
The Meta Trader 4 platform is designed to make trading more effective and automatic. The MT4 makes order operations faster so that the trade is closed faster. One of the benefits offered by MT4 is to offer even novice traders the chance to design a trading algorithm from the very beginning. Inside the platform there are tools that allow you to make the most of the various trading strategies.
Once the table to be analyzed has been examined, it is possible to choose indicators, lines and channels. For those who want to identify the levels of support and resistance it is advisable to use horizontal lines, so that an analysis can be obtained that is as effective as it is efficient.
The traces are percentages. During any day when the markets are open, the instrument that is being observed or is being invested usually tracks the trading of the previous day. It doesn’t matter if they are rising lower. The most commonly used tracing is 50%. In addition, levels 1/3, 38% and 2/3 are used.
Trend lines (trend line)
The easiest way to start a technical analysis of financial markets is to learn and apply the trend lines (trend line). The first thing to do is to draw a line that connects two points on the graph. To show a bullish trend line, connect two minimum points with a straight line, while to show a bearish trend line, join two peaks together. It will be observed that usually the market (price) will withdraw towards a trend line before recovering a trend.
Trading in stocks is much easier with charts. Actions are one of those trends that hardly know about sudden changes. For example, all you need to do is look for words like amazon actions, to realize the extent of the phenomenon.
When the price breaks a trend line, that’s the end of a trend. The longer the trend line is, the more it has been tested and of greater importance. Note that a trend line becomes valid when the market touches it 3 times.
When you are looking for buying or selling signals, moving averages are taken into consideration. These averages indicate whether an existing trend is still active. Attention: these statistical tools do not allow to predict changes in trends. Traders usually use two moving averages. Movements above and below moving averages at 20 and 40 days are very common. 5 and 20-day moving averages are widely used by those who make quick trades.
Oscillators are commonly used to identify overbought and oversold conditions. They often warn a trader that a market has gone up or down too much and that a turnaround is imminent. The Relative Strength Index (RSI), or relative strength index, and the Stochastic are the most common oscillators used by traders.
These oscillators can assume values between 0 and 100. RSI: if it exceeds the value 70 it indicates a situation of overbought. If the value is less than 30 it indicates an oversold situation. Stochastic: if the value is 70 it indicates a situation of overbought, while if the value is 20 it indicates a situation of oversold.
In a market context characterized by slowing growth prospects, in 2019 what are the best stocks?
- AMAZON shares: It is the largest online store in the world. Founded in 1995 by Jeff Bezos as a digital bookstore, it has become the leading global e-commerce operator. Amazon’s strong points that have enabled a small website to become a giant are its strong propensity for innovation and a unique customer experience. Over the years, Amazon has been able to significantly innovate the product range, becoming an international benchmark. From the launch of the digital Kindle reader to the prime service up to the video streaming, it seems that Amazon’s success knows no limits.In fact, analysts are forecasting an increase in profits of over 20% in the next 12 months, placing Amazon among the titles growing in 2019.
- FACEBOOK shares: The king of social networks launched by Mark Zuckerberg in 2004 and passed from a university network to a global phenomenon is among the hot titles of 2019. After the listing in 2012 last year the stock underwent a difficult market phase among the Cambridge Analytica scandals and privacy issues. However, the fall in prices represents an opportunity for investors by placing Facebook among the best shares for 2019 thanks to expectations of an increase in advertising profits and online services of around 25%.
- AT&T shares: The American telecommunications giant is one of the main players in the US market with a strong propensity for innovation and investment. Thanks to the purchase of Warner Bros, an agreement worth over 85 billion dollars, AT&T is positioned as a market leader also on the entertainment front. Thanks to the agreements with CNN, the first news broadcaster in the country, and HBO, which produces among other hugely successful series such as Game of Thrones and the Sopranos, AT&T projects itself into the entertainment world.Analysts’ expected profit for 2019 should confirm a solid growth that will reflect positively on the share price.
- NETFLIX shares: It is still a company in the online entertainment sector that promises important results in 2019. Netflix was born as an online platform for paid streaming movies and TV series, but has evolved to become a producer of TV series that are critically acclaimed and true own films for cinemas. Thanks to the diversification of the contents, the production of original contents and a strong innovative vocation, also in 2019 the growth prospects are encouraging with an improvement in revenues expected around 25%.
- WALMART Shares: The Betonville, Arkansas, company is the largest retailer in the United States with sales outlets across the country and has been particularly successful with Amazon.The repercussion was evident on the listing of the American giant, which however was not looking at buying the majority stake in Flipkart and entering the e-commerce market. For 2019, Walmart forecasts an increase in turnover from standard operations of 3%, while even 35% for those online. It is for these reasons, in addition to the ability to innovate on the new digital markets, that Walmart is an action to be bought in 2019.And what about the Italian stock market? What are the best actions to buy?
- UNICREDIT actions: The European and Italian banking sector have faced some of the most complex moments in modern history despite the intervention of the European Central Bank. However, net of the latest declines, the worst seems to be behind us, especially for the most solid banking groups who have had the opportunity to undertake a proper restructuring. This is the case of Unicredit which represents one of the main Italian and European banking groups with operations that reach all the countries of the Old Continent in a capillary manner. For this reason and by virtue of the medium-term growth possibilities, Unicredit remains an action to be bought.
- GENERALI Shares: Generali is one of the leading Italian insurance groups. Thanks to the foresight in management, the group was able to extend its operations throughout the world by innovating the range of products and services offered. On the management front, the group was able to face a complex process of cost reduction and budget consolidation, returning to offer growth prospects for shareholders. Forecasts for 2019 remain positive even in a global slowdown, making Generali one of the best stocks to have in the portfolio with a medium-term view.
- FCA shares: The Turin-based automotive group carried to the headlines by the late former chief executive Marchionne is one of the leading international players in the automotive sector. There have been numerous criticisms of the Marchionne administration which, however, has been able to strengthen the group’s capital position and relaunch some of the most iconic cars of our time, including the 500 and the Jeep. For 2019 FCA is among the shares to buy with excellent growth prospects thanks to an enviable mix of innovation, diversification on international markets and solid economic fundamentals.
The shares are among the most traded financial instruments on international markets. Buying shares is equivalent to buying a stake in the company and then becoming a shareholder.
But what are the features to evaluate to decide which actions to buy?
- The first aspect to consider is the dividend, or the profit of the company distributed to the shareholders. It is the first and most important indicator of the company’s ability to generate profits. The best shares are those of companies that raise higher dividends continuously.
- It is also important to evaluate the company’s future profit expectations, which should positively influence the dividend and therefore the share price.
- Other important aspects are also represented by the company’s innovation capacity, the stability of the markets in which it operates and the ability to create value for itself and for customers.
Today we all have the opportunity to buy shares through home banking associated with our current account. However, often the execution costs and the stock prices to buy are not very competitive. In fact, traditional banks have very high trading commissions and do not offer leverage to make the most of investment decisions.
What affects the value of an action?
The value of an action is set by the market, but this depends on one of the most important factors, namely the company’s prospects for guaranteeing and generating profits over time. So to understand how to evaluate an investment, use the Rate of Return. The profitability of an investment in shares is composed of two elements:
- The Dividend
- Capital Gain – known as capital gain – that is the difference between the share purchase price and the sale price.
The rate of return is expressed as a percentage and is the result of the sale price of the share less the purchase price plus the dividend divided by the share price, so to speak: let us say that the share price is 80, the dividend of 2 and the resale of the share is 88; the rate of return will be 8.25%. The rate of return, therefore, depends not only on the selling price but on the market fluctuations that can bring positive as well as negative results, in which case we speak of loss.
For what has been said, being well informed about the company and the sector in which it is located is necessary for a prudent investor. Having fears in the market can lead to good results, or at least to the achievement of set objectives.
Investment and Trading are two ways to profitably profit from the market. Both methods, despite having a common goal – to generate profits – are diversified for instrumental, functional and organizational reasons.
The main purpose for an investor is to increase his assets through the possession of financial instruments, in this case of an equity portfolio. There are, as mentioned, two financial methods:
- The investment has a broader time horizon than other financial instruments, this allows investors not to worry about daily market fluctuations. Should there be a loss of value, it is possible to withhold the action and wait for the prices to return to stable levels for the market. In addition, the investment allows the buyer to physically own the instruments purchased, such as shares and profit sharing.
- Trading allows a greater and more advantageous trading on financial instruments, this allows you to have a greater performance on the securities in which you want to invest. The price changes, in this case, depend on the speculations deemed necessary by the trader. Distinctive with respect to other financial instruments is short selling. This allows the sale of the shares without having the actual possession, with the aim of buying them back when the price is lower and therefore generating a possible profit. It goes without saying that the risk profile of a Trader is versatile and the position can remain open until the results obtained by the same trader are satisfied. Under the advice of an experienced broker, the trader can be accompanied throughout the investment period and with the right parsimony – if at first glance – achieve great results.
- Furthermore, with a financial method such as trading, the investor can enjoy the advantages of CFDs. Contracts for difference are defined as those contracts – stipulated between the seller and the buyer – without the actual ownership of the object treated. The procedure is similar to the financial method discussed above, the cfd allow, through specific platforms, the trading and therefore to speculate on the desired shares.
- A minimum investment account mainly helps to understand market trends and fluctuations in real time and without risk. Assets, compared to values, are virtual gains and as such do not allow a real physical possession. After having finished his experience in the stock market, it is desirable, under the advice of an expert, to open a real trading account on which to start speculating.
- Leverage allows traders who use their capital responsibly and have a good grasp of the market to be able to multiply the return on their investment. For example with a use of 100 it is possible to obtain a gain or loss equal to an investment of 1000. The system has its own dose of risk but if used with a good mastery it can lead to excellent gains.
What do the terms Bullish and Bearish mean?
The world of finance is often defined as a jungle without rules. In reality it is not exactly so. Despite this, two animals dominate the iconography of the market world. Bulls & Bears literary translation is bulls and bears.
An important concept in the world of Forex and that relating to bulls and bears, ie situations of optimism (bull upward trend) or pessimism (bear downward trend). The terms tori and bears are thought to derive from the way each of these animals attacks his opponent.
What does Bullish mean?
The term bulish derives from the fact that the bulls attack their horns with their victims from the bottom up, thus symbolizing the trend of a price from the bottom up.
For this reason a trend is represented by the bull if it has an upward trend, with a consequent increase in the price of the asset.
A bullish bullish candle (basically green) is a candle indicating the price increase. What Bitcoin is experiencing today is a real bullish trend. Buying bitcoins is the most popular thing right now.
Bullish trend: The prices of all the known assets move according to the relationship between supply and demand. If the demand is greater than the supply, the price of the product (asset) will increase, therefore we speak of an uptrend.
What does Bearish mean?
The term bearish, derives from the way the bear has to attack and that usually occurs from the top down. So the bear represents a downward price trend.
For this reason, a bear trend means a negative trend in the bearish trend price (bearish trend).
A bearish candle (tendentially red) is a candle that indicates the lowering of the price the world of finance is often defined as a beastless jungle without rules. In reality it is not exactly so. Despite this, in the iconography of the world of markets these two rather peculiar totemic animals dominate.
Bearish trend: If the demand for a product decreases compared to the offer, the price will fall, so it will be better to go short. In particular, in online trading investors can be led to do scalping or to open positions for even very short periods. In this case being bullish using an important leverage can be rather risky because the very short term trends are extremely capricious.
Read a chart
The stock exchange is a complex world that can however reveal unexpected simplicity. For a trader to know how to read a chart is essential. Much used in finance are the so-called Japanese candles or candlesticks that allow an intuitive and rather accurate reading of the market situation.
Japanese candles are born in Japan in the eighteenth century with the aim of studying trends in the price of rice. The candlesticks land in Europe only in 1989 and are almost immediately adopted as the best method to learn and study the trends of world markets. The Japanese candles have therefore all assumed definitions in English if the doji position is excluded.
Japanese candles can be synthetically cataloged in:
- Long days. When there is an important difference between the opening and closing value.
- Short days. The difference between the opening and closing values is minimal.
- Spinning tops. The body of the candle is decidedly short and indicates a substantial indecision in the markets.
- The opening price is identical to the closing price. In this case the indecision of the markets is maximum.
Bearish and bullish are terms that have become extremely common thanks to the spread of online trading. With online trading the stock exchange has become available to everyone, the chances of making profits have become more varied and the investments more accessible. This great boom in online investments is also due to the fact that with modern technologies everything has become simpler and faster, leaving behind ancient and complex banking bureaucracies.
How to calculate Forex gains and losses?
In Forex it is very important to know how the variations in pip affect the earnings expressed in money. Obviously it depends on the size of the position that has been opened.
A position in which 100 euros have been invested will suffer less than a 1 pip change compared to a position of 1000 euros.
The calculation is quite simple. It is enough to multiply the money invested for the variation in pip. If the value has changed by 1 pip then multiply by 0.0001.
Note that the pip value will always be measured in the currency to the right of the pair. So investing in the EUR / USD pair the pip will be in US dollars.
Here are some simple examples:
- 100 euros * 0.0001 = 0.01 USD. In this case, a pip will be worth 1 dollar.
- 1000 euros * 0.0001 = 0.1 USD. Increasing the position by ten times a pip is worth 10 cents of a dollar.
- 10000 euros * 0.0001 = 1 USD. In this case the value of a single pip will be one dollar.
Obviously the situation will be identical even with a different pair like EUR / GBP:
- 10000 euros * 0.0001 = 1 GBP
Clearly the value of a pip is not affected if the position is at a loss or gain, in any case the pip will have the calculated value.
Online trading platforms generally allow you to open accounts in different currencies such as:
The platform automatically calculates the value of pips in a serious and effective manner, but it is also good practice to know how these calculations work.
However, it is not difficult to even calculate the value of a single pip in another currency. Having in the previous example a platform in Euro and investing in the EUR / GBP with an exchange rate of 1.5000, considering the simple movement of 1 pip of the value of a pound it is enough to divide 1 (for example in this case 1 US dollar) for the EUR / USD exchange rate at 1.2650. The result is the pip value in USD or 0.79.
Similar situation wanting to know the value in USD using a platform in GBP. Just divide 1 dollar for the GBP / USD pair.
Obviously in these examples the leverage that is available in many online brokers is not taken into account. In the case of use of the lever a multiplication occurs upstream.
So the entity of the position is already increased in starting the calculation to establish the value of a pip.
What is a pip?
A pip is the unit of measurement by which the price differences between two currencies are measured.
In online Forex the Pip is the smallest unit of price, also called the base point, concerning the variations in the cost of a currency. Pip is nothing but an acronym of “percentage in point” in English.
Trading professionals are used to express their gains or losses in pips, depending on whether their position is rising or falling.
A good example can be expressed during a price change of the EUR / USD currency pair. If the value changes from 1.1195 to 1.1197 it means that the value has grown by 2 pips. The pip is therefore equal to 0.0001 of the exchange rate.
Some online brokers don’t just point to pips and provide even more accurate data. It also indicates tenths of pips. In this case, if the EUR / USD value goes from 1.11954 to 1.11955 it means that there has been a growth of one tenth of a pip.
Generally the most important currency pairs move on the value of a pip which corresponds to the fourth decimal. Couples that include the Japanese yen are exceptions, which vary to the second decimal instead.
How much does trading with Forex cost?
Now that you know how to calculate the pips, you should be wondering how much it is worth to trade online with Forex brokers.
The costs of doing forex are generally limited to a few pips. The difference between the purchase price and the sale price, or the spread, is expressed in pips. This way you can see how convenient it is to do forex.
The most traded currency pairs have really low spreads such as EURUSD whose variation between purchase price and sale price is just 3 pips.
What are CFDs?
CFD is the abbreviation of contract for difference. It is precisely a contract signed with the broker based on which the price difference of a certain asset, called the underlying asset, is exchanged at the time the contract is opened and closed.
This type of derivative financial instrument allows you to benefit from the price fluctuation of stocks, commodities, indices, ETFs and many other instruments, without having to buy the assets directly, thus allowing you to save considerably on the high costs associated with traditional forms of trading , or forex.
Online CFDs represent a practical and relatively inexpensive investment solution to try to generate a profit from the difference between the opening price and the closing price of a given open position on a certain CFD. This allows you to generate a profit not only when the market grows, but also when it moves downward.
It is of fundamental importance to specify that by doing CFD trading you do not own the asset underlying the transaction.
How to do CFD trading?
CFD trading is very similar to forex trading. Once you have chosen the trading platform, just select the instrument you want to use and enter the order. As with other forex trading operations, if you believe that the price of an instrument, for example crude, will grow over time, you will opt for a put or buy position, which offers traders the opportunity to resell their position in the future and make a profit from it.
Conversely, if a decline in the value of the underlying is expected, a call or sales position of the online CFD will open, which offers the possibility for the trader to buy back the position in the future.
Of course, as with any type of trading and investment, incorrect forecasts can generate a loss and every trader must be aware of the risks associated with CFD trading.
There is much more to discover about CFD trading, to increase your knowledge you can access the trading section for beginners, where you can consult video tutorials, read articles, access the latest news, browse our glossary and much more yet.
The advantages of online CFDs
- Intraday and rollover trading
Historically, those who wanted to try to make a profit from market trends needed to set aside significant sums even before they could open an account. Furthermore, one of the disadvantages of traditional trading is the need to immobilize large numbers for a long time.
Suffice it to say that, for example, to buy a single share of Google (Alphabet Inc.), you must have at least € 750 and with a single action you certainly wouldn’t go far. Even if you wanted to operate as a day trader, in order not to tie up your money, most accounts require a minimum deposit of € 10,000 or equivalent in local currency. Even those who have no problem with these amounts will still have to take into account the huge fees and commissions charged for opening and closing positions at traditional banks.
- Reduced initial capital and the leverage effect
The best brokers require a minimum deposit of a few hundred euros, which will remain secure on the investor’s trading account and used as collateral for the opening of positions. Furthermore, cfd trading allows you to trade with leverage.
The levers offered by the brokers allow you to open positions far larger than what your real capital would allow you to do. We offer levers up to 30: 1, which means that it is necessary to have a capital equal to only 0.5% of the position in order to operate on the market.
If you want to trade on Google, to control a position of € 7500, equal to 10 shares of Google listed on € 750 each, you need to pay only 5% of margin, or an amount of € 375. This allows the trader to proportionally increase the profits generated. However, it is good to remember that the leverage effect also increases losses.
A further advantage of trading with CFDs is the possibility of speculating on both the upside and the downside of the price of an asset.
If the trader believes that an asset will grow in value, with online cfds he can choose a buying position, which gives him the opportunity to resell the position later. The profit, or loss, is calculated as the difference between the opening price and the closing price x the quantity purchased. Returning to our example of Google, if we bought our 10 shares at € 750 and liquidate the position when the price is € 780 (+ 4%), we will generate a profit of: € 30 x 10 shares = € 300. This means that against an initial investment of only € 375 and a market movement in our favor of 4%, we can generate a profit of € 300. The same applies to the contrary, so it is always advisable to take appropriate risk management measures.
In particular, if you reside in the European Economic Area, the following leverage limits apply, starting in July 2018:
- CFD on the main currency pairs: maximum leverage of 30: 1
- Index CFDs and other currency pairs: maximum leverage of 20: 1
- CFD on raw materials and minor indices: maximum leverage of 10: 1
- CFD on equities: maximum leverage of 5: 1
- CFD on cryptocurrencies: maximum leverage of 2: 1
How much does it cost to trade CFDs?
We offer attractive trading costs, which include a spread charge for open positions only and no fixed or hidden costs. The spread is the difference between the sale and purchase price of a certain instrument, often indicated on the platform as bid / ask. When calculating the cost for a position it is necessary to multiply the spread by the size of the position. What you get is the spread charged for the position.
For example, the spread for Tesla shares is only € 0.20. The actual cost to open a position of 10 Tesla shares is equal to € 0.20 x 10 = € 2, compared to a position of around € 9000 (without taking into account the leverage effect that applies to the position, which can multiply the value of the controlled position). To find out more information on the levers and spreads offered for all cfd tools, go to our trading conditions page.
Intraday and rollover trading
Many CFDs are traded in the form of futures that provide for a maturity, after which the contract will no longer be valid and will be automatically replaced by a new contract. Each CFD is based on an underlying contract, which defines the rates, expenses, etc.
Traders who do not wish to keep their position open and face a rollover may decide to close the position before the expected rollover time and date. Rollover means the person concerned who is paid or due for the maintenance of an open position after its expiry.
Tips for CFD Trading
The CFD (contract for difference) or contracts for difference make it possible to make profits both from falling positions and from positions in growth. The asset is not actually held when trading in Forex, Commodities or other products traded in the markets. With CFDs you simply make an agreement between two parties for the sale. The price difference between the opening and closing of the position is in fact the cost of the contract for difference.
11 Tips for CFD Trading
In traders’ jargon, when a position is opened, forecasting value growth, it is said to open a long position. When, on the other hand, you open a position looking for profit from a loss of the asset value it is said to go short. But in any case, there are numerous and different ways of investing
Trading strategies are essential to make profits with CFDs. Here are some short tips for doing good trading:
- Leverage control
All online trading strategies must take into account the presence of leverage and the control that must be had of this important tool. A rather limited investment is enough to get good earnings. We must always consider the leverage in our trading strategies because in addition to profits, losses are also multiplied.
- Use of the stop loss
With the stop loss you can control the financial leverage well. One of the most important suggestions is a wise use of the stop loss. If not used, you risk the entire capital, if used too stringently you risk limiting the possibility of earning too much. A good strategy is to apply a predetermined range after analyzing the situation.
- Have clear goals
Having realistic goals is essential for a trader. Opening positions with a limited investment will certainly not make you get rich in a few days. The best online trading strategies are those that rely on achieving certain weekly or monthly earnings and avoiding losses as much as possible. All commensurate with the money you can invest in trading with CFDs, the time you intend to use and of course your skills.
As in any situation, putting everything into one goal can be a failure. Investing everything in one position, perhaps relying on the spread, can lead to losing a lot.
A good tip is to never invest more than 2% of your capital in a single location ensuring you diversify. Diversifying is not at all difficult given the wide range of markets available.
- Only regulated brokers
The use of a good broker is really important. The use of a regulated broker is fundamental. You should always check that the broker you are using is regulated by a global market monitoring agency.
- Do market analysis
Always relying on intuition may not be a good idea. Making market analysis is very important because it allows you to have a broader knowledge of the asset and therefore to choose your trading strategy more carefully.
- Follow the experts
Following the advice of self-styled consultants cannot always be a valid piece of advice. Instead, it is more important to follow the examples of those who already invest their money in a certain way. This way you can gradually understand the strategies of the most experienced and capable traders.
- Pay attention to the trading hours
Like many other good online brokers, it allows you to trade Forex 24 hours a day for 5 days a week. However, the Forex market is experiencing very particular daily trends. The moment in which exchanges move more liquidity and therefore where the opportunities for gaining are greater is that of the central hours of the Italian afternoon, when both European and American markets are in full swing.
- The Forex economic calendar
Paying attention to the Forex economic calendar to some may seem boring. Many are indeed the events that can affect, more or less mildly, the trends of the various markets. There are a large number of events on the economic calendars that may not affect the investor’s assets. In this case it is good to train the eye and perform a quick skimming preserving the information that most interests you. Having a very rich economic calendar is certainly more useful than a poor table that does not allow to create a valid strategy.
- Keep calm
It is a rather vague advice which however has an ambivalent validity. Getting caught up in enthusiasm in the event of unexpected gains or discomfort due to bad losses means not having taken into account the unexpected, favorable or unfavorable. A good trader creates his own strategy having in mind what his gain and loss peaks may be. In the case of unforeseen circumstances, it is necessary to remain calm and reflect on the strategy that has been implemented.
Self-assessment is important in every field, including online trading. A good trader knows he is, just as a novice trader should know his limits. Obviously it is good to start from the capital that you can risk with CFDs. Secondly, it must be said that not all assets are suitable for all investors. The most widespread markets, the most liquid ones are the most attractive and certainly the ones where most traders target. Exotic, more sectorial assets.
Differences between CFD and Futures
What are the differences between CFD and Futures?
CFD and Futures are two financial instruments that share certain aspects, such as being both derivative products, but which present many differences. Let’s see them together:
- Futures are traded in regulated markets while cfd in over-the-counter markets (and therefore more suitable for online trading)
- the price of the Futures is always indicated and transparent while that of the CFD can be changed by the online broker. In essence, in the Futures, what you see is going to get
- CFD spreads are broader than those of Futures
- Futures also have a time limit which CFD does not hav
- CFDs are fast-paced investment products, while Futures are more long-term
Futures and CFD: understanding derivative products
Both in investments with Futures and in CFD trading, we speak of so-called derivative financial products, or contracts whose price is based on the value of another financial instrument called “underlying”. In finance an underlying is a product that is found under another listed security called a “derivative”, the price of the derivative is then linked to the value of the underlying with the advantage that with the financial leverage you can maximize the potential gain (but also the loss) of a particular transaction. Also in this case, the profit or loss margins are expressed in pips.
Other combinations concern the fact that the CFD are a natural evolution of the Futures, in fact the Contracts for Difference, this is the meaning of the CFD acronym, are new types of Futures born with the advent of online trading, therefore with the shift of investments from real world to the web world.
We go more specifically into the two financial instruments to better understand their differences, similarities, and above all to see how to invest with these two products and understand when the best time is right, according to the macroeconomic calendar.
CFD: Contracts for Difference
In Italian their meaning would be roughly “Contracts for Difference”. These are financial instruments that are traded on so-called over-the-counter markets, or without the requirements recognized on regulated markets. In essence, the trading of over-the-counter products takes place outside the official stock exchange circuits. In fact, the pseudonym of over the counter indicates exactly the habit of dealing in affairs around Wall Street, therefore outside the official headquarters of the Stock Exchange, where operators gather to speak disconnected from the official context of the stock market.
Precisely for this reason the CFD adapt to this market and are suitable for online trading on stock market indices as they can be traded easily online without having to submit to a standard buying and selling procedure, and not being bound by control obligations by the competent authorities, such as the exemplary instruments of the Stock Exchange.
Regulated derivative products must necessarily comply with what is established by control bodies; therefore they cannot independently manage customer positions and operations. What possible with Cfd. This is both an opportunity and a potential risk as these investment instruments escape any regulation.
What are the advantages of negotiating CFD?
- Less capital needed to operate, thanks to high liquidity the entry threshold is not excessively high which makes them usable even for small investors
- 24/24 operation, many brokers allow CFD operations on Indices even during the night thus avoiding the risk of negative trends due to opening
Example of a CFD transaction
Suppose we buy 1000 CFDs of a XXX share listed 29/30 € as we think the price could rise. XXX has a 3% margin, which means that you only have to pay 3% of the position. In our example the value of the position will therefore be 900 € (3% x (1000 (units) x 30 €)).
Our forecasts prove to be correct and the price rises from € 29/30 to € 29.30 / 30.30 (0.30p) and we therefore decide to close the position by selling at that price.
To calculate the profit of the CFDs just carry out the following operation: Size position for price difference then 1000 (units purchased) x 0.30 = 300 € of profit
The same calculation is made if the price falls to calculate a loss, it is important to note that with CFDs it is possible to lose more than the margin initially deposited.
Futures, forward contracts
Futures are financial instruments in the form of a contract through which the contractor undertakes to sell or purchase a specific financial quantity on a specific date. For example, those who purchase futures undertake to buy, at the stated maturity, the underlying asset of the contract (given that, as a derivative instrument, the futures depends on another product to which one binds).
Unlike the CFD we have seen, Futures are traded in traditional markets with the necessary controls and can therefore guarantee greater security. It is therefore a clearer negotiation as the broker clearly exposes the current price on the Future market and therefore proceeds immediately with the dispatch of the order on the Stock Exchange. Without modifications or treatments, as can happen for Cfd instead. Futures are far more ancient tools than Cfd, born on the wave of online trading.
A shining example of this kind of negotiations can be investments in shares. Take for example one of the strongest and most highly-rated car manufacturers in the world: BMW. BMW shares have a constancy and a very low volatility that allows them to be considered an investment with almost no risk. It is advisable to try these investments with your own minimum investment account.
The exchange of regulated contracts took place on the main stock exchanges starting from the last century, when two parties agreed on the sale of a given commodity, establishing a priori quantity, price and future date for the term of the contract.
The Futures is probably the speculative instrument par excellence, one of the most traded daily on the main stock exchanges around the world, mainly in the United States, second only to the Forex market, for the amount of daily transactions.
What are the advantages of futures over CFDs?
Let’s see together the positive aspects of the Futures that could lead to choosing this financial instrument:
- lower spread than CFDs
- Trading with greater transparency, the price of Futures is the official one of the market while for CFDs the price can be slightly influenced by the spread.
Example of a Futures transaction
Let’s look at an example of a Futures trade.
After opening an account with a broker I decide the category and product I want to invest in, in our case commodity – oil.
Following an in-depth market analysis on how to buy oil, (currently at $ 52.51) it is too low and it could rise in the coming months. We therefore decide to buy a futures contract on commodities in particular the XXX-PETROLIO contract.
At this point we choose the expiry of the contract: we will choose 6 months as the analysis leads us to think that within that period the price of oil will rise.
At this point we enter the purchase order for 100 barrels of oil on XXX-PETROLIO futures contracts at a price of $ 52. The cost of the transaction is $ 5200.
After 6 months the price of oil rose to $ 53, our forecasts were right! To calculate the gain on my futures contract, simply multiply the units purchased by the price difference, then 100 x $ 1 = $ 100.
The same goes for gold trading and for ethereum trading.
What are the points in common between CFDs and Futures?
We see the features in common between these two financial instruments:
- both are derivatives and both use leverage. Factor that allows you to be able to carry out movements higher than the invested capital
- same listing methods, graphs and platforms which allows those who are experts only in one of the two tools to adapt quickly to the other
- possibility of investing up or down (long / short)
What is Copy Trading?
Copy trading allows all traders to seize the opportunities that arise on the financial markets every day by relying on the experience, skills and wisdom of community traders.
With copy trading even traders who do not have time to sit at the computer and conduct market research can make profits by relying on the best of each asset class.
The advantages of copy trading
The main advantage of copy trading is that any trader, regardless of his level of knowledge of the financial markets, can invest several shares simply by following the most successful traders, while always maintaining control of their portfolio.
The advantages of copy trading, however, are many:
- Beginner traders can take advantage of market opportunities, learning along with one of the best online brokers
- Experienced traders can save analysis and research time by copying traders with similar strategies and risk profiles
- It is possible to diversify one’s “trader” portfolio and, consequently, also diversify the assets on which one operates, including Forex, commodities, stocks, even the most famous ones such as stocks, indices and much more
- It offers a social dimension to a historically individual and personal activity, with the possibility of sharing opinions, strategies, solutions, autochartist in Italian and experiences on forums and on the copy trading platform in a totally free manner
- Traders maintain control over their portfolio and their money.
- Always be up to date on the latest market trends.
How to make copy trading successfully
Once you open the account for free and have it powered up thanks to the numerous payment methods available, all you have to do is use your account.
After opening the trading account you will be ready to trade and copy the most successful traders. If you don’t feel ready yet, you can always practice by opening a Forex demo account, to safeguard your capital and practice. You can diversify your investment on the human capital of social traders like you based on various factors, such as risk appetite, historical trading, maximum drawdown, types of assets traded and much more.
Risk management: Remember that it is advisable to keep control of your portfolio and that it is always possible to stop the copy of an investor or a certain investment. We always recommend adopting adequate risk management tools through appropriate diversification and through the use of the risk assessment bar that allows defining the desired risk for the entire portfolio, as well as particular settings to identify the most compatible traders with your profile.
The differences between copy trading, mirror trading and social trading
Mirror trading is a form of investment that has existed for decades and, through Ava’s Mirror Trader platform, it is now possible to copy the operations of other people with greater flexibility, ie in automatic, semi-automatic or manual mode.
With copy trading it is possible to follow in real time the best performing traders and look for the traders who best adapt to their own risk profile who operate in the markets of greatest interest.
Social trading instead adds a more social dimension, allowing you to follow, copy and listen to the opinions of other traders just like on the most common social networks in order to create a trading portfolio that leverages the knowledge and experience of the masses.
Financial derivatives have existed for a long time and are also known as common derivatives, but today it is much easier to access them thanks to online trading.
What are financial derivatives?
In simple terms, derivatives are a contract whose price is based on the value of the underlying asset, such as a security or an index. There are underlying assets of different nature, such as stocks, currencies, commodities, bonds, interest rates and ETF trading.
Types of derivatives:
There are many financial derivatives offered both over-the-counter (OTC) and on the exchange. The value of derivatives is influenced by the performance of the underlying asset and the terms of the contract.
The derivatives most commonly used online are:
- CFD Trading
CFDs are popular derivatives trading products and allow speculation on the rise or fall in prices of global instruments, including equities, currencies, indices and commodities. CFDs are traded with an instrument that replicates the underlying asset’s movements, while profits and losses are established based on the direction of the movements and the position taken by the trader.One of the most common CFDs is online stocks. This type of asset hardly knows negative trends. The actions are almost always predictable and well monitored. Take for example a brand considered niche, but increasingly popular and innovative: Tesla. Tesla shares represent a valid alternative to “risky” investments. All this can be verified by carrying out operations on one’s initial account with a minimum investment.
- Future contracts
They are common derivatives based on a contract to purchase or sell assets, such as raw materials or shares, for the future at a pre-agreed price. Futures are standardized to facilitate trading on the futures market, where the specifications of the underlying asset depend on the quality and quantity of the raw material, such as oil prices.
- Forward contracts
They are financial instruments based on a more informal agreement and are traded through a broker that offers traders the opportunity to buy or sell specific assets such as currencies. Also in this case the price is predetermined and is paid at a later time.
Trading with options on derivatives markets allows traders to buy (CALL option) or sell (PUT option) an underlying asset at a specific price before or on a specific date without any formal obligation, and this is the main difference between the trading with options and trading futures..
Swaps represent another common financial derivative used within a contract; swaps allow both parties to exchange cash flow sequences for a predefined period of time. These are not negotiated instruments, but rather customized OTC contracts between two traders.
Why trade with financial derivatives?
Originally derivatives were used to ensure a balance between the exchange rates to be used for the exchange of goods and services on a global scale. Traders found that given the differences between currencies and accounting systems it would have been easier to find a common derivatives market.
Today the main reason for trading derivatives is the possibility of speculating and hedging, as traders try to profit from the change in the price of underlying assets such as securities or indices.
Derivatives are used for different purposes, such as hedging or risk minimization. For example, a trader may want to make a profit from a decline in the selling price of some assets (selling position). By using a hedging derivative, it transfers the risk associated with the price of the underlying asset to both parties involved in the negotiated contract.
How to read trading charts
Among the various options that investors (also called traders) have to follow the trend of currency pairs, commodities and any other asset, the most interesting option is to follow the charts. Traders using charts rely on forex technical analysis. This type of trader is interested in the precision of the instruments and in the indicators for the charts to identify the peaks of the trends and the price levels useful for entering and leaving the markets.
However, there are also traders, who prefer to follow financial news sources that report information on economic growth, the employment situation, political threats and interest rates.
We will guide you in reading the prices of trading charts and predicting their accuracy. To help you in online trading we will provide you with a series of tips to understand and read the charts.
Let’s start with the first suggestion: Online actions. Investing in stocks could give you very nice surprises. If we told you, for example, that investing in UBI BANCA shares, the percentages of closing the investment in a positive way proved to be much higher than normal, would you try?
First you need to understand what a graph is before trying to de-animate the information presented. Essentially a chart is a visual representation of the exchange rates of different financial instruments. Knowing how to read the charts is an integral part of the trading activity, since it not only allows you to keep your open positions monitored, but also helps you identify a developing trend line for future transactions.
Understanding the trends
When you look at a chart and find a series of data depicted in a certain direction, you can identify the general direction to which an instrument is heading. Each graph is different from the other, but in most graphs it is quite easy to identify trends, although in some cases the trends may be more difficult to find. Trends generally define a series of peaks and valleys (maximum and minimum). There is a bullish or bullish trend when there is a succession of increasing maximums and minimums, while a bearish or bearish trend is characterized by a sequence of decreasing minimums and maximums.
Then there is another trend, defined lateral, flat or horizontal, which occurs when the forces of demand and supply are equal, therefore on the graph you will see more a straight line than a series of valleys and peaks.
Trends are not only characterized by their direction, but also by their temporal duration. There are long term, short term and medium term trends that can coexist and have the same or opposite direction. These trends, as mentioned, are visible within a certain time frame on the chart and are part of the trend line that can be appreciated when you go to read the chart.
Types of trading charts
To trade it is important to be clear about what a chart is and what information it provides. In online trading, three types of trading charts are mainly used and each of them has different levels of information depending on the skill level of the individual trader:
- Line Graph – This is the most basic form of graph and the starting point for beginner traders. This graph represents only the closing price in a given period of time, as this price is considered as the most important element in the data analysis. The graph line is basically formed by connecting the different closing prices over a certain period of time. There is no visual information or other types of information, such as maxima and minima or opening prices.
- Bar chart –The bar chart offers more detail than the line chart. The most important information is added to the graph and depicted as sequences of vertical lines, where each line is a representation of the trading data. The lines, in particular, represent the maximums and minimums reached in the trading period, in addition to the opening and closing levels, which are represented by a shorter horizontal line. The opening price is represented by the “dash” on the left of the vertical bar, while the closing price is represented by a horizontal dash on the right. Reading the graph is simple: if the hyphen on the left (opening price) is lower than the dash on the right (closing price), the bar will take on a green, black or blue color and indicates that the instrument has increased in price. Conversely, in the event of a decline in the asset price, the bar will turn red.
- Candlestick Charts – Once you have included line and bar charts, candlestick charts will be easier to understand, as they are not much different from bar charts. Also in this case the vertical lines represent the price range recorded in a certain reference time period, while the body of the candle takes on different colors to represent the variations of the market within the same period of time.
Candlestick charts in detail
Since the seventeenth century the Japanese have used technical analysis to trade rice. Although this type of analysis differs considerably from that created in the United States around 1900, the principles are the same.
To start making and reading a candlestick chart, it is important to know that the data shows the maximum and minimum prices, in addition to the opening and closing prices.
The “empty” part and the colored parts are called body. The long and narrow lines above and below the “body” represent the range defined by the maxima and minima and are also called shadows, wicks or tails. If the lines are positioned above the body, this will indicate the maximum price and the closing price, while the line in the lower part of the graph indicates the minimum and the closing price. The body colors of the candle vary from online broker to broker and can be green or blue to represent a price increase, or red to indicate a price drop, while an empty candle indicates that the closing price is higher than the opening price and invite traders to BUY. Full or colored candles indicate that the closing price is lower than the opening price and invite traders to SELL the position.
Long or short bodies indicate the buying or selling pressure between traders. In particular, short bodies represent very low price movements and are often treated as consolidation patterns, known as doji.
Doji is a recurring figure visible on candle charts in various patterns. You have a doji when the opening and closing prices of an instrument are virtually unchanged, with insignificant price differences. Doji candles are representative of two possible scenarios: after a long white or green candle the buying pressure is starting to fall, or that after a solid long candle (blue or black) the selling pressure is starting to decrease and the demand is the offer are starting to balance.
One of the most popular and reliable patterns in technical analysis is the head and shoulder pattern.
More specifically, it is an inversion pattern which, once formed, indicates that the current trend will be met with an inversion. There are two versions of the head and shoulder pattern:
- Upper or upper head and shoulders: this pattern is normally found at the peak of a bullish trend and signals that the price of an asset is destined to fall once the pattern is completed
- Head and shoulders bottom or bottom (Head and shoulders reversed): this pattern is generally formed during a bearish trend and signals that the price of an asset is likely to increase.
Integrate the technical analysis tools in the graphs
As you become more familiar with reading and examining the graphs you will learn how to add other tools such as: Fibonacci Traces, Bollinger Bands or Stochastic Oscillator etc. These technical indicators can assist you in clarifying some key information for the trading of shares or currencies, which indicate for example whether an asset is “oversold” or “overbought”.
In practice the technical indicators integrated in the real-time graphs such as volume indicators, trend lines, Fibonacci levels, stochastic oscillators, and many others, can block market noise, providing a clearer picture of the markets and future trends.
The difference between traditionally investing and trading
Office with an appointment on one side. Tablet or smartphone in your living room on the other. Wait an entire semester, or see your account rise after less than half a day. These are some of the basic differences between investing and online trading.
In the world without the boundaries of the economy there are those who still choose the life of classic investment and those who have now embraced the self-taught way of the web. “You explain everything as if you were two, okay?” It’s stronger than me. Every time I find myself where to explain a misunderstanding risk topic, my mind always comes back there.
To that epic sentence pronounced by lawyer Joe Miller (Denzel Washington) to fellow sick Andrew Beckett (Tom Hanks) in the immortal Philadelphia (1993, by Jonathan Demme). Word of clarity then.
What are the advantages of online trading?
Unlike pompous brochures, the web allows a careful and focused reading. Without haste, where everyone can take the time they want to understand and act accordingly. The assistance service, available in chat, email and telephone, allows you to dispel any doubts. But let’s get to the point. The great advantages of trading online are:
- the economic calendar: a great tool in the hands of the user thanks to which he can program in time when and how to invest
- video tutorials always available and a very rich trading training section in your language
- minimum investment account: allows newcomers to become familiar with trading without losing a penny
- use of financial leverage, or rather little by little: no one will accept an investment of 20 euros, with online trading it can be done
What are the investment risks?
Monte Paschi di Siena, Banca Popolare di Vicenza and the list could unfortunately continue. The cracks of these large institutes are there for all to see, children of a wicked management, particularly with regard to small investors.
Not those who have to buy a new yacht to show off in the Costa Smeralda, but those who maybe are putting the money away to renovate their home and are confident of enjoying a more than decent retirement. Many did not go that way, in fact, it went much worse.
When investing money, there is always risk, but if online trading is more slippery than investing in a suit and tie in the collective imagination, many people today would have (much) to say.
One does not exclude the other
He discovered hot water, the malignant ones will say, but the phrases as well as the truths next door are the least considered. It is hard to imagine that your financial advisor can suggest you make investments through your bank and at the same time push you to discover what forex is.
It is inevitable and it is logical. The capital or the medium-small sum that you will bet on the web could end up in its branch of action. So it is always up to you alone to decide. Listening to expert advice is right and proper, but be careful not to obey blindly.
Bye bye commissions, welcome web
“I work for you, I earn a percentage.” The statement is unexceptionable. This simple sentence has always been the basis of the work of the financial operator, or broker, dealing with the client’s investments. The methods can obviously also concern a precise figure established at the time of signing. Online trading has completely turned this reality upside down.
From the beginning, in fact, the Forex trader knows with certainty how much you can put in your pocket and how much you can lose. A mentality this, daughter (perhaps) of the logic of the web where everyone wants (and can) know everything.
Forex to force 5 million ... billions!
An inexhaustible market. 5 days of incessant trading. A world of 5 trillion dollars a day where anyone can make their mark. Among the many online trading proposals, ample space is given to the Forex market. Its many strengths, variety, but not only:
- 50 currency pairs you can invest in: from the classic with US dollars, euros and pounds, to the most sought-after coins, including the best cryptocurrencies, on which you can control the trend by comparing it with the euro.
- levers: part of the so-called financial instruments capable of increasing their winnings by a lot even if the initial investment is modest. All this on the pure financial investment front is pure science fiction.
In the investment world, however, to earn a lot you also need to invest large money.
We are obsessed with time, and there will be a reason
Our old people enjoyed life. Some of the ephemeral, nobody had all this great desire to run. Now it seems that it is never enough. Work, holidays, pastimes, children (who has them). But how does a person who wants to grapple with the stock market to carve out the necessary space? Not easy.
Also from this point of view the Forex comes to help, being available from midnight to that of the following day up to and including Friday, and then starting again with the first minute on Monday morning. A nice advantage for these hectic modern times.
The digital trader therefore, after having finished his work and having enjoyed the joys of family life, can relax and work. But even a lunch break as well as a train journey can become an opportunity to do “currency” business.
Have you already found your trading strategy?
I hope the answer is “yes”, otherwise, good research. No, I do not mean it is essential to know all the trading strategies best suited to them. and therefore knowing how to move or otherwise choose with knowledge of the facts helps.
How to invest online
If you are taking the first steps in the world of online trading it may seem difficult, having all the tools you need to learn the basics of the trade.
We will teach you that trading is synonymous with controlling your own destiny, as you decide how much and when to invest, as well as when to open and close transactions.
The most important step for a beginner is to understand that certain basic factors influence market behavior and that prices reflect supply and demand. When demand and supply are not balanced, a price movement is about to occur; if there are more buyers than sellers on the market the price will tend to increase and vice versa. This logic is very simple and applies to the principles of fx, cfd, etc.
After opening you will have access to many articles, online trading courses, webinars and various other training tools that will not only present you the basic concepts of forex trading, but will also teach you to define a trading strategy, perform market analysis and much more.
We will ask you to define a trading plan, specifying what you want as a trader, what risks you can take, what your profit goals are and how much time you can spend on trading.
Another element of online trading is to learn how to limit losses and maximize profits, managing and bringing the yield / risk ratio to 3: 1 for each open transaction.
The best way to get started with the world of trading, could be to open online equity transactions. The shares, called stocks, have a very high profit potential and great stability. Take for example the POSTE ITALIANE shares. The trend of this market giant has practically never known down moments.
How to trade forex
In simple terms, the exchange rate of a currency is nothing more than the rate at which the base currency is exchanged for the secondary currency. The currencies are in fact traded in pairs, of which the best known is the EUR / USD, or the euro and the US dollar. Economic factors such as industrial production, inflation and political events influence the market when it comes to negotiating a currency pair.
Now let’s see a practical example of an operation in forex:
In the case of the EUR / USD pair, the EURO is the base currency, while the USD is the secondary currency; the pair represents the number of dollars that can be purchased with a euro. With a EUR / USD price of 1.2000 it means that one euro is traded for 1.2000 US dollars.
If you think that the euro will grow in value against the US dollar in the next 48 hours you will PURCHASE euros. If the exchange rate increases in your favor you can sell the euro for a profit. This is basically how profits are generated in online trading.
Why trade currencies?
Because forex trading is renowned as the largest market in the world, with 24h transactions and a daily trading volume of over 3.2 billion US dollars. There are differences between forex markets and stock markets, but let’s see:
- No commission on operations. You only pay the spread between the bid and ask price
- Trading active 5 days a week, 24 hours a day, to be able to decide independently when and how to trade
- Competitive financial trading leverage, to maximize potential earnings
- More than 250 instruments to trade with, including forex, CFDs on stocks, commodities and indices
- Start today and receive both training, with lots of webinar trading, and customer support in your language
- Wide range of high-performance platforms, like the most famous and used in the world, the metatrader 4 download.
How to carry out a trading operation?
Choosing the right broker to trade with is the most important decision to make when it comes to online trading. We offer you an account with a minimal investment and many training tools as well as direct contact with one of our support team consultants, h 24, should you need further services.
- Open a real trading account, provide your personal and bank details in a secure environment, without any commission or expense. Now that this part is complete, perform your first task.
- After conducting your research and, in case of need, after consulting our team, access the trading platform, where you can open a position on the chosen instrument. You can also view the spread and decide how many units you want to buy with the lever (of your choice). Remember to start small and then increase your trading operations once you are more familiar with trading. It is important to use stop loss orders every time a transaction is opened.
- Once you open your transaction you need to monitor your investment and follow its performance. If you experience a drop in activity and the markets go in the opposite direction to your forecast, consider selling or waiting for a stop loss to take effect to limit damage to your assets.
- We advise you to make changes in your wallet from time to time, as you are constantly exposed to emerging markets and can decide to diversify your operations. In any case, always follow your strategy and don’t over-trade.
- If your transaction generates a profit in line with your forecast, close the deal and take profits. Submitting a withdrawal request is simple and can be made directly from the platform.
What is the Blockchain?
As the name suggests, the Blockchain indicates a chain of blocks containing information. This technique was originally conceived by a group of researchers with the aim of marking digital documents thus avoiding their backdating or any changes. However from 1991 until 2009 this technique remained almost unused, until it was engaged by Satoshi Nakamoto to create the Bitcoin cryptocurrency.
This is the reason why BTC is recognized for having made the Blockchain technique a real technological innovation that is as intuitive as it is complex. Therefore it is possible to define Blockchain as an infrastructure on which cryptocurrency transactions are based, which through its operation makes these secure and reliable. Moreover through the Cryptographic system, used by the Blockchain, it prevents the falsification and the possible duplication of Bitcoin.
Each individual block is linked to the next and previous one which, through cryptographic keys, makes it impossible to modify individual blocks and consequently makes the “chain” from which they are connected more secure.
For a fair approach to understanding the BC technique, it is important to identify three essential components:
- Nodo means, all the Blockchain participants physically constituted by the single servers.
- The transaction is made up of data representing the values being exchanged. The data must be verified, approved and archived.
- The Block is the set of transactions that are merged to be verified, approved and finally stored by the Blockchain participants.
Distributed Ledger Technology
For a correct and safe Blockchain operation:
The Blockchain process focuses on some key concepts necessary for understanding this technology and its areas of use: DLT is the acronym of Distributed Ledger Technology also known as “Shared Ledger”. The Ledger can be identified as the “ledger” of accounting. The DLTs therefore take care of saving the data in the register which is subsequently distributed to all participants belonging to the same Network. We then move from a centralized process to a distributed Peer to Peer, where the members of the Blockchain are each in possession of the same copy of the data.
This method, as we will see in the following points, has been designed to reduce any changes to the data and limit any tampering with the Database.
There are two types of DLT networks:
- Unpermissioned – Public Networks guarantee participants complete transparency of data and their transfers, present on the network. The closest example for this type of network is the Bitchain Blockchain; the main objective of the network is to allow all participants to contribute to updating and archiving the data on the Ledger once the consent of the entire BC node has been obtained.
- Permissioned – Private Networks, unlike the Public, are controlled and therefore I can have a property. The participants, in this case, have different levels of visibility and access to the data present on the network. In private networks, the consent, as well as the modification and archiving of data, is attributed to a limited number of participants in the same BC defined as Trusted.
The BC Cryptographic System
As anticipated the Cryptographic system has a value of primary importance both in Blockchain security and in the data transactions within it.
The BC mainly uses two types of cryptographic techniques:
- The Digital Signature – The digital signature uses a public key system to code and certify the messages sent. Each individual participant in the “chain” has two virtual keys, one public and one private. The private key (personal and secret of the individual user) encrypts the message, while the public key decrypts it, making it readable. In other words, the public key represents the identification of the participant in the network, while the private one allows him to access his own Bitcoin Wallet.
- The hash – is a fundamental encoder for the correct function and safety BC, which encodes, in fact, any input data in an alphanumeric string. moreover, the reliability of the Digital Signature is strictly connected to its operation.
The Peer to Peer System and the Time Brand:
The consent expresses the will of the participants of the same BC network, to express their judgment, favorable or not, on decisions regarding the storage of data in the Ledger. Thus the consensus defines a common knowledge of the processes among the participants through a Blockchain Peer to Peer network. Being defined as an automatic mechanism it enjoys several consensus algorithms among the most important:
Proof of Work – most used for Bitcoin extraction, Miners collect new transactions in a block. The Miner with a higher computing power, and therefore faster at decrypting a given string of characters, is allowed to add the block to the chain; thus also winning a BTC reward. Once the block has been added to the chain, the system automatically sends participants a copy of the operations performed within the shared register. See article “what is Mining”.
Therefore the blocks, in addition to using the data through a shared chain, contain within them parameters for their security. The Time Brand -Timestamp-, for example, prevents any change to the operation once it has been executed and archived. The Time Brand consists of a specific sequence of characters which, through the union of a certain date and time, establishes the event and its occurrence. This process is distributed, which means that it is not managed by a central body, but the operation is validated by the single nodes of the BC network.
The basics of currency trading
Currency is the most liquid market in the world. Also known as the forex market, it moves about 5 trillion dollars a day, a figure that far exceeds that of all world stock exchanges.
Trading currency pairs involves buying one currency and selling another at the same time. Let’s see how it works with a simple example: the EUR / USD is one of the most traded currency pairs in online forex. EUR is the symbol of the euro, while USD is the symbol of the US dollar. In the currency pair just indicated, the euro is considered the base currency, while the dollar is the quote currency.
Although it refers to two individual currencies, the report is considered a single unit. In other words, the one on which you trade is the currency pair, not the EUR or USD.
Let us further clarify this basic example by adding some numbers. Suppose the EUR / USD is traded at 1.25345, or that 1 euro is worth 1.25 dollars. In other words, the euro is stronger than the dollar, or more dollars are needed to buy a euro.
Basic terms in the world of currency trading
- “Major” currency pairs:
In his daily operations, the trader often has to deal with six major currency pairs, called “majors”. These are GBP / USD, USD / CHF, USD / JPY, USD / CAD, AUD / USD and EUR / USD. These are the most traded currency pairs in the world, so it is likely that volatility is greater. AvaTrade guarantees reduced spreads on all six Major pairs: here is another reason to trade with us. Not convinced yet? How does it seem to you, then, the opportunity to be able to exercise you thanks to the opening of a demo trading account, without your capital being in any way affected?
- “Minor” currency pairs:
In contrast, Minor pairs are pairs exchanged less frequently. They are less liquid than the Major pairs, and often the spreads proposed are higher. Generally, all couples not included in the list of the six majors are considered minor pairs. At AvaTrade we offer a wide range of Minor pairs to trade.
- Couples of exotic currencies:
Exotic currency pairs usually include the currency of an emerging country. They are therefore not called exotic pairs because the currencies are those of countries that are geographically distant, but due to the difficulties inherent in trading on this type of pair. Indeed, exotic currency pairs usually have very low liquidity, higher spreads and less market-makers. They are exotic currencies, for example, the South African Rand (ZAR), the Hong Kong dollar (HKD) and the Mexican peso (MXN).
- Cryptocurrency Trading:
In addition to normal currency pairs we also mention cryptocurrency trading. The Pioneer of these currencies is the Cryptographer Satoshi Nakamoto, who in 2010 created Bitcoin, a decentralized currency, which allows for instant transactions with almost non-existent commissions. To date it has a value of $ 9000 for Bitcoin. Many cryptocurrencies have been added, such as, Ethereum, Dash, Litecoin.
What is leveraged trading?
Leverage trading, also known as margin trading, is a system that allows traders to open positions much larger than the available capital. The trader has to invest only a percentage of the position, which depends on many factors and varies depending on the instrument, the best forex broker and the platforms. Online trading with forex leverage is popular among traders and brokers and, nowadays, it represents a very common trading system tied to that on the CFD – what are the forex CFDs. The term “leverage” usually refers to the relationship between the value of the position and the investment required, while the “margin” is the percentage of the position required to operate.
To tell the truth, it must be said that even by opening a simple initial account it is possible to use the lever. This allows everyone to experience the benefits of this service, without going to the least affect the capital.
Why trade with leverage?
There are many advantages to trading with financial leverage, so many that it has now become a common tool in the trading world.
- Minimize the capital that the trader has to invest. Instead of paying the full price of an instrument, the trader can only pay a small part. Let us assume, for example, that the value of a position at the time of opening is $ 3000; instead of paying the full amount, the trader can use a leverage of 400: 1, which means that for every $ 400 of the original value he is asked to invest $ 1 of his capital. This means that for this position the trader will have to pay $ 7.50 to be able to open it.
- Some tools are relatively inexpensive, which means that almost all traders can easily access them. However, other instruments are considered more prestigious and, based on what is traded on the markets and other factors, have a greater cost. Instead of investing large amounts in order to enter the market, a trader can simply use leverage and profit from the price fluctuations of these prestigious instruments. Of all, we cannot fail to mention stock trading. The shares are very profitable assets that generate world billionaire exchanges. Take for example one of the most important telecommunications companies in Europe, Telecom. Investing in shares is one of those types of investments that guarantees significant income. Practice with your minimum investment account.
- Although trading with leverage or trading with margin allows you to trade by investing smaller amounts of capital, which can be a great advantage for many traders, there is also a risk of loss. In fact, just as a trader can earn much more than the initial investment, the losses can be just as significant. It is important to monitor your open positions, apply stop losses, copy trading and other market orders in order to prevent large losses.
The spread in trading
The spread is the difference between the two prices of an asset in the financial sector. On the one hand, the value of his purchase and on the other that of his sale. It is a simple statistical measure that helps us to know the degree of liquidity of the financial space on which it is calculated. The smaller the market margin, the greater its liquidity.
Nowadays “spread” is a very common term in any kind of financial document or discussion and is one of the most important elements of this sector. Moreover, it has different meanings based on the type of stock market in which they are used.
The spread in the stock market, futures and selling options
In addition to its use in the financial sector, the spread also has a specific meaning depending on the market to which it belongs:
- In the sales options market, spreads are strategic combinations of purchase and sale prices that allow you to benefit from any type of market, even if profits are not, so to speak, “exceptional”
- In the futures market, on the other hand, the spread refers to the difference between two future prices of the same asset or the price on the same day of two different assets
- Finally, in the stock market, the spread can also indicate the difference between the price of two buy shares
Forex, demand and supply
Currencies rising, currencies falling. The whole world contributes to the spread of Forex, currency exchanges. There is no need to be a voracious Wall Street stockbroker or third millennium brokers connected to thousands and more sites and applications. Even simply traveling from Europe to the United States, for example, changing euros into dollars and / or vice versa, helps to run and feed this boundless market segment.
And in the Forex there is the maximum attention towards the spread. And in this case, the spreads can be of two types: supply and demand, or alternatively which is the same, can have a bid price and another demand price.
A key indication behind the understanding of Forex is to clarify that the term “offer” is the one that shows the value of a particular currency’s demand (although it can also be any other type of financial asset). In other words, the term “offer” indicates the price at which most market agents are willing to buy certain goods.
On the other hand, the “demand” is used to provide the offer or sale price of the product. In other words, it is the value with which the owners of a particular asset are willing to sell.
The butterfly spread strategy, a classic
“Who goes slow, goes healthy and goes far” is a proverb that we all know well in the Bel Paese. It may seem strange to the majority, yet it is also applicable to the financial world of the spread, with a specific name. Said butterfly spread strategy. This seeks profits if the basic asset remains stable, but it will not be profitable if the asset on which the strategy is opened will start moving in any direction.
Through this trading strategy, benefits can be obtained especially in financial spaces within a market range, and not in bullish or bearish scenarios. Therefore for an advantageous success of the strategy, it will be necessary to study the market very well and verify its stability before opening a position of this type which, it is good to repeat once again, is reliable only within a specific trading ecosystem.
Bull spread, quite the opposite of the butterfly strategy
The bull’s spread is the antagonist par excellence of the strategy described in the previous paragraph, that of the butterfly. The transaction itself is very simple and consists of opening two purchase options on the same financial asset with the same maturity.
Specify these basic considerations, we now proceed to two distinct operations. The first sale is put on hold, the second is completed. Usually the one with the greatest possibility of profit is sold. In this way the sale of the highest call will partly offset that of the lowest value.
Simple as a glass of water, isn’t it? All that remains is to try.
Pay attention to the spread of the bear, the worst scenario
A bearish spread strategy (or bear spread, as it is called in English and in the international stock market slang by the term Bearish) is another strategy that has something in common both with the bull’s strategy and with the butterfly spread strategy. At the end of the day, the bear spread is the ideal scenario for downside scenarios. During the course of its recovery (gain) small stable losses must be weighted, which can lead to limited profits even in the presence of declines in one’s activity.
You will be able to benefit from the best trading conditions thanks to the spread. A few simple steps to follow and you can enter the privileged world of a top-level international broker. There are many advantages that you can have once you have registered and after opening a real account on our platform:
- Possibility to practice with a minimum investment account
- The certainty of having chosen a trading platform of the highest level where to operate, as a Meta trader
- A Facebook page updated in Italian very useful and a specific app to stay connected
- Assistance service in Italian for any doubt or question
- Specific section to stay up to date with all the important news that can influence the Market
- The possibility of knowing the state of the markets through the information coming from the spreads.
What is Mining?
Mining derives from the English term “to mine” meaning to extract, but focused on cryptocurrencies. Thus, Bitcoin Mining refers to their extraction process. Mining Bitcoin does not mean creating money, BTCs are generated automatically within the B2B network – a term coined to define inter-company commercial relationships – which manages this currency, distributed online in a completely random way.
So Minare Bitcoin means obtaining BTC generated by the network and distributed online.
The BTCs are extracted by the Miners, the so-called Miners, within the Blocks of transactions called “mines”, powerful calculation centers that make the transactions valid, generating a new amount of BTC that is added to the global valuation base.
Introduction to Mining: the extraction of BTC
Each transaction block, ie the set of all transactions that took place over 10 minutes, is entrusted to a single Miner. The Miner’s task is to install the Cryptographic hash software in his machines, this software is able to calculate BTC transaction data, to which a random or pseudo-random value called Nonce is added. The set of this value with the data of the transaction block, generates an alphanumeric string called Hash. To calculate the content of a hash string the miner needs a large number of attempts and calculations, therefore a large number of nonce. In the calculation process the hash of the previous block is added, which together with the data of the transaction block and the nonce, generate the hash of the current block.
The characteristic that makes this calculation complex but essential to be considered correct by the Bitcoin system, is due to the fact that the hash must begin with a fixed number of zeros. When the string is validated, the transaction block is made valid in turn.
The operation ends with the mining of BTC by the miner and the updating of the Blockchain register, the ledger of the transaction blocks.
The whole process allows the BTC system to be extremely secure, since the transaction blocks are linked to each other by sharing the hash; this allows a hypothetical ill-intentioned to renounce to the alteration of the transactions as it would inevitably modify also his hashes.
The different methods of extraction: Asic, Cloud Mining and Pool Mining
As mentioned, every day the network creates a number of BTCs and distributes them randomly online. To increase the probability of receiving them, you need a much more powerful technical apparatus than a home computer, with more computing power. The higher the computing power, the greater the likelihood of extracting and receiving BTCs. This hardware is called ASIC -Application-Specific Integrated Circuit-, of microchips that allow to enhance BTC mining.
Asic prime farms were born in China and Singapore in 2013 with a strong concentration in hydroelectric power plants and places with adequate temperatures to reduce system overheating.
Over time, many of these machines have been purchased, increasing the difficulty of the algorithm; this is how Pool mining was born. The pool consists of a group of miners, each of whom sells part of their hardware resources in order to solve algorithms and earn BTC. If the miners get BTC, these will be divided according to the transmission power that the members of the pool have sold for the extraction. Another possibility of investing in BTC is possible with the actual purchase of the Software and Hardware components that facilitate the extraction of BTC from the network, always keeping in mind the formula: greater computing power = greater probability of extraction.
Now, for anyone who wants to try their hand at mining independently, he must take into account a series of points:
- There are several online software on the net that can be downloaded for free with which it is possible to undermine the BTC. These, such as the GUIminer, need massive computing power.
- Purchase the Miner (device that allows you to increase the computing power).
- Once you have purchased the miner and downloaded the software, you need to install them
- Configure the software (in this case GUIminer
- Once configured connect it to the network, and let it work.
It is also possible to invest online without the physical possession of the Hardware through cloud mining (online rental); this saves on maintenance and electricity consumption costs. The choice of contract varies according to the type of investment, be it short or long term.
DID YOU UNDERSTAND MINING? GenesisMining gives you the possibility to rent the cryptocurrency mining servers of your choice, although cryptocurrency trading could be simpler and more profitable.
The difference between Investment and Trading
Cryptocurrency investment and trading are two possible ways to profit, and therefore generate profits, in the Forex financial market. For a novice Trader it is useful to know the difference between both within the financial world:
Now, the purpose of an investor is to gradually increase his assets through the possession or purchase of investment instruments such as a portfolio of shares. Investments have a very long time horizon, this allows investors to take an interest in long-term value without worrying about daily market fluctuations; should there be a loss of value, they retain their investment in expectation of the price increase. Investors’ physical possession of purchased instruments – such as voting rights on securities and profit sharing – is the differential element in Online Trading. Trading allows a greater sale of financial instruments in order to offer a higher performance than the expectations made on purchase investments and securities obtained. So the price changes are subject to speculation by the Trader. What differentiates Trading from an investment, is a financial transaction called short selling (in English Short selling) which can be used very economically and economically. This transaction allows the sale of the shares without having possession of them with the hope of repurchasing them later at the time when they must be delivered to the buyer at a lower price, thus making a profit.
The open position of a trader depends on his needs and objectives not less than his risk profile; so it can last for years like minutes.
Therefore it is important to define some points for anyone wishing to undertake Bitcoin Trading operations.
The BTC, as mentioned, is a currency over which the management of central authorities does not exist. There is no control of value and traffic but it is the network that issues its online issue; this allows the use of BTC, to make payments between people via the web without the presence of financial institutions.
What is Money Management?
Although the Money Management title may already seem clear and easy to implement, knowing how to manage your money and investing with judgment is a bit more complex.
Money management includes an informed process of saving, investing, budgeting and spending family income, but it can also include supervising the use of money for a certain activity.
In one way or another we all adopt different forms of money management in everyday life, both for one’s own private life and for investment management, such as online trading. To be able to do fx trading it is necessary to understand what forex is and in CFDs with discipline it requires discipline and an adequate knowledge of basic elements essential to obtain long-term profits in this sector.
Inexperience is perhaps the main reason behind the loss of money by traders in online CFDs and forex. Neglecting the principles of money management leads to increased risks and lower benefits. Since forex is often extremely volatile, this entails an inherent risk, therefore developing appropriate money management skills is essential when working in the markets.
In terms of volatility, perhaps the investments considered most stable are those linked to online stocks. Investing in stocks could give very lucrative surprises.
Multi-bank companies like these always enjoy positive trends on the stock exchange and investments often offer pleasant surprises.
When trading in forex or CFDs it is important to be aware of the fact that it is a risky transaction and to accept the risks associated with financial leverage although there are several ways to reduce the risks.
Although profits are generally linked to risks, here are some principles to follow:
- Practice defining the position dimension
- Recognize trading risks
- Analyze and evaluate these risks
- Define solutions aimed at reducing risks
- Apply and manage these solutions on a constant basis
- MetaTrader 4 download to exercise
To define the size of your position, you can adopt different techniques, more or less complex, depending on the reference platform, to manage both loss-making and profit-making operations in a simple and practical way. Below we present three models that you can follow:
- Fixed lot size: This is a valid approach for novice traders who want to start a career in trading. This way traders will trade with a position that is always the same size, probably contained. The number of lots may vary depending on the size of the account, which may increase or decrease during trading. The size of the account is important when starting out: it is good to start with small amounts and use a 2: 1 leverage to constantly increase the potential for growth and profit over time.
- Percentage of assets: With this strategy the size of the position will correspond to a percentage of the assets. It is good to determine the percentage of assets to be allocated to each position in such a way as to allow an asset growth. It is always possible to increase the percentage of assets allocated to each position, but it is good to remember that the greater the profit potential, the greater the risk.
- What is the percentage of “safe” assets with which to trade?
In general, it is recommended to operate with a percentage of the assets contained, equal to about 1% or 2%, which is equivalent to a leverage of 50:1 per single transaction. This allows you to keep the position open longer. Going to adjust the size of the position in proportion to the assets, if you run into losses, you will reduce the position in order to prevent the account from being quickly drained. It is certainly possible to reduce the size of the initial transaction when there is a series of loss-making operations in order to minimize the damage. Although it may be obvious, it is worth remembering that it takes less time to lose a certain amount than to recover the losses and reach the starting level.
- Percentage of Advanced assets with stop loss: This method provides for the definition of a limit for each operation at a percentage of the total assets in the account, generally ranging between 2 and 10%. This is a strategy used in trading with options and futures that favors greater market exposure but aims to protect accumulated profits.
Guidelines to define daily or weekly exposure levels for trading
Let’s take a practical example: if a trader’s account balance is $ 1000 and he decides to risk only 2% of the balance ($ 20) for each transaction, if he decides to trade a mini lot (10,000) of EUR / USD, each pip worth 1 USD. In this case the trader will have to insert a stop loss if the price drops by 20 pips. 5 consecutive operations at a loss will translate into roughly a loss of $ 100.
We now admit that the trader is willing to risk 10% of his assets on a single transaction and decides to negotiate a standard lot of 100,000 units of EUR / USD: in this case each pip is worth 10 USD and the trader will then have to place an order stop loss if the price drops by 10 pips (= $ 100) on its first transaction. In the event that the first transaction closes at a loss, the new stop loss target will be 9 pips (= $ 90), equal to 10% of the remaining balance of $ 900, and so on with 8, 7 and 6 pips in subsequent loss-making operations . 5 consecutive losing operations with this exposure will result in a total loss of $ 400.
|Loss operations number (amount $1000)||Exposure of 2%||Exposure of 10%|
These exposure levels can be defined with different reference time periods, for example daily or weekly. For example, if the daily exposure level is 10% of the balance, in the first example the trader will have to stop trading on the same day he lost $ 100.
Risk and return profiles using the stop loss
When you’re ready to start trading, open a real trading account on the appropriate platform and deposit a capital amount that you feel is appropriate. Protect the invested capital in the event that the investment goes in the opposite direction to that expected is essential and represents the basis of money management. To trade in a rigorous approach to money management it is advisable to adopt adequate risk and return profiles and implement stop and trailing stops.
- Stop loss: This is a method normally used to limit losses resulting from a falling stock on a trading account. A stop loss order will set a price level based on the maximum loss the trader is willing to accept. When the asset price goes below the set amount, the stop loss order will be activated, giving rise to a market order to close the position at the current market price and prevent the accumulation of further losses.
- Trailing stop: Trailing stop orders offer additional advantages compared to stop loss orders and represent a more flexible tool to limit losses and protect your account when the price of the traded instrument falls. The advantage of the trailing stop is that it is a dynamic order that follows the trend of the stock, thus providing capital protection and a risk management solution for its account. The main advantage of the trailing stop is that it not only allows you to protect the account balance, but also the profits accrued from the current position.
Risk and return profiles
Another way in which it is possible to increase the protection of your invested capital is to operate with a return / risk profile of 3: 1. This means having a profit probability of 3 times the risk you run. In this way, the chances of closing positively are increased. The main idea is to define a profit target 3 times higher than the stop loss level. A practical example of a risk / return ratio of 3: 1 sees the inclusion of a 30 pip take profit order and a 10 pip stop loss order.
Maintaining a manageable risk / return ratio is important and here is an example with 10 trading operations that use a risk / return ratio of 1: 3 to better understand the consequences of this approach:
Money management tips
Whether you are a day trader, a swing trader or a scalper, you will need to learn and properly implement money management strategies in your operations if you do not want to take unnecessary risks of losing your money. Below we have collected some basic easy-to-follow suggestions when trading and want to manage risk. In this regard, we want to point out that now many traders are using bitcoins to make their investments.
- Never invest more than you are willing to lose
The first rule of thumb is to never feed your account with money you don’t have. If you can’t afford to lose the invested capital, don’t feed your account with money you can’t lose. Trading is not gambling and requires informed decisions.
- Apply stop and limit orders on positions
As a broker that cares about its customers, we recommend that you define stop loss orders. These orders are extremely important and it is appropriate to pay proper attention and precision when defining oneself, without trying your luck. Each operation must be accompanied by its stop loss, which represents the lifeline that will protect you from strong price movements.
- In case of profit …
When you reach your profit target you should close the position and take the benefits of your trading activity. Withdrawals with us are simple, quick and safe. Open your account and take advantage of all the advantages and trading suggestions of market professionals and test our services on a minimum investment account.
- Define stop loss and take profit orders
One of the basic trading principles concerns the definition of the right risk / return profile. This involves defining the parameters of one’s position, or how far the market can Advanced before the position is closed. Having clear ideas about this allows traders to place stop loss (S / L) and take profit (T / P) orders.
As indicated above, normally, in currency trading beginners adopt a 3: 1 return / risk profile, as a lower ratio would be too risky. However the most experienced traders can apply a minimum ratio of 4: 1, without exceeding the ratio of 5: 1.
Steps to set stop loss and take profit orders:
- Mark the profit target in pips. It is possible to define this objective arbitrarily or deriving it from expected price levels in relation to the current market price.
- Take the value identified in the previous step and divide it by the return / risk ratio to calculate the maximum negative price movement allowed.
- You are now ready to set your stop loss and take profit orders by taking the values of your profit target and risk tolerance and calculating the distance from the current market price (in pips) for both the maximum risk and the desired maximum return . These two numbers will define the stop loss and take profit levels exactly.
What is the Financial News?
From that world is financial news has the power to change the investment market. Anyone operating in the finance sector, whether it does so with a minimum investment account or a real one, has the obligation to be up to date on every single news or move.
The image that immediately comes to mind is the one painted in some Hollywood film by a young customer of finance that runs near the headquarters of the Stock Exchange with the Wall Street Journal under his arm.
In reality something similar happens: maybe, here in Italy, instead of the Wall Street Journal we tend to have Il Sole 24 Ore or Milano Finanza. The newspapers par excellence of those who want to know the quotations on the stock exchange and are constantly looking for financial news and news on the shares.
So an inseparable combination between news and investments: and for a sort of osmosis, each of these factors manages to influence the other causing direct effects.
Because if the investor is constantly looking for news, it is equally true that the news can influence the investment and online investment market.
How does financial news affect the financial market?
The economic news and the financial news have enormous power on the markets: not by chance in the United States, where the so-called ‘financial news’ are consulted as if they were the investment Bible, a recent study has highlighted how the Stock Exchanges are disconnected from political and social reality.
Nothing particularly new or ever heard: anyone looking for news on the stock market, anywhere in the world, should always analyze the current news of that country in a preliminary way.
And this applies to two types of news:
- Those of official sources, such as for example the news in the form of reports on GDP, on growth, on employment and unemployment, on production, etc., these financial news are going to directly affect the economic market, in particular on that of the shares .
- Those of journalistic sources or various media: obviously also the news spread by the media go to cause shakes on the markets. We are not just referring to news on economics and finance, such as reporting a proposal for an economic law or a summary of a budget. It’s about all the news.
Think of how much a statement issued by the president of a major economic power, such as the USA, Russia, China, Japan, Great Britain, could go on to have serious repercussions on the investment market.
In essence, news closely related to finance; but also political and social current events. How many times do we read in a newspaper phrases like “the X event caused a reaction on financial markets”? Almost on the agenda.
To keep to the last facts just think of how the unexpected election of Trump as president of the USA had repercussions on the stock market. Or on how Brexit, therefore the exit of Great Britain from the EU, has caused shocks on the stock exchange all over the world even in countries apparently disconnected from the British economic reality.
What are the main sources of news on finance?
At this point it becomes extremely interesting to go and make a quick overview of what are the main journalistic sources in the world regarding financial news and economic news. Let’s start from Italy.
Obviously newspapers, media and sites deemed reliable will be proposed below. And from this point of view if we talk about the Italian Stock Exchange, then Piazza Affari, in the first place there is necessarily Milan Finanza. Also known as MF, it is a biweekly publication (released on Monday and Friday, the two days of open bargaining on the stock exchange) which began in 1989 to provide a report on the Piazza Affari stock market.
Another inevitable source for those who, in Italy, want to have news on economics and finance is Il Sole 24 Ore. Known Italian business newspaper, the third largest in our country, is owned by Confindustria and was founded in 1865.
Other sources, this time online, reliable and to be consulted absolutely before making investments, are the portal Borsaitaliana.it, the official website of the Italian Stock Exchange in which you can find all the useful information; Finanza.com, a 360-degree compendium of finance news and news on various investments; and obviously the ANSA website, to be updated 24 hours a day on what is happening, in Italy and in the world, in terms of economics and finance.
Foreign news sources
As for media and foreign media with news on economics and finance, the Wall Street Journal said we can cite, to remain always in the USA, Newsweek, the New York Times and the Washington Post. They are not specific finance newspapers, but they also provide 360-degree and 24-hour financial news, especially in their online version, perfect for online trading.
Also in English, but this time moving to England, the headquarters of European finance, inevitable is the Economist: a weekly with information articles from the world of economics and investments whose first publication took place even in 1843.
Still in Great Britain it is possible to consult the Financial Times, what is indicated as the main economic-financial newspaper of the whole United Kingdom. Noteworthy among the authoritative sources in the field of economic and financial news in Europe, Les Echos and La Tribune, both French. As for websites and web portals to consult with economic news from around the world, we report cnbc.com, investing.com, and Bloomberg.
In essence, there are many sources to get news of finance and news from the world of investments; current technology allows you to consult them at any time and from any country.
Given the delicacy of the topic and how financial news has a direct impact on the economy, the advice is always to choose the source carefully.
Pending order means a contract between the trader and the broker according to which the trader agrees to buy or sell an asset at a price set in the future. This means that the broker will open or close a position only when the price reaches the level indicated in the order.
Pending orders are essentially divided into 2 categories, limit and stop.
Limit order means an order that is executed only if the market price reaches a price level that is more favorable than the current market price. In other words, the “limit” price is the maximum price you are willing to buy or the minimum price you are willing to sell.
Limit orders can be used both to open new positions (entry or opening orders) and to close an existing position (exit or closing orders).
Under this category of pending orders we find:
- Buy limit
Buy limit orders go to buy when the ask price will reach a certain value defined in the order itself. With this type of order, the current price level is higher than the order value. These orders are used when it is expected that the price of an asset, after falling to a certain price level, will return to growth.
- Sell limit
The sell limit orders verify if the bid price reaches the value indicated in the order. In this case, the price level is lower than the order value. These orders are used if the price of an asset is expected to fall after reaching a certain price level.
A stop order, also known as a “stop order” is an instruction given to the executing broker when the market price reaches a less favorable level than the current price. In other words, with this type of order the trader goes to buy when the market has a higher price or to sell when the price is lower.
The question arises: why should a trader use this kind of order which proceeds in unfavorable conditions? There are several reasons why these orders are used. Let’s think, for example, of a case in which the trader has a suffering position and wants to stop the losses, avoiding losing further money. This is not an ideal situation, but in doing so the trader protects himself from losses that could dry up the account quickly. Knowing how to get out of a situation of loss is of fundamental importance in a general perspective of risk management.
As with any pending order, the main advantage of stop and limit orders is that they do not have to stay with their eyes glued to the screen to monitor market trends, as this type of order is automatically executed, even with the platform closed, and allow greater accuracy, reducing the intervention and the emotion of the trader in potentially intense moments from a psychological point of view, such as the one indicated above of a loss. One of the most common mistakes is not knowing how to stop the losses, in the hope that the market will recover. The use of automatic orders when opening a position makes it possible to reduce the emotion related to the moment.
Under this category of pending orders we find:
- Buy stop
Buy stop orders are orders that go to buy when the ask price reaches the defined value. The current price is lower than the order value. This type of order is used if the price of an asset is expected to continue to rise after reaching a certain price level.
- Sell stop
Sell stop orders are orders that go to sell when the bid price reaches the defined value. The current price is higher than the order value. This type of order is used if the price of an asset is expected to continue to fall after reaching a certain price level.
How to set a pending order?
In this example we will use a buy stop order:
This type of order is used, as indicated, to buy when the market touches a price level that is higher than the current one. This type of order is used if it is believed that the market will continue to move in the same direction when it reaches a certain level higher than the current one.
Let’s take a practical example with a negotiable asset 24/7, BTCUSD (Bitcoin vs. US Dollar).
Bitcoin is currently listed at $ 7184.61 / 7238.70. We admit that the graphical analysis indicates that the level of 7289.00 is a significant level and suggests that if this level is exceeded, the market will continue its upward trend.
We therefore decide to buy at 7300.00 if Bitcoin decisively exceeds the level of 7289.00 suggested by the analysis. The inbound buy stop order is therefore useful for our case.
In the MetaTrader WebTrader, we click on the second icon with a document and a green + in the bar on the right and we go on to define our parameters.
- Symbol: from the drop-down menu we choose the desired asset, in our case BTCUSD.
- Volume: indicates the desired trading volume expressed in lots.
- Stop loss: indicates the level of stop loss concerns the position once opened.
- Take profit: indicates the level of take profit concerns the position once opened.
- Comment: insert comment that we can then display in the open positions screen.
- Type: the type of execution, instant or pending.
Pending order parameters:
- Type: Pending order types. In our case we select “Buy Stop”.
- At the price: this item asks us to enter the price at which we want the order to be executed, where the market price reaches this threshold. For our order we select 7300.00.
- Expiration: optional parameter. Where we wish to indicate a valid date and time limit, simply click on the checkbox and use the pop-up calendar.
- Perform: once you have verified that all data entered is correct, we click on “Perform” to open the order.
- 4 hours after entering the order, the Bitcoin price actually rises to $ 7300.00, so the broker automatically executes the buy stop order and opens the position for $ 7300.
- Buy Stop Limit
This is an Advanced order that joins a buy stop order with a buy limit order. In other words, this is a stop order that goes to enter a buy limit order. When the ask price reaches the stop level indicated in the order, a buy limit order is created at the level specified in the stop limit price field. The stop level is defined above the current ask price level, while the stop limit price is set below the stop level.
- Sell Stop Limit
Also in this case we face an Advanced order that joins a stop order to a sell limit order in a single order. As soon as the bid price reaches the stop level indicated in the order, a sell limit order is entered at the level indicated in the stop limit price field. The stop level is defined above the current bid price, while the stop limit price is defined above the stop level.
Duration of pending orders
Pending orders for the opening and closing of an operation remain in “processing” until the set conditions are met. As soon as the conditions specified in the order are present on the market, these are executed. Not all pending orders are the same though, as it is possible to define the duration, unlimited or limited to a certain period of time. As a rule, English terms are used to define each category.
Good “Til Canceled
Good ‘Til Canceled (GTC) orders remain in effect until they are executed or canceled by the trader or broker. This type of order allows bids to be made for purchase or sale with a significant deviation from the current market price, with days, weeks or even months in Advanced. There are some conditions that can give rise to an automatic cancellation of the order, eg in share trading, a corporate splitting operation.
Good for the Day
Good for the Day (GFD) orders remain in effect until the end of the day on which the order was placed, or the closing time of the reference market. In the case of transactions on markets that do not close, such as forex, conventionally the end of the day corresponds to 24:00 server time.
Good ‘Til Date / Time
Good ‘Til Date / Time (GTD) orders allow traders to set a specific date and time when the order is canceled if it has not yet been executed.
The stochastic indicator is undoubtedly one of the most used and useful technical tools for online trading, which makes it possible to assess price fluctuations and provides indications on the momentum and strength of the trend, as well as aims to provide signals of entry and exit from the market of reference.
It is an indicator that is now over 50 years old and was born thanks to an intuition of George Lane.
In an interview, George Lane said “The stochastic indicator measures the momentum of the price. If you see a rocket going up in the sky, before it can go down, it must slow down. Momentum always changes direction before the price “.
In this practical guide we will discover some basic notions of the stochastic indicator and we will see briefly how to use it on the most used trading platform in the world, the MetaTrader 4.
- Types of stochastic indicators
- How to use the stochastic oscillator
- The stochastic oscillator on the MT4
Before talking about the stochastic, we consider it appropriate to clarify what is meant by momentum. Momentum represents the acceleration rate of an asset’s price.
The stochastic oscillator, like other oscillators, aims to make traders understand market trends by analyzing momentum and identifying input and output signals.
The stochastic indicator is an indicator formed by two lines that fluctuates between 0 and 100, evaluating the ratio of the current market price to the maximum and minimum values reached by an asset in a given period of time. The default evaluation period is 14 periods: this means that on a one week chart, the default reference period is 14 weeks, while on the hourly chart the default reference period is 14 hours.
This means that if the stochastic oscillator has a reading close to zero, it means that the market price of our asset will be traded near or below the decreasing minimum of the reference period. Conversely, if the indicator is close to 100, it will mean that the asset price is exchanged near or above the rising maximum of the reference period.
Nowadays, all trading software automatically calculates the stochastic oscillator, so it is not necessary to know how to calculate it. However for math fans and more technical traders we give the most common calculation formula:% K = 100 (C – L14) / (H14 – L14)
C – Represents the most recent closing price
L14 – Represents the minimum price reached during the 14 trading periods analyzed
H14 – Represents the maximum price reached during the 14 trading periods analyzed
Types of stochastic indicators
There are 3 types of stochastic oscillators:
- Fast oscillator :
It is the oscillator closest to the original idea of George Lane, which as indicated before, evaluates the relationship between the maximums and minimums in a certain period of time and the closing price, thus tracing the% K value, which we will see on the graph afterwards. Furthermore, the fast stochastic indicator also draws the% D line, which is given by the moving average of the% K line, generally with 3 periods.
- Slow oscillator:
One of the main criticisms of the fast oscillator is its reactivity and therefore it is difficult to apply and interpret due to false signals.
The slow stochastic oscillator draws a% K line calculated as a 3-period moving average of the% D line of the fast stochastic.
The slow stochastic is therefore directly related to the fast stochastic. The% D line of the Slow Stochastic is calculated as a 3-period moving average of the new% K line.
The advantage of this type of stochastic oscillator is the lower sensitivity to price changes and therefore a reduction in false signals.
- Full oscillator:
It is a more flexible derivative of the Slow Stochastic, where you can customize the number of periods for the% K and% D value. This is the most used version by most traders. The MT4 customization opportunities allow you to use this oscillator in a simple and practical way.
How to use the stochastic oscillator
The stochastic oscillator has two lines, the% K continuous line, also known as fast line, more sensitive to price changes, and the% D dotted line, also known as slow line, which allows you to generate sales or purchase signals.
When the stochastic has a high value, it means that the price has closed near the upper margin of the interval in a certain period of time.
In particular, when the stochastic oscillator lines exceed the level of 80, indicated by upper dashed lines on the MT4 graph (see below), we tend to talk about a market condition of overbought. But care must be taken, as these expressions often lead to very common and costly errors of evaluation. This happens because we tend to link these thresholds with extreme market conditions, instead of remembering what the stochastic indicator is used for, ie assessing the momentum. When the stochastic has a value above 80 it indicates that the trend is strong and not necessarily that it is likely to witness an imminent reversal.
Conversely, when the stochastic lines are below the threshold of 20, appreciable from the lower lines drawn on the MT4 graph (see below), we talk about market conditions it is oversold. We reiterate once again that this does not necessarily mean a turnaround and above all that this takes place in the short term.
There is talk of divergences when price movements are not confirmed by the stochastic oscillator. Specifically, there is talk of a bullish divergence when the price registers a decreasing minimum, but the stochastic records a growing minimum.
Conversely, there is talk of a bearish divergence when the price records a rising maximum, while the stochastic shows a decreasing maximum. These divergences can indicate in certain conditions possible trend reversals or at least the end of a trend.
There are different configurations and signals generated by this indicator, but we will leave out these indications on the meaning of each configuration to more in-depth courses and webinars that make it possible to analyze real market conditions more easily.
In general, however, we note that this indicator alone provides nothing more than momentum information.
The stochastic oscillator on the MT4
To use the stochastic oscillator on the MetaTrader 4 platform is sufficient:
- Open an account.
- Open the chart of an asset with the desired reference period. In our case we opt for the GBPUSD pair, with an H1 chart.
- At this point, click on “Insert” or “Insert” (for those using the Italian version)> “Indicators” / “Indicators” & gt; “Oscillators” / “Oscillators”> Stochastic.
- At this point a menu will appear with the oscillator parameters. We can opt for% K at 14 periods, while we will use the default setting for% D to 3.
- If you want to change the parameters later, right-click on the line and we can change the settings and delete the indicator.
In particular it is possible to change the calculation parameters of the indicator, ie the periods used, and the display of indicators such as color, line size, etc.
The stochastic oscillator is used for different purposes, including helping to define price trends and assessing optimal entry and exit points. Many traders tend to arbitrarily evaluate overbought / oversold conditions on the basis of 80/20 levels, thus arriving at wrong conclusions about the future direction of the price, also because of the false signals that are generated. This indicator, taken by itself, can only indicate the strength of the trend, namely the momentum. The stochastic indicator, as usual, is not an absolute indicator and should be used in association with other indicators, in a framework of technical analysis of financial markets and a broader fundamental for determining entry and exit points.
What is a trading plan?
Most of us make plans in our lives to pursue our personal priorities and succeed. In online trading, the difference between a profit or a loss transaction is often subtle, so knowing how to make the right choices is crucial. If you do not have a strategic or investment plan, the prospect can only be a failure. The basis of an online investment plan is the definition of a set of rules and guidelines that can help you achieve your goals.
The importance of having a trading plan
Entering the world of online investments can be frightening and you will lose money while pursuing your career as a trader while trying to follow the activity and market fluctuations. Traders tend to exploit signals, stock market indices, forex technical analysis and / or daily news on Italian stock market shares, to follow market patterns and changes. However, properly planning your operations will help reduce the risk of draining your account.
Surely, many of you have come to this world because you are driven by easy money. It is clear that like all good things, online trading also presents risks, but that can be contained and reduced to a minimum by following simple advice. Furthermore, it is advisable to invest in assets with low volatility, to avoid sudden surprises. Among the most reliable assets, online stocks, cryptocurrencies such as litecoin and oil prices undoubtedly stand out.
Buying stocks is a type of investment that is unlikely to experience performance losses. Let’s take Apple shares as an example. The ever-growing colossus, investing in it can generate huge profits.
How to develop a trading plan
- Personal analysis: make sure you’re ready to trade and know how to follow the signals without hesitation. Find out what your strengths and weaknesses are before opening a position.
- Objectives: start with writing your goals and setting realistic goals. Always keep in mind and evaluate your financial goals and timeframes to achieve each goal, making sure to close the position whenever you generate success, without becoming greedy.
- Identify the markets of interest and the reference times: select the market on which to operate based on your knowledge and your experience. The best market is the one you know best. It makes no sense to open a position in a foreign market that you do not know because it is simply believed that it can give rise to profits. Furthermore, it always checks the trading hours of each individual market, as timing is fundamental when working on the markets.
- Define how much you’re willing to risk: whenever you open a position or feed your account, make sure you don’t pay more than you’re willing to risk. It is important not to get caught up in emotions when investing, therefore feed the account and stick to the amount initially deposited. Check your assets through appropriate money management systems, called fund management.
- At this point we must define when to open a position and in which direction (purchase or sale). The analysis of the graphs or the reading of the latest market analysis plays a fundamental role in this decision-making process.
- Define the entry and exit points. In other words it is necessary to define the levels of stop loss (block of losses) and take profit (taking of benefits). Leaving a certain margin for corrections may be appropriate, however it is important to ensure that emotions do not take over while investing.
- Manage emotions! Do not allow your feelings and emotions to cloud your judgment. Manage everything like a normal business activity.
Items to consider in your trading plan
- The profitability objectives must be realistic
- Relying on the best Italian brokers
- How to determine the size of the positions in relation to the budget available
- Keep track of your operations, or what has been opened and what has been closed, on the best online trading platforms, what has given rise to a profit and what has generated a loss, etc. This sector is referred to as a “trading diary” and this is a particularly useful tool for assessing the overall performance and accuracy of the forecasts made.
- Keep up to date on the financial news of the day
- How to manage positions once opened
- Definition of impartial criteria that can be used to select, open and close transactions
Always stick to your plan!
Questions to ask yourself when defining a plan:
- What motivation do you have for investing online?
- What is the approach adopted with regard to risk?
- How much time do you have to devote to trading?
- What level of knowledge can you rely on?
Why create a trading plan?
For the same reason, when you start building a house, you define a project and don’t start buying bricks and concrete without having first defined the foundations and having made the necessary calculations of how much money you will be spending.
In the financial world, things work in a similar way, so even if you already have experience in the markets, this is not enough to invest blindly. Forex and CFD trading should be treated as a company, with a structure for successful growth.
Furthermore, when there are sudden changes in the markets, a detailed investment plan will help you meet your goals and avoid hasty decisions that you may regret later. Investing in an objective manner with a well-defined plan will allow you to have more self-confidence and to participate in a less emotional way.
Everyone should have a trading plan
Whether you’re getting ready to enter the financial jungle, or already a trader with some experience, it’s always important to be prepared. A good plan will help you in different aspects, like identifying your goals, organizing your research and finding statistics for your activities. The decision as to which direction to take to be in agreement with the performance of the markets will help you manage your emotions when you suffer a series of losses and will provide you with help to recover from an operation gone wrong.
What are pips?
A pip, short for percentage in point or price interest point, is the smallest numerical price movement of an asset (share, index, currency pair etc.). Generally when a price changes on the stock exchange it refers to a pip variation.
Since the majority of the pairs is quoted up to the fourth decimal place (€ 0.0001), the smallest variation refers to the last digit after the decimal point, for example € 0.0001, or the 1 indicated in the example. While a pip refers to the fourth decimal digit, a pipette refers to the fifth decimal digit.
For most couples a pip is equivalent to 0.01% or the hundredth part of 1%; this value is also commonly known as BPS. A base point (BPS) refers to a common unit of measurement of interest rates and financial percentages. A BPS equals 1/100 of 1% or 0.01% (0.0001) and denotes the percentage change in the exchange rate.
Calculate the value of a pip and the size of the position
As indicated, a pip corresponds to the 1-point variation of the fourth decimal place of a currency pair’s exchange rate. With this definition in mind, let’s see how to calculate the movement of a pip, as well as the price movements:
- Calculate the price movements in forex
Now that we are clear what a pip is, let’s find out together how much we can gain or lose for each price move.
The size of the position influences how much we can earn or lose; with the same price movement in pips, larger positions will have greater consequences on your balance.
We can calculate the value in a simple way: position size x 0.0001 = monetary value of a pip
Let’s look at a brief example with the EUR / USD pair: Let’s say we open a position with the size of 10,000 units and calculate the value of a pip like this: 10,000 (units) x 0.0001 (1 pip) = € 1 per pip.
When a PURCHASE position is opened and the market is in favor, for every 1 pip movement there is therefore a gain of € 1.00, and vice versa in the case of a SALE position. If the markets and trends move in the opposite direction to your choice, be it buying or selling, there will be a loss of € 1.00 for each pip of movement.
The increase or decrease in the number of units will have the same effect on the pip value.
The pips with the major currencies
The pip values vary depending on the currency, as they depend on how the currency is exchanged. On some trading platforms, even if it is rare, it is possible to record a price movement in half-pip increments, while the value of a pip is the standard for most interfaces. However, this depends on the trading platform and the price feed, as there are systems that show 4 decimal digits (pip) and others that show 5 decimal digits (pipettes).
The major currencies traded by investors and traders are the Japanese yen (JPY), the British pound (GBP), the US dollar (USD), the euro (EUR) and the Canadian dollar (CAD). These major currencies can be paired with each other or other more exotic currencies.
When trading, it is important to keep the average daily intervals in forex monitored in order to assess currency market volatility. If the couples do not reach the estimated intervals, no profits will be generated, and lower targets will have to be set.
It is recommended to carefully monitor the average daily intervals of interest.
|Forex pair||New York||Tokyo||Londra|
Applied psychology in the world of online trading
To be successful in the field of online trading with Forex and CFDs, a trader must prove that he possesses many skills and develop several skills. These include: understanding the basic principles of trading, technical trading analysis and fundamental analysis, markets, etc. An element to say the least fundamental then, is the psychology of trading.
Although this is not a real academic study, the right psychological approach to the subject is able to turn a trader’s experience towards success or failure. When starting to operate in the world of online trading, traders develop strategies trying (obviously) to get as much profit as possible. Knowing how to manage one’s emotions while maintaining the right amount of discipline in one’s business is an equally necessary skill.
Trading never stops. One moment you are in profit, the second after you lose. It takes presence, always and in any case. In the world of trading, you learn to make quick decisions. The moves must be weighed from the beginning. Sticking to the initial plan without venturing into risky maneuvers when you’re in trouble is the best way to make balanced choices. In other words, leave your emotions outside the door! In any case, it is useless to think of getting away without doubt that they are going through the brain. As a trader prepared to confront yourself with all your emotion.
Emotions in trading can lead to valuation errors with inevitable money losses, so here are the most common feelings experienced by traders:
When trading, fear is probably the first emotion you feel when you start seeing charts, screens and information you can’t understand. This is really a horrible feeling. You might even want to run away running through the hills to avoid investing and thus feel safe, but by doing so you will lose potential earnings. Fear can be a limiting factor, causing potentially unprofitable positions to be opened, so here is the importance of correctly calculating risks in trading. Understanding what is the fear that lurks inside you is the first step to overcome your emotions, a feeling that can make you pull back just because you are starting to try your hand at something you still know little about. However, trading is not a threat. There is little to fear when trading. What is needed is simply time and knowledge to understand what you are doing, why you are doing it and how you can take advantage of all this.
Greed can be your worst enemy. In order not to be overwhelmed, you need to know when it’s time to leave the field and pocket the profits. Experienced traders would never want to disconnect when the trading proceeds well. But this mentality can be your downfall. Markets are not for people who believe in sensations, and changes, dictated by specific elements, are on the agenda. Overcoming a blow (loss) is never easy, but defeating greed will be even more difficult. Concluding positively a trading operation does not guarantee that the next one will have the same outcome, so exit the position and enjoy your earnings. It is very important to recognize as soon as possible “the greed alarm bells”, decide that you don’t have to “do a little more” and stick to your trading plan which you have already based your initial decision on, after careful reasoning and evaluation techniques. Greed can lead to excessive exchanges, a condition very similar to gambling addiction that must be absolutely avoided.
In Forex, hope is a rather pointless emotion. Even if all traders experience it, it can be quite harmful. Positive thinking for a trader is important, but the optimism must be kept under control anyway, comparing daily with reality. Traders often fall into the trap of creating a false sense of hope that markets will adapt to their expectations, saving their positions if they give it a little more time. This is a textbook example of the wrong approach to trading.
From fear to panic, here is anger pushing traders to repent of having lost a good deal. You could therefore be tempted to enter the same “missed” trade with the hope of getting a profit but on which you have already arrived too late and therefore facing an inevitable loss. Excitement and regrets can both be dangerous to experience during decision making. The regret can be transformed into demotivation after a series of failed exchanges, gradually slipping towards frustration and finally to “close shop” by saying goodbye forever to the world of online trading. The solution is to maintain a certain discipline in one’s business and judgment. This is exactly what successful traders have done and they are what you will have to fight for.
The right mindset for trading
Knowing your psychological profile means knowing how to dominate emotions, reactions and limits, maintaining discipline every time you start trading.
Tolerance to risk is an important factor in trading and largely defines the decision-making process. In essence, risk tolerance is the degree of exposure to investment that you are willing to take.
A realistic understanding of the markets, the risk-return ratio and the real-time decisions you need to make will have a crucial impact on your risk tolerance. Another factor to take into account with risk tolerance is the amount of money you can afford to lose if the markets do not turn in your favor.
Manage your emotions
Knowing how to manage one’s emotions during trading operations is the best possible, mature and indispensable approach. Trading can get quite stressful if the position suddenly turns the wrong way. Many traders make irrational or “on the fly” decisions, which often turn out to be busted and disadvantageous.
Emotional reactions are often the result of bad trading, while well-considered and reasoned decisions reflect good business activity. It should be emphasized that the most experienced traders make calculated decisions on each trade, not relying on a spontaneous decision that could end their entire career, and for this they are busy with the practice.
Every trader, be it a novice or an expert, has the opportunity to get in touch with our customer support team to learn how to manage their emotions. The initial account allows you to practice trading and learn about the markets without any risk to your capital. At the same time you will be followed by one of our customer support members.
That said, it is fair to specify that having a real money account will stimulate a different emotional reaction, but the foundations remain the same. “If you can’t plan, then you will fail,” it sounds true when you trade. Planning each trade will ensure you succeed as a trader. Secondly, having a trading plan in place ensures that you remain right in your decisions even in the most difficult and unexpected moments of the Market.
Try one of our most Advanced trading platforms and connect with our 24/7 customer support in your language to prepare for a proper understanding of the markets. Switching to a real account combined with the peace of mind of having chosen a trusted and qualified broker like we are, supported by a positive attitude, will allow you to be emotionally ready to face the market.
What are stock quotes?
The quotations on the stock market represent the price of a particular financial product (for example a stock or a btp bund spread). The reason a company puts on the market (on the stock exchange) the “bits” of its company is to finance itself. The investor for his part seeks actions to buy because he believes that the company will have growth (and therefore a profit). One of the most selected actions by European investors is Unicredit shares, one of the most influential and powerful banks in Europe.
A stock market listing consists of:
- The name of the product
- Last price: the current price of the stock on the market
- Variation: expressed as a percentage, it indicates the trend of the product (green indicates positive while red is a sign of loss)
- Volume: amount of money exchanged.
- Price money: from English ask is the best price at which the seller can sell the financial instrument he owns
- Letter price: from English to bid is the minimum purchase price of a particular financial product
- Opening price: indicates the price with which the morning session opened
What is the stock exchange?
From a simplistic definition, the Stock Exchange is that regulated financial market in which mobile values and foreign currencies are exchanged. In essence, only instruments already issued run in the stock exchange circuit. This is why we talk about secondary and non-primary markets.
The latter (primary) is instead the virtual place in which are placed new shares and bonds just issued on the market. Instead, the stock exchange only concerns financial instruments already in circulation.
And especially when it comes to secondary instruments that can be purchased on the stock exchange, the mind immediately goes to those financial products known as ‘stocks’ and ‘bonds’, at least in the imagination of beginner trading.
What are stocks and bonds?
The main financial securities that can be purchased and sold on the stock market in online markets are shares and bonds (for Americans “equity” and “debt”). In addition to the titles deriving from these. Two tools that are often combined but that have profound differences:
The shares are a security that guarantees the right to hold a capital share of a public company listed on the stock exchange. The financial news, in this sense, can play a fundamental role. This fee is obviously proportional to the percentage purchased. In essence, a company listed on the stock exchange goes to divide its value into many shares, some of which can be bought on the market in the form of shares.
An investor who purchases a share becomes a partner of that company and may be entitled to the dividend (portion of profit distributed among the shareholders) at the end of the year, if any. In addition to the annual dividends, those who invest in shares usually do so with the hope that the securities purchased will increase in value, thus reselling at a higher price.
The bonds are debt securities that give the holder a right to have the invested capital repaid at a predetermined time limit; plus a small capital gain. They therefore represent a part of debt that a company or public body goes to turn to finance itself on the market. Unlike shareholders, those who hold an obligation do not participate in the management activity of the issuing company.
Basically, therefore, the main differences between the two most well-known instruments that can be traded on the stock exchange are that one (the shares) is a risk capital that one goes to buy from a company, becoming partners, with all the dangers of the case. The other, the obligation, is a sort of loan that will be repaid by guaranteeing an interest. Whoever buys a company’s bonds becomes a creditor.
From what has been said so far it is clear why the shares are considered, with good reason, more risky instruments than the bonds.
The Italian Stock Exchange: Piazza Affari
The stock exchange market is a physical market, unlike, for example, the Forex market, which is entirely virtual. There are several branches of the stock exchange, each in principle being part of a territorial reality.
It often happens to read the words “the New York Stock Exchange” or “the Frankfurt Stock Exchange” in the newspapers. And the Italian market is part of the so-called Piazza Affari, the Milan Stock Exchange. Founded at the beginning of the nineteenth century, it is now the headquarters of one of the main European level scholarships.
On the Milan Stock Exchange it is possible to trade in shares, bonds and so-called derivative instruments. The best-known Italian index, that is the one in which the main Italian companies are listed, those with the largest capitalization, is the MIB Index. Here are the securities with the highest liquidity in the Italian market. The companies that should represent the top of our country’s finance.
Mib30 and FTSE Mib
The FTSE Mib is the direct derivation of the so-called Mib30: another index of the Italian stock exchange which was to bring together the 30 companies with greater capitalization and liquidity on the Italian stock market (MTA, the Italian Stock Market for notes).
In essence, only listed companies that had a particularly solid economic and financial structure were included in the MIB30; and a level of capitalization of more than € 1 billion.
The Mib30 has been replaced by the FTSE Mib, which has expanded to include the 40 top Italian companies in terms of market capitalization. The transition took place in 2009, following the merger between Borsa Italiana and the London Stock Exchange that kicked off the London Stock Exchange Group. Following that merger the Mib30 index was replaced by the FTSE Mib; and the companies included in the Italian finance elite rose from 30 to 40.
How are the stock market prices established?
In the market jargon, talking about quotations means going to define the value assigned to securities, bonds and other listed instruments to be exchanged in stock exchange trading. Often referred to as stock quotes, from the English-speaking language, stock market quotations follow a natural trend, in the sense that the value of each security is simply calculated by the market itself.
In essence, it is the supply and demand for a given security that generates the final listing on the stock exchange. Obviously the final price of a share is influenced by factors such as the performance of the company in question, expectations on the stock and growth prospects.
All these parameters then determine the request for a given security on the market, thus helping to generate the listing within the stock market.
The essential guide on Fibonacci trading
In the financial and trading field in particular, we often hear about Fibonacci. Leonardo Fibonacci is a famous Italian mathematician of the thirteenth century who has theorized how different natural phenomena follow a very precise scheme, which can be summarized with a series of numbers.
Some traders have had the intuition to apply the Fibonacci theory to financial markets, arguing, with some creativity, that price fluctuations can be considered “natural phenomena”. Over time this intuition has found various confirmations in the facts, creating an indissoluble link between trading and the Fibonacci series.
The Fibonacci sequence
The Fibonacci sequence consists of the following values:
As can be seen from the table above, each number of the sequence is given by the sum of the two previous numbers.
The Fibonacci sequence can be summarized using the following formula:
F n = (F n – 1) + (F n – 2)
If you divide a number by the previous number, you get the so-called golden section of about 1.618. For example, 21 divided by 13 is 1.6154, while 144 divided by 89 is 1.6180.
Now let’s see how the Fibonacci sequence relates to trading.
The Fibonacci sequence and finance
The Fibonacci sequence and the golden section find different manifestations in everyday life and in nature.
Some derivations of Fibonacci numbers have been found in science. In finance we find, for example, the inverse of 1.618 (0.618 or 61.8%) in describing some movements that take place on the markets, as well as other derivations, such as 38.2%, 50%, 23.6%, 151.8 %, 423%, and so on. These percentages are calculated by dividing a number by the different positions of the Fibonacci sequence.
These percentages define the basis for the division of the chart into various bands. The lines that separate one band from the other are called “retracements”.
The ratio between one percentage and the other, which on the graph is represented by the point on the y-axis that intersects the retracement, is approximately 1.618.
Retracements can be interpreted in different ways, which we will explore in more Advanced courses on Fibonacci, but in the first analysis we can consider them as support and resistance levels.
Difference between Fibonacci retracements and extensions
The Fibonacci retracement levels are those below 100% of the price fluctuation, while the extensions exceed 100%. Retracements and extensions can be considered as support and resistance levels and / or can represent profit targets.
Fibonacci levels: how to create them on MT4
Before continuing with the retracement theory, we want to see in a practical way how to visualize the levels on the trading platform most commonly used by traders. There are several ways to track Fibonacci levels. Let’s take a look at the more practical one.
We specify right from the start that the MT4, as well as other trading platforms, includes Fibonacci among the preset technical tools, so it is not necessary to manually calculate the levels of retracements and extensions.
From a purely practical point of view, to use the Fibonacci indicator on MetaTrader 4 it is sufficient:
- Open an account
- Open the chart of an asset with the desired reference period. In our example we opt for the GBPUSD pair, with an H4 chart.
- At this point click on “Insert” or “Insert” (for those using the Italian version)> Fibonacci> Retracement (retracements).
- Click and hold down on the point in the graph from which you want Fibonacci to start.
- Move the mouse to the end point, then release the mouse button.
To customize the Fibonacci retracement indicator levels:
- Right-click anywhere on the chart
- Click on “Objects list” / “Object list” or press Ctrl + B
- Select the Fibo object and click on “Edit” / “Edit”
- From the tab “Fibo Levels” / “Fibonacci Levels” you can add or delete the desired levels. We prefer to apply the default levels by clicking on the “Defaults” / “Basic” option.
- All that remains is to confirm the choice by clicking on “OK”. To eliminate Fibonacci from the graph, simply follow the first 2 steps of the procedure described above, then select the desired Fibo object and click on “Delete” / “Delete”.
In general, Fibonacci is traced from a maximum to a relevant minimum in the reference time period, but it is possible to draw retracements also from lower maximums / minimums within the reference time period. Conversely, if you start from a minimum and end with a maximum you go to outline an extension.Many traders at this point wonder, but what time period should I use or how many retracements is worth drawing? There is no single answer to these questions, as much depends on the objectives that are set.In particular, we need to think in terms of relevance for the reference time horizon.In other words, if you want to open long-term positions and think about the movements that have occurred in the last 6 months, it is not particularly sensible to draw Fibonacci intraday levels.
First of all, Fibonacci levels are used by traders to define points where they can buy on the occasion of market reversals or sell on the occasion of rallies.
In particular, buyers will seek a retracement from a Fibonacci level in the presence of an uptrend, while sellers will want to identify a retracement in the presence of a bearish trend.
There are defined main levels for this purpose, which are: 23.6%, 38.2% and 61.8%. Even 50% is an important level, but formally it is not a Fibonacci level. The 50% level is in fact considered more a psychological level.
In an absolutely general line, many analysts believe that at the level of 23.6% the pullback has not yet been sufficiently tested, therefore it is necessary to have a certain conviction in its operation to buy at that level. Of course it is not a question of relying on intuition, but of seeking other confirmations from other factors.
38.2% is considered a more prudent level. In other words, it may be more plausible to buy at this level, but it is againnecessary to look for other reasons, for example of a fundamental nature or in the presence of a solid inversion pattern.
Levels of 50% or 61.8% often see sellers taking short-term benefits in a still bull market, so the trend can be expectedto pick up more organically.
The level of 61.8% is to be monitored: when a trend drops too far below this level, it is difficult to think that buyersbuy again. However, it can be a useful level to insert stops for purchases at 38.2% or 50%.
From a strategic point of view, it may be worthwhile to insert a stop at a distance of a level. However, it is good toremember that even if the price is expected to increase, it does not mean that in the meantime it cannot suffer a decline,potentially reaching the stop (especially if positioned near the current market price). For this the trailing stop comes tothe rescue, which offers greater flexibility.
To make extensions, Fibonacci lines are drawn in the opposite direction with respect to retracements. If we have a bull market, the extensions will be visible by drawing a line from a maximum to a minimum.
Extensions are useful for planning exits. Once again it is psychological numbers that market operators tend to respect sometimes. In particular we note 161.8% as the first extension and 261.8% as the second extension. There is a third, less used, extension of 423.6%.
The Fibonacci level theme is extremely vast and complex. Here we wanted to present you with an essential and basic guide to understanding what Fibonacci is, what it is for and how it can be useful. The above is not an absolute guide, nor advice on how to act, as no one will ever tell you what the future will bring and trading is not an exact science.
However, Fibonacci levels are very popular and tend to create psychological levels that many operators adapt to. Often Fibonacci support and resistance levels, although arbitrarily defined by mathematical formulas, become a self-fulfilling prophecy, as an extremely high number of traders recognize these levels as reference levels where to intervene. Having said that, in trading it is important not to take into consideration only one datum, indicator or level taken into consideration, but to evaluate the general technical and fundamental framework of the operation, as many are the variables that come into play in determining market trends .
What is scalping and what are its features?
The term Scalping can be translated into Italian as “scalpare”, to take away to the market, quickly obtaining a positive profit with a scalpate. Therefore scalping is the activity of opening and closing positions on various financial products in a short period of time; that type of operation that tends to identify and acquire the micro-oscillations of prices over a 24-hour period. This type of activity is the basis of online Forex.
As anticipated, the scalping procedure has speed as its distinctive trait, which is why the operation is used mainly by traders – known as Scalper experts with a distinct market orientation.
Both trading operations aim to get a profit quickly; the subtle difference that diversifies the two operations can be seen in the Time-Frame. Unlike scalping, operation for up to 1 minute, day trading operates with slightly higher time frames, not exceeding 15 minutes.
Operate with scalping
Scalpers operate on methods and strategies with different time-frames, such as for example Range trading and Trend following: non-directional trading strategies with well-defined and contained risk parameters and gains.
Price inclinations are partially predictable in the markets, for this reason scalpers operate in a practical and fast way, optimizing the possibilities of gain through market volatility.
As written so far, scalping can be defined as a new speculative technique whose immediate price changes to which the scalper aims are expressed within the book.
Therefore it is understandable that the book is one of the pillars of this new market operation being a list in which the sellers and buyers are registered and classified with attached proposed quantities compared to a specific market title.
The book’s function consists in highlighting the first five groups of salespeople – sales proposals – and buyers – purchase proposals – at a specific time of the day at which a scalper can draw to improve their market operations. To conclude, operating within the book is the result of so much market experience and in the sector, it indicates how and when to move, allowing the scalper to make profits through the awareness of his own profile of risks and needs.
What is the Financial Leverage?
The scalper’s behavior towards financial markets finds a real similarity in the trading operation used by most professional traders or at least with a distinct market orientation:
The leverage – also called leverage – is a type of procedure used and advisable, a trader with greater experience in the field of financial markets.
Leverage allows traders who use their capital responsibly and have a good grasp of the market to be able to multiply the return on their investment.
The system has its own dose of risk but if used with good mastery it can lead to excellent gains.
The book as an operational divergence
The intraday trading operation has created a subtle divergence within the market methodologies between scalping and technical analysis of financial markets.
For the scalper, the graphical analysis is not as essential as the direct consultation of the book, on the contrary for the analyst the graphic system is necessary to consult the book and understand the price trend in order to optimize them. This discussion is the result only of different trading operations, each with its own characteristics and its effectiveness.
Strengths of scalping
Scalping is part of that type of trading that allows traders to be constantly updated on their earnings with every single forex market transaction. This process has considerable advantages in terms of profits:
- Daily profits
Scalping, an intraday trading operation, allows traders to be more aware of their earnings. Being a one-day operation, in addition to being very fast, it allows the scalper to carry out more market strategies, leaving the latter usually with a higher profit.
The scalper with good market skills can earn from 50 to 100 euros per single operation!
- Low risk profile
Despite being a transversal and not a little demanding market operation, scalping guarantees a distinct risk management. Here too, speed and experience are essential elements for the scalper; it is therefore possible to close a presumed little advantageous operation in a very short time. The loss, almost ridiculous, is in pip – price interest point – the smallest numerical price movement in the trading market. The pip refers to the last digit after the decimal point, for example $ 0.0001. A low risk.
In trading you need to know the trend and the direction of the market. Unlike scalping does not account for this, which is why this trading operation is always operational in any market.
Scalping allows you to earn little but in a constant manner, as mentioned, even from the smallest micro-market fluctuations, which escape traders from different operating methods.
What does it mean to speculate on the stock exchange?
Speculating on the stock exchange means taking advantage of fluctuations in the prices of market prices to try to obtain high profits in online forex.
The great revolution of the web is accessibility. Anyone can find out about any topic you want. The problem, if anything, is the overabundance and the need to disentangle between the actual specialized sites and those that pretend to be.
In the midst of this information indigestion, the world of the Italian stock market has also arrived. Once reserved for the “white shirts” of Wall Street, today in the hands of anyone who wants to learn and have an internet connection.
You do not become an expert on the International Markets in a week and where easy money is sold off, it is just a lie with related scams.
If it were really so, they wouldn’t make it public. At the same time, there is no doubt that online trading today has become available to everyone and can represent a second significant entry.
The characteristics of an online trader
- desire to learn
- a precise budget
- ability to manage stress
The fascinating world of action
The brokers at Martin Sheen (Oliver Stone’s Wall Street) have not disappeared, but certainly new figures have come and gone. One of these is the online trader. Once the formula was simple. An individual relied on a broker and this issued orders and bought on behalf of the client.
Nowadays intermediaries are an endangered breed and users can do everything themselves, with the collaboration of a quality site, by focusing on raising or lowering the price. A game of head or cross, the evil ones support. Try it for yourself with two thousand euros in your hand and then talk about it again. If the final step has undoubtedly been simplified, reaching a decision is much more complex and we must commit ourselves.
How many are the influences on speculation?
A sudden downpour destroys the entire crop. A threat of economic hostility. A wrong analyst forecast. These like thousands of others are factors that can manifest themselves from one moment to another and change the price of a raw material, such as oil or whatever. The trader can, or better must take advantage of it. This is speculation.
But beyond what the word evokes, there is absolutely nothing illegal or wrong with all this. It could be defined as “instant trading” and the great strength is that thanks to the development of mobile telephony it is possible to operate anywhere and at any time.
The real trader can wait ... and in the meantime what does he do?
Regardless of what anyone who knows about Facebook, it is already so much if in our lives we can be recognized as experts on a single topic. The world of traders is not made by philosophers or poets.
It is practical people who aim at the jugular of finance. He wants to make money and he doesn’t want to lose. The trader does not throw himself on the CFD of the coffee, on the Index Mib Index or on the Unicredit Shares in a rambling way or without bases. The trader cultivates his assets and follows them. Activate the right channels to always be aware of them.
He knows how to wait but unlike some petty philosophy he is not standing on the banks of a river waiting for the carcass of some investment. Study and improve. Compare. It follows like a feline. Then attack and collect.
The best choice
The big “flaw” of online trading speculation is to allow the small-medium investor to fill their pockets. Needless to get lost in big words or effect sentences, this is the reality.
In less than twenty years, CFDs, contracts for difference, have been able to reach millions of people around the world, earning billions. Disembarking on the website, both the most experienced high finance shark and the most naive neophyte will be able to ascertain that:
- the tutorial apparatus is so impressive that it can almost be presented as a small online trading school
- assistance is constant
- it aims at preparation, and at creating new traders
- the more you invest, the more benefits you get
- wide range of speculation methods and assets to invest in
- constant accessibility to the whole apparatus
- no restrictions on operations
- the great advantage of leverage, ideal for low investments and large profits
Oscillano, ergo speculo
You have reached this point in this text, what do you think I can still tell you? I will not give you the magic wand to know if tomorrow Bill Gates will surprise everyone with a revolutionary product or if maybe some nation will end up bankrupt. If you are still reading, it means that you are really interested in the subject. Then show me where you want to go. Once registered:
- you can participate in webinars
- you can download ebooks and interact with other traders
- you will push yourself to constant improvement
- receive very useful advice on how to invest
Prices fluctuate, speculation comes into play. The story of Billy Beane, General Manager of the Oakland Athletics, a Major League franchise, demonstrates how dealing with an apparently insurmountable problem (challenging teams with millionaire budgets with few resources) from a different and innovative perspective, can give enormous satisfaction.
Online trading has succeeded in this endeavor and now the base of the International Market is no longer just the New York Giants or the Boston Red Sox but is full of Oakland Athletics who want and can make their mark.
What is the stock market?
This is the telematic square in which the greatest number of trades which have as their object actions, namely shares of corporate capital, takes place. The stock market takes the name of MTA (acronym for Electronic Share Market), but in terms of confusion, it should not be confused with the Piazza Affari Exchange. As the stock market is a part of it, albeit one of the most conspicuous.
The stock market is the place where the shares of listed companies are traded both over-the-counter (OTC) and through centralized exchanges. The stock market represents a free market economy, as it offers companies the possibility of accessing capital in exchange for the sale of a portion of the ownership of the company to interested third parties.
The stock market offers investors the opportunity to increase their income without being subjected to the high risks, the general and opening costs of establishing their own business. On the other hand, the sale of securities allows companies to expand exponentially. When you buy a company’s shares there is usually an increase in the company’s balance sheet. This is why online trading on the stock market can represent a victory for both the investor and the company.
Stock market how it works
The online stock market (MTA) represents the segment of Piazza Affari in which equities are traded. The MTA is divided into:
- Primary market, where newly issued securities are traded. First issue securities are placed on the primary market. This is an open stock market, where the shares of a company are offered and sold for the first time and it is the same company that issues them on the market. All movements are monitored by analyzing the economic calendar. Being listed in a primary market is a source of credibility for a company and this in turn leads to interest from traders to the company. The primary market is dominated by large investment institutions, such as investment banks, hedge funds, etc. …
- Secondary market, where the securities that are already in circulation are traded. On the secondary market, investors negotiate with each other the securities already in circulation, without the company that originally sold the security being directly involved in the transaction. The purchase and sale of shares owned by investors is the most typical idea of the stock market, even if the securities debut on the stock exchange primarily on the primary market.
- Over the counter market (OTC)
The OTC market, also known as trading outside regulated markets, allows investors to take part in the buying and selling of securities from a decentralized market. Decentralized means that the purchase or sale transaction takes place between two parties, such as the trader and the broker. Transactions are generally performed electronically or by telephone, email or through a trading platform, and not through local stock exchanges. The OTC market is reserved for securities and prices that normally differ from those on the stock exchange.
Invest in stocks
When it comes to investing in the shares of a particular company and trading, there are several strategies you can adopt to try to generate a profit.
It is a simple trading strategy, in which certain selected shares are traded for an amount lower than their intrinsic value. This type of investor is constantly looking for undervalued securities, from which to generate profits. This type of investment does not require any training of a financial nature, however before attempting to trade and purchase equities, a knowledge of trading and basic financial concepts is recommended.
Price / profit ratio
The price / earnings ratio or the P / E ratio is the measure of a company’s current share price in relation to earnings per share. The price / profit ratio is calculated as follows:
share price of the company divided by earnings per share (EPS) = market value per share. The P / E ratio is the equivalent in dollars that a trader can expect to invest in a company in order to receive 1 dollar of that company’s profits.
Shares with dividend
Dividends are a tool used by companies to reward shareholders who own part of the company. Dividends are usually paid in cash on a quarterly basis and can become a constant payment if the investment turns out to be profitable. Furthermore, dividends can generate new buying opportunities for additional shares.
It is therefore a long-term investment with a low risk, since these companies are generally stable from a financial point of view, with dividends growing over time, and are companies that commit themselves to paying dividends.
Swing trading has become a very popular way of trading stocks and options in the short term. Usually the operations last less than a day, but can last up to two weeks. The objective of swing trading is to identify a general trend and generate profits while the markets follow the trend. The use of technical analysis of financial markets represents an advantage in swing trading, because it allows to monitor rapid market movements at the very moment in which they occur.
In day trading, speculation is based on the purchase or sale of shares, commodities, indices or specific currencies during a single trading day. The positions can be opened the same second that open the markets or during the day, however all operations must be closed before the market closes during the opening day. Traders using this trading strategy are known as day traders.
Regardless of the type of trader you are, who may prefer to invest in the short or long term, keep in mind that short-term trading is characterized by higher profits but also by a greater risk of loss, precisely because of the speed of operations , which see the opening and closing of positions in close time.
Financial market and Piazza Affari differences
What are the differences between the financial market and Piazza Affari? We have said that the first represents a large segment of the second. In Piazza Affari different types of financial instruments are negotiated and divided according to the type of contracts negotiated in:
- MTA: the electronic stock market
- SEDEX: the segment in which instruments such as covered warrants and certificates are traded
- MOT: the electronic bond market in which bonds (except those convertible into shares), government bonds, eurobonds and ABS are traded. Namely securities deriving from the securitization of receivables
- TAH, After hours: the electronic market in which it is possible to trade after the stock market closes, but only for the instruments located on the MTA (shares) and SEDEX (covered warrants and certificates);
- ETF plus: the electronic market in which units or shares of UCITS are traded (SGR and Sicav)
- IDEM: the derivatives market (futures and option contracts on currencies, interest rates and financial instruments). We are not, on the other hand, the forwards, which despite being derivative contracts, are traded on OTC, over-the-counter markets, that is, unregulated.
The stock exchange is therefore a regulated financial market. Several financial instruments are bought and sold on the stock exchange, allowing the matching of demand and supply of capital. And it allows companies to finance themselves through the issue of shares and bonds, and allows the State to obtain funds through the issuance of public debt securities.
Stock market, what is the stock market capitalization
What is stock market capitalization in the stock market? The size of a listed company is measured in capitalization, ie in the value given by the number of outstanding shares for that company multiplied by their market price. The MTA is divided into the following sections:
- Blue chip, where the shares of the 40 largest capitalization companies are traded (ie exceeding the 1000 million euro threshold)
- Mid Cap, where the securities of the 60 highly capitalized listed companies are traded but which are not included in the previous one
- Small Cap, where the sale of shares of companies that do not fall within the 2 previous markets takes place
- Micro Cap, where the shares of companies that do not have the liquidity criteria of the previous segments are allocated
- Star, for companies with a capitalization of between 40 and 1,000 million euro, but with high requirements of transparency, governance and liquidity;
- MTA International where shares of companies listed on European stock exchanges are traded
Financial market and Piazza Affari differences
The IPOs allow the landing on the stock market of a joint-stock company. It is consumed in 3 ways:
- Public subscription offer (OPS): When investors can subscribe to newly issued shares
- Public offer of sale (OPV): When investors can subscribe to shares already held by the current shareholders
- Public offer of sale and subscription: a mix between the first two. The company that is listed on the stock market will see its capital increase only if it places newly issued shares on the stock exchange. In the event that shares already held by other shareholders are sold, there will be no capital increase, but the sale of the property, in whole or in part, from the old to the new shareholders. After the listing, the security can be traded on the stock market. And in particular on the so-called secondary market.
Stock market, what are shares
The cornerstone of the stock market is, needless to say, shares. They are shares in the share capital of companies incorporated in corporations. The actions are divided into 2 types:
- Ordinary Shares, owned by the shareholders of a company. Award voting rights at company meetings and profits from dividends and capital gains
- Savings Shares, without voting rights, but guarantee patrimonial privileges such as dividends. They are primarily intended for small investors
It is clear that traders always aim to obtain high dividends, but it is not said that they are distributed every year or that they are constant. The reasons may be various, but the most frequent are the budgetary reasons and the company policies. In the first case, the company may not have earned profits to distribute. In the second, the CDA may have decided not to distribute dividends in order to replenish the company’s capitalization.
Stock market, how much a share is worth
What is an action on a stock market? Each share is bought or sold based on market value. It is therefore not something static, but evolves continuously on the basis of the number and the sign of the concluded contracts. For example, if we read that the Amazon title is on the rise, it means that many investors are buying Amazon shares.
For actions, the most classic of economic laws applies: if demand rises, the price also rises. When the session is completed at the end of the day, you will have the final official price of the Amazon action mentioned above. Since the market is closed and no longer subject to fluctuations.
In general, the following factors affect the value of a corporate action:
- the condition of the company to which it refers: its financial health, the size of its assets, future growth prospects, ownership structures, acquisitions, mergers and demergers completed or in sight. Obviously, the better the corporate health status is and the better the future prospects are, the more the value of the shares will tend to rise. As investors will find it convenient to buy them. Otherwise, they will tend to sell them and the value of the shares will depreciate
- performance of the company’s reference sector: the performance of the entire sub-fund to which it belongs also has an effect on the value of an equity security. Also worldwide (Hi tech, food, raw materials, precious metals, green economy, etc.)
- macro or foreign policy data: news also affects the value of shares. Let’s say that in the country of a particular society a Golpe, a government crisis, a fungus that destroyed the harvest, and so on, was consumed. Or, vice versa, the electoral victory of a party well seen from the financial markets, an excellent harvest, the discovery of a new oil well, etc. In the first case, obviously, the value of the action will rise. In the second one it will come down.
- news or rumors about the company: a workers’ strike, the arrest of a manager for fraud, the registration of a new revolutionary patent, the discovery of a new drug. As before, in the first case we will have a bearish trend, in the second bullish.
Stock market how to invest
How to invest in the stock market? The roads are basically 2:
- being an individual trader and acting independently through Brokers or Banks
- rely on asset management and subscribe the shares of a mutual fund that will invest the shares on our behalf
There are various theories to better invest in the stock market. But the most used are two:
- Fundamental analysis: it tells us when it is better to buy, hold or sell an action, based on growth prospects compared to the analysis of various elements: competitors, balance sheet data, price, dividend. However, it is necessary to say that companies’ budgets do not always correspond to reality, as devices can be applied to adulterate the final result. Then there are also the emotions of the market (what in slang is called sentiment); so, under ideal conditions, it is possible that the value of an action remains very low for a long time, perhaps falling below the purchase price.
- Technical analysis: on the other hand, it deals with the historical price trend, and the purchase (or sales) decisions are based on forecasts. But it is an excessive simplification. The market (meaning companies, private investors and institutional investors) probably uses the same tools, observes and reacts, logically or illogically.
Stock market, opening and closing
When does the stock market open? When does the stock market close? On the stock market, stock trading takes place from 9am to 5.30pm, in two ways: auction and continuous trading. Or:
- opening auction (08: 00-09: 00): the telematic system automatically crosses trading orders and concludes purchases / sales
- continuous trading (09: 00-17: 30): at any time of the session the shares can be bought / sold
- closing auction (17: 30-17: 35): the telematic system crosses the last trading proposals
Stock market trading tips
The advice that always applies to stock market trading is to diversify your portfolio. By this we mean the fact of buying more types of assets so if one or two are at a loss, we can make up with everyone else. In this way you will be able to speculate in more sectors, diversified among them, such as the real estate sector, the sector of consumer goods, raw materials or insurance.
The strategy of the drawer, or to buy a title and keep it for years, could be worth a time. When Globalization still had to land and foreign markets were not connected with each other. Now all it takes is nothing to change things and the titles, like all of us, live “for the day”. Therefore, it is useless to buy a security trusting that much further will be worth more. It could also be true, but even one day or another can make a difference.
Before embarking on the investor’s business, evaluate your available financial resources well: do I get money that could be used for personal necessities and for my family? Or are they extra stacks and can I risk it? And again: how much time can I dedicate to trading? Are you willing to spend a couple of hours a week, or more, read in the newspapers information from different companies, or is your life already too busy and hectic to carve out this handkerchief? Investing in individual securities is a real job, which, like any other job, takes time. If you intend to do it as a hobby, perhaps in the evening or at the weekend, know that the stock market at the weekend is closed and closes late in the afternoon. So it is an activity that you will have to do inevitably on working days and even in full office hours. At most in the evening and at the weekend you could devote yourself to strategies.
What, in short, are the tips to apply to make a profitable trading on the stock market? We can summarize them like this:
- establish a strategy for investing that does not get too influenced by what is happening on the markets
- don’t listen to bar talk but follow your own system
- stay away from fashions, from individual titles – unless you have a great ability to analyze individual actions – and avoid the capital mistakes of the Free Investor
- try to invest in the initial phase of the secular or accumulation trend if you have the tools to do so. The first definition means that long-term uptrend; with the second we mean the ability to sense when there is a counter-trend and a downward trend is about to reverse the trend
Stock market useful terms
What are the useful terms you need to know about the stock market? The following:
- last price: the current price at which the security in question is traded
- closing: the last price at which the security was traded the previous day
- opening: the price of the security on the first transaction of the day; money: the highest price someone is willing to pay at the moment
- letter: The lowest price someone is willing to sell the daily variation: the difference between the current price and the closing price of the previous day
- minimum and maximum: the lowest price and the highest price at which the security was traded during the current day
- minimum and maximum 52 weeks: the lowest price and the highest price at which the stock was traded in the last year
- volume: the number of securities traded on the current trading day
- average volume: the average volume of shares traded
- market Cap: the total value of the outstanding shares
- P / E ratio: the ratio between the share price and earnings per share
- EPS: the company’s profits in the last 12 months
- dividend: the annual dividend expressed in absolute value
- yield dividends: the ratio between the annual dividend and the current price of the annual performance bond: the difference between the current price and the end of the last day of the previous year
Stock indexes what they are
What are stock market indices? It is the result of the weighted average of a set of titles. It serves investors to obtain a concise and immediate idea of what the performance of a specific stock market is, as it is considered a faithful representation of the trend of a given market. Whether it’s the entire bag or one of its segments.
What are the stock market indices? The main ones are the Dow Jones Industrial Average, which includes the 30 companies of the New York Stock Exchange that have greater capitalization. The S&P 500 instead includes the top 500 companies by capitalization. The main business area indexes are the following:
- Ftse Italia All Share: includes all the index titles FTSE MIB, FTSE Italia Mid Cap and FTSE Italia Small Cap
- FTSE MIB: includes the 40 Italian securities that represent 80% of the entire market capitalization and is composed of 40 shares of primary dimension and liquidity that belong to the Italian stock market
- Ftse Mid Cap: includes the first 60 shares in the ranking for the capitalization of companies
- Ftse Italia Small Cap: includes small companies outside the FTSE MIB index and the FTSE Italia Mid Cap index
- Ftse Italia Star: includes shares of the STAR segment of the MTA market
- Ftse Aim Italia: includes all the shares traded on the AIM Italia market
Stock market, what is the Tobin tax
What is the Tobin Tax? The Tobin tax finds its name from the Nobel Prize for economics James Tobin, who proposed it in 1972. it is a tax that aims to hit all transactions on currency markets in order to stabilize them (penalizing currency speculation at short term since at that time there were no derivative instruments yet). And at the same time, to provide revenue for the international community. Especially that part of the world that is suffering from hunger.
The proposed rate would be between 0.05% and 1%. Its supporters say that already at a rate of 0.1%, the Tobin Tax would guarantee approximately $ 166 billion each year. Which in itself corresponds to twice the annual sum needed to eradicate extreme poverty from the world. On the other hand, those who criticize it claim that the amount actually collected would be lower, given that the bulk of the financial transactions are made to make money on micro price changes and would be unsustainable with the tax.
The first country to apply it was Sweden in 1984, but the proceeds that emerged turned out to be 75% lower than expected, thanks to the decrease in the number of transactions that followed. The Scandinavian country thus decided to remove the tax in 1992.
In reality, the Tobin Tax also has political reasons. In 1972 the Watergate scandal occurred in the USA in which the Nixon administration was caught up, with the latter having also withdrawn the United States from the Bretton Woods system (a series of agreements signed in 1944 in order to define a system of rules and procedures to control international monetary policy and were the first example in the history of the world of a fully agreed monetary order, conceived by the United States of America to govern the monetary relations of independent national states). Tobin suggested a new system for international currency stability, and proposed that this system include an international tax on foreign currency transactions.
Tobin received the Nobel Prize in economics in 1981. But apart from the Swedish example, his financial tax remained a dead letter at least until 1997, when Ignacio Ramonet, editor of Le Monde diplomatique, relaunched the debate on the Tobin tax with editorial “Disarm the markets”. Ramonet proposed to create an association for the introduction of this tax, which was called ATTAC (acronym of Association for Taxation of Financial Transactions for Citizen Aid).
The idea of the Tobin tax has been revived in the European Union since 2001. Three years later, the Finance and Budget Committee of the Belgian Federal Parliament approved the implementation of the Spahn tax (version of the Tobin tax proposed by Paul Bernd Spahn). By actually introducing the Tobin tax if all the eurozone nations introduce a similar law.
In Canada in March 1999 the House of Commons launched a direct resolution to the government to “promulgate a tax on financial transactions in concert with the international community.”
In South America the Tobin tax was supported by the Brazilian president Lula, and by the Venezuelan president Hugo Chávez, both of socialist convictions. But in both cases, the tax did not materialize.
In Italy, the ATTAC association collected 180,000 signatures in favor of a popular initiative law to introduce a tax on currency transactions. The proposal, drafted with the contribution of the economist Emiliano Brancaccio, was deposited in Parliament in July 2002. The Tobin tax was introduced in Italy as of March 2013, although this is the usual “Italian-style” law that only resumes in part the indications of the European Union.
Taxation is charged to the buyer and is applied in three cases:
- transfer of ownership of shares and participatory financial instruments
- derivative and securities contracts whose underlying are the above shares
- “high frequency” operations
Who is obliged to pay it? The following subjects:
- Those who have performed the following operations: transfer of ownership of shares, bond trading, equity instruments and representative securities, without exclusion based on the residence or place of conclusion of the contract
- Both parts of derivative contracts and other securities, without exclusion based on the residence or place of conclusion of the contract
- The subjects that insert sales and purchase orders, which modify or cancel operations defined as “high frequency”
The application of the tax, with regard to the shares, takes place in relation to the net balance at the end of the day relating to the financial instrument traded. So only for the operations that at the end of the day generate a positive balance with respect to the balance of the previous day. Therefore, by virtue of this, the Tobin tax is excluded for open and closed transactions on the same day (the so-called intraday trading).
The tax rate is 0.20% for shares traded on non-regulated markets (OTC or “over the counter”), reduced by 50% to 0.10%, in the event that transfers take place in regulated markets and systems multilateral negotiation agreements.
How to set a stop loss or take profit
When opening a new trading position it is possible to define the stop loss and take profit levels. Let’s see together what it is and why they are important for a thorough risk management.
The advantage of using a stop loss or take profit order is that the trader must not continue to monitor the markets and manually enter an order during the market opening hours, as this is already entered and the system constantly checks for the occurrence conditions, in order to execute it without further intervention.
What is take profit
The take profit order aims to consolidate a profit when a certain asset reaches a certain price level. The execution of a take profit order results in the closing of the position. For long (long) positions, the price that is used to verify the condition for the purpose of execution is the bid price (the order is always set beyond the current bid price). Conversely, for short (short) positions, the reference price is the ask price (in this case the take profit order is always placed below the current ask price).
What is the stop loss
As the name suggests, a stop loss order is intended to stop losses. This type of order is particularly useful if the price of a financial instrument starts to move in the opposite direction to that expected. As for take profit orders, when the price defined in the order is reached, the position is automatically closed. For long (long) positions, the reference price is also in this case the bid price, while for short (short) positions, the reference price that the system takes into consideration is the ask price.
As seen, the stop loss order aims to reduce losses when the price of an instrument moves in an unexpected direction. However, traders may consider modifying the original defined stop loss level in the event that the position becomes profitable, in order to avoid closure. The trailing stop orders aim to automate this procedure, defining a certain distance in points instead of a fixed price level. It should be noted that the trailing stop orders are not set on the server, but on the terminal of the MetaTrader 4, which must therefore be operational to allow correct execution.
* Did you know that: stop loss and take profit orders can also be associated with positions that are already open?
To see if an order has a stop loss or take profit entered, it is sufficient to consult the S / L and T / P columns respectively in the list of open positions. Where these parameters are set to 0.00, it means that they have not been defined. To set a stop loss and / or take profit order after opening a position, simply right-click on the reference position, then click on “Edit or cancel”, then enter the desired levels.
Introduction to Trading Strategies
Any trader, whether he is a novice trader or a talented forex expert, has a unique trading style. There are no two equal traders, as even if the same rules and information are followed, it is likely that the trading results will differ.
Know the most suitable trading strategy for you
Trading is active participation in financial markets, where individual traders try to generate a profit on the movements of the various financial markets.
However, there are many ways in which traders can enter and operate markets and each trader has his own method of achieving his goals in the international financial landscape. Knowing the trading strategy best suited to the type of trader is of fundamental importance to be successful. In this article we will take a closer look at the most common trading techniques adopted by traders. There are no specific rules to address a trader in one of the following categories, so we encourage you to choose the strategy that best suits you and your needs and enjoy the trading experience.
Short and medium term trading strategies
Short-term trading, as well as in the medium term, refers to trading on the stock market and futures, where the duration between entry and exit from the market (closing of a position) is short, generally from a few minutes to some day. Trading in the short and medium term can be very profitable, but at the same time very risky, since the markets are unpredictable and vary significantly based on various factors that influence the trend.
Recently, the bitcoin trading boom has given new life to short-term investments.
Knowing the risk and the potential profit of each transaction will help you make your strategy successful, as well as allowing you to protect yourself against unpredictable market events that, however, are always lurking. Identifying the most appropriate parameters for a short and medium term successful operation requires knowledge of some basic concepts.
The fundamentals of trading in the short and medium term:
- Recognizing market potential – The psychology of the trader is important to understand the difference between a market opportunity and a market to be avoided; sometimes it is wiser to keep your capital safe than to risk losing it in an overly active market. All this is possible only if you look at the financial news of the day.
- Use different moving averages – This is the average price of an asset during a specific time period (15, 20, 30, 50, 100 and 200 days), during which it is possible to understand if the asset is moving along a trend upward or downward.
- Recognizing cyclical patterns – Since markets tend to follow cyclical trends, keeping economic indicators monitored can help to identify the best time to carry out their operations.
- Identifying trends and market patterns – Trends can develop within a few days and by studying them carefully it is possible to identify some patterns with upward or downward curves. Go in search of the trend that the asset is following and riding the wave!
- Managing risk – It is crucial for every trader to master the techniques to minimize risk and maximize profits. By using the entry and stop loss types available on the platform you will no longer risk the capital available in your trading account.
- Using technical analysis – It is possible to evaluate and study an asset using prices and historical patterns to predict what will happen to the instrument in the near future.
- Use different types of investments, such as mirror trading and copy traders.
In the medium-term trading, the above is still valid, with the only difference that retail traders prefer to keep their positions open for one or more days to take advantage of the technical framework that characterizes a given asset.
Long term trading strategies
Some traders maintain their open positions for long periods, which generally range from a few months to a few years, based on the study of the fundamental factors that influence the markets. Long-term traders need more capital from the start, as investors must endure or in any case survive a series of market swings during the long period in which the position remains open. The basic idea of trading in the long term is to generate a profit gradually over time.
Investment in equities is the classic example of long-term investment. The shares, in fact, have no volatility and their performance is stable and can be monitored.
Take for example an Italian giant: Ferrari shares. As you can easily imagine, setting a long-term investment on them, we will hardly find surprises. Ironically, the time spent to open and maintain an operation with a long-term time horizon is much less than that spent on operations with a short and medium term time horizon. The latter also require immediate reactions in response to market trends, with a large expenditure of energy. Given the importance of implementing risk management strategies, we see below some ideas to keep in mind:
- Use reduced trading leverage – It is important to trade volumes that represent a small percentage of your assets, so you can sustain weekly or daily volatility.
- Keep swap costs in mind – Swaps are commissions charged by all online brokers to keep positions open overnight. There are cases in which it is possible to incur positive swaps, but in most cases they are negative swaps, so we must always consider this expense.
- Time vs. Potential profit – It is important to consider the time spent in trading and to evaluate the respective potential profit. Long-term traders should use quite considerable capital to make the investment repay the time spent. The most common mistake among long-term traders is to not reach the target profit, even using the best strategy, and this can happen when using too low leverage.
- Inquire about the calculation of the tobin tax and related restrictions.
Now let's take a look at the sub-categories of traders and the most commonly used trading strategies:
As the word itself says, day trading indicates the purchase and sale of assets during the same day. This type of trader generates its own profits through the use of leverage, which allows them to manage higher capital and take advantage of instruments subject to high liquidity even in the face of slight price fluctuations on the markets. Day trading is another strategy where rollover fees are not incurred, since all transactions are opened and closed on the same day.
Since day trading is risky but offers high profits, traders using this strategy must have clear ideas about two important factors: LIQUIDITY and VOLATILITY. The liquidity of the markets makes it possible to enter and exit transactions at the best price. How? The difference between the ask price and the bid price (the spread), a low slippage is taken into consideration and reduced spreads are opted for.
The volatility is given by the variation of the price foreseen during the day (during the hours of activity of the day traders). The greater the volatility, the greater the potential profit, as well as the potential losses.
The following techniques can be useful to improve as a day trader:
- Identify possible inputs – Intraday candlestick charts, ECN quotes and real-time news are excellent indicators for entering the markets at the right time
- Identifying target prices – Identifying the best target price to enter the markets is essential to ensure that you generate a profit when the transaction is closed.
- Stop loss – Trading on margins increases risk and exposes the trader to rapid price movements. The use of stop loss orders limits the losses on each transaction
- Overcoming the odds – Evaluating your performance by carefully following your strategy instead of pursuing a profit at all costs
This is a very fast trading strategy, in which positions are opened and closed in seconds or minutes. Traders who are scalping buy and sell many positions, with the aim of generating a profit based on the smallest intraday price movements. One of the advantages of scalping is that traders do not incur extra expenses to keep positions open during the night (rollover fees).
Traders have specific profit targets and stop orders are used to manage entry and exit from the market, since traders using this strategy open several transactions simultaneously.
Given the rapid nature of scalping, there are no patterns or analyzes, however, traders use 1-5 minute charts to make their decisions quickly.
Swing refers to a trading strategy that tends towards fundamental trading, in which positions are opened and kept open for days or weeks. What makes the transaction more fundamental is that swing trading incorporates changes in fundamentals over several days and aims to generate profits based on market changes over the medium term. Keeping positions open during the night has a cost, but positions can be kept open for several weeks.
Swing traders are usually halfway between day traders and trend traders. The day traders open positions that last from a few seconds to a few hours, but never exceed the day, while the trend traders prefer to examine long-term trends by studying fundamental trends, which can take weeks or months.
Swing traders generally hold positions open from a minimum of a few days to a maximum of three weeks and search for movements at the extremes of certain intervals within these time periods. This trading technique is particularly appreciated by novice traders who are about to enter the financial markets, but it offers good profit potential even for Advanced or intermediate traders.
Position trading is suitable for traders who wish to keep their positions open for periods of months or years, who do not pay attention to short-term market fluctuations, as they invest in the long term and believe that small market changes compensate each other over time. Position trading is exactly the opposite of day trading, since the goal is to generate profits over the long term based on the movement of the trend, and not the minimum price change in the short term. This strategy is recommended for those who want to invest in ETFs. Many traders who use this strategy monitor weekly or monthly charts to get an idea of where the asset chosen is compared to its trend. In this regard, technical analysis and fundamental analysis is used to evaluate price graphs and market activity. Keeping open positions from one day to the other entails, even in this case, rollover expenses.
How much money do I need to trade online?
Different amounts can be invested, depending on the broker you decide to trade with. Some brokers offer the possibility to trade with only € 25, however most brokers require a minimum deposit which can vary greatly depending on the market of origin. The smaller investments are good to start, but they will not lead to any significant profit.
If you want to become a trader by doing it seriously, your initial investment plays a key role in determining your success.
There are many brokers in the FX trading world and to this is added a large number of different traders, who operate in many ways and it is not always necessary to deposit amounts over € 5000. Day traders, for example, do not need the same capital as a swing trader to trade in the markets. This is why it is important to define what your goal is: are you looking for a significant income or do you just want to increase your trading account?
Why does the initial investment count?
There is a difference if you start trading with € 100 or € 2000, and the amount counts from a practical point of view. One of the main problems that the new traders are facing is to find themselves with insufficient capital. When you start trading, your goal is to generate a profit or return from your investment. This goal cannot be achieved on a € 20 account. Most new traders do not have the patience to grow their account and with reduced deposits the risk with each transaction is really high, in addition to the fact that you risk losing the entire capital invested.
Trade with the lever
Brokers allow traders to learn how to use leverage to increase the size of each trade, while still investing reduced capital. The cost of opening the transaction, or what you personally invest, is called the margin.
Trading on margins greatly increases the amount that can be earned or lost, compared to what has been invested.
Let's look at an example of how leverage and margin work:
EXAMPLE: A leverage of 10: 1 means that a deposit (margin fee) of 100 gives you the same trading potential as a deposit of 1000.
If you wish to open a position and buy 1000 shares of ABC Ltd. and the current price is € 1 per share, the total cost will be € 1000. Should the price per share increase by 20 cents, you can sell your 1000 shares at € 1.20, for a profit of € 200.
If you were to opt for a leverage of 10: 1, investing a margin of € 100, you can control a position of € 1000 (10% x € 1 x 1000 shares = € 100). If the price per share were to increase again from € 1 to € 1.20 you could generate the same profit, with a market exposure of only € 100 instead of € 1000 of assets, thus reducing the level of risk. Furthermore, the return on your leveraged investment would be 200%, compared to 20% if only own funds are used.
The applicable leverage varies depending on the instrument traded. However, it is not necessary to always choose the maximum leverage, since the more you invest, the less leverage you need.
Having a trading budget of € 5,000 allows you, first of all, to open larger trading operations, and secondly, to enter the markets regardless of their volatility, keeping positions open longer, even if they are going in the opposite direction to that choice, without the fear of burning your account too quickly. Why? With higher margins, you can let the markets recover and enter an advantageous price range with greater simplicity.
To improve your knowledge and your business style, you have the opportunity to develop skills in fund management, to better understand the implications related to the size of the positions. In this regard, we invite you to consult our articles for a detailed explanation of these essential topics.
The first rule when entering the world of forex is the following: never invest money that you can’t afford to lose. Before making your moves, make sure you learn as much as you can, practice with your demo account and save enough to open and maintain a substantial account. Where required, we will offer you competitive leverage and excellent conditions to start taking your first steps in the forex world.