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| Trading For A Living(knowing The Best Trading Investment For You) by saturnfund: 10:42am On Jun 10, 2009 |
Many of us bite our fingers when we see we have just missed out in a stock that just enjoyed a substantial uptrend. So many people believe so much in the stock that has performed so well in the market making them think they can buy a large quantity when ever it comes down. Nothing guarantees in trading that past performance will happen for sure. Learn to choose your trades based on an acceptable principle or develop a strategy yourself, paper trade it very well before trying it for real in the market. This article covers some important types of trading for any potential investor dreaming to be a full time trader. Though anyone who had gone to a business school will find himself more lucky in trading but novice trader can as well learn all what It takes to be an investor through accumulation of investing educational material, attending seminars, meeting professionals in the field and lots more. It’s never easy to become a good trader. Nothing takes the place of experience. Everyone wants the money. Even your broker does. STOCK TRADING [b]This is the widely known type of investment. Unfortunately the way we trade stock in Nigeria isn’t the way they trade it abroad. Individual people are not allowed to execute trades themselves on Nigerian Stock Exchange floor. Only stockbrokers who are certified to trade on the NSE floor trade on behalf of investors while investors are left with newspapers and media to carry them along with what happened on the NSE floor. In international stock market such as NYSE, NJIA, NASDAG, DOW (index funds), HANGSENG, NIKKEI, FTSE, e.t.c, the market is a computerized one such that all investors can as well use an online broker who will give them the opportunity to make their trades themselves at the comfort of their home. Unfortunately this has also contributed to high number of failures in the market because lots of people feel relaxed and never really know what it means to trade equity markets. International stocks however allows for “shorting” (borrowing funds from your broker to sell what you don’t have and yet keep the profits). Main reason why lots of investors enjoy investing in stock abroad is the fact that you can make money in a whole lot of ways thereby reducing your risk. You can make money if your stock appreciates or depreciates and apart from these your broker pays you a daily swap interest on your stocks plus the dividends. This can amount to a huge gain under a leverage market of such. There are tons of things you need to know before buying any company’s shares. Your broker’s recommendation is just part of your research and never a guaranteed method to beat the market. But if you are too busy to study the financial world you might as well consider a mutual fund.[/b] FOREX TRADING [b]This type of investment continuously suffers world wide criticism. People always have something to tell about it. Some have argued it to be a game for the gamblers. Some say is a market where Peter is rubbed to pay Paul. Some say technical analysis is just crabs, some say everything the news tells can be seen on the chart already. A good investor believes everything. Never take any side in trading. Sometimes past can determine the future sometimes it doesn’t. There are no rules in business that cannot be broken. Whether you believe forex is real or not there are living examples of people who consistently trade this market and make a living from this profession. George Soros single handedly bet that the BOE will have to cut it rate and so pounds will fall and started shorting the currency. He made billions of dollars from this trade making 60% of his company’s worth. Likes of Peter Bain, Larry Williams, and Karthy lien are names to mention when it comes to fathers of currencies. Forex is all about owning a currency in anticipation that the currency will go a direction. If you are right in your speculation, the reward is often great. For instance if you see something like “Hummer/money=200,000”. This simply means you will need 200,000 worth of money to buy 1 Hummer. This obviously tells us that Hummer has more value than money. When you see in few months time that the quote is now “Hummer/money=100,000”. This means Hummer has depreciated in value and money has appreciated in value. Now imagine when you have a quote like this, “Usd/Ngn=150” (usd=united state dollar, ngn=Nigerian naira). Because of the high leverage offered by forex brokers, large number of traders in this market and the high volatility nature of this market, forex is about the easiest way to make money in the world and also the easiest way to lose fortunes. The naked truth about this profession is that is only for educated investors. You hardly make a dime if you don’t know about anything in finances and economic. Trading is a probability game. It’s a number’s game. Numbers tell a lot about the future, from chart, to economic numbers and prices. If reading is not your hobby, you might as well find another profession because there are so many things to learn to make money in the forex market. Even more than what the media think they know about the economy.[/b] [b]OPTION TRADING Option is another lucrative type of trading. Unfortunately this type of trading is been classified as a very complex type of trading and traders are warned to avoid option trading unless they have been trading other market for years. For instance say you want to buy a “Sterling Bank” share that currently sells for N4 in the market. You may want to protect your investment or reduce your risk from unforeseen market fluctuations. You then think of buying it in option market. In option market, you look for someone who wants to sell the shares for N4, you being the buyer and the seller now reaches an agreement for a date. For instance if the bank’s shares sells for N4 in January, 2009, you may then reach an agreement with the seller to buy the shares at N4 in April if the price remains the same. This is however a right you have. You either may choose to exercise your right when the date comes or choose not to. But in the sellers case he is obligated to fulfill it just incase you want to exercise your right. What this means is that when April comes and the price of the shares has risen to N10 your seller cannot object to selling it because of the option agreement you’ve reached. So when you finally exercise your right in or before April, you have have made a profit of N6. If this option drops to N1, then you may choose not to exercise your right to buy. With this you have fully protected your portfolio. Option is a good instrument for risk protection but unfortunately you don’t get this awesome opportunity for free from your seller. For your seller to agree to give you this awesome protection against market fluctuations doesn’t come for free. The seller will have to charge you a premium for the right you hold. You pay him agreed premiums (daily or weekly) in order to be able to exercise your right. If the market moves in your favour it will definitely pay off for the premium you paid. You can also take short positions in option. This article has been written with the simplest English eliminating the option jargons such as call, put, CBOT, expiry, in-the-money,at-the-money,out-of-money,e.t.c. It may be a rewarding experience if you however take your time to learn about this type of awesome method to hedge against risk in the market. You should however know that metals, stones and oil are traded in the same market by the same brokers in these markets. You may however choose only to trade oil majorly or any of the rest. Which ever you trade you still enjoy margin on you account. Please never believe all what the media tells you about trading. No one knows it all in trading. There is no guru software that constantly beat the market, and know individual constantly beat the market not even Warren Buffet, every day is simply not a trading day and you won’t win everyday. Capital protection is the main goal of any investor in trading. You can never make a living in trading if you follow the crowd, believe all the news, vendors, and anyone that comes your way. Happy Trading… PLEASE WATCH OUT FOR MY COMING NEWSLETTERS. “DIFFRENCES BETWEEN HEDGE FUNDS AND MUTUAL FUNDS” “OTHER TYPES OF INVESTMENT (BONDS AND TREASURIES EXPLAINED)” ”HOW TO CHOOSE A GOOD BROKER OR GO BROKE” [/b] Olatunji Seun. |
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