With so many options in trading and investment, it can be difficult to know which one is right for you.
Forex trading is a great option for some, but before getting started you should be aware of the specifics of the Forex market. The biggest thing you need to avoid is getting involved in the Forex market if it isn’t right for you.
Forex trading is a great option for those who are looking for a flexible schedule to do their trading. If you want an investment opportunity that has set hours when it will be active and downtime when it’s not, Forex trading is likely something you should avoid. Unlike other markets and forms of investing, the Forex market is open 24 hours during the week. This means that if you want to do you trading over breakfast while you have your first cup of coffee, it is entirely possible.
Conversely, if you are more of a night owl and want to do your trading in the evenings just before retiring for the night, Forex trading can work into that schedule. You will never have to watch your clock to be sure you get your trades in before a certain time. If you’re looking to trade in an arena where only people with deep pockets will be involved, you’ll want to avoid Forex trading.
A unique aspect of Forex trading is the fact that you can start with a very low initial investment. In fact, you can start with as little as $250. This makes Forex trading great for those who have very little capital to begin with. It’s also a great option for those who wish to start slowly. You can start with a small initial investment to get your feet wet and increase your investment as your profits rise and you begin to feel more comfortable in the market.
Forex trading also involves one click trading and typically does not come associated with any fees. Being able to trade with one click means you can start trading as soon as you see an opportunity, you can take advantage of it. In many cases it is instantaneous, which will prevent you from putting an order in, only to find the value has changed dramatically by the time your order is actually filled. Most brokers make money off the spreads rather than fees associated with each trade. This will allow you to make much smaller trades. With other forms of trading, a fee associated with each trade might be so high that you would feel you had to buy much more than you’d like, simply to make up for the cost of the fee.
With Forex trading this is not the case and leaves you with much more versatility in your trading. No matter how you choose to invest, whether through the Forex market or other ways, it’s important to do your research and watch your potential market for a few days before getting involved. However, it’s also important to understand that there is no substitute for jumping in and getting your feet wet.
Choosing Forex trading is a great way to do this, as you can keep your initial investments low as you learn the ins and outs of the Forex market.
Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later. Throughout the centuries, people have continued to hold gold for various reasons. Below are eight reasons to own gold today. 1. A History of Holding Its Value Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.
2. Weakness of the U.S. Dollar Although the U.S. dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008. The decline in the U.S. dollar occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.
3. Inflation Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Since World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979 and 1980 (as of 2008). During those five years, the average real return on the Dow Jones Industrial Average was -12.33%, compared to 130.4% for gold.
4. Deflation Deflation, a period in which prices contract, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.
5. Geopolitical Uncertainty Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the “crisis commodity”, because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some of their largest recent movements during periods of tension with Iran and Iraq in 2007 and 2008. Its price often rises the most when confidence in governments is low.
6. Supply Constraints Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008.
At the same time, production of new gold from mines has been on the decline since 2000. According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.
7. Increasing Demand Increased wealth of emerging market economies has boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world, and gold has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has also shown rapid growth.
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, the largest gold ETF, StreetTracks Gold Trust (PSE:GLD), became one of the largest ETFs in the U.S. and one of the world’s largest holders of gold bullion in 2008, only four years after its inception.
8. Portfolio Diversification The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
The 1970s was great for gold, but terrible for stocks.
The 1980s and 1990s were wonderful for stocks, but horrible for gold.
As of 2008, this decade has been a good one for gold, and an unfavorable one for stocks.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Conclusion Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, gold has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.
Traders often purchase shares this way in an effort to reduce their initial entry price.
Only bad investors average down by buying shares of a sinking assests to decrease their overall average price per share. This Forex trading strategy is hardly ever effective, and is often like throwing good money after bad. It also magnifies a trader`s loss if the share keeps dropping. Remember, just because a share is cheap now that doesn`t mean it`s not going to get any cheaper. However, let`s examine how this devastating Forex trading strategy works. Say you bought one thousand shares at $40.
The novice investor may not have a stop loss in place, and the share price falls to $30 dollars. Here comes the stupidity of this Forex trading strategy — to average down the novice trader might by another thousand shares at $30 to lower the average cost per share that he`d already purchased. So, his average cost per share would now be $35.
Unfortunately, the share price may fall even further, and the novice trader will again buy more shares to reduce the average cost per share. They end up buying more and more into a share that`s losing their money.
Now, imagine this Forex trading strategy being applied to a portfolio of assets. In the end, all the capital will automatically be allocated to the worse performing assets in the portfolio while the best performing assets are sold off. The result is, at best, a disastrous underperformance versus the market.
If a trader uses an averaging down system and uses margins, their losses will be magnified even further. The biggest problem with this Forex trading strategy is that a trader`s gains are cut short, and the losers are left to run. My advice is — never average down. The process of buying a share, watching it fall, and then throwing more money at it in the hopes that you`ll either get back to break even or make a bigger killing is one of the most misguided pieces of advice on Wall Street. Never be faced with a situation where you`ll ask yourself, Should I risk even more than I originally intended in a desperate attempt to lower my cost and save my butt?`
Instead, design a simple, robust system with good money management rules. I can practically guarantee the results will be better than averaging down.
