Guide to Trading

1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it. Set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade. During times of extreme volatility it can be difficult or impossible to execute orders. Stop orders become market orders when executed, so the order may not be filled at the desired price. As a result, the initial risk can be estimated, but not guaranteed.

2. Let your profits run: Do not be emotional about a trade – you will lose some and win some. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan – move your stop loss as the market moves in your favor and let your profits run. During times of extreme volatility it can be difficult or impossible to execute orders.

3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind. Learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.

4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. You might want to start small and increase your trade sizes as your confidence grows.

5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips. If you do, you’ll make a lot more successful deals then unsuccessful ones, but the poor ones will ruin any of your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.

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Profiting from short term investments

Profiting from short term investments is a question of how involved the investor wants to be in the decision making process.

There are a number of advantages to investing short term with the most important being that profits or losses can be observed almost immediately. Also short term investments don’t lock up your money for very long and if you see that an investment is not doing well you don’t need to wait too long before you can reinvest elsewhere.

Profiting from Short Term Investments:

Short-term investments typically are about investments with more prospects for big profits, but also potential for additional risk. The assets that can be invested in short term investments are options, forex, futures, commodities and stocks. Sometimes realized profits for these investments reach double digit proportions per day! Alas, if you are not careful losses can be that high also. However, there are ‘safe’ or less risky short term investments such as money market funds or treasury bonds which do not offer a big return and are for the conservative investor.

To profit from a short term investment you must decide which time frame you are comfortable with. For example investments in the currency markets might be for a length of several hours or even one day especially if you intend to day trade.

Other types of short term investments such as options, futures, or stocks may last a few days or a few weeks. Investments such as bonds or treasury notes may have a short term horizon of several months. In general the shorter the time period the more involved in the investment you need to be to profit more successfully from it.

You should decide the risk level you feel comfortable with before you decide to invest your money. If you are investing money that you can’t afford to lose don’t invest in the high risk investments such as currencies, stocks or commodities, options and futures. You might have a chance to make a killing but you are just as likely to make a big loss. You should be looking at investing in low risk assets such as CD’s, treasury notes and short term bonds.

If your investment money is spare cash and not earmarked for anything in the future then you are free to choose a higher risk investment and an asset class that can give you a higher return on your investment.

Short term investments require a lot of on-going decisions and also need more knowledge of markets as well as more than passing knowledge of fundamental and technical analysis, especially assets such as currencies, stocks and commodities. Either you learn and acquire the right knowledge or you get advice from a qualified investment advisor.

However, short term low risk investments such as money market instruments or bonds which are held until they mature don’t require a lot of study and skill as your profits can be estimated in advance and you can choose the return on investment you desire from the options you have.

To profit from short term investments you need to decide whether high risk, high return, short term investments suit you or whether you are more comfortable with short term low risk, low return safe investments.

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Market Makers

The participants of Forex currency market are divided into two groups by their activity and influence on currency rates: market makers and market users.

Market makers are large banks and financial organizations which determine the current level of a currency rate, owing to a significant share of their operations in a total volume of the world market. Market makers exercise a constant control of different trading instruments, and they also conduct trades with them. Market makers are market members providing liquidity of particular instruments, making buy or sell orders. These are big international banks and financial institutions, which run daily currency operations of buying or selling trading instruments for more than billions of US dollars. Every market has its own market makers. Similarly, every Forex broker has its personal market makers, the quoting rates of which are exploited by it and offered to its clients further on. Among the greatest market makers such as Deutsche Bank, Mizuho Bank, Barclays Bank, PBS, Citi Bank, Chase Manhattan Bank, Union Bank of Switzerland can be named. In order to define whether the organization is a market maker it is important to consider not only the size of a bank, but also its share in market operations and its capability to influence the market by setting a price policy.

As mentioned before, for a particular market there can be own market maker. Worth pointing out that for the USD/CHF trading instrument the main market makers are Credit Suisse Bank and Union Bank of Switzerland. For trading instruments comprising the Asian currencies the major market maker is the Standard Chartered Bank. As to the rouble instruments, here the top market makers are the International Moscow Bank and the Onexim Bank. The Central Bank of Russia can also play this role being one of the most active participants in setting up the quote rates of currencies vs. the rouble, making different currency interventions, if the rouble rate exceeds the regulated currency rate limits.

Market makers determine the current currency exchange rate by conducting trades with each other as well as with smaller banks, which are also market participants. That is the market makers who introduce quote rates to small banks, organizations and individuals. Thus, another notion emerges characterizing these participants - market users.

Market users are financial organizations, broker companies, small banks and individuals, who use the quoting rate set by market makers for their operations. Market users are not aggressive market players, though a total volume of their operations in the market can be significant, but the share of each one is minor. The role of small market users consists in either acceptance or not of the rates provided by market makers. Consequently, market makers make price and market users take it.

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