Why Trading Futures?

  For many investors, the futures market is the fastest growing financial sector in the world. To a large extent, this is because a wide range of different strategies and high liquidity. However, many private traders seems too risky and complicated. Let us understand whether this is so.

  Futures - a derivative contract to buy/sell the underlying asset at a certain date in the future, but at the current market price. Accordingly, the object of such a contract (the underlying asset) can be stocks, bonds, commodities, currencies, interest rates, products and other.

  A simple example. The farmer planted wheat. The price for this product on the market today, conventionally, is $100 per ton. At the same time predictions are made that it will be a good summer and harvest in autumn. Excellent that always cause the increase in supply in the market and falling prices. The farmer does not want to sell grain in the fall of $50 per ton, so he negotiates with a certain buyer that is guaranteed to put him a ton of grain in 6 months, at the current price of $100. That is the farmer thus acts as the seller of a futures contract.

  In the world of online trading, everything works the same. All futures contracts are placed on the stock exchange, and the initial contract price may begin to change (it all depends on the demand). Now the fun part: if you want to make money, you will be beneficial to buy a futures contract at a lower price and sell more expensive (pure speculation). In this case, you can grab the profit.

Trading futures is more affordable than other financial tools, because you are actually buying contracts (which are much cheaper), not the real assets, and sell them before expiration time. They call it “making money from the air”.

Forex. What Is It?

   Forex or foreign exchange market - the largest financial market in the world with a volume of trades over 1.5 trillion dollars a day. Unlike other financial markets, Forex has no physical expansion location and central exchange. It operates through an electronic network of corporations, banks and individual players, operating with currency transactions.

  

  The essence of Forex - money. Money around the world are bought, sold and traded. Forex involves buying and selling currencies for profit. For example, you can earn income by buying the Japanese yen when it rate against the dollar is anticipated to grow, and sell when it is the opposite situation.

  Forex trading requires knowledge of a variety of special terms. The symbols used for the representation of currencies in the Forex market, consist of two parts. The first part - the first currency, the second half - the second currency used. Symbol "usdjpy" means US dollars vs Japanese yens. It is necessary to learn how to navigate in the notation of currencies.

  Trading in the Forex market, you can use the services of a broker. If you decide to hire a broker, there are several critical factors that must be taken into account when choosing. The first important point - give preference to a broker offers low spreads. Since Forex brokers do not charge commission they earn on spreads, or the difference. In the search of a broker note on these issues and compare candidates according to criteria.

  The broker must rely on large financial institutions. Bankers in the Forex market are usually associated with large banks or other financial institutions. Note that if the broker is not associated with the bank, it is not necessary to make a choice in his favor. There are lots of “fake” brokers who can just steal your money in different ways (artificial rate change, account blocking, etc.), so be careful.

 As for me, Forex is the easiest tool to start learning about online trading.

The Blurred Line Between Fundamentals and Technicals

   

Let's look straight. Before making your first deal you should conduct some sort of analysis, right? In the world of online trading, there are two kinds of the financial market analysis: Fundamental and Technical.

   Fundamental analysis deals with the study of the world monetary and financial groups, political and economic situation in different countries and international community as a whole. The main purpose of this method of analysis is definition of events that may have an impact on the financial market, as it will change prices of the actives. Therefore, everything including operations of large companies, interest rates of central banks, political and economic events, confirmed by the media, and even rumors should be taken into account. Now it's not difficult to track all these news, you can just go through couple websites like Bloomberg, Investing.com and others.

As you probably heard, financial market is usually represented in different kinds of graphs. So technical analysis is graphical and mathematical (computer) studying of graphs on different platforms, provided by a broker. It is based on the nature of the market, which consists of alternating periods of growth and decline. Price movement is subject to trends. There are lots of indicators and strategies that can help you to build your own forecast and make a decision about the opening of the position. Everything about technical analysis you can read in amazing book “Technical Analysis ofthe Financial Markets: A Comprehensive Guide to Trading Methods andApplications” written by John J. Murphy.

  The assessment of the financial markets, in overall, has to combine both kinds of analysis. However, every trader chooses for himself what kind of analysis is preferable. The main thing is to decide what type of analysis you believe more, and strictly follow its’ instructions.

Investing vs Speculating - Owners vs Borrowers

  

First, let’s clarify these definitions.

Investing – is actually buying stocks, securities that ensures partial ownership of a company. By purchasing a share of the company, you become part owner, together with other investors owning the same stocks. The purpose of investing is keeping stocks for long period of time and receiving dividends, if the company is profitable. One of the most successful investors in the history is Warren Buffett. His genius investing strategies and tactics are explained in the book “Buffettology”, written by Mary Buffett. She was his daughter-in-law, who divorced his son and revealed all Warren's secrets in the book (sneaky, eh?). Be sure to read it. 

  Now about speculating. It’s buying a stake of securities and other instruments for a short period of time, at low price and selling it with an increase in their value, earning in this way on the difference in rates. The main advantage of speculating is that it often brings fast and serious income. There is no need to spend a long time on the market analysis and the study of the prospects of a company. Speculators work quickly, almost intuitively.

                                  

             About how speculations began to dominate the investment  

  This conclusion is made by John Bogle, founder of the first index fund, in his book "The Clash of the Cultures: Investment vs. Speculation". The culture of long-term investment is being replaced by short-term speculation, and the cost of stock transactions deprived of a significant part of investors profit. It is not profitable to invest anymore. Analyzing the clash of different financial cultures, the author calls for a return to the general principles of long-term investment, and warns of the consequences that are harmful to the state, society and investors. The book is extremely interesting, it explains the reasons of 2008 crisis and inevitable future crisis. Anyways, speculating prevails nowadays…

In my next posts I will describe tools, available for speculations.

             

                                   John Bogle: Investment vs Speculation