Tag: CFD’s

Silver Bulls Prepare for Massive Uptrend Above $25

The Silver chart (XAG/USD) is showing a lot of potential for the bulls. The strong surge from $12 to almost $30 during March and July 2020 was an extremely impulsive price swing.

Is a breakout nearby? And what kind of bullish targets are possible? Let’s review the key chart and wave patterns.

Price Charts and Technical Analysis

XAG/USD 16.12.2020 daily chart

The XAG/USD needs to break above the resistance trend line (orange) and fractal to confirm the uptrend continuation.

This break would confirm the currently expected wave pattern. Which is a wave 12345 (pink). The most recent top is probably a wave 3 and the current pullback a wave 4.

This wave outlook remains valid as long as price stays above the 50% Fib. A break below the support places it on hold (yellow) and a deeper break indicates an invalidation (red).

The main targets are located at the Fibonacci levels, such as:

  • -27.2% Fibonacci target at $34.78
  • -61.8% Fibonacci target at $41.07
  • -100% Fibonacci target at $48 and previous top
  • A break of the top

On the 4 hour chart, price action could have completed a 5 wave (grey) pattern within the wave C (purple) at the lowest low.

The current bullish momentum is probably a wave 1 (grey) pattern. And the pullback might have completed a wave 2 (grey).

But price action needs to break above the top. A failure to break could indicate a deeper pullback (dotted orange arrows).

The Silver chart looks bullish either after a breakout or after a pullback.

XAG/USD 16.12.2020 4 hour chart

For a look at all of today’s economic events, check out our economic calendar.

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

DAX 30 Bullish Chart Pattern Aims at Fib Targets

The German stock index DAX 30 has broken above the 21 ema zone again. This occurred after price bounced strongly at the 50% Fibonacci support level.

Are the bulls ready for another breakout? Let’s review the chart and wave patterns.

Price Charts and Technical Analysis

Dax daily chart 09.12.20

The DAX 30 seems to have completed an ABC (pink) pattern within the wave 4 (blue) at the 50% Fibonacci level.

The bullish bounce suggests that price action is now in a wave 5 (blue):

  • A bullish breakout (green arrow) would confirm the uptrend continuation.
  • Also a shallow pullback (orange arrow) and bounce (green arrow) confirms an uptrend.
  • Only a deeper retracement (yellow-red) indicates that the wave 4 (blue 4’) is still ongoing.

The bullish targets are aligned at 13,700 and 14,250.

On the 1 hour chart, we see that the wave 4 (pink) of a lower degree seems completed at the recent low. Price action is building bullish momentum as it breaks above the long-term moving averages and trend lines.

The final push above the last resistance trend line could create a strong surge upwards. Because this price swing is likely a wave 3 (purple).

Eventually, a pullback within wave 4 should occur. This could be, for instance, a triangle pattern or bull flag pattern.

DAX 1 hour chart 09.12.20

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

What 2020 Has in Store for Kenyans in Online Forex Trading

This pandemic has as it were, taken up most of the first half of the year, which effectively leaves us six months to rescue what is left of 2020.

Almost every sphere of economic activity has been shut down, except the world of online trading which continues to thrive. This period has seen all financial markets brimming with opportunities.

Bi-directional markets such as the online forex trading market hold a lot of opportunity at the moment and will hold even greater opportunities after COVID-19 has been contained. For Kenyans, there is a lot of opportunities to get started in forex trading right now. Do not buy into the schools of thought that say the forex market is too risky to invest in at this time. Many financial fortunes were changed for the better in the period immediately trailing the 2008 global financial crisis. These were those who understood market cycles and knew how to play the market both ways by buying when they needed to, and shorting when the time was right.

Is the religion of Kenya in the way of forex trading?

Unlike some other African countries like Morocco, Egypt where live over 98% Muslims who often struggle with the question whether is forex trading halal or haram, Kenya has only about 10% Muslims, so only a slight percentage of Kenya’s citizens have to decide whether forex trading is prohibited by Islam or not. Nearly all the rest of the population (85%) are Christians. This means one simple thing. Religion will not stand in the booming popularity of forex trading in Kenya.

Why was the popularity of FX trading so heavily boosted in Kenya?

The popularity of FX trading was given a boost by the introduction of regulation by the capital markets authority. The entrance of the first local forex provider into the market generated a lot of media buzz. This first brokerage was not a 100% indigenous brokerage, but a subsidiary of a Cyprus-based brokerage carrying a CIF license. A second player has since entered the local market, but they are doing so at a time when offshore brokers have had more of a foothold in Kenya than the local ones.

This article highlights what the rest of 2020 has in store for Kenyans in online forex trading. So what lies ahead?

  • More Broker Scrutiny

At the heart of the institution of forex authorization and licensing by the Capital Markets Authority in Kenya is regulation. Kenya is coming from an era where many local traders lost their money to fly-by-night operators. Many of these were shadowy companies with unclear regulation or licensing, and worked with local partners, some of who were also doing things on their own without the consent or knowledge of their principals.

For instance, it was not unusual to see an individual claiming to be a representative of an offshore broker, and offering to manage funds for clients without track record or without any form of regulation. Cases of such persons absconding with the money of their clients were rampant. At this time, the Capital Markets Authority was in existence, but only regulated the Kenyan Stock Exchange and brokers offering trading in local stocks.

With traders suffering such mishaps in the past and the CMA stepping up with regulation, Kenyans can be sure that unregulated forex brokers will not have a field day in the country. Even offshore brokers who step into the market know they have to get their licensing sorted out before they come or they will get nowhere.

  • Quest for Greater Forex Education

With greater forex trading awareness has come the clamour for forex education. Forex brokers now know that forex education is no longer an optional bonus but a necessity for getting and engaging new clients. Competition in providing comprehensive forex education means that Kenyans who want to start online trading will now be able to get access to top quality forex education content that can make a difference for them.

  • More Robust FX Market Due to COVID-19

The world is at a critical juncture and like it or not, the COVID-19 pandemic has created immense trading opportunities in the financial markets. Many currency pairs are trading in price ranges that have not been witnessed before. To put it in another way, if the EURUSD was giving you a daily trading range of 100 to 200 pips a day. All the forex market is asking is this: do Kenyan forex traders have the skills and strategies to take their own share of the COVID-19 opportunities in the forex market?

COVID-19 looks like it will be with the world for several months ahead. This means that there will be lots of opportunities. Many brokers are already reporting increases in new registrations as offline jobs and opportunities dry up. Online opportunities such as forex trading will continue to be around for a lifetime. Therefore, Kenyans need to use this window of opportunity that the increased volatility in the FX market has brought their way to make money from the market.

  • Local Brokers Will Run Alongside Foreign Brokers

It is true that CMA has regulated forex trading, but it cannot prevent Kenyans from trading with offshore brokers. So Kenyans will see a situation in 2020 where regulated offshore brokers will operate alongside the two locally-based forex broker brands. So you still have a choice of what brokers to use. Whatever your choice is, ensure the broker is regulated and has a good track record. Considering that the oldest of the local brokers in Kenya is only 2 years old, there are those Kenyans who would still choose experience and track records over location.

These are some of the things that 2020 has in store for Kenyans in online forex trading. Are you ready for them? Hope you are.

Forex Regulation Across Africa – The Complete Guide

Partly, this intense growth was caused by the fact that ESMA enforced new restriction laws on the maximum leverage that EU traders can use (this caused FX brokers to focus on other big markets, like Africa)

An average of over $5.1 trillion is traded daily in the Forex market. Though worldwide, there are major forex trading centres which include London, Tokyo, Paris, Sydney, New York, Zurich, Singapore, and Hong Kong. A Forex trading day starts in Australia and ends in New York. The market stays open for 24 hours a day and five and a half days a week.

There are specific regulations in countries, continents that oversee the trading of Forex. In some countries, FX trading is restricted and banned while in others, it is fully supported. In this post, our focus is on Africa as we’ll be looking at Forex regulation across the continent.

Overview of Forex Trading In Africa

Forex trading is a very competitive activity, and in Africa, it is no different. The market has experienced speedy growth over the last two decades as more Africans are being enlightened on what Forex entails.

Significantly, the last decade has seen the Forex market go from almost unnoticed to becoming one of the most dynamic industries in the content. This can be attributed to the advent of mobile devices and other technologies.

There are about 1.3 million Forex traders in Africa. South Africa and Nigeria lead the way as both countries constitute a large percentage of the total figure.

Other countries where Forex trading is gaining ground are Kenya, Egypt, Angola, Namibia, and Tanzania. This has attracted international Forex brokers like IQ Option, IC Markets, XM Forex Trading, ForexTime (FXTM), and Olymp Trade.

With this vast amount of forex traders, it is expected that government financial regulatory bodies will be interested in monitoring trading activities in individual countries.

Forex-Friendly African Countries

A lot of African countries are Forex-friendly, but there are minor restrictions from the government. Forex can be traded in Nigeria, South Africa, Egypt, Kenya, Namibia, Ivory Coast, and many other African countries.

Whereas Forex trading cannot be said to be legalized in these countries, it also does not break the law. Before a Forex broker can offer Forex trading services to a country’s citizen, it is mostly mandatory to acquire a trading license.

Forex-Prohibited African Countries

Currently, a complete Forex ban is not placed on any country in Africa, unlike world countries like North Korea and Israel. As stated earlier, there are minor restrictions from the government in some countries. These restrictions do not prohibit the trade of Forex but are imposed to prevent fraudulent and scam activities.

Some of these restrictions are on the maximum trading amount and the maximum amount you can have in your Forex account. These are similar to Forex restrictions imposed in countries like China and Russia. Furthermore, Forex trading with non-licensed Forex brokers is prohibited in some African countries. Likewise, you can only trade Forex for yourself and not for anyone else (identification is mandatory for most Forex brokers).

Forex trading is usually not welcomed in countries governed with strict sharia laws. As a result, countries like Algeria, Benin, Burkina Faso, Egypt, etc., may not be the best to engage in Forex trading.

Let’s consider how Forex trading is regulated in some major African countries:

Forex Regulation In South Africa

In South Africa, various regulatory trading rules are put in place to minimize Forex trading risks. These regulations are imposed by the South African Financial Sector Conduct Authority (FSCA), formerly known as the Financial Services Board (FSB). The FSCA is the body responsible for monitoring and controlling all financial activities in the country. It is the most vigorous Forex market regulation in Africa.

The FSCA regulatory policies are in line with what is obtainable from regulatory bodies overseas. Notably, all OTC derivative brokers must report all trades in a bid to organize CFDs. Through the FSCA, Forex brokers can relate with each other without resulting in conflict.

According to topforexbrokers.co.za, the FSCA license incorporates some immense benefits like that FX brokers regulated by the FSCA treat their customer in good faith and that they help them with financial education and financial literacy. Not to mention that if anything goes south, a South African trader who is trading with FSCA regulated broker can go to FSCA if they think they have been scammed by their broker or mistreated.

Forex Regulation In Kenya

In Kenya, the Capital Markets Authority (CMA) regulates all financial activities, including foreign exchange trading. Before a Forex broker can do business in Kenya, they must be registered and licensed by the CMA.

Forex was previously unregulated in Kenya. Before 2016, lots of Kenyans were trading with unregulated brokers, and there were too many reports of fraudulent activities. As a result, the Kenyan government authorized the CMA to regulate Forex trading activities in the Finance Act 2016. The principal aim of the regulation is to make the market transparent and protect investors’ funds.

The CMA drew regulatory leads from international regulatory bodies like the Australian Securities and Investment Commission (ASIC) and the United Kingdom’s Financial Conduct Authority (FCA).

Forex Regulation In Nigeria

Forex trading in Nigeria is still unregulated despite the market being one of the most active ones in the continent. However, it is perceived that the country’s apex bank is working with the Securities Exchange Commission to commence Forex trade regulation.

Despite the absence of regulation in the country, the government does not consider Forex trading illegal. There are local Forex brokers who register just like other businesses and carry out foreign exchange activities as usual. Most Forex traders in Nigeria make use of foreign Forex brokers rather than the local ones due to this lack of regulation. The trading risk is totally on the trader, so they assume the foreign brokers are more trustworthy.

Banking policies do have effects on Forex trading in Nigeria. Some Nigerian banks may prevent customers from using their electronic cards to make payments or withdraw from foreign exchange platforms. Presently, there are imposed restrictions on the amount of foreign currency a Nigerian can spend outside the country. These are individual policies that could be eliminated if the Nigerian government properly legalizes Forex trading.

How To Select The Best Forex Broker For Africa

Due to the risks involved in Forex trading, it is vital to be cautious when deciding on the best Forex broker to invest in Africa.

Firstly, you should check for the broker license. If Forex trading is regulated in your country, check to see the Forex brokers licensed by the regulatory body. For a country like Nigeria, where the market is not restricted, consider foreign brokers who are licensed by global licensing authorities.

The next thing to do is to check out the trading platforms offered by these brokers. Check for their deposit bonuses, ratings, minimum deposit, and payment options before making a decision. For a practical trading experience, a Forex demo account should be featured where you can try your hands before going live. Do not invest real money if you haven’t fully understood how the platform works.

How To Stay Safe While Trading Forex

You should avoid any unlicensed Forex broker in Africa. The amount of Forex scams in African countries is on the high side, and it has resulted in grave losses for the victims. By going with a well-licensed broker, this risk is almost eliminated, and you can trade more assuredly.

Additionally, you should be cautious when making a substantial investment when you don’t fully understand the Forex market. Likewise, you should control your emotions and don’t spend all your money on Forex trading.

Conclusion – The Future Of Forex In Africa

Interest in Forex will undoubtedly continue to rise in the coming years. The sensitization level is currently high as Forex trading is advertised on newspapers, TVs, radios, websites, etc.

There are equally Forex seminars and programs to create awareness. More overseas Forex brokers are also picking interest in offering their services to African countries. Consequently, better regulatory policies will be imposed in countries that lack them so that aspiring traders can trade safely.

DAX Index Respects 50% Fibs via ABC Zigzag

Dear traders, the German stock index DAX 30 is respecting two 50% Fibonacci levels in a row. Price is expected to bounce and retest the bottom.

Weekly chart

DAX weekly chart

The DAX index bounced at the 50% Fibonacci support zone, which completed a potential wave A (light purple). The bullish bounce is now approaching the 50% Fibonacci resistance of wave B vs A. This in turn could be a bouncing spot as part of an ABC (pink) zigzag correction within the larger wave B (light purple).

DAX weekly chart

Good trading,

Chris Svorcik

The analysis has been done with the help of SWAT method (simple wave analysis and trading)

For more daily technical and wave analysis and updates, sign-up up to our newsletter

 

Meta Trader 4: The Complete Guide

Most of these trading platforms are customized by MetaQuotes for a broker which is referred to as a White Label. The newest addition is MT5, but many traders like the tried and true Meta Trader 4, as it provides all the functionality you need in a forex trading platform.

Getting Started with Meta Trader 4

Meta Trader 4 is intuitive and relatively easy to use.  You can start by opening a demonstration account that allows you to test drive the system without making a deposit.  You simply need to provide a broker that uses Meta Trader Platforms, your personal information including your email and they will send you a login and password to open a demonstration account.

A demonstration account uses demonstration money and allows you to see how the platform works without risking real capital.  Don’t be afraid to place multiple trades so you understand how to execute and order and view your positions.

The first page you see when you open Meta Trader 4, can be customized as your default page. You might want to see forex quotes along with a chart as an example. On the left side is a quote sheet. It shows you a list of products that you can trade through the MT4 platform.

You can double-click on any of the items on the quote sheet and it will bring up an order page.  Here you can see a graph of a tick chart along with the asset you are planning to trade. You can fill in your volume and place a stop loss and take profit orders.  This allows you to set your risk management before you even place your trade.

Additionally, you can have a 1-click trading box in the upper left side that allows you to instantly place a trade. You can place your trade using market execution or pending order.  You also can determine the volume of your trade.  Below is the bid-offer spread. As a market taker, you buy on the offer (the blue) and sell on the bid (the red).

Navigating through Meta Trader 4 is intuitive and designed to give you easy access to all of the destinations available on the platform.  You can customize your home page to see any page, including seeing your positions.

The demo account has a tab system on the bottom left, that opens to the common tab, where you can see charts of the major currency pairs.  You can change that to see daily, weekly or any intra-day period.  You can create several tabs that provide a view that you want to see.

Above the tabs is a navigator that allows you to see technical indicators as well as expert advisors and scripts.  Technical indicators allow you to perform technical analysis of different assets. An expert advisor is a system that can be back-tested to understand the performance of an automated trading signal over time.  Scripts allow you to drive alerts and run automated trading scenarios.

If you double-click in indicators in the menu of the navigator, you will a plenty of technical indicators that can be customized. In the graph above, the MACD (moving average convergence divergence) indicator is shown, along with a pop up of a custom input that you can use to change the standard MACD.

You can change the number of units (days, weeks, months, etc…) as inputs along with the colors used to generate a MACD indicator. The MACD shows both the MACD lines as well as the MACD histogram. There are dozens of technical indicators. You can save your favorite indicators into a tab and name favorites.

Expert Advisor

Metal Trader 4, offer access to their expert advisor. An expert advisor is a system that places trades after they have been back-tested.  It will automatically execute your trades when specific criteria are met. The demo account gives you a choice of a couple of different sample expert advisors.  You can choose from a moving average crossover expert advisor or a MACD expert advisor.

You can choose the inputs you use for each of these advisors such as the number of days or hours that you want in the calculation of the signal as well as the risk management that you want to employ when trading.  Risk management is a key component of your trading. The use of a demonstration account in conjunction with an expert advisor is highly recommended.

Scripts

Within the scripts section, you will find a wide variety of trading mechanisms. This includes automated trading, along with trading signals. There is copy trading as well as specific risk-reward indicators.  You can use multiple scripts with reviews of these scripts on your demonstration account to determine if the trading performance is in tandem with your goals.

Summary

Meta Trader 4 is one of the most efficient and complete trading platforms available.  You can open a demonstration account to test drive Meta Trader 4, and determine if its right for you.  You can set up multiple pages, to see charts, quotes, along with your portfolio.  You can execute traders from the quote sheet or enter an order directly.

There is a navigator you can use to add indicators, as well as create an expert advisor.  The platform provides you with access to dozens of indicators. You also can program your indicator. MT4 also allows you to evaluate a plethora of scripts that allow you to copy other investor’s trades or set up a signal that has been reviewed by others who use meta trader to transact. This is one of the most widely used trading platforms and is the benchmark platform for retail forex traders globally.

Stock Indices Plummet Non-Stop as Coronavirus Drama Unfolds

Dear traders, the German stock index DAX 30 made a massive bearish breakout after making a higher high earlier in 2020. Price is now back at the previous tops (green box) of 2007 and 2011 and the 50% Fibonacci retracement.

Monthly chart

DAX 30 Monthly chart

The DAX 30 index could make a bullish bounce at the 50% Fib. The bulls are not expected to keep control. A retracement up to the 38.2% Fib of wave B vs A seems the most likely scenario. A bearish turn at the 38.2% Fib could take price down again via an ABC pattern (purple). An immediate breakout could spark an immediate decline to the 61.8% Fibonacci.

Daily chart

DAX 30 Daily chart

The DAX 30 is showing massive bearish momentum, which is why a continuation lower is always possible. If price does retrace, then a bullish ABC pattern is likely towards the round 10,000 level. The downtrend could continue again from this resistance zone.

DAX 30 chart

Good trading,

Chris Svorcik

The analysis has been done with the help of SWAT method (simple wave analysis and trading)

For more daily technical and wave analysis and updates, sign-up up to our newsletter

 

Forex Trading for Beginners

Forex trading for beginners

Forex trading can be an exciting and lucrative activity, but it can also be tough, especially for beginners. Newcomers underestimate the important of financial education, tend to have unrealistic expectations, and struggle to control their emotions, pushing them to act irrationally and impair their overall performance.

What is the Forex market?

The Foreign Exchange market, also called the Forex or the FX market, is an over-the-counter market where the world’s money is exchanged. Many players trade the Forex market, such as institutional investors, central banks, multinationals, and commercial banks, among others.

As a retail trader, you can access this market with a Forex and CFD broker and make money by buying or selling currency pairs. Currencies are always quoted in pairs – for instance, in the EUR/USD currency pair, the EUR is the “base” currency, while the USD is the “quoted” currency. The quoted currency is always the equivalent of one base currency. If the EUR/USD exchange rate is worth 1.1222, then you will get $1.1222 for €1.

In our example, we can see that the EUR/USD has 4 decimals. This is typical of most currency pairs, except those that involve the JPY, which only display 2 decimals. When a currency pair moves up or down, the change is measured in “Pips”, which is a one-digit movement in the last decimal of a currency pair. When the EUR/USD moves from $1.1222 to $1.1223, the EUR/USD has increased by one “Pip”.

When you look at a currency pair quotation on your broker’s platform, you will see two prices: a selling price on the left (bid price), and a buying price on the right (ask price). The difference between both prices is called the “spread”. This “spread” is pocketed by the broker, and is one of the main ways in which they make money.

The Bank for International Settlements declared in its last triennial survey that the daily average trading volume of the Forex market reached more than 5 trillion US Dollars. It also shows that, due to this huge volume, the Forex market is the most liquid market in the world. Liquidity refers to how easy it is for traders to open and close their trading positions without affecting the price of the underlying asset. Liquidity is a good indication of how active a market is.

The concept of liquidity also works hand-in-hand with volatility, which measures the way in which market prices change. Volatility is something to be welcomed, as it is volatility that gives traders the opportunity to make profits, especially for short-term traders like scalpers and day traders.

What are the different trading styles?

As a Forex trader, there are different trading methods you can use, with the main styles being:

  • Day trading
  • Scalping
  • Swing trading

Day trading and scalping are two of the most aggressive and active trading styles. In both cases, all trading positions will be closed before the end of the trading session. Where these 2 styles differ is in trade frequency – scalping is about taking advantage of very small price changes, often buying and selling within a few seconds or minutes, while day traders may hold a position for up to several hours. While day trading and scalping are very short-term trading methods, swing trading is longer-term, with positions held up to several weeks.

Depending on the trading style you choose, you will use different types of orders. For instance, “market” orders will be used by scalpers more so than by swing traders, as these orders offer the best available price for you to enter or exit the market instantly.

For day trading or swing trading, “limit entry” orders will be more useful, are they allow traders to enter the market at a pre-determined price (“buy limit” orders are for when you want to open a “long” position, and “sell limit” if you want to open a “short” position).

As Forex trading is often offered with leverage, potential profits are magnified, along with potential losses. For this reason, it’s important to use stop-loss orders to limit your losses if the market goes against you. One of the best ways to mitigate your risk is to trade with the trend.

How important is the trend in Forex trading?

The trend is at the heart of one of the most popular techniques for trading the Forex markets – technical analysis. This strategy follows 3 assumptions: prices discount everything, history tends to repeat itself, and prices move in trends.

Therefore, when a given currency pair exchange rate moves, the market trends. While most traders think that prices can only go up or down, Charles Dow’s theory asserts that there are in fact 3 trends in the market: up, down and “sideways”.

According to Dow, you need to analysis highs and lows to be able to determine a trend. An uptrend is formed by higher highs and higher lows, while a downward trend is formed by lower highs and lower lowers. When neither the “bulls” (buying investors) nor the “bears” (selling investors) have control of the market, prices evolve within a lateral consolidation, also called a “range”.

Dow’s theory shows that each trend is formed by 3 other trends: a “primary”, a “secondary” and a “minor” trend. A primary trend usually lasts more

than a year and describes a bullish or a bearish market. Within the primary trend, the secondary trend usually goes against the main trend – it represents a corrective movement, or a “pullback”, lasting between 3 weeks and 3 months. Finally, a minor trend represents the noise of a market within the secondary trend, usually lasting less than 3 weeks.

How can candlestick analysis can help you fine-tune your entry and exit timing?

Candlestick analysis is a Japanese type of chart analysis that goes back to the 18th century. It is still one of the most popular ways to read charts today. Candlesticks are used to make better trading decisions by analyzing prices through the “body” and “wicks” of candles to decide when and where to enter or exit the markets.

A bullish candle usually has a white or green body, while a bearish candle will usually be black or red. Candles describe market participant psychology through their wicks (also called “shadows”), which show the volatility and the intensity of the movement through the highest and lowest level reached. The longer a candle, the more intense the buying/selling pressure. Conversely, the shorter the candlestick, the more indecisive the market.

Candlestick analysis is quite an effective way to analyze the markets, as it helps traders spot great trading opportunities through the visualization of “continuation”, “indecision” and “reversal” patterns in the charts.

Final words

The FX market is quite popular among newcomers, and has never been easier to access. If you use leverage and margin trading wisely, you can make a lot of money trading currencies. Learning the basics of Forex trading isn’t overly complicated. Deciding what kind of trader you are, based on your personality, and building your trading strategy accordingly, however, is a different story.

The more you know about Forex and trading, the better you will trade. So, be patient, dedicated, and committed to keep learning about trading and improving your strategy. Eventually, you will develop the skills to be profitable in Forex trading over the long-term.

What You Need to Know About Share Trading

The equity markets provide investors will the ability to take a view on individual company shares as well as sectors and indices. Stocks are considered riskier assets, and generally outperform other assets such as bonds, currency and commodities when global economic output rise.

What is a Share?

Each public company listed on an exchange provides an opportunity to own a piece of that company. An individual share is a partial ownership of a company. Some shares even provide the owner with the right to vote on specific issues related to the company. When you sum the total outstanding shares at a company and multiply the number of shares by the price of the stock, you can calculate the total market cap of the company.

Shares can be listed on an exchange. There are major exchanges such as the NYSE and the Nasdaq as well as several minor exchanges. Each exchange as a specific criterion which allows the shares to trade on the exchange. In some cases, if the share price falls below a specific level, the stock can be delisted from the exchange.

A share also represents a portion of a company’s distribution in any profits. The two main types of shares are common shares and preferred shares. In the past shares came in the form of paper certificates which have now been replaced with an electronic recording of a certificate.

What is a dividend?

A dividend is the distribution of a company’s profits. It is distributed by the company as a reward for owning shares of the company. Dividends are decided and managed by the company’s board of directors and need to be approved by the shareholders. Dividends are generally issued as cash payments, but they also can be distributed as shares of stock. In addition, exchange traded funds as well as mutual funds distribute dividends.

The board of directors of a company can determine the distribution mechanism as well as the timing when a dividend is released. The payout rates can also change throughout a year. Dividends are generally distributed quarterly, but some shares or ETFs payout their dividend monthly or annually.

Who Pays a Dividend?

Well establish companies, that have steady earnings and predictable cash flows are good dividend payers. Start-up company’s that are attempting to get their feet on the ground and need cash due to ad-hoc cost scenarios, are not good dividend payers. When businesses are in the early stages of expansion, they may not have enough funds to issue dividends. Good dividend paying companies are attempting to generate shareholder wealth via another mechanism outside of capital gains.

Here are some key dividend dates. Dividends are announced by company management on the dividend announcement date but still must be approved by the shareholders before the dividend can be paid. The date you need to own the shares by to be eligible for a dividend is the ex-dividend date. The payment date is the date that the company issues the dividend to its shareholders.

Types of Shares

There are several ways to take a view that the share of a company will rise in value. The most popular is common stock. This provides an owner with the right to receive a portion of the profits, as well as, earnings. In addition, a common stockholder has the right to vote on company issues.

An alternative is preferred stocks. Preferred shareholders have priority over common stockholders when it comes to dividends payments. These dividends generally have a higher yield relative to common stock and can be paid monthly or quarterly. Unlike common shareholders preferred shareholders have limited rights which usually does not include voting. Preferred shareholders also have a higher claim on recouping their capital if a company elects to go into bankruptcy. Preferred shares are more like bonds that stocks and usually have a fixed rate of return.

Quality Companies that Reinvest Profits

There is no rule that says investing in dividend stocks will be the only way to generate gains. Other opportunities do exist. There are several quality companies that do not offer dividends where the companies reinvent the capital which has the potential to be made up for in stock appreciation.

Many companies generate strong cash flow, have minimal debt and report robust earnings. Tech and biotech companies can provide substantial cashflow to generate operating profits. Here are six companies that can provide robust capital appreciation.

  • Alphabet (GOOGL)
  • Amazon (AMZN)
  • Biogen (BIIB)
  • Bookings (BKNG)
  • Edwards Life Sciences (EW)
  • Facebook (FB)

Generating Capital Gains with Contracts for Differences

Common stocks are more attractive then preferred stocks if you are interested in generating capital gains. An alternative option for trading to common stocks is contract for differences (CFDs). These are financial products that track the underlying change in the value of a common stock. There are several benefits to using CFDs instead of purchasing common stocks.

A contract for differences provides investors with leverage that is beyond what is available when trading common shares. Since a contract for difference only tracks the change in the value, your broker does not need you to post the entire value of the shares. Instead they only need you to post enough margin to capture any potential loss you might experience when trading.

Leverage on CFDs on shares can reach 100-1, depending on the shares, allowing you to post only a small portion of the value of the shares. For example, if you want to trade Apple shares with a price of $200, you might only need to post $2, as opposed to $200 for each common share. One of the downsides of trading CFDs is that brokers generally do not offer dividend payments to holders of CFDs.

A CFD is a more efficient way to trade shares if your goal is specifically to capture the changes in the price of a share. There are also many brokers who offer CFDs on Exchange Traded Funds (ETFs). The instruments allow you to take a view on an entire sector such as the technology sector or the financial space. Like shares, brokers generally do not pay a dividend to owners of CFDs on ETFs.

Summary

Common stocks are the most popular way investors take ownership of a company. These shares provide an investor with voting rights as well as dividend payments. Preferred shares provide investors with a higher yield and a better claim to a company’s dividends. If your goal is to take a directional view of share prices, then contracts for difference are a more efficient way to invest in shares.

This article is brought to you by the courtesy of Skilling.

What are the Different Types of CFD brokers?

CFDs are relatively new financial derivatives that have become increasingly appreciated among investors, especially in the Forex market. But as with any other activity, to be successful while trading CFDs, you need to have the right set of tools – the most important one being your broker.

Of all the different CFD brokers available, almost all fall within 2 overall categories – ECNs and Market-Makers. While a novice user may not notice much of a difference between them, the behind-the-scenes mechanics are substantially different. These differences have a significant impact on you, the trader, whether you realize it or not.

What are the differences between an ECN broker and a Market Maker, and which one is best for your trading style? Let’s jump right in.

What is a CFD and how does it work?

CFDs, which stands for Contract For Difference, are financial contracts you have with your broker to exchange the difference between the opening and the closing price of a trading position.

When you trade CFDs, you do not own the underlying asset you’re investing in, as you are only getting (or paying) the difference in price between the value of your contract when you opened it and when you closed it.

CFDs are leveraged financial products, allowing you to use margin trading to profit from increased market exposure. Every time you want to open a trading position, you have to put aside a fraction of the total value of this position as collateral – this is the margin.

As a result, you are able to invest more money than what you possess in your trading account. Consequently, as leverage amplifies price movements in all directions, they can be risky – you might make larger profits, but you could also lose just as much.

In addition to leverage, one of the biggest advantages you have, when you trade CFDs, is that you can benefit from rising as well as falling markets, which means that you can earn money regardless of the market direction.

Why are CFDs popular in the Forex market?

The Forex market is the market dedicated to currencies. It is one of the most liquid and active financial markets in the world, and it is open 24-hours a day, 5 days a week. It is also the largest financial market, with US$ 5.1 trillion exchanged every day.

If you decide to trade the Forex market with CFDs, you can do so by borrowing capital from your broker to place a trade. This is called margin trading.

Trading CFDs on Forex currency pairs is very popular, as it is an ideal market for leverage and margin trading due to its high liquidity, as you can enter and exit the market quite easily with small slippage. Of course, leverage can be offered on many different markets, but leverage, as applied to the Forex market, is generally much higher than any other trading instrument.

Because CFDs are very risky leveraged products that are linked to speculation, they are not allowed everywhere. For instance, there are forbidden for US residents, but they generally are permitted in many other countries.

In Europe, the European Securities and Markets Authority is the deciding authority on the rules brokers need to follow when it comes to trading CFDs. Recently, the organization decided “to strengthen restrictions on the marketing, distribution or sale of contracts for differences to retail clients”.

Forex Brokers Regulations also varies in different parts around the world, as it is a fast-growing OTC market.

What are the different types of CFD brokers?

A “No Dealing Desk” Forex broker usually provides direct access to the interbank market and can either be an STP or an ECN broker (or a mix of both).

This type of broker only sends trading orders directly to liquidity providers, which means that it doesn’t bear the risks of its clients internally. They only act as an intermediary between trader orders and the liquidity providers available.

ECN, which stands for “Electronic Communication Network”, describes the broker type that is connected to an electronic trading system in which many buying and selling orders from different large liquidity providers compete. Therefore, an ECN broker only connects different market participants together, so then they can trade with each other.

STP stands for “Straight-Through-Processing” and describes a broker that does not execute trader orders. They only carry out trading operations, without human intervention (No Dealing Desk – NDD) to external liquidity providers connected to the interbank market.

Dealing Desk (DD) – Market Maker

A Dealing Desk Forex broker is a Market Maker, which means that they don’t offer liquidity provider prices, as they are the ones providing liquidity for its traders by offering their own prices. It is for this reason that they are called market makers, as they “create” the market for their clients. This means that they are the ones setting the bid and ask prices of any financial instruments offered.

A Dealing Desk broker is very often the counterparty of their traders’ positions, as they do not directly trade, or hedge their clients’ position, with their liquidity providers. Therefore, a Dealing Desk broker has to pay for profitable client trades with their own money. If a client makes a winning trade, the broker loses money – and vice-versa.

How do CFD brokers make money?

A No Dealing Desk CFD broker earns money on the trading volume of their clients, as it receives a commission on all trades, and/or a markup on the spread (the difference between the buying and the selling price). Most of the time, these spreads are variable spreads, which fluctuate depending on the market conditions.

A Dealing Desk CFD broker usually gets money from spreads, as well as client losses. Spreads offered by market makers are usually fixed spreads.

The most important thing for a No Dealing Desk broker to provide is the best trading conditions for their clients – that way, their clients are more successful, they trade more, and everybody earns more money. It is for this reason that most traders prefer to use an ECN or STP broker, as they find them more reliable and profitable.

As a market maker broker earns money from their traders losing money, it is often seen as less transparent, as they have the ability (and motivation) to manipulate prices. Revenue is usually higher for a Market Maker than for an ECN/STP broker, given the same trading volumes.

Bottom line

CFDs are complex financial products that are not suitable for everyone, as leverage can trigger big losses. But, leverage also means that you can make huge gains on the financial markets by using volatility to your advantage.

CFDs are generally a good fit if you’re a short-term trader (like a scalper or a day trader), and if you have time to spend in front of the markets. Most importantly, to trade CFDs you need to have a high tolerance for risk – especially if you’re trading the Forex market, as it’s a very volatile market.

To better protect your trading capital, always use tight money and risk management rules when trading CFDs on the FX market. Equip yourself with the right suite of trading tools by selecting the right broker for your trading needs.

Regardless of whether you choose a dealing or a non-dealing desk broker, both can be perfectly reliable. Trading with No Dealing Desk broker, like SimpleFX, is likely to be a better choice, both for avoiding the conflict of interest inherent in the Market Maker model, and for partnering with a broker whose interests are aligned with yours.

To find the best broker for your trading needs, be sure to:

  • Establish your preferred trading style and your requirements first
  • Make sure your broker is regulated and licensed (in the more regional markets the better)
  • Be sure that the broker’s client support is knowledgeable and easy to access
  • Open a demo account first to know if the trading platform is going to be a good fit for your trading strategy
  • Check out trading conditions:
  1. Costs
  2. Fees
  3. Spreads
  4. Minimum/maximum deposit
  5. Margin requirements
  6. Financial assets
  7. Trading platforms
  8. Type of trading accounts offered

How to Trade CFD’s with the Right Leverage?

The capital markets represent an excellent arena for investors to trade securities. Robust volatility provides the backdrop to make money by speculating that the price of a security will rise or fall. One of the issues investors face is that to make money you need to have money.  Historically, if you wanted to participate in share trading of equities or equity indices you needed to have enough capital to purchase shares. Fortunately, there are now products that allow you to speculate on the direction of a security without purchasing or short-selling that security, known as contracts for differences (CFD’s).

What is a Contract for Differences?

A contract for differences (CFD) is an agreement between two parties that provides access to the risk of an underlying instrument. The CFD will pay the difference in the price between where the contract was purchased and where it was sold. There is no physical exchange for the underlying product. So, if you purchase a CFD on crude oil you do not have to accept delivery of the crude oil. It is solely a financial instrument that pays the difference in price.  So, all you are really trading is the profit and loss based on the movements of an underlying instrument.

Stock shares, indices, commodities, as well as currencies can be traded using contract for differences. These instruments are cost effective and that is one reason they are very popular. Some of the most popular CFDs including Wall Street Indices, German Indices, along with commodities such as crude oil and gold. It is important to find a reliable broker to trade CFD’s.

Let’s compare the process of trading a contract for difference relative to the purchase of shares of a stock like Facebook. If you purchase shares, prior to execution you would need to have the amount of capital in your account to buy the shares. At approximately $180 per share, 10-shares of Facebook would cost $1,800 dollars. U.S. laws only allow you to leverage your account once you have purchased shares. For example, once you buy these shares, your broker would allow you to borrow 50% of the value of the shares ($900 in this example), to purchase more shares. So, to purchase another 10-shares, you would only need to post another $900 instead of $1,800.

If you are trading a CFD on Facebook shares, your broker would only require a margin amount that would cover the potential change in the price of the stock. The calculation of your margin requirement would be based on an algorithm that basically attempts to define the maximum loss you might experience in one-day. For example, if a 3-standard deviation move in Facebook shares was $20 per share, then your broker would ask you to post $20 multiplied by the number of CFDs you own.

The calculation of your profit or loss on a CFD is very straightforward. All you need to do is subtract the price that you purchase the CFD from the price that you sold the CFD and multiply that by the of CFD you own.

What is Leverage?

There are pros and cons to trading CFDs and most of the arguments for trading these products surround the concept of trading using leverage. Leverage makes trading of CFDs more efficient than trading shares of stocks or indices, but it also increases the risks associated with your trading strategy.

By trading using leverage, you can increase your returns substantially. Leverage can range from 2-1 to 400 – 1. Leverage of 10-1 means that for every $10 you post in margin you control $100 in notional value. In our Facebook example, if you use margin that is 10-1, for every share of Facebook you would need to post $18. Since CFD trading is focused on the potential loss that you could experience, the amount of capital you need to have to generate robust returns is a lot smaller than the amount you would need if you were trading shares.

Leverage also allows you to maximize your returns. Here is an example of the difference in what you would make using a CFD on the S&P 500 relative to purchasing the index. At the current price of 2,700, you would need $2,700 to purchase 1 S&P 500 contract. If the index increased to 3,000, you would make 300 or 11% (3,000 – 2,7000) / 2,700.

If you employed leverage into your calculation the returns would be more significant. For example, if you employed leverage of 10 to 1, you would need to post $270 to purchase an index that is 2,700.  If you made $300 if the index moved to 3,000 from 2,700 you return would be 111% = ($300 / 270).

Leverage can help you generate significant returns, but there is also increased risk when using highly leveraged products. Using the same example, if the price of the S&P 500 declined from 2,700 to 2,400, you would lose 11% without leverage. If you used the leverage of 10 to 1, your loss would be more than the $270 you had in your account, wiping out your entire account!

In practice, prior to losing this amount, you would get a call from your broker, requesting that you immediately put up more capital. This is referred to as a margin call.  When you receive this notification, you only have a small window to increase your capital otherwise your broker will liquidate your position before you fall short of the minimum required in your account to hold on to your positions.

The Benefits and Risk of CFD’s

There are many pros and cons of trading CFDs. CFDs allow you to have access to products that you might never be able to trade especially if you have a small account. For example, if open a $500 account, and wanted to focus on trading Facebook shares, you would only be able to purchase 2-shares. When trading CFD, you might be able to employ leverage of 10 to 1, allowing you to theoretically have access to $5,000 in Facebook shares. Since you are only trading the difference between where you buy, and you sell, your broker can afford to provide leverage up to the point where you could theoretically lose $500 dollars.

Another benefit of CFDs relative to shares is the relative ease in which CFDs can be traded short. When you short shares or indices, you need to borrow the shares and plan to pay back the shares when the price moves lower. In many instances, the cost to borrow shares can be significant. The less liquid the shares the costlier it is to borrow those share for the purposes of short selling. A standard cost to borrow shares is 6% per annual.  So, if you borrowed $1,000 for a year and the price of the stock you are shorting did not move, you would lose $60 per share.

When you trade using CFDs you do not have to borrow shares, because the instrument has the capabilities on its own to provide you with a short position which speculates that the underlying instrument will move down in price. When you sell CFD, all you need is a buyer of that CFD to allow you to create a profit that is your entry price minus your exit price.

When you trade CFD shares you can place your order with a broker or use an online electronic exchange. Your broker acts as a dealer and will immediately place your order when you call. Most brokers will, in fact, take the counterparty risk, which means that in many instances you are also taking counterparty risk. While you might not believe this to be the case, you are taking the risk that your broker is able to pay you your profit when you withdraw your capital. This does not necessarily mean that the broker is trading against you, instead, it means that the broker will ensure that you get paid when you have a winning trade. If your broker is unable to collect margin at a sufficient rate, you expose yourself to credit risk.

Finding a Good and Reliable Broker

There are several good brokers that execute CFDs, but few that are completely neutral. Many take positions against you and therefore they have a rooting interest in the price moving against you. It’s important to find a 100% market neutral trader, that allows you to trade against the market and not your broker. You should also look for a broker that has a wide range of platform choices. This includes a downloadable platform such as MT4, as well as a web platform that will allow you to access your account wherever there is access to the internet. If you like to chart CFDs, make sure your platform has an excellent charting package. You also want to make sure that you can trade when you are on the go.  Finding a broker that also has a good mobile platform that will allow you to trade when you need to and not only when you are home or in your office. InterTrader is one of the most reliable and well-reputed brokers to offer CFD’s trading with a user-friendly trading platform and low commissions compared to competitors.

What is the Right Leverage to Trade CFD’s?

Using the right leverage is an important part of determining the trading strategy you want to employ. Too much leverage will increase the risks of ruin, while too little leverage will hinder your opportunity to generate the returns you are looking for.

You need to initially determine what type of trading strategy you want to use to generate returns. For example, if you are looking to scalp the market searching for small changes in the price of an asset, you will need significant leverage to create robust returns. On the other hand, if you are employing a trend following a strategy where you are looking for large moves that might take some time, you might need less leverage to generate the returns you are looking for.

You also need to analyze the underlying products that are used to create a CFD. For example, the movements in the forex markets are relatively tame compared to shares, commodities, and indices. Forex markets generally have relatively low historical volatility. To generate robust returns in the forex markets you need to increase the leverage you are using.  For shares or indices which have significant historical volatility, you should consider using lower levels of leverage.

Summary

Contracts for differences are a trading instrument that allows you to speculate on the direction of an asset. CFDs are different than trading the underlying asset as you are investing in the difference between where you purchase your CFD and where you sold it. So, as opposed to having to buy a security, you only have to post enough margin to allow you to cover a loss that outside the normal range of losses you could experience. The leverage employed when you trade CFDs allows you to generate excellent returns, but the risks are also significant which means you need to be careful when employing leverage. Prior to depositing money at a broker, you should look for one that is 100% neutral so you are trading against the market and not your broker.

How Can You Buy Stocks with Limited Budget?

The recent stock market volatility has brought back the allure of trading the equity market, but unless you know what instruments to trade, it’s so difficult to make money unless you have a lot of money. When you trade stocks, most brokers require that you post nearly 100% of the price of the shares. Some broker offers margin, but in many cases, the amount of leverage they are willing to offer you on stocks is still not insufficient. It’s hard to make money on a small budget unless you trade stocks using a security called contracts for differences (CFDs).

What is a CFD? And How is it Different from Shares Market?

A contract for differences is a security that allows you to trade the difference in the price of an asset as opposed to owning or shorting-selling the security. When you purchase a stock from a broker, you own the shares and you are entitled to vote for issues that affect the company of the stock you own. Additionally, if the company issues a dividend you are entitled to receive that dividend. When you own the CFD’s of shares, you own the profit or loss created by the change in the price of the shares. You are not entitled to vote on company issues and you cannot receive a dividend. CFDs are geared toward making money from directional changes in the price of a stock.

Is there Leverage with CFDs?

When you trade CFDs you are taking advantage of the leverage that is provided to you by your CFD broker. Several brokers, including reputable brokers such as markets.com, provide CFD leverage that is 10-1 but please be aware that your capital is at risk. This means for every dollar you post to trade a CFD, markets.com will lend you $10 to enhance your trading returns. Leverage cuts both ways. It can help you generate better than average returns, but it can also provide you with the fuel to experience significant losses.

Example of Trading CFDs Stocks relative to Stocks via Exchanges

Let’s look at an example of how you can benefit using CFDs to start to trade a stock portfolio. We can look at Apple stock as it is widely traded stock and one of the most liquid stocks available. If you have a portfolio of $500 dollars, you would be able to purchase 3 shares of this stock which is currently trading around $165 per share. If the stock price increased by 10%, over the next 12-months, you would gain $49.5 which is calculated by multiplying $16.5 by 3. When you trade contracts for differences you are not purchasing the stock, so your exposure can be a lot larger than if you were purchasing the actual shares.

Brokers like markets.com will provide you with a leverage of 10-1 to trade a CFD on Apple shares but please be aware that trading CFDs carries a considerable risk of capital loss. This means for the same $500 dollars, you now have access to approximately $5,000. Instead of being able to only purchase 3-shares of Apple stock, you can now purchase 30-shares. If the price of Apple increases by 10%, you would make $495 dollars on your CFD ($165 * 10% * 30). The returns would be 99% instead of 10%, which would allow you to substantially increase your returns.  It’s not too hard to see how you could quickly build a $500 portfolio to $1,000 or even $5,000 especially if you can develop a successful track record.

Obviously, leverage can cut both ways. If you lose 10% on the leverage of 10-1, your entire portfolio could be wiped out. For this reason, it is important to employ robust risk management to make sure that you live to see another day.

What is Margin in CFD Trading?

When you enter a CFD trade, your broker will require that you have a specific amount of capital in your account. The amount of capital is your initial margin. The margin required is the amount of capital needed if the price of the CFD moved against you by a larger than the normal amount. Generally, this is a 2 or 3-standard deviation move that only occurs between 1 and 5% of the time.

The margin calculation is real-time, and it tells your broker the minimum amount of capital you must have in your account to continue to hold your position. If an adverse change in the price of the CFD you own occurs, your broker will require that you post additional margin. If you are unable to increase the capital you have in your account, your broker will begin to liquidate your position. Make sure you completely understand your broker’s rights to liquidating your position before you start to trade CFDs.

How to Use Risk Management?

When you trade CFDs you should use a strategy that allows you to generate gains over the long-term. You should minimize the amount of money you place on any trade to 10-20% of your portfolio. So, if you are planning on trading a portfolio that is $500, keep the amount of money you post to $50-$100. This will give you the room you need especial if the first couple of trades you place are unfavorable. Another concept you should follow is to cut your losses and let your profits run. If the market moves against you and hits your stop loss, you should exit and live to see another day. If the market moves in your favor, move your stops up and let your gains compound as the market moves in your favor.

Summary

Several CFD brokers provide access to currencies, indices, commodities, and stocks. Most issue a small selection of liquid stocks and there are a few that have a plethora of stocks to choose from including shares from around the globe like Markets.com. If you are focusing on trading individual shares, CFDs provide investors with leverage that will allow you to generate robust returns with a limited budget. Regardless of the size of your portfolio, it’s important to use prudent risk management techniques when trading CFDs as your capital is at risk.