Is Forex trading profitable?

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Onprofitability: a definition

In the business world, an economic activity is profitable if it’s able to generate earnings relative to the associated expenses. In other words, profitability is basically the ability of making monetary gains from a given activity. In the financial world, on the other hand, profitability is often related to the ability of generating a positive risk-adjusted-return at a given point of time, even consistently over time.  Given the first definition, it’s safe to assume that the Foreign Exchange market is profitable since it is clear that is possible to make money in the market, otherwise, it wouldn’t exist according to basic economic laws. Naturally, this is only taking the ability of making positive net gains into account, bringing risk into the picture makes our question a little bit trickier since it is known that the Forex market is particularly risky, which means that the chance of having an actual return differing from the expected outcome return is not negligible. In other words: you can lose money easily on Forex, especially if you’re not skilled enough.

Facing the reality: Forex is not a magic alternative

The internet is full of promises claiming the ability of making impossible returns with minimum effort. Those scams are not exclusive of the Forex market, however, it’s a fact that they are common in the industry. Reality is that Forex is like any market, having the proper skills and the determination of taking the necessary amount of risk to generate profits is essential, and despite all of that, making surreal profits in a reduced time span (way higher than those of skilled Hedge Funds) is not a possibility.

Proper trading strategies and risk aversion

Like any market, having success in Forex is related to the quality of the involved trading strategies and the behavior of the investor. Both are important components in the making of a successful trader in any market, and both require concessions, time and money. Acquiring the ability to make the right decisions, designing proper trading strategies and being able to manage the risk properly takes time and a huge amount of effort, besides that, a proper behavior is required, if you are a Risk Averse investor this might not be the right option for you if your purpose is making economic gains, since is a fact that profits are proportional to the amount of risk the investor is willing to take. It’s also important to get a proper training and to have access to the right information, since (as we just said) the internet is full of scams and empty promises.

Coming back to the initial question: is Forex profitable?

Like many things in life, the answer depends on who you ask. If you ask an investor who has been trading successfully for years after spending a considerable amount of time and money the answer is probably going to be positive, otherwise, he wouldn’t invest his time and efforts in such activity. On the other hand, if you ask an unexperienced risk averse investor you might get a negative answer, since (as we stated above) Forex is not a magic mechanism and being successful requires effort. The best first step is to find the right forex broker for your needs with a recommended website CompareForexBrokers.com.

 

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Newbie’s Guide To Investing In Singapore

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Contrary to popular belief, investing is not only for the rich and famous. Anyone can get started with an investing program. There are various ways to invest small amounts of money and to grow one’s portfolio over time. In fact, this differentiates investing from gambling. Investing takes time and effort!

#1: SET THINGS STRAIGHT

This week, I invited an insurance agent to enlighten my team about the products available in the market. She highlighted how important it is to map out one’s financial future. What are your goals? Will you keep the money for 3 years and withdraw all the earnings? Or, is the money coming from a disposable income that you can risk losing? You need to set a clear path to reach your target.

#2: FIGURE OUT HOW MUCH MONEY YOU NEED

Once you have your financial goals lined up, it is time to determine how much money you need to invest. Use online calculators such as the Central Provident Fund’s savings calculator to work out a monthly investment plan. What are the helpful strategies that you can employ to save money each month? Well, developing a budget is a good place to start.

If you do not seem to have enough money at the end of the day then, figure out what needs to be changed. Eliminate unnecessary expenses or expand your income streams. A combination of these two can help you adjust.

#3: KNOW HOW MUCH RISK YOU CAN TAKE

The next step is to identify your investment risk level. Are you willing to shell it all out just to gain high profits? Or, do you need to be as conservative as possible?

There are hundreds of investment programs that you can partake in. From bonds to equities as well as gold bars to expensive artworks, you need to narrow down your options. So, know your preferences.

Stocks gives you a hiigher return in the long run. However, it can be highly volatile in short-term basis. On the other hand, bonds are designed to create a steady stream of income. The most conservative option is the mutual funds. Think about these information.

Image Credits: pixabay.com

When things fall into place, you may open a brokerage account. Investing directly in shares and bonds or indirectly through the exchange-traded funds (ETFs) can be less costly. A mixture of investment types can help balance the potential gain and the risk.

Sources: 1 & 2

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What On Earth Are Investment Bonds?

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DEFINITION

A bond is a fixed income investment in which an issuer or investor loans money to an entity. Entities such as companies or governments borrow the funds for a definite period of time, involving an interest rate. These bonds are used by said entities to raise money or finance a variety of projects.

PREPARATION

If you are comfortable with getting less money in return, then you will benefit from investing on bonds. You may think that bonds are less risky than others. However, this statement is not entirely true. Bonds are usually less risky than stocks when you are comparing products from the same issuing company.

Most investment bonds are whole of life. Thus, there is no minimum term. At surrender or during the occurence of death, a lump sum of money will be paid out. The amount of money depends on the bond’s terms and conditions as well as the investment’s performance.

ACQUISITION

a. Bond ETF

The ABF Singapore Bond Fund is listed on the Singapore Exchange and managed by Nikko Asset Management. Investors can easily sell or buy holdings in the bond fund for as low as S$100. This fund buys the bond issuance of quasi-government entities such as Temasek, LTA, and HDB. What’s the main catch? There is no maturity period for this. The fund will use the proceeds to buy other bonds. You will receive your principal by selling your holdings in the open market.

b. Singapore Government Securities (SGS)

The Singapore Government issues bonds under SGS. It offers treasury-bills, SGS Bonds, and Singapore Savings Bonds. These are typically risk-free and are applied through the three local banks.

c. Investment Grade Bonds

Whether you believe it or not, bonds come with bond credit ratings. These ratings measure credit worthiness. An investment grade bond (i.e., AAA, AA+, or AA) means that the bond issuer is unlikely to default.

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These are just some things that you must consider before investing on bonds. Best of luck on your financial journey!

Sources: 1, 2, & 3

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Choosing Trading Indices or Individual Stocks and Shares – Which Is Best Suited to You?

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Indices versus stocks and shares is a tricky question. You can trade both, but most people prefer to stick to one or the other. Let’s take a look at both and discuss the pros and cons.

What are Indices?

Indices are compilations of stocks and shares. The FTSE 100 is an index of the top 100 companies listed on the London Stock Exchange. There are many others, including the S&P 500 Index, the Hang Seng Index, the Dow Jones Industrial Average, the NASDAQ 100 Index, and so on.

An indices performance is measured in points. For example, if the FTSE 100 goes up by 56 points, the overall value of the companies listed in the index has risen in value. When the value of stocks and shares fall, the index loses points.

When you purchase shares in the FTSE 100, you are essentially buying shares in ALL the companies listed in that index. The value of an index is derived from the average value of each company or entity in the index. If you elect to purchase shares in a single company, the value of your investment goes up or down according to the performance of that company.

The Benefits of Trading Indices

Trading in indices is more cost-effective than trading in individual shares. If you buy shares in the FTSE 100, you’re effectively buying shares in each of the listed companies. To buy individual shares in each company would be very expensive.

Trading indices can offer a far greater degree of diversity. You can spread your money across multiple indices, which also spreads the risk. If you place all your eggs in one basket by buying shares in a limited number of companies, the risk is far greater.

Risk Management

Stocks often rise and fall based on news reports, politics, financial statements, etc. If a company’s shares take a nosedive because they were caught hiding toxic assets in the Cayman Islands, it will have a dramatic effect on the company’s share value, and not for the better!

When you trade on indices, you are betting on whether the value of the indices will rise or fall in the same way forex traders bet on whether a currency pair will rise or fall in value. If you sell an index at a higher price than you bought it, you make a profit and vice versa. When the price of an index rises, more investors are buying than selling.

Whereas stock prices in individual companies reflect the performance of that company, indices reflect wider market sentiments. For example, the day after Theresa May called a snap election, the FTSE 100 had fallen by 180 points, which saw £45.7 billion wiped off valuations.

In most cases, trading on indices is less risky than investing in individual stocks and shares, but there are always exceptions to the rule. For example, the Dow Jones fell by 22.6% on Black Monday in 1987, so never rest on your laurels.

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Financial Trading: Why is Known Risk the Best Risk?

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No, this is not some sort of elaborate psychological test or a thought exercise. It a genuine question, do you know why known risk is the best type of risk?

Well, let’s use a hypothetical scenario: you are sitting on a park bench on a cool spring day, what would be more dangerous – a brick falling from an adjacent building that you are completely unaware of or a brick headed in your direction, that you have seen with enough time to avoid.

A risk that is known, is preferable than a risk that is unknown – very simply…because you can avoid risk you know about. This is the genius behind easyMarkets latest product – easyTrade – but it’s not the only feature this innovative and surprisingly smart way to trade offers.

Known Risk, Fewer Problems

Because of the underlying financial product easyTrade is based on – vanilla options – it also allows clients to trade without margin requirements. Margin, if you are unfamiliar is the minimum amount in a trader’s account necessary to trade with leverage – if the account goes below that required amount, trades start closing until it is reached again. This could include profitable trades. Another problem “margin stop out” could create when trading is your position (trades) closing and then shortly after the price recovering.

Another benefit which is similar to the advantage no margin trading offers, stop out is also not needed due to the known maximum risk. Stop out is a risk management tool that allows you to set a level at which your trade will close if you are incurring losses. This carries the same danger as margin stop out though – a change in the price’s direction could potentially close your trade. This isn’t a problem if the rate (price) continues going against your trade, but it can be very damaging if the price recovers. Again, this is due to having known risk and no need for risk management tools you would use if your risk was unknown.

Quickly React

Many traders seek robust ways to trade, that give them immeasurable options and tools. Although these are undeniably robust, they can be a hinderance when you want to react quickly. If you are a trader you know that those slight few seconds are important to make or break a trade. If you aren’t a trader – then let me inform you – markets never sleep, they are in constant flux and a few minutes can make a significant difference to your profit or worse your loss.

Although easyTrade can be used in a sophisticated trading system – as hedging against other trades for example – it is also exceptionally engineered for simplicity. This simplicity can translate into speed when needed. In just four steps – choose what you would like to trade, set the maximum risk you are comfortable with, decide the trade time and then choose if the price will move up or down.

Innovation, Support, Experience

easyMarkets has been in business since 2001. It was one of the very first brokers to offer negative balance protection and free guaranteed stop loss (and still offers it today along with many more tools and conditions), to help customers better manage their risk. A long time has passed since then and easyMarkets has managed to remain relevant through its constant innovation and true dedication to its clients.

Its latest innovation easyTrade which offers no margin requirements, high leverage (in a way that is still regulator compliant) and known risk is yet another great and beneficial tool offered to easyMarkets clients.

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