Forex trading has caused large losses to many inexperienced and uneducated traders. For all of its numbers, charts and ratios, trading FX can been seen as more of an art than science.
As with anything talent is key, but at the end of the day it will only get you so far. The key to being successful is developing a strategy that keeps your losses to a minimum whilst maximising your profits. Below we’ve listed 7 tips to help protect your capital whilst risking it on the forex market.
Stick to what you understand
As a rule of thumb, if you’re unsure of what you’re doing, or don’t feel as if you can fully justify any decision you’re making then simply don’t place the trade. You should avoid trading on the basis of hearsay or rumours and ensure you understand both the positive consequences, and the adverse results that may result from any trade.
Discover Your Risk Tolerance
To get the most out of your trading career, it’s important to ensure you understand how you cope with risk. To start with, it’s essential to ensure that your tolerance for risk and allocation of funds aren’t overly liberal. It’s wise to carefully determine your personal goals and proceed accordingly, especially at the start of your trading career.
To start any journey you need to know where you’re going and how you’ll get there.
Whether you’re shooting for financial independence or just trying to generate extra income, it’s wise to allocate a timeframe and stick to a plan at least in the beginning. Also knowing what you constitute as failure and define as success is imperative to gaining the insight necessary for successful trading.
Never add to a losing position
While this seems to be common sense, many novice traders will try to drag themselves from a loss by throwing more money onto the fire. It’s impossible to know how a currency pairing will move during any given period of time. Hazarding educated guesses is all you have in FX, meaning you’ll never have solid knowledge of where a price will be even in a short amount of time.
Simplicity is Key
Forex trading isn’t rocket science, however overcomplicating things can make it feel like it. You needn’t be a maths genius or economics wiz to be successful. Clarity of vision alongside well-defined, carefully chosen goals and techniques offer the best path to success.
Don’t go against the markets
No matter what level you’re at, trading against the market is always risky. Remember trends are called trends for a reason, and joining them allows you peace of mind. Fighting the trends will create stress, pressure, fear and probably a loss.
Every is human meaning that greed, excitement, panic and fear will inevitably play a role. However, emotions have no place in a traders calculations. It’s important to control your emotions and minimize their effect on your decision making. This is one of the big reasons traders are advised to start with small amounts. Having a logical approach, and reducing your emotional intensity is the best formula for success.
In conclusion, trading forex is risky. Nothing will remove the risk element but you can take these steps to minimise it, helping to protect your funds. By sticking to these basic principles you’re putting yourself in the best position to ensure your losses are infrequent and to an absolute minimum. If you’d like to learn more about FX trading then visit ETX Capital for more information.Comments: 0 Read More
Within the past couple of years more and more people have started trading binary options. Binary options trading are different from trading traditional options because you do not actually make any type of purchase. Instead of buying stocks or bonds from a company or on the market you are simply making a bet to determine whether the price of a stock or commodity will go up or down within a set amount of time.
Trading binary options is done by purchasing a contract that states whether or not you think a certain asset is going to finish above or below a specified price within a set amount of time. The time frame is called the expiry. The expiry can last from as little as 30 seconds to several months away. If you choose correctly at the end of the time you will win the trade. The amount you win is a bit less than 100%, with many brokers paying from 65% to 85%.
Some of the assets that can be traded through binary options include currencies, stocks, commodities, and indices.
Bitcoin and Binary Options
With the rise in popularity of the online currency bitcoin, there has been interest by many traders to be able to use bitcoins for payment on binary options broker’s sites. Many safe binary options brokers have seen this trend and have started to allow their clients to make trades using bitcoins. This recognition of bitcoins as a currency has helped to expand the growth of the binary options market. While many brokers are currently only offering bitcoin as a pair with the United States dollar, some binary options brokers are opening up that deal with bitcoins only.
Bitcoin only Binary Options Brokers
There are several binary options brokers that are now offering bitcoins as a means of exchange. This means that all of the prices for binary options being traded are quoted using bitcoins as the currency. The benefit of this type of site for traders is that they get to earn bitcoins from the binary options brokers bitcoin account.
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It’s been quite a while since I wrote something on TFB. I was gone… reading the Why Café, a great book that I devoured in a single day. I won’t talk about the book, I’ll let you find it and read it. You will understand a little better after that.
At one point, I just didn’t feel like writing anymore. I thought that instead of writing for writing I would just put the TFB project on a shelf and see how it goes. I didn’t stop writing completely; I simply put this blog on the sidelines for a while.
As you probably already know, I’m a results-driven individual. Everything I do at work and with my online company is to obtain results. I’m highly motivated to work mainly because I get great results. I’m always looking for a reward, this is why I work. When results aren’t happening, I easily lose my motivation. This is probably what happened with TFB.
I used to make lots of money selling links; it was an awesome business model. There wasn’t much to do and plenty of money to be made. Then, Google started to hit the financial industry on both sides:
FIRST, Google severely punished those who used to buy links. This is why the business from advertisers dried up. I even started to receive emails asking to withdraw links from my sites. While the text link business is still alive and there is still money to be made, it requires more time and it pays less than it used to.
SECOND, Google started reducing their affinity for blogs. It’s only normal: why would you rank a blog on the first page of the biggest search engine when you can rank public companies that buy millions of $ in internet ads with you? This is why boring and not so educational articles outranked in-depth and educational articles I wrote about specific topics. Then again, who am I to Google when you compare my sites to Forbes or The Wall Street Journal?
Slowly but surely, I see TFB traffic diminishing. Since I never really took the time to build a real business around my blogs, I saw this coming but was paralyzed since I didn’t know what to do. We struggled to manage our way out through different avenues but the fun of blogging wasn’t there for me anymore. In fact, each time I think of TFB, I think of the failure of not building a stronger business model around my sites.
This is why I completely stopped most of my online activities over one day. I put everything aside and started to work on one project; my dividend investing platform. Now, I’m convinced this will be my way to get out of the rat race and that I will be able to live from these investment services. But in order to do so, in order to compare myself to the other big guys on the internet, I must do like them; focus on the most important project I have and give it my all.
I thought it sucked that I left TFB without a word of notice. A post about a tax return is not really the best way to leave a blog like this one; especially after 8 years of writing! This is why I’m writing this quick post; to tell you that I’m happy, that I’m still working online and making money, and I have other goals at the moment. I’ll be back, for sure I’ll be back. I love TFB too much to let it go forever. And, for the first time since I started this adventure in 2006, I feel that I need to concentrate all my energy in one place… and this is what I do right now.
In the meantime, I strongly suggest you grab a copy of the Why Café. Note: I’m not linking to it, I’m not getting affiliate revenues, I genuinely think you should read this book. It has literally changed my life.
Aka The Financial BloggerComments: 20 Read More
Last year, I decided to stop procrastinating with my tax return and completed everything in March. I was happily surprised to see how fast I got my tax refund back! I decided to do the same thing this year and I already cashed in my tax refund last week. Sometimes, the Government can be faster than you think!
The notice of assessment (NOA) is the document you get back from the Government confirming how much you earned, your tax credits and how much you have paid in taxes. If you paid too much tax during the year, you get a nice check along with your NOA. This usually happens if you can deduct an amount from your earned income or if you are eligible for specific tax credits. For example, I had deducted my RRSP contribution and I’m eligible for several tax credits because I have children.
My employer calculated the tax to be paid on a salary of X. Let’s say I make 100K/year and I should pay an average tax rate of 35%. This means I pay $35,000 in taxes throughout the year. Imagine I invest $10,000 in my RRSP and I’m eligible for a $2,000 tax credit for my children. My tax able income is reduced by $10,000 (the RRSP contribution) . This means I should pay 35% taxes on $90,000 and not $100,000. The total tax due is then $31,500 (35% of $90K). Then, I receive a tax credit of $2,000. The tax credit doesn’t reduce my taxable income, it reduces directly the amount of taxes due. My taxes for the year drop to $29,500. Since I’ve paid a total of $35,000 from my pay check, the Gov’t will give me back a nice check of $5,500. Wow… I wish my example was the real life! Hahaha!
On the other hand, if you have earned other sources of income throughout the year and haven’t paid taxes on them (investment income, rental income, second job, etc), you may end-up paying more taxes after filling your report.
I always look forward opening this letter from the government for two reasons: #1 I usually get a nice check. #2 This document confirms how much I earned last year. This always makes me proud and reminds me that I should appreciate having such a great job!
The NOA also tells you how much you can invest in your TFSA and your RRSP. This helps me plan my investments for the year.
In fact, I’m not disappointed by the amount but rather what I’m going to do with it. I deposited my checks last week and already used all my tax refund… to repay debts! As fast as it was deposited, it was applied to my loans just as fast. It wasn’t incredibly exciting to use my tax refund to pay down debt but I know it’s the right thing to do.
I’ve already paid for my vacation for the full year (including my summer vacation) so I know I will not have more expenses to come in the next 6 months. Reducing my debt is the #1 priority for the rest of the year and it starts with my tax refund.
The second step is to take my next raise to invest more in my TFSA to fund private school for my three children. Then, I should receive a part of my bonus this summer which will also be applied to my debts. By January 2015, I should have paid everything besides my car loan and mortgage, this will help a lot!
What are you going to do with your tax refund?
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A long time ago on this blog, I wrote several posts about the Smith Manœuvre. This was a very popular concept a few years ago. More precisely, before 2008.
The Smith Manoeuvre was born in Western Canada when several households decided to convert their mortgage debt into a tax-deductible debt. After all, if Americans have the right to deduct their interest on their mortgage, why couldn’t we? The Smith Manoeuvre allows that over time. If you are not familiar with this strategy, I recommend you read my articles here and there.
The problem with the Smith Manoeuvre is that it implies leveraging. Instead of paying down your mortgage, you keep borrowing money from your line of credit to invest in the stock market. This makes this part of your mortgage tax deductible. But you still have a debt outstanding. As long as the market goes up, everybody is a king with this strategy. In 2008, most people were crying in their basements.
Now that the dust has settled, interest rates are still low and will remain low for a while and the stock market keeps rising, this looks like the perfect time for leveraging again. Back in 2009, I had to stop my leveraging strategy. Not because I was afraid of the market, but because my financial situation didn’t allow me to borrow anymore.
The key point with any leveraging strategy is to be able to support the stress.
#1 Stress from market volatility.
#2 Stress from the outstanding debts.
There were lots of changes in my life in 2009 and I couldn’t support having additional debt on my mind. We had our second child two years earlier and now my wife was about to stop working. The fact our budget had become thinner was the main motive why we decided to stop leveraging.
Right now, my situation is improving, I’m getting ahead of my debt payments and can feel the moment when I will have extra cash each month. I will possibly get rid of all my consumer debts (besides my car loan and mortgage) by January 2015. At that point, I will have more money to handle.
I’ll be left with two options: pay down my mortgage and car loan faster, or invest this money. Or… I could restart my Smith Manoeuvre!
I know leveraging is risky, but someone who has been borrowing to invest over the past 10 years is smiling today. Net of fees, a growth mutual fund (75% in stocks / 25% in bonds) did about 6.50% annualized rate. The investor probably paid an average of 3.5% in interest rate over that period. This leaves 3% net of fees and interest annualized for the past 10 years without disbursing a single penny.
If an investor had borrowed 100K 10 years ago, they would show a net profit of $52K after ten years (before taxes). So 52K is being made while enduring the most important stock market crash right in the middle of your strategy. 52K is being made without you putting a single penny on the table, not even to pay for the interest. 52K is being made and you can keep on going as the compound interest will make the next 10 years even more interesting. Because in 20 years, the same 100K borrowed will be worth $352K. Net of interest, and after paying the 100K loan, there will be 182K left in your pocket (minus taxes). So now we are talking about 182K in profit when you didn’t use one dollar from your pocket to invest.
As I just mentioned a few paragraphs before, leveraging is not made for the faint of heart. If you can’t keep up with a portfolio down by 20% and an outstanding debt of 100K, you are not made to leverage. But for those who can afford it, this strategy makes a lot of sense these days. I’m pretty sure some were able to make the 52K from 100K in just the past 4 years…
What do you think? Are you in for leveraging again?Comments: 0 Read More
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