Protected: 23/5/2016 Trading Journal

Recently I encounter this article from MAS and I think is interesting to share.
“The Geeks Shall Inherit the Earth”
Technology is changing the way we live, work, and play.
When the legal profession is organising a conference on technology, you know that something momentous is brewing! I congratulate the Singapore Academy of Law for its acumen in setting technology as the theme for its conference.
A sector where I believe technology is going to be fundamentally transformative is financial services. In fact, there is a new buzzword: “FinTech” – financial technologies or the integration of finance and technology. Two things are happening.
First, non-financial players are using technology to offer innovative solutions that mirror the services traditionally offered by financial institutions (“FIs”).
Indeed, these non-financial firms look set to disrupt the financial industry.
The second thing that is happening is that FIs are fighting back.
Leveraging on their size and networks, FIs are using technology much more intensely to enhance their product offerings and service delivery.
What does all this mean? As a powerpoint slide used by a FinTech company in Silicon Valley rather immodestly proclaims: “the geeks shall inherit the earth!”. It is no doubt an exaggeration. But the message is clear:
Why This Time is Different
Now, have we not heard this story before – that technology will transform banking and then nothing changed fundamentally? Indeed there have been false starts in the past.
The most obvious evidence that both beliefs were manifestly wrong occurs year after year, when lines of Singaporeans form at bank branches to obtain new notes for “angpows”, to be given out during the Chinese New Year celebrations.
Technology takes time to proliferate. More importantly, it is the interaction among related technologies that often creates transformation – and that takes time.
There is reason to believe that this time is different: that technology will indeed transform financial services in a way that has not happened before. It has much to do with the concept of mobility.
First, mobility of technology.
Second, mobility of ideas.
Third, mobility of payments.
We are looking at a financial services industry that will be increasingly driven and powered by technology.
The Big Trends in Technology Affecting Finance
What are the big trends in technology affecting the financial industry? Let me cite six technologies that appear potentially transformative:
First, mobile and digital payments.
Payment services are increasingly being enabled by mobile applications and near-field communications (NFC).
This is only the beginning.
Second, authentication and biometrics.
Authenticating one’s identity is critical to gaining access to a variety of financial services and performing many financial transactions. As authentication technology progresses, we can look forward to more secure and efficient solutions to authenticate identity.
Biometric authentication is making good advances.
For users who are concerned about their privacy or have physical challenges, token-based authentication offers an alternative means of security:
Third, block chains and distributed ledgers.
Digital currencies – like Bitcoins – have attracted much interest.
But the bigger impact on financial services, and the broader economy, is likely to come from the technology behind Bitcoins – namely the block-chain or, more generally, the distributed ledger system.
There are many potential applications of distributed ledger systems in the financial sector:
In fact – and this would be of interest to the lawyers gathered here – distributed ledger systems could potentially be applied in any area which involves contracts or transactions that currently rely on trusted third parties for verification.
Fourth, cloud computing.
Cloud computing is an innovative service and delivery model that enables on-demand access to a shared pool of computing resources. It provides economies of scale, potential cost-savings, as well as the flexibility to scale up or down computing resources as requirements change.
There is a view among some quarters that “MAS does not like the cloud”. This is an urban myth, not true.
Fifth, big data.
The world is exploding with information.
Some FIs are investing in and using this big data to derive useful and actionable insights.
Sixth, learning machines.
This might well be the most impactful technological change of the future – computers that can think.
We are already beginning to see examples in the financial industry:
The legal minds assembled here might want to reflect on where the legal liabilities arising from the actions – or inactions – of such learning machines lie.
The six technologies that I have outlined have the potential to transform the financial industry globally. There could well be others that I have not mentioned.
The important thing for our FIs is to be alert to these and other technology trends, understand their possible implications, and seize the opportunity to apply relevant technologies safely and efficiently – to boost productivity, gain competitive advantage, and serve consumers better.
Smart Nation Needs a Smart Financial Centre
At the national level, Singapore has set its sights on becoming a Smart Nation – one that embraces innovation and harnesses info-comm technology to increase productivity and improve the welfare of Singaporeans. The Smart Nation Programme under the Prime Minister’s Office has brought together stakeholders from the government and the industry to identify issues and develop solutions with this objective in mind.
Government agencies have been rolling out a steady pipeline of Smart Nation initiatives.
A Smart Nation needs a Smart Financial Centre. Indeed, the financial sector is well placed to play a leading role given that financial services offer fertile ground for innovation and the application of technology.
MAS will partner the industry to work towards the vision of a Smart Financial Centre, where innovation is pervasive and technology is used widely to:
MAS will seek to achieve this vision together with the industry through two broad thrusts:
Smart Regulation for a Smart Financial Centre
First and foremost, a smart financial centre must be a safe financial centre. Technology can be a double-edged sword. If not managed well, it can potentially lead to a variety of risks in the financial industry:
The first priority on our journey towards a Smart Financial Centre is therefore to continually strengthen the industry’scyber security.
As more financial services are delivered over the Internet, the frequency, scale, and complexity of cyber attacks on FIs have increased globally. Hackers and cyber criminals are constantly probing IT systems for weaknesses to exploit.
There are two reasons for concern:
MAS and the financial industry in Singapore take cyber security seriously.
But cyber threats will not go away. Like a cat and mouse game, both hackers and cyber defenders have been enhancing their tools and techniques along with advances in technology as well as in response to one another.
While seeking to ensure cyber security, MAS’s regulatory approach towards fostering innovation and the adoption of new technologies will take three forms.
First, innovation owned by FIs.
In matters of innovation, time to market is critical. FIs are free to launch new ideas without first seeking MAS’ endorsement, as long as they are satisfied with their own due diligence.
What does this approach entail?
Second, innovation in a “sandbox”.
Sometimes, it is less clear whether a particular innovation complies with regulatory requirements. In such cases, FIs could adopt a “sandbox” approach to launch their innovative products or services within controlled boundaries.
Third, innovation through co-creation.
MAS has a long tradition of active consultation with industry on proposed new rules or initiatives. More recently, we have engaged industry players more directly to co-create rules and guidance – in other words, to jointly come up with proposals.
A further possibility in co-creation might be MAS and the industry working together to develop common technology infrastructure that meets regulatory requirements. The aim is to clarify and address issues and uncertainties upfront during the course of development.
MAS is not seeking a zero-risk regime. And we understand that failure is part of the learning process.
Development Initiatives for a Smart Financial Centre
Besides providing a conducive regulatory environment, MAS will work closely with the industry to chart strategies for a Smart Financial Centre. Let me sketch some of the initiatives we have embarked on:
First, the Financial Sector Technology & Innovation or “FSTI” scheme.
I am happy to announce that MAS will commit $225 million over the next five years under the “FSTI” scheme to provide support for the creation of a vibrant ecosystem for innovation.
FSTI funds can be used for three purposes:
Several FIs have already set up their innovation centres or labs in Singapore, some under the FSTI:
Some examples of FSTI-supported institution-level projects that are ongoing include:
We look forward to see more such innovation projects coming on-board.
Second, digital payments.
Changes in the payments scene in Singapore have picked up pace in recent years:
But there is a lot more we need to do on the digital payments front.
First, payments at stores and restaurants.
Second, reduce the use of cash and cheques.
MAS and the Ministry of Finance have been co-leading a multi-agency effort to address these issues and guide the development of efficient digital and mobile payment systems.
Third, regulatory reporting and surveillance.
As the financial system becomes increasingly complex and inter-connected, MAS needs to sharpen its surveillance of the system with more timely, comprehensive and accurate information to identify and mitigate emerging risks.
The vision is an interactive, technology-enabled regulatory reporting framework which will:
We are still in early days on this initiative and will work with the industry on how best to take this forward.
Fourth, supporting a FinTech ecosystem.
The effort to grow a Smart Financial Centre must go beyond the financial industry, to help nurture a wider FinTech ecosystem. We need a strong FinTech community that can:
For those of you who are not aware, we have a pretty vibrant FinTech start-up community that is growing over at the “Launchpad” in Ayer Rajah Industrial Estate. MAS looks forward to engaging FinTech start-ups more actively – to better understand emerging innovations as well to help them design their solutions bearing in mind the regulations and risk considerations that apply to the financial industry.
Fifth, building skills and competencies in technology.
Technology will disintermediate and make obsolete many jobs in the financial sector, but it will also create new ones. Finance professionals will need new capabilities. And the industry will need skills and expertise from other disciplines traditionally not associated with finance.
MAS and the financial industry must work together to prepare for the changes ahead on the jobs and skills front. Building capabilities and opportunities in FinTech will be a key area of focus in the financial sector’s SkillsFuture drive.
Conclusion
Let me conclude. I have said much about technology and FinTech. The larger picture is really about promoting a culture of innovation in our financial industry.
Thank you.
Full credit to: Keynote Address by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at Global Technology Law Conference 2015 on 29 Jun 2015
I’d like to share with you six timeless trading lessons I learned from speaking directly with Jack Schwager.
Jack spoke about how an early or terrible failure didn’t necessarily mean that you are bound to fail in the future as well. This is an important lesson because there are a lot of talented traders with an amazing skill set that often get bogged down by failures early in their career. Jack Schwager goes on to say that he’s seen a number of traders turn their humble beginnings into hugely successful careers due to their self-confidence and extraordinary analytical skills. He gives the example of Michael Marcus, who originally lost his mother’s money early in his trading career, but later went on to turn $30,000 into $80 million in the space of 12 years. So the point here is to be undeterred by early failure, maintain confidence and understand that you only truly fail if you give up. Most traders will experience some form of failure before becoming successful in their own right. (Also see “What is Value Investing?“)
Jack emphasizes how successful traders who have been around a long time are continually adapting to market changes, and are prepared to adjust their approach or bias to be on the right side of the market. A trading strategy that has worked in the past might not necessarily withstand the test of time moving forward, which is something we need to be aware of. The most important aspect of being a flexible trader is knowing when you’re wrong, being ready to accept that you’re wrong and also being humble enough to switch positions if required.
This one is mostly aimed at entry-level traders who are taking their initial few steps into the market. There’s a common misconception that a “secret formula” to achieving success in trading exists, which simply isn’t the case, as Jack Schwager points out. He goes on to state that it’s very important to create a trading method that aligns with your risk tolerance, patience and personality traits. Something that works for somebody else isn’t necessarily going to work for you. This can be backed-up by some of the traders whom Jack interviewed for his Market Wizards’ series, who share personal experiences of blindly following a tip which lead them to losing substantial amounts of money.
Jack shared one of his pet peeves, “the well-chosen example”. A term he coined that that refers to a chart pattern or trading strategy that has been taken from an isolated scenario in the past and presented as though it has an edge to continue to produce profitable trades in the future–which is misleading. This highlights the pitfall of looking at charts with tunnel vision and analyzing strategies with a small data sample/number of trades.
When asked to share one of the best chunk-size bites of trading advice he’s received in ten words or less, Jack responded with the above quote from Bruce Kovner. A trader should clearly know where (or when) they’re going to exit a trade even before they get into the market. The reason being, before you get into a trade you have complete objectivity, whereas once you’re in a position you can lose objectivity and make irrational decisions based on fear and greed.
Before signing off, Jack Schwager leaves us thinking about the reality and difficulty of finding edge as a trader. While there may be a million or more ways to make money trading (not a select few as some may lead you to believe), it requires a lot of hard work and dedication to be a sustainable trader who makes strong returns over the long term.
While reasonably simple, these six fundamental lessons are partially responsible for the success of many great traders. To hear Jack discuss each one of these topics in greater detail and more, you can listen to the full-length interview here
Full credit to: Aaron Fifield
1.VISION: They say success is a 2 part process, with part 1 being, ‘You Must Know Exactly What You Want.’ Goals give you the trading vehicle to envision EXACTLY what you want! As the great Stephen Covey So eloquently puts it, One Must; “Begin With The End In Mind.”
2.INTENTION: We live in reality, yet it is a filtered ‘PERCEIVED REALITY.’ Goals for the Super Trader are used as a lens, shifting one’s ‘Frame Of Reference’ (His Thinking & Awareness) to envision new opportunities, guiding ones’ decisions within a structured ‘INTENTIONAL’ framework via conscious choice.
NOTE: The Important word, Choice. There is age old question;
“Are Traders Born Or Made?”
ANSWER: Neither! We are all products of choice!
3.DESIRE: Goals instigate a strategy to achieve a desired result. ‘Goals Come With Desire.’ With desire come goals. The greater your ‘Goal’s Desire,’ the easier it will be to change your old conditioning. Alter your old conditioning & you change your old habits. CHANGE YOUR HABITS, CHANGE YOUR RESULTS! Desire is VERY Important.
4.PURPOSE: Goals give you a sense of purpose; thereby directing one’s attention to ‘grow one’s awareness; conscious awareness. This relates among other things to the ‘Conscious Competence Learning Model.’
5.FOCUS: Goals are closely linked to ‘FOCUS.’ What is the most important part in a Super Trader’s Structure, his structure of excellence? ‘THE PROCESS!’ Goals help you to direction your focus (WITH CLARITY) on BEING! Being What?
BEING THE PROCESS OF TRADING!
6.PERCEPTION: By merely having ‘Goals,’ you instigate a ‘Comparative’ mode, so you can easily evaluate & make rational ‘Value’ judgements regarding your ‘PROCESS & OUTCOME Goals.’
The principle of perception is based on differences. So, what do we need to be able to compare. Start with a goal! All Super Traders quantify & qualify their performance. So all ST’s use goals!“What’s measured improves!” Peter Drucker
7.FEEDBACK: Trading involves learning. Learning & improving partly involves repetition which needs considerable feedback. A ‘Super Trader’s Goal System’ always incorporates a ‘Feedback Loop.’
YOU NEED FEEDBACK IN ORDER TO IMPROVE; SO… YOU NEED GOALS!
8.ACCOUNTABILITY: Having goals & a goal process makes you purposeful, thoughtful rational & systematic. This transcends into the realm of ‘Personal Accountability’ having what is known as an ‘Internal Locus Of Control.’
9.HABITS FORMING: Goals are part of a ST’s consciously chosen system that helps ‘Reshape’ old negative self-limiting beliefs & habits that could be buried deep within his subconscious. Thus goals aid in the creation & formation of new habits.
QUESTION: What Are Habits?
WHEN THE BODY BECOMES THE MIND!
10.CHANGE: Goals help you change. It is said (via quantum law) that the environment is an extension of the mind. So importantly; if the World is shaped by our thoughts (potentiality), then ‘INTENTIONALLY’ shaping our destiny via goals & goal setting we will ultimately reshape our conditions & our environment, thus changing the events, circumstances & outcomes.
NEVER UNDERESTIMATE THE TRUE POWER OF GOALS MY FRIENDS!
“I wish you well in your journey & in your trading.”
Full credit to: daytradinglife
So i just read some articles regarding the recent 13.5% crowdfunding campaign and i think that it is quite interesting to share my thought here.
For the heads up you can read at this few places first: BigFatPurse, Let’s Crowd Smarter and SGYI.
A lot of argument going on for the feasibility for this 13.5% annual interest rate campaign, it is quite interesting to read and to my surprise there are a lot of readers there (especially SGYI) have such high financial literacy really impress me.
But in this article I am not going into should we or should we not go into this crowdfunding as those arguments are mostly cover by those articles above. The things I would write in this article is some interesting perspective like what if….
So before i jump into my new perspective idea to look into this issue, let’s summaries what is this campaign about. Recently, MoolahSense has this campaign:
Issuer Summary
Date of Listing: March 17, 2016
Amount: S$500,000
Tenor: 12 months
Repayment Type: Callable
Repayment Term: Quarterly
Target Interest Rate: 13.50% p.a.
Purpose: Asset Purchase
About the company:
The Company is a well-known brand started in early 2002 by a very experienced entrepreneur with over 25 years of experience in the IT industry. It was established with the objective to be a one-stop digital lifestyle store by offering a comprehensive suite of digital lifestyle products and high quality pre- and post-sale services.
Revenue Source:
The Company generates revenue through a multi-channel point-of-sales strategy using both offline (retail) and online (e-commerce) channels to transact physical merchandise. Their products consist of a wide range of exclusive computing and mobile equipment (such as laptops, tablets, smartphones, accessories, cases, headphones, and stylus) from top IT brands and the Company’s private label.
Purpose:
The purpose of this funding is to finance the purchase of inventory as well as for general working capital.
Corporate Guarantor:
Her parent company (an SGX-listed company) will provide a corporate guarantee for the notes.
This investment is brought to you by Moolahsense. They got the company on board their platform where the company started this funding campaign to raise cash. When we invest in this company, we are actually lending money to the company to expand their business in return for interest.
Risks of this investment:
Many of you might be worried about the risk involved when investing through crowdfunding platforms. While risks are always present in every investment, we can reduce it by doing our homework. The risk of notes/bonds investment is when the company defaults on its payment. Looking at its financials, the company has a operating profit of $330K and cashflow from operations of $5.1 Million in the current financial year. It also has an average cash balance of $1.4 Million. This particular investment is also guaranteed by the parent company which is a SGX listed company.
I am sure the company name is familiar to most people here in Singapore but due to some confidentiality, I will not be able to mention the name of this company in this post. If you are interested to find out about the investment, you will need to sign up for an account with Moolahsense and view the opportunity in their platform. If you already have an account with Moolahsense, you can login to view this opportunity straight away.
WHAT IS A CALLABLE NOTE?
This particular investment is a callable note. In a Callable note, an issuer has an option to early redeem the note on a quarterly basis. If the note is not early redeemed, the issuer pays a quarterly interest. The principal will be fully repaid on the quarter that the redemption is early called or at the maturity date.
SAMPLE Scenario (only intended for illustration).
Assume that you invested $10k in a campaign at a final note rate of 13.5% p.a. in a Callable note.
This is a short term investment which I have also participated in. I believe it is a good opportunity with decent returns for the short term.
To invest in this short term note, check out the investment opportunity on their website here.
Then, there are arguments going on with the feasibility on this campaign as the fundamental of the company seem can’t support this debt which promise such high return with interest rate.
But, but…but…
What if this is a marketing strategy of MoolahSense? Ok, so what do i mean right? Get a bit confusing…how did this become a marketing strategy?
MoolahSense is a recent startup of P2P lending company. if you check on their website, their campaigns can’t consider less but also not yet up to hundred. Recently, the participant of this “hoo-hah” apple retailer company put them into this shiny “spotlight”.
My perspective into this matter is, what if the 13.5% annual interest campaign is a win-win situation for both MoolahSense and the apple retailer company. That 13.5% annual interest investment might sounds a lot if the company who borrow this have to repay with a full year with the investors’ capital invested.
But then..do take note the keyword: CALLABLE NOTE
This is what i found in the website,
Callable – The issuer has an option to early redeem the note on a quarterly basis. If the note is not redeemed, the issuer pays interests on a quarterly basis and the principal will be repaid on the quarter that the redemption is early called or if not called, at the maturity date.
Before investing in a campaign, you can easily check the issuer’s indicated tenor on the MoolahSense Dashboard. The repayment dates will be indicated in the contract note and under the Offers Table on your Dashboard.
This mean that if the issuer decided to redeem for the first quarter, they have to pay for 3.375 for the first quarter with the capital invested or the 3.375 interest rate of your capital invested for the first quarter and another 3.375% interest plus your capital invested for the second quarter. (as illustrated above for the callable notes section).
For this crowdfunding, the apple retailer has to pay the MoolahSense 3% on the crowdfunding fund.
MoolahSense currently charges issuer a flat rate of 3%p.a. on the request amount PL. MoolahSense administrative fee = 3% x PL .The actual amount PA received by issuer will be net of platform charges.
PA = PL – (3% x PL )
My thinking is what if MoolahSense propose this:
For the 3% commission, they will not immediately redeem from the company but perhaps as a loan to the company and only redeem after 12 months (since they source the crowdfund up to 2 millions). This make the 13.5% that the company promise down to 10.5%. The commission then can be repay perhaps after 1 year so it reduce the burden of the company to pay back higher interest rate while it can act as their marketing strategy and the best part is they can get back their commission (not like they can’t), just with a slight delay. Wait, this is not the end yet, currently there are 3 campaigns going on for them which fully invested. 2 with callable notes with 1 monthly installment.
For the callable notes, if they just need the capital for 6 months and able to pay back to the investors after 6 months, this means that the interest rate now is only worth 5.25%! Which is pretty reasonable.
How about the 12-month equal installment? Let’s see at the MoolahSense website,
the 13.5% actually act as a nominal interest rate for the monthy equal payment, this meant that let say for every $10,000 you invested, you will get back $ 895.52 every month. If we sum up is $10,746.24, this is far less than what we think of a total sum of $11,350! The interest rate actually is close to 7.47%, with a kind gesture of MoolahSense of the late payment of commission, the real interest rate for the company is actually as low as 3.47%!
That’s some interesting perspective from me on their collaboration which i am thinking that pretty possible and if that’s the case mostly it won’t create much issue for the investor as with the launch of the new products from Apple seem like they able to generate sufficient revenue to cover up the interest but if in reality that’s not how it is going on…then i guess time will tell it is a happy ending or sad ending.
Cheers…until next time!
I see so many traders fail unnecessarily. It hurts so much seeing them sabotage themselves over and over and over again and they don’t even notice it. One of the main reasons traders keep themselves from success is my favorite psychological concept called ‘cognitive dissonance.’ Basically, it means that you subconsciously hold two or more beliefs that contradict each other, ultimately making you fail in not only trading but all other areas in life which are influenced by these beliefs, as well.
Take a look at someone that has an interest in two girlfriends (or boyfriends, whatever). One is crazy and wild and fun, the other is down-to-earth and nice, she takes care of him and makes him feel comfortable. Both of these girls fulfill fundamental needs he has deep down in his subconscious. He can’t make up his mind for one and ultimately, obviously, will lose both.
Trading is just the same. Most people that get into trading are young males. Hungry for life, they want it all and they want it now. They want to live the life of a rockstar. The cocaine, the cars, the beaches, the girls, it’s what they are in the game for. Now, on the other hand, we look at the most successful traders of our time: Ed Seykota, Paul Tudor Jones, Jim Rogers, Richard Dennis, Peter Brandt. What do all of these have in common? Well, they are extraordinarily interesting personalities leading extremely ordinary lives. No rock star stories. No Hollywood fame. Simple people, with a singular interest: beating the markets, day in, day out, year in, year out.
This is not a coincidence. While I am sure they all can afford a nice lifestyle, they live a quiet lifestyle. And it helps their trading immensely. Because trading is not about being a rock star. It’s not about being the coolest kid on the block, and it’s certainly not about who has got the biggest balls. Or, as Peter Brandt puts it, a trader is simply a glorified order placer. There is nothing sexy about it, nothing exciting, nothing glamorous. Trading is a boring job. You sit in front of your screen by yourself, the market is your master and your boss, you obey it or you will be out of a job faster than you can say ‘margin call’.
But how does this compute? How can you live a crazy life, and on the other hand, be a total numbers nerd? The simple answer is: most just can’t. Their conflicting views and beliefs will make them do things in the markets that will cost them dearly. We often get messages from people asking us why we don’t trade more often, use more leverage, and generally, why don’t we make the market our bitch. It’s simple, because we are the market’s bitches. We are as humble as one can be, and that is the reason why we survive and thrive in this game.
It took me a long time to figure this one out, trust me. I was always drawn to the ‘finer’ things in life. I like to splurge, I like to party, and I like to show off. I hate having a boss, I hate to eat humble pie, and I generally do not cope very well with authority as everyone that ever had the pleasure to give me orders knows.
So, naturally, my first reaction when I came into the markets, was to make it suffer. I would squeeze every single penny out of that bastard and become the greatest trader of all times. No. Didn’t happen. But I certainly lost a great amount of money and sanity in the process. If you know what drives your decision making process, which motivations and beliefs, and how they interact and conflict each other, only then can you start to make progress in the markets.
The same, of course, goes for wanting to be rich but subconsciously thinking that money is bad, and only bad people are rich. This is actually a belief many of us have, instilled by their parents or by whomever.
The thing is, sure, you can have a crazy life. But you need to calm yourself down once you sit down at your trading desk, and bury your ego deep, deep, deep, so deep that you won’t find it until the weekend. Then you can dance on the tables again. You have to put on your nerd glasses, become the most boring, humble, uncoolest person ever, and do your thing. You have to become the person you never wanted to be. The high school nerd that everyone was making fun of. THIS is how you make money in the markets. I can only say it again, there is absolutely nothing rock star about trading. Losing money because you want to look awesome and take that scalp trade is plain stupid, that’s it. You gonna look like a jerk.
So, yeah, it is almost the weekend again. I for my part had a great week in trading, and am looking forward to Friday to have a good rest. Look for your excitement and your ego boost anywhere, but not in trading, and sooner than you think you will have plenty of money to spend on your rock star lifestyle.
For the past when I hear about Forex, I will feel curious but at the same time feeling aversion about it. That is because when I hear people talk about it and see a lot of articles regarding Forex…all down to one same thing — People lose money on Forex. Slowly it crave a negative perspective on Forex in my head.
Until one day, a salesgirl from Oanda, a Forex broker firm called me. She called me as I was opening a demo account with them and she thought that I may be interested to open a real account with them as currently there is free 100USD cash promotion going on for opening a new account.
100USD? I was wondering if this is a scam. Due to my curiosity in the end I did open a trading account with them and I really got the 100USD. I am also able to withdraw that 100USD which is close to 140SGD. That is how i got free capital to do forex trading and know about Forex.
So what is Forex? For the past I tried to understand from online resources but i found that the info from online were too overwhelming. So let’s me cut it simple in this article.
Forex = Foreign Exchange Market
There are two key things in Forex. Pips and Spread.
Pips = The pip is the smallest amount a price can move in any currency quote
Spread = The difference between the bid price and the ask price is called a spread
Example: USD/SGD = 1.35960/1.35975
Buy/Bid/Long = 1.35960, Sell/Ask/Short = 1.35965 (As Sell must greater than buy)
1 Pip = 0.0001USD
The spread is 1.5 pips.
In Forex, there is always a pair of currency, Like USD/JPY, USD/SGD, EUR/GBP, EUR/USD and so on…
So for example to buy 1 unit of USD/SGD in real life require 1.36SGD for an exchange of 1USD. But in Forex trading, they talk a lot about leverage.
As you can imagine USD/SGD for every 1 movement of pip is 0.0001USD…it need take 10,000 pips for us to see a 1 dollar difference. It just mean to get the 1USD, the current trading of USD/SGD need increase from 1.36 to 2.36..which is unlikely to happen in near term or next 5 yrs.
That’s why most broker firm give the leverage feature, some up to 250…for Oanda is up to 50. This mean that for every 100 dollars in your account, you can trade up to 5,000 dollars. Which mean that by right with 100 dollars you barely can buy 100 units of USD/SGD@1.36, now you can buy close to 4,000 units.
If 1 unit, 1 pip movement is 0.0001$,
1000 unit, 1 pip movement will be 0.1$.
So what is the appropriate leverage and position should we take?
With the understanding above, if we trade 1 unit, to be honest..how is it possible our account can burst or we can incur large losses? It take a dollar movement to make us only lose a dollar which is like not possible in 5 years…mostly every 0.1 change in the pair currency will make us lose few cents…and if we see from chart..it sometime take years to happen.
So why most people trade Forex loss money or burst their account?
The key word is Over-Leverage.
If we use leverage in a right way it will bring good than harm…let say you just need 50% of the capital to do the investment. Let say you deposit 500SGD and you buy 1,000 units. it takes 2,500 pips to make you lose half of your capital (2,500 x 0.0001 = 250SGD). Which is unlikely can happen (if you buy at 1.36, it need plunge to 1.11 to achieve 2,500 pips, which for the past 10 years it had never happen before, lowest is 1.20)
But if you over-leverage that will be another story. For example, if you want to invest 1000 USD with your SGD. You just need to deposit as low as 30 SGD for you to able to achieve the same investment.
But the problem is the volatility in Forex market, if you invest real 1,360SGD for 1000USD…and now USD is only worth 1,335SGD. Basically you still have your 1,000USD and you wait the USD grow stronger and you still can profit from it. But then for your forex account, when your fund is lower than 20%, there will be margin call and your position will auto close-out and partial of your capital will be wipe out permanently. This mean that you will permanently lose like 25 SGD.
So the key thing to trade or invest in Forex, position sizing is important.
My guideline is 5 times leverage is the maximum that we should take. Means that if we have 1000 dollars in account. maximum we can trade is 5,000 dollars and shouldn’t more than that. For starter we should try to trade without leverage. This mean that if we have 100 dollars only in the trade account, we should trade according to that amount of trade units. After we familiar with how it works and achieve consistent profit then we slowly increase the leverage.
A good guide is try to risk max of 1% of your capital. According to DailyFx (Click here to read more), the average retail FX trader captures profits on their trades more than 50% of the time. This means that most traders should able reap profits right but that’s not the case. Why?
They lose more money on their losing trades than they make on their winning trades.
So with appropriate position sizing, good risk to reward ratio and with a good trading plan with the compounding come into play, slowly your account will grow profitable.
If you got any questions, feel free to comment below. Until next time, Cheers!
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Do not base any investment and or trading decision solely on the information. We accept no liability if you use the information to form trading or investing decisions or to trade real money. You should seek your own investment advice before making any decision based on the information from a licensed financial professional who will consider your personal objectives and circumstances.
It is possible to lose more than your initial investment or account deposit. Investing/Trading any financial market is risky, be aware of the risks and avoid trading with money you can’t afford to lose.
Investing/Trading involves the risk of loss. Amazing Trading Academy gives no warranties whether expressed or implied as to the performance levels. Amazing Trading Academy, its representatives, officers and their associates may have an interest in or hold investments in the financial products listed of 0-100%.
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