To trade or not to trade is NOT the question.
The fear of Greece pulling out of the Euro-zone, Face book going public, the fluctuating stock markets are all factors that influence the mindset of traders and investors. The question to ask now is not whether or not to trade rather the question to ask is when to enter and exit the market to do a successful trade.
There appears to be a growth in the interest of trade amongst individuals of all paths of lives regardless of the fact that the said individual is a person who lacks any fundamental knowledge about the process of trading, or he has decades of experience in the financial industries. People are constantly looking at means to effectively generating income in order to generate a reliable income when they reach their retirement age.
Investing in stocks and currency is a very common form of trading and one can witness the exponential growth in investment and trading when one takes into consideration the various numbers of investment and trading companies that are being introduced around the globes. The number one reason for this rise is the eagerness of the general public to make some quick cash. Anyone who understands the concept of commerce, ‘the business of business is business’, not many people are aware of the risks and consequences involved when a person decides to start to trade without the correct knowledge.
Although trading is a means of profit, we need to be aware that trading is an ancient art form. Why is trading an art form? For the simple fact that anyone and everyone can admire, purchase, and try to imitate artwork but there are only a few who have successfully produced some priceless masterpieces. Some are born with the raw talent whilst others have disciplined themselves through vigorous practice and learning to be able to produce some remarkable masterpiece. Similar to this, in the world of trade, some are born with the natural talent whilst others have to learn what the risks and opportunities are in order to trade successfully.
Trade is one of the oldest form of communication known to mankind and trading has been mentioned in all formats of historical writing and religions scriptures of various cultures. Back in the days people traded on a daily basis, the only difference is that they used commodities such as corn, wheat, and livestock as a mode of exchange but as mankind evolved and got civilized we replaced commodities with a singular mode of exchange known as currency.
Traders who are inexperienced tend to halt their trading activities whenever there is an economic turmoil or event that would directly affect the market with fears that it is not a stable period of time to make any investment decisions during such circumstances as the risks are higher to lose all their investment during recessions and turmoil. Fortunately independent and experienced traders will disagree on this mental standpoint as they are fully aware that when you educate yourself properly and understand where the risks lie as you prepare yourself when the market is going to crash then you will be making smart investments and harvesting profits.
At a trading seminar held in Stockholm arranged by an investment firm based in Cyprus, Chief Economist and fundamental analyst Bill Hubard and Technical Analyst and Senior Trader Will Willis spoke on the topic of fundamental analysis, technical analysis and interpretation of breaking macroeconomic news.
Asian Tribune had the opportunity to carry out an interview with both Bill and Will and discuss the reasons for the change in trading trends and the risks and opportunities involved in trading. Excerpts of their interview are given below:
AT: Why do you believe there is an increase in trading in the modern age in time, especially amongst individuals from all paths of lives?
Will: One of the reasons for the increase in trading is the increase in technologies, modern computers and modern internet makes trading possible without them it is really impossible. So that is the main reason why trading has been available in the last 40 years. In more recent times like say the last 5-10 years I think with the down turn in the economy and people not earning so well in their normal jobs they are looking for different avenues for investments and this has led them to trading which is a good way to make some money if you follow the correct steps of educating yourselves and good trading policies.
Bill: I think it’s a question of whether you are looking to do it to help your pension or whether you are looking to do it in reference to making more money feeling it’s an easy way to do it. But I think it’s a question of people, in the last 25 years with a reduction in pension and an increase in people’s activities and interest in watching the stock markets; probably managing their own pension more whether through investment trust or through mutual funds. And I think it’s a question where especially in Foreign Exchange (FOREX) which is an “unregulated” market 24/7 there is really no way one individual or one hedge fund or one major bank can control the market. I think it’s a question that people now feel that here is an opportunity but unfortunately too many people feel that here is an opportunity to make easy money, it’s not! One of the thing you got to do when you are looking to trade is that you have to know when you want to trade, what you want to trade and how you want to trade, set up goals and objectives just like you would if you were married- (whether you want to have two or three children then it would cause me X amount of money on food and diaper). I think this is one of the reasons and the other reason that has made it so much easier to trade is the access to the internet; I mean you have “lets trade anything in the world.com” where you can go online and put your money on anything and start trading. I think of the thing is and I hate to use this word but people have gambled from day one, whether they are gambling on the horses or whether they are gambling on the price of gold, etc. so it is basically in our character as human beings we are all entrepreneurs whether we are selling fish or cheese, etc we want to make some extra Dinaro.
AT: Many people refer to trading and stock investments as the educated man’s gambling or sometimes addiction-would you agree with these terms?
Will: Well, trading has a very exciting element which I believe some people will find it addictive. On its own I don’t think it is very addictive but some people are addicted to chocolates, some to cigarettes and some to wine. Trading feeds a certain need in some people, I am very technical person and I found trading very addictive, I liked the game, I liked the technical, I liked the line, I liked the mathematics and I liked the economics so for me it was naturally addictive. So I can fully understand why people, especially those who start making profits finds it very addictive.
Bill: Yes, I mean let’s cut it quick, yes it is gambling – let’s say I want to make a million okay, how many people play the national and global lottery for £ 1 or for 10SEK in order to be a millionaire at 20.30 local time through a lottery draw.
So people are always going to gamble, people are always hoping that they could come up with that magic formula, that they can find a gold mine in Alaska or an oil well in Saudi Arabia and in the space of 24 hours I can move from abject poverty to be the richest man in the world – that is what it is. One of the thing that I think and my feeling is that you are making a blatant mistake “thinking trading is gambling”, because (I know this sounds strange- I have been talking to both professional traders in City of London and in Wall Street) a professional trader losses 79 times out a hundred so this does not make any sense, but it does make sense because the 79 trades you lose money on you lose $5 but the 21 trades you make money on, you make $100 so this is the key. So hence this reasons its trading rather than gambling. I mean in gambling the bookie tells you that the odds are 50 to 1, but maybe the bookie is not telling you under what circumstances the horse would perform (weather condition, track history, etc). I think that is one of the place where people make mistakes, but trying to associate trading with gambling. If it is gambling I would be delighted to give any of our clients my NatWest bank account and avoid the aggravation- just send me the money why would you waste your time. When you are trading you are making a conscience decision, e.g. you work for an annual salary, and the annual salary is not paid on the first week of January or the last week of December. An annual bonus is a bonus based on 365 days of work, similarly when you trade if you think you are going to make all your money in the first hour you are wasting your time and in for a lot of aggravation and then it is called gambling.
AT: What are the fundamental a trader should have, in order to take calculated risks to avoid a whitewash of their investment?
Will: Correctly using your ‘stop loss’ is your first step, correct money management and there is correct use of leverage and position size. All of these things can be much more easily understood and used correctly when someone appropriately uses a trading diary, where you write down what you think the markets would do, your trades and what actually happened and then you go back a evaluate and feed that back into your next set of trades.
Bill: Various, if you are a real estate agent and want to buy a house then the real estate agent will tell you ‘location, location, location!’ And I use the same three words its ‘education, education, education!’. Just look at any of the people who may bet on horses, they are on a daily basis reading the racing forum, they know which horse won which race and which horse can do this that or the other. All you got to do is- in life you have to set your own goals. Trade something you know, looking at this part of the world, I would trade in Sweden the Swedish Kronor because then we trade while we are awake and I would trade Euro Dollar because it is transparent and I would trade the FTSE 100 or the Sterling because they are liquid markets, huge volumes but they are transparent.
By transparent I mean the simple facts that while you are awake the markets are trading. I would not trade the Japanese Yen, Aussie Dollar or the New Zealand Dollar while in Sweden because you are going to be asleep during 80% of the trading time. What you are trying to do is to give yourself as much of an advantage as possible and set up realistic goals and objectives- not that you want to make a million dollars in an afternoon or a week. Realistic goals and the most important thing is don’t use that money if that is the money you will be using to pay off the mortgage, or pay off your credit card bills, use the money which you are sure that if you lose it you lose and you move on. Enjoy what you are doing! If you go in trading with money that you cannot afford to live without then you are gambling and you are risking yout livelihood. The key here is the mental attitude, is that the market works on fear- if the major dealers and major brokers know that you are afraid then they will take advantage of you as you are not thinking properly. One of the things you have to do when you are trading is that you have to be mentally alert. If you are feeling well or if you had one or two many beers during lunch don’t trade, if you are not mentally, emotionally or psychologically prepared you are going to make mistakes- guaranteed.
AT: Which financial trading would you recommend to an individual who has absolutely no experience in trading what so ever, but has the capacity to invest big and expects to gain even larger returns? FOREX, commodities, indices, stocks? Why?
Will: I don’t see that there is a lot of difference between those not for someone you have just mentioned. It basically depends on the amount of time and energy the person has to invest into this. If they had a very possessive job where they didn’t have much free time, I would not say trading is for them especially the stocks, commodities and FOREX you need quite a level of knowledge and information in order to be successful. And it takes quite some time build up that experience and body of knowledge. All of those can be risky for someone who is not willing to put in the ground works.
Bill: I would say Foreign Exchange because it is 24/7 you can get it “anytime anywhere”, tight spreads, and in recent times incredible volatility. At one point towards the middle of 2011 on a daily basis when we went through some economic crisis in United Kingdom the Sterling-Dollar was traded on an average day had 371 tick range so therefore you can get in very late and get out early and still manage to make a nice spread. But one thing I would advice anybody who is looking to trade is regardless of what your level or amount of trade is, I would not bet on the same horse. If you are looking to trade with $100 maybe you put $20 on one level and $20 on another level so you can scale in on the trade and scale out of the trade rather than putting all your eggs in one basket, then you start to panic.
And if you want to trade stocks, trade your local stocks because it is important to know your company and the industry it belongs to. What things is either going to go up or down according to your local economy. I really would not trade stocks as the next step after FOREX, I would trade Indices, FTSE on a contract for differences (CFD) basis and S&P 500 within Europe because you can know what is happening in the local economy and you have liquidity.
AT: Do you believe the increase in the number of ‘traders’ in the market will have a positive effect on the overall markets or currency level? Why?
Will: I don’t think it would change it much because the overall capitalization of their accounts is tiny compared to the banking sector. The banking sector does most of the trading in FOREX, we private investors with our $500 accounts or the $1000 accounts is not even a small percentage of the banks and the institution straits. We retail a very small end of FOREX trading.
Bill: Of course!, because of liquidity. You don’t want to buy something where all of the sudden you cannot get out of, that is why you want to buy something that is transparent, is happening while you are awake and has liquidity. If you get in on the wrong side of the trade you can get out early. When you trade with spread you are not paying a brokerage fee so you get in and you are on the wrong side of the trade get out of it. I would rather lose $100 on a trade and get out of it and come back and make $500 on the same trade rather than looking at my balance sheet and see that I am off a $100, off $ 150, off $200- that is not trading that is gambling or that is wishful thinking and prayers. You have made a mistake- one of the thing is we all make mistakes. When you trade, you are either buying something or selling something, where someone else is on the other side of where the other person is hoping the same thing as you- WIN. Both people cannot hope to win on the same trade when you are a buyer and a seller. I would stay in a trade that is very liquid and has a huge volume so you could always get out of your positions and get into your positions.
AT: Although the macroeconomics of the global economy determines the fluctuation and the volatility of the market, the microeconomics of supply and demand also has an exponential effect on market- Would you agree and why?
Will: Yes it does without a doubt, the wants and needs of the mass population is part of the reason the FOREX markets exists. For instances a company in Japan selling products to America needs the money back in Yen with the correct amount of profit, now there is a time delay between the contract signed and when the money is paid because the money is not paid until the goods are delivered that could be six months and within six months the exchange rate America and Japan can change so drastically that it cannot only take away the profit from the company but it can also cause the company to operate in a loss. FOREX prevents that from happening and therefore the wants and needs of the general population who buy those products from Japan in America is creating the FOREX market.
Bill: Yes, look at gold, there is only a limited amount of gold in the world and if everyone is buying it and the supply and demand is going to dictate the price. We saw this back in 2008 when China was involved in the Olympics, they were building the Olympics stadium and Olympics village and 3000 miles of highways and 33 airports. The concrete market price went up to the moon as did copper, as did aluminum. The timber market in Sweden is soft for the simple fact that the housing market globally is down so people are not using much lumber as people are not building houses.
With gold it’s interesting- is it a safe haven? Is it a non-interest bearing currency? In 2011 gold got close to $2000 an ounce for couple of reasons because interest rates went down and you got central banks buying it, central banks like Asia. One of the things you can see is that whenever there is an Indian holiday like Diwali or the Chinese New Year- a month before that the price of gold goes sky high. So you got the Indians and the Chinese buying gold not as a commodity but as a gift. Used to be in United States the price of gold goes up in June because that is when many couples get married. Recently it has been a question of risk on risk off- when you are worried about the situation in Greece and the situation in Spain, gold has been a safe haven for the simple fact that it’s a limited fund. We don’t know how much gold is out there.
AT: Do you believe there is a risk of creating an economic bubble in the market with the current trend that is going on within Investment Company where by the inexperienced individuals are provided with an opportunity to take part in the intricate world of trading?
Will: No, because the institutions are much much larger. The scale is so different even if the entire population of China and India starts to trade they would not even become to equal the business markets. The business market is larger than the private market so the small private market does not affect the market in any substantial way compared to the companies and institutions.
Bill: It is the company’s responsibility to train and teach their clients and there are a lot of clients won’t understand this but it is extremely important to train clients to make money as when the clients make money the firm makes money if they lose their money the firm does not have any clients. So the simple fact is that we provide them with an education and learning experience in order make them trade more successfully. So it is the firms’ responsibilities to train their clients to trade as smart as they can so that all parties involved will benefit.
Again as we all know what makes its almost impossible in today’s world with Face book and twitter, you are ushered in to a world where you have every news at your fingertips maybe even before it hits news channels and other media broadcasters. If there is a problem in starting to trade- I would say it’s too much information. Remember to “buy the rumors sell the facts” Just remember that trading is not easy and trading is a process.
Education, education education! Have goals and objectives, if you fail to plan then plan to fail. Be mentally, psychological and physically prepared. Have your goals in advance and don’t trade everything on one instrument. Put your stop loss in order and just have fun doing it!
-End of interview-