Tag: Pros

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Forex Course

79. Is Indicator Based Trading For You or Not? (Pros & Cons)

Introduction

Introduction

Introduction

In the previous course article, we have briefly discussed the basics of indicator-based trading. We have also understood the different types of indicators. Before considering how to trade using these indicators, let’s see if indicator based trading is for you or not. For that, we will be listing down some of the significant pros and cons involved in indicator-based trading. After going through this article, we will know why we should be using indicators to trade the markets and what we should be cautious about while using these indicators.

Pros of using Technical Indicators

Simplification

As discussed in the previous course article, Indicators mainly present the existing price and volume data on the price charts. For novice traders who have less knowledge of reading this data, can take the help of indicators to understand the price charts in a more precise way. Also, indicators act as a great tool to identify market strength.

For instance, using the Moving Average indicator, the direction of the trend can be found. By using the stochastic indicator, overbought and oversold areas can be found. These cannot be easily identified by the novice traders if not for these indicators.

Swift Decision Making

Since you aren’t entirely aware of most of the indicators, we would like to give you an example of the indicators we have learned till now. If you remember trading Fibonacci levels, we have taken our entries right after the price bounces after touching the respective Fib levels. It is impossible to make such swift decisions in the absence of these indicators. Hence we can say that indicator based trading allows us to make quick decisions comparatively.

Confirmation Tool

Indicators act like an excellent confirmation tool for experienced traders as well. For example, a technical trader identifies a candlestick pattern and wants to take trades based on that pattern. To confirm if the signal provided by the pattern is accurate or not, he can take the help of any technical indicator like RSI or Stochastic. If the indicator supports the signal provided by the pattern, the trader can confidently make trades.

Combination Capability  

Indicators can be combined to understand the market more clearly. For instance, Moving Averages can be combined with Fibonacci levels, and Stochastic can be combined with many other reliable indicators to generate accurate signals. If we wish to, we can even add an end number of indicators, but these additions should able to simplify the price chart rather than making it more complex.

Cons of using Technical Indicators

Unawareness of the complete picture

Novice traders who get used to trading with these indicators can never get an entire background on what’s happening behind the charts. If they get used to this, they can never become a professional technical trader. Also, they won’t be able to identify if the signal generated by the indicator is accurate or not. Hence, it is always crucial to understand why the indicator is moving the way it is so that we can make better trading decisions.

Not for pure price action traders

Price action trading is also a part of technical trading. It is purely based on the price movements of the asset alone. So price action traders might find indicator based trading a bit redundant because they know why the price is moving the way it is moving. Hence we can say that indicators don’t add more value to pure price action traders.

Lag Issue

By now, we know that there are lagging indicators that portray what has already happened in the market. These indicators do add significant value to indicator based trading, but they can’t be completely used to take the trades.

Final Word

These are some of the pros and cons involved in using indicators for trading the markets. So the answer to the question ‘If the Indicator based trading is for you or not?’ is yes. It is for you. But we have to be cautious and understand the entire picture instead of blindly following the indicators. In the upcoming articles, we will start learning how to take trades using various reliable indicators in the market. Cheers!

Categories
Forex Course

24. Fundamentals Of Margin Trading

Introduction
Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders

Introduction
Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders

Introduction

Margin, which allows for Leverage trading, is one of the crucial reasons why most of the traders prefer trading Forex. It is an aggressive form of trading where traders take more risk while expecting an additional reward. Here, traders increase their bet by borrowing funds usually from their brokers. Thereby leverage trading allows a trader to trade with more funds than they actually have in their account. Leverage trading exists in the stock market, as well. The internal working of margin in both the markets is not quite the same, but the overall concept is the same.

Leverages is typically represented in ratios or with an ”X” next to it. For instance, the notation of two times leverage would be 2:1 or 2x. There are several other terminologies such as balance, realized and unrealized P/L, used margin, equity, etc. which are involved in margin trading. And to trade in a margin account, having knowledge about these terms is vital. So, in this lesson, some basic concepts and working of the margin trading shall be discussed.

Margin Account

A margin account, also referred to as a leverage account, is a trading account offered by a forex broker, which lets their clients trade large quantities without investing the total required amount. In a margin account, the forex broker acts like a loan lender who lends cash to its customers for taking positions in the market.

How does margin trading work?

Let us assume that a trader has deposited some amount into his account. The broker sets a margin percentage for the client. This margin percentage typically is between 1-2%. In forex, it is not the case that this account balance is used for taking a position. But, it is used up by the brokers as security deposits. Here, if the broker sets a margin percentage to 1%, then 1% of the trade value is utilized by the broker as a security deposit. So, a trader takes a position worth $100,000, then only $1,000 is used up, and the broker lends the rest 99% of the amount. This is the basic working of a margin account. There are many other terms involved in it, which shall be discussed in the subsequent lessons.

Benefits and Shortcomings of Leverage Trading

Initially, margin trading might seem very beneficial. To an extent, this is true, but there are disadvantages to it as well. Below are some of the advantages and disadvantages of margin trading.

Advantages

🟢 Ability to multiply a trader’s trade size

With margin trading, minimal capital is no more an issue because one can take larger positions even with a smaller investment.

🟢 Significant short-term gains

As margin accounts allow traders to take bigger positions, one can grow their account balance exponentially, even in the short-term.

Disadvantages

🔴 High risk

The market has two directions. So, though a trader trades on a margin, it does not mean that the trade will perform in their forecasted direction. A trader can make high profits and can even lose a significant amount of money. Hence, trading with margin involves high risk. And it is not recommended for novice traders.

🔴 The requirement of the minimum account balance

Trading in a margin account requires the user to maintain the minimum balance specified by the broker. If a user fails to maintain the minimum balance, then the trader is forced to close their positions.

This concludes the introduction of margin trading. In the next lesson, the terminologies involved in margin trading shall be discussed.

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Categories
Forex Course

22. Perks Of Trading The Forex Market

Introduction
The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be

Introduction
The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be

Introduction

The foreign exchange market is, no doubt, the most popular market in the world. Though it is considered to be a very risky business, it can prove to be the best platform for trading and investing if things are done wisely. People often are in a dilemma to choose between the stock market, commodity market, and the forex market. Hence, it is important to know the benefits each market has to offer. So, in this lesson, we shall discuss some significant benefits the forex market has to offer.

Advantages of Trading Forex

Open 24/5

The forex market is traded throughout the day from Monday to Friday. And this got to be the biggest advantage for the part-time traders. Since there are quite a large number of people who are into 9-5 jobs, the forex market is an excellent option as one can trade anytime during the day. Hence, the forex market is the most flexible market when it comes to timings.

Great Liquidity

The forex market is the largest market in the world. It has a huge volume of orders coming in every single second. With high liquidity, trades are executed as soon as the order is placed. In fact, the forex market has the highest liquidity compared to any other market.

Margin Trading

In forex, the retail traders get the facility to trade with leverage. That is, with leverage trading, a trader can trade with quantities even if they do not possess the required amount. This is a great advantage as it paves the way for the small traders who are willing to participate in the market.

Nominal Commission and Transaction Costs

Another significant benefit to consider about the forex market is that the forex brokers don’t really charge any high fee, such as brokerage fees, exchange fees, or clearing fees. Having said that, they do charge commission, which is in the form of spreads. The bid/ask price, which is often referred to as the transaction cost, is typically around 1% when the market conditions are normal.

The Freedom on Lot Sizes

In forex, the brokers allow trading with as low as 0.001 lots. And traders can choose from 0.01 lots, 0.1 lots and 1 lot. Hence, there are variable lot sizes in this market. But, if you were to consider the futures market, the lot sizes are of one type and are determined by the exchanges.

Free Demo Trading

Demo trading is one of the best features the forex brokers have to offer. And the cherry to the cake is that demo trading accounts are free of cost. Demo trading can be very helpful to both novice and professional traders. Novice traders can use it to get the hang of placing orders and other features in the platform, while professional traders can use them to test the consistency of their strategies. Hence, we can consider demo trading to be a powerful risk-reducing tool.

Facility to Go long and Go Short

In the forex market, there is no directional bias. This is because currencies are traded in pairs. If a trader thinks the base currency would rise in value, they can go long, and if they think it will depreciate in value, they can go short. So, unlike the stock market, a trader need not borrow shares to sell short an instrument. Hence, traders can profit from both rising markets as well as falling markets without any complications.

Hence, these were some of the most significant features and advantages of the forex market. In the coming lesson, let us put up a comparison between different markets and see which market proves to be the best; for now, take the below quiz and see if you have understood this lesson correctly.

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Categories
Crypto Guides

What Should You Know About Ripple? The Most Centralized Cryptocurrency!

Introduction 
In our previous articles, we have seen that Bitcoin has inspired and paved the way for a multitude of new and affordable platforms using cryptocurrencies. Ripple is one such

Introduction 
In our previous articles, we have seen that Bitcoin has inspired and paved the way for a multitude of new and affordable platforms using cryptocurrencies. Ripple is one such

Introduction 

In our previous articles, we have seen that Bitcoin has inspired and paved the way for a multitude of new and affordable platforms using cryptocurrencies. Ripple is one such platform developed by Ripple Lab’s incorporation, a US-based company in 2012. It is a payment platform built upon a distributed open-source protocol. This best part about this cryptocurrency is that it is backed by major Banking and financial institutions. They use Ripple for transferring money, commodities, cryptocurrencies, or any other units of value like flier miles or free mobile minutes.

Objective

The Objective of Ripple is to rule over all the international transactions worldwide. They have come up with this objective as the cost of international transactions is too high if we transact using traditional means. It also takes days to settle the transaction. The most innovative idea behind this platform is that we can use the network to transfer any currency, not only cryptocurrency, to be more specific. Thus, making the platform currency independent. Ripple Network, also knows as RippleNet, enables many banks and financial institutions to send and receive money smoothly throughout the world.

How is Ripple different from other cryptocurrencies?

In the world of blockchain, the upcoming networks or platforms are trying to eradicate the existing systems. Ripple is doing precisely the opposite. Instead of trying to remove them, this technology is trying to cooperate with them to make them better. Several products by Ripple Labs (XCurremt, XVia, and XRapid) are being used by several banks to perform transactions globally. The native cryptocurrency of the platform XRP plays an essential role in the system.

Let us see how the transactions are performed globally using Ripple technology. The currency which is being transacted is converted into XRP before the transaction. As the recipient receives the money, the user will have an option to convert the XRP into his/her desired currency. Thus, XRP plays a bridge between two different currencies in this case. The transaction fees for this transaction is as less as $0.00001. This transaction fee disappears from the network after the transaction is processed.

Market Capitalization 

Ripple’s XRP is in third place in terms of market capitalization amongst Cryptocurrencies. Currently, this crypto is trading at $0.295, while the total market cap is around 12 billion dollars. The 24-hour trading volume is $1,729,560,739. The maximum number of coins the XRP ever can have is 100,000,000,000, while 43,242,653,330 out of them are already in circulation (43.2%).

Pros and Cons of Ripple

We have already seen that many banks have trust in Ripple technology and started using this network. By using this technology, some world-renowned banks claim that they are potentially saving 70% of the transaction costs annually. Since all the coins are minted already, inflation i.e., the value of Ripple, remains stable over the period.

Ripple is highly centralized, unlike other cryptocurrencies. 61% of the coins minted are in control of the founders of the Ripple Labs. They decide when and how much of the coins are released. Hence centralization is the major con. In May 2018, Ripple was accused of alleged cheating through its ICO.

Conclusion

Since 2013, many traditional platforms that serve international transactions have adopted Ripple as an alternative remittance option to its customers. By December 2014, Ripple combined its services with Earhports payments systems, making it the first-ever partnership of Ripple with a giant payments network. Western Union, American Express, and Unicredit are some of the largest customers of this technology, making the technology achieve its goal closer every passing day.