Hello subscribers and readers, welcome back, it’s been a while. If you just stumbled upon this blog today, you are welcome. Should you find value in this post and wish to be notified whenever there’s a new publication, please kindly subscribe. Today’s topic is one of the frequently asked questions from people who follow my work online, people ask me this question every other day, including my mentees. That is also a biggest contributor of people seeing it fit to borrow money to trade. I cannot ignore the fact that Forex trading has been portrayed as the quickest way to make money online. Without further ado, let me get to it.
Why Do People Borrow Money?
Most people borrow money when there’s an emergency that needs to be taken care of and they have no emergency fund to finance it at that time. I know that other people do borrow money just so they can go and have some fun, but today I need to focus on borrowing for a need. A person who borrows money to trade may feel that there’s a need as they also believe that they can easily pay it back after trading for a week or so.
Disadvantages Of Trading With Borrowed Money
Trading requires you to be “sober minded”. Anything that causes stress, pressure and anxiety should be eliminated or avoided. When you trade under pressure, you are likely to be impatient and make mistakes. Let’s say you borrowed R50 000 from the bank and your loan repayment is R3000 p/m (please note that these may not be accurate figures), this will mean that every time you place a trade, you will be thinking about making that R3000 and if it happens that you are only left with one week to pay, you’ll find yourself forcing your way into the markets so you can make the loan repayment amount. I have done this a lot and I have seen other people doing it. It always leads to margin call.
What If My Start Up Capital Is Too Small?
I always advise traders not to trade on demo for too long because trading on live account is totally different from trading on demo, it requires its own practice and no one gets too attached to fake money. If you think your capital is too small, do not wait until you get more money. Start small and work on growing it. I have published a PODCAST on this topic, please do check it out for practical tips on how to grow a smaller trading account. I know from feedback that this episode has been helping a lot of traders to grow their smaller trading accounts.
I hope this helps. Thank you for stopping by. Please kindly share this post with your peers using the share buttons on the sidebar. For weekly tips on trading psychology, you can download the App on Google Playstore and never miss out on those tips. Stay safe and take care.
A Central bank is a national bank that provides financial and banking services for its country’s government and commercial banking system. Central banks plays a major role in the markets. Interest rates are the most important event to Forex markets and any discussions that take place in the central bank’s announcements can cause huge volatility and drastic movements in the markets within seconds.
What is the role and function of a Central Bank?
To set official bank rates used to manage inflation and exchange rates
To issue a country’s currency
To set targets and monitor economic data while they implement special tools.
One of the special tools that is used by the central bank is Interest/bank rates adjustments. When the Central Bank sees a need to hike or cut their rates, they simply do so. Read more on why do they hike or cut the Rates.
Why Do We (traders) Care?
The biggest factor that shifts the price in the Forex markets is the Interest Rate changes set by the Central Banks. The changes made by the Central Banks in their rates are the indirect response to other indicators/economic data released right throughout the month.
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Stock Index trading is when you trade a basket of stocks which make up an index , but you go through one of the instruments like Nasdaq, Ftsee100, S&P500, Dow Jones, Dax and many others to trade it. Stock Index trading is different from Stock Trading. In Stock Trading you are trading stocks of specific companies, and each company has its own price. Once you’ve purchased stock, you then own the stock and it has to be transferred to you by the seller. Stock trading also requires you to do lots of research about companies where you want to buy their stocks.
How to trade Stock Indices?
Trading in the Forex markets is not only about currencies. There are various financial instruments that can be traded (you may require a bigger capital to do so). Maybe up to now you thought trading stocks is not for you, you are a Forex trader. The opportunity for Stock Index trading is presented right in front of you, you see it every day when you log in to your trading platform. If you are like me and you have taken trading financial markets as an investment, you might want to diversify your portfolio by introducing Stock Index trading to your daily activities, instead of focusing on currencies only. Let me start by identifying some of the few stock indices that you can check out.
INSTRUMENT
CATEGORY
Dow jones/USA30
Industrial
Nasdaq/USA100
Technology
Ftse100/UK100
Comprises of 100 companies on London Stock Exchange (Vodafone is one of the companies listed)
S&P500
Comprises of highly market public held companies. Amazon is one of them.
Dax/Ger30
Represents 30 largest and most liquid German companies that trade on the Frankfurt Exchange
Advantages of trading a Stock Index
Stock indices have generally higher returns than the stock market they represent.
The volatility is reduced when compared to currencies.
Stock index trading requires less research as opposed to trading /investing in individual stocks.
When trading a stock index e.g. FTSE 100, you do not have to spend weeks analyzing all 100 companies under this umbrella but all you can do is just follow FTSE 100 index as you would do analyzing your currencies.
Stock index trading does not require any traditional stock brokerage where you pay high fees, you can buy and sell on the same Mt4 trading platform as you would do with your currencies and it is a much cheaper way.
How to trade FTSE 100
You will have to know what is happening in the markets as far as the economic calendar is concerned in order to succeed in this. A few points to consider when trading FTSE 100 is the release of Interest Rates announcements, UK manufacturing numbers, GDP (gross domestic products) figures, housing figures and Inflation data.
All the above are key to trading FTSE 100 successfully. This index tends to imitate the European markets as it trades during the same time frame as European markets. As I always say “we are eating this elephant one piece at a time.”
Ask anyone in any field, they will tell you that without patience and perseverance , you can never go anywhere (we cannot do anything without it). Whether you want to lose weight, eat clean, start a new business, or even being a parent requires a lot of patience. Being patient means we have to learn to be calm, even when things aren’t going our way. As hard as it is to exercise patience, it is one skill that everyone must possess, especially in this field of trading in the Financial markets.
When I look back at what I’ve been through in my trading journey, there were times when I really felt like giving up but I am glad I didn’t. A trader who lacks patience will always donate his/her money back to the Markets. Newbies to the markets do not really like to hear the word patience, all they want to do is to place that trade and make their profits. Professional traders do not trade every hour of every day and as a trader, you need to develop different types of patience for different situations.
1.Patience to wait for your perfect setup
Most traders fail even with the best strategies. They fail because they are not patient enough to wait for that perfect setup. If you always trade when in a rush and never plan for your trading sessions, you are only headed for disaster. Every business has a structure, I fail to understand why traders think it is OK to just trade without a proper plan or structure. If you want to be successful in this field, you need to learn how to plan and follow through with your own trading plan.
2.Patience to let your trade run for a bit longer
There are traders who are very patient to let a losing trade run for a few days while it depletes their free margin, but they fail to let a winning trade run till it reaches it’s targeted profit. All the above applies with every method of trading. In my method of trading planning is everything. I teach my mentees to be good planners and never to be random in the markets. Every business has some sort of structure and forex trading is no different. This was the shortest post I’ve ever written but hopefully you have gained something. I have just done my weekly trading plan and I am ready to face a new week with new possibilities and opportunities.
Thank you for stopping by. Please kindly share this post with your peers. To receive notifications on your email whenever I publish a new blog post, you can subscribe to the blog. You can also download my App on Google Playstore and have this content at your fingertips. Earlier today, I published a new episode on my Podcast titled ”Trading for a living, is that even possible?”. Till next time, cheers.
A Central bank is a national bank that provides financial and banking services for its country’s government and commercial banking system.
What is the role and function of A Central Bank?
To set official bank rates used to manage inflation and exchange rates
To issue a country’s currency
To set targets and monitor economic data while they implement special tools.
One of the special tools that is used by a Central Bank is Interest/bank rates adjustments. When a Central Bank sees a need to hike or cut their rates, they simply do so.
Why do Central Banks hike their Interest Rates?
When the economy is growing at a rate that may lead to hyperinflation (monetary inflation occurring at a very high rate) that is when the Central Bank hikes the county’s interest rate.
Why do Central Banks cut the Interest Rates?
Central banks may cut the Interest Rates to encourage people to borrow more money at a lower rate, be it for new houses or businesses. The aim is to also make saving money less attractive as the returns are lower when the rates are cut.
About Reserve Bank OF Australia (RBA)
Reserve Bank Of Australia’s Interest Rates are released every first Tuesday of the month, excluding January. On the 6th of April, they’ll hold their 3rd meeting of 2021 to decide on their Interest Rates.
Why Do We (traders) Care About Interest Rates?
Interest Rates are a primary tool that a Central Bank uses to valuate their currency. If their plan is to hike, it strengthens the currency and if their plan is to cut, it weakens the currency.
Thank you for stopping by. To help with your planning, below is the annual schedule of RBA. Please kindly share this post to help other traders. You can also download the App on Google Playstore to read on the go and to access weekly tips on trading psychology (only posted on the app). Listen to my latest podcast HERE and kindly share with your friends who are looking for practical Forex content.
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