Welcome back. I hope you are keeping safe and still holding up well under lock down circumstances. Please continue to look after yourself and your families. Wash & sanitise those hands, wear that uncomfortable mask and keep the social distancing rules, we will soon be fine. OK, today I want to share something regarding trading capital.
I always say that a person who can take care of his/her account by protecting its equity no matter how small the account is, can definitely do the same with a bigger account. I have seen this with my mentees when I coach them on smaller accounts, they develop a lot of patience which is a much needed skill in trading. A smaller account can teach you how to be more patient. It is the same patience that will carry you when you start trading a bigger account. If you start with a bigger capital before working on getting skills such as patience and being more disciplined, you are more likely to mess up and loose all the money. My favourite saying is “get a skill and get it right” then work on your capital when you’ve worked well on yourself and you’ve got it right. I’ve also published a blog post on how to grow a smaller account.
Undercapitalised myth or underdeveloped mindset?
It’s definitely a mindset issue. It might be true that with a bigger account, you can achieve more. The truth is, not everyone with a bigger account succeeds. I have seen people failing with enough trading capital and people getting it right with a smaller trading capital. What separates the two is the fact that the one with a bigger capital is likely to rely on the money and neglect all the principles and things like patience. A person who trades a bigger account as a beginner is also likely to think that the account is immune to margin call because the capital is bigger (which is definitely not true) succeeding with a bigger account requires more discipline.
If you feel like you are not yet disciplined and you are still struggling to overcome that (I’ll assume that a person who is aware of this, would want to work on it) rather start small even if you have enough money to start big, start small while you train yourself on such issues (I love coaching my mentees on such issues, having a mentor/coach to help you, makes it easier to overcome). I am sure you have heard the “if I had a bigger account I would have made it ’‘ excuse (I hear this all the time, even from my mentees) I am saying it’s an excuse because I know that succeeding in Forex trading requires a lot more than just capital.
A Perfect Example
A person who has a job would say only if they can get a promotion and earn a bit more, financial life will improve as well, but the opposite usually happens if that person has discipline issues. They start to increase spending and always running short of money, this particular person needs more discipline than more money. They aren’t undercapitalised but underdeveloped. It is the mindset and the discipline that is needed, not more money.
Now back to Forex trading, when a beginner trader wins, they feel brilliant and invincible, then start to take wild risks and trade larger volumes than what the account can handle. This type of behaviour leads to losing money. The capital is not an issue here but the behaviour is . I have come to understand that if you can handle $1000 trading account, you can also handle a $5000 account using the same mentality and discipline. You can also destroy a $5000 account as quickly as you would do with a $1000 or even $500, It is all in the mentality. If you can manage yourself, you can manage your finances.
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Week ahead: This week the markets are more focused on Central Banks and COVID-19. COVID-19 has been doing the most in the global economies and the Central Banks have resorted to cutting their Interest Rates. If you have no idea why would they resort to such measures, you can read my previous post.
On Monday, Federal Reserve Chair Jerome Powell will deliver a speech to discuss COVID-19 and the economic outlook in an interview conducted by CBS’ 60 Minutes. On Tuesday he will testify, along with Treasury Secretary Steven Mnuchin, on Corona virus Aid Relief, and the Economic Security Act. On Wednesday, Bank Of England Gov Bailey is due to testify along with three MPC (Monetary Policy Committee) members, on the economic impact of COVID-19 before the Treasury Select Committee, in London.
On Thursday, Reserve Bank Of Australia (RBA) Gov Lowe will participate in a panel discussion at the Financial Services Institute of Australia, in Sydney. Audience questions expected. Then on Friday, there’s European Central Bank (ECB) and Bank Of Japan (BOJ) on their Monetary Policy statements release. Below is the weekly economic calendar.
Highlights from the previous week: Australia Reserve Bank (AUD) maintained their Interest Rates at the current rate of 0.25% as per expectation and the board maintained that they will not be increasing the cash rate targets until progress is being made towards full employment. Also their trade balance reached 10.60B vs 6.40B expected. This was good for AUD because it simply means that more goods and services were exported than imported.
Bank Of England (BOE) also maintained their Interest Rates at the current rate of 0.10%. The board felt that the current rate is appropriate but they will monitor closely and act accordingly. In the U.S, as expected, the jobless claims were higher, this is the case with most countries due to Covid-19, the labour market is affected badly and there are more unemployment insurances claims. To close off the week, there was Non-farm payrolls release which printed the lowest numbers with the improved earnings. April job stats were really shocking. But again, due to Covid-19 most countries are reporting crazy stats. Below is our weekly economic calendar. Feel free to subscribe to receive weekly economic news straight to your email or App which is available on Google Play store (see download link on the home page). Thank you for stopping by. Kindly share with anyone who is interested in learning more about the markets.
Is there a difference between stock market and Forex market?
Before I get into the U.S markets, I thought I should start by answering the question above. Yes, there is a difference between those two.
What is stock index trading?
Stock index trading is when you are trading a basket of stocks which makes up an Index. You can do that on your Forex trading platform and do it through an instrument.
Advantages of trading stock indices
Stock indices have generally higher returns than the stock market they represent.
The Volatility is reduced as compared to currencies.
Stock index trading requires less research as opposed to trading /investing in individual stocks.
When trading a stock index e.g. Nasdaq, you do not have to spend weeks analyzing all the companies under this umbrella but all you can do is just follow the instrument 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 Forex trading platform as you would do with your currencies and it is cheaper.
There are different markets that one can focus on. In this post I will only focus on U.S markets and share a few stock Indices that you can choose from. I will do other markets as well in a different post.
U.S markets
1.Nasdaq
Sector: Technology. Nasdaq stands for National Association of Securities Dealers Automated Quotation. Nasdaq comprises of 100 companies listed on the stock exchange in the United States. This is one of the popular one’s amongst traders.
2. Dow Jones
Sector: Industrial. Dow Jones also known as the DOW, is the stock index that measures the stock performance of 30 large companies listed on the stock market in the United States.
3. S&P 500
Sector: Financial. The S&P 500 index measures the stock performances of 500 large companies that are listed on the stock exchange in the United States. The S&P market cap is 70 to 80% of the total US stock market capitalisation. It is a commonly used benchmark for stock portfolio performance in America and abroad.
What economic indicators affect these 3 Indices
The method of trading that I personally use, focuses more on fundamental analysis. Fundamental analysis is all about understanding the reasons why certain things happen in the markets. Economic data releases such as Consumer Price Index (CPI), employment data, GDP, trade wars and the Interest Rates are some of the key indicators in trading these indices. I cannot share these in detail over a blog post but I hope you have learned a thing or two about stock Indices. Thank you so much for stopping by and reading this post. kindly share with anyone who maybe in need of this content. Your shares are always appreciated.
Planning is key. With everything that is happening in the markets, the best thing that one can do as a trader is to know which currencies to focus on for the upcoming week. Even though there are lots of breaking news and geopolitics, knowing what is expected from the economic calendar is a good start.
This week we will have 2 Central Banks in focus. Reserve Bank of Australia (RBA) and Bank Of England (BOE) will hold their Monetary Policy meeting to decide on their Interest Rates. BOE is expected to maintain theirs at the current Rate of 0.10% and RBA to also maintain at the current Rate of 0.25%.
This week is also non-farm payrolls week. The United States will be releasing their 5th Job statistics which exclude the farming industry hence it is called non-farm payrolls. Due to COVID-19 and a lock-down, job stats are expected to be at its lowest. Below is our weekly calendar.
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