Tag: investments

Forex Trading; Constructing a Spread position

 

WHATS KILLING MY PROFITS?   There are many things that eat away at investors profits.  Most all of them are avoidable.  Of course we cannot control the markets movements, neither its direction nor how far it moves, but we dont have to.  We know the market moves.  For the most part a currency pair will constantly be moving up and down, unless there is a huge national event in a country.  Even then, the currency will move back the other way again.

     One of the biggest killers of profits that I have seen is the use of “strategies” when investing in Forex.  I have an entire article on strategies, so this one will focus on the use of spreads.  Many times investors will attempt to use strategies from other investment vehicles (i.e. stocks, options, futures, etc.) in the Forex market.  Although these can be adapted to work they often are not.  Most investors simply take a proven formula for trading from one investment vehicle to another and they lose money.  

     Spreads are no different.  

WHAT IS A SPREAD?  The concept is easy, the definition of a spread is:  Options spreads are the basic building blocks of many options trading strategies. A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates.

 

 

     Many Forex traders have never traded options and dont truly understand how they work.  A spread in an option position means that you bet on two sides, up and down.  This strategy depends on only one thing to win, volatility.  When the market moves a good amount in either direction the option holder can make money.  This is a Very simple definition of a quite complex trading strategy.

     When you apply a spread to Forex you get a buy and sell on the same currency pair.  So you would place a buy and a sell order on the same currency pair, hoping for volatility, the price to fluctuate up and down.  This typically happens every trading day on many different currency pairs.  So why do so many investors lose money with this strategy?  Because they dont adjust the “buy in” position rules to fit Forex trading.   Meaning, they enter the trade in the wrong way, incorrectly constructing a spread for Forex.

     HOW TO CONSTRUCT A SPREAD;  A very simple example is this:  when you construct a spread position on a stock option you will enter a buy and sell order, and those will typically be at different strike prices (target price).  When you apply that same principle to a currency pair the entire dynamic is changed!  Because there is a whole other element that needs considered that you Don’t have with an Option spread, and that is entry price.  I am trying to keep this very simple while explaining very complex actions.  You see, when you sell an option contract (as when building a spread position) you actually Recieve money in your account (because it not only represents your short,bearish, belief of the underlying asset (same as the forex sell),  you Actually literally sell something).  In Forex you do Not get a payment for a “selling” a currency pair.

When you sell an option, you will actually instantly receive the limit price in your account.  

 

That would be buying abc/def currency pair at 107.468 and selling at at 107.348 as an example.  The one part we havnt considered yet is where we buy in at.  This one simple piece can make all the difference in you loosing or making moneu on a trade.  

WHERE DO YOU BUY IN AT?  The key to making money on these swing trades is to buy in right. In the Forex world buying “in the money” on a spread means to overlap the prices where you buy and sell your opening position.  Here below you see an example to make it clear.

 

 

So as you can see from the real spread position above, I entered the spread trade “in the money”, meaning I constructed my spread for optimal profit and probability of profit.  

IN THE MONEY;  In Forex entering a position in the money means buying at a higher price than your selling price.  As you see in the screenshot above, I bought a currency pair, and sold the same currency pair, “in the money”.  You can see that an in the money spread is truly in the money, meaning in the profit at the same time!  Both the buy and sell orders are Both in the profit at the same time.  This is a proper Spread.  Of course the further in the money you enter, the safer and more profitable it will be.  This can be easily done by using “limit” buy and sell orders.

A Wealth of Ignorance

A Wealth of Ignorance;  Why the rich get richer

 

 

“Ignorance is Not bliss, in finances ignorance causes poverty!”  Tony Robbins

 

There isnt a one of us out here that haven’t received money advice from a friend, co-worker, book, boss, etc.  The amount information or misinformation thrown at us about money is astonishing!  

     One of the top 3 peices of advice I have received in my life came while I was in Malaysia.  I was there with a good friend of mine, a self made Millionaire.  We were driving in his car through the capital of Kuala Lumpur on the way to a business meeting near KLCC (the Twin Towers).  I was young and excited to be around him and his colleagues.  In an attempt to participate in his circle I told him about a great business idea an aquantence of mine had, it was a Million dollar idea!  As I was giving him the overview, he stopped me in mid-sentence.  He interrupted and asked me a question; “how much money does your friend make” he asked.  I replied that he made over $150,000 a year.  He then looked at me and said, if your friend knew how to make a Million dollars, he would be a Millionaire.  He then went on to explain to me about advice and mentors.  He told me that if I wanted to make $150K/year that my friend could certainly tell me how to do that, but he doesnt know how to make a Million dollars a year.  He then cautioned me about taking advice from people who have not done it already, and people who are not where you want to be.  He advised me to seek out counsil and advice from educated, experienced, and proven men.  

     This conversation drastically changed my life forever.  From that point onward I saught out advice from those who have already accomplished what I am trying to do.  Talk about a shortcut.  A surefire way to the top as fast as you can go.   Learn from the mistakes of others, and follow the proven formulas for success in whatever category of your life that is.  Of course this is not to say that common people in our lives have nothing to offer.  They may indeed have some great ideas; however actual implimentation of those ideas into monetary success are two different things.

     I have said this for years:  “Wall Street University is the most expensive education that you can buy”.  

The sheer percentage of people who lose money in the markets is astounding!  Your odds of actually making a profit trading securities to any mesure of real useable equity growth is extremely low.  By this I am saying that most people will lose money trading securities.  Those who do manage to make money do not make an amount that could make them a living or provide for a secure future.  There ARE people who make money in investments as a living.  They are very few in comparison.  If you wish to enter the world of investments and securities, do not waste your money paying Wall Street University tuition, learn from those who actually make enough money to produce the same results you are looking for.  

     Much of the “investment” and advice we get on money is stemmed from our Great Depression.  People still dont trust banks, how many times have you heard saying such as “rich people are greedy” “save your money” “the rich keep getting richer and we just get poorer” “start a savings” and the plethora of other sayings that we have heard from childhood?  These sayings are all stated by people in our lives that really dont have money.  “Money is the root of all evil”.  “money cant buy happiness”.

     The world is full of accomplishers.  People who have realized their goals and dreams.  Those who have found the path to success.  We Do Not need to reinvent the wheel.  Invention is wonderful and that is how progress is made.  But most of us are not at that point in our lives.  We are not going to change the world with our innovative ideas until we have gotten our lives and fincances to a point where we can actually impliment those ideas and make them reality.  

     Focus on gaining wealth first.  Do this by following the patterns and practices of those who have gone before you and found the way.  If a trader isnt making money in real time, dont follow his advice.  If an investor isn’t performing at the top of his game dont mimic him.  

     “it takes money to make money”.  How many times have we heard that.  I have another write up on this, but sufice it to say for now that that is what poor people say.  The truth is investing is about making your money work.  The majority of people in this world work for their money.  Sell their time for an hourly rate.  The wealthy make their money work for them.  And they do that through proper investments and strategies.

     Follow me on Instagram @droneprecisionstrategies for real time trading and money making.  Watch it happen live!  You can trade and make money with me HERE.