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Questions from McMathews
Started:March 5th, 2011 (06:33 AM) by McMathews Views / Replies:3,545 / 43
Last Reply:April 26th, 2011 (12:45 PM) Attachments:0

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Questions from McMathews

Old March 5th, 2011, 06:33 AM   #1 (permalink)
Just starting out...
United states
 
Trading Experience: Beginner
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Questions from McMathews

I am unaware about the concept of hedging and speculation. What are the importance of using this and how can hedging and speculation help in avoiding loss while trading?
Regards

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Old March 5th, 2011, 06:33 AM   #2 (permalink)
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Old March 5th, 2011, 06:52 AM   #3 (permalink)
Just starting out...
United states
 
Trading Experience: Beginner
Platform: Tradecentre
Favorite Instrument: Forex
 
Posts: 19 since Mar 2011
Thanks: 1 given, 2 received

Terminology


Hi all
I am new to trading and have been reading different materials in this forum and across the web for last 23 days. I have faced different difficulties will getting the grasp on the concepts. Primarily the different terms used in various resources were confusing one. I was confused with some of the commonly used terminology in trading. Some terms are quoted here -
Calls and puts
Bull market and bear market
Can any one provide me the link of terminology dictionary or page of trading?
Regards

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Old March 5th, 2011, 07:18 AM   #4 (permalink)
Elite Member
Rochester Hills, Michigan
 
Trading Experience: Intermediate
Platform: Ninja,Tradestation,TOS
Favorite Instrument: Currency Futures
 
Posts: 191 since Jul 2010
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Here you go!

Check out the website www.investopedia.com

Incometrade
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Old March 5th, 2011, 03:45 PM   #5 (permalink)
Just starting out...
United states
 
Trading Experience: Beginner
Platform: Tradecentre
Favorite Instrument: Forex
 
Posts: 19 since Mar 2011
Thanks: 1 given, 2 received

timeframe of trading

I was reading some resources and was stucked in the concepts like intraday and interday? What are these concepts in trading? Someone quoted that these are the timeframe methods of trading. How many type of time frame are there in trading? Can anyone explain me about these concepts in brief?
Regards

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Old March 5th, 2011, 04:07 PM   #6 (permalink)
Just starting out...
United states
 
Trading Experience: Beginner
Platform: Tradecentre
Favorite Instrument: Forex
 
Posts: 19 since Mar 2011
Thanks: 1 given, 2 received

Forex trading

Hi all
For some days I am deeply involved in reading different articles in the forum. And have obtained lot of knowledge however there a long way to go through.
I am planning to start trading with Forex. However I came to know that forex trading is the most risky investment in many of the articles. Is this true? What are the additional steps that we must assure before marching on to forex ? What is currency pair? As its always said that there is currency pair in Forex ? What significance does it have?
Regards

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Old March 5th, 2011, 05:46 PM   #7 (permalink)
Big game hunter
NY
 
Trading Experience: Advanced
Platform: Esignal, MBT navigator
Favorite Instrument: Currencies
 
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Yes , very risky . If you compare forex trading to the risks of everyday life like driving a car or crossing the street it doesnt have to be anymore dangerous than those things . To drive a car you practice and become familiar with driving rules and safety guidelines and then you start slowly until you become good enogh to pass the test and drive alongside others . In forex the other "drivers" are trying to run you off the road so just practice until you can run them off the road , most of the time .

Forex pairs are two different currencies that you tarde in two different directions at the same time . For example , the "pair" EURUSD is the euro and the US dollar and if you buy EURUSD you are buying the euro and selling the US dollar . The "price" is the difference between each ones value .

Its extremely important to understand what you are getting involved with if you do trade forex . My advice is to avoid getting involved with placing trades based on analysis you do on intraday information or timeframes . It is vastly easier to learn initially by evaluating data on a daily basis and going very slowly at least at first . There are many different pairs to analyze so if you watch how prices move on a slow , daily chart you will absorb info more effectively and make better trading decisions .

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Old March 5th, 2011, 08:12 PM   #8 (permalink)
Market Wizard
Berlin, Europe
 
Trading Experience: Advanced
Platform: NinjaTrader, MultiCharts
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McMathews View Post
I was reading some resources and was stucked in the concepts like intraday and interday? What are these concepts in trading? Someone quoted that these are the timeframe methods of trading. How many type of time frame are there in trading? Can anyone explain me about these concepts in brief?
Regards

Sounds like a play on words.

Intraday means a trade which is opened and closed within the same day. This is usually called day trading.

Interday means that the trade is opened on a first and closed on a second day. This type of trade has a longer time horizon as the trader is willing to hold a position overnight. It is usually called swing trading.

These are just time frames, not concepts. Most of the trading concepts can be applied to many, if not to all time frames.

The main difference between swing trading and day trading is that the swing trader holds a position longer than the day trader. This means that the swing trader runs a higher risk than the day trader, but the potential reward is higher as well. If you compare two traders with equal accounts and position limits, the swing trader will trade smaller size than the day trader, as swing trading requires wider stops. Also for holding a futures position over night, usually a higher margin is required than if the position is held during the day only.

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Old March 5th, 2011, 08:38 PM   #9 (permalink)
Market Wizard
Berlin, Europe
 
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McMathews View Post
I am unaware about the concept of hedging and speculation. What are the importance of using this and how can hedging and speculation help in avoiding loss while trading?
Regards

Hedging originally refers to a trade that offsets a risk which stems from a position held in the cash market.

Example: Let us assume that you are a cable producer, who needs a large amount of copper stocks as a protection against a potential shortage and that you sell the product to your client based on the market price of copper. In this case there is a considerable price risk created by those stocks. A hedge of this risk would be an offsetting short position in the futures or forward market. If copper prices fall, you will lose money on your physical position, but win the (near) equivalent in the futures market - and vice versa in case that copper prices rise.

A hedger is a commercial entity, which seeks protection against an unexpected price movement in the commodities or currency markets, and is therefore willing to lock in current price or current price expectations. Typically there are hedgers that seek protection against falling and other hedgers that seek protection against rising prices. As these requirements do not balance out, other market participants are needed to supply liquidity to the futures and forwards markets. These are the speculators.

The speculators do not have a physical position or any operational risks that they want to balance. They simply provide liquidity to the hedgers, as they are willing to act as counter parties. Speculators are expecting to generate profits from future price movements.

If you put on a position, you are a small speculator, unless you have a physical position that you want to protect. If you are farmer growing wheat, and you want to lock in current price expectations at the time of the harvest by entering a short position, you are a hedger. If you do not grow wheat and enter into a short position you are probably a speculator.

However, you can hedge (protect) some of your positions by reducing or eliminating part of the unwanted risk associated with these positions. This allows you to limit your exposure to the wanted risk only.

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Old March 5th, 2011, 10:08 PM   #10 (permalink)
Breathe the body deep.
California
 
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You should also read the forex school thing at Babypips or Investopedia. It's long but you should go through and understand the entire thing before trading.

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