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Igor

Market Wizard
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Everything posted by Igor

  1. The Bangladesh Taka is the official currency of Bangladesh, given value by the nation’s central bank. *Traders investing in the BDT currency hold an optimistic view of the country’s macro economic fundamentals and the value and allocation of the countries natural resources. *Price levels are heavily influenced by inflation rates, and the low liquidity levels of this currency make it unavailable in many regions. *
  2. The Barbados Dollar is the official currency of Barbados, given value by the nation’s central bank. *Traders investing in the BBD currency hold an optimistic view of the country’s macro economic fundamentals and the value and allocation of the countries natural resources. *Price levels are heavily influenced by inflation rates, and the low liquidity levels of this currency make it unavailable in many regions. *
  3. Volatility describes the change in price movement of a financial instrument. If a Stock moves up and down rapidly over a short span of time, it has high volatility, If the price moves slowly it has low volatility. In other words Volatility can be referred to uncertainty in the market.
  4. Volume indicates effective clues for future prediction and is very useful technical indicator. High volume in any directions of the markets form future trends while low volume appears during the unsure periods.
  5. Weak currencies are generally traded at discount rate in economically developed countries and have poor economic fundamentals like budget deficit, slow economic growth, and high rate of inflation. Weak currency countries have frequent devaluation against major trading partners, balance of payment deficits, or political instability.
  6. Weak Dollar doesn’t always reflects the bad situation, weak dollar usually leads to high exports and low imports and US companies will be able to export more because buying power of foreigners is enhanced. Dollar may weaken because of loose monetary policy and lack of confidence in US Economy.
  7. Weekly chart is to use to predict long term view of an instrument, as it shows more historic price movement than of same period day chart, Analyst view to see weekly chart can vary as the weekly line chart shows only closing price, bar chart shows opening and closing while candlestick chart will present open, high, low and close for the week.
  8. The BBA is the most signficant real estate association in the UK. A high number in this report shows that the real estate market is strong, which a lower number is indicative of weakness and a reduction in future home sales.
  9. The Base Currency is presented in relation to the amount of money that would be required to buy one unit of the second currency in the pair. The total value of the currency pair shows the value of Quote currency needed to buy a single unit of the Base currency.
  10. The Central Bank is unique amongst most of the other G10 economies in that price stability has not been much of an inssue in the last two decades, with consumer inflation averaging less than 1 percent for most of that period. Because of this, the Bank of Japan is less reactive when making interest rate policy than most of its peers and instead places much of its focus in currency values. Bank intervention in the forex market has been a common theme in recent years, and the cantral bank looks to protect regional export companies.
  11. One of the main responsibilities of the Central Bank is to maintain price stability so that consumer inflation and national growth progress at sustainable levels. To do this, the Bank can raise or lower interest rates as one potential approach. The Central Bank is also responsible for selling government treasuries and issuing currency.
  12. One of the main responsibilities of the Central Bank is to maintain price stability so that consumer inflation and national growth progress at sustainable levels. To do this, the Bank can raise or lower interest rates as one potential approach. The Central Bank is also responsible for selling government treasuries and issueing currency.
  13. The Aruban Florin is the official currency of Aruba, given value by the nation’s central bank. The Florin is comprised of 100 cents and is often symbolized with the "Afl" sign. Traders investing in the AWG currency hold an optimistic view of the country’s macro economic fundamentals and the value and allocation of the countries natural resources. Price levels are heavily influenced by inflation rates, and the low liquidity levels of this currency make it unavailable in many regions.
  14. Automated Execution is generally put in place with Expert Advisors in Meta Trader, or with similar programs. These trades tend to be based on technical conditions which show that certain trade entries should be executed, such as a reversal at Fibonacci levels or with an overextended indicator reading.
  15. An Automated Trader is generally focused on trends in technical analysis and sets trade entries to meet predetermined criteria. This type of trading carries with it specific types of risk, so traders looking to automate their processes should take position sizes into consideration so that excessive risk exporure is not seen.
  16. Automated Forex Trading is a broad term that could refer to stop or limit orders that have been previously established by a trader, or in the algorithmic trading that defines trade parameters independently through mechanisms such as an Expert Advisor in MetaTrader. Automated trading can carry a higher risk of loss and position sizes should be lowered as a means of protection against adverse market movements.
  17. The AUD is the abbreviation used in forex pairs to define the value of the Australian Dollar relative to its counterparts. The AUD as a term, however, can be used to discuss the strength or weakness of the currency overall, and this would be apparent in phrases like “Today there was broad strength in the AUD across the board,” which would mean that the Australian Dollar gained in strength relative to all of its counterparts.
  18. The Asian Financial Crisis is said to have started in Thailand, after the Thai Baht dropped in value after the Thai government's decision to remove its peg to the US Dollar. The contagion effect spread to other Asian countries (such as South Korea, Japan, and Indonesia), and required assistance from the IMF and World Bank before currency prices started to stabilize.
  19. The Argentinian Nuevo Peso is the official currency of Argentina, given value by the nation’s central bank. The Peso is comprised of 100 centavos and is often symbolized with the $ sign. Traders investing in the AON currency hold an optimistic view of the country’s macro economic fundamentals and the value and allocation of the countries natural resources. Price levels are heavily influenced by inflation rates, and the low liquidity levels of this currency make it unavailable in many regions.
  20. The Argentine Peso was the official currency of Argentina from 1983 to 1985. The currently is no longer recognized by the country's government, as it was replaced bu the Austral in 1985.
  21. An Application Programming Interface, is the next major advance in trading communication, as investors tend to move away from trading floors and large exchanges into an increasingly digital environment. APIs allow for faster communication used by trading teams, to capitalize of quickly changing market environments.
  22. The Angolan Novo Kwanza is the official currency of Angola, given value by the nation’s central bank. Traders investing in the AON currency hold an optimistic view of the country’s macro economic fundamentals and the value and allocation of the countries natural resources. Price levels are heavily influenced by inflation rates, and the low liquidity levels of this currency make it unavailable in many regions.
  23. Traders who implement an in-the-money naked call strategy are betting that the market price of an option's underlying asset will fall. The technique involves selling an in-the-money call option, hoping that it will expire out-of-the money. Traders who employ this type of bear option strategy do not need cash to enter the market. However, the terms of their call sale will limit their profit potential. On the contrary, an investor's loss potential is infinite. If the market price rallies, traders who use this strategy will incur large monetary losses. Moneyness Review for Calls Out-of-The Money (OTM) = Strike price (more than) Market Price In-The-Money (ITM) = Strike price (less than) Market Price At-The-Money (ATM) Strike price (equals) Market Price How to Carry Out An In-The-Money Naked Call Strategy Disney stock is worth $48 (market price) in June. 1) Trader sells the call option: DISJul40($10) - 100 shares of Disney stock - Strike Price $40, in-the-money (ATM), expiring in 30 days - Premium Cost of $10 2) Trader receives a $1000 credit when entering the market [$1000 (received from call buyer)] Total cost to enter the market: -$1000 Result one: Disney stock rises (rallies) to $68 in July a) The call option sold expires ITM, and the investor who bought the trader's call option exercises his or her right to buy 100 shares at $40. b) The trader purchases 100 Disney shares in the open market to cover the short sale, paying $6800, and then sells the shares to the buyer, receiving $4000. c) The trader loses a total of $1800 after subtracting the premium credit taken when entering the market. [-$1800 = $1000 (credit to enter market) - $2800 (loss from call)] Result two: Disney stock falls (moderately) to $45 in July. a) The call option sold expires ITM, and the investor who bought the trader's call option exercises his or her right to buy 100 shares at $40. b) The trader purchases 100 Disney shares in the open market to cover the short sale, paying $4500, and then sells the shares to the buyer, receiving $4000. c) The trader's profit totals $500 after subtracting the loss from premium credit taken when entering the market. [$500 = $1000 (credit to enter market) - $500 (loss from call)] Result three: Disney stock falls (crashes) to $28 in July. a) The call option sold expires worthless (OTM). b) The trader's profits totals $1000 after keeping the credit earned when entering the market. Advantages and Disadvantages in Carrying Out An In-The-Money Naked Call Strategy Pluses: The upside to this type of strategy is that investors do not need cash to enter the market. They are betting that the asset's market value will crash and the call will expire OTM, allowing them to keep the credit earned when entering the market. Traders can also use the credit to gain a profit in moderate bull markets or to offset losses if the underlying asset's value rallies. Minuses: The downside in using an in-the-money naked call strategy is that it exposes traders to high-risk losses when the market rallies, since any asset's market price could theoretically rise as much as demand permits. The method also limits the trader's profit potential to only what he or she received when entering the market.
  24. Traders who implement covered put strategies are betting that the market price of an option's underlying asset will fall. The technique involves short selling owned assets and selling a put option for the same amount of shares. The loss-risk in this strategy is unlimited, if the market price of the underlying asset rises. Traders who employ covered put strategies use their assets as leverage to earn a fixed premium credit, which is received from the put buyer when entering the market. Moneyness Review for Puts Out-of-The Money (OTM) = Strike Price (less than) Market Price In-The-Money (ITM) = Strike Price (more than) Market Price At-The-Money (ATM) = Strike Price (equals) Market Price How to Carry out Covered Puts Strategies Disney stock is worth $45 (market price) in June. 1) Trader short sells 100 shares of Disney stock 2) Trader sells the put option: DISJul45($2) - 100 shares of Disney stock - Strike Price $45, at-the-money (ATM), expiring in 30 days - Premium Cost of $2 3) Trader receives a $200 credit when entering the market [$200 (received from put buyer)] Total cost to enter the market: -$200 Result one: Disney stock remains at $45 in July a) The put option sold expires worthless (OTM) b) The short sale realizes no gain. c) Trader profits total $200 after keeping the credit earned when entering the market. Result two: Disney stock falls to $40 in July. a) The short sale realizes a $500 gain, and the trader receives $500. b) The put option sold expires ITM. c) The investor who bought the trader's put option exercises his or her right to sell 100 shares at $45. The trader pays $4500 to the buyer, and receives 100 Disney shares. d) The trader immediately sells the 100 shares in the open market and receives $4000. e) The trader makes a total profit of $200 after keeping the credit earned when entering the market. [$200 = $4000 (received for 100 shares) + $500 (gain from short sale) + $200 (credit to enter market) - $4500 (paid for 100 shares)] Result three: Disney stock rises to $55 in July. a) The short sale realizes a $1000 loss, and the trader pays $1000. b) The put option sold expires worthless (OTM) c) The trader loses $800 after adding the credit earned when entering the market. [-$800 = $200 (credit to enter market) - $1000 (loss from short sale) ] Advantages and Disadvantages in Carrying Out Covered Put Strategies Pluses: The upside to this type of strategy is that the investor will gain limited profits if the put option expires at-the-money or expires at any price below it. Profits remain the same, independent of how low the market drops. Covered put strategies also earn traders a credit when entering the market, which can be used to offset losses if the underlying asset's market price rallies. Minuses: The downside in using covered put strategies is that the method has an unlimited loss-risk potential. The short sale exposes traders to high risk when the market rallies, since any asset's market price could theoretically rise as much as demand permits. The method also limits the trader's profit potential to only what he or she received when entering the market. Investors can not profit from their short sale if the market crashes because the put option would offset any gains.
  25. Traders who buy an index put are betting that the market prices of the index's underlying assets will fall. The strategy involves buying a put that's linked to a stock market index. The underlying index plays the same role as an asset does in options trading. Investors settle all index options in cash, and there are no assignments of assets. The profit potential and risk involved when using this strategy varies. Traders buying index puts limit their losses to only the amount paid in premiums when entering the market. On the contrary, the trader's profit potential is unlimited, since any stock index can theoretically fall up to a zero value. Moneyness Review for Puts Out-of-The Money (OTM) = Strike Price (less than) Market Price In-The-Money (ITM) = Strike Price (more than) Market Price At-The-Money (ATM) Strike Price (equals) Market Price Understanding the Differences Between Index Options and Regular Options Buying an index option functions the same way as in buying a regular option. The difference is that the underlying assets associated with index options are many compared to just the one underlying asset that's associated with a regular stock option. Example: The S&P500 is worth $4000 and its index option, SPX (Index Option), is valued at $400 (1/100 of the S&P500). How to Buy Index Puts (ATM) The S&P500 is worth $4000 (market price) in June. 1) Trader buys an index put option: SPXDec400($4.00) - One S&P500 index option with a contract multiplier of $100 - Strike Price $400, at-the-money (ATM), expiring in 180 days - Premium Cost of $4.00 2) Trader pays $400 for the put (100 x $4.00 (premium cost)). Total cost to enter the market: $400 Result one: SPX falls to $380 in December. a) The put option purchased expires ITM. The trader exercises his or her right to sell 100 shares at $40. b) The difference between the option's strike price and the SPX is $20 (strike price: $400 - SPX: $380). There is no assignment of assets, so the put seller uses the contract multiplier (CM) to figure the trader's cash settlement. c) The seller pays the trader $2000 [100 (CM) x $20 (difference in prices)]. Subtracting the $400 credit paid to enter the market reduces the trader's profit to $1600. Result two: SPX rises to $420 in December. a) The put option purchased expires worthless (OTM), and the trader lets the option expire. b) The trader loses the premiums paid to enter the market. In this example, the trader's total loss equals $400, which is the maximum loss for this type of trade, independent of how high the market rallies. Advantages and Disadvantages in Buying Index Puts: Pluses: The upside in buying index puts is that traders can control their losses. They pay a premium when entering the market, which is the maximum that they can lose. Another benefit in using this method is that traders can gain unlimited profits for a limited amount of risk. Minuses: The only downside in buying index puts happens when the market rallies and the put option expires worthless. In this case, the trader would lose what he or she paid to enter the market.
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