Insider's Guide to Forex Trading

1. Insider'sGuideTo ForexTrading DiscoverAllOf The InsiderTechniques That The Pros Are Using With Great Success

2. LimitsofLiability / Disclaimer of Warranty: Theauthors ofthisinformation andtheaccompanying materials have used their best efforts in preparing this course. The authors make no representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the contents ofthiscourse.Theydisclaim anywarranties (expressed orimplied),merchantability, orfitnessfor any particular purpose. The authors shall in no event be held liable for any loss orotherdamages, including butnotlimited to special,incidental, consequential, or other damages. Thismanualcontainsinformationprotectedunder InternationalFederalCopyright lawsandTreaties.Any unauthorizedreprint oruseofthismaterial isstrictly prohibited.We actively search for copyright infringement and you will beprosecuted.

3. TableofContents Chapter 1: What The Stock Market Is All About…………………4 Chapter 2: Stock Market Trends…………………………………………12 Chapter 3: An Introduction To Forex………………………………….16 Chapter4:UnderstandingCurrencyConversion……………….21 Chapter5:UnderstandingStatistics…………………………………..26 Chapter6:Forex VolatilityAnd MarketExpectation………….30 Chapter 7: Aspects Of The Trade………………………………………..34 Chapter 8:Risk Management………………………………………………38 Chapter 9: “Buzz” Words…………………………………………………….43 Chapter 10: Expert Trading Options……………………………………48 Chapter11:OtherTradingOptions…………………………………….51 Chapter 12: In Review…………………………………………………………55 Chapter13:OneFinalOption………………………………………………60

4. Chapter1: What the Stock Market isAllAbout In anybusinessormoneymakingventure,preparationand foreknowledgearethekeystosuccess.Withoutthissortof insight,theattempttomake a profitablefinancialdecision can onlyendindisaster andfailure,regardlessofyour level of motivationanddeterminationortheamount ofmoney youplan toinvest. In the stock market, this rule applies to the nth degree, as you are investing your own money in what could be considered a highrisk wager,andyou areplaying withfire if youdo not haveat least a generalbackgroundknowledge of how it functions. Since having a background in any area is helpful inguiding youdownapathinthatparticular region, themoresolidyourbasisofinvestmentknowledgeis,the morelikely you aretoprofit fromany attempttotrade on the openmarket. Inmanyways,tradingonthestockmarketcanbe comparedtodriving–youdonothavetobeanexpertto get behindthewheelofa car,thoughyouareexpectedto have somepreviousknowledgeaboutbasic trafficlaws, includingmoving violations,safetyregulations,andother legal vehicular infractions, which are learned through either specificstudy andcoursework oreventhroughsomeformof

5. simpleexposure(suchastheyears you havespent riding with your parents andotherswhohavedrivenforyears). Youshouldbeabletocomprehendthebasictools usedto navigate a car (wherethebreakpedal islocated versus the gas, and how to use the rearview mirror, for example), even ifyou havenevertouched a steeringwheel. Thesameis trueinentering the world of thestock market. While you do nothavetoknowall theterminology(youwill not beshortsellingor determiningyour ownlongandshort positionsatfirst, so youdonothavetounderstandthese referencescompletely,thoughyoushouldbeawareof them),youshouldcertainlybeversedin thebasic functionality oftradingstocks,bonds,securities,andother commodities.Andjustlikesomeonewhoisbehindthe wheelofa carandgettingreadytotouchthegaspedalfor thefirsttime,youshouldstartoutwithcautionandwork your wayin slowly.A firsttimedriverwillfirstsetthe mirrors to his or her own liking, then put the car in gear, look for any interfering traffic, and ease onto the gas pedal, never flooring it and testing the engine coming out of the gate on thefirstattempt.Likewise, when youselectyour firstinvestment, you shouldchoosesomethingstable with little fluctuation and not invest a large sum of money on this first venture. When a person is learning to drive, he or she will be accompaniedbyanotherindividualwhoismore experienced

6. and can assisttheminmakingbetterdrivingdecisionsand offeringcorrectionsthatwillaidinlearningtohandlethecar moreefficiently.Inthestockmarket,thereare stockbrokersandotherexpertswhocangiveyouinput and advicetohelpyouinbuildingyourknowledgeof the commoditiesinwhichyouare interested,essentially “steering”you towardbetter stock marketbuyingandselling decisions. Youcouldspendhours andhoursresearchingthestock market anditsfunctionality,learning how tobecome involvedinthetradeandwhotocontacttoget in thegame, especially if your interest lies in the Foreign Exchange Market,whichgoesfar beyond thelevel of complication of the domesticstock market. However,in thisbook,you will findallthebasicinformationyou needtogetstarteddown thepathtotradingsuccess.Allofthelegworkandtough research hasbeendonefor you,collectingthedataand knowledge intoonesourcefromwhichyoucangainenough insighttomakeyoua successfultraderontheopenmarket. All you have to do is read in order to gain knowledge and wisdom,stepbystepthatwillbringyouto a heady levelof success.In thisebook,you willfindall such helpful information,allbrought together in one singlesourcefor easeof reference.

7. HowInvestmentWorks Any timeyouaregoingtobeputtingyourmoney intoa fund; it isagoodideatostart byunderstandingwhatyou are buying into.The stock market is a complicated entity, and doingminimalbusinessintradingrequiresa fairamount of basicknowledge,aswellastheunderstandingand acceptance of the high risk factor.The more you know in advance regarding the functionality of the system, the less likely it is that you will take a heavy hit, ending in devastatingloss. Firstof allandprobably mostimportant inthetrading business,youshouldunderstandwhat stocks actuallyare. When youbuy or sellastockon theopenmarket,you should keepinmindthatyouaredealingwithrealobjects, not pieces of paper;you arebuying andsellingrealpartsof a particular company,its product,or someothervarious commodity. Owning a “share” means that you have actually bought into the company or product involved and become a partial owner of thatcommodity.Of course,youcouldbeone of millions of shareholders,asmost companiesandproducts are broken into minute pieces of the whole, but you are still considered an investor in that company or product until you sellyourshares.

8. Thinkof itaspayingfora tank ofgasinthecarthat your parentsboughtforyoutodrive.You mayhaveevenbought theoilfilterthathas beenputonthecar,andyoumay feel thatthisinvestmentmakesyou partowner.However, when you look at theoverallcostof the car,youhave really contributedverylittletothat amount.However,aslongas you continuetoinvest inthegasforthecarandtakecareof themaintenance needs,youcanclaimpart ownership of the car. Because thevalueof a company anditsproductsorservices can fluctuatecontinuously,thevalueof thestocksyou hold will notbethesamefromday today and cansometimes even changehourly.When thepricepersharedrops andis consideredlow, itisan idealtimetopurchase. This is the leastexpensiveway tobeginyourtradingventure,and workingwith astockbrokerwillallow you togainmore informationastowhat stocks are ripe for thepurchase at anygiventime. In doingso,youbecomea stockholder,andthevalue of your holdingswillfluctuatefromday to day.Yourgamble (andhope!)isthat thevalueof thecompany orproductin whichyouhave investedwillincreaseor reboundfromthe lowpriceatwhichyoumadeyourpurchase.Thisisthegoal ofalltradersandmeans thatyourstockwillbecome more valuable.

9. As thevalueof yoursecuritiesincreases,sodoesyour net worth.When theprice of thestock in yourpossession reachesa highpoint, itistimetosell, makinga profiton your originalinvestment.Ideally, you willalwayssellyour holdings for a reasonably higher pricethanthepurchase amount and should never sell when the current value of the stockisbelowyourinitialpurchaseprice.Itisimportantto make surethatyou do not purposely take a netlossbecause there are plenty of occasions when you could be forced to take a loss. For example, if you purchase shares of a company at twenty dollarseach,youshouldneversellthemforeighteendollars apiece.If possible,youwant toholdoff untiltheyare each worthperhapsfortydollars,inessencedoublingyour money.Ofcourse,thisisjustanexample,andnotall stocks will ever double in value, but the illustration is meaningful. Thereareother, more complexwaystoinvest inthe stock market.However,muchlikelearningtoride a bicycle,you do not want tomakeyour firstattemptwithout training wheels. MakingDecisions In TheBeginning Let us returntodrivingasa reference.When you firststart driving,youwill not enterthe highway andtakethe carat

10. speeds of sixty and seventy milesperhour.Instead, you will stayin residentialareasoratleaston theaccessroad, wherethere islesspressuretomaintainsucha highspeed. In the stock market, you will also want to stay away from any expensivestocks orextremelyvolatile investments until you havebecomeextremelycomfortable withthe processof trading. Therearesmallinvestmentopportunitiesreferred toas “penny stocks”, whichwill help you try outyoursealegs and get a feelfor howthestock marketworkspriorto investing large sums ofmoney andriskingabigfinancial loss.These particular stockscostliterally penniesor smalldollar amounts and typically only fluctuate fractions of a cent on any givenday,makingthemextremelysafe forthosejust starting out. Once you get the hang of it and can better judge the market trends,youcancomfortablymoveon tomorecomplicated andadventurousareasofthemarket.Itislikeremoving thetrainingwheelsfromyourbicycleorenteringthe freeway thefirsttimeat an hourof theday whenthereisno traffic tocontendwith. Be aware that,justlike youmay falloff yourbikeonce or twice andend upwithsomescrapes andbruises,youmay lose moneyin an investmenthere and there.Thisis very typical, andinvestinginthestockmarketisalotlike

11. gambling.In poker,youcannotexpect towineveryhand, andthesame istrue intheworld ofinvestments.Learning towatchthemarkettrends,though, issimilartowatching other carsas youjointrafficanddeterminingthecorrect speedand proximity toothercars for optimalsafety.Such diligentstudycanhelpyouimproveyourstatistics drastically ina shorttime.

12. Chapter2: StockMarketTrends Understandingstock market trendscan makeyourjobof earningmoneyinthe marketmuchsimpler.In contrast, if you know little or nothing about these trends can cause seriousloss. BullsAndBears As you dig deeper into the market and learn more about the way it functions, you willbegintohearcertaintermsabout marketingtrendsthat seem tobe repeated overand over again.Markettrendsarevariableandvolatile,both on a daily basis andoverextendedperiods of time.Inthepast, for example,theUnitedStates hashaddevastating stock market crashes, butduetothefreedom of a capitalist society, the American economy has always eventually rebound. What does it mean for the market or a particular stock to rebound?Assuming that the value of a company or its stock hasplummetedtoalevelthatseemunrecoverable,leaving itpracticallyworthless,itmayfeelasthoughthatcompany is in danger of bankruptcy and falling off the scope of the free trademarketsaltogether.All ofasudden,however,the founder of that company may introduce a new product over whichconsumersgo wild.Everyonewantsone,andthis

13. product may be in short supply upon its introduction, causinga racetothe departmentstore shelves. When such a move occurs, the law of supply and demand willtakeover, making thecompany valuableonceagain. The stockpricefor thatcompany’s shareswillrecover,and theresultinggaininvaluewouldbeconsidereda rebound– areturn to theoriginalstatus(orbetter) prior tothe devastatingloss. Themarkettrendseitherupordown,andtherearespecific referencestostrongchanges inthemarketvalues thatyou mayfrequentlyhear.Ifseveraldifferentareasofthe market are in a steep downward slide, with values dropping rapidly (perhapseven tenortwenty percent ina fewdays), it is referred to as a bear market.You can remember this reference as thoughyouareintheextremely dangerous position of beingchasedbya bear – if you are inpossession of several stocks or other commodities worth a goodly sum, you havea seriouschanceoflosinga greatdealof value thatcouldtranslatetoaloss of networthshouldyou choose tosell,anditcanbe a similar,verydangeroussituation. Yourbestbetinthesecasesistoeither sellbefore prices dropbelowyouroriginalpurchasepriceortoholdonto the shares untilthemarketrebounds.However, whenthebear market reachesa lowpoint,it canbe anidealtimetoget intothegame,as itisrare forpricesto drop belowthis

14. point.Then, if youpatiently awaitthe recoveryorrebound of themarket,youcanmake a greatdeal of money froma bear market.Theseoptionswillbediscussedinmoredepth inlaterchapters. At the sametime,a bullmarketisastronggeneral upward trendfor many stocks.Youmightcomparethistothe running of the bulls in Pamplona, Spain, every year.You are safer if you are indoors when the running occurs, and by the sametoken,ifyouownstockduringabullmarket,youare in a primepositiontoincreaseyournetworthandsellyour shares,making agreat dealofmoney.Thisis another idea willbefurther explored ingreater detailfurtheroninthis ebook. TheMarketOutlook Bytakingnoteofvariouschanges inthestatusof different availablestock options,youwilllearnhowtospotearly market trends,givingyoua cluetothefutureofaparticular commodity, and this can only add to your chances for profitability.Prediction is a big part of the game when workingin thestock market,sinceyoucan neverbe completelycertaininwhatdirectionthemarketwillswingat anygiventime. However,youcanmakeaneducatedguess,muchthesame way a meteorologistforecasts theweather.Whilehe or she

15. is notright100%of thetime,the forecastis usually quite close totheactualoutcome of the weatherbecausethe meteorologistisascientistwhohasstudiedweathertrends and can pick outdetailsthatassistinmakingthateducated guess.With alittletimeand seasoning,youcanattainthe same level of experience and intuition within the stock market. Onceyou havebecomemorecomfortablefunctioninginthe sameworldasthestockbrokersanddaytraders,and you feel confident (or at least less nervous or awkward) making suchimportant financialdecisions,youmaydecide to make your movetowardtheForeignExchange Market(more commonly knownasForex),andthegoalof thisbook isto prepare you to operate within the boundaries of this more complexentity.Next,wewilldiscusssomeofthe properties of Forex and how much more complex this stock market entity canbethan a standard domesticmarket. The Foreign Exchange Market is incredibly volatile, and there are a lot more factors to consider when placing an order on this market than on a domestic market.The following chapterisanintroductiontothe excitingandsomewhat scary world of theForeignExchangeMarket,or Forex.

16. Chapter3: AnIntroductionto Forex Forex is the nickname for the Foreign Exchange Market.In theUnitedStates,thereareseveralbranches of the stock market,eachwiththeirownname.Forinstance, some stocks tradeonthe DowJones,othersonNasdaq.Of course,allstock market transactionsin theUnited States take place ontheNewYork StockExchange(NYSE).In other countriesthesameistrue.Theremay beone ormore distinct markets. However,internationaltradetakesplaceon the market termedtheForeignExchangeMarket, or Forex.Several countriesacrosstheworldinalmosteverytimezone participateintradeon Forex, withmultiplecurrenciesbeing utilized andstocks andcommoditiesfromallparticipating countriesbeingofferedfortrade.Becausethereareso many nationsandtimezonesinvolved,Forexdoesnot function as a “business day” entity like most domestic stock markets.It remains open for trade 24 hours a day, 5 days a week. Of course,theseadditionalhoursincreasetherisk factor intensely for those of us who are human and obviously cannot monitorourinvestments24 hoursa day.Thismeans that the value ofyour holdings couldpotentially plummet

17. overnight, while yousleep, becauseothercountriesarestill trading while you are in a dream world.Again, it is like a car– therearemany movingpiecesunderthehood,and just because youcannot seethemdoesnotmeantheyare notfunctioning. Thisisonereasonforseveralsafetyoptions, likelimit orders, which we will discuss later.This is also why it is strongly recommendedthatyourfirstattemptstomake money onthestock market arenot transactions that take place within the Foreign Exchange Market but on a standard nine-to-fivedomestictradingmarket.In ourcaranalogy, thiswouldbecomparabletohaving askedsomeonewhohas neverdrivenorevenchangedtheoil in a cartorebuildthe engine. ForexFunctionality While the functionality of Forex is the same as a domestic stock exchange, the commodities and prices are more volatile,and there are additionalfactorsto takeinto considerationsbesidesthetypicalrisksassociated witha domesticmarket.Youwillhavetocontendwithnotonlythe value ofyourstocks andyour currency,butalsotheforeign currencies involved in any trades or exchanges on Forex, as wellasthe inconsistenciesof valuesofparticulargoodsand servicesacrossinternationalborders.Itislikedrivingacar with a standardtransmissionasopposedto an automatic.

18. On the domestic front, the work is mostly done for you, and allyouhavetodoisnavigate,muchlikean automatic transmission.However, shifting gears is quite similar to having to constantly take part in the currency conversion. It can bedistracting,andit certainly complicatesthe actof driving. Because the financial situation of many countries is not as secure as that oftheUnitedStates,thiscanposea formidableproblem indeterminingwheretoinvestyour moneyandwhattoexpectnextinthe internationalmarket. KnowingwhatcountriesandcurrenciesareinvolvedinForex canassistyoubyallowingyoutomorecloselymonitorthe financial situation in thenationswithwhichyouwillbe interacting. TheHistoryOf Forex When foreigntradebegan, it wasnot an internationaltrade market.ItwasborneoutoftheBrettonWoodsagreement in1944,whichset forth thatforeigncurrencies wouldbe fixed againstthe dollar, whichwas valuedat$35perounce of gold.Thisprecedentwasfirstputintopracticein 1967, when a bank in Chicago refused to fund a loan to a professor in sterlingpound.Of course,hisintentionwasto sellthe currency,whichhefeltwaspricedtoohighagainstthe dollar,thenbuyitbacklaterwhenthevaluehaddeclined, turning a quick profit.

19. After1971,whenthedollar wasnolongerconvertibleto gold and thedomesticmarketwas stronger,theBretton Woods agreementwasabandoned,and thecurrency conversionprocessbecamemore variable.Thisallowed for a stronger backing in the foreign markets, and the United States andEuropebegan a strong traderelationship.In the 1980s,themarket hoursandusagewasextended through the use of computers and technologytoincludetheAsian timezonesaswell.At thistime,foreign exchange equaled about $70billiona day.Today,abouttwentyyearslater, thetrade levelhas skyrocketed, withtradeequalingcloseto $1.5trilliondaily. Originally,tradingacrossinternationallineswasmore difficult, withseveraldifferentcurrenciesinvolved across Europe.Thoughthe majorplayers in theEuropean market weredeeplyinvolvedinandveterans of internationaltrade bythetimeothermarketsjoined in,there were more currencies tokeeptrack of – thefranc,thepound, thelira, and many more– thanwasreasonable.Withthe birthof theEuropeanUnionin 1992,thewheels weresetin motion tocreatea single currency thatwouldbeusedacrossmost of Europe,andtheEurowasfinally establishedandputinto circulationin 1999. ForexToday

20. While somecountries havestillnotacceptedthe currency as theirown(suchas Britain,whostillusesthesterlingpound), the processofcurrency conversionhasbeensimplified withoutthelargenumber of variouscurrenciesthatwere previouslydealtwith.Insteadofdozens of currencies,the maincountriestrade infive–U.S.dollars,Australiandollars, Britishpoundssterling,theEuro, and theJapaneseYen. Today,the ForeignExchangeMarketisinternationaland worldwide.The market is open 24 hours a day, 5 days a week,to accommodate allof thetimezones for allofthe majorplayers.These now include mostofEurope,the UnitedStates,andAsian markets, especially Japan.Even Australia has joinedtheinternationaltradingmarkets,and since suchnations are halfway aroundtheworld from some of theothertopplayers,timezonesobviously mustbetaken intoconsideration. Another completely separate but perhaps more important concern withtradinginForexisunderstandinghowtrade worksinmultiple currencies.Howcanyoucomparethe value ofa stockacrossinternational lines if thevaluesare expressedintwoseparate,non-equivalentcurrencies?And how do you measure gains and losses when conversion rate is constantly changing?

21. Chapter4: Understanding CurrencyConversion When youbegintrading on Forex, youhave tolearn how to convert currencies and notethedifferencein values,aswell ashow currenciesare exchanged betweeninternational lines.Thismeans studying notonlydomesticmarkettrends andcurrency values,butalso those of foreignmarkets. WorkingWithMultipleCurrencies Since ForexistheForeignExchangeMarket,youobviously cannotexpect everyonewithinthemarkettotradeinU.S. dollars(andwhynot, youmightask?– butrememberthat not everyone covets the U.S. dollar).With so many variablesand volatilecurrenciesbeingexchanged,howcan you know a good buy or sell when you see one without completeawarenessof thevalueof foreigncurrency? Thefirststep istofinda sourcethatwillgiveyou a basic ideaof thecurrentexchangerate betweenyourdomestic currencyandtheforeigncurrencyinquestion.Youshould do this as a base listing for any currency that with which you mightbecomeinvolved.Ofcourse,thiswillnotbe consistent down to the cent or fraction of a particular currency throughout an entirebusinessday,but atleastyou

22. will haveyourstartingpointfrom whichtobegin, almostlike North ona compass.Suchsources can befoundalloverthe Internet,aswell as throughmanybrokers,both onlineand in person. CurrencyExpression It is also good to understand the means be which the currency conversion isexpressed.Thecomparison isusually madein a ratioknown as thecross-rate.In this configuration, the two currencies are listed in an XXX/YYY ratio,withtheXXXpositionreferredto as thebasecurrency. The basecurrency is usually expressed as a wholenumber, whiletheYYYpositionisexpressedasthedecimal thatmost closely matches the based currency rate.It is sort of like makingreferencetomilespergallonorrotationsperminute onacar–adirectcomparisonof onetotheotherinthe formofa ratio. Thesmallestfraction,ordecimal,inwhicha currency can be traded, is called a pip and this is usually the degree to which a cross-rate isexpressed.Forexample, if theBritishpound sterling can be traded in thousandths, the currency will be expressedtothethirddecimalplace.TheU.S.dollaris often expressedtothehundredthof acent (thefourth decimalplace).

23. In one cross-rate expression example, one U.S. dollar may beequivalentto117.456 Japaneseyen.Thisratiowouldbe expressed as1.000/117.456.Thebasecurrencyisalmost alwaysexpressedasa single unit(as inonedollaras opposedto tendollars), and frequently thatunit of measurement is the U.S. dollar. Since the whole number value(orbigfigure,asitisreferredto) ofthe secondary currency, or the currency in the YYY position in terms of conversionchangessoinfrequently,often onlythedecimal portionof thenumberismentioned intheForeign Exchange Market. Therefore,inthe ratioabove,youmayhear thatthe yenis tradingat.456, withnomentionat allof the117wholeyen that isshownintheratio.Thisisbecausethe exchangerate may vary from117.456to117.423,but not to119.024. Experiencing achange inthebigfigure– thewholenumber ahead of the decimal – unless it was only because the number was already within a few thousandths, would representmuchtoolargea shiftinvaluefora singletrading periodandwould bea rareoccurrencethatcouldcausethe entire market to make a drastic swing in one direction or the other. ThemostcommoncurrenciesfoundinForexaretheU.S. dollar,theBritishpoundsterling,theEuro,theJapanese yen,andtheAustraliandollar.Inthepast,there would have beenmanymore currenciestokeeptrack of (suchas

24. thefranc,thelira,ortheDeutschmark).However,withthe consolidation ofmost of theEuropean markettrading on Forex totheEuro, many currencieshavebeeneliminated, making trade onForexfor otherlandsless complicated. If youpurchase a commodityinaparticularcurrency,and thatcurrency’svaluefallsagainsttheU.S.dollar,you can actually make money by selling that same commodity in dollars.Thesameistrue inreverseshouldthevalueofa foreigncurrencyincreaseagainsta U.S.dollar.Ofcourse, youcan only takeadvantage ofsuch a situationshouldthe commoditybetraded inbothcurrenciesandbothmarketsin question.Wewilldiscussthisprocess,aswellasotherways totakeadvantage ofthe ForeignExchange Market(like arbitrage)inmoredepthin futurechapters. Once you areabletodiscerna basevalueofeachparticular currency and its conversion rate against others traded on Forex, youwillbeabletomore closely monitorthechangein currency conversion,includingitsinconsistencyand volatility.Suchideaswill not seemso “foreign”,andyou will becaughtupandknowledgeable rightalongwiththepros. Then,youwillneedtolearn howtoread,understand,and ultimately interpretadditionalmarkettrends. ForexTrending

25. Followingcharts,listeningtothe adviceofmarket analysts and chartists,andlearningto make educatedpredictions yourselfwillhelp youkeeptrackof variousmarketing trends.The nextchapterwillexplainmoreaboutusingthe statisticsthatare publishedto forecast thenextmove on the stockmarket.Will it be a clear,calmdaywithlittle activity,oris therea stormbrewingwithwinds ofchange and uncertainty?Howcanyoutellwhatwillhappenwith your holdingsthefollowingday or evenfurtherintothe future? Simply learning to read market trends can remove a lot of naturalapprehensionanduncertainty forbeginningtraders. Infact, sometimesthebestfirststeptoenteringthemarket is towatchshowsaboutit or readthefinancialsections of thenewspaperthatdetailthetrends andexpected outcomes.The following chapter will explain more about how tointerpretthe statisticsandbasic trends. CARBONTRADE https://carbontradebazar.com/

26. Chapter5: Understanding Statistics Youhavenowbecomesomewhatfamiliarwithhowthestock market works, and you understand to a point what is involvedintradingontheForeignExchange Market.Now, you wouldliketoknowhowtogaugemarkettrendsinorder toprofitfromyourbusinessventures ontheopenmarket. Weare nolonger discussingpenny stocksandplayground games.You want the real goods. Thenameofthegame isstatistics,and thefirstruleis that youmustbeawarethere is nosuchthingasasurethingon the stock market.While you can never be 100% sure at any giventimeof the next movethatwillbe madeonthemarket asa whole,beingabletoreadstatistics andinterpretthem will place youaheadof thepackinregardsto“guessing” whatwillhappennext. Investing is a lot like gambling. If you can keep track of the cards thathave already beenplayed,youaremore informed, statistically, regarding what is likely to be dealt next,meaningyoucanplaceabetwithgreater insightthan someonewhohas no cluewhat has already beenplayed. Withthe openmarket, if youhaveinformationastowhat hasalready occurredoverthepast fewdays,months,or even years,youare againplaced in a betterpositionto

27. more logically conclude what will happen next.You simply learn thepatternand followit totheend,reapingthe financialrewards. ChartsAndChartists Wait,did you think youweregoingto have to research and mapoutthemarket’spast allbyyourself?Ofcoursenot! Therearepeoplewhogetpaidtodo that sortofwork.They monitorthemarkethourly,daily,weekly,monthly,and yearly so thattheycanprovidebig-timetraderswiththe sameknowledgementionedbefore.Themorean investmentcompany knowsaboutthemarket,themore money they can make.The same is true for stockbrokers. They makemoney whenyoumake money, andtheywantto do the best they can to make sure that you make intelligent decisions. Thebestpart ofthisisthat youhave accessto the same informationastheseVIPclients.Chartists,whoare essentially market analysts that publish their findings in easy toreadcharts,producewhat isreferredto asa candlestickchart.Thesechartsarebasicallyacombination ofa linegraphand a bargraphthat show thetrend of variousstocks,indexes,orotherinterestsoveraspecified periodof time.Therefore,youcaneasily determine if the commodity is on an uptrend or if it is taking a downturn, when thelastmajor changeoccurred,and howlong itis

28. predictedthatthestock orbondwillcontinueonthecurrent path. You can actually find information on most commodities and theirmarkettrendsfor yearsin thepast,andsome evenall thewaybacktotheirintroductiontotheopen market. Using this information can help you decide whether it is a goodideato buyorsellthestocksorsecuritiesinwhichyou have interest, or if it is better to hold off for a peak in the market trend. UnderstandingMarket Trends Understandably,as economiesvary,thevalueofvarious commoditiescanchange.Thisisbecause,whenan economy is strong and flourishing, a nation is wealthier and has morepurchasingpower.Alongwiththatpowercomesa higher value for the items purchased. In other words, if people have more money to spend and are spending a greateramountof thatmoneyatWalmart stores, thevalue of stock at Walmart is going to multiply at a considerable rate.Therefore, stockholdersbecome wealthierintermsof assets,simply becausetheshoppersaredrivingthemarket with theirpurchasingpower. When stockholdersare wealthy,and the value of theirholdingsis on therise,they continue topurchasestock,whichagain,pumpsthe economy.Astrong upward trendinthe stockmarketis an excellent signforanyeconomy.

29. However,therearealsothingsthat affect themarketin a negative fashion, causing stock valuesto plummet. For example,warfare rarely has a positiveeffect on the stock market.On September11,2001,whenterroristsattacked theWorldTradeCenterinNewYorkCity,theeconomyof the United States took a huge dive, and the nation was threatened with adepression.Someanalysts weresurethat itwouldnever properlyrecover.Thesamethingtypically happens any time there is an attack or act of war within a nation.However,thecriticsprovedto bewrong, and the UnitedStates proceededtorebound,orrecoverfromabad downtrend,inastrongmanner.Thisquickrecovery occurredmostlybecausethepeopleof theUnitedStates continuedtopushandspend,forcingmoneyandwealth backintotheeconomy.Inwatchingthereactionofthe stock market,youcanlearntoreadtrendsbased on world events. Oilprices commonly affectthestock market,aswell. Especially ontheForeignExchangeMarket,youwillfind trendsvarydepending onmany currentevents.Youwill alsonotethat,overtime,theprinciplevalue(orfacevalue) of a currency may purposely be revised by a nation in terms of currency conversion.Thisisreferredto as devaluation, whichwillbe discussed ingreater detail inthefollowing chapter.

30. Chapter6: ForexVolatilityand MarketExpectation Volatility,orthe tendency forfluctuationthatcanaffectyour earningswithinthestockmarket,istypicalwithina domesticmarketbutevenmoreevidentandmuchstronger on the ForeignExchangeMarket.What factors affectthe valueofcurrencyon Forex,andis thereanywaytocontrol this? Devaluation AndRevaluation As mentionedinthepreviouschapter,devaluationrefersto thepurposefuldeclinein value ofacurrency inrelationto other currencies as charged by a government entity.For example, if the U. S. dollar is worth ten units of a foreign currency thatisthendevalued bytenpercent,the U.S. dollaris nowequivalenttoonly nineunits of theforeign currency.This makes any items purchased in the foreign currencymoreexpensive forthosetradinginU.S.dollars, as the exchange rate is lowered. It also makes items in the foreigncountrylessexpensivetotrade inU.S.dollars. An oppositechange invalue can alsooccur,raising thevalue of theforeigncurrency.Thisisreferredto as revaluation. Whileitmay seemthatpurposelyadjustingthevalue ofa nation’scurrencyis“cheating”,ortakinganunfair

31. advantagebymakingforeignproductscheapertopurchase and increasingthevalueofexports,thereareregulationsin placetoprevent themanipulationof exchangeratesforsuch purposes.Thecharterof theIMF(International Monetary Fund)assistsin prohibitingsuch occurrencesandenforcing the policy. There are ways in which you can take advantage of devaluationandrevaluation,whichwillbediscussedlater on.However,whathappenswhenthevalueof a foreign currency changesduetomarket fluctuationratherthan purposefulreductionsor increasesbyafederalgovernment or federalbank?Whateffect do appreciationand depreciationhave on thestockmarket? AppreciationAndDepreciation Depreciationcanbeeasilyrelated to thelifeof acar.As soon as youdrive a newcar offthelot, thevalueis almost cut inhalf.This isextreme depreciation.However,overthe next fewyears,the car continuestolosevalueata more gradualpace.Thisisconsideredtobedepreciationaswell. Currencyappreciationanddepreciationarechangesinthe value ofthecurrencythat aredrivenby marketforcesrather thanbygovernmentmandate.Forexample,inanattempt to repay certainloans, in 1998theCentralBankofRussia announced thecomingdevaluation of theruble.The

32. exchangerate,whichwascurrently six rubles perU.S. dollar, wouldovera periodoftimechangeto9.5rublesper dollar,effectivelya depreciationof 34%. However,priortothechange,there wasa widespreadpanic withintheformer Communistnation, and thevalueof the ruble dropped due to many people in Russia opting to trade in theirsecuritiespriortomaturity.Ina singleday, followingtheannouncement,the Russian rublewas depreciated by anamazing25%. Thesamesortofcrisisoccurredinthe 1920’swiththe crash of the U.S. stock market.In that time, a nationwide panic setin,andpeoplerushedtothebankstowithdraw cashthat was not available or totradeinsecuritiesandstock options thatwere notmatured.In runningto thebank,people actuallycausedthe crashrather than escapedit. Ontheflipsideofthecoin,toofastofanappreciation sets up acountry forinflation,or anincreasein the retailvalue of products soldtothepublicbasedon currency valuation. While inflation is bound to occur, it can be minimally temperedthrough the use of the currencyvaluation. Appreciationcanberelatedto avehicleaswell.Often, men enjoy takingoldcarsand restoringthemtotheiroriginal beauty.Indoing so; theydrasticallyincreasethe valueof the vehicle or appreciate it.

33. Theeverchangingratesofcurrencyconversionandvolatility ofthemarketcreateaninherentmarketrisk,oradayto day potential to experience loss due to fluctuation in securitiesprices.Thereisno waytodiversifythis typeof risk,asitisalwaysgoingtoaffect investmentto acertain degree.However,someriskcanbeoffsetbyparticular types of investments or ways of investing that are more secure or protected. Wewilltakealook at longand shortpositions,shortselling, stop orders, and other ways to protect your investments from drastic loss in additional chapters.These options includetheability to preset yourpurchase or sell pricefor a specificcommodity,aswellasusingvariouspredetermine orderlevelsto place ordersandcompletetransactions. Of course,do notdeludeyourselfintothinkingthatyoucan rid yourself ofallpossiblerisk factorson the market.There is always acloudhangingoveryour headwaitingtoburst, and all it takes is one little pinprick.You must always exercisecaution, thoughtheideaof playingthestock market entailsdangerand excitementinherently.Thenext chapter will help you get a grasp on reality and what is involvedin balancing yourrisk factorwithagroundingin reality; youregowith yourid.

34. Chapter7: AspectsOfTheTrade Youarenowversed inthefunctionality of thestock market and havedecidedthatyouarewillingtoaccepttherisk factorsinvolved.However,youwanttoknoweverything you can about balancingthatriskwith intelligentinvestment options.Howcanyoubesurethat therisks you takeare more likelytoberewardinginthelongrunthan destructive? LongandShort One of the most important parts of making money on the stock market istodetermine yourposition.Thelong positionisbasically thepurchasingposition– youare about totakeonalong-termcommitmentforownershipof some stock, security,or other tradedcommodity.The short position,by contrast,isthesellingposition– youareshortly going to dispose of the same sort of ownership and any responsibilitytowardit. The best time to take up the long position is when stock prices are low. This will get you into the market at a reasonablepriceandincreaseyourchancesfor profitability asnewofferingsgo upinpriceand older investmentoptions recoverorrebound.In fact,asotherstakethe longposition andpurchaseatthesametimeyoudo,thiswillactually drivethevalueofsecuritiesupthroughthestandardrule of

35. supplyanddemand,causingthebeginning of whatcould be abull market. You may equate this with the end of the month at a car dealership.Thepricestendtodroponanycarsleft onthe lot for sale, and the dealer is more often willing to bargain because he or she wants less inventory on the lot.Likewise, when stock prices are low, some will panic and dump all of theirholdingsatthese lowprices,thinkingthattheirshares willneverrecoverthevalue.This canonlybe of assistance to you. When prices are high, it is likely time to turn around and sell your sharestobringina profit,notlosinganythingon unrealizedgain(profitthatcannotbecountedinliquid assets or cash because it is still invested in a volatile stock option).Youshouldneversellfor a pricethatisbelowyour cost, asthisbringsnegativeequity and loss of funds.You should alwayssellfor thegreatestamount of profitthatyou feelis safe. Inotherwords,ifyoubuy a security atfifteendollarsper share,anditquicklyrisestotwenty-five dollarsper share, you may verywellfeelthat itcouldhitthirtydollarsper sharewithin a week.However,youmustdetermineifyou are willingtorisklosingyouralready secured earnings of ten dollarspershare towaitthatlong,shouldthepriceactually fall,so youmay decidetosellatthecurrenthighprice.

36. Market-Makers AndSelling Short What if the stock values are up incredibly high, but you did notgetinonthatparticularcommodity andownnoshares? Yourfirststepshouldbetovisit amarket-maker or to make a dealwithabroker for a shortsell.A market-makeris literally a stockbrokerwhopurchaseskeepsa certain amountof shares of severalsecurities or stockson hand, whicharepurchasedduring a timewhenthemarketrates arelow. Thefirmwillthenturnaroundandsellthosesharestoan individualatthat lowprice,regardlessof themarketrate, in effect making its own market (thus the name).The individualwhopurchasesfrom the firmcanimmediately sell thecommodities onthe open marketatmarketrate(which is higher), making an incredible amount of profit in a short periodof time. A short sell is another option for a quick profit. In this scenario,youwillborrowa particularnumberofsharesfrom astockbroker tosellwhenthemarketvalueishigh.Your jobistothenwaitforthestock pricetogodown,purchase thesamequantity ofstock, andreturntheholdingsto the broker,keepingtheprofitfromthesale,minusthebroker fees.

37. The way that a car dealer works with trade-ins is very similar.They will purchase the car from you at a very low price, then turn around and sell it on the lot for a high profit margin. One of the mostpositiveaspects ofashort sellis thatyou never actuallytakepossessionofthestock,meaningthat you are never in a position to lose money.Because you have sold shares for a high price, you have already profited, andinthe worst-casescenario,theparticularstockswillnot dropinprice.Ratherthanreturnthestocks tothe broker from whomtheywereborrowed,you can simplypay back theamountfor whichtheywereoriginallypurchased,along with thepremium. Howcanyoubesure thatyouwill notovershoot thebest price options or miss a good rate because you are unavailabletoplacea buyorderorsellorderwithyour broker?Istherea way to setlimitson yourtrades?Next, wewilldiscusswaystoprotectyourinvestmentsandlimit yourrisk factors.

38. Chapter8: RiskManagement One of the most important aspects of protecting your investmentsisbalancingyour riskswithreassurances. Thereareseveralways todo this,and wewilldiscussthose inthischapter. Limit Orders AndBalancing Risks A limitorder isastanding amountatwhichyouhaveagreed tobuy orsella particularsecurityorothercommodity.For instance,youhavedesignatedtoyour stockbrokerthatyou will not sell X Security until its value reaches a minimum value of Y dollars.Atthesametime,youwillnotpurchase the same X Security if it exceeds a value of Z.Setting limits for thepriceyoupay for a particularsecurity,aswellasthe priceyouwillaccepttosellit,protectsyou andyour investmentin severalways. Firstof all,youaremaximizingyourgains,but mostly,you are avoiding loss. Any loss that occurs with limit orders will alwaysbeunrealizedloss,oralossthatis not measurable in liquidassetsorcash.Inotherwords,untilyousellthestock and reapthenet loss,itwillnot affectyournetworth.Since youhave seta limitthatdoesnotallowyour commoditiesto be sold for less than the original cost, you cannot possibly have a lossin your networth.Atthesametime,youare

39. also assuringatleastacertainamount of profitby setting your sellpointhighenoughtoreapthatparticularprofit. Anotherwaytoprotectyourassetsistohedge.Thismeans thatyoucreateandsella futures contractstatingthat,when your sharesreacha certainvalue inthefuture,youwillsell yourholdingsatthispredeterminedprice.Whenthatprice is reached,theorderwillbe processedandthetransaction completed.Of course, if youeverchangeyourmindabouta limit thatyouhaveset,youcanplace a stop order withyour broker,whichdesignatesthat youno longerwishtotradeat the specifieddollaramount. Youcanalsobuyon margin.This is verysimilartoshort selling,butinstead of borrowingstocks tosell,youare essentially borrowing money to purchase stocks on your own whenthemarketvalueisdown.Then,whenthevalueof thesecuritiesyouhavepurchased risesandyou areableto sellforaprofit,yourepaytheloanandkeeptheexcess from thesell,minusthebrokerfees.Ofcourse,alldealings with a stockbrokerincur apremium,orfeeforservices rendered,anditisnearlyimpossibletotradewithouta brokerorbroker service.However,onlineservicesareoften less expensivethan live agents,butyoucanresearchto determine whatyour bestoptionis. How DoIHandleaWhipsaw?

40. No, we are not referring to anything in the garage, the bedroom,oracountryband.Awhipsawismarkettrend thatdefiestheodds.It canbethought of asthe“fender bender”.Despitehow carefulyouareasyoulearntodrivea carandbecome coordinated,sometimesyou cannotdo anything to avoidbeingrear-ended. Whipsawis a term for whathappenswheneverythingpoints toward a specific directionin markettrend,causingyou to buy (ifitlooksasthoughpricesaregoing torise)orsell(ifit seemstheyareabouttofall),thentheoppositeeffect occurs. For example,ifyou purchasea security atfivedollarsper share becausethestock seemstohavefallenasfarasitcan go and appearstobestarting anupward trend,then unexpectedly,thestock plummetsto onedollarpershare, thisisconsidered a whipsaweffect.If thishappensto you, as it surely will if you play the market long enough, the best thingto doiswait it out.Thestockwill do oneof twothings –it willeitherdissolveentirely,andthe companywillgo bankrupt (this is what you do not want to happen), or it will rebound, and you can opt to wait for a chance to turn a profit or you can get out as soon as the purchase rate is reached. Whipsawsarenot the end of theworld,and noone can expect togainwith everystockmarketpurchase.However,

41. ifyou findthatyouareinvolvedinseveral of these instances,youshouldseriouslyreconsideryour investment options.Youmaybereadingthesignsincorrectly,oryou could bepickingbadstocks.Youshould seekadvicefor any future investmentsyouexpecttomakepriortopurchasing anyfurther stocks or securities. Anotherwaytooverturna bad investment likethis isto proceedwithanoffset transaction– a purchaseorsellthat offsets the loss ofa previoustransaction.Youcouldeither purchase additional stock in the same company at the lower priceif youexpectit torecover,oryou canopt for another hot commodity that is about to explode in price, either of whichwill help you offset yourloss.Youcouldalsosell shares of a security in which you have a large amount of unrealized gain – gain that cannot be measured in liquid assets orcash duetoincreaseinvalueof stock andsecurity holdings–in ordertoreplacethelostcash value. All of these are viable options to recover a loss, but waiting for the share value to rebound is always the first choice. It avoids the loss of funds already invested, retains the option to pursue profit, and reduces the risk of further investment intothemarket. As you grow and learn about these various options, you will need to feel more comfortable when surrounded by financial gurus andgeekswhospeak whatsoundslikegibberish,

42. muttering words you have never heard left and right.The following chapterwilltake you throughsomeofthe meanings of themajor“buzz”wordsused in the stock marketandtheinternationalfinancial district.

43. Chapter9: BuzzWords Nowthatyouknowalittlemoreaboutthestockmarket, and youhavedecidedto try yourhand atinvestment, you shouldbe more concernedwith understandingthe jargon youwillhear on thetradingroomfloor. Althoughyou probably will not find yourself amid a group of screaming stockbrokers on Wall Street (and these days, most of the tradingisdone by computeranyway),knowingthatlearning to talk thetalkispart of walkingthewalk. Margins,Spreads,AndOther Condiments Okay, so it is margins, not margarines, but it sounds very similar.In order to understand the stock market, especially on Forex,youneedto speak nota languagemeant for common communication,butthelanguageof trade.For instance,whenyouthink of a margin,formany thismeansa variable –like the“marginoferror”in a statistic. However, in trade, it refers to the sum of money borrowed from a broker in order to purchase stocks when the market is on a downtrend.Then,whenthevaluebeginsitsnext upswing,yousellthestock at the higher price,paybackthe margin (along with the premium accrued), and retain the profit.

44. When you buy on margin, the money lent by the stockbroker is referred to as a margin account.The margin account is provisionalbased on thevalue of thestock.Occasionally,if thevalueofthestockspurchasedshoulddroptoolowfor the safetymargin set forthbythebroker,theagentwill request that more money be deposited into the margin account to make up for loss.This is referred to as a margin call. Insometrades,themarketvalue doesnotcome intoplay. For instance,a forwardtradeisset up betweentwo individuals or twocompaniesoutsidethe open market.It involves a process of negotiationand an eventual compromise inprice.There isusually abidmade– theoffer tobuy a commodityata certainprice– andan askingprice or offer – the price for which the other business entity is willingtosellthe securitiesor otherholdings.Thedifference betweenthesetwopurchasenumbers isreferredto as the spread. If thespreadcannotbenarrowed andeventuallyclosed,no dealcanbemade.Thisagreed-uponpriceis calledthe forwardprice,andalldetailsinvolvedinthetradeprocess when this typeoftransactiontakesplaceare detailedina contract andreferredtoasforwardpoints.Usually,the forwardpriceisoutlinedasavailable fora particulardate, and shouldthetransactionnot be completedon thisdate

45. (referredtoasthetransactiondate),thenthetrademustbe renegotiated. Jobbers,Yards, And Other“Brit”Terms Oneof themajorforeignmarkets thatAmericanstrading on Forex will encounter is thatofthe British.Whileseveral other terms relating to the stock market will be similar because ofthecommonlanguage,thereare some specific termsthatareverydifferentin theBritishtrading vocabulary. For example, in theUnitedStates,stockbrokerswhohold onto securitiespurchasedatlowpricesforthepurposeof sellingthemtoclientsina higher pricedmarket(sothatthe client canturnaroundandresellthemfortheprofit on the open market) are called market-makers.However, in Britain,thistype of investorissimplyreferredto asa “jobber”. Anothertermyouwillwanttobefamiliarwithis“yard”. This does not refer to a green patch of land, a measurement ininches,oreven36 of something.Thetermisusedin referencetoquantity of currencyrather thanvalueandis equivalenttoonemillion units of thecurrencyinquestion. Inotherwords,youcanhavea yardof dollarsor ayard of yen,andthoughitisthesamequantity ofbills,coins, or

46. whateverphysicalcurrencyisused,itisnotnecessarily equivalentinvalue. InBritain,theydo notuse theEuro, and they do not use the U.S.dollar.Theyhave chosentostillusethepound sterling,a currency thathasbeen usedinthecountry for hundreds of years.However, Britain is currently on a path to maketheconversiontotheEurowithinthenext five years. OpenAndShut In the stockmarket, therearevarioustypes of ordersthat can be placed to help protect you from making a bad investment or to limit the amount you pay for a certain securityorothercommodity.Forinstance,ifyouhave madea badinvestment and do notwant toreinvest in a particular security,you shouldsellallshares ofthatstock, regardlessof takingona smallloss.Thisactionisreferred toasclosingaposition.Onthecontrary,if youaredoing wellwithyour investment,youmight participate ina rollover,simplyreinvesting any earningsin additionalshares ofthe stockor security. Anopenorder isexactlywhatitsoundslike,meaningthat theorderremainspendinguntilitiseitherexecutedby your stockbroker orcanceledby youastheclient.A stop order wouldcancelanypendingorders youhaveplacedwithyour

47. stockbroker.You also have options like One Cancels the OtherOrders.Theseallow you tohaveinterestinseveral commodities, leaving orders with your stockbroker to buy all of them,shouldtheydropto a certainprice.Then, should oneofthosereachthispresetlowprice,yourstockbroker willfollowyourdirectionand invest yourmoneyinthat particularsecurity,followedbyacancellationofalladditional orders. When abrokergivesyouanestimate on thepricefor a particular stockorcommodity, itisconsidereda quote.A quote isnevercompletelyaccurateandisusually referredto asaspotprice,asthevalue ofa securitycanchangewithin afewseconds.However, itisasclosetoaccurate ascanbe expected.Whenyouputin anorder,thebrokerthen processesthefill, orcompletion, of thatorder.Theactual value at whichthetradeiscompleted is calledthefillprice. Thecompletionofa trade orpurchase, referred toas a settlement,can alsobecalledtheexecutionof atransaction or realization of an order.As you see, there are a lot of termstotakeintoconsideration, andwehave noteven beguntoconsidertermsusedinsome of thetougher areas ofthemarket. Next,wewillconsidersomespecialized,morecomplex tradingoptionsthatyoucanuse on Forexto take advantage of thevolatilityofthemarketand theconstantlyvarying exchange rates.

48. Chapter10: Expert Trading Options After spending a lot of time buying and trading on both domestic andforeignmarkets,youwillfindthattheprocess becomeseasierandalmostintuitive.You nolonger haveto worksohardtodeterminecurrencyconversionorfindthe next bigexplosivecommodity.Itwillbelikesecondnature for you. What, then,becomesthenextbigchallengefor someone trading on the open market?What keepsthingsfrom becomingmonotonous andboring?First of all,thereis alwayssomething newanddifferenthappeningonthe Foreign ExchangeMarket.Remember,it operates24 hours a day,and you neverknowwhatyou willfindwhenyou wake upin themorning.However,therearevariousways thatyoucantakeadvantageof thevarianceincurrency conversion and a lag in time between markets that can affect tradingvalues. Arbitrage There are some commodities that are traded in multiple currencies on multiple markets on Forex.Although computershavemade worldwide communicationalmost lightning fastthesedays,allof thesemarkets cantrade

49. togetherwithfairlyequivalentvaluesforthesecurities shared acrosscurrencies. However,thesystem isnotperfect,andthevaluemay rise or fall inonecountry and currencypriorto thesamechange invaluereaching acrossanotherborder.Seasonedtraders have learned to take advantage of this lag in the market trendingby using a processcalledarbitrage.Inthis transaction,youpurchasethe particularstockorsecurity on themarketwiththelowerprice whilesimultaneouslyselling thesamein a marketwherethe valueishigher.The processis a bitcomplex,sowewillusean example.Let’s saythat oneU.S. dollaris equivalentto .5 Britishpounds, meaningthateverything isgoing tobetwiceas expensive in British pounds. Now, let’s take a look at the price of a stock that is traded on both markets.If they were equivalent, then the stock wouldtradefor twodollarsintheUnitedStatesandone pound in Britain.However, if something happens and the stock value drops in Britain, it is six hours ahead of the UnitedStates,andthis dropmaynot hitthe American marketimmediately. If thevalueof thestock drops inBritainto.8 pounds,the purchase price is now below that of the price in dollars due to thecurrencyconversion.In thiscase,arbitrage would take placewhenyou boughtshares ofthe stockinon the

50. British market in pounds and sold it on the U.S. market in dollars, benefiting by the slow communication of the fall in valueofthe stock.Ineffect,you willmake$.40perstock. Volatility of CurrencyConversion Anotherwaytotakeadvantage oftheever-shiftingvalueof eachindividualcurrencyisto tradebasedon thechanging rates.What exactly does this involve?You must closely watchthechangingconversionrates. Whenacurrency conversionratechangesdrastically,itistimetomake a move.Thisisverysimilar toarbitrage, butthearea ismuch riskierduetohighvolatility.Forinstance,if you have purchaseda stock inthescenarioabove ontheU.S.market fortwodollars ashare,andsuddenlytheBritishpoundgains value,droppingtoaconversionofonly half a pound for every twodollars,youwouldwanttosellyourshares onthe Britishmarketbecausethevalue of a poundishigherand nowhas greaterpurchasingpower. Onepieceof advicetokeep inmind,though,isthatitis best toimmediatelydisposeofallliquidassetsinforeign currency, usuallyinthesameday.Thisis referred to as tomorrownextbecauseittakestwotothree businessdays forforeigncurrencytobedelivered,andbyexchangingthe currencyfor valuein stockson thesamebusinessday,you avoid havingto take delivery of the currency altogether.