Forex Vs. Indices
Forex Trading? Stock trading? Indices? What’s the difference?
Do they make you money or not? That is the question you should be asking. Whether you’re a Forex trader, a stock trader, or a dedicated indices trader, you need to have a green bottom line. I’m writing an article on these different types of trading because recently there’s been a spike in volume in indices, so more people, naturally, are trading them. Should you?
The difference between Forex and stocks? Price in Forex trading is the cost of buying 1 unit of the base currency, and making money consists of betting on the direction to price over a period of time.
Price is stock trading is the cost of buying one share of a company. To make money trading stocks, you have to bet correctly on the cost of 1 share going up or down.
That’s not the difference I’m talking about, though. The difference I’m talking about is you.
What seems to be happening these days is a lot of traders are abandoning their circle of competence, whether their Forex traders who are used to trading on brokers like AvaTrade and FXCM or stock traders who trade on Plus500 and going dabble in whatever markets have the most volatility or hype at the time.
Some of you might see the error in this because it’s not intelligent to think that the way you trade works across all markets.
If you have a system that you tested on forex pairs only, what would give you the confidence to go and take that same system and trade it on indices or stocks? This is dangerous. Markets are not the same, and market conditions are not the same.
What Should You Do?
What I’m about to suggest is not easy for most to do, but I’m going to recommend it anyway.
STAY IN YOUR CIRCLE OF COMPETENCE. If you are a forex trader and suddenly, the indices market takes off, watch.
Do not engage! I repeat, Do not engage! Stick to what you know when it comes to risking your hard-earned money if you are looking to get involved in indices.
Do your homework! Increase your circle of competence SLOWLY, and the increase in volatility shouldn’t sway you to start throwing your money at the markets because you see opportunities and you want to get involved.
A better idea would be to sit on your hands while the sudden volatility is happening.
A lack of knowledge and volatility is a bad combination that is sure to lead you to emotions. Where emotions are… there’s no long-term money to be made.
Investing is not a complicated thing. You must manage your risk, and you can’t do that if you invest in markets or stuff, you don’t have a clue about.
Ask yourself a question, how do you plan to make money in a particular market? If you don’t have an answer to that question, don’t invest your money. HAVE A PLAN. Volatility will make you pay a premium for not having a plan.
Hype or Nah
I have my reasons to believe that the increase in people trading indices is hype and is a sign of things to come. Take that how you will. I won’t say that indices are not capable of making you money because the opportunity is there, and people are taking advantage of it.
Many people won’t know or recognize when the indices markets are starting to take advantage of them. Only the skilled traders who had a plan on how to extract profits from the available opportunities will see exactly when the plan stops working, and That’s when you exit the markets.
A lot of people who got into indices without a plan will end up giving back most of, if not all, of the profits they made trading them. Indices are not a new thing by any stretch. But the newfound volume is at its peaks.
Educate yourself before getting involved in any market, but ESPECIALLY a market on a bull run. I don’t enjoy the trading maxims or cliches, but they prove to be true time and time again. The saying I’m talking about is from Warren Buffet, if I’m not mistaken, which goes, “Be Greedy when most are fearful, Be Fearful when most are greedy” don’t necessarily be fearful but be careful.
Control your risk. Stick to your guns, and you’ll make it out on top 9 times out of 10.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.