Why should you trade?
For most of you that might sound like a silly question. After all, it’s hard to argue with the claim that in the quest for financial independence, trading and investing in financial markets are among the most intriguing opportunities. The world of trading is fascinating—the sky seems to be the limit when you encounter all the huge success stories, the Apples, Facebooks, Googles, Teslas on one side, and the great investors and traders like Warren Buffett, Paul Tudor Jones, David Tepper, George Soros, Benjamin Graham on the other side. Also, the technological advance brought this world much closer to the Average Joe, with prompt and cheap online access to all imaginable markets and assets.
That said, despite the great premise, the wild dreams of wannabe traders coupled with the unlimited realm of opportunities often leads to disasters. Without the intent of scaring off anyone, the reality is that a large number of new traders lose some, or all of their initial capital.
How could you prevent that? Well, the good news is that by trying to get informed and educate yourself, you already took one of the most important steps towards success. Blindly jumping in the market and start “day-trading” on “margin” (we will get to these, don’t worry…) to chase unrealistic gains accounts for most of the horror stories. Before you leave, we have more good news— by following a few simple rules, you will remain in control all the way, without taking on unnecessary risks or committing some of the all-too-common-rookie-mistakes.
That’s where we step in. In our Trading 101 course, we will go through all the steps that you need to take to trade consciously and successfully. First, we ask you to be somewhat patient and realize that, in order to get closer to achieving your goals through trading, you need to learn some basic skills and acquire crucial knowledge.
You should be looking at trading as any other business that you get into; you have to put in some time and energy in order to get the wanted results. But remember, the possible reward is extraordinary—leveraging your knowledge to manage your capital is the single best way to increase your wealth.
Learning The Language Of Trading
If you look at trading as a business, at first you might think that it’s done in a language of its own. The financial jargon is vast, and often confusing for outsiders. Traders and analysts with very different levels of knowledge use words and phrases in all kinds of ways, sometimes far away from the “genuine” meaning.
What’s worse, there are those who try to hide behind the financial mumbo-jumbo to mask their inexperience, lack of expertise, or use it to profit from the insatiable hunger of the public for news and “expert opinions”. The best way to remain focused in this jungle is to learn the basics, and form your own opinion about the unfolding events and the movements in the market.
It’s a good idea to find reliable sources of information both for educational materials and up-to-date news. Getting informed about the basics of economics and financial trends will also help you in understanding the market and the intentions of the different players.
To help you, we will provide you with a compact dictionary that will kick-start your trading career, and shorten your learning curve. We will also continue giving you all the necessary information about the newest developments in the financial world.
Finding The Trader In You
When you already speak the language of trading on a basic level, you should still answer some questions before you place your first order on the market. If you don’t, you will, most likely, find them out the hard way. Here are some of the most crucial ones:
- What are your goals with trading?
- How much capital would you like to trade with?
- How does trading fit in your investment portfolio?
- How much time would you like to dedicate to trading?
- What assets do you want to trade with?
- What analysis methods would you like to use?
- What strategy (or strategies) is suitable for your goals?
Of course, these questions are not independent of each other. The time that you are able to dedicate to trading will largely determine the strategies that you might use, while the amount of capital might limit the type of assets that you are able to trade with, and so on.
The idea is to be conscious about your trading goals and to know what you are looking for, even if some of the questions might seem premature, and your answers might be proven wrong later. Don’t worry, you will have several opportunities to refine your approach as you gain experience.
Choosing A Broker
If you have answered the questions, and you already have a pretty good idea of the path you prefer, the next step is to find the perfect partner for you to trade with. In practice, this means finding a good broker (or brokers) and a matching trading platform. As easy as it sounds, there are several filters that you should use before choosing your partner in trading.
The decision is not for eternity too: it’s good to stay flexible and switch brokers anytime in your trading career. This, of course, implies that you should keep an eye on the market for new trends and opportunities, but guess what; we will be here to help with that as well.
So, what are the factors to weigh and what are filters that you should apply?
- Reputation and regulatory background
- The available markets, assets, and account options
- The available trading platforms and tools
- Commissions and fees, hidden costs
- Customer support, extra services
Some of these might seem obvious, but there are more to them than you would first think. Reputation might seem boring for example, but that’s only true until there is an extreme situation like the 2008 crisis or the infamous Swiss Franc event in 2015. Even commissions and fees can have different effects on different strategies, making a certain broker expensive for one trader and a bargain for another.
Naturally, your weights will be somewhat subjective, but in our coming posts, we will show you all the must-haves and the “strictly-no-no”-s of the business.
Practice, Practice, Practice…
After you answered the basic questions and found the perfect broker, now you are ready to trade, right? Unfortunately, the answer is most likely no, at least not with real capital. The wise decision for most traders is to start your journey with a demo, or practice account. Most brokers offer those to new traders, while also providing a great opportunity to further evaluate their services. Demo accounts are perfect to get to know a trading platform, the order types, your strategies in practice, and to face all the small decisions that are inherent in trading.
Having said all this, the idea of opening a “real” account together with a demo account is not entirely wrong. An account with a smaller amount of capital could uncover some problems with the broker, the funding process, hidden costs, and so on. It could also give you a glimpse of what real trading looks like—the thrill of facing real profits or losses, and how will you react to those.
After you reach a level of experience, you should also go back and revisit several of the questions that you answered before, as now you know much more of financial markets and, even more importantly, yourself.
The Real Thing: Dealing With Profits, Risks, And Losses
Are you feeling comfortable, or even bored, trading with paper money? Entering different types of orders and sticking to the rules of your strategies seems easy? Then it’s time to finally begin trading with real money. A whole new world will open up for you; sometimes it will be scary, sometimes it will be rewarding, but it will most certainly different from paper trading. On a side note, this doesn’t mean you should forget your demo account, though; you can still use it to test new methods and strategies, risk-free!
Before you start trading, you have to remember that risk is a natural part of this business, and that you will inevitably have losing trades. If you have sound strategies, and proper risk management, those won’t cause you much trouble, and most of the times you will be dealing with winning trades and looking for new opportunities.
The effect of compounded returns, the flexibility of trading, and the additional expertise that you will be able to harness in your business and personal life will be well worth your efforts. We urge you to join us on this exciting trip and dive into the art of trading using our comprehensive guide.
Continue with the next lesson: What Can You Achieve With Trading?
Images from Shutterstock.
Fidelity Investments is Mining Cryptocurrency
Fidelity Investments is a multi-billion dollar brokerage that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.
CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.
Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”
The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.
The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.
Well Ahead of the Pack
The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.
Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.
Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.
The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.
Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.
Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.
Chinese Government Eyeing Fresh Bitcoin Legislation?
The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.
The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.
The Case for AML
The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.
SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.
SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.
China’s Stance Looms Large for Cryptocurrency Market
Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.
According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:
“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”
Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.
«Featured image from Shutterstock.»
Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment
Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.
In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.
Upon securing 30,000 bitcoins, Draper told Fox Business:
“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”
Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.
While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.
Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.
Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.
“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.
Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.
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