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Milan

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  1. Help me understand why is Forex leverage referred to as a double-edged sword?
  2. Explain about the best commission-free ETF.
  3. Milan

    What is a water ETF?

    Explain to me what's a water ETF.
  4. Explain to me about the paper wallet for cryptocurrencies.
  5. Help me understand this, please.
  6. Hi Earnest, The Forex market is a highly flowing financial market across the globe. Here, you trade one currency against the other. This market is unique since you can compete with established banks and other big financial firms; all you need is to devise an excellent account. In the Forex market, you can choose to deal with a standard account, a mini account, or a managed account. You need to retain that though these accounts are great to work with, each has its drawbacks. The account you choose to work with will largely depend on the amount of capital you initially invest, your risk tolerance strategies, and the time you will dedicate each day for trading. Many investors usually use the standard trading account. While using this account, the necessary quantities of currencies worth $100,000 will be available to you. Since the leverage to margin ratio is 100:1, you will only need $1,000 in your margin account to trade one regular lot. In this account, the broker may give you many services and more enormous benefits since you need adequate initial capital to trade all lots. Your gains in this account are also more substantial, unlike other accounts. One drawback of this account is that the minimum balance needed is usually high. Also, this account can result in considerable losses if a trade does not favor you. In a mini trading account, transact with mini quantities. A mini lot is about $10,000. You will often find that if a broker is offering a standard account, then most likely, they will also be dealing with a mini account. The mini accounts are there to entice new traders who are not willing to trade their whole amounts. One benefit of this account is that your risks are minimized since you do not trade your full lot. You can employ new techniques without risking a significant amount of your capital. This account is also flexible. You can easily manage your risks since if you feel that trading one standard lot is risky, you can deal in five or six mini lots, which will be less risky. Since this account is unsafe, the benefits you will reap from it are low. In managed accounts, you will own the capital; however, you cannot decide whether to place a trade. In this account, you will set the objectives for your account manager and handle it. Such targets may be, making huge profits and managing the risks that will come by while trading. A managed account may be of two types, the pooled funds where the money you wish to invest will be combined with that of other investors and put in a mutual fund. The profits that will arise in this fund will be shared amongst the investors in this fund. The other account is the individual accounts where your money is put in your account. One great advantage of a managed account is that you will get a professional Forex broker who will handle your account. Managed accounts are an excellent choice if you aim at diversifying your portfolio without being glued to the screen for a long time studying the market trends. These accounts will, however, need a substantial minimum balance to operate, and they are also not flexible to trade with. Before you deal with these accounts, you should first practice trading using a demo account since it is risk-free.
  7. Milan

    What is a bid-ask spread?

    Hi Eric, A bid-ask spread can be defined as the difference between the highest amount of money a buyer is willing to pay for an asset or security and the lowest price that the seller of the same asset or security is willing to accept. As an investor looking to buy a stock, you pay the asking price while the one selling the stock accepts the bid price. The bid-ask spread is therefore the measure of the flow of demand and supply for specific assets or securities. The bid represents demand while the asking price represents the supply. The Shifts in supply and demand for the assets is therefore reflected by the level of expansion between the bid price and the asking price of a particular asset. As a stock trader, having a comprehensive understanding of the bid-ask spread for any particular stock is vital to your success as a trader because to a significant extent, the bid-ask spread becomes the de facto measure of the market liquidity for that particular stock. Markets that are more liquid than others are reflected by their significantly low bid-ask spreads. In a typical stock market therefore, the price takers depend on market liquidity while the counterparties who are the market makers supply the liquidity by bidding on the stocks to pay their ask prices. The bid-ask spread differs from one security to another as well as the exchange market. The bid ask-spread can widen or shrink significantly depending on the state of the financial markets and the global economic conditions as well. The bid-ask spread gap widens significantly at a time when there is illiquidity; a situation whereby, there are very few willing buyers for a specific security or asset compared to the number of willing sellers for that same security or asset. Another instance when the bid ask-gap may widen is during tough economic times like the prevailing market conditions occasioned by the spread of the deadly novel coronavirus disease across the globe. When there is market turmoil, very few traders are interested in buying stocks or paying asking prices beyond certain limits. At the same time, the sellers may not be willing to accept bid prices below certain set thresholds resulting in a state of illiquidity for that particular asset or security.
  8. Hi Hakiza, Exchange-traded funds have many advantages over stock trading, one main reason why investors like dealing with investing in ETFs. They are primarily diversified, tax-efficient, and their expenses are lower than the individual stocks. However, the sweetness in ETFs is also accompanied by some risks of making losses. However, you can carb these losses by engaging in a strategy that will allow you to enter the market when the prices are favorable and leave when the prices start to decline without any hindrances. You can easily confuse exchange-traded funds with mutual funds since they are also diversified. However, in mutual funds, your trades will be executed when the market closes. You trade exchange-traded funds on exchanges, and you can enter and exit the market at any time. Through this, you can effectively use stop and limit order while trading. One method you can use in ETF trading is swing trading. Swing trading tends to take advantage of price swings and can occur between a few days to several weeks. THE diversification and strict offer and ask spreads of ETFs make them suitable for swing trading. You are free to choose the asset you can invest in, depending on the knowledge you have. You can also use sector rotation to trade ETFs; this will depend on the economic cycle. Another trading method you can use is short selling. Most investors view this as a tricky way to trade and easily make losses in this strategy. Short trading in ETFs is, however, a better option in ETFs than trading individual stock. One reason is that the ETFs have lower borrowing costs. Short selling an ETF will also help you invest broadly. Betting on seasonal trends is another trading method in ETFs. One most known seasonal trend you can capitalize on, especially if you are a beginner is the sell in may and go away. It is referred to this way since many stocks perform poorly between May to October to November to April. You can also trade between September and October due to strong gold demand in India. During this period, it is best if you sold in gold ETF. You can also employ hedging as your trading method. Hedging often aims at protecting your portfolio against certain risks. These are a few techniques you can employ while trading ETFs. Your choice should mostly depend on the ETF you want to sell and the strategy that you create.
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