Introduction to the forex trading market (FX), and FX trading

I find the forex (foreign exchange) market very fascinating. It is the largest financial market in the world, with a turnover of about 1,5 trillion dollar per day! When trading forex you trade in currency pairs, for instance EUR/USD, with the aim to gain profit from fluctuations in the exchange rate.

Forex (FX) is traded in lots, which represent 100,000 units of the base currency. If the EUR/USD is quoted at 1.2253, that means that one Euro is currently worth just over $1.22. If the market moves from 1.2253 up to 1.2254 that represents a move of one pip. A pip is the smallest increment a currency pair can move and in the case of the EUR/USD currency pair a pip is worth $1 in a Standard 10K account and $0.10 in a Micro account (Source: http://www.forexmicrolot.com/how-is-fx-traded.jsp).

There are a number of factors that makes this market attractive for investors such as;

·         The forex market’s three trading regions (Australia, Europe and North America) cover all time zones, which creates good trading flexibility as the market is open 24 hours per day

·         High  leverage is available for invested money, which lets an investor with limited investment assets access the forex market. 100:1 leverage is not uncommon. Even though leverage can be seen as an advantage, it is also a huge risk (see the next section under “risks”)

·         Both buying and selling positions (orders) are available, providing the possibility to make profit in both good- and bad economies

·         There is high liquidity on the forex market, providing good opportunities to instant execution of your trading

But there are definitely risks worth considering before investing in the forex market. I have found the following points from ESMA (European Securities and markets authority, http://www.esma.europa.eu/news/Investing-foreign-exchange-forex):

Complexity

Not all forex transactions are straight-forward. If you do not understand the complex nature of certain transactions in currency-derivatives transactions, you should exercise care.

Before deciding to trade, you should carefully consider your investment objectives, level of experience, and risk appetite.

 

Volatility
Exchange rates fluctuate depending on several factors, including political situations, interest rates, monetary policy and inflation. Fluctuations are unpredictable, and the market could suddenly move against your interest. This will affect the price of your forex contract and related potential gains and losses. 

Leverage

To start trading, you deposit an amount of money (also called a ‘margin’, or ‘account’, or ‘security deposit’) with your forex broker. Even a small amount of money can enable you to trade large volumes of currency. This is because some forex trading products are highly ‘leveraged’.

The smaller the deposit is in relation to the underlying value of the contract, the greater the leverage. And the higher the leverage, the more likely you are to lose your entire investment if exchange rates move in a direction you do not anticipate.

It is very important to understand that although leverage can increase the returns on your investment, it can equally work against you by magnifying your losses. There is a risk that you could lose some of, all, or even more than, your initial deposit. For example, if you invest €100 with a leverage of 200, you will owe €2000 if the value of the instrument loses 10% of its value (10% of 100 multiplied by 200). In addition to this, you may be obliged to pay transaction fees and/or financing charges.

So how does it work if I want to start trading?
Starting to trade forex is actually quite simple (making money is harder though J ). You will need a so called trading platform that you can install on your computer. From this trading platform trades are executed towards the global forex market.

 

  Figure: forex platform trading towards the global forex market

(Figure to the right comes from: http://w.mintkit.com/2011/02/how-forex-affects-etf-for-global.html)

The most common trading platform is probably based on MT4 (MetaTrader 4). Many forex brokers offer trading platforms for free, as they are making profits of the FX spread when you execute your forex trading orders from their platforms. A good thing with trading platforms is that they often have a demo account set up with real forex data so you can test forex trading without using real money, very convenient and safe! Below are some brokers you could consider if you want to start trading:

(http://www.fxpro.com )

 

 

Best ECN/STP Broker - World Finance Foreign Exchange Awards 2012.

FxPro’s client base primarily consists of retail traders but it is increasingly servicing institutional partners as well, with transactions exclusively being executed online. Due to its rapid progression, FxPro’s client services are now offered to more than 150 countries worldwide.

 

(http://www.fxcm.com/)


Voted Largest Forex Provider by Investment Trends (2012).

FXCM Inc. (NYSE: FXCM) is a global online provider of foreign exchange (forex) trading and related services to retail and institutional customers world-wide.

 

(http://www.avafx.com)

The Ava group is one of the world’s leading on-line forex trading brokers. More than 200,000 registered customers from 160 plus countries world-wide execute over 2 million trades per month with Ava, with total trading volumes exceeding $50 billion / month*.

I have found a homepage reviewing forex trading platforms that may be handy for you, http://www.fxstrategy.com/forex-platform-reviews.

Below is an screenshot I have taken from my own forex trading platform to show what a FX MT4 trading platform could look like:

 

In my next posting I will tell you about automatic forex trading (EA robots) and how I got burned by it - unfortunately a very costly lesson for me! So stay tuned and subscribe to my blog, don’t miss out these interesting stories!

P.S. for more reading about forex, see also:

http://www.babypips.com/school (this “forex school” is awesome if you want to learn more!)

http://financialhighway.com/why-invest-in-the-forex-market

http://www.investopedia.com/ask/answers/05/forex24hoursaday.asp#axzz2IMLLtQNM

My top tips for a successful short-term property investment

Happy New Year! I hope your holiday was as nice as mine.

Below are some useful tips for a successful short-term property investment based on my experience and from what I have heard has worked for others. Hope it will help you as well!

Choose a dedicated broker to sell the apartment. We invited several brokers for interviews when it was time to sell our apartment. Check if the brokers are familiar with the area. Check if they have sold other apartments in the area. Check their previous experience. Check how successful the brokers have been.
 

One of the invited brokers told us how lucky a buyer of his had been to get an apartment for a really low price. Would you like to have this broker to sell your apartment to a really low price..? Another broker showed great confidence and had trustworthy answers to all our questions. Also, he told us about how many successful sales he had made. He had broken a number of sales records in different apartment buildings. Either he was good at bragging or he was this good! We finally chose this broker because he seemed more motivated than the other brokers, had a positive attitude, and he was a bit of a “dreamer” where nothing was impossible. And he did indeed break another record as he sold our apartment for the highest price ever in our building – and the broker sold it for much higher than the average price in the area!

If you can get a broker on recommendation it is also worth a lot, but make sure to always interview the person to get a feeling about his/her capacity and sales methodology.

Renovate smartly. Ask yourself during a renovation: “What is the apartment lacking and will it be worth renovating?”. Think in terms of “renovation cost vs. benefit” and go through all decisions thoroughly before conducting them. Every single little improvement will cost time and money and not everything is worth doing. Consider also whether you should go for quality renovation or if would be ok to use cheaper quality (IKEA has great kitchens for a reasonable price!).

As I mentioned in an earlier posting, my wife’s and my apartment was basically fully renovated when we moved in and the previous owner had flipped the apartment with a huge profit. He had lived in the apartment for about six month and used IKEA in the kitchen and bathroom – and it looked great! Also, don’t just do the bare minimum when renovating, it will look cheap. That is the difference in what our last apartment sold for when we sold it and what it sold for when we purchased it. We made very few changes but had exclusive furniture, very good taste and a few showpieces of furniture.

Use an appealing taste which fits well with the rest of your apartment. I have visited many apartments for sale as this is an interest of mine and many have been top renovated but unfortunately not always with good taste. I remember one apartment with a fully renovated bathroom with carefully selected and expensive material. It would have been a great bathroom if it wouldn’t have been for the weird African style with crazy wall colors. It didn’t fly with the rest of the apartment, and certainly not with the taste of the average apartment buyer. It was such a waste with renovation money.

Speaking of bathrooms; if you decide to renovate one, make it unique for god’s sake! It seems like most renovated bathrooms too often look the same, with black tile floors, white tile walls and the same fixtures. Throw something unique in, but do it with taste so that it is still uncluttered and/or luxurious looking.

 

Figure to the left shows our bathroom before renovation and the right photo the result after renovation. Both of the bathrooms are unique in their own way… My wife and I wanted to create an exclusive bathroom with an old-fashion feeling that went with the rest of the style of our apartment from 1882. We are very happy with the result!
 

Choose your object wisely. It is important to choose an apartment that has qualities that is appealing to the market and will boost your chances for a successful sale. My wife and I normally look for the following criteria when we search for apartments:

·         Balcony. We, as many others, value highly the opportunity to sit outdoor in the morning with a cup of coffee, or sitting a summer evening on the balcony having a cold beer and enjoying the good weather!

·         Apartments located high up in the building. This gives the apartment better sun light. I never look at apartments on the bottom floor. Many people don’t even go to showings for apartments on the bottom floor apartments because the risk is higher for burglary, less sun light in the apartment and the fact that there is often little privacy because people can look into the apartment from the street.

·         Look for some aspects that make the apartment unique. Little quirks that not everyone may like, but that a few will find completely charming.

·         Be strict about floors. My wife and I are very picky about the floors. They must be all the same material and preferably old and charming, or very “earthy and textured”. Same material throughout the apartment creates a homogenous and nice feeling. We never choose shiny floors and never different colors. Remove room borders if possible when renovating.

·         Location. Many property investors claim that the most important factor for a successful property investment is LOCATION! Location is to my opinion important but not priority #1. I do agree that this factor is very important if you are looking for a long term investment, but in the short term the other parameters in this article can be just as important.

·         Renovation potential. Make sure that the apartment has the renovation potential you are looking for, and that it is within your budget.

·         Old apartments, turn-of-the century apartments if possible. High ceilings create a nice spacious feeling to the apartments, and old ornaments such as crown moldings gives charm to the apartment.

·         Elevator. Having an elevator makes a huge difference if you would live on the fifth floor… (even on the first floor if you are lazy J ). Older people, who often are strong buyers, would probably not even consider an apartment high up in a building without an elevator.

·         Fireplace. Imagine sitting in front of a fireplace with a glass of wine at night when it is snowing outside. Do I need to write more about this point?

·         Choose an open floor plan if possible. This creates a more spacious apartment and good social areas.

 

 

To the left are sales photos of my wife’s and my apartment, using tips from this posting. We made +33% off the purchase price –not bad considering the average apartment price increase in the area was about 0% during the same time!

 

 

Last but not least, make sure to have good luck and good timing during the sales process! This is probably one of the more important factors when selling an apartment, but unfortunately also the most difficult to control J. All it takes is two parties being really dedicated and interested in the same apartment. It can make a difference of several ten thousand dollars…

Also, some other smaller tips along the way:

·         Buy in an up-going property market. It is easier to sell in an up-going market and the apartment increases in value while being in your possession. Consider the micro- and macro-economic when buying as this often affects the property market. For instance, is the market at the bottom of a recession? How will the property market be affected by the Euro-crisis? Read the business newspapers to follow what is happening on the market!

·         Make sure to be ok to stay in the apartment for a longer time, in case the apartment would be difficult to sell (for instance due to a declining property market.) and you don’t want to make a loss

·         Live in the apartment while you renovate it – makes it cheaper

·         Consider what apartment size you want to target. Should you target a smaller apartment in an attractive area or a larger apartment for the same amount in a less attractive area? I would recommend the smaller apartment if you are going to renovate – it is less to renovate and saves both time and money – and chances for a better investment payoff are often higher in attractive areas.