The financial markets are buzzing with activity. Every day traders buy and sell trillions of dollars’ worth of financial instruments, particularly currency pairs, in the hopes of generating profits. The international currency markets are driven by a mix of market fundamentals and speculative sentiment. The winners are those who can accurately forecast the future direction of major, minor, and exotic currency pairs.
Fortunately, it’s so much more than crystal ball soothsaying that determines which way an underlying asset is going to move. If you are in it to win it, it pays to read up on the drivers of asset prices, and how you can catch the wave to profit central.
Here are 4 valuable tips to help you make better financial sense of the markets. This post will list some of the things you can do today to gain an edge over the competition and start building a viable financial portfolio.
4 Steps To Building Wealth In The Markets
The literature on wealth creation hardly ever focuses on selection as the most important determinant of where you are headed. Fortunately, we are going to give this criterion the praise it deserves on the totem pole.
When you think of selection, what comes to mind? Selection is akin to association. Most everything that determines success in life is based on who we choose to associate with, what we choose to do, where we choose to invest our time and energy, and what quantities of our resources we allocate to achieving our objectives. All of these things point in one direction: Selection.
Allow me to elaborate for a moment. Your selection of assets must be precise when you are investing. The underlying assets that you choose could come from any of 4 categories, including stocks, commodities, indices, or currency pairs.
Be sure to make the right selection since this will determine your success or failure in the markets. As a rule, always pick (select) the asset that you understand most, or the asset that you are most comfortable with. If you are a new trader, you will invariably want to choose the currency of your country, the stock exchange you are most comfortable with, a commodity that you understand, or a stock that you read about daily.
Since every investor has a finite set of resources available, it is extremely important to make the right selection.
Once you have made your selection, it’s time to determine how much of your available resources you’re going to allocate to that specific selection. Perhaps you have decided to invest in the USD, the Dow Jones, Google, or gold. You need to determine how much you want to plow into these underlying assets.
This is an important question, and one that many novice investors often get wrong. The golden rule is as follows: invest a maximum of 5% of your capital in any individual investment. Any more than that puts you at risk of loss. A diversified portfolio is your best hedge against market reversals.
By this I mean consult with as many professional resources as possible before you click that buy or sell button for real. Remember once you have selected an asset, allocated resources, and executed the trade you are no longer in control of what happens. It is far better to make educated decisions about how your money is invested.
An important tip I learned from a CFD trading options expert was the following: Understand the drivers of market sentiment, read as much as possible, and don’t be afraid to ask for help. Makes sense right?
That’s why I always advocate trading on a demo platform, if available, contacting customer support at your preferred broker, and using the educational resources available to you all the time.
The last tip that I’m adding in on my list of 4 is hedging. You’re probably wondering why I’ve added this in as a moneymaking tip for the financial markets. If there’s one thing I have learned from the financial markets it is the following. There is never 100% certainty about anything.
You may be convinced that the USD will appreciate when the Fed raises interest rates, but the USD has a mind of its own. Or, you may think that an interest rate hike will be good for Wall Street indices, whereas it actually ends up raising the gold price unexpectedly. That’s why I always advocate hedging. Hedging is best described as insurance against market downturns.
If your portfolio is heavily weighted with equities, consider diversifying into gold, crude oil and silver as a hedge against possible geopolitical uncertainty. The more diversified you are, the better you protect your wealth from losses and the greater the potential gain you can achieve as you are exposed to various sectors and industries.
Hi, my name is Jon and I run Penny Thots. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.