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Short term trading

How you can make money on short term trading and why it is better for inexperienced investors to forget about this method.

An investor can earn on the difference in quotes in two ways. The first is a long position. In this case, the investor plays long and buys shares in order to then sell them at a higher price. A short term trading means that when trading securities, the investor earns on the fall of the stock. In this article, I will tell you how traders make millions on such transactions.

How to make money on depreciating stocks

A short position is of interest to the investor, since, as a rule, shares become cheaper faster than they rise in price, and with the right choice, the profit of a bear can be really serious.

To open a short position, an investor borrows shares from a broker against the security of money in the hope that the securities of this particular company are overvalued and their value will fall in the near future.

The investor then buys the shares at the current price and then waits for them to fall in price. It is assumed that when and if the share price does fall, then the investor buys the same amount of securities that he borrowed, but at a reduced price.

Before choosing a company whose shares can be shorted, a competent investor thoroughly studies its history, financial statements and finds the key risks that threaten the company.

The investor receives profit from the difference between the purchase price and the sale price. That is, you could borrow shares from a broker and sell them for $10. The stock then went down to $5, at which point you sold it. So your profit was $5. True, from this profit you will pay a small commission to the broker. In addition, if you suddenly return the shares when they pay dividends, the broker may require you to pay them too.

It is worth noting that selling shares from your own portfolio cannot be a short position. When you sell shares that you bought earlier rather than borrowed, you are closing out a long position.

Shorting pros

An experienced investor who correctly predicts the behavior of the securities of a particular company can earn very serious money on shorting. A textbook example of successful shorting is George Soros’s game against the pound sterling in 1992. Soros managed to earn $ 1 billion on the “black environment”.

What are the risks of short term trading

The problem is that a short position cannot be opened for a long period. This means that after the expiration of a predetermined period, you will still need to return the borrowed shares to the broker – regardless of whether the securities have fallen in price or not. Therefore, if the shares that you bought at $5 rose in price to $10, then in this case your loss, not profit, will be $5.

This is one of the main risks of a short position. When you buy stocks in the hope that they will rise in price, then your losses are limited – if you spent $100, and the securities fell to zero, then you will not lose more than $100.

In the case of a short, your loss can be anything, because the stock can rise in price from $100 to $1000, and you will have to buy them at this price in order to repay the broker.

An example is the recent situation with investors from Reddit. They specifically bought large quantities of shares of companies that, according to investment funds, should have become cheaper. Due to the actions of the participants in the popular forum, the value of the shares of companies such as the AMC cinema chain and the game retailer GameStop, on the contrary, began to rise.

GameStop

According to some estimates, shorts have lost about $5 billion due to the rise in GameStop stock alone.

Tesla

Another example of an unsuccessful short is the story of the relationship between investor Jim Cheinos and electric car manufacturer Tesla. Cheinos has been betting Tesla shares for five years. According to the investor, the first four years everything was not bad. Then in 2020 the shares of the company headed by Elon Musk have risen in price by 700%. “It was very painful,” admitted a well-known short who made $500 million shorting Enron stock in the early 2000s.

In addition, going short is not only risky for the investor, but also for the broker who lent you the stock. Therefore, the broker may set certain conditions for the borrower. For example, a broker determines how much money a client’s brokerage account must have in order to open a short position. Moreover, the broker can forcibly close a short position if the stock suddenly starts to rise. The share price at which the position can be closed forcibly is also negotiated in advance.

Another nuance is that not all stocks are open for a short position. The short trader’s choice is limited to the most liquid securities.

What is short term trading squeeze

Such a situation, as in the case of GameStop, can lead to a short squeeze.

A short squeeze occurs when the stock of a particular company suddenly rises in price, and several short sellers are forced to close the position at once in order to minimize losses.

This can push the price even higher, which will attract the interest of ordinary investors to the securities, who are also starting to buy. In this case, the remaining short sellers are forced to buy shares even at a completely unfavorable price. Thus, the price can rise for a long time, and short sellers will find themselves in a very significant minus.

How to protect yourself when use short term trading

It is better for a novice investor not to try to make money on a short position, as this is simply too risky an option.

To avoid big losses, experienced investors use stop-losses – exchange orders that allow you to automatically sell shares when they reach a certain price.

Also, the same rule applies to a short position as to investing in general – don’t invest more than you can afford to lose.

FAQ

What is short term trading, or short?

A short position, or “short”, means that when trading securities, the investor earns on the fall of the shares that he borrowed from the broker.

How much can you earn on shorts?

An experienced investor who correctly predicts the behavior of the securities of a particular company can earn very serious money on shorting. A textbook example of successful shorting is George Soros’s game against the pound sterling in 1992. Soros managed to earn $ 1 billion on the “black environment”.

What are the risks of a short position in trading?

The problem is that a short term trading cannot be opened for a long period. This means that after the expiration of a predetermined period, you will still need to return the borrowed shares to the broker – regardless of whether the securities have fallen in price or not. Therefore, if the shares that you bought at $5 rose in price to $10, then in this case your loss, not profit, will be $5.


Disclaimer: This article is not investment advice. Assess the risks yourself before making any investment decisions.
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The most stable currency in the world. Dollar Alternative.

Rising rates in the US, rising inflation and political instability are putting pressure on the dollar almost more than the effects of the pandemic. What currencies can claim world dominance instead of the dollar?

The tighter US monetary policy becomes and the further the world moves away from the quantitative easing policies that were actively pursued during Covid, the more discussion about further dominance arises. In this article, I will try to figure out whether the dollar can be considered stable, which currencies are the most reliable now, and how to treat cryptocurrencies.

How to determine the stability of a currency

A stable currency is an asset that you can invest in for several years without the risk of losing all of your investment. But the price of stability is low returns. However, a post-COVID shock can affect even the most stable currencies known to us.

So, at the beginning of the year, the euro was predicted to grow. However, the war in Ukraine, which began in late February, brought down the stable currency of the eurozone by 4% – to a local minimum of $1.06 per euro. By April, the euro recovered to $1.08, but still pulled back to $1.07 amid statements by the European Central Bank (ECB) that it was curtailing the economic stimulus program in 2022.

The Japanese yen felt no less strange. In mid-April, at auction in Tokyo, the national currency reached a 20-year low of 126 yen per dollar. This happened against the backdrop of a statement by the governor of the Bank of Japan Haruhiko Kuroda, who promised to continue to ease monetary policy while other countries are tightening it.

Against the background of Kuroda’s decision, analysts have already predicted the yen to fall to 130 per dollar – and, in their opinion, it can go further: to 133.

Judging by these signals, even those currencies that we used to consider reliable are experiencing a serious shake-up in 2022. Let’s try to figure out which currencies still have prospects to remain stable, despite the post-COVID and geopolitics.

What is happening with the dollar today

The stability of the US currency is measured by the dollar index – an indicator that shows the value of the USD against a number of currencies. Its base level is 100. Anything above this means that the dollar appreciates against other fiats. By mid-April 2022, the index stood at 101.

The dollar strengthened against the background of the aggressive monetary policy of the US Federal Reserve. Analysts at Goldman Sachs believe that in 2022 the rate will be raised as much as seven times. The next meetings of the US Federal Reserve System (FRS) are scheduled for May 4 and June 15. Most likely, the rate at both meetings will increase by 50 basis points, which will again send the dollar into growth. Also, traders should monitor the correlation of the dollar with bond yields and inflation.

Most stable currencies 2022

Swiss Frank

In 2021, FXSSI analysts named the Swiss franc (CHF), which is officially used in Switzerland and Liechtenstein, as the most stable currency. At the time of writing, 1 CHF was worth $1.06, or €0.98.

The stability of the franc is due to the strong Swiss economy and a highly developed banking system. The “safe currency” status also supports its peg to gold, analysts add. In addition, the inflation rate in the country over the past few years has averaged 0.6%, although in February 2022 it reached 2.2% amid geopolitical turmoil and rising oil prices. The average inflation rate in the country in 2022 is expected to be 1.8%.

Investors believe in the reliability of the franc so much that after the start of the war in Ukraine, they rushed to buy this currency, because of which it temporarily broke parity with the euro. However, the Central Bank of the country gave a clear signal: if the franc continues to rise in price, it will intervene in the situation.

Norwegian Krone

Another currency that is traditionally considered stable is the Norwegian krone. Although it is not an expensive currency, the economic situation in Norway makes it reliable: the country has virtually no external debt.

However, geopolitics also put pressure on the krone: the price of the currency has already fallen several times along with oil prices. And the decision of the Norwegian Central Bank in April to buy foreign currency for 2 billion crowns a day in early April collapsed the national coin by 1.6% against the euro and 2.1% against the dollar.

Singapore Dollar

For a change, consider another currency that has nothing to do with the eurozone, but constantly gets into the annual lists of the most stable. Singapore is attractive to investors as a rapidly developing financial hub with a loyal tax system. It is there that big business from China has recently been fleeing from restrictions.

In addition, there is no wealth tax in Singapore and it opens up access to investing in Asian markets. Perhaps that is why Bridgewater founder Ray Dalio and Google co-founder Sergey Brin have businesses in this country.

The most promising currency 2022

In light of the toughest anti-Russian sanctions in history and the redistribution of trade flows, analysts’ eyes are turned to the Chinese yuan. Experts unanimously say that the yuan can become the new world currency, but for this, China will have to significantly change its tough approach to the economy and carry out reforms.

Baizhu Chen, a professor at the University of Southern California, quoted by Markets Insider, is confident that the military conflict in Europe will be the key to many countries wanting to move away from the dominance of the dollar:

“The yuan will inevitably be used more and play a much larger role in the world. Some countries are afraid that their economies may become hostages of US policy and dollar hegemony, and therefore they want to diversify risks.”

In Africa and the Middle East, the yuan is increasingly being used for transactions. So, Saudi Arabia even plans to pay China directly in yuan. In addition, the latest report from the International Monetary Fund (IMF) states that central banks around the world have been diversifying their assets over the past 20 years and are increasingly opting for the yuan and reducing the share of the dollar. All this can lead to a redistribution of the influence of the world’s largest currencies in the near future.

How stable are cryptocurrencies

The creator of bitcoin (a person or group of people under the pseudonym Satoshi Nakamoto) wrote a manifesto for cryptocurrencies in 2008. He wanted to create a world where people could transfer money to each other without resorting to banks and intermediaries, and revolutionize the world of traditional finance. In the years since its launch, Bitcoin has truly changed the way we think about money, and its price has soared to unprecedented heights.

However, skeptics still believe that the excessive volatility of bitcoin makes it difficult to consider it a stable asset. The head of investment bank Oppenheimer, Ari Wald, told CNBC in an interview that the volatility of cryptocurrencies must be accepted: it will remain in this sector for a long time.

BTC is falling as sharply as it is taking off: Bitcoin is now worth $40,000. Although back in October, the first cryptocurrency broke the value record of $66,000 and overtook the Swiss franc in terms of capitalization.

Better things are with the main competitor of bitcoin – ether. Its cost is kept in the region of $3 thousand. Ethereum’s growth is due to the growing popularity of decentralized finance (DeFi) and the fact that large banks and companies are interested in the Ethereum blockchain.

FAQ

What is the most stable currency in the world?

The strongest currency in the world is the Swiss franc, which is used in Switzerland and Liechtenstein. The stability of the franc is due to the strong Swiss economy and highly developed banking system. The status of a “safe currency” is also supported by its peg to gold.

What’s wrong with the dollar?

The dollar is still the most popular currency in the world. However, against the background of the war in Ukraine and the redistribution of trade flows, the Chinese yuan is strengthening, which can compete with the dollar for its hegemony.

What is the most stable cryptocurrency?

Cryptocurrency and stability are not yet compatible. This market, on the contrary, is characterized by high volatility. But, unlike stable currencies, cryptocurrencies give the trader a chance to earn.


Disclaimer: This article is not investment advice. Assess the risks yourself before making any investment decisions.

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