Trading for Dummies

Currency Trading for Dummies

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So how do you keep up?

Algo Trading for Dummies — Implementing an Actual Trading Strategy (Part 4)

This hands-on, friendly guide shows you how the forex market really works, what moves it, and how you can actively trade in it without losing your head! Chapter 1: Currency Trading Chapter 2: What Is the Forex Market? Chapter 3: Who Trades Currencies? Meet the Players. Chapter 4: The Mechanics of Currency Trading. Chapter 5: Looking at the Big Picture. Chapter Training and Preparing for Battle. Chapter Cutting the Fog with Technical Analysis. Chapter Identifying Trade Opportunities. Chapter Risk-Management Considerations.

Part IV: Executing a Plan. From these meager beginnings, the NYSE built itself into the largest stock exchange in the world with many of the largest companies listed on the exchange.

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Trading occurs on the floor of the exchange, with specialists and floor traders running the show. Today these specialists and floor traders work electronically, which first became possible when the exchange introduced electronic capabilities for trading in The exchange expanded its global trading capabilities after a merger with Euronext in , which made trading in European stocks much easier. You may not realize just how much the concept of supply and demand influences the trading price of a stock. Price swings of a stock frequently are caused by shifts in the supply of shares available for sale and the demand created by the number of buyers wanting to purchase available shares.

The specialist Specialists — whose title may change to designated market makers soon — buffer dramatic swings when news about a company breaks. For example, if good news breaks, creating more demand for the stock and overwhelming existing supply, the specialist becomes a seller of the stock to minimize the impact of a major price increase by increasing supply. The same is true when bad news strikes, creating a situation in which having more sellers than buyers drives the stock price down. In that situation, the specialist becomes a buyer of the stock, easing the impact of the drop in price.

The floor trader The guys you see on the floor of the stock exchange, waving their hands wildly to make trades, are the floor traders. Floor traders also can act as a floor broker for others and sell their services. Any questions that arise about trading activities can be researched using this book. Open outcry The NYSE still uses what is becoming an outdated method of trading called open outcry, in which stocks are sold like a public auction with verbal bids and offers shouted at the trading post.

Other exchanges exclusively use computer-based network systems for trading. Only a tiny fraction of trades are handled through open outcry. Except for a small group of very high-priced stocks, almost everything can be handled immediately by electronic execution. Most NYSE trades are now handled electronically, but brokers can still choose to route customer orders to the floor for open-outcry trading. Market makers Unlike the specialist structure of the NYSE, in which one specialist represents a particular stock, NASDAQ market makers compete with each other to buy and sell the stocks they choose to represent.

All market makers are members of the NASD. Each uses its own capital, research, and system resources to represent a stock and compete with other market makers. After market makers receive orders, they immediately purchase or sell stock from their own inventories or seek out the other side of the trades so they can be executed, usually in a matter of seconds. By focusing regionally, these market makers offer their customers more extensive coverage of the stocks and investors in a particular area of the country.

Those stocks were called curb traders and ultimately made up what became known as the American Stock Exchange Amex , which moved indoors in Amex lists stocks that are smaller in size than those on the NYSE yet still have a national following.

What Are Binary Options Themselves

Many firms that first list on Amex work to meet the listing requirements of the NYSE and then switch over. In addition to listing Electronic communications networks ECNs Many traders look for ways to get around dealing with a traditional broker. Instead they access trades using a direct-access broker.

Interested in Trading

We talk more about the differences in Chapter 3. A new system of electronic trading that is devel- oping is called the electronic communications network ECN. ECNs enable buyers and sellers to meet electronically to execute trades. Transactions are completed without a broker-dealer, saving users the cost of commissions normally charged for more traditional forms of trading. Subscribers to ECNs include retail investors, institutional investors, market makers, and broker-dealers. ECNs are accessed through a custom terminal or by direct Internet dial-up. Orders are posted by the ECN for subscribers to view.

The ECN then matches orders for execution. In most cases, buyers and sellers maintain their anonymity and do not list identifiable information in their buy or sell orders.

Chapter 2: Exploring the Markets and the Stock Exchanges 29 Understanding Order Types Buying a share of stock can be as easy as calling a broker and saying that you want to buy such and such a stock — but you can place an order in a number of other ways that give you better protections. The four basic types of orders you can place are market orders, limit orders, stop orders, and stop-limit orders. Understanding the language and using it to protect your assets and the way you trade are critical to your success as a trader.

Putting a stop-limit order in place may sound like the safest way to go; however, doing so may not help you in a rapidly changing market. A market order is the way your broker normally places an order unless you give him or her different instructions. Generally speaking, buy orders are filled at the ask price and sell orders are filled at the bid price. Whenever the order involves the NYSE, you need a good floor broker. In most brokerage houses, market orders are the cheapest to place with the lowest commission level. You can place either a buy limit order or a sell limit order.

A sell limit order can be executed only when a buyer is willing to pay your limit price or higher. The risk that you take when placing a limit order is that the order may never be filled. That high will likely be a temporary top that quickly drops back to reality, forcing you to sell the stock at a significant loss at some point in the future.

Most firms charge more for executing a limit order than they do for a market order. Be sure that you understand the fee and commission structures if you intend to use limit orders. Stop order You may also consider placing your order as a stop order, which means that whenever the stock reaches a price that you specify, it automatically becomes a market order.

Investors who buy using a stop order usually do so to limit potential losses or protect a profit. Buy stop orders are always entered at a stop price that is above the current market price.

Day Trading for Dummies (6 Tips Every Beginner Should Know)

When placing a sell stop order, you do so to avoid further losses or to protect a profit that exists in case the stock continues on a downward trend. The stop price is always placed below the current market price.

Chapter 2: Exploring the Markets and the Stock Exchanges 31 The big disadvantage of a stop order is that if for some reason the stock market gets a shock during the news day that affects all stocks, it can temporarily send prices lower, activating your stop price. If it turns out that the downturn is actually merely a short-term fluctuation and not an indication that the stock you hold is a bad choice or that you risk losing your profit, your stock may sell before you ever have time to react. After your stop price is reached, a stop order automatically becomes a market order and the price that you actually receive can differ greatly from your stop price, especially in a rapidly fluctuating market.

You can avoid this problem by placing a stop-limit order, which we discuss in the next section. However, most brokers offer a service to simulate a stop order. If you want to enter a stop order for a NASDAQ stock, your broker must watch the market and enter the market or limit order you designate as a stop when the stock reaches your specified sale price. Stop-limit order You can protect yourself from any buying or selling surprises by placing a stop-limit order.

This type of order combines the features of both a stop order and a limit order. When your stop price is reached, the stop order becomes a limit order rather than a market order. A stop-limit order gives you the most control over the price at which you will trade your stock. You can avoid a purchase or sale of your stock at a price that differs significantly from what you intend.

But you do risk the possibility that the stop-limit order may never be executed, which can happen in fast- moving markets where prices fluctuate wildly. In this case, the limit side of the order actually prevents the sale of the stock and you risk riding it all the way down until you change your order. Stop-limit orders, like stop orders, are more commonly used when trading on an exchange than in an OTC market.

Who trades on Forex?

Broker-dealers likewise can limit the securities on which stop-limit orders can be placed. If you want to use stop- limit orders, be sure to review the rules with your broker before trying to execute them. GTC orders are placed at a limit price and last until the order actually is executed or you decide to cancel it. You can choose to use this type of order whenever you want to set a limit price that differs significantly from the current market price.

Many brokerage firms limit how much time a GTC can remain in place, and most of them charge more for executing this type of order. Other order types Less commonly used order methods include contingent, all-or-none, and fill-or-kill orders. Contingent orders are placed on the contingency that another one of your stock holdings is sold before the order is placed. An all-or-none order specifies that all the shares of a stock be bought according to the terms indicated or none of the stock should be purchased.

A fill-or-kill order must be filled immediately upon placement or killed. The differences between brokers are based on prices, services, and special capabilities. High-volume swing traders and day traders typically require the services of a direct-access broker, while position traders can and do trade successfully with more traditional discount, online, and full-service brokers.

In this chapter, we help you understand the brokerage options that are available, the types of accounts you can establish, and the basic trading rules you must follow. Why You Need a Broker Unless you plan to get your brokerage license from the National Association of Securities Dealers NASD and set up shop yourself which is hard — and expensive — to do , you need to work with a broker to be able to buy and sell stocks. How you choose a broker is based on the level of individual services you want.

The more services you want, the more you pay for your ability to trade. Brokerage houses or brokerage services are also usually referred to as brokers for short.

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