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Short-selling, ‘bullish’ market & other common trading jargon, explained to an average S’porean

At some point in your life, you’ve probably heard of the people around you dabbling in trading. After all, it makes a lot of sense. With inflation, things generally get more expensive year after year.

At some point in your life, you’ve probably heard of the people around you dabbling in trading.

After all, it makes a lot of sense. With inflation, things generally get more expensive year after year.

The money that you keep stashed in your bank account, or in a cookie tin underneath your bed, will inevitably shrink over time.

Dipping your toes in trading is an alternative way to invest, especially if you can afford to take more risks.

But how does one start trading? Isn’t this for people with tonnes of money (not me), or Wall Street bankers who spend their day scrutinising the market (also not me)?

Well, not exactly. Despite the risks, trading is actually not as complicated as people may think, although admittedly, there are many terms that simply bamboozle the average prospective trader.

Here’s a handy guide for some of the terms to help you on your trading journey.

Bull market/bear market

“The market is very bull-ish now, it’s a great time to start buying!!”

Traders have a pretty unique way of describing how the market is performing: by comparing it to animals.

Two specific animals, to be precise: the bull, and the bear.

A bull market refers to a financial market in which prices are rising, or are expected to rise.

This often takes place when the economy is strong, or is strengthening, and investor confidence generally climbs during this period as well.

Conversely, a bear market refers to one in which prices are falling, or are expected to fall.

A bear market may be due to a weak or slowing economy, or due to certain cataclysmic events which affect investor confidence (like Covid-19).

Can’t remember which is which? The actual origins of these terms are well documented over the years. It is often explained that the terms “bear” and “bull” are derived from the way in which each animal attacks its opponents.

While a bull will thrust its horns up into the air to jab you in the face (soaring stock prices), a bear will respond aggressively by swiping down with its paws (market is retracting).

Short selling

“Wow, you’re short selling XXX, you must know something we don’t!”

Short selling, in case you’re wondering, has nothing to do with your height.

It refers to a trading strategy which speculates on the decline of a stock.

Simply put, you borrow a stock, sell the stock (when the price is higher), and you purchase the stock again, at a lower price, to return it to the lender.

Still confused? Let’s use a simple example to illustrate this.

You borrow 100 shares of a company, whose shares are currently trading at S$1 per share, because you think that the shares of the company are going to decline soon.

You proceed to sell the stocks for a total of S$100.

Assuming your prediction is correct, and the share price dips to S$0.80 per share the next week, you re-purchase 100 shares to return to the lender, and keep a tidy profit.

This is a fairly advanced strategy, namely because you stand to lose A LOT if you speculate wrongly.

Using the same example, if shares proceed to skyrocket in price to S$10 per share instead of declining in price, you stand to lose more than S$900 from your initial S$100 trade.

Ouch.

Unsolicited advice: Don’t engage in short-selling simply because you have a hunch that a stock may go down in price. Make sure you make well-informed decisions (based on actual data), and be mindful of the risks you’re taking – similar to trading when you believe a stock is on the up.

Margin (or leverage)

“Wow, you’re buying on margin, you must be quite confident!”

Trading on margin refers to enhancing your buying or selling power by borrowing to trade.

The idea is relatively straightforward: you use whatever securities you currently have (or cash) as collateral for a loan, and then you use the combined assets to buy more securities than you otherwise could.

As you are using borrowed money for trading, your gains will be magnified.

Naturally, this loan doesn’t come without a catch. If the market moves against you, your losses will also be magnified, meaning you could lose more than your initial deposit.

Additionally, if your margin account falls below a certain amount (likely due to a losing trade), the broker may initiate a Margin Call.

In a margin call, a provider will demand that you deposit additional cash or securities into the account in order to bring it up to a minimum value, known as the maintenance margin.

If you are unable to do so, you may be forced to sell your securities, regardless of the market price, which may put you in an even deeper loss.

Even more unsolicited advice: Don’t engage in margin trading unless you have done your research and you are really, very, absolutely sure about your investment strategy.

Contract for Difference trading

“I heard you are doing Contract for Difference trading, make sure you can bear the risks!”

A Contract for Difference (CFD) is a form of derivative trading, which enables you to speculate on the rising or falling prices of fast-moving global financial instruments, such as shares, commodities or forex.

Unlike conventional trading, you don’t actually buy or sell the physical asset when you trade CFDs.

Instead, you enter into an agreement with the provider on the ‘price’ of whatever you are buying. As you don’t own the physical share, CFDs open up additional markets to trade outside of traditional shares.

This includes oil, gold, the US dollar, and even commodities like soybeans.

CFDs are also leveraged products. This is effectively the same as trading on margin, meaning that you only need to deposit a small percentage of the full value of the trade in order to open a position.

While CFD trading has the potential to magnify your returns significantly, you may also lose more than the capital deposited, which can be very problematic.

CFD trading can be highly lucrative, as it allows you to amass huge profits, even if you lack significant capital.

However, it is important to bear in mind that CFD is a very risky form of investment, and that losses are most often a part of CFD trading strategies.

Consider using CMC Markets to start your investment journey

Still confused? Totally understandable.

For a beginner, trading and investment may seem really complicated, but with a little bit of research, it’s honestly not rocket science.

This is also something that is really useful for everyone to understand, given how it is vital for us to beat inflation (I assume this is quite important for most people).

If the road ahead seems daunting, no worries.

You can consider using CMC Markets to help you kick-start your investment journey.

CMC Markets is an award-winning trading provider with over 30 years of experience in the industry. The platform allows traders to access competitive spreads and low margins, which will keep your trading costs down.

They also have an app for both Apple and Android users.

Opening an account with CMC Market is free, and new users can open a demo account, where they will be provided virtual money to test out the platform’s features, before they decide to start trading for real.

CMC is also licensed and regulated by the Monetary Authority of Singapore (MAS), so users can rest easy.

Ultimately, trading is not for the faint of heart, and there are certainly risks involved.

However, if you spend the necessary time to learn more about trading, and you manage your risks carefully, the upsides can be spectacular (for your wallet).

This sponsored article by CMC Markets made the writer wish he spent more time learning about trading, and less time hoping for a magic genie to appear.

Visit cmcmarkets.com.sg for more information. 

This advertisement is for information only, not an investment recommendation or financial advice. Losses can exceed your initial deposit. See risk warning/disclosure & other important information on cmcmarkets.com.sg. This advertisement is not reviewed by the Monetary Authority of Singapore (MAS). CMC Markets is regulated by MAS. 

Top image via Unsplash.

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Donald Trump blasts ‘fools’ who oppose good Russian ties

US President-elect Donald Trump has posted a progression of tweets censuring the individuals who contradict great relations with Russia as “‘dumb’ individuals, or nitwits”.

Mr Trump promised to work with Russia “to comprehend a portion of the numerous… squeezing issues and issues of the WORLD!”

His remarks came after an insight report said Russia’s leader had attempted to help a Trump race triumph.

Mr Trump said Democrats were to be faulted for “gross carelessness” in permitting their servers to be hacked.

In a progression of tweets on Saturday, Mr Trump said that having a decent association with Russia was “no terrible thing” and that “lone “idiotic” individuals, or simpletons, would believe that it is awful!”

He included that Russia would regard the US increasingly when he was president

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Broker news

Bulls and Bears Took on More Currency Exposure in Week Through January

he most striking improvement among theoretical situating toward the finish of a year ago and the primary session of 2017 is not that modification were little. There was just a single gross theoretical position modification of more than 10k contracts. With sterling apparently not able to maintain even humble upticks, the bears added 13.1k contracts to the gross short position, lifting it to 120.2k contracts.

Or maybe, it is eminent that examiners for the most part added to positions, long and short, as opposed to close positions at the very end of the year. Examiners added to net long outside cash prospects positions, aside from in the Japanese yen and Swiss franc where 2.6k and 2.5k contracts were exchanged separately. Examiners likewise added to gross short positions. Here there was just a single exemption, the Japanese yen. Despite the fact that the dollar shut comprehensively higher in front of the end of the week, every one of the monetary forms we track here, spare the Mexican peso, picked up against the dollar in the three sessions since the finish of the CFTC reporting period.

Every once in a while it is helpful to review why many market members take a gander at the theoretical situating in the cash fates advertise. It is not that the outside trade is essentially a prospects showcase. It is principally an over-the-counter market in which every day turnover midpoints in abundance of $5 trillion a day.

Trade exchanged monetary forms and alternatives represented around 3% of the normal day by day turnover as indicated by the BIS study. Be that as it may, past reviews have discovered some contemporaneous connection between’s market heading and net position changes. We think it additionally offers knowledge into a specific market section of pattern supporters and energy brokers. It is not by any means the only device, yet one of a few data sources.

One ramifications of this is albeit theoretical positions in the money fates market are moderately extensive, it is still little contrasted and the money showcase. Along these lines, it is difficult to see the genuine essentialness of a record vast position, as though there is some market top. At some point, examiners are not driving the costs, possibly there is another fragment, national banks, enterprises, as well as genuine cash that is more essential at any given minute.

We invest some energy taking a gander at gross positions instead of just net theoretical positions, which is the more customary approach. We think a more granular look is frequently fundamental. There is a distinction between short-covering, for instance, and new purchasing, however it appears to be identical in the net. Additionally, the gross position is the place the introduction is not the net position. A net position of zero does not mean the market is nonpartisan. Net positions could be huge, which implies a short press or a negative stun could in any case troublesome. The positions that must be balanced are captured in the gross measure not the net figure.

We find numerous customers are likewise keen on theoretical situating in the US Treasuries and oil. The net and gross short theoretical Treasury position has swelled to new records. The bears added 23.8k contracts to the as of now record net short position, lifting it to 616.2k contracts. The bulls attempted to pick a base and added about 20k contracts to the gross long position, which now remains at 471.2k contracts. These modification prompted to a 3.8k contract increment in the net short position to 344.9k contracts.

The bulls delayed in the oil prospects toward the finish of 2016. They exchanged short of what one thousand contracts, leaving 608.1k gross in length contracts. The bears added 4.1k contracts to the gross short position, giving them 168k. These conformities trimmed the net long position by very nearly 5k contracts to 440.1k.

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3 ways to profit in the ‘year of the dollar’

In December, the Federal Reserve raised loan fees for the second time since the Great Recession and included the desire of a 2017 financing cost climb to its gauge. Furthermore, only a couple days prior, the abundantly anticipated minutes from the most recent Fed meeting demonstrated the most hawkish tone from the national bank in two years.

In the meantime, Europe has been dove into political turmoil after a year ago’s Brexit vote and the later abdication of Italy’s leader. Somewhere else, the Bank of Japan proceeds down the way of negative rates and forceful security purchasing.

Put it all together, and it isn’t astounding that the U.S. Dollar Index is up against 14-year highs.

Speculators may have missed so much discussion on account of babble about the Dow Jones Industrial Average at the end of the day almost hitting 20,000. Be that as it may, paying little respect to your assignment to stocks or your venture skyline, this sort of huge picture incline in the dollar implies right now is an ideal opportunity to position your portfolio to benefit and, maybe most critical, to keep away from a portion of the pitfalls that can originate from a solid local cash.

Here are a couple ideas dollar exchanges ought to consider:

Residential plays over multinationals

There’s a considerable measure of seek after shopper stocks in 2017 on account of an enhancing work market and any desires for a jolt under a GOP-controlled Congress and President Donald Trump. In any case, remember that not all retailers are made equivalent especially those with abroad operations that are adversely affected by the wide dissimilarity in monetary standards at this moment.

For example, retailer Wal-Mart Stores Inc.(WMT) said troublesome money trade rates shaved very nearly 2.5% off profit for each partake in the second quarter of 2016. On the other hand consider that in the monetary final quarter of 2016, athletic attire goliath Nike Inc.(NKE) saw its income development cut down the middle because of forex weights, from 12% year-over-year in consistent cash measures to only 6% including real money changes.

To take advantage of the “reflation” exchange that numerous financial specialists are counts on in 2017, you need to represent the headwinds that a solid dollar are making for multinationals at this moment. The most ideal approach to do that is to consider customer plays that do by far most of their business here in the U.S. – for example, Foot Locker Inc.(FL), which has been an uncommon splendid spot in retail throughout the most recent couple of years.

Supported money ETFs

Obviously, in the event that you need a steady portfolio, you can’t just purchase just local centered values. Geographic expansion is similarly as imperative as enhancement crosswise over parts and resource classes. Such a large number of financial specialists keep on holding worldwide plays in light of a legitimate concern for a balanced portfolio, regardless of the possibility that it implies battling a daunting struggle as a result of a solid dollar.

The uplifting news, notwithstanding, is that you don’t need to leave yourself to torment through a solid dollar and a powerless euro when you put resources into Europe. Nor do you need to stress over the yen-dollar conversion standard when you put resources into Japan. That is on account of there’s an entire group of cash supported ETFs to permit financial specialists to put their cash in outside business sectors yet keep away from forex issues.

Consider that Japan’s Nikkei 225 file is up around 25% from its July 2016 lows. The WisdomTree Japan Hedged Equity Fund(DXJ) is up 35% in a similar period on account of assurance from forex issues and a somewhat better-performing rundown of stocks – while the non-supported iShares MSCI Japan ETF(EWJ) is up only 10% in a similar period because of battling a difficult task against a solid dollar.

In the event that you need to differentiate your portfolio comprehensively, you ought to consider supported assets that incorporate the Japan-centered DXJ, the WisdomTree Europe Hedged Equity Fund(HEDJ) to play Europe or the iShares money Hedged MSCI EAFE ETF (HEFA) for developing markets.

Dollar list ETF

In the event that you are searching for an immediate play on a rising dollar as opposed to putting resources into stocks, figuring out how to exchange remote trade can appear like an overwhelming undertaking. Gratefully, there’s the PowerShares DB US Dollar Index Bullish Fund(UUP).

This ETF is attached to the U.S. Dollar Index, which is a measure of the greenback against a wicker container of other worldwide monetary standards including the yen and the euro. It’s a straight money play, however that doesn’t make it straightforward or hazard free. In the event that the dollar debilitates, you’ll lose cash similarly as though you’re putting resources into a stock that has fallen on difficult circumstances. Furthermore, obviously, PowerShares takes a little cut of your speculations en route that indicates 0.8% yearly, or $80 a year on each $10,000 contributed.

Still, in the event that you need to conjecture on the dollar or support against a solid U.S. cash keeping down other worldwide ventures on your rundown, it’s maybe the least demanding approach to do as such for generally financial specialists.

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