Trading Strategies


Trading Strategies

Investors always have numerous trading strategies with them. These days market has moved to virtual platform from physical. People have easy and convenient way to trade in Forex, indices , gold & silver, currency and stocks. You can start trading and investing with a click using some portable platforms that are legal and trustworthy. However, every strategies of trading are brought down from two main strategy for trading. We will be briefing about these trading strategies here.

Long Position Trading Strategy: A long position strategy involves simply buying and holding the asset in order to profit from any price appreciation, cash dividends, interest or other income. Long position trading has remained the most popular investment strategy. A long position in a security is appropriate in anticipation of rising price. Long position trading strategy always results in positive returns if the price of stock or commodity increases. This strategy is less risky than short position trading strategy as the maximum loss on a long position is -100 percent, which would only occur if the price declines to zero. For example: Mr. Angus buys 30 share of Apple Inc. in $234/share and he waits for a year. After a year the price of individual share of Apple Inc. becomes $280. Thus, Mr. Angus holded the share os Apple Inc. for a year and sold it with nice profit after a year.

You can calculate the rates of return under long position using following formula:

Rates of Return = (Ending price - Starting price) + Dividend / Starting price

 

Short Position Trading Strategy: Short position trading or short sales allows investors to profit from a decline in security's price.

Short position trading or short sales allows investors to profit from a decline in security's price. Here, an investor borrows a piece of share or commodity from a broker and sells it. Later, the short seller must purchase a share of the same stock in the market in order to replace the share that was borrowed. This term is called covering the short position.

While following the short position strategy, the short seller anticipates the stock price will fall, so that the share can be purchased at lower price than it initially sold for. This way the short seller reap the profit.Here, short seller must not only replace the share but also pay the lender of the security any dividends paid during the short sale. Following short position trading strategy is being in more risk. However, many traders prefer short position as there is no limit of the possible loss or possible gain. For example: Let us assume Mr. Bond is trading currencies, he brought 1000 Euro while it's price was depreciated. He waits some moment and sells the currency again while the price fluctuation rises than the price where he brought the currency.

You can calculate the rates of return under short position using following formula:

Rates of Return = (Starting price - Ending price) + Dividend / Starting price

Apart from these strategy, real market compose of different techniques used by investors and brokers to deal. Every single person follows their own technique. Beside these techniques understanding the market before investing is a major phase of investment. Share and Forex market are very volatile and changing markets. If you invest without understanding the market structure and prices & graphs you might get bankrupt.