It’s not easy trading in the stock market.
As an investor, you must navigate through a market influenced by CEO greed, fudged books, lawsuits, and even FDA or Congressional rulings that can hurt your best stock plays.
This happens so often that some mainstream investors only trade broad-based ETFs or mutual funds that have 50-100 stocks inside them, rather than take a risk on a single stock.
If that wasn’t bad enough, governments can also throw “extra rules” into the mix.
For instance, right now stocks are slipping and sliding all over the place. So many countries are instituting a ban on “short-selling” some stocks.
Recently France, Spain, Italy, Belgium, Greece, Turkey and South Korea have created some rules against short-selling.
With a short-selling ban in effect, it means that even if you believe a stock will drop in value… you can’t try to profit off that decline by simply shorting stocks. That’s very frustrating.
That’s why some call the stock market an “up-only” market. With these rules, governments make it easier to profit off an “up” market and make it very difficult for you to profit in a “down” market.
That’s a shame. When it’s allowed, short-selling can help protect your overall portfolio when stocks start sliding off the map. Also, you can earn some of the fastest profits from short-selling in “down” markets because markets drop a lot faster than they rise.
We saw that over the last few weeks with the DOW and S&P 500 erasing all their gains for 2011 in a couple days. That’s pretty common. In fact, it usually takes an index all year to gain 10% to 20%. Then it can drop as much as 30% in a week.
So if you were able to short during those times, you would make a decent return for a full year within days or weeks.
Fortunately, you can do the exact same thing in the currency markets, regardless if there is a ban on short-selling or not…
First of all, there are NEVER any short-selling bans in the foreign exchange market. You can’t ban short-selling in currencies because of how they are traded.
Currencies trade in pairs. So when you buy the first currency listed in the pair, by default you’re also shorting the second currency anyway. And if you short the first currency listed in the pair, you’re automatically still buying the second currency in the pair.
So if I bought the EUR/USD (the euro vs. the dollar), I’m buying euros and shorting dollars at the same time. If I shorted EUR/USD, I’m short the euro and long the dollar.
In other words, you’re always shorting something. That’s why there will never be “short-selling bans” in the spot forex market.
It also means you can just as easily profit in a “down market” in currencies than in an “up” market.
As an investor, you must navigate through a market influenced by CEO greed, fudged books, lawsuits, and even FDA or Congressional rulings that can hurt your best stock plays.
This happens so often that some mainstream investors only trade broad-based ETFs or mutual funds that have 50-100 stocks inside them, rather than take a risk on a single stock.
If that wasn’t bad enough, governments can also throw “extra rules” into the mix.
For instance, right now stocks are slipping and sliding all over the place. So many countries are instituting a ban on “short-selling” some stocks.
Recently France, Spain, Italy, Belgium, Greece, Turkey and South Korea have created some rules against short-selling.
With a short-selling ban in effect, it means that even if you believe a stock will drop in value… you can’t try to profit off that decline by simply shorting stocks. That’s very frustrating.
That’s why some call the stock market an “up-only” market. With these rules, governments make it easier to profit off an “up” market and make it very difficult for you to profit in a “down” market.
That’s a shame. When it’s allowed, short-selling can help protect your overall portfolio when stocks start sliding off the map. Also, you can earn some of the fastest profits from short-selling in “down” markets because markets drop a lot faster than they rise.
We saw that over the last few weeks with the DOW and S&P 500 erasing all their gains for 2011 in a couple days. That’s pretty common. In fact, it usually takes an index all year to gain 10% to 20%. Then it can drop as much as 30% in a week.
So if you were able to short during those times, you would make a decent return for a full year within days or weeks.
Fortunately, you can do the exact same thing in the currency markets, regardless if there is a ban on short-selling or not…
Why Stock Traders Love the Currency Markets
I crossed over from being a stock trader to a currency trader about seven years ago. When I first started trading currencies, I couldn’t believe how refreshing it was.First of all, there are NEVER any short-selling bans in the foreign exchange market. You can’t ban short-selling in currencies because of how they are traded.
Currencies trade in pairs. So when you buy the first currency listed in the pair, by default you’re also shorting the second currency anyway. And if you short the first currency listed in the pair, you’re automatically still buying the second currency in the pair.
So if I bought the EUR/USD (the euro vs. the dollar), I’m buying euros and shorting dollars at the same time. If I shorted EUR/USD, I’m short the euro and long the dollar.
In other words, you’re always shorting something. That’s why there will never be “short-selling bans” in the spot forex market.
It also means you can just as easily profit in a “down market” in currencies than in an “up” market.
