The Volatility Index (VIX)is an important indicator of market turbulence. Recently, it emerged that traders were utilizing cutting-edge algorithms to manipulate the VIX by posting quotes on the S&P 500 options index without actually buying or selling any of the underlying financial instruments. This surprising revelation was made by a whistle-blower, and the market movements resulted in substantial costs for investors across the board. The VIX, otherwise known as the fear index gauges volatility in the equities markets. The higher the figure, and the sharper the rise, the greater the selloff. There are many ways to gauge the performance of equities markets, notably:

• Inflation Rates
• Employment Figures
• Economic Indicators
• US Dollar Index (DXY)
• Probability Analysis of Interest Rate Hikes

The Volatility Index was hovering around 10.0 – 12.0 from September 2017 through January 2018. However, by February, the volatility index momentarily spiked above 47.5, before retreating to its current level of 26.24. The numbers themselves are simply reflective of thisbearish sentiment, and the fear mongering taking place in stock markets. The 50-day moving average for the VIX is 13.56, and the 200-day moving average for the VIX is 11.41. The current level is double that, indicating that bullish sentiment on Wall Street has temporarily receded, and the bears are out in full force. Based on the above graphic, it is clear that the S&P 500 index is entering correction territory which means that a 10% decline in the overall level of the index has been reached. The current performance of the major 3 US bourses for the year to date is as follows:

• The Dow Jones Industrial Average is down 0.98% for the year to date however, it has a 1-year return of 22.83%
• The S&P 500 index has a year to date return of -0.84%, and a 1-year return of 16.12%.
• The NASDAQ composite index has a year to date return of 0.98%, and a 1-year return of 22.29%.

Clearly, despite the negative hype in February, the longer-term performance of US equities markets remains bullish. This indicates that the fundamentals of market dynamics are strong. If we look to the US economic indicators, it is clear why traders should remain optimistic in their trading decisions says Wilkins Finance guru Marcus Powell:

“The US GDP growth rate was last measured at 2.6%, and the unemployment rate remained steady at 4.1%. Currently, the inflation rate is 2.1%, and the interest rate is at 1.5%. These are positive economic indicators, and they point to a fundamentally sound economy. If we turn our attention to business confidence, the rating of 59.1 index points is bullish. Anything above 50 represents an expansionary economy, or positive sentiment. Both the services PMI and Manufacturing PMI are above the critical 50 benchmark at 53.3 and 55.5 respectively. These are important growth triggers for traders.”

What Trading Options Are Likely to Make an Impact in 2018?

The usual suspects will remain hot favourites this year, including bank stocks, financial stocks, and believe it or not equities in general. We are in correction territory, perhaps even heading towards a short-term bearish market – but that does not mean that the equities bull run is over. Corrections allow traders and investors to capitalize on value-driven purchases of blue-chip stocks. If you can score Google, Facebook, Bank of America or other stock at discount of 10% to 15%, why not buy into the markets?

The rise in interest rates is inevitable – this is part of a long-term strategy of quantitative tightening that the Fed has adopted. The current interest rate is 1.5%, and is likely to jump 25 basis points by Wednesday, March 21, 2018. Rate hikes help bank stocks and financial stocks, given that they make their money from interest-related repayments. As a rule, the safe money is always on bank stocks at times like this. Derivatives trading can protect against stock market declines with things like put options on bank stocks, call options on gold, and further diversification of financial portfolios.

Firstly, what is online trading?

Put simply, online trading is when a trader buys or sells financial assets using an online trading platform, rather than commissioning an individual or brokerage firm. Online trading has seen an increase in popularity among newbie traders as it allows freedom to trade without the assistance of a broker, as well as offering lower rates of commission and a smaller amount of capital to get started. Nearly all types of assets can be traded online, including bonds, stocks, currencies, futures and options, with minimal fuss and zero office overheads if trading from home. All that is required is connection to the internet and access to a computer. It is important though that those considering online trading have an in depth understanding of not only the process but also the risks involved before starting out to minimise chance of loss. While online trading can be extremely lucrative, there’s potential for loss if not approached wisely. Never bet more than you can afford to lose, and seek advice from an independant financial advisor or broker before starting, as this will enable you to gain understanding and make intelligent bets. A popular type of online trading is in binary options, which we’re going to look at in more detail.

‘Binary Options’

Binary options are derivative products, in that their value derives from the movement in value of a base or underlying asset of some kind. This base asset could be a stock, currency pair or indice, and the point of the trade is to correctly predict the outcome of a ‘yes’ or ‘no’ scenario. Will the value of US/EUR currency pair be above a certain value by 4pm today? Yes or no? If a trader is successful with a ‘yes’ in their bid to buy at say $40, they will earn a fixed amount less the $40 bid price. Binary means there are only two options; yes or no. There are many factors that influence whether a base asset will rise or fall prior to a particular point in time, and these factors are known as ‘indicators’. Indicators include major economic announcements (such as unemployment rates, business news, investor interests, take-overs etc) and a variety of worldwide business/economic figures. Experienced traders use their up to date knowledge of specific markets to predict the outcome of a binary option. The ability to read economic signals and keep up to date with as much market news as possible is key to successful online trading.

Even after intensive research on past and current events there is still no guarantee of success, as sometimes information that would have led to a correct prediction has been missed or misinterpreted. There are some useful tools that can help advise online traders when it comes to generating predictions, such as binary option robots, known as BOTS. Binary Options Bots are advanced pieces of software that automatically analyse large chunks of historical and current market data. They use a complex algorithm to number crunch masses of relevant information and churn out hundreds of predictions within seconds. They can significantly reduce the amount of research an individual trader has to carry out but should only be used to complement and advise, rather than as a fail safe measure for success.

Do I need qualifications to trade online?

You don’t need any specific qualifications to trade online, but a background or even interest in finance or investing, albeit not necessary, will increase your chances of success. While qualifications aren’t necessary, as discussed already an interest in current affairs, finance and the stock market is crucial, and as with any type of trading you will want to minimise costly errors by studying the industry as much as possible before attempting live trading. The markets are changing and reacting continuously so believing yourself to be an expert is dangerous – approach it as a continuous learning curve, continually keeping yourself up to date. Start with small trades that you can afford to lose until you’ve gained the knowledge, experience and confidence to bet higher – but never betting more than you can afford to lose. This is not advisable and can lead to financial losses.

Where do I start?

The best place to start online training is, of course, online! Do your research and find a well established online broker that offers up to date trading platforms, as well as advice to help you get started. Large firms such as CMC Markets and other reputable online broker provide training materials and demo accounts where novice traders can practise with virtual money until they feel confident to use their trading platforms. This is hugely beneficial, as research, while important, is no substitute for experience.

Lastly, tips to help you get started

Never invest more than you can afford to lose although We’ve already discussed this in detail, it is so important not to get carried away and bet more than you can afford to lose, as this can have disastrous consequences. Once you’ve made a profit, use this as a base to  then invest from, slowly building it up over time.

Start small Start by making small investments, increasing the amount after you have gained experience and feel confident to do so.

Ensure you have enough time to dedicate to research Online trading should be approached as a part time job, not as a hobby. It’s imperative that you keep yourself up to date with the latest political and financial news. If you don’t feel that you will have enough time to do this, seek help from a professional who can trade on behalf of you.

Be patient! Building profit from online trading isn’t instant – it requires patience and perseverance. Patience will not only allow you to make informed, rational bets, but you will require patience if you want to see your income rise, as everyone will experience losses. Ideally you will build profit and use this to trade, making educated bets and having made enough profit so that you can afford to stomach any losses. If you persevere, as your experience grows you are far more likely to succeed and find online trading to be a rewarding and profitable experience.

Trading CFD is the term that experts at XTrade use to describe when people make a trade on the difference between the point where the trade is entered and exited (The Contract for Difference). The CFD is an instrument which reflects the movements of the asset being traded. It is what allows for a profit or loss to be realised when the asset moves in relation to the position that was undertaken. The underlying asset is not actually owned when someone is trading CFDs. All that happens is that a client makes an agreement with a broker.

The Popularity Of Trading CFD Rises

The idea of trading CFD has really taken off in the last few years – it has become one of the most popular forms of trading as people find that it is more convenient, and faster, than actually buying the asset itself – whether the asset is a share, a currency pair, or a commodity.

CFDs are popular in part because brokers like XTrade require much smaller margins for them than they do for traditional assets. A traditional broker may expect a 50% margin, which means that you need to put down a lot of money to get started with worthwhile trades. A CFD broker will allow people to trade for a margin of around one tenth that – which means a much, much smaller outlay.

Before you get too excited, though, note that when you enter into trading CFD, the position shows a loss that is equal to the size of the spread. Before you can even break even, the stock will need to appreciate by the size of the spread. That, essentially, is the commission that you are paying to the broker. So, at that point you are not making much of a profit.

Where things get appealing, though, is that if the stock continues to appreciate, then the gains will be bigger, in percentage terms, than they would be on the owned stock itself.

Benefits Of Trading At XTrade

CFDs offer the benefit of more flexibility, higher leverage, and, once that ‘commission’ is paid off actual gains (whereas there will be commissions and other fees to worry about with other trading methods). The lower margin requirements mean that traders at XTrade can enter the market more easily – however because the leverage is increased, this means that both gains and losses are amplified. You run the risk of making a massive loss if things go wrong with trading CFD – but the same could be said for heavily leveraged accounts with any other form of financial instrument.

Most CFD brokers, XTrade included, offer products all over the world, for all kinds of asset. This means that you can pick something that you are confident in trading, and likely enjoy better success than you would if you were limited to trading in more specific niches.

The CFD market does not usually have a short selling rule, so you can short the asset at any time, with no extra cost. This is something that is not common in other markets, and is a big benefit.

If you have just entered into the exciting world of day trading, or are considering such a move, it’s critical that you are well educated before you put your money on the line. There are some very basic concepts in regards to trading that, once learned, appear to be common sense; however, most newbies have no idea at the outset of their trading career and suffer tremendous losses as a result. With something as potentially profitable or risky as day trading, you absolute cannot go in head first without looking. First, you must understand that there is a method to the madness. There is a reason why some traders find repeated successes while others have a consistently difficult time. If you don’t want to end up broke after your initial stint in trading, it’s wise to learn from the mistakes of those who have failed and the strategies of those that have succeeded and continue to succeed. If you choose to rush in, you might as well save yourself the time and energy and donate all the money you planned on investing to some charity or other. Don’t do it! Take your time, watch the market, and learn as much as you can before making that first trade. 

Strategy 1: Preparation and Education – Although, this has been pretty well covered in the above paragraph, it is important enough that it should be reiterated and remembered again and again.  However, once you’ve made it past your initial self-education on the subject of day trading, you will need to prepare before each trade you make. This is a simple, but incredibly important, process. Avoid unplanned trades at all costs. Study up on the market and be totally certain and ready for your trades before the market opens. This is critical if you are to avoid the typical trading pitfalls and find success in your day trading career.

Strategy 2: Use the Trading Gap to your Advantage – If you are not already aware of the so-called “trading gap,” it is a term that refers to the change in price levels between the open and close of two consecutive days. There are a variety of ways to take advantage of the trading gap and they each should be studied carefully. 

Strategy 3: Focus on the Market, not the P&L Account – Don’t get caught in the trap of focusing on the profits and losses of active trades. Instead, keep your attention glued to the chart price. When properly prepared, your stop should be a predetermined amount of risk. Consider the active trade’s profits and losses to be an unnecessary distraction. It can also cause you to get an incorrect impression about how well your trade is doing. Focus on the chart price and let your stop do its thing.

Strategy 4: Keep it Simple – Day trading can be complicated enough without an overly complex strategy or trading plan. The simpler your core system and plans are, the better it will be for you in the long run. You don’t want to set yourself up for confusion. Confusion will lead to bad trades and losses.

Strategy 5: Forget the Big Move – An all-too-common pitfall of day trading, is the quest for the big move that will make a fortune. It’s true that such moves can be done, have been done, and will be done, but it is usually the result of luck in one way or another. This type of mentality will, in the end, lead to bad trading moves. The goal should be to make consistent small moves that will add up over time. The small move strategy will also minimize risk and losses when a trade goes south. 

Strategy 6: Tenacity – Like any field where the end goal is highly desirable for a large number of people, the majority of traders who fail do so because they give up. The fact remains that the only way to succeed is to stick with it until you are successful. It takes time to understand the market and to get a “feel” for trading. You will have a variety of small successes and failures. However, you can’t actually fail unless you give up. It has been said that if you haven’t succeeded, it’s because you haven’t allowed yourself to fail enough times. This is true for everything and day trading is no exception. Persevere and own it.