Wouldn’t it be great if you could earn money while you sleep? Good news: with online trading, you can.
As Gordon Gekko said in the movie Wall Street: “Money Never Sleeps” (which was also the subtitle to the movie’s sequel). That is absolutely a true statement.
There is always a bull market somewhere. It may not be in the US, but somewhere else in the world, where stocks are traded on an exchange that’s active while you’re blissfully sleeping. The good news about that, of course, is that your stock value can climb before your alarm wakes you up in the morning. If that happens then you have, effectively, earned money while sleeping.
Here are some tips about trading stocks on foreign exchanges.
Expect Enhanced Risk
There is an added component of risk to trading stocks on foreign exchanges. There are two reasons for this. First, some countries simply don’t have economies that are as stable as the the US economy.
Second, you are likely to be less familiar with the factors that influence the rise and fall of stocks in foreign markets. Those factors may even be influenced by cultural and religious beliefs that are different from those in the US.
Proper Use of Margins
Unless you want to lose the profits you have earned, you should manage your use of margins. As a rule of thumb, use your margin when everyone appears to believe that the position is stable and there’s minimal risk of a shortfall.
It’s a good idea to hedge your margin investments with married puts as well.
Market Patterns
Whenever you trade on foreign exchanges, be advised that there is usually one market trend that is predominant over the others. For example, during a bull market, you’ll find clear sell signals. Target your trades when those trends occur.
Use Stop-loss Orders
You can limit your losses with a simple stop-loss order on foreign exchanges, just as you (presumably) do on the domestic exchanges. It’s this simple: your position is automatically sold once your loss exceeds a certain threshold. You pick the threshold in advance, depending on your appetite for risk.
Be advised, though: with foreign exchange trading, you’re better off erring on the side of caution. Lots of traders on foreign markets hang on hopefully to losing positions, only to find that they lose even more money later. Be sure to cut your losses as soon as you spot a losing position.
Practice Makes Perfect
You can practice trading on a foreign exchange before you invest even one dime into doing it for real. Why not take advantage of that option before you hazard your hard-earned cash?
Use Relative Strength Indices
You can use relative strength indices to learn about the average losses or gains of an entire market. This gives you an idea of the potential of the entire market, as opposed to the potential for a particular stock. If you find that a particular market is relatively weak, you should probably avoid investing in it.
Get Advice
If you’re new at this, then you should be talking to some people who are experienced at trading on foreign exchanges. Don’t try to learn everything the hard way by making mistakes you can avoid if you had receive some helpful advice from people more knowledgeable than yourself.