LEADING OR TAKING A WALK?
John Maxwell once said and I quote: “He that thinks he leads while nobody is following is only taking a walk.” When I first came across that statement, I thought it to be quite comical, but now I understand that however amusing it sounds it is profound with meaning. One of the first things that come to mind when analyzing that statement is that leadership is more of a pragmatic than a theoretical concept. Leadership is more of a functional than a positional phenomenon. What do I mean by this?
Well, I have realized that in actual fact not everyone who claims to be in leadership is leading. A person may claim to be in leadership because he occupies a position in an organization. You may be surprised however to surprised however to discover that shortly after this same person vacates that position; he is left with little or no relevance at all. I have understood that influence and relevance are inseparable from true leadership. Put more directly, leadership is about influence and relevance. Let me say therefore that is your leadership is predicated on the position you occupy, then you better watch it closely because people might just be following you not because you are influential or relevant to them, but because they have to respect the authority under which you act.
Influence is not only the bane of leadership but will remain so. You cannot claim to be leading people whom you exert little or no influence on. If I cannot inspire or stir up a particular desired, predetermined pattern of thought in people and get them to act out that pattern of thought then my leadership is suspicious. Look at all the people in world history whom we consider to be great leaders, we consider them to be great because of the influence they had on their world and still have on our world. The biblical Daniel influenced his three Hebrew brothers into preferring pulse and water to the suspicious but idolatrous meals the kings of Babylon offered, Jesus got Peter, Andrew, James and John to abandon lucrative fishing career to follow a way they knew nothing about . in a negative sense, Adolph Hitler under Nazi Germany got his men not by coercion but influence, to embark on the annihilation of the Jewish race. I’m sure that right now you can remember someone who has led by influence.
I want to say at this point that I do not think there is anyone who would not want to be a powerful leader. Everybody wants. But why are there few who become powerful leader as a result of their influence? The answer found in two very important words: Character and Charisma. Time and space will not allow me to delve into them now. Please do me a favour by answering this poser very sincerely and personally: Are you actually in leadership or are you just taking a walk?
Monday, May 11, 2009
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MASTER ING THE FOREX ENVIRONMENT
A change in price of one "point" in Forex trading is referred to as a pip, and it is equivalent to the final number in a currency pair’s price. For pairs that involve the Yen (like in our USD/JPY example), a pip is counted from the second decimal place, 120.94. For all pairs that don’t involve the Japanese Yen a pip is the fourth decimal place, 1.3279. For the EUR/USD pair that rate would mean that it takes 1.3279 Dollars to get 1 Euro. The value of a pip will be explained on the next page when we discuss margin and leverage.
More Trading Terminology and the Spread
A bid price is the rate at which the market is prepared to buy a specific currency pair in the Forex trading market. This is the price that a trader will receive when selling (shorting) a currency pair. An ask price is the rate at which the market is ready to sell a particular currency pair. This is the price that a trader will have to pay in order to buy (long) the currency pair. The bid/ask combination comprises a quotation, which is based on a floating exchange rate. The quotation lists the bid price first, then the ask price. For the USD/JPY pair the quote will be 120.93/96.
The disparity between the bid and ask is known as the spread, which reflects the difference between the rate offered by a market maker such as CMS to sell a currency pair and the rate at which the market maker will buy the pair. The value of the spread is greater for currencies that are traded less frequently on the market than for the cluster of the major trading currencies. Contrary to stock market firms, Forex market makers generally do not charge a commission for every transaction, and instead obtain their compensation from the spread.
Explanation of Margin and Leveraged Trading
Now that we know some of the basics of Forex terminology we need to discuss the idea of leverage and how pips are valued. The Forex market is exciting and accessible to small retail traders because of the industry’s high leverage options. Leverage gives a trader the ability to increase the potential return on an investment. Leverage works both ways however; it increases potential returns, but it also increases potential risk. Therefore leveraging magnifies both gains and losses.
Leveraging a position involves putting down collateral, known as margin, to take on a position that is larger in value. Currency pairs are usually traded in 100,000 unit standard lots or 10,000 unit mini lots. This means that the trader buys 100,000 of the base currency, while selling the equivalent number of units of the counter currency as dictated by the current exchange rate. When the ask price for EUR/USD is 1.2500, 100,000 Euros are bought while 125,000 Dollars are sold. For a standard contract (1
The above figures appear to put Forex out of reach for small and medium traders. Although this was the case historically, regulatory modernization has allowed smaller sized traders to participate in Forex by offering high-leverage trading. A stock broker might offer 2:1 leverage, meaning that you would need to have $500 in your account to buy $1,000 worth of stock – in Forex, leverage goes as high as 400:1. At 400:1, you would need to have $250 in your account in order to buy one standard lot of EUR/USD. With a leveraged position, a Forex trader magnifies the potential gains from any price movements, however, as was mentioned before, losses are magnified by the same degree.
High-leverage trading is the essence of what distinguishes retail Forex from other markets.
How is this possible? In the Forex market, when trading the established currencies that CMS Forex offers, the amount that a currency changes in any given day is quite small. A one cent (or approximately 100 pip) change in the value of a currency is considered a large move. Therefore Forex dealers can afford to hold a fairly small amount of collateral for any given position.
If the market moves against a trader resulting in losses such that the trader lacks a sufficient amount of margin, there is an automatic margin call. The Forex dealer closes the trader’s positions and limits the losses for the client because this stops the account from turning into a negative balance.
Tying Everything Together in an Example
Let’s take a trader with $1,000 in his account, which is his total balance or equity. Our trader buys 1
Now let’s say the same trader keeps his 1 Lot Buy position of EUR/USD open. If the position makes money, the gains are added to the floating equity in the trader’s account. Likewise if the position goes against the trader the losses are subtracted from the account’s floating equity. These floating gains or losses are realized when the trader closes the position (or the position triggers a margin call).
If the price moves 100 pips in the trader’s favor (the exchange rate moves upwards one cent to 1.2850), then the trader would make a $1,000 gain ($10 per pip × 100 pips). The trader has effectively doubled the size of his or her account, a 100% return on the trader’s $1,000 account, or a 400% gain on the $250 margin. Conversely, if the direction of the market had gone at least 75 pips against the trader, his or her position would have been closed due to a margin call when the floating equity reaches $0 from $750. The margin call comes as the account’s total equity drops below the $250 margin requirement. The trader would have a loss of approximately $750, or 75% of his or her initial account, and about $250 – the original margin requirement, remaining.
One should consider the risk involved in trading on the FOREX market. The trader is free to decide whether to take a conservative or a risk-taking approach in making trades. Conservative trading means placing fewer trades over longer periods, with smaller lot sizes, strict risk management, and modest profit targets.
One may use limit and stop orders to decrease the involved risk in trading. When placing a market order, many experienced traders already know the levels at which they will want to exit the trade. The 24 hour nature of the Forex market makes it difficult for a trader to make timely trading decisions, since large market moves may happen while he or she is away. Limit and stop orders automatically close out open positions (or open new ones) when price reaches a certain level.
Limit orders are designed to take gains on a position by closing it out at a predetermined price. For a long position, a limit order is placed above the current price. If a trader holds a short position, then a limit order will be placed below the current price.
A stop order may be used to minimize losses. For a long position, a stop order is placed below the current price. If a trader holds a short position, then a stop order will be placed above the current price. Also known as a "stop-loss order", its purpose is to close out a position in which the market is moving against you, limiting your losses on a trade.
Each "candlestick", the individual blue and red shapes, represents price activity for a certain amount of time. The body of the candlestick bar is comprised of the difference between the open and close price. If the opening price was lower than the closing price or the given currency pair gained value, then the body of the bar is blue. To contrast, if the opening price was higher than the closing price or the given currency pair lost value, then the body of the bar is filled red. If the high and low prices for the period are located outside of the open-close range they are marked off by two lines known as the upper and lower shadows. The upper shadow protrudes from the top of the candlestick's body and marks the high price for the given time period represented by the bar. Conversely, the lower shadow protrudes from the bottom and marks the low price.
The red box on the bottom left-hand side of our graph below shows the currency pair and the length for the period. Here, each candle is equivalent to 30 minutes of market activity.
So with all that said, we are looking at a 30 minute chart of the USD/JPY pair. The chart encompasses the price activity for about three trading sessions. Each session is more easily identified by the high-low zones, which separates the current graph into three distinct sections. A trader should do extensive analysis before placing a trade, which we will not do here. For instance one should see how the short term outlook compares to the long term outlook. We will focus on the short term right now.
We can gather from the short term information that the Dollar has been rising for the past 3 trading sessions. The last 6 candles bucked the trend as the Yen gained in strength against the Dollar. The position that a trader will open depends on what the trader speculates will happen next.
If he or she believes that the recent downward move is the beginning of a new short term downward trend, he or she would sell the pair (sell the Dollar/buy the Yen). The trader would then make money if price action continues to head downward. If the Dollar recovers and starts heading up again this trader would be wrong and lose money on his or her position. If the trader believes that the Yen's strength was an anomaly from the upward trend, they would buy the pair (buy the Dollar/sell the Yen).
For our USD/JPY example, we are going to Buy the pair, as we think that the recent Yen gains are going to be reversed, and the low point is actually a good place to buy the Dollar at a cheaper rate than at the start of the trading session.
At the same time, we will open another position for the sake of comparison that bets against the Dollar. It would be too simple to take the Sell side of our USD/JPY pair, and therefore the positions would be mirror opposites of each other.
Therefore we will pick another pair, the EUR/USD, and see how the Dollar does when we buy the Euro/ sell the Dollar. Since the Dollar comes first in the USD/JPY pair and second in the EUR/USD pair, it still makes sense that we Buy both pairs, as we are buying the Dollar against the Yen in the first example, and are buying the Euro and therefore selling the Dollar in the second case.
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