Wednesday, September 16, 2015

How profits achieved in trading?



It's an easy question to answer
when trading commodity the profit is achieved when you buy this item at a price and sell at a higher price.
No we can not achieve a profit unless the price to sell is greater than our purchase price for the commodity.
On the basis of simple equation: Profit = sell price - purchase price
we buy and sell at a higher price thus achieved a profit
before you buy a commodity for the purpose of trading to expect that the price will rise.
If we expected that the price of a commodity will rise after a period of time, we buy and wait for the price to actually increase and then sell high price.

We monitor the price movement and when if we expect that the price of a commodity has become a rising any day, we buy and then wait until the price rises actually and then we sell and we get the profit.
But what if we expected that the price of a commodity will fall and will not rise?
What if we expected that car prices will drop in the coming days and will not go up?
Of course it would be foolish to buy a car now; we will find that the price will fall in the next days if we sold we will suffer from the loss.
If the car price now is $ 10,000, but we expect that in the coming days, the price will drop to $ 8,000, it would be foolish to buy them at a price of $ 10,000 if  we will find that the price became $ 8,000 days after If we sold at that price we will suffer from the loss of $ 2,000
Thus we can not begin to buy unless we expect that prices will rise and that the markets in the rise.
This is logic and clear but you may wonder why do I emphasize this?
Because also in falling markets where prices fall we can also achieve profit
How so?
Imagine that you have a car its price in the market price now is $ 10,000

If car prices in decline and that the car price after a few days will drop to $ 8,000, how can you make profit?
Simply you will sell your car now and before that the price decline at a price of $ 10,000 and will put in your pocket this amount, you will wait until the price drops to $ 8,000 and then you buy it again at this price.
What is the result?
The result is that your car back to you, along with $ 2,000 profit.
You sold it at $ 10,000 USD and then re-purchased for $ 8,000 USD i.e. you have returned your car, along with a profit of $ 2,000... !!
This means that you are able to profit from the falling market completely like to profit from the rising market.
With one difference
you are in a bullish market (i.e. where prices are rising day after day), you began the deal with buy and then and ended it with sell.
While In the bearish market you have started with sell and ended with buy.
In a bullish market situation: the purchase price was less than the sale price.
In a bearish market situation: the purchase price is also less than the sale price.
But what has been changed is the order of the deal.
Thus it does not matter that the prices are high or low to make a profit trading.
It is important that your predictions for the market are right.
If you predicted that prices will rise will buy the item first and then sell it when it is actually go up.
But if you predicted that prices will fall you will sell first and then buy when it is actually go down.
In the financial markets it is called LONG term when we begin the deal with buy and the term SHORT when we start with selling.
So long means Buy and short means Sell

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