How To Make Money In A Down Market
Understanding how to make money in a down market is one of the keys to financial security in today’s world. When one considers the financial turmoil around the world at the present time, it becomes clear that most markets are going to be down for the foreseeable future. However, there are other options available when the stock markets are down to a point that little or no profit is being yielded on investments.
One option that has come to the forefront in recent years is the FOREX (FOReign currency EXchange) market. This trading venue is open virtually 24 hours a day, 7 days a week. It is much more volatile than stock markets, making it an ideal place to make large amounts of profit in a short time. Of course, there is also a greater chance to lose money, so care should be exercised and one should perform due diligence before investing. Below, one can find some tips that should prove helpful in understanding how to make money in a down market.
How to Short in FOREX Trading
One primary key to making profitable trades is known as short selling. In essence, this term means selling currencies that one does not currently own. When one sells short, the contract includes a time when the buyer is to take possession of the currency sold. Between the time of the sale and the transfer of possession, the seller hopes that the price of the currency being sold will continue to drop. If it does, he/she will be able to purchase the currency at a lower price than he/she has already sold it.
The key to profiting in this fashion is to follow the trends of different currency pairs closely. Those that are trending in a downward direction are ideal for short sales. However, one can still profit from short selling if the currency in question is highly volatile and moving up and down regularly. One should try to sell when the currency is in an upward swing and buy when it is at the bottom of the downward swing.
Why the FOREX Market Does Not Have Bad Times
Unlike stocks and other commodities, FOREX markets do not experience serious drops or bad times. This is because all currencies are paired with other currencies. Whenever one loses value, its partnered currency rises by a corresponding amount. This is because one is using one currency to purchase the other in each pairing.
Forex is extremely fluid, meaning that values change quite a bit from minute to minute. One can watch the movements of different pairs and see when one or more pairs begin to take on a bearish trend. Most trends are not very steep or incredibly long-lived, but those who watch the markets closely can see them developing and act accordingly.
One may also create orders based on anticipated movements among currency pairs. When the price reaches the set level, the sale takes place. If the pair does not move in the expected direction, one can create “stop loss” orders that limit his/her exposure.
Use Financial Crises as Opportunities to Make Money
Different regions experience financial crises at different times for a plethora of reasons. The European Union is currently experiencing serious financial turmoil. This has created a situation in which the EUR/USD currency pair is fluctuating heavily. Depending on what financial news is released at different times, the Euro becomes stronger or weaker against the dollar.
In many cases, the news creates a situation where the Euro continues to lose value against the dollar. This is known as a bearish trend. Such trends create ideal trading conditions for short sales. In fact, the longer the trend lasts, the better it is for the trader. This is because he/she can hold the position open longer and maximise his/her profit on the trade.
Most of the time, currency pairs do not develop a specific trend that can be traced over a period of days. Often, trends can not even be traced in hours in this market. However, the fluidity of the market and the amount of fluctuation that takes place in short time periods creates just as many, if not more, opportunities for traders to profit in this market.
Currency pairs that fluctuate greatly are among the most common sources of income potential. The goal is to buy low and sell high or to sell high and buy low. One can do this in either order in this market. Positions may only be open for a few minutes or seconds. Some may remain open for a few hours. However, it is extremely rare for any trade to carry over from one day to the next because the market swings so quickly that one may show a profit at the end of the day and be at a loss at the beginning of the next.
When on finds a currency pair that is following a trend, either bearish or bullish, traders may jump on that pair at many different points along the trend. This leaves one in more direct control of how much risk he/she is willing to take and how much profit can be expected.
As one can see, it does not really matter if currencies are in a clearly defined trend or not. Heavy fluctuations in value can create just as many opportunities for profit if one watches the market and acts in a timely manner. The key is to be prepared to act quickly when the market changes its direction. This capability shows traders how to make money in a down market.
Even though the world is in an economic recession that has caused the stock markets to lose much of their value, knowing how to make money in a down market can help one to remain financially secure. Short selling is one key to dealing with markets that are trending downward. However, many stock markets do not allow short sales. This is one feature that makes FOREX a more attractive market for beginning investors.
