RoboForex: important information in view of Alphabet's stock split on 18 July 2022

Dear Clients and Partners,

On 18 July 2022, Alphabet will have its stocks go through a split. A stock split is a corporate action, as a result of which the company increases the number of issued shares by a specific multiplier and reduces the value of each share by the same multiplier.

Google will conduct a 20-for-1 stock split (1 share will be split into 20).

How will this affect positions and orders?

If you have open positions in Alphabet shares or plan to open such positions, please pay attention to the following changes, which will be effective as of 18 July 2022:

MetaTrader 4 / MetaTrader 5 accounts

The split procedure will take place on 18 July and will be completed prior to the US Stock session's start at 16:30 hours (server time).

• All pending orders (Buy Limit, Buy Stop, Sell Limit, Sell Stop, Buy Stop Limit, Sell Stop Limit, Stop Loss, and Take Profit) in GOOGL will be cancelled.

• For positions in GOOGL, the opening price will be divided by 20.

• The volume of each open position in GOOGL will be multiplied by 20.

Please note that if you are using an Expert Advisor (EA), we suggest that you check with its developers whether its code needs any modifications to ensure the correct interpretation of the price data after the stock split.

R StocksTrader accounts

The split procedure will take place on 18 July and will be completed prior to the US Stock session's start at 16:30 hours (server time).

• During the split procedure, all active pending orders (Buy Limit, Sell Limit, Stop Loss, and Take Profit) in GOOGL, GOOGL.nq, GOOG, and GOOG.nq will be cancelled.

• For positions in GOOGL, GOOGL.nq, GOOG, and GOOG.nq opened before the split, the opening price will be divided by 20.

• The volume of all open positions in GOOGL, GOOGL.nq, GOOG, and GOOG.nq will be multiplied by 20.

• All positions in any of these instruments in the same direction and on the same account will be combined into one new position. This new position will have the opening price and a volume based on an average weighted price of all positions held before the split.

The historical charts in your trading terminal will be updated to reflect the new prices of the above-mentioned instruments.

All other aspects of trading conditions shall remain intact. Please take this information into account when planning your trading activity.

Sincerely,
RoboForex team

What Is Inflation: Reasons and Consequences

Author: Victor Gryazin

Dear Clients and Partners,
What is inflation? What are the reasons for it? How does it influence the economy, and what methods are there to control it? In this article, we will try to answer these questions. Let us get started.

What is inflation

Inflation is the index of general growth of prices for goods and services. When prices grow, a unit of the national currency can buy fewer goods and services. Hence, inflation facilitates a decrease in the purchasing power of money. The opposite of inflation is deflation, which is a stable decline of the prices for goods and services.

In other words, inflation is the speed (expressed in pecent) of the growth of general price levels for goods and services. Inflation levels demonstrate how high prices have grown in the country over a certain timeframe. Inflation leads to an increase in the prices for various assets over time. The higher reaches inflation, the more prices grow.

How inflation influences economy

Inflation can be either a negative or positive phenomenon depending on the speed of its growth and other events in the economy. Excessive inflation is considered bad for the economy, yet no inflation at all is also a negative event. Most economists consider stable inflation of 2% a year optimum.

Here is how inflation influences the economy depending on its speed:

• Moderate inflation is under 10% a year, and thanks to being predictable and controllable it supports sustained growth of the economy and does not lead to abrupt depreciation of the national currency.

• Galloping inflation is between 10% and 100% a year. It has a negative influence over the country’s economy. Producers of goods and services prefer binding prices to some stable and convertible global currency. People try to save their money by investing it in various material goods: cars, household appliances, real estate – thus heating up prices additionally.

• Hyperinflation is especially high, above 100% a year. Quite often such inflation can be a consequence of acute political crises or wars that demand decisive actions from the government. This can totally destroy the turnover of goods and cash and the whole financial system of the country due to the loss of trust in money.

Methods of controlling inflation

The financial regulator of the country bears the responsibility of fighting back inflation. This is done by certain measures of the credit and monetary policy. Here are the main methods by which Central Banks can influence inflation.

• Deterrent credit and monetary policy is nowadays one of the most popular ways of controlling inflation. The goal of such a policy is to decrease money supply in the economy by increasing the interest rate. This helps to cool down the economy, making credits pricier and thus decreasing spendings of consumers and companies. The CB can sell securities in the open market, increse reserving norms for commercial banks, and apply other measures of selective credit control. Increases in the interest rate have a bad influence on the stock market but facilitates growth of the national currency.

• Financial measures. They include increased control of state expenses, private expenses, private and state investments. Tax regulations also belong here: the tax system must provide stimulation to those who save, invest, or produce more.

• Price control. Another efficient measure of conquering inflation is increasing production and controlling prices for goods from the basic basket, such as food, clothes, fuel, etc.

Closing thoughts

Inflation levels show how high prices have grown for certain goods and services over s certain timeframe. To assess inflation, several indices are used (CPI, PPI, WPI). Moderate inflation enhances economic growth, while high inflation have a negative influence on the economy. Control over inflation is carried out by the Central Bank; the main controlling measure is toughening of credit and monetary policy.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Price Channel in Trading: How to Draw and Use

Author: Victor Gryazin

Dear Clients and Partners,

This overview is devoted to the use of price channels in trading: what does this term mean? How to find a price channel on the chart? Where to open and close trading positions?

What is price channel

According to a definition from tech analysis, price channel is the fluctuation of the asset price between two parallel support and resistance lines inside the current trend.

In other words, a price channel appears on the chart when the movements of the quotes of a certain asset over a certain timeframe are limited by two parallel lines: one up, one down.

Types of price channel

Depending on the direction of the support and resistance lines, three main types of price channel can be singled out:

• Ascending price channel: the lines are headed upwards, the market is growing

• Descending price channel: the lines are headed down, the market is falling

• Sideways price channel: the lines are horizontal, the quotes fluctuate in a limited range.

How trade in price channel

Do you remember the motto of tech analysis? It goes: "Trend is your friend", i.e. one should trade the trend. Finding an active price channel on the chart, the trader does not only see the trend direction but also gets interesting entry and exit points for their positions. Let us get into classic ways of trading price channels.

Trading ascending channels

The channel forms in an uptrend: each new high is above the previous one, and so is each new low. The support line goes through lows — this is the main line of the channel, the trendline. The resistance line goes through the highs. In ascending channels, only buys are valid.

Main ways of trading:

The main thing is that buys are only opened at the support line. The Stop Loss is placed beneath this line. Positions are closed at the resistance line. Trading may go this way while the price remains inside the channel.
When the quotes break through the support line, the ascending impulse is over. The price escapes the channel and reverses. From now on, selling can be considered.

Trading descending channels

The channel forms in an active downtrend: each new high is lower than the previous one, and so is each new low. The resistance line goes through the highs — this is the mainline of the channel (the trendline). The support level goes through the lows. Only selling trades may be opened in a descending price channel.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

The Free Float Ratio: Everything Investors Should Know

Author: Maks Artemov

Dear Clients and Partners,

There are plenty of indicators and multipliers for analysing public companies. In this article, we’ll talk about one of them, the Free float ratio. We’ll find out the formula for calculating it and describe how investors use it when analysing the market situation.

What the Free float ratio is

The Free float ratio is the quantity of shares available for public trading. They are traded on stock exchanges, are not owned by strategic investors, and are available to retail ones. You can meet other names it goes by – Float or Public Float.

What shares are not included in a Free float calculation?

When calculating the Free float ratio, the following shares are not included:

• Owned by shareholders, the company’s management and top managers

• Owned by the state

• Owned by big investment funds, which are majority shareholders

In addition, limited shares are also not taken into account. For example, shares that were given to an employee as a reward for the merits for a company.

How the Free float ratio is calculated

To calculate the Free float ratio, we need to know the number of free float shares and the total number of shares issued. To make the formula look easy to understand, we’ll denote these parameters as A and B, respectively.

The Free float ratio calculation formula:

Free float = A / B

The ratio can be specified in two formats – in percentage (for example, 50%) or decimal fraction (for example, 0.5).

Let’s say that a company issued 100,000 shares; 51% of them, 51,000, a majority stake, are owned by the management, while the rest 49,000 shares were released for free circulation. In this case, the Free float ratio will be 0.49 or 49%.

The Free float calculation: 49,000 / 100,000 = 0.49

What Free float value is considered optimal?

The optimal Free float value for both traders and investors is in the range of 40–80%. Such volumes of free float shares provide some kind of protection against market fluctuations, increase the instrument's liquidity, and afford an opportunity to buy or sell an asset at any time. In other words, the higher the Free float ratio, the more liquid the instrument is and the more opportunities investors have.

Disadvantages of the low Free float ratio

First of all, small or limited market demand. After buying some shares, a trader might find it difficult to sell them. There is a possibility that there won’t be a buyer in the market to acquire this asset, or its price might be very low.

Secondly, there might be sharp price fluctuations in either direction at a time of news releases, which may cause panic among market players.

Thirdly, buying a vast amount of shares by a single investor might significantly raise the price and cause disbalance. Selling a major minority shareholding can be delayed and it also might result in a price surge. In some cases, shares can’t be sold at all because there are no investors willing to buy them.

How to use the Free float ratio for market analysis

To begin with, the ratio provides an investor with an understanding of an instrument's liquidity. If the ratio value is 40–80%, an instrument is considered quite liquid and involves smaller trading-related risks.

The Free float value above 80% means that it will be difficult for jobbers and big-time investors to cause higher volatility in the market by selling/buying big amounts of shares.

A ratio value below 40% says that the majority of shares are owned by principal shareholders and they have the ability to influence share prices by unloading a lot of shares in the market. Small amounts of free float shares raise additional difficulties for selling them.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Rule 72: What Is It for and How to Use It?

Author: Victor Gryazin

Dear Clients and Partners,

This overview is devoted to such a method of assessing investments as Rule 72. We will see how it works and how it can be used.

What is Rule 72

Rule 72 is a simplified calculation method that shows how fast your investments will double if the profitability remains stable. Calculation of complicated percentage (profitability of constant reinvestments) is a really difficult mathematical operation that makes most people grab a calculator. Hence, for less accurate calculations, right on your lap, investors use Rule 72.

By this method, any person can simply count in their mind and fancy the magic of complicated percentage.

If you want to know how much time you will need to double your assets if the interest rate remains set, this Rule is the fastest option. It was for the first time mentioned in the works of an Italian mathematician Fra Luca Bartolomeo de Pacioli.

Calculation formula for Rule 72

The mathematical formula for Rule 72 looks as follows:

T = 72 / R

Where:

T is the time during which the capital be doubled;
R is the interest rate.

When it comes to assessing the errors of such estimations, you get better results when the interest rate is about 8%. Nonetheless, you can feel confident when the interest rate is between 1% and 15%.

When the profitability is higher than this, the calculation becomes too inaccurate. In the end, nothing can be compared to the real calculations of complicated percentage with special calculators.

How to use Rule 72 in finance

There are several main ways of using Rule 72 in finance:

• Calculation of capital doubling time: the main task of the rule is assessing how many years it will take the capital to grow twice when the yearly interest rate is set (acceptable accuracy is between 1% and 15%).

• Profitability calculation: the formula can be used vice versa as well, assessing which yearly interest rate is necessary to double the capital over a certain time. For example, to find out which interest rate we need to double the capital in 6 years, you just divide 72 by y = 12%.

• Assessing inflation influence: it helps to understand how inflation decreases the capital if it just lies idle and brings no profit. For example, let us see how long it will take your savings under the mattress to become 2 times smaller when the yearly inflation is 6%: 72/6 = 12%. 12 years later, if inflation is stable, you will be able to buy twice as less goods and services than now. From some $10,000, you will only have $5,000.

What is the difference between Rule 72, Rule 70, and Rule 69

Apart from Rule 72, you can use Rule 70 and Rule 69 with the same goals. These rules help to simplify calculations or calculate more accurately depending on the period of interest payments.

For example, Rule 69 is most accurate when interest is paid daily. For monthly and annual payments, Rule 72 is normally used. Rule 70 is applicable for the sake of simplicity.

Anyway, each of these rules can be used for fast calculations with a set and relatively low error level. Choose the rule that is better for your goal.

Bottom line

Rule 72 is a simple and comfortable way of calculating the attractiveness of investments right in your mind. This is quite an innacurate way that makes certain errors but gives an opportunity to assess the profitability of investments without going deep in maths.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How to Calculate Future Value of Money: Formulae, Calculator, Examples

Author: Andrey Goilov

Dear Clients and Partners,

Today we will talk about the concept of the time value of money: what types there are, which advantages and drawbacks it has.

Moreover, we will discuss what we need to know to calculate the value of money in the future. In the article, you will find not only the calculation formulae but also understandable examples explaining all the details and a ready-made instrument – a calculator of future money value.

What is future value

As early as the Middle Ages, people noticed some correlation between money and time. There exists a concept of time value of money. By this concept, the sum made today has more value than the same sum received tomorrow. The idea is based on the possibility to get some income over a certain timeframe after investing your money under some interest.

Current value is the cost of the asset today, and potential value over a certain timeframe plus interest is called the future money value. To calculate this parameter, you need a formula.

However, it must be noted that calculation of future money value may differ in different situations. If your asset is on a savings account with a guaranteed interest rate, its value in the future is rather easy to calculate. However, if we take a look about stock market investments with unstable profitability, calculation will be complicated because of certain extra parameters.

Moreover, calculations usually neglect inflation and other factors that have negative influence over the asset price.

What types of future value there are

The main classification is based on interest calculation:

• Simple interest calculation implies constant speed of growth and one payment in a certain investment period.

• Complex interest calculation is applied to the total balance of all investments over certain time. The investor makes money not on the initial investment but on the whole account balance.

How to calculate future value of annuity

If an investor plans to invest a certain sum every month or year, calculation of the annuity future value will help to understand how much they will have in the end.

The formula of future value calculation looks as follows:

FV=C×[((1+I)N−1)/I]

C is the sum of investment

I is the interest rate

N is the number of payments.

Example of calculating future value of annuity

Imagine your investment plan implies a series of 5 payments, 10,000 USD each every year under the interest of 10%. The calculation of the future annuity value will be:

FV=10000×[((1+0.1)5−1)/0.1]

The future annuity value will be 61,051 USD.

How to use calculator of future investment value

Choosing an investment option, you need to account for not only your goals but also the time they will take to be reached. Having a general idea of how much money and for how long you need to invest it, you can choose an optimum option. You can decide on a more serious risk when you have the resources or stay conservative when your resources are limited.

And to know the future value of your asset, you can use a ready-made instrument – a calculator of future investment value. Just put in your current data and push the button, and you will get the result.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How to Trade by Antitrend Strategy

Author: Andrey Goilov

Dear Clients and Partners,

Not all traders like to trade the trend: there are deep corrections able to kick even a most patient investor out of the market. When trading against the trend, the results of a trade take much less time to wait for. And if the trader masters catching reversals, risks will also be small.

A trading strategy called the Antitrend strategy allows looking for such signals in stock indices. For successful work, only one indicator is needed, set up especially for the DAX index, the most important stock index in Germany.

The article explains how to trade with the Bulls Power indicator, what peculiarities selling and buying trades have, and how Stop Loss and Take Profit can be placed.

What Antitrend strategy is like

By the Antitrend strategy, trading occurs on H4. Signals will be few but quite noticeable – on smaller timeframes, the number of false signals is overwhelming.

The strategy is based on using a not-so-popular indicator Bulls Power with a standard period. The instrument calculated the difference between an Exponential Moving Average with period 13 and the high of the price.

If the trend is bullish, the bars of the indicator are above zero, growing. This means buyers are strong, they have enough power to renew highs. And if the trend is bearish, indicator values drop below zero and are declining, demonstrating bearish pressure.

It is recommended to enter a trade only when Bulls Power reaches certain levels. For buying and selling, these levels are different. This tactics is applicable to all global indices but the levels are designed for the DAX index.

Closing thoughts

The Antitrend strategy is meant for trading the DAX stock index at strong impulses on an H4 chart. Signals will be few because levels for the Bulls Power indicator are extreme, and the timeframe is large.

However, this is more like an advantage for traders who do not want to enter the market frequently: they will be free of spending a lot of time before charts, constantly analysing price movements.

The rules for the strategy are extremely simple, and risk management is efficient because the profit-to-risk ratio is 3 to 1. Hence, such tactics can be used as an option for additional earnings.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How Economic Recession Influences Investors' Behaviour

Author: Victor Gryazin

Dear Clients and Partners,

This overview describes what economic recession is and why it happens. We will analyse a case of global economic recession and see some advice concerning how to behave during a crisis.

What is economic recession

Recession is a serious and lengthy decline of economic activity, characterised by a decrease in production and employment that results in falling of income and spending of households. This phenomenon may last over several months and is usually followed by a decline of the GDP.

Experts from the US National Bureau of Economic Research (NBER) have given their own definition. They state that recession is a significant economic decline that starts at the high of preceding growth and ends at the low of subsequent falling.

The decline of economic activity must be quite deep and lengthy to have the right to be called recession. It may last just several months but it will take the economy years to get back to the previous peak.

[SIZE=5]Reasons for and signs of economic recession[/SIZE]

Multiple economic theories struggle to explain why and how economy escapes a lengthy uptrend and starts falling. For example, abrupt and stable growth of oil prices due to a geopolitical crisis may lead to growth of spending at the global market and provoke a global economic recession.

According to the conclusion made by the US Congress Special Commission, the economic recession 2008-2009 was provoked by such factors as mistakes in financial regulations and in corporate management, excessively high debts of households, wide use of high-risk derivatives, and growth of non-regulated shadow banking.

Spread of COVID-19 in 2020 and quarantine restrictions are yet another example of an economic shock that can provoke recession. It might be just speeding up the process that could be inevitable due to other factors.

How US recession 2008 influenced global capital markets

The economic recession and crisis in 2008 followed a lengthy time of growth of housing prices and a boom of mortgaging in the US. The overall economic peak happened in December 2007,and the NBER considers this month the beginning of the recession. At the start, the decline of the economic activity was modest but sped up abruptly in autumn 2008 when stress in financial markets reached the top. The US GDP dropped from +2% to -2.6%, and the unemployment rate grew from 5% to 10%.

January 2007 through September 2009 large US and European banks lost more than $1 trillion on toxic assets and unsecured loans. A lack of confidence of investors in the paying ability of banks alongside loans becoming less affordable led to an abrupt decline of prices for goods and services. The crisis quickly turned into a global economic shock, making several large banks go bankrupt. Economy worldwide slowed down because crediting became tough and global trade went feeble.

This recession in the US became the longest one since World War 2 and lasted 18 months. The S&P 500 index started falling at the end of 2007 and, having lost more than 50%, began recovery only in the middle of 2009.

Global economic recession 2022

These days, the global economy is slowing down abruptly. War in Ukraine, growth of prices for energy carriers and foods alongside imbalance between the demand for them and supply provoke growth of global inflation. According to forecasts of analysts, a decline of the buying ability of households and toughening of the credit and monetary policy will bring down the growth of the US economy up to 2.3% this year and up to 1% in the next year.

In China, the slow-down of economic development turned out stronger than expected due to COVID-19 breakouts and imposed quarantine measures. In the Euro zone, growth dropped to 2.6% this year and will reach 1.2% next year. According to the forecasts of the IMF, inflation and the geopolitical crisis have already put the global economy on the verge of recession.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

How to Use Margin Calculator on Forex

Author: Victor Gryazin

Dear Clients and Partners,

This article is devoted to margin on the Forex market: what it is necessary for, where to find it, and how to use a special calculator for margin on Forex.

What is margin

This term has several meanings. In business, margin is profit in percent minus expenses. In trading it means the money that an investor must deposit to the account of their broker or exchange to cover for credit risks.

Margin on Forex is finance used y a broker to cover for credit risks. Its size depends on the contract and leverage. In other words, margin is a necessary deposit for opening sustaining a position that allows for making trades with leverage for a larger sum than the trader has.

Margin crediting is provided by brokers so that traders with modest deposits could open substantial positions on Forex. Every broker has their own marginal requirements, and this issue should be cleared before the trader starts working with margin.

The idea of margin trading on Forex is that cash is not supplied factually. Trading implies making a profit on growth or falling of a currency pair. All trades in margin trading are two-sided: if a contact opens for buying, it is closed with a sale, and vice versa. As a result, the trader either makes a profit or suffers a loss.

Formula for calculating margin

The formula for calculating margin necessary for opening a position looks as follows:

Required margin = [(Base currency) / (Account currency)] * Position volume / Leverage

Where:

• Base currency is the currency of the trading operation; it is number one in the abbreviation of the currency pair.

• Account currency is the currency of the trader’s account.

• Position volume is the volume of the trading position in the base currency.

• Leverage is the size of the leverage used.

Example of calculating margin by formula

Imagine a trader needs to know what margin they need in USD to open a position sized 0.5 lot in GBP/USD with leverage 1:100.

The current GBP/USD quote is 1.15 USD, which means the ratio of the base currency GBP to the account currency USD is 1.15. A standard lot on Forex is 100,000 units of the base currency.

Let us use the formula:

1.15 * 100000 * 0.5 / 100 = 575

This means that to open such a position the trader needs 575 USD on their account.

How to use margin calculator

All calculations of margin have long become automatic, which means the trader does not need to manually count it by the formula. There is a useful and comfortable instrument for it called margin calculator.

This universal instrument is also known as trading calculator, Forex margin calculator, and leverage calculator. It will be useful for market beginners and experts alike.

With this instrument traders can calculate parameters of trades online and choose the most efficient strategies before opening a position. As an example let us take a look at the Trading Calculator by RoboForex that can be found on the official website.

The calculator has four main input parameters:

• Ticker of the currency pair

• Lot size

• Leverage size

• Account currency

After the trader fills in the boxes and clicks Calculate, they get detailed information about the planned trade (according to the account type):

• Size of the margin required for opening the position

• Cost of changing 1 point of quotes by the position

• Spread size (the difference between the buy and sell prices)

• Swop (rollover) size for long and short positions – the sum that is deposited/withdrawn for transferring the position to the next trading day

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

What is Forex? Introduction to the Foreign Exchange Market

Author: Dmitriy Gurkovskiy

Dear Clients and Partners,

What is Forex?

Forex exchange market (name derived from FOReign EXchange) is an international market meant for broker companies, banks and investment funds trading currencies. Currency exchange market formed in the 70-s when the financial world passed from the gold standard to free currency pricing. The market works on the basis of free conversion of currencies without state interference and guarantees freedom of such transactions. At the same time, there is a number of rules and restrictions regulating relationship between traders and brokers.

Sometimes one might hear Forex called monetary exchange; however, this is wrong. Forex is an international non-stock exchange without a particular place for trading. One can trade via the Internet or using a telephone. Market players can make currency transaction from any spot on the globe. So long that Forex is a non-stock exchange, transactions may go without registration.

Though Forex players do not have to worry about the place of trading, their work still depends greatly on trading hours which vary in different parts of the world: in Asia-Pacific, in Europe and in North America.

Starting 1989 Bank for International Settlements (BIS) carries out a thorough analysis of the market every 3 years. Data shows that the daily turnover of Forex was 1.5 trillion USD in the year 2000 and reached 4.0 trillion USD 10 years later. BIS experts forecast the growth of Forex daily turnover up to 10 trillion USD by 2020. Part of this volume is provided by margin trading which implies contracting for sums substantially bigger than the actual capital of one transactor. Regardless of nature and the purposes of transactions, a large daily turnover guarantees high liquidity of the market. Another fact is that roughly 75% of transactions on Forex are conducted by American banks.

Forex Market Characteristics

The international exchange market Forex is of one of the most numerous types of financial markets existing at present. At the same time it is one of the largest markets. As other markets do, it attracts traders and investors offering them an opportunity to make a profit on the difference in exchange rates or just to exchange one currency for another. Every person making an exchange operation via a mobile bank application automatically becomes part of the scheme which connects the participants through various information systems and gives them access to currency exchange operations Monday to Friday 24 hours a day.

Forex has a number of advantages distinguishing it from other market types.

Availability

To become a Forex player and get an opportunity to make a profit on the difference in exchange rates, one has to open a trading account in a company providing such services. Then one has just to replenish their account and start trading. It is worth remembering that successful trading requires some experience and certain knowledge of chart analysis. However, almost any person can integrate rather easily into trader community.

Leverage

When buying or selling currencies a trader does not need to have a deposit covering the price of the whole contract. A leverage will help enhance one’s financial potential, because it allows for transaction amounting to much bigger sums than the trader possesses. On the one hand, this is an opportunity to earn a substantial profit with a modest sum on the account; on the other hand, risks grow accordingly. Thus, the risks are to be thoroughly studied and controlled. More information you can find in our posts What is Leverage and How to Trade with Leverage.

High volatility

Volatility means any changes in the price of an instrument. Forex is a market of high volatility. Exchange rates are particularly quick to change, and a trader’s aim is to make a profit on their volatility. That is why the bigger the changes are, the bigger is the trader’s profit, regardless of whether a currency is growing or falling in price, the latter phenomenon being yet another characteristic of the market. The truth is that traders can equally make a profit out of rises and out of falls of currencies. That is why high volatility together with leverage provides an excellent opportunity for earning money. However, risks are to be taken into account.

Forex market players

International inter-bank market Forex is a non-stock trading platform. In other words, the platform does not exist physically. All operations take place on the Net. Presently, major Forex players are national Central banks of different countries.

Most influential ones are the European Central Bank and the Federal Reserve System. Central banks of other countries also influence the volatility of currencies, their aim being prevention of steep surges in prices.

Commercial banks are also present on Forex. They can hardly influence monetary and credit policy of major players; however, they significantly enhance the liquidity on the market. Commercial banks make speculative influence, constantly manipulating exchange rates in order to make a profit and making lots of transactions. Commercial banks make profit out of spread which is the difference between buying and selling rates.

Apart from banks, other Forex players are brokers, broker companies and dealing services which contribute a lot to currency price formation as agents. What is more, they give access to the inter-bank market to individual traders and investors; trading via broker and dealing companies, individuals make the largest part of transactions on the market.

Read more at R Blog - RoboForex

Sincerely,
RoboForex team

Is It Important to Plan Budget

Author: Victor Gryazin

Dear Clients and Partners,

What is Forex?

In this article, we will touch upon the issue of budget: what it is, what it is used for and how to plan it. Moreover, we will try to explain why a well-planned budget is such important for work with finance. Also, we will show you the advantages of an accurate budget.

Why budget is important

Budget is a financial plan for a certain timeframe that accounts for planned income and expenses. As a rule, a budget is drafted for a month or year.

Planning a budget implies a detailed list of expenses that gives a clear understanding of what can and has to be left out for your financial goals to be reached faster.

Explaining the importance of budget, we should at once enumerate its advantages. Firstly, a budget helps to manage your monthly expenses, makes you more disciplined, gets you ready for overcoming some crises, and stops you from making unwise financial decisions.

What is the goal of budget

Your budget demonstrates how much money a country, company, family, or person has and how much is to be spent on obligatory expenses. It must be noted that a budget is not a list of monthly earnings and spending; even such a table would be useful, though it will not help in reaching financial stability.

The goal of a budget is planning expenses and earnings over a certain time and then comparing your plan to what you actually got. This comparison and analysis of your statistics answers the basic questions:

• What have you spent your money on, and was it that necessary?

• Why your actual expenses have exceeded your plan and on what goods and services?

• How to follow your financial plan more accurately?

• What to do to minimise negative deviations of your budget from your plan?

What types of budget there are

A budget can be equally planned for a country and an individual who wants more order in their expenses. This document must fully represent the state of finance of a family or company. This means that the plan must include absolutely all sources of income and types of spending. The information must be true, valid, and full.

The process of financial planning is called budgeting and belongs to one of the following types:

• Personal budgeting is creating a budget for an individual for distributing income on spending, savings, and paying off debts. It accounts for previous expenses and debts. For example, a job is a source of income, while communal payments and rent are expenses. Here, we can also single out the category of assets: property, investments, and other savings or valuables that create a potential reserve for a budget deficit.

• Corporate budgeting is making a financial forecast for the nearest future that unites prospective income and expenses of various departments. It is the key element of integrated business planning. The process of corporate budgeting normally calls for a lot of effort, involving several employees. The final decision if left for the financial director.

Why it is profitable to plan budget

Budgeting allows for balancing out your income and expenses and reaching your financial goals. The latter ones may be as ambitious as buying real estate, or more modest, like buying a smarphone. A budget will provide more accurate information about how to reach your goals fast.

Another reason for thinking about a family budget is creating a reserve for some emergency. It is recommended to save no less than 10% of your monthly income for a money airbag. It should last you 3-6 months in case you lose your source of income. This is one of the main rules taught on financial literacy courses.

Tracking all your expenses helps to find some possible sources of saving. And even is it seems that you have saved little today, imagine how this sum may grow with time if you stick to the plan.

Bottom line

A budget allows for tracking your income and expenses easily and in detail. A budget is the base for financial success and safety. It also helps to make difficult financial decisions.

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Sincerely,
RoboForex team