Impact Investing: Making A Difference And A Profit

Most investors spend their time chasing returns. But what if there was a way to do good while also turning a profit?

Several not-for-profit organizations have recently been teaming up with money mangers and investment banks to create and market a new line of products that offer investors the opportunity to engage in what is now being touted as impact investing, a form of socially responsible investing. The goal of this scheme is to invest money in companies, organizations, funds or projects anywhere in the world that can effect a positive social change, while at the same time deliver a financial return to investors. 

One Step Further

Interest in the idea has been growing steadily over the past couple years and so have the number of products being offered. For some time, a breed of investment management companies such as Pax World Management, Domini Social Investments and Parnassus Investments have been offering mutual funds that invest in socially and environmentally conscious and responsible companies. But today’s impact investors are going one step further, looking to invest in bonds and other investment vehicles that invest directly in socially oriented projects.

An example of a vehicle used in impact investing is a microfinance loan, which help people with little or no access to capital start a new business. High-net-worth individuals, in particular, are finding these offerings attractive and are willing to take on some calculated risk to invest in them. Businesses started with microfinance loans are providing competitive returns to their investors through the bonds that back them. In some instances, impact investment vehicles have been able to garner higher returns for their investors than the broader markets did, especially during down cycles.

One example of an impact investing project is a community solar program. A platform called Mosaic allows people to invest as little as $25 to fund solar projects that save money for homeowners, schools or other institutions while reducing carbon emissions.

Not Just The Rich

What may have begun as a niche for wealthier investors is starting to get the attention of the larger retail market. Accordingly, the number of organizations offering these products is increasing. One such organization is ImpactAssets, which offers donor-advised funds and impact investing notes to individuals and advisors looking to produce positive social and environmental change. Each year, the organization publishes a list of 50 investment managers who specialize in impact investing techniques.

ImpactAssets is also closely tied to the Calvert Foundation, which offers investment and lending opportunities, such as the Calvert Community investment notes, a series of debt securities that start at a minimum investment of $1,000.

Growing Interest and Variety

Goldman Sachs has also jumped on the impact investing bandwagon. Just last year, it rolled out its GS Social Impact Fund, which deploys capital toward the physical, social and economic revitalization of disadvantaged communities across the U.S. The fund’s investment strategy is to addresses social challenges and to mobilize new sources of private capital into the social-impact arena, while also providing its investors with a financial gain.

The Rockefeller Foundation was one of the first foundations to experiment with social impact bonds in conjunction with the Global Impact Investors Network (GIIN), a not-for-profit organization dedicated to increasing the effectiveness of impact investing. The foundation also funded the development of a metrics to measure the performance of these social enterprises and impact investing funds.

And now, with the guidance of the Rockefeller Foundation, some of the biggest U.S. investment banks, including Goldman Sachs Group, Inc. (GS), JP Morgan Chase & Co. (JPM), and Bank of America Corp. (BAC), have created social impact bonds that are being applied to issues such as asthma, early childhood education, diabetes, and prison rehabilitation programs.

With investor demand for impact investing products continuing to rise as the idea becomes more mainstream, several financial institutions, such as Morgan Stanley (MS), Merrill Lynch and UBS Inc. (UBS) have also been developing impact-investing platforms that their wealth advisors can tap when clients request impact investment funds geared toward a certain cause.

Morgan Stanley Wealth Management’s Investing with Impact platform recently began offering about 100 third-party products, including exchange-traded funds, mutual funds and some other “do good” alternative investment products. It's also looking to offer private debt and equity investments to impact investors in the near future.

Returns Keep Them Coming Back

The move by these investment banks and money managers to offer more impact investing products seems to be a profitable one. A GIIN and JP Morgan study that looked at 125 impact investors who committed $10.6 billion to impact investing in 2013 found that about 91% reported that their impact investments were meeting or exceeding their financial expectations. Approximately 54% said their investments were targeting market-rate returns. The group, as a whole, plans to increase their investments in this sector by 19% this year, which would result in close to $13 billion in investments.

Millennial Next In Line

The next generation of investors is already exhibiting a desire to put their investment dollars behind projects, companies and funds that are in line with their own core valves. Millennials, or people born between the early 1980s and the early 2000s, are the latest group of investors who see impact investments as a way to stand up for their beliefs while also investing in their own futures.

Studies show that these investors are also now turning to financial professionals to help provide them with opportunities to generate a strong financial return, while creating a positive social impact. They want their advisors to offer them value-based investing products as an alternative to what is being offered to them in the general markets. And while they may be young, and low on cash at the moment, this segment of the population shouldn’t be overlooked. Millennials are expected to inherit about $41 trillion in wealth from their parents, and they are already looking for ways to invest it.  

Skewed To Wealthier Investors...For Now

More and more opportunities will continue to open up for investors seeking to align their own financial futures with their desire to make a difference in the world. For now, though, most scalable impact investing options are still geared to wealthier investors. For those investors with less than $3 million to invest, sustainable and responsible investment vehicles, such as mutual funds focused on socially and environmentally responsible investments, are still the way to go. Private deals that require a fair amount of due diligence may still be too risky for the average investor.

The Bottom Line

The desire to meld investments and social responsibility is growing at a fast pace among the rich and not-so-rich. And the groundwork has been laid for the creation of numerous products to meet the demand of a new generation of socially conscious investors. As long as such investments produce competitive returns – both financial and social – their popularity will only grow.

Can High Fund Returns Be Deceiving?

We’ve all heard that ubiquitous warning: “Past performance does not guarantee future results.” Yet looking at a menu of mutual funds in, say, your 401(k) plan, it’s hard to ignore the ones that have crushed the competition in recent years.

On one level, it makes sense that the one-year or five-year returns of a fund tend to carry a lot of weight. Unless investors have the time and wherewithal to investigate each basket of securities on their own, they’re likely to rely on the information that’s right at their fingertips.

But are historical outcomes a good indicator of results down the road? The data would seem to indicate otherwise. One study looked at mutual-fund data over a 16-year period and found that just 7.8% of the top 100 fund managers in any given year retained that distinction the following year.

A separate report by Standard & Poor’s showed that only 21.2% of domestic stocks in the top quartile of performers in 2011 stayed there in 2012. And slightly more than 7% remained in the top quartile two years later.

Subsequent Performance of Mutual Funds in the Top Quartile in 2011

Source: Standard & Poor’s

History Often Doesn’t Repeat 

Why are past results so unreliable? Shouldn’t star fund managers be able to replicate their performance year after year?

Certainly, some actively traded funds beat the competition fairly regularly over a long time period. But the inherent unpredictability of the market means that even the best minds in the business will have off years.

A study by investment firm Robert W. Baird & Co. looked into this phenomenon. What the company found was that, even among fund managers who outpaced the market over a 10-year span, many experienced two- or three-year stretches where they trailed the pack.

Translation: If you’re looking at a fund's recent outcomes and the numbers look unimpressive, it’s hard to tell if it’s a bad manager having a bad year or a good manager having a bad year.

There’s an even more fundamental reason not to chase high returns. If you buy a stock that’s outpacing the market – say, one that rose from $20 to $24 a share in the course of a year – it could be that it’s only worth $21. And once the market realizes the security is overbought, a correction is bound to take the price down again.

The same is true for a fund, which is simply a basket of stocks or bonds. If you buy right after an upswing, it’s very often the case that equilibrium is about to bring it back down.

What Really Matters

Rather than looking at what happened in the past, investors are better off taking into account the various factors that do influence future results. In this respect, it might help to learn a lesson from Morningstar, one of the country’s leading investment research firms.

Dating back to the 1980s, the company assigned a star rating to each fund based on risk-adjusted returns. However, research showed that these scores demonstrated little correlation with future success.

Morningstar has since introduced a new grading system based on five P’s: Process, Performance, People, Parent and Price. With the new rating system, it’s looking at the fund’s investment strategy, the longevity of its managers, its expense ratios and other relevant factors. The funds in each category earn a Gold, Silver, Bronze or Neutral rating.

The jury’s still out on whether this new method will fare any better than the original one. Regardless, it’s an acknowledgement that historical results, by themselves, tell only a small part of the story.

If there’s one factor that does consistently correlate with strong performance, it’s fees. This explains the popularity of index funds and ETFs, which, at a much lower cost than actively traded funds, mirror a market index.

According to Vanguard, a whopping 68% of large-cap value funds trailed their benchmark over the past 10 years. What this shows is that, given the complexity of stock movements, it’s hard even for skilled managers to pick enough winners to make up for the higher price tag of their funds.

The Bottom Line

It’s tempting to judge a mutual fund based on its recent returns. But if you really want to pick a winner, look at how well it’s poised for future success, not how it did in the past.

Why Interest Rates Matter

Talking Points:

• Capital flows calculates money moving in and out of a currency
• Traders follow rates to maximize yield
• As rates change, money will flow between currencies

There are many fundamental factors to consider when trading your favorite Forex pairs. While many traders may be quick to dismiss fundamentals these underlying factors have the ability to cause shifts in buying and selling patterns of traders. As demand increases for a currency so does its value. Likewise as money flows out of a currency its value begins to decrease.
To get a better understanding of market fundamentals, today we will look at capital flows and interest rates. Let’s get started!

What is a Capital Flow

Capital flows are the basics of Forex fundamentals. Just as the name implies this describes the flow of funds from one designated currency to another. Normally this flow is directly related to capital investments inside of a particular country. One typical example of this is if a foreign investor wanted to invest in stocks on the S&P 500, it would require Dollars to do so. This means money would flow into the USD from another currency to make the purchase.

The logic from here is one of supply and demand. If capital inflows exceed outflows that means there is a demand for countries currency. This can provide fundamental trading opportunities as for traders as prices rise to accommodate the new demand. This is also true with a net capital outflow. As there is less demand for a particular countries currency, we would expect a fundamental opportunity to place new sell orders.

Why Interest Rates Matter

Interest rates are one of the primary reasons for the international flow of capital. As investors, speculators, and traders all look to maximize their returns they tend to look towards higher yielding investments. That means countries with the highest interest rates coupled with strong economic data tend to see their countries currency strengthen due to capital flows.

Keeping an eye on the economic calendar can help traders become aware of potential changes in interest rates. Central banks are charges with setting the banking rates for their designated region, and will periodically hold meetings to make any changes to this policy. As these changes take place, demand for a specific currency can fluctuate based off of the decision. Let’s take a look at an example of this theory in action.

NZDUSD & Interest Rates

Below we can see a 1Hour chart for the NZDUSD. This is a great example of capital flows at work. As of 21:00 GMT on Wednesday the RBNZ (Reserve Bank of New Zealand) released their rate decision. The outcome was a rate hike of .25%, moving their central bank target rate to 3.25%. Almost immediately after the event prices of the NZD (New Zealand Dollar) began to rise. Why did this happen?

When the RBNZ raised rates, they also made it more attractive to hold the NZD relative to lower yielding currencies. When compared to the USD, the differential between their respective rates expanded to 3.00%! Traders and investors looking to take advantage of this yield differential were actively selling the USD (US Dollar) while purchasing the NZD (New Zealand Dollar). As demand for the NZD increased, money quickly began to flow out of the USD causing the prices and momentum on the chart depicted below to rise.

Learn the Market

As a fundamental trader, it is important to know how different events affect the valuation of a currency. To learn more about the flows of the currency market, make sure to sign up for “New to Forex” course presented by CGM Education. Registration is free, and the course will include videos and a variety of topics to help you with your trading.

Fundamentals Of A Good Forex Trading Market

Whether you are trading stocks, bonds, futures, foreign exchange or just about anything else you care to mention the conditions that make a market suitable as a trading ground for the investor remain the same. In essence, there are four characteristics which are always present in a good investment market - liquidity, transparency, low trading costs and the existence of trends in the market.

Liquidity

All trading consists of two elements, a purchase and a sale, and liquidity in its simplest form refers to the ease with which traders can buy and sell. I say 'in its simplest form' because for a market to be truly liquid traders must also be able to buy and sell in substantial volume without any marked effect on prices.

The problem with a market that is not liquid is that traders will often find that there are delays in filling orders to buy, resulting in often substantial differences between the price at the time the order is placed and when it is actually executed. In addition, it can often be difficult to sell in a market that lacks liquidity.

The Forex market is an extremely liquid market with a huge number of trades being conducted daily and with a trading volume that is second to none.

Transparency

The transparency of a market is best defined as the ability of traders to access accurate information at all stages of the trading process.

Information is the key to most things in life and this is certainly true in many of the world markets. Indeed there are many examples, especially across the world stock markets, of companies and individuals running into difficulty because all of the parties involved in a trade did not have access to accurate information, or were given inaccurate information.

The Forex market is without doubt the most transparent of all of the world trading markets and this is especially true when it comes to pricing.

Low Trading Costs

All markets carry trading costs and the higher these costs the lower the trader's profit or the greater his loss. Any market therefore that can keep its trading costs low will be attractive to traders and will encourage greater trading volume.

The lack of commission and similar trading costs and the tight spread of prices in foreign exchange trading mean that trading costs in the Forex market are kept very low compared to other markets.

Trends in the market

One of the most difficult things in many markets is knowing just when to enter the market, or buy, and when to exit the market, or sell. For this reason it is important to have some mechanism which traders can use to assess the current state of the market and to predict its future course.

In the case of the Forex market this essentially means employing various different forms of technical analysis which rely on studying the past performance of the market and identifying trends which can then be used to predict the future.

Most markets will display some form of trend, but some markets have far more clearly defined and marked trends than others, making it far easier for traders to enter and exit trading positions. Fortunately, the Forex market is one market with a particularly strong trending characteristic.

Forex Trends: Make Big Profits From Them

What time Period? 

Here we are going to look at the big trends and these typically last for months and some last for years, as they reflect the health of the underlying economy. 

Lets look at how to enter existing trends and execute trading signals correctly. 

Bu far the best way of doing this is to but or sell breakouts, to new highs or lows and dips to value areas. 

Buy New Highs!

Most major trends start from new market highs not market lows. 

When a price breaks out you go with it. It may not appear that you are getting the best entry point however you are trading with the odds in your favour and valid breakouts tend to give big price moves. 

Many traders make the mistake of not doing this and waiting for a "better price" to occur on a dip - but breakouts tend to accelerate away, never dip back and the entry and big profit is missed. 

The more times the resistance has been tested and the wider these tests are the more valid it tends to be and 3 tests is a minimum. 

Buying Value Areas 

If a breakout does not occur, you can wait for a dip to occur and in longer term trends you always have them, as prices become over bought or oversold and then come back to longer term value.

Here you can use a simple moving average supported by momentum to confirm the move. 

In currency trading we love dips to the 20 and 40 day moving average to initiate new positions. You simply wait for the dip and use momentum indicators to show that momentum is turning in the direction of your view - then enter. 

NEVER try and predict in advance - act on the reality of the change in momentum and you will have the odds in your favour. Try and predict and you are really just hoping and guessing and will lose. 

Forex Trend following involves patience and making sure that you are getting in at the best price in terms of the risk reward. 

The above two tips will help you do this. 

Many traders like to catch or predict where highs and lows will be and be perfect - but you cant do this so don't try. If you could catch just 50% of all major trends you would be very rich and this is the aim of forex trend following. 

Look at a chart and practice using breakouts and buying to 20 and 40 day MA and you will surprised at how effective and profitable these simple tools are; in turning forex trends into big profits. 

Forex Trading Strategy - 6 Tips to Make Big Profits

The aim is not to just to make money, but to make big profits consistently.

Six Essential FOREX Trading Strategy Tips:

1. Get a Method you have Confidence in

You need to have total confidence in your method - so you can follow it with discipline.

Pick a simple, technical method - simple methods work best, as they're more robust in the face of brutal market conditions - complicated methods tend to break.

Just use a few rules and parameters, and they should work across all markets - a technical trading system should work on ANY market that trends.

2. You need to have the Mindset to Take Risks!

You will read a lot about money management - but keep in mind risk = reward.

If you don't take reasonable risks, you won't make big profits.

2% is a commonly touted figure to risk per trade - but if you're trading $10,000 that's just $200.

Risk more if you're confident - 10% is fine - you just need to be selective with your trades. You can have the best FOREX trading strategy, but you need to take calculated risks to make big gains.

3. Don't Trade Frequently

The good trades only come around a few times a year, so focus on them.

Many traders think there are good opportunities everyday - there aren't.

There's no correlation between how often you trade, and how much money you will make - if you want to make big profits, you need patience.

4. Only Focus on the Long Term Trends

Forget day trading, and focus on the longer-term trends only - how can you make big profits in a day? - You can't. Don't forget you have to cover your losing days as well.

Always remember - brokers interested in making the maximum amount of commission, perpetrate the make money by day trading myth.

Currency trends last for months or years - focus on them, and milk them for all they're worth.

5. Trade in Isolation

Don't discuss your trading with anyone - the only way you'll make big money is by doing it by yourself.

Have confidence in your ability and don't let anyone put you off - this is an essential character trait of all great traders.

6. Work Hard not Smart

Many losing traders think the more effort they make with their FOREX trading strategy, the greater their trading skills will become - this is not true! You can learn a method in a short period of time, and if you have a simple robust method, you can do your analysis in about 30 minutes a day - and that's it!

A Strategy for Big Gains

So there you have it - a FOREX strategy designed to make you big profits.

Many of the above tips are not conventional wisdom - but keep in mind that 90% of traders don't make big gains - and they follow the herd.

Step away from the crowd, and incorporate the above tips into your existing FOREX trading strategy - you could become very rich!

7 Ways to Earn More Income Online With Forex Trading

Did you know that... hundreds and thousands or forex traders trade in the forex market online every day... and make an absolute killing at it. How do they do it?

Well I am going to give you 7 easy tips that will help you make more money with forex trading.

Tip #1 Knowledge is Power.

When starting out trading forex on the net, it is an absolute must that you understand and become good at the basics first. Once you have a good concept on the basics then you can move forward.

For example, one of the major forex influencer's are global news events. An ECB statement is released on Euro interest rates and this will cause a flurry of activity. Most newcomers will get scared and wait until everything calms down. If you hesitate you are likely to miss out on some great trades. You must act when the market is in volatility not when it is in a stand still.

Tip #2 Independence

When you are new to Forex you will be trading yourself or have someone else do it for you.

Obviously you will make more trading yourself, but you must know these things.

If you have someone else doing it, don't interfere what he is doing... he has a strategy that may take some time, let it ride.

And if you are doing it yourself... don't get too much information... if you try and get too must information from too many sources this will result in only multiple losses.

Take a position, ride with it and then look back and analyze what has happened. Be independent and stand strong.

#3 Don't Get Over-Confident

Take tiny margins. It is one of the biggest advantages in trading forex. It allows you to trade amounts far larger than the total of what you have deposited. But don't get over confident with this... some rookies get greedy and this destroys many traders. Only increase depending on your experience and success.

Tip #4 Trade When It's News Time

Most really big trade occur around news time. Trading volume is high and the moves are noteworthy. This means there is no better time to trade than when the news is released. This is when the big guns adjust their positions and prices change resulting in a serious currency flow.

Tip #5 Exiting Trades

If you place a trade and it's not working out for you, get the hell out of there. Don't multiply your mistake by staying in for hopes sake for a reversal. That is very unlikely to happen. And on the other side if you are winning a trade, don't pull back because of the stress levels. You must learn to tolerate the stress, it is natural to trading, and you must get used to it.

Tip #6 Don't be smart

The most successful traders keep their trading basic. They don't analyze all day or research historical trends and track web logs and their results are excellent. They spend their time in the stress zone not in the library.

Tip #7 Build Your Confidence With Experience

If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-loaded; learn the business before you trade. Knowledge is power when coming to trading.

How to Profit with Forex Trading

Forex profit is an idea that has been sold around the internet to people looking for easy answers to their money problems. It's elusive to most Forex traders though because everyone is looking for profit at high speed. Sometimes Forex profit can come quickly, but more often than not, it takes planning and patience.

If you can make a plan, and be patient and follow that plan, you can profit from Forex trading. It's as simple as that.

Planning

Trading takes planning, that is just common sense. It is common sense that is usually thrown out the window in the search for fast Forex profits. You have to plan your trades ahead of time, and then execute them according to your plan. The more you change your plan, the more you end up in trouble, and the less likely that elusive Forex profit will end up in your pocket.

Patience

Patience is the number one key to achieving Forex profit. Patience combined with careful risk management will allow you to ride through poor entries and other minor Forex mistakes. Sometimes profit will come fast and other times it will take some time. If you open each trade prepared to wait for the profit to come, you will be more successful over all.

Use the Big Picture

While it's true that in Forex you can trade using whatever chart time frame you want to use, it's better to use a longer time frame as you point of reference. For Forex, the daily and the weekly charts are really stable for beginners. Look at the daily chart and plan your trades in the direction of the daily trend, set a stop that would be triggered if the price changed direction enough for you to feel convinced that the trend was over. There is no way to predict this for sure, it's really just a safety precaution.

There are three ways to play this trade from here. 

1.You can set a take profit order for an easy target on the daily chart of 100 pips
2.You can look at the daily chart over a wide range of days and look for the next support or resistance    area to set a take profit
3.You can set your stop to be a trailing stop that will lock on profits as the trade progresses

No matter which method you choose, this type of trading will take some patience. Forex traders, particularly beginners are prone to getting nervous if a trade doesn't go their way immediately, or if the trade gets into a little profit they get itchy to pull the plug and walk away with a small profit that could have been a large profit.

If you have set your stops and you are trading with prudent risk management, you can just allow the trade to develop until stop or profit.

Rinse and repeat and you have yourself a formula for making Forex profit. It's all a game of averages. You are going to lose some trades and you are going to win some trades. Using the laws of probability will tip the scales in your favour as long as you follow the rules and think carefully.

Benefits of Investing in the Stock Market

You have a lot of choices when it comes to your money. You could buy something fun like a flat-screen TV or a boat, you could remodel your house or you could even take that dream vacation around the world you’ve been dreaming of. On the other hand, if you wanted to be a little more practical, you could put your money to work for you and invest it in the stock market.

Let’s face it. Spending your money is a lot more fun than saving your money. So why is it that you are here learning how to save and invest your money instead of out somewhere spending your money? The answer: benefits.

Investing in the stock market provides many benefits to individual investors. While this list is by no means exhaustive, we will be discussing the following benefits:

i)Compound Interest

Compound Interest is a miracle of the financial world. Compound interest, when given time, helps your money grow faster and faster.

ii)Time Value of Money

The Time Value of Money is a simple concept. Basically, it means that the more time you give your money to work for you, the more your money will make for you.

iii)Tax Deferral

Tax Deferral is the greatest investing benefit the U.S. government has given to individual investors. The ability to delay paying taxes on your money can virtually double your investment power.

iv)Diversification

Diversification enables you to spread out your risk so you don’t have to put all of your hopes and dreams behind the success of a single investment.

So,what are you waiting for? Start your investment today by visit http://www.gcminternationalinc.com/en/trading/live-account.html

Take profit: setting profit targets

A profit target is a price level on a chart that you set to take profit.

Choosing a profit target is a key part of your trading strategy – it requires you work out in advance exactly how much risk you are prepared to take for how much potential reward.

Profit targets are actually the most important part of your strategy, because it is not your entries where you make a profit or loss, it is your exits. You need to be able to determine a suitable profit target for your trading – one that gives you a realistic profit target, but also gives you a sensible risk to reward.

There are countless ways in which you can set your profit target using technical indicators and other tools. We will show you two easy ways to set your profit target: support and resistance, and daily range levels using the ATR indicator.

Using support and resistance to set profit targets

Support and resistance is a powerful concept used by traders to read and interpret price action. It is based on the theory that the price may struggle to break above certain resistance levels or below certain support levels. You can use this to determine profit levels.

Using resistance

If you are in a long trade, key resistance areas can be a good place to set your profit target levels. If you are in a short trade, support areas can be a good place to take profit.

The chart below shows an example of how resistance can be used to take profit when you have a long position and prices are moving upwards in your favour:

Long entry before uptrend

Area of prior resistance

Profit target is set using the prior resistance level

As you can see in the chart above, after the initial entry into the market comes a favourable move up to a level of resistance. At this point the price begins to stop and may even reverse direction.

In this example, you should look to take profit where the price first reaches the level of resistance.

Using support

The chart below shows an example of how support can be used to take profit when you have a short position and the market is moving down in your favour:

Short entry

Prior area of support

Profit target set at the support level

As you can see above, after the trade is entered, the price moves downwards to a level of support. At this point the price struggles to break below the support level and may even reverse.

In this example, you should look to take profit where the price first reaches the level of support.

Different types of support and resistance

Support and resistance is not confined to horizontal support and resistance only. For instance, you can use pivot points, trend lines and channels as they all present support and resistance in one way or another.

What you are essentially doing is finding out where the price is likely to stop and taking your profit at that point.

Using daily range levels to set profit targets

Another effective way of working out your take profit levels is by using daily range levels.

To identify daily range levels, you can use the average true range tool. This tells you exactly how far you can expect a price to move on any given day based on recent price movements.

Apply the average true range (ATR) indicator to your daily price chart, as shown in the image below:

For a long trade, once you have entered your trade you can use the value of the ATR to place your take profit away from your entry.

The image below illustrates this process:

The ATR value is 102 pips

 Long position entered

Using the ATR value, you place your profit target 102 pips from the entry

For a short trade, once you have entered your trade you can use the ATR value to place your take profit away.

The image below illustrates this example:

The ATR range is 60 pips

Short position entered

Using the ATR the profit target is set 60 pips away

The importance of risk to reward ratios

A risk to reward ratio is a measurement of how much profit you are anticipating in exchange for the maximum potential loss you can suffer.

When setting your profit targets it is very important to trade with a positive risk to reward ratio.

When a setup occurs that does not offer an appropriate risk to reward ratio, it is always best to leave the trade and wait for a more profitable scenario later on.

Foreign Exchange Risk and Benefits

The Good and the Bad 

We already have mentioned that factors such as the size, volatility and global structure of the foreign exchange market have all contributed to its rapid success. Given the highly liquid nature of this market, investors are able to place extremely large trades without affecting any given exchange rate. These large positions are made available to forex traders because of the low margin requirements used by the majority of the industry's brokers. For example, it is possible for a trader to control a position of US$100,000 by putting down as little as US$1,000 up front and borrowing the remainder from his or her forex broker. This amount of leverage acts as a double-edged sword because investors can realize large gains when rates make a small favorable change, but they also run the risk of a massive loss when the rates move against them. Despite the foreign exchange risks, the amount of leverage available in the forex market is what makes it attractive for many speculators. 

The currency market is also the only market that is truly open 24 hours a day with decent liquidity throughout the day. For traders who may have a day job or just a busy schedule, it is an optimal market to trade in. As you can see from the chart below, the major trading hubs are spread throughout many different time zones, eliminating the need to wait for an opening or closing bell. As the U.S. trading closes, other markets in the East are opening, making it possible to trade at any time during the day. 

While the forex market may offer more excitement to the investor, the risks are also higher in comparison to trading equities. The ultra-high leverage of the forex market means that huge gains can quickly turn to damaging losses and can wipe out the majority of your account in a matter of minutes. This is important for all new traders to understand, because in the forex market - due to the large amount of money involved and the number of players - traders will react quickly to information released into the market, leading to sharp moves in the price of the currency pair. 

Though currencies don't tend to move as sharply as equities on a percentage basis (where a company's stock can lose a large portion of its value in a matter of minutes after a bad announcement), it is the leverage in the spot market that creates the volatility. For example, if you are using 100:1 leverage on $1,000 invested, you control $100,000 in capital. If you put $100,000 into a currency and the currency's price moves 1% against you, the value of the capital will have decreased to $99,000 - a loss of $1,000, or all of your invested capital, representing a 100% loss. In the equities market, most traders do not use leverage, therefore a 1% loss in the stock's value on a $1,000 investment, would only mean a loss of $10. Therefore, it is important to take into account the risks involved in the forex market before diving in. 

Differences Between Forex and Equities 

A major difference between the forex and equities markets is the number of traded instruments: the forex market has very few compared to the thousands found in the equities market. The majority of forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow because rather than having to cherry-pick between 10,000 stocks to find the best value, all that FX traders need to do is "keep up" on the economic and political news of eight countries. 

The equity markets often can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when desired. Furthermore, in a declining market, it is only with extreme ingenuity that an equities investor can make a profit. It is difficult to short-sell in the U.S. equities market because of strict rules and regulations regarding the process. On the other hand, forex offers the opportunity to profit in both rising and declining markets because with each trade, you are buying and selling simultaneously, and short-selling is, therefore, inherent in every transaction. In addition, since the forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position - as they are in the equities market. 

Due to the extreme liquidity of the forex market, margins are low and leverage is high. It just is not possible to find such low margin rates in the equities markets; most margin traders in the equities markets need at least 50% of the value of the investment available as margin, whereas forex traders need as little as 1%. Furthermore, commissions in the equities market are much higher than in the forex market. Traditional brokers ask for commission fees on top of the spread, plus the fees that have to be paid to the exchange. Spot forex brokers take only the spread as their fee for the transaction.