How to Trade Beyond Your Comfort Zone

By: DailyForex.com

A reoccurring theme that we will often see is that Forex traders tend to be too one-dimensional. This is probably because of the fact that they are often sold a bill of goods when it comes to trading currencies. They would hear advertisements that suggest that Forex markets are the best market to trade, and while this is probably true, the fact is that they are not the only markets trade. There are times where it makes more sense to be involved in other markets than the Forex market, but it used in conjunction with currency trading can be quite powerful as opposed to using these markets exclusively.

For example, you may find that you are bullish of gold. We certainly are for the long term, and as such want to be exposed to gold as often and as long as possible. However, it is difficult to hold onto a leveraged currency position in the South African rand or the Australian dollar in times of economic uncertainty. Quite often, these positions will get absolutely annihilated because of a run back to the US dollar for safety. It is certainly difficult to hang onto these positions for several years.

Knowing this, there are some alternatives. For example, you may find that buying the GLD ETF a reasonable alternative. This exchange traded fund focuses on physical ownership of gold. In other words, the GLD owns a specific amount of gold. If you are a shareholder in this particular ETF, you actually own a specific amount of gold. The beauty of this though is that it isn't leveraged. It's traded as a simple stock essentially, and as such fluctuations in price aren't as damaging. Because of this, you can hold onto this investment for a long time and essentially have a "core position" in gold over the long term and then go in and out of the currency and futures market to add to your winnings when the markets are trending upwards.

Another tool that traders have in their arsenal is the CFD market. CFD stands for contract for difference, which is essentially betting on whether or not a specific market will go up or down. You don't necessarily own that particular contract, but what you do is have an interest in the underlying financial instrument.

For example, natural gas had been in a wicked bear market for some time until the middle of 2012. If you were to try and sell or go short natural gas contracts on a futures exchange, you might find that it's a bit expensive. After all, the margin required to several thousand dollars, and the markets are very volatile. However, if you are a small trader you can get into the CFD markets and place a trade for whatever size you wish to. This allows you to essentially trade for pennies per tank if you need to, and allows the smaller trader to be involved in markets that typically are out of their reach.

Another advantage to having the ability to trade such small positions is that you can take a longer-term outlook on a particular market. Much like using the ETF above, you can simply have a small position for the long term in various markets. In fact, you can even trade stocks this way, and those particular CFDs have the advantage of operating 24 hours a day. This way, you don't have wicked spikes at the open if you are trading a stock like you can on one of the exchanges.

As you can see, there are various ways to trade the world's markets. Locking yourself into currencies only is a huge disservice to yourself, as there are plenty of trading opportunities in various markets on any given day. You have to understand that although your heart may lie with currencies, the reality is that it all ends up in your base currency at the end of the day. It really doesn't matter what you?re trading, rather that you are trading well and are taking advantage of all the opportunities that you can.

Source: http://www.dailyforex.com/forex-articles/2012/11/How-to-Trade-Beyond-Your-Comfort-Zone/16080

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