Forex Trading

Understanding Stock Market Basics


Meanwhile, passive investors let others do that work for them. As a result, they can quickly diversify by purchasing shares of a mutual fund, index fund, or exchange-traded fund that hold a diverse group of stocks. As previously noted, an S&P 500 index fund has 500 stocks, giving investors broad exposure across the largest U.S. stocks.

stock price

Some simulators even allow users to compete against other participants, providing an additional incentive to invest thoughtfully. Discount brokers used to be the exception but are now the norm. They offer you tools to select your investments and place your orders. Some also offer a set-it-and-forget-it robo-advisory service . Many provide educational materials on their sites and mobile apps, which can be helpful for beginning investors. Mutual funds are professionally managed pools of investor funds that focus their investments in different markets.

#8 – Stocks for the Long Run 5/E: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies

What’s more, the success of index investing has shown that if your goal is long-term wealth building, a robo-advisor may fit your style. Since Betterment launched, other robo-first companies have been founded. Established online brokers such as Charles Schwab have added robo-like advisory services. According to a report by Charles Schwab, 58% of Americans say they will use some sort of robo-advice by 2025. Their mission was to use technology to lower costs for investors and streamline investment advice. Depending on how often you trade, these fees can add up, affect your portfolio’s return, and deplete the amount of money you have to invest.

And if invested in a good company, the share price should rise substantially as well. Whether it is better to be a stock trader or investor depends on an individual’s financial goals, risk tolerance, and investment knowledge. Dividends, with the goal of generating a stable stream of income. Income investors typically look for companies with a history of consistent dividend payments, strong financials, and low debt levels. Once you’ve chosen your brokerage, you should be able to apply online.

If Starbucks grows and makes more money, your money grows along with it. The book is interesting and a great combination of psychology and finance. It provides analysis and concepts learned in traditional finance theory. It allows the student to contemplate bubbles as a myth or reality. Serious economics and finance students with due intelligence can crack this secret code.

Market volatility is a measure of how much and how often the value of the stock market fluctuates. Equity income is used to describe any income received from stock dividends. An equal weight rating is a measure used by equity analysts to signify how well a stock is performing relative to other stocks. An equal weight rating suggests that a stock will perform similarly with the average of all the stocks being used for comparison. An economic bubble is a situation where asset prices surge to significantly higher levels than the fundamental value of that asset.

For these and other reasons, we will make a sub-par decision at This will occur even with the most analytical individuals. Additionally, many choose to invest via passive index funds. In this method, one holds a portfolio of the entire stock market or some segment of the stock market (such as the S&P 500 Index or Wilshire 5000). The principal aim of this strategy is to maximize diversification, minimize taxes from realizing gains, and ride the general trend of the stock market to rise.


If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss. Get a weekly email of our pros’ current thinking about financial markets, investing strategies, and personal finance.

Stocks, ETFs, mutual funds: How do I decide which is right for me?

Whatever the price gets listed in the trading index is the market value of the stocks. The profits that are distributed among the share holders in the form of dividends and bonuses are always calculated with respect to the face value. But as an old Wall Street adage goes, it’s both a stock market and a “market of stocks.” There are many moving parts, in other words, and wise investors do their homework before jumping into anything. Blue-chip stocks are shares in large, well-known companies with a solid history of growth. Are often callable, meaning the issuing company may redeem the stock at a certain price after a certain date.


One advantage is that this avoids the commissions of the exchange. Trade in stock markets means the transfer of a stock or security from a seller to a buyer. Equities confer an ownership interest in a particular company. Of these, there are 16 exchanges with a market capitalization of $1 trillion or more, and they account for 87% of global market capitalization. Apart from the Australian Securities Exchange, these 16 exchanges are all in North America, Europe, or Asia.

Stock Volatility Risk

12.6% of female-headed households directly owned stock and 28.7% owned stock indirectly. People trading stock will prefer to trade on the most popular exchange since this gives the largest number of potential counter parties and probably the best price. However, there have always been alternatives such as brokers trying to bring parties together to trade outside the exchange. Some third markets that were popular are Instinet, and later Island and Archipelago .

The easiest way to create a broad portfolio is by buying an ETF or a mutual fund. The products have diversification built into them, and you don’t have to do any analysis of the companies held in the index fund. This is a Discretionary Managed Account whereby Stash has full authority to manage. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. Stash does not guarantee any level of performance or that any client will avoid losses in the client’s account. By using this website you agree to our Terms of Use and Privacy Policy.

  • When opening a brokerage account, an online broker such as Charles Schwab or Fidelity will ask you about your investment goals (and the aforementioned level of risk that you’re willing to take).
  • For example, when purchasing a car, we might research the engine, fuel efficiency, amenities, or other items.
  • Growth stocks are anticipated to grow at a rate above the average for the market.
  • Other factors influence market performance, such as political uncertainty at home or abroad, energy or weather problems, or soaring corporate profits.
  • Both U.S. and foreign companies primarily in the financial, manufacturing, and natural resource sectors are listed on the exchange.

Understanding whether you’re investing for the long-term future or the short term can also help determine your strategy – and whether you should be investing at all. Sometimes short-term investors can have unrealistic expectations about growing their money. And research shows that most short-term investors, such as day traders, lose money. You’re competing against high-powered investors and well-programmed computers that may better understand the market.

You don’t need to wait until a buyer wants your exact number of shares — a market maker will buy them right away. The highest offer to buy shares listed from a market maker at any given time is known as the bid, and the lowest offered selling price is known as the ask. Types of stocks together, balancing out the inevitable losers and eliminating the risk that one company’s contaminated beef will wipe out your entire portfolio. Bear market means stock prices are falling — thresholds vary, but generally to the tune of 20% or more — across several of the indexes referenced earlier. If you’re not well-versed in the basics of the stock market, the stock trading information spewing from the media can border on gibberish. If you’re investing for the short term, you risk not having your money when you need it.

Stock trading involves investors trying to make a profit by buying and selling shares in publicly listed companies. Over the last 40 years the size of the stock market has grown substantially, from US$2.5t in 1980 to US$93.7t in 2020, according to The World Bank. The real birth of what we think about today as the stock market started way back in 1602, with the Dutch East India Company. Historians claim it to be the first company to ever offer shares to investors in exchange for a portion of its profits. may be able to access financial information more easily than if you invest directly overseas. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Investopedia requires writers to use primary sources to support their work.

Just Do It: Go Buy a Stock!

This allows you to chat with others and get a sense of which strategy may work best for you. Simply put, a stock chart is a graph that shows you the price of a stock over a specific period of time — for example, five years. More advanced stock charts will show additional data, and by understanding the basics you can pull out a lot of information about a stock’s historic, current, and expected performance. The basic premise behind buying stocks with low P/B ratios involves buying a company that is selling close to or below their book value. Therefore, the idea is you are buying a stock with very little downside because book value can represent a company’s “liquidation value”.

Forex Trading

Relative Vigor Index

period of time

The calculation of RVI is done in such a way that it is easy to determine the ‘vigour’ of the price at a particular close period. The Moving Average Convergence Divergence is both a momentum and trend following indicator.It is calculated by… The calculation method for the Relative Vigor indicator is similar to that of the Stochastic Oscillator. The Stochastic Oscillator uses price in comparison to the low of the day.


  • As many other trading platforms, MetaTrader 5 has a built-in RVI indicator.
  • Trend trading is a style of trading that attempts to capture gains when the price of an asset is moving in a sustained direction called a trend.
  • The RVI follows and creates a short-term low, trading extremely close to its minimum levels.
  • Therefore we recommend using SMA crossover to determine trend direction.
  • To normalize the index to the daily trading range, divide the change of price by the maximum range of prices for the day.

Use indicators after downloading one of the trading platforms, offered by IFC Markets. To this point, while the MACD is not an oscillator, it stifles the effectiveness of the RVI indicator strategy. So, by the time the MACD provides a trade signal, the buying opportunity is gone.


Finally, we are going to expose another strategy, which consists of combining the relative vigor indicator with Bollinger Bands. As you probably know, the Bollinger Bands indicator consists of a simple moving average (20-period SMA by default) and two bands – upper and lower. A moving average is a technical analysis indicator that helps level price action by filtering out the noise from random price fluctuations. A Bollinger Band® is a momentum indicator used in technical analysis that depicts two standard deviations above and below a simple moving average. The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions.

Trending markets are more likely to experience hidden divergences. As the market retraces, they assist traders in choosing optimal trade entry points. For example, if the price is making a pullback in a bull market, traders will look for bullish divergences. The Relative Vigor Index uses the difference between an instrument‘s closing and opening prices to determine the strength of a market trend. The RVI is also used to identify bullish and bearish momentum in the security price.

The RVI works best in trending markets and tends to generate false signals in rangebound markets. Results can be improved by setting longer-term lookback periods, which help to reduce the impact of whipsaws and short-term countertrends. The RVI indicator is calculated in a similar fashion to the stochastics oscillator but it compares the close relative to the open rather than comparing the close relative to the low.

About Trend Following System

Even though we managed to surpass the results of the SPY ETF, we are still lagging from those of the actual Apple returns. Extreme positive readings denote overbought conditions in the market, while extreme negative readings denote oversold conditions. At such readings, traders watch out for a cross of the signal line.

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As with other oscillators, when the RVI lines rise above 0 and reach their highs, the market is overbought. Conversely, when both lines decline below 0 and reach their local lows, the market is oversold, and a reversal or correction may follow. It can broadcast false positives, as do all indicators, but if you use one or two other indicators in tandem, you can develop an effective trading strategy for the long haul.

Relative Vigor Index trading strategy

The former occurs when the RVI creates a higher low or a higher high, while the price action creates a new low. It signals that the price action is likely to start following the RVI higher. Relative Vigor Index divergenceIf we take a closer look, crossing the zero line was accompanied by a countermovement which is unsatisfactory. We must, therefore, consider whether we should not reject this rule, which we will do.

MATIC Price Retraces But Buyers Can Re-Enter At This Level – NewsBTC

MATIC Price Retraces But Buyers Can Re-Enter At This Level.

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To make a more smooth calculation, one uses Simple Moving Average. To avoid probable ambiguity one needs to construct a signal line, which is a 4-period symmetrically weighted moving average of Relative Vigor Index values. The concurrence of lines serves as a signal to buy or to sell.

Data collection notice

This can be a confirmation that a new trend has formed after an earlier signal was delivered by the RVI. Oscillators were some of the first technical indicators created to signify overbought and oversold conditions. Formulas may differ by design, but each indicator is trying to gauge the strength and direction of a trend by observing small divergences in how investors are reacting to current price behaviour.


Relative Vigor indicator works best in trending markets while creating false signals in range-bound markets. Improve results by setting longer-term look-back periods, to reduce the impact of whipsaws and short-term countertrends. From a visual perspective, the Relative Vigor Index will mimic to a degree the pattern of price behaviour until it diverges.

How to access RVI on FYBIT?

The best advice is to go virtual – practice on your broker’s free demo system to ascertain the quirks and nuances of this indicator. Consistency will tilt the odds in your favour and lead to a successful trading experience. It is also advisable that you practice trading with this complete set of indicators to become acquainted with the subtle clues and insights possible with this combination. It is this commonality that leads to repeating patterns and the ability to gain an edge in the market. In this article, we will explain how the RVI works and how traders can use it as one of many possible tools when interpreting market movements. We aim to explain its advantages, its history and how it is calculated, leaving you well informed about your future trading prospects.

simple moving average

When the pattern seems to be out of phase with general prices for the chosen asset, it is time for the trader to take note. Observe in the overview diagram depicted above how the RVI both follows and diverges from the candlestick action above it. When the RVI line crosses over the Red weighted moving average signal line, it is time for the trader to evaluate the potential trading opportunity that is forming. The Relative Vigor Index indicator is composed of two fluctuating curves – the “Green” line, which is the smoother RVI values, and the “Red” signal line. The weakness in the indicator is timing and that it often gives counter-intuitive values that confuse rather than assist traders. Using an additional indicator reduces the propensity for false signals.

Green Lines and Red Lines

The Relative Vigor Index appears like a rollercoaster, but it tends to be less choppy than other oscillators. The rather large divergence periods that occur on the chart can also be confusing. With practice and experience, these signals can be interpreted correctly. Here we are sharing a very simple trading strategy that tends to mix these two scenarios – a crossover and divergence. This way we get two signals pointing to the same future development – a reversal.

In the market, the open and closing prices for currencies are usually difficult to find since trading takes place 24 hours a day, five days a week. It does this by comparing the closing price of an instrument to its trading range. Traders will look at whether the price of an instrument at closing was higher or lower than its opening price.

Open a position after the crossover of SMA in the Bollinger Bands and the crossover of the RVI. This strategy shows high efficiency with small timeframes – hour or minute. Therefore, you should do your best to find out the best period to use, including combining it with other indicators like the RSI and MACD. The RVI oscillates across a pre-determined center line rather than a banded trend.

Forex Trading

Bull Spread Call

risk of loss

A is an options strategy designed to benefit from a stock’s limited increase in price. Straddle refers to an options strategy in which an investor holds a position in both a call and put with the same strike price and expiration date. Consider a hypothetical stock BBUX is trading at $37.50 and the option trader expects it to rally between $38 and $39 in one month’s time. The trader therefore buys five contracts of the $38 calls – trading at $1 – expiring in one month, and simultaneously sells five contracts of the $39 calls – trading at $0.50 – also expiring in one month. The broker will charge a fee for placing an options trade and this expense factors into the overall cost of the trade.


Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, 125 S. If your forecast was incorrect and the stock price is approaching or below strike A, you want implied volatility to increase for two reasons. First, it will increase the value of the option you bought faster than the out-of-the-money option you sold, thereby increasing the overall value of the spread. The bull call spread is a debit spread as the difference between the sale and purchase of the two options results in a net debit.

The level of risk in a bull call spread is limited to the initial premium paid for purchasing the position. The chances of maximum loss are when the underlying reaches the lower strike price or below. The maximum risk of the bullish call spread is limited to the total premium paid in buying a low strike price call. Simply put, it will be the total premium invested in buying the lower leg or lower strike price of this call spread strategy.

You’ll begin to profit once the stock rises above breakeven, which is calculated by adding the net debit to the purchased call strike. In this example, profits will accrue on a move beyond $26.27 (25 + 1.27). As you can easily see, there are some important differences in the potential returns and risk profiles of these two strategies. Naked CallA naked call is a high-risk options strategy wherein the investor sells a call option without possessing the underlying stock. This CORE advanced long call spread sample bot template is designed for traders who have a basic understanding of options trading and the autotrading platform. Regardless of the theoretical price impact of time erosion on the two contracts, it makes sense to think the passage of time would be somewhat of a negative.

Maximum Potential Loss

A bull call spread is an option strategy that involves the purchase of a call option and the simultaneous sale of another option with the same expiration date but a higher strike price. It is one of the four basic types of price spreads or “vertical” spreads, which involve the concurrent purchase and sale of two puts or calls with the same expiration but different strike prices. The bull call spread reduces the cost of the call option, but it comes with a trade-off. The gains in the stock’s price are also capped, creating a limited range where the investor can make a profit. Traders will use the bull call spread if they believe an asset will moderately rise in value. Most often, during times of high volatility, they will use this strategy.

A call option is a contract that gives the option buyer the right to buy an underlying asset at a specified price within a specific time period. For MIS+ product, while placing order user places first leg order along with compulsory Stop loss trigger order (i.e second leg) & optional book profit trigger order . First leg order gets tagged with second/third leg order and profit and loss will be calculated based on such tagging and will be computed based on the pair of trades that get executed through the product. Moreover, the breakeven price is lowered when implementing a bull call spread. Whether the stock falls to $5 or $50 a share, the call option holder will only lose the amount they paid for the option spread ($42). The trader expects the stock to move above $52.92 but not higher than $55.00 in the next 30 days.

strike prices

If at expiry, the stock price declines below the lower strike price—the first, purchased call option—the investor does not exercise the option. The option strategy expires worthlessly, and the investor loses the net premium paid at the onset. If they exercise the option, they would have to pay more—the selected strike price—for an asset that is currently trading for less. A bullish call spread option, also known as a bull call spread option, is a trading strategy that aims to capitalize in an increase in the price of a given market or asset. The bull call spread option strategy consists of two call options that create a range that outlines a lower strike point and an upper strike point. The bullish call spread strategy helps to cap loss if the price of an asset drops, however, the strategy also caps the amount of potential gains in case of a price increase.

When to Use a Bull Call Spread?

Note, however, that the stock price can move in such a way that a volatility change would affect one price more than the other. Meet some of the most important greeks—delta, gamma, theta, vega, and rho—and see how they can be used in your options trading. Learn how to measure volatility using the Cboe VIX, rule of 16, and skew in your options trading.

Since the strategy involves being long one call and short another with the same expiration, the effects of time decay on the two contracts may offset each other to a large degree. The following strategies are similar to the bull call spread in that they are also bullish strategies that have limited profit potential and limited risk. Compare Bull Call Spread and Bull Put Spread options trading strategies. Find similarities and differences between Bull Call Spread and Bull Put Spread strategies. Trader #1 decides to purchase a long call while Trader #2 decides to establish a bull call spread. Let’s start by evaluating Trader #1’s long call strategy using some common strategy attributes and options Greeks, such as Delta, Theta and Vega.

option spread

In other words, the long call spread player is still optimistic on the shares, but has a rather specific target in mind as to how high the stock will rise over the lifespan of the trade. That’s immediate capital that we can spend today or, more likely, that we will want to keep in reserve. Because this represents the MAXIMUM profit that we will earn from this trade, which we will get to keep in our accounts so long as the price of MSFT is above $240 one month from now. As always with options, the puts are just a mirror image of the call trade.

But, it is also possible to create the spread with other strike prices. Spread strategies are simple options strategies for traders to implement. These multi-leg strategies involve two or more options transactions.

Amongst all the strategies, the bull call spread is one the most popular one. The strategy comes handy when you have a moderately bullish view on the stock/index. Butterfly spread is an options strategy combining bull and bear spreads, involving either four calls and/or puts, with fixed risk and capped profit. To put it another way, if the stock fell to $30, the maximum loss would be only $1.00, but if the stock soared to $100, the maximum gain would be $9 for the strategy. The below-mentioned trading situations are apt for implementing a bull spread strategy.

A spread strategy like the Bull Call Spread works best when a trader’s outlook towards the stock or index is moderate and not aggressive. For instance, a trader can have a moderately bullish or bearish outlook on the stock or the index. It’s important to note that purchasing out-of-the-money call spreads is a low probability trade because the breakeven price is above the stock price at entry. Additionally, the profit potential is greater than the loss potential.

How To Manage a Bull Call Spread

The maximum profit from the strategy is limited to the differences between the strike prices minus the net spread . The strategy breaks even at the strike price of the long call plus the net premium paid. For the long call, the options trader pays a premium which is the maximum loss from the long call. Bull Call Spread is an options trading strategy that involves the purchase of two call options with the same expiration and different strike prices. In the strategy, the trader buys one call option with a lower strike price and sells another call option with a higher strike price. The strategy has a limited potential profit and loss as it has a ceiling for the profits and a floor for losses.

  • ProfitabilityProfitability refers to a company’s ability to generate revenue and maximize profit above its expenditure and operational costs.
  • While you think a near-term rally is likely, you’re wary of the overhead $30 level.
  • As a result, the stock is bought at the lower price and simultaneously sold at the higher price.
  • Risk-reward RatioThe risk-reward ratio is the measure used by the investors during the trading for knowing their potential loss to the potential profit.

The disadvantage is that the premium received is smaller, the higher the short call’s strike price. Up to a certain stock price, the bull call spread works a lot like its long call component would as a standalone strategy. However, unlike with a plain long call, the upside potential is capped. That is part of the tradeoff; the short call premium mitigates the overall cost of the strategy but also sets a ceiling on the profits. It contains two calls with the same expiration but different strikes.

This potential loss will be realized if XYZ settles at or below $25 upon expiration, while smaller losses will be incurred if the stock remains below breakeven at $26.27. To trade these expectations, you could play a long call spread using XYZ’s 25- and 30-strike calls. You would buy to open the XYZ 25 call, which is asked at 1.42, and simultaneously sell to open the XYZ 30 call, which is bid at 0.15. Since you shelled out 1.42 for the long call and collected a premium of 0.15 for the short call, your net debit on the spread is 1.27. Multiplied by 100 shares per contract, that’s a total cash outlay of $127 for the spread, plus any brokerage fees. See our Pricing page for detailed pricing of all security types offered at Firstrade.

Read up on historic examples or better yet, contact one of our experienced RJO Futures Brokers. Bruce Harper, CFA, has been trading options personally and professionally for over 30 years. He has worked in multiple Treasury and Corporate Finance roles for Fortune 500 companies.