Traders are in a better position to achieve wealth in trading than many other occupations. This is because trades are a form of creative accounting, which is more lucrative than a minimum wage job. In a 2013 Wall street Journal article, I quoted Benjamin Graham:
“A successful trader is very much like a chess master. When chess masters need to beat the world, they usually work for banks. When traders need to beat other traders in a currency, they usually make money by betting against each other in currency markets”.
It can be much more economical to play a currency game than it might seem. As the Economist’s James Reiss writes in “The Case For Stocks,” the profits “can easily be worth almost as much as the stock market itself.”
What makes one dollar worth more than another? What determines the market’s valuation of one dollar or another? To answer that, we have to understand the different types of stock and the market’s valuation. The most important factor is called the market’s intrinsic value.
The market’s intrinsic value is a measure of how much a particular stock or asset or service can sell for in the marketplace. If a dollar is worth less than another dollar, then the market’s value is less. The intrinsic value of a dollar can be calculated using a variety of methods. For example, if a company sells for one-tenth of its intrinsic value, then you can expect its price to be one-tenth of its intrinsic value.
According to Reiss, the following factors affect the market’s valuation of a dollar:
The time value of money (time-value-added)
The market’s price index
What if I decide I am in a bad position and don’t want to lose more than I put up?
If you are a trader, then there is little you can do other than make sure your trading account is balanced. It is important to keep the trading account, which is where you accumulate your profit for trading. Many other trades you make carry with them other risks as well, so it is important to make yourself aware of them.
You can easily learn about all of these risk types in a few steps. First and foremost, you must think about where your gains and losses from a trading trade come from. This is where the time value of money (TVA) and liquid value of money (LTVA)
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