Edge Forex

Category: Learn

  • Compound Interest: World’s Eighth Wonder For A Trader

    Compound Interest: World’s Eighth Wonder For A Trader

    “Compound interest is the world’s eighth marvel. Whoever comprehends it earns it; whoever does not pays it. Einstein, Albert
    Since this subject has many different aspects, I’ll limit my discussion to the trading industry and the benefits of compounding returns. Any traded financial market is affected by this.

    Let’s first look at two straightforward money management strategies that a trader might include in their trading plan.

    • Fixed-size trades (monetary)
    • Trade size in percentage (proportional to trading balance)

    The first choice would imply that no matter the result of the prior transaction (win or loss), the same set monetary deal size would remain on all future trades. So how would this relate to a successful trader?

    Assuming Sam and Ben, two traders, have the same approach and balance:

    • $10,000 as a deposit
    • Fifty-five percent of games are won.
    • The average win to average loss is a profit ratio of 1.2.

    Although the data above is sparse, it provides a foundation to build a visual depiction of the increase in each trader’s account.

    Their performance of Sam is simulated in the graph below using a FIXED Transaction SIZE of $100 for each trade he does (i.e., each loss will cost him $100):

    trade

    A little side comment is necessary here. Here is only one simulation of how a line chart may display the distribution of wins and losses. Remember that there was a chance we might have had a losing result. We never know how each deal will turn out when we trade the markets and when a run of losses will start. Instead, the longer we trade, the more money we should make.

    Returning to the main topic, we can observe that this produced a +16 percent increase by dividing (end balance less start balance) by end balance using the set transaction sizes discussed above.

    Let’s now evaluate Ben’s trading strategy, which was predicated on a FIXED PERCENTAGE of his balance. Ben will initiate his transaction with a balance of $100, and the fixed percentage will be 1 percent of that amount:

    trade

    Ben has yielded (or produced) a +9.58 percent increase throughout this simulation of 40 transactions using 1% of his available balance at the time of each deal.

    So, why does the set stake size on each transaction appear preferable after all?

    If you still believe that, allow me to educate you.

    As I mentioned before, these are short simulations, or what statisticians would call a “sample size,” and they don’t always represent what can be accomplished “over the long run.”

    Now let’s evaluate the potential outcomes of 1,000 transactions using both betting methods side by side:

    trade

    The comparable results are as follows:

    • Betting System: +208.6 percent
    • 1,211.5 percent as a fixed percentage

    In the short term, Sam has been shown to provide a little higher return than Ben, but over the long run, Ben has progressed to purchasing his yacht while Sam is still in his row boat. One compounded his riches, while the other did not, which was the sole difference between them.

    I think it’s clear that this post has two lessons. I put the potential of compounding returns front and center using a set percentage risk for every transaction. I also hope you’ve learned that it’s not always a good idea to judge if your method has a positive “expectancy,” which suggests it’s likely to withstand the test of time by looking at a few transactions.

  • THE RECOVERY FROM A FOREX DRAWDOWN

    THE RECOVERY FROM A FOREX DRAWDOWN

    Drawdown is the term used to describe the process of losing money while playing a game. Losses in the foreign exchange market are unavoidable and will happen to every one of us at some point; the question is, what is the actual cost when you suffer a loss? If you have a significant downturn, you will need significant profits to return to where you began. I will show you a graph in this video highlighting the harm that may be caused by excessive drawdown.

    The failure of many forex traders to comprehend the impact that an unchecked losing streak may have on their trading accounts is the most common instance of gross underestimating that these traders engage in.

    When a trader loses, their money is taken out of their trading account. We’ve all been in that situation. Extremely improbable that there won’t be any further losses in the future.

    Drawdown: What is it?

    Drawdown is the difference between the highest value and following lowest value in the balance of your trading account. It is measured from highest value to lowest value. This displays the total amount of money you have lost due to unsuccessful deals.

    To put it another way, if you build up your account to $100,000 and then suffer a loss of $30,000, your drawdown is 30 percent.

    How might a drawdown affect your account?

    Most people are unaware of this fact; nonetheless, in addition to the money that is lost, the drawdown may do a great deal of other harm to the account.

    Example: Let’s consider two dim performances on an equity curve. Trader A and trader B.

    Both have set their sights on achieving an annual growth rate of 5% over the following ten years. The horizontal axis of the graph below represents the passage of time in years, while the vertical axis represents the percentage increase or growth that occurred during this period.

    Both achieved the goal of 5 percent growth throughout the program’s first year. During the second year of the trading operation, trader B has a losing spell that leads to a loss of 24 percent.

    drawdown

    For trader B to attain the same aim as trader A, who in this example has a gain of 63 percent over ten years, he will need to make twice the first intended amount of 5 percent for each of the next eight years. Therefore, to make up for the previous year’s loss, he has to increase his annual profit by 10%.

    If you have a drawdown of 10 percent, you need to increase by 11.1 percent merely to be even. If you suffered a loss of 25 percent, then you will need to achieve a gain of 33 percent to return to where you were before. And if you have a drawdown of sixty percent, you need a gain of one hundred fifty percent merely to return to where you started.

    What can be done to control drawdown?

    Drawdown is an essential component of trading; every trader will experience it at some point. However, what is essential to understand is how you need to perform following the drawdown phase.

    Trading with a lower risk percentage might be one approach to avoid a drawdown of these disastrous proportions. If you have a strategy that has been back-tested and shown to have a positive expectation, then you should understand how the future downturn may affect your equity curve moving ahead.

    To retain one’s discipline and keep one’s emotions under control during downturn times, it is preferable to reduce one’s level of risk and maybe even quit trading for a while. You may establish a weekly or monthly cap just as you can set a limit for each deal you make. If you lose more than 5 percent of the total value of your account, you will be required to refrain from trading for a certain amount of time.

    If you don’t have a clearly defined strategy, you can feel motivated to use more leverage to recoup some of your losses. Don’t make this mistake. Get up and go away from the charts; give yourself a rest instead.

    When trading the markets, you should constantly remember this rule in the back of your mind. The most important foreign exchange rule is to always protect your money.

  • HOW TO DRAW FOREX TREND LINES?

    HOW TO DRAW FOREX TREND LINES?

    One of the most popular types of technical analysis is trendlines. However, are you sketching them properly? If not, allow me to demonstrate.

    Many different types of technical analysis are used to study the markets. The application of support and resistance is, by far, the most typical.

    Trend Lines: What Are They?

    On a chart, a trend line is a line that is drawn between two levels to represent support or resistance, depending on the trend’s direction. The more often a price abides by a specific trend line, the more critical that trendline is.

    Based on these trend lines, we can quickly identify possible pockets of higher supply and demand that may help the market go downward or upward.

    How are trend lines drawn?

    In my years of trading and instructing, I’ve seen a lot of misunderstandings about the precise location and placement of trend lines. In this area, there are two schools of thought:

    • You may create a trendline by connecting the highs and lows of a particular candle.

    or

    • They may be deducted from the final price.

    The key is to remain consistent in your approach, so you can either do one or the other.

    Drawing a trendline from the highest closing price of one candle to the higher candle and trying to compel them to match the market is pointless. You’ll likely get some false trade signals as a result of this.

    The direction of the trend, from where the price has been to where it is heading, should be considered while drawing trend lines.

    Let’s examine the trend line in the chart below:

    trendline
    Source: Forex Signals

    The trend line will be positioned below the price in an upward market, functioning as support.

    The trendline will be located where the market price is in a downtrending market, functioning as resistance.

    How should the trend line be placed?

    One technique is to align the trend lines with the extreme highs and lows of a particular candle as measured by its wicks.

    The price is now quite far from where that specific trendline is drawn, which is the only issue. The same holds if you are projecting a market that is declining.

    The closing price method is the alternative strategy. Using the line graph, the price will trade much more closely to the trend line, which you can see on the candlesticks with ease.

    How do you trade using trend lines?

    First off, trendlines established on a long-term chart using the closing price are more accurate and dependable. It might be used on many kinds of charts and for a breakout.

    Second, trend lines may be utilized to create dynamic support and resistance levels based on recent price movements. The support level will be the uptrend line, and the resistance level will be the downtrend line.

    Price movement might either break through the trend line and create a reversal or bounce off the trend line and continue the trend.

    The price won’t always bounce back precisely from the moving average since these trend lines are like regular support and resistance lines.

    The next move should see prices move toward the break after the level of resistance or support has been breached. A fake breakout will occur if prices break and then fail to go forward quickly.

    Trendlines may also be significant or minor, much as with support and resistance.

    Summary:
    • A line drawn between two levels on a chart to represent support or resistance is known as a trend line.
    • The most trustworthy trend lines will always be produced at more significant periods.
    • NEVER try to shoehorn trend lines into a market by drawing them.
    • Trend lines may be used as dynamic levels of support and resistance.
  • What Is A Bear Market? Is It A Good Time To Invest?

    What Is A Bear Market? Is It A Good Time To Invest?

    What does “Bear Market” mean?

    A bear market is characterized by an asset price decrease of at least 20 percent from recent highs. Clearly, these are hardly favorable circumstances, but fighting back might be risky.

    Here, we will discuss eight essential investing methods and mentalities that can help you remain cool and “play dead” while the stock market eats into your gains.

    Bear Market Strategies

    Keep Your Fears Under Control

    Wall Street has an ancient saying: “The Dow climbs a wall of fear.” In other words, the Dow has continued to increase throughout time despite economic problems, terrorism, and numerous other catastrophes. Always attempt to separate your emotions from your investing decision-making process. A few years from now, what appears like a great global calamity now may be regarded as little more than a blip on the radar screen. Remember that fear is an emotion that may impair logical decision-making. Keep your cool and continue!

    Invest Using Dollar Cost Averaging

    The most essential thing to remember during an economic slowdown is that negative years on the stock market are common; they are a natural component of the business cycle. If you are a long-term investor (with a time horizon of 10 years or more), dollar-cost averaging is one of your options (DCA). By acquiring shares regardless of price, you get shares at a discount while the market is down. Your cost will “average down” over time, resulting in a better total entry price for your shares.

    Act Dead

    During a bear market, bears dominate and bulls have no chance. According to an ancient proverb, the best course of action during a bear market is to pretend dead, just as you would if you saw a genuine grizzly bear in the woods. Fighting back would be very risky. By remaining cool and avoiding unexpected movements, you will avoid becoming a bear’s meal. Playing dead in financial terms refers to allocating a greater proportion of your portfolio to money market products, such as certificates of deposit (CDs), U.S. Treasury bills, and other assets with high liquidity and short maturities.

    Diversify

    Diversification is allocating a portion of your portfolio to stocks, bonds, cash, and other assets. The manner in which you divide your portfolio depends on your risk tolerance, time horizon, objectives, etc. Every investor’s circumstances are unique. A smart asset allocation plan will enable you to avoid the potentially harmful consequences of putting all of your eggs in one basket.

    Never invest more money than you can afford to lose.

    Investing is vital, but so are eating and staying warm. It is undesirable to invest short-term cash (such as money for the mortgage or groceries) in the stock market. As a general rule, investors should not invest in stocks unless they have a five-year or longer investment horizon, and they should never invest money that they cannot afford to lose. Bear markets and even slight market dips may be exceedingly devastating.

    Consider Excellent Values

    Bear markets may provide excellent investment opportunities. The secret is knowing what you’re searching for. A bear market is characterised by equities that are beaten up, battered, and priced too low. Value investors such as Warren Buffett often consider bear markets as purchasing opportunities due to the fact that the prices of excellent firms fall in tandem with the valuations of inferior companies, resulting in very favourable valuations. Buffett often increases his holdings in some of his favourite firms during market downturns because he understands the market’s propensity to unfairly penalise even outstanding businesses.

    BEAR
    Take Stock in Defensive Industries

    In general, defensive or non-cyclical equities do better than the market as a whole during bear markets. These sorts of stocks provide a constant dividend and dependable profits regardless of the market’s condition. Companies that manufacture non-durable home goods, such as toothpaste, shampoo, and shaving cream, are examples of defensive sectors, since consumers will continue to use these products throughout difficult times.

     Prefer Short

    There are opportunities to benefit from price declines. One method is short selling, which involves borrowing shares of a business or ETF and selling them in the hope of buying them back at a cheaper price. Short trading involves margin balances and might result in damaging losses if markets rise and short positions are covered, resulting in further price compression. Put options are another alternative, which increase in value when prices decline and guarantee a minimum price at which to sell an asset, thereby setting a floor for your losses if you are hedging. To purchase puts, you must be able to trade options in your brokerage account.

    Inverse exchange-traded funds (ETFs) provide investors with the opportunity to benefit from the decrease of significant indexes or benchmarks, such as the Nasdaq 100. When the main market indexes decline, these funds increase, enabling you to benefit while the rest of the market declines. These options may be acquired simply from your brokerage account, unlike short selling or puts.

    Why Is It a Smart Move to Continue Investing During Bear Markets?

    The stock market and the economy tend to rise over the long term. Bear markets may disrupt this generally upward tendency, but these declines always finish and reverse, resulting in new highs. By investing during bad markets, you may develop stronger holdings by purchasing equities at cheaper prices (“on sale”).

    What is the frequency of bear markets?

    Historically, bear markets in the United States occur every 4.5 to 5 years on average.

    Why Is This Known as a Bear Market?

    There are many conflicting hypotheses about the origin of the names bull and bear markets. Bulls often attack by thrusting their horns forward, while bears typically strike by bringing their claws downward. According to a second explanation, the name “bear” derives from the early fur trade, in which bearskins were seen as especially dangerous goods in terms of price and durability.

    Which bear market was the most severe to date?

    The 1929-1932 decline, which coincided with the Great Depression, was the most severe and longest bear market ever.

  • How to Trade Following a News Release?

    How to Trade Following a News Release?

    By creating a solid trading strategy and embracing essential risk management, traders must learn how to handle turbulent markets while performing a trade. Effective trading techniques are provided in this article for investors wishing to trade after a news release.
    1. Trend-based approach

    This strategy uses many periods and clearly defined degrees of support and opposition that are activated after a news release.

    Traders might use this method when a clearly defined level of support or resistance is being approached but not quite reached by the current market price. Market movement might be pushed toward the trend line by the volatility after the news announcement. Traders might try to trade in the trend’s direction and on any possible rebound if the price stays inside the trend line.

    The following four points are helpful for this kind of trade:

    • Find the trend’s direction on a daily chart.
    • Draw lines of support and resistance.
    • Choose a forex time range between 1 and 4 hours.
    • In an uptrend, buy near support, while in a downturn, sell near resistance.

    Keeping this in mind, it is crucial to use tight stops while following this approach since news releases have the power to surpass established levels of support and resistance.

    1. Dual spike breakout approach 

    This approach uses a five-minute chart to wait for market volatility to display a range before trading a break of that range. The US Non-Farm Payroll (NFP) announcement, which often has the most ability to affect the market, is included in this section for illustrative reasons.

    Wait 15 minutes for three candles with a five-minute burn time to shut after the NFP release. Be sure to notice the highest and lowest prices of the two closed candles. After that, put an entry order to buy at the highest price and an entry order to sell at the lowest price. Targets and stops may be specified whenever an order is triggered at a distance twice the width of the high/low channel, respectively, for short trades and long trades.

    Trade

    Volatility might cause the price to go above or below the short-term range, triggering an entry order and prompting a quick reversal to reach a stop loss. This is a drawback of this method.

    In the following situations, this approach may be used:

    • To display 5-minute charts, alter the chart’s display options.
    • Consider the highs and lows of the first three candles.
    • Place entry orders when the price crosses the range’s upper or lower bound.
    • Set limits and stops.
    • Get rid of the unfulfilled order.
    1. Using a News Reversal Strategy

    Immediately after a large news release, the market may move one way before reversing course and moving in the other direction.

    The news reversal method targets a swift, persistent direction change after a significant initial price move and seeks to trade the news after the announcement.

    Algorithms or the market may have sensed an overreaction in price, causing transactions to be placed in the other direction, which led to the reversal. The disadvantage of this approach is that the price keeps moving in the direction of the initial spike without experiencing any price reversals.

    trade
    How to put the news reversal technique into practice:
    • Initial price increase: When news is announced that has the potential to affect the market significantly, prices often increase.
    • Watch for a reversal: Traders might wait 10–15 minutes for the reversal to return the price to where it was before the release.
    • Enter as soon as the price crosses pre-release levels or falls below them.
    • Target Levels: Trading professionals might think about creating numerous goal levels. Trades may be closed out on half of the positions as soon as one is triggered, and the remaining positions’ stops can be moved to break-even.
    CONCLUSION FOR TRADING FOREX AFTER THE RELEASE

    A more cautious method to approach news trading might be to trade the news after the announcement. This is because a trader has time to construct a technical setup for their trade once the emotions from the news announcement have subsided. Whatever trading strategy you choose for news trading, risk management, and using little to no leverage is essential to keeping money in your account to place the next transaction.

  • A 4-Step Guide to Gold Trading

    A 4-Step Guide to Gold Trading

    Due to its unique position within the global economic and political systems, the gold market provides significant liquidity and exceptional potential to benefit in almost all circumstances, regardless of whether it acts like a bull or a bear. Even while many people decide to buy the metal directly, trading on the futures, equities, and options markets provides excellent leverage with manageable risk.

    Because they are unaware of the distinctive features of the global gold markets or the hidden hazards that might steal gains, market participants often fall short of maximizing the benefits of gold price changes.

    Although trading in the yellow metal is simple, it requires specialized knowledge. Incorporating these four strategic measures into daily trading routines can benefit experienced investors, but beginners should use caution. While waiting, explore until you are familiar with the nuances of these intricate marketplaces.

    1.) What Drives Gold Price

    Gold is one of the world’s oldest currencies and has a strong psychological hold on the financial industry. Yellow metal is a topic on which almost everyone has an opinion. Yet, gold itself only responds to a small number of price triggers. Each of these factors divides into two halves, creating a polarity that affects trend intensity, emotion, and volume:

    -Both inflation and deflation

    -Fear and greed

    -Demand and supply

    While market participants trade the yellow metal in response to one of these polarities when another is driving price movement, they run a higher risk. Say, for instance, that the global financial markets experience a selloff and gold has a significant rise. Many traders enter the market assuming that fear is driving up the price of the yellow metal and act on this assumption. Inflation may have been the cause of the stock’s drop, drawing a more technical audience that will aggressively sell against the gold surge.

    In the global markets, combinations of these factors are always at work, creating long-term themes that follow equally long uptrends and downtrends. For instance, the 2008 Federal Reserve (FOMC) economic stimulus initially had minimal impact on gold because market participants were preoccupied with the intense panic that followed the 2008 financial crisis.

    2.) Recognize the Crowd

    Numerous groups with various, often competing interests are drawn to gold. Gold collectors, known as “gold bugs,” are at the top of the heap, investing a disproportionate amount of family wealth in gold stocks, options, and futures. These long-term participants are seldom deterred by downward trends and ultimately push away less ideological participants.

    Additionally, institutional investors who purchase and sell gold alongside currencies and bonds in bilateral strategies known as “risk-on” and “risk-off” engage in significant hedging activity. Funds may quickly trade these combinations by assembling baskets of securities that balance safety and growth (risk-on and -off, respectively). They are particularly well-liked in marketplaces with much disagreement and low levels of usual public engagement.

    Gold

    3.) Study the long-term chart.

    Spend some time being intimately familiar with the gold chart, beginning with a long-term history that spans at least 100 years. The metal has not only established patterns that lasted for decades, but it has also slowly declined for extended periods, depriving gold bugs of earnings. This study pinpoints price levels that should be kept an eye on from a strategic perspective in the case and when the yellow metal makes a comeback to test them.

    The following slump persisted throughout the late 1990s before gold began its legendary rise, which reached its peak in February 2012 at $2,235 per ounce. Since then, there has been a gradual fall that has lost almost 600 points in four years. Even though it saw its highest quarterly rise in three decades in the first quarter of 2016, it is now priced at $1,882 per ounce as of May 2022.

    4.) Select Your Area

    Liquidity fluctuates with gold movements, rising or falling substantially during times of increased volatility and falling during times of relative calm. Due to far lower average participation rates than stock markets, this oscillation has a more decisive influence on the futures markets. The CME Group, based in Chicago, hasn’t significantly improved this equation in recent years despite adding new products.

    The 100-oz. contract, the 50-oz. mini contract, and the 10-oz. micro contract are the three principal gold futures that CME provides. These contracts were introduced in October 2010. The volume of trading for the micro contract exceeded 6.6 million in 2021, but only 26,000 for the mini and 1.2 million for the most significant contract.

    Although long-dated futures held for months are unaffected by this limited participation, trade execution in short-term positions is severely impacted, driving up slippage costs.

    Although the VanEck Vectors Gold Miners ETF (GDX) grinds through more significant daily percentage fluctuation than GLD, it comes with a higher risk due to the volatility of its association with the yellow metal. The influence of spot and futures prices is reduced by the extensive price hedging used by large mining firms, whose operations may also retain considerable holdings in other natural resources, such as silver and iron.

  • Trading Psychology Part 2 

    Trading Psychology Part 2 

    #edgeforex #forextrading #forexsognals #forex #trading #psychology #traders #greed #emotions #stability #snowball #cryptocurrecy #bitcoin psychology

    Tips to improve trading : 

    1. Fear, greed, excitement, overconfidence, and nervousness are all common emotions experienced by traders. Managing trading emotions can mean the difference between increasing account equity and going bankrupt. 
    2. Traders should perceive and smother FOMO when it shows up. While this is troublesome, merchants ought to remember that there will generally be another exchange and that they ought to just exchange with capital they can stand to lose.
    3. While all traders, regardless of experience, make mistakes, understanding the logic behind these mistakes may help to limit the snowball effect of trading impediments. Trading on multiple markets, using inconsistent trading sizes, and overleveraging are all examples of common trading mistakes.
    4. Greed is perhaps the most widely recognized feelings among broker, so it merits unique thought. At the point when insatiability wins over rationale, dealers will quite often twofold down on losing exchanges or utilize extreme influence to compensate for past misfortunes. While it is actually quite difficult, dealers should comprehend how to control their eagerness while exchanging.
    5. New merchants much of the time search for potential open doors any place they can be found and are captivated to exchange an assortment of business sectors, with next to zero respect for the innate contrasts between these business sectors. Traders can expect inconsistent results if they do not have a well-thought-out strategy that focuses on a few markets. Learn how to consistently trade.
    6. As individuals, we are frequently influenced by what we hear, and trading is no exception. There are numerous legends about exchanging, for example, merchants should have a huge record to find lasting success, or brokers should win most of exchanges to be productive. These trading myths can frequently act as a mental barrier, preventing people from trading.

    Mindset of a successful trader

    • While many nuances contribute to professional traders’ success, there are a few common approaches that traders of all levels can consistently implement within their specific trading strategy. 
    • An uplifting outlook will keep your brain clear of negative contemplations that can frustrate new exchanges.
    • You can only accept what the market offers. Some days you may make fifteen trades, while others you may not make a single trade for two weeks. Everything relies upon what is happening on the lookout and whether exchange arrangements that line up with your technique show up.
    •  Many people think of trading as a get-rich-quick scheme, but it is more of a journey of trade after trade. This expectation of immediate gratification frequently results in frustration and impatience. Remember to stay disciplined, stick to your plan, and look at trading as a journey.
  • Guide to Psychology in Trading

    Guide to Psychology in Trading

    #edgeforex #tradingsignals #forextrading #trade #market #psychology #anxiety #negative #fomo #stress #forex #cryptocurrency #bitcoin

    Trading psychology is frequently overlooked, but it is an essential component of a professional trader’s skill set. 

    Exchanging brain research is an expansive term that incorporates the feelings as a whole and sentiments that a regular dealer will insight while exchanging. Some of these emotions are beneficial and should be encouraged, while others, such as fear, greed, nervousness, and anxiety, should be avoided. Trading psychology is complicated and takes time to fully understand. 

    Truly, numerous brokers are more impacted by the negative parts of exchanging brain research than by the positive perspectives. This can show itself as rashly shutting losing exchanges as the anxiety toward misfortune turns out to be excessively incredible, or just multiplying down on losing positions when the apprehension about understanding a misfortune goes to avarice.

    Misgiving about missing a significant open door, or FOMO as it is nonchalantly known, is conceivably the most perilous sentiments in money related market. When the market reverses and moves in the opposite direction, traders are enticed to buy after the move has peaked, causing enormous emotional stress. 

    Merchants who can profit from the positive parts of brain science while dealing with the negative viewpoints are better situated to manage the unpredictability of monetary business sectors and become better brokers.

  • WHY IS IT IMPOSSIBLE TO FORGE AN NFT?

    WHY IS IT IMPOSSIBLE TO FORGE AN NFT?

    When an NFT (non-fungible token) is sold, the buyer is not acquiring the underlying digital picture. Instead, the buyer acquires a crypto token that serves as proof of ownership of the digital picture in question. 

    You might as well have given your money to a random individual on the internet if you didn’t have the valid token. This explains the entire premise of these tokens’ “non-fungibility.” Furthermore, because it is kept and accessible through the blockchain, its uniqueness can be easily verified, and no two identical non-fungible tokens may exist. 

    Having said that, many people have attempted to manufacture an NFT, but false or forged NFTs are easily identified since they can always be tracked back to the original creator’s address.

    You could try to counterfeit the token by making your own, but it would be far too simple to detect a fabrication. Why? Because it cannot be traced back to the address of the original developer. 

    NFT

    Can non-fungible tokens be readily replicated or falsified if they are in picture or video format? The straightforward answer is no, and here’s why. 

    All information about the original picture associated to the token is contained inside the metadata of each token. The connected picture cannot be switched since the metadata is unchangeable.

    Minting an NFT

    Assume you wish to acquire one of the well-known Bored Ape Yacht Club (BAYC) NFTs. BAYC is a collection of 10,000 ape NFTs, each with its own token on the Ethereum network. In addition, each ape has a unique Token ID that ranges from #1 to #10,000. 

    Back on subject, if you want to buy a BAYC NFT and make millions of strangers on the internet jealous, the first step is to create an account on OpenSea using a browser plug-in called Metamask. 

    To buy a BAYC token, you must first have an Ethereum wallet, which also serves as your “account number”. Once you pay for the token, the unique bored ape token is transferred to your Ethereum wallet, presuming you have enough ETH in your wallet.

    Having said that, anyone on the blockchain can simply verify that you hold the token because it is in your wallet. 

    To check if the BAYC token you want to buy is genuine, you can simply read the specifics of each NFT on OpenSea, including the “Contract Address” and the token ID. 

    Every NFT project on the Ethereum blockchain has a Contract Address, which is the wallet address of the original developer. For those who are interested, here is BAYC’s original address: 

    That being stated, if the item you wish to buy does not come from the Contact Address shown above, you are dealing with a forgery of a BAYC NFT. 

    Meanwhile, you may use the blockchain explorer “Etherscan” to determine whether an NFT is genuine.

  • Flash crashes 

    Flash crashes 

    Flash crashes are growing more prevalent, although they are still poorly understood. We explain how flash crashes might occur, look through some prior cases, and examine if they can be avoided in the future. 

    A flash collapse occurs when the price of a security – a currency – falls fast over a short period of time before rapidly recovering. 

    Although some investors like it, the importance of volatility in trading cannot be overstated. And, in the digital era, when trading between people is being replaced by computers trading via algorithms aimed at benefiting by executing millions of automated orders at razor-thin margins, volatility is becoming increasingly important.

    However, every now and again, this volatility causes what are considered routine variations in the price of an investment to transform into a sudden and quick decrease. A typical flash crash is over before most people realize it happened, lasting only seconds or minutes (although some flash crashes have lasted longer). 

    crashes

    Securities that experience a price drop as a consequence of a flash crash often regain the bulk of their value as fast as they lost it, while many fail to recover all of the lost value immediately. With regard to the rate of collapse and recovery, some regard a flash crash as nothing more than an extraordinary burst of volatility.

    However, the reasons of prior flash collapses, as well as the large sums of investor money lost during them, point to something altogether different. 

    While a flash crash generally entails a precipitous drop in price followed by a rebound, it is worth noting that the opposite can occur, with prices swiftly rising in value before quickly giving back all or most of those gains. This is less common, but one of the finest instances would be currencies: because they are traded in pairs, if the price of one currency falls due to a flash crash, the price of another would rise as a result.

    Causes 

    There are several reasons why a flash crash can happen, and both humans and computers play their part.

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    Humans 

    Previous collapses were triggered by inadvertent trading, which occurs when a trader or fund manager unintentionally adds an additional zero to their order or places an order at the incorrect price, sometimes known as a ‘fat-finger’ blunder. 

    Then there are deliberate attempts by traders to manipulate the market through an illegal method known as’spoofing’ (also known as ‘dynamic layering’), in which someone places large sell orders at prices far below the current market value and then cancels them quickly before the security reaches that price. This creates the impression that there is a major sell-off taking place, prompting others to begin selling as well, fearful that the price may fall.

    This swiftly leads to an imbalance in the number of orders to sell versus purchase, exacerbating the price drop. The individual who placed the original sell order also has orders to purchase the same asset at a considerably lower price than the market price, but cancels the order to sell the security before it reaches the price at which it would be executed. This means they can purchase the security at the bottom of the flash collapse and sell it at a much higher price once it recovers, possibly allowing them to make big gains in seconds.

    Computers 

    The increasing use of computers in trading is another key driver of flash crashes. Due to software failures, market data may not be adequately transferred across exchanges, resulting in erroneous prices being applied to a security. 

    In the past, the growth of algorithmic and high-frequency trading has intensified flash collapses. This entails superfast computers trading at breakneck rates using pre-programmed algorithms.

    For example, if an asset is trading at $100, a high frequency trading system will automatically sell it if the price falls below $95 (to reduce potential losses) or $105 (to maximise profits) (to make a profit). This implies that if the price of the asset falls dramatically, even if just temporarily, to the $95 level, swaths of automatic sell orders can be activated, pushing the price lower and triggering additional algorithms as prices fall. 

    Surprisingly, these same trading techniques are also mainly to blame for the later rebound that occurs after a flash crash.

    Other algorithms, for example, have instructed their systems to buy the security if it goes below $90 (since it is considered as cheap), so when the algorithms told to buy the stock begin to be activated, the imbalance begins to even out and the entire process reverses itself. The price falls so low that buyers begin to outnumber sellers, causing the price to rise. 

    Although the reasons of previous flash crashes varied, significant parallels were observed among the majority of them. Many flash crashes, for example, occur when trading volumes are low, since limited liquidity implies huge orders can amplify price swings.