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The Essentials of Trading: A Short Review

  • April 1, 2006

I was recently asked to review a new book called The Essentials of Trading by John Forman before it goes on sale later this month at Amazon.com. For those of you who are interested in trading, especially in foreign exchange (forex), this book provides a good introduction. The Essentials of Trading covers basic topics such as market orders, limit orders, stop orders, bid/ask spreads and use of margin that are applicable to stock trading as well. While much of this basic information can be found by searching the internet, certain parts of this book that cover advanced concepts and the use of the Oanda FXTrade tool can be very useful to people who are considering trading in forex.

After introducing the basics, the book also delves into factors that influence price movement, risk management through hedging and market analysis. In short, this book starts out with the basics but then covers advanced concepts in great detail. John Forman’s 20 years of trading and investing experience are clearly visible in the content of this book.

In the stock market, margin is a tool that allows you to borrow money from your broker based on the value of your existing account to buy even more stocks. Since margin increases your potential for profit and at the same time increases your risk exposure, it is often called a “double-edged sword”. The margin requirement to buy stocks is usually 50%. You have to put up at least $5,000 if you wish to buy $10,000 worth of stocks. It was interesting to learn from this book that in the forex market, the margin requirement can be as low as 5% of the total trade. In effect, you could utilize just $50,000 to buy $1 million contracts.