How to make a million!

And in that search we look for different markets and for different products. Should we be investing or trading? Where? In Asia, in the US or in the Middle East? Are new economies (developing countries) the ultimate opportunity or are they just too risky? Which products should we be looking at: stocks, 'sukuks', futures or warrants? And what is the ratio between each product's risk and reward?

Questions, questions! So many questions, but fortunately there are just as many, if not more, answers because people answer questions differently.

One person will expect a specific market to drop, another will expect it to rise while yet another disagrees with both of them and believes that the market will remain flat. Each person uses a different argument and focuses only on their own blinkered perspective and they disregard the opinions of others.

Once they are in a certain position they read only the news and gather only the data that confirms their opinion and, therefore, their position. Articles in the media that include information which disagrees with their opinion is put aside, unread. Do you recognize anything of your own behaviour here?

Complex beasts

Financial markets are complex. This complexity needs to be unravelled for us to fully understand, especially when making forecasts. We need to focus on know-how and skills, then we can make our own decisions.

We must also focus on what we ourselves can control, not on things over which we have no control. Our analyses might be splendid, but if fundamental, technical and quantitative analyses all conclude that a market will go up and then a crisis arises or a war breaks out, these analyses are no longer valid.

We need to take things into our own hands - things like the amount of knowledge and the cost aspect can and should be controlled by ourselves.

Let's have a look at the currency markets. Trades in currencies can be concluded, for example, at DGCX (Dubai Gold & Commodity Exchange) which is based in Dubai and which began listing currency futures in June 2006.

Currencies can be considered as a separate asset class and are appreciated for their long trends and favourable trading conditions. Trading in currencies is not restricted by borders. Internationally, the Forex (foreign exchange) market is highly competitive and liquid, therefore spreads between bids and asks are small and the costs of trading (FX brokers) are low.

Some brokers don't charge fees at all, but only profit from the spread. Furthermore, great trading platforms are available to hedge your risk. Competition also leads to first class service and unbelievable leverage opportunities.

Currencies show low correlation to other asset classes and they can be traded 24 hours a day, every day, unlike stocks. This means that they show almost no gaps in their charts. On top of that, stocks prices can be effected by bankruptcy and accounting scandals (like Enron) whereas currency rates move more smoothly.

Risk reward

Remember, however, that with all participations in financial markets, risk is involved. Inexperienced traders, particularly, often do not know how to handle a position that is tending toward a loss.

Compare inexperienced traders to novice sailors. You might expect them to be safe at sea, but what happens when the wind becomes a storm? Will they be able to manage, return safely and live to sail another day? There is always risk.

The elation we feel when the effect of leverage rewards us with profit from our wining positions fades when compared to the devastation felt when leverage acts against us and burdens our portfolios with losses.

It is imperative that we know which mechanisms move currencies. Basically, the price of a currency mirrors the state of the economy of the 'underlying' country, just as a stock price reflects the performance of a particular company.

One very distinctive feature of trading in currencies is that profits can come from falling as well as rising prices because a currency trade always involves two currencies, one being bought while the other is being sold; long versus short. An advantage offered by DGCX is that futures can either be traded starting with a long position, or kicked off with a short future.

About 90% of the daily turnover in currencies (2 trillion US dollars) takes place against the dollar. The 'greenback' is the world's key currency, although nowadays the euro is gaining ground. The euro has proven its viability, which I expect might be the main reason for its rise against the dollar over the last few years.

Regardless of your own particular currency, I wish you success on your path to becoming a millionaire.