Maximising profits: Is it necessary?

Maximising profits is said to be the objective of all firms. Indeed, it's not always easy for the management to find out which are the right decisions that would maximise them. For instance, short-run profits can be easily pumped up by avoiding maintenance, discretionary costs, investments, that however are necessary of on-going competitiveness, as you can experiment with this free business game.

Moreover, what maximises the "overall profits" is not necessary what allows to attain the maximum of "profitability", i.e. the percentage of profits to turn-over, as you can better understand by using this model of monopoly and comparing two policies: (i) extremely high prices (= high profitability), (ii) a price set from a mark-up of 15% on costs.

In reality, firms do have profits targets, and sometimes they pay managers for reaching them, but the goals of firms are broader than profits alone.

Proceeding with other determinants of profits, rising prices of competitors, better sales conditions and skills, a higher overall price level allow for higher prices of the considered firm's products, thus increase nominal profits to the extent that costs are inelastic, i.e. they rise less than proportionally to revenues.

Cost structure and its general elasticity to production level is thus relevant to profits. Economies of scale increase profits more than proportionally when sales grow. Conversely, a recession with falling sales levels will hit profits particularly hard in industries where there are economies of scales and high fixed costs.

Rising wages directly reduce profits. If, however, on a macro-economic level, these wages will be spent on domestic goods, higher consumption will boost business revenues, partially counteracting the previous dynamics. Depending on the dynamics of exports and other GDP components, higher wages are compatible with higher profits, as you can see in these real data.

What is Profits?

Profits are the difference between revenues and costs. In a trade transaction, profit is the difference between the price at which you sell a good and the price at which you bought it. Running a business, net profit is what is left out of turn-over after paying suppliers, workers, financing institution, and the state.

Distributed profits are the income source of the owners of business. As a social group, they are called "owners" or "capitalists". The part of the value added not distributed as wages, interests, and taxes, remain within the firm to finance investments.

Bids and Offers Are for the Base Currency.

Traders always think in terms of how much it costs to buy or sell the base currency. A market maker’s quotes are always presented from the market maker’s point of view,so the bid price is the amount of terms currency that the market maker will pay for a unit of the base currency; the offer price is the amount of terms currency the market maker will charge for a unit of the base currency.

A market maker asked for a quote on “dollar-swissie” might respond “1.4975-85,” indicating a bid price of CHF 1.4975 per dollar and an offer price of CHF 1.4985 per dollar. Usually the market maker will simply
give the quote as “75-85,” and assume that the counterparty knows that the “big figure” is 1.49.

The bid price always is offered first (the number on the left), and is lower (a smaller amount of terms currency) than the offer price (the larger number on the right).This differential is the dealer’s spread.

Don't Be a Follower

Today we live in a society where it's fashionable to consult an expert and delegate responsibility to someone else. Forex traders buy forex robots and systems from vendors (most don't work anyway) but the ones that do, they can't follow because their discipline goes, as soon as they hit a few losses.

To stick with a system when its losing (all systems do at times) you need to have understanding and confidence it will come good and if you want to know if you have confidence in your trading system:

What most traders do not do is gain confidence and know what their trading edge is.

A spot transaction

A spot transaction is a straightforward (or “outright”) exchange of one currency for another. The spot rate is the current market price, the benchmark price.

Spot transactions do not require immediate settlement, or payment “on the spot.” By convention, the settlement date, or “value date,” is the second business day after the “deal date” (or “trade date”) on which the transaction is agreed to by the two traders.

The two-day period provides ample time for the two parties to confirm the agreement and arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.

Exceptionally, spot transactions between the Canadian dollar and U.S. dollar conventionally are settled one business day after the deal, rather than two business days later,since Canada is in the same time zone as the United States and an earlier value date is feasible.

It is possible to trade for value dates in advance of the spot value date two days hence (“pre-spot” or “ante-spot”). Traders can trade for “value tomorrow,”with settlement one business day after the deal date (one day before spot); or even for “cash,”with settlement on the deal date (two days before spot).

Such transactions are a very small part of the market, particularly same day “cash” transactions for the U.S. dollar against European or Asian currencies, given the time zone differences.

Exchange rates for cash or value tomorrow transactions are based on spot rates, but differ from spot, reflecting in part, the fact that interest rate differences between the two currencies affect the cost of earlier payment.Also, pre-spot trades are much less numerous and the market is less liquid.

A spot transaction represents a direct exchange of one currency for another, and when executed, leads to transfers through the payment systems of the two countries whose currencies are involved.

In a typical spot transaction, Bank A in New York will agree on June 1 to sell $10 million for Deutsche marks to Bank B in Frankfurt at the rate of, say, DEM 1.7320 per dollar, for value June 3. On June 3, Bank B will pay DEM 17.320 million for credit to Bank A’s account at a bank in Germany, and Bank A will pay $10 million for credit to Bank B’s account at a bank in the United States.

The execution of the two payments completes the transaction.

Trend Following

Trend Following means that if the market is moving strongly in a particular direction, then you look for a good place to enter, in the direction of the current strong movement.

Counter Trend or Fading means that if the market is moving in a particular direction, then you look for a good place to enter, as you predict that the strong move is about to end, i.e. the market could be overbought or approaching strong resistance.

Breakout Trades

Breakout trades look for prices to move out beyond a certain range, i.e. if the market trades above the highest high of the last 20 bars, then buy.Or positions are taken if prices are breaking out of a particular chart formation, like a triangle for instance.
They can be designed to day trade, say on 1, 3, 5 or 15 minute charts, swing trade on say 60 minute or daily based charts, or trade long term on say daily or weekly based charts.

Day Trading

Day Trading is where traders look to make quick profits from the small market moves that occur during the day.

Swing or Short Term Trading is where traders take a position in the market and look to hold this position for several days in order to make a profit from short term market movements.

Long Term Trading is where traders take a position in the market and look to hold it for weeks, months or maybe even years.

Risk Management

Other aspects that are included in the development of a trading system should be risk management, i.e. using a stop loss, trade management, i.e. using a profit target or trailing stop and money management, i.e. how many contracts to trade in relation to the account size

A person who wishes to trade the markets with an automated trading system has 3 choices, either develop a trading system themselves, have an expert code the system for them, or purchase an existing trading

Developing A Profitable Trading System

It requires a great deal of understanding with regard to the indicators, the various parameters and how they all interact with each other.

A second option is to write out your desired trading rules and then have a professional code those rules into a fully automated trading system.

The third option is to purchase a trading system, however, with every system developer out there claiming that their system is most definitely the greatest system available, how do you filter through all of the hype, promises, clever marketing and sometimes downright misleading information in order to find genuine, proven, profitable trading systems that are right for you.

Fortunately there is a company that can solve this dilema for you.Which Trading System specialises in fully impartial testing, monitoring, and publishing performance ranking tables for hundreds of futures, stock, options and forex trading systems.Not only this, but they also publish detailed individual system performance reports for every trading system in their database.You can access a free detailed individual system performance report for the best performing trading system in their database by visiting their website.

The currency Forex market

The currency Forex market is where the money of one country--US dollars, for instance?is exchanged for that of another, like Japanese yen.
But unlike the world?s other economic markets, currency Forex trading is not centralized.

There is no Wall Street or Throgmorton Street with an historic exchange building; Currency Forex trading exists only over telephone wires and Internet connections.
But exist it does; and it involve a global network of financial institutions, individuals, and banks all working around the clock and unhampered by international borders.


At one time currency Forex trading was the domain of banks that held large amounts of money in various currencies so that they could participate in global investment and business opportunities.
Individuals could participate in currency Forex trading only by going through their banks.But when exchange rates became unregulated the volume of currency Forex trading began to mushroom.