What is Passive Income?

Everyone at some point will be thinking of building a passive income so that they can quit their full-time day job and stay at home, enjoying the financial freedom the passive income brings them. Can passive income be received with zero efforts put in?

I was having this conversation with a friend some time back about creating a passive income that can support our lifestyle and allowing us to quit our full-time day job. While the conversation was taking place, I was thinking to myself, is our understanding of Passive Income the same? What IS passive income?

Most of us, I believe, understands passive income as a recurring income that we can receive without any efforts, except for the initial efforts, put into it.

Found this explanation on passive income online:

Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of “unearned income“.

Source: Passive Income – Wikipedia, the free encyclopedia

 

Is There Free Lunch?

Let me draw your attention to a few words in the above-mentioned quote, “with little effort required to maintain it“.

As much as we would hope that income will come on a regular basis with no efforts required, there ain’t no such thing as a free lunch. Little efforts is definitely required to generate the passive income we all yearn for.

Let me quote you a few examples of what we can do to generate the passive income.

  • Income from real estate rental. Some would say renting out of residential or commercial properties can be a great way of generating passive income that needs no efforts. Is that really true? To rent out properties, you would require the initial efforts to search for a property to buy and a recurring effort to find tenants to rent your property and also to maintain the property for rental.
  • Income from trading/investments. Well, for trading, one have to consistently trade to earn the income, thus efforts will have to be put in to generate the income. Investments also needs consistent efforts to ensure that the investments you already made is still worth investing in, else you have to quickly pull out your investments. Finding new investments also takes time isn’t it?
  • Income from selling products online. To sell products, you will have to ensure your inventory is healthy and also have new products to sell so that buyers will come back  to you again. Time and effort is required to ensure that your online business can continue running.

Passive Income is NOT Fast Food

There are people who thinks passive income is a quick-and-easy process. Passive income is a journey, a journey that requires constant efforts to be put in. If you put in hard work throughout the journey, you will eventually be rewarded.

Take for example in shares investing, effort is required to study the company’s annual financial statements and read up news about the company you are invested in so as to be able to make informed decisions if the company is worth investing in.

All these takes time, time to understand the financial statements to sense make and capture if the financial statements will flag out something amiss. Time to follow the news of the companies you are invested in to see if the company is operating in the “right” direction.

The Bottom Line

Instead of hoping to find a passive income with no efforts required, why not try to find one which uses minimal efforts but yet able to help generate a passive income that is substantial for your goal of attaining financial freedom.

Understanding the 24 Hours Market

Forex. A 24 hours market is attractive to a lot of traders because trading can be done 24 hours a day and the market never closes except during weekends. However, trading is not advisable during all times of the 24 hours as all of the 24 hours are not equal. Understanding the 24 hours market will definitely help in better positioning your trades.

For those who are or wants to start trading the Forex market, some of you may be attracted to it because it is a 24 hours market. Unlike the equities market, the Forex market does not close (except on weekends) and trading is available from Sunday 10:00 pm GMT to Friday 10:00 pm GMT.

Is it really true that the Forex market is a 24 hours market?

True, trading is available 24 hours a day and the Forex market does not close. However, price movements are not equal throughout the whole period. The currency pairs can be active on a certain timing and at other periods, it may be dormant with little movements.

Trading a certain currency pair during its dormant period may result in the price movement not following through of what you have analysed, turning against you and get your trade stopped out only to resume its movement when trading volume picks up.

So, to prevent that scenario from happening, it is important to ask two questions to decide which currency pairs to trade.

Who is Trading?

By trading on the Forex market, one is always selling a currency and buying another at the same time, and that is precisely why the term “currency pair” is used. There is usually price movement of the currency pair when the financial centers of the countries using the individual currencies is open.

For instance, currencies involving the US Dollar (USD) would usually have price movements when the US market is opened, while the Euro (EUR) would usually have price movements when the Europe markets are opened. Therefore, the EUR/USD currency pair will usually have to have both Europe and US markets opened to have the price action follow through.

Who is Awake?

Now that we know that a currency pair has to have both of the markets to open for price movements, next question will be when are the markets open? For this, we will look at the few major financial markets and the six major currencies affected.

City Currency Open (GMT) Close(GMT)
Wellington, Sydney NZD, AUD 10:00pm 6:00am – 7:00am
Tokyo, Hong Kong, Singapore JPY 12:00am – 1:00am 9:00am – 10:00am
Frankfurt, London EUR, GBP 7:00am – 8:00am 4:00pm – 5:00pm
New York USD 1:00pm 10:00pm

Because a currency is active when the affecting financial center is open, therefore the overlapping market opening and closing timings is when the currency pairs will be most active. Below is a summary of market overlapping opening and closing timings for the various important financial centers.

Market overlap timings | Investor Monkey
Click on image to enlarge

The Bottom Line

Although the Forex market is a 24 hours market, not all the 24 hours are created equal. The price movement during 8am – 10am on a currency pair may not be the same during 8pm – 10pm. Thus when we sit down in front of our terminals wanting to trade in the Forex market, it is important to understand at that time, which of the financial centers are open for the trading day and this will define which of the currency pairs you will see price action movements. Trading at odd hours when there is no volume will only likely to expose yourself to the price actions not following through.

4 Things I Learnt from American Sniper

Snipers are valuable assets of any army on the battlefield. They have the ability to stop their enemy from moving forward and create fear in the minds of their enemy. A successful sniper have traits that is worth learning from in your trading. Learn from them and be a successful trader.

Watch American Sniper on Amazon | Investor MonkeyFor those who enjoy watching war movies would undoubtedly like the show American Sniper. The show talks about a legendary U.S. Navy SEAL sniper, Chris Kyle (played by Bradley Cooper), and his tour in Iraq.

A sniper in the military is an important asset. Although the number of kills that they made may not be as much as infantry or any other units in the military, but their presence in the battlefield sends shivers in the mind of their enemies.

Armed with their sniper rifle, the sniper is able to suppress their enemies using fear of when the next round would be shot and who will be hit. It is, however, not just their rifle that makes them effective. There are many other traits of a sniper that terrorises the enemies.

Less is Better

As seen in the show, or any other war movies portraying snipers, the snipers do not fire as much rounds as a typical machine gunner in a battlefield. The snipers will wait in their positions for their target to come to them, firing only when they have the perfect set up.

Similarly to trading, while beginners may feel that the more trades they take, the more successes they will have and that will mean the more profits they will be able to make.

Entering a trade is like pulling a trigger of a gun. The more rounds that you squeeze off at one shot, the lesser time you will have to aim at your target. Instead of hitting the target more often, you will likely to miss the target more often.

Going for Higher Value Targets

Unlike a machine gun where it can hold hundreds of rounds,  a sniper may have only five rounds loaded into his rifle. With the limited number of rounds available for them to use, it is important for them to go for higher value targets instead of any infantry man on the battlefield.

As traders, we also do have limited resources. To make the most out of it, we have to learn from the sniper and only take out targets that have higher values.

Strategise the Shots

A sniper will sometimes encounter more than one enemy close to each other, and when one of them gets hit, the rest may be alerted and would probably start to come after him/her. Strategising the shots, from when to fire and the sequence of who to target in this scenario will be important.

Strategising your trades are as important to the trader as strategising the shots are to the sniper.

A well-strategised trading plan will mean that the trader had already thought through carefully on how to make the next trade. A well planned trade will also mean success.

Patience

Another important traits of a sniper is the ability to wait for the right time for the right shot. They will motionlessly stay in one position for hours or even days just to wait for the perfect shot to be line in their scope before they pull the trigger.

Similarly in trading, placing an entry order and wait patently for the right price to trigger is important. Because if all the trades are being entered using placed entry orders, we are force to look carefully at where the price is right to enter the market and set the price when that trade is no longer valid (through placements of stop losses).

After placing the orders, all the trader has to do is to wait patiently. Wait for the price to come to you.

Yes, there may be time when the other stock or Forex pairs have moved while the one you chosen did not hit your entry orders and you lose your chance entering the trade. Look back and reflect why your orders were not triggered and refine your entry order placements.

Fear not. There are so many things to trade and there is bound to have something to be traded everyday. Be patient and wait for the price to come back to you or move on to the next “battlefield”.

The Bottom Line

Learning from a sniper on the battlefield and apply what you have learnt in your trading career will definitely benefit you as a trader. While at times it can be frustrating to see the entry orders not being triggered, missing by that few pips, and if entered you could have earned thousands of dollars. What we should learn, minimally, is patience. With patience, you will be able to execute your trades with confidence that you had made the right choice.