How to trade Fundamental News on Forex Market

Don’t ever think that you can predict the impact of fundamental forex news released.

During news released the forex market is extraordinarily unpredictable and a specific currency pair might be moving in the complete opposite direction than what seems logical.

The forex market is always affected by several different kinds of information and individuals with their own idea of the importance of a news release.

Fundamental forex data releases of high importance are often regarded as the super events of forex trading.

Examples include:

The US Non-Farm Payroll,

The US Trade Balance,

The US Unemployment Claims

National Interest Rate Changes

These releases can ignite rapid price changes or spikes in most of currency pairs, especially if the releases are from the US. For particularly large movements to occur, the actual release must surprise the forex market by registering a notable discrepancy from its predicted value. Close correlations do not have the same impact as the market will have already priced the forecasted value.

If you could correctly predict and then capture the resulting price movements created by fundamental data releases, this would be very a profitable exercise. However, many forex traders, especially novices, do not realize how difficult this is to achieve on an ongoing basis. One of the main reasons for this is that many human minds contribute to the actions of the forex market, each with their own agenda. This feature is particularly evident with the release of highly important fundamental forex data.

The purpose of this article is to explain why this activity is prone to so many complexities as well as providing the basis for possible solutions. To begin with, let’s come up with a definition of what exactly fundamental forex data releases are.

Fundamental forex data release means any forex market news that impact national or international economies, either directly or indirectly, is considered fundamental events and can roughly be categorized into three types: economic/financial, political and unforeseen events.

Economic and financial forex data releases tend to have the biggest impact and are scrutinized by most forex investors because of the uncertainty of their outcome. As any significant difference between the actual result and it forecasted value can produce major changes in the values of currency pairs, these reports are kept under strict secrecy right up to the moment of their release. The deciding factor in whether such a fundamental news release will generate market movement depends on how close the result matches the economists’ prediction. A close correlation will cause little change as the forex market has already priced in this effect. However, if the release strays from the anticipated number then this could cause serious movements. Economic calendars are readily available detailing the exact time and dates of all fundamental forex data releases because of the impact they can have on the markets.

Political events that affect the forex market include government elections, G-7 and OPEC meetings and national crises etc. The majority of these events are forecasted well in advance. They can certainly affect the market in unforeseen ways, but most often not in the same manner as with economic/financial news.

Unforseen events, however, are per definition impossible to predict. Especially ones such as terrorist attacks and

global catastrophes are much more difficult to predict and as such can have dramatic effects on the markets.

Economic/financial and most political data is released at pre- defined times during the month and are in the online calendars often categorized as to have a high, medium or low impact on the value of its associated currency compared to others. In some ways, as the information is scheduled well in advanced, they are easier to deal with than random events. However, they still should not be underestimated because the price movement changes they produce can be extremely varied.

For instance, if there is a clear discrepancy between the actual and forecasted value, the market could select and then advance in its chosen direction generating a significant price change of the relevant currency pair. However, many times the market takes an immediate snapshot view of the release’s headlines and reacts accordingly by producing a surge in one direction only to completely reverse its decision minutes later after analyzing the details in more depth.

Sometimes a data release consists of a number of composite values- some of which concur with their predicted values whilst others do not. As a result, the forex market can become quite chaotic, adopting one opinion initially only to reverse it completely, hours or minutes later. Consequently, a false direction is often chosen just after the release that could be altered dramatically sometime later, after the forex market have settled on a truer meaning of the release’s data. Another aspect which should be taken into consideration is that some of the major forex market players might not agree on the forecasted value vs. the actual value and the impact it should have on a specific currency.

Beginners, in particular, seriously overestimate their abilities in dealing with fundamental events falsely, believing that they can successfully predict their outcomes. This is because their trading psychology is flawed in many ways that contribute to their erroneous actions. They have a tendency to ignore downside risks and focus on potential profits only. They believe that each new trade that they enter will make profit and fail to understand that they will be more successful if they adopt more sensible objectives. Their high profit expectations often lead to a demoralizing effect on the morale after they have amassed only a string of losses.

Fundamental data releases can sometimes produce dramatic price movements for currency pairs although the reasons for doing so are far from clear. The resulting changes can persist for some time, giving traders the impression that the market is on a run. However, this is no reason to enter trades, especially if you do not understand fully what is happening. Unfortunately, many beginners do exactly this.

There are so many dimensions which should be added to this picture, in order for it to make perfect sense. You will maybe have the chance to get the numbers of the news you are looking for, but not all the other important aspects. The only thing that is predictable about forex trading is that it is very unpredictable. With that being said, it does not mean that you cannot profit from it; you simply need to take the right approach.

Always ask your forex signal provider for an advise

Currency Trading Fact ? Most Traders Cannot Accept Big Profits!

Of course all traders want them and are capable of accepting them – but they cant, due to having the wrong mindset and this is what this article is all about – spotting and accepting big gains.

So why is this currency trading fact such a problem to most traders?

The problem is rooted in most currency traders attitude to risk and there inner confidence and conviction.

Many traders are great at spotting the big moves, but they snatch profits too early – or get stopped out to soon.

A closer look at the reasons will reveal why.

Most traders are so obsessed with restricting risk they actually create it in two ways.

1. They place their stops to close and get stopped out by normal volatility.

How often has this happened to you?

You spot a big trend, get in and volatility takes you out – then the trade goes on to make , ,000 or more and your not in but you saw it coming?

It happens to most traders at some point and some more than others.

2. They want to grab profits

When a trader gets a profit he wants to snatch or protect it before it gets away.

The bigger the profit becomes, the more volatility eats into his open equity the more tempted he becomes to take it and then he snatches it.

The mindset you need is:

If a trade looks good risk more!

If you are trading a small account of ,000 risking 2% is waste of time risk 10 – 20% and give the market room to breath – otherwise volatility will get your stop.

If you believe in a trade have the courage and conviction to go for it.

Get Used To Open Equity Dips

If you want to make the big profits you have to accept that you are gong to see open equity dips of thousands per day – that’s just the reality of trend following.

Look at past instances of big trends and peak to valley drawdown and mentally prepare yourself to take these dips.

There not nice to take!

However keep your eyes on the bigger prize and comfort yourself with the end result.

You need to keep your stop loose not tight to do this – if it’s to tight volatility will simply pick your stop and take you out.

Currencies trend long term as they reflect the underlying health of the economy and the way to make the really big profits from them is:

To follow them – but this means steeling yourself to ignore short term volatility.

The only way you will do this is:

If you have rock solid confidence in your method to succeed and this means not just following someone else but understanding the system you are using why it will win longer term.

If you don’t have inner belief and confidence you will never ever follow these trends.

The fact is that making big profits is mentally hard and comes from confidence conviction which leads to discipline – if you want to catch these big trends when others don’t bare the above points in mind.

Sure it’s an uncomfortable ride – but comfort yourself in the fact that if you take calculated risks, at the right time and accept risk and drawdown as normal, you will catch the best profits from the longer term trends.

Look at a forex chart and you will see these trends moving for weeks, months or years, have the courage to go for them and accept the massive profits they can provide you with.

Uk Forex Brokers Mt4 – Finding Forex Brokers That Don’t Requote

Uk Forex Brokers Mt4

It is important when choosing a forex broker, to decide upon your preferred trading strategy. What do I mean by this? I get forex related questions asked all the time and the top forex question has to be “What trading software/bot/auto trader will make me the most money?”.

Curiously enough this question generally comes from would-be forex traders who have never traded before…novice traders!

This is trading suicide, if you have the perception that you can just plug-in an expert advisor/ea into MT4 (Metatrader 4) or even MT5 (Metatrader 5) and overnight you will be a forex millionaire. My advice to these kind of questions is try manual forex trading first.

It’s easy and you don’t have to be a stock broker, a financial whiz kid or financially knowledgeable. Go and choose a forex broker and trade manually for a while, just watch the charts and when the currency pairs charts are at their lowest point, open a “buy” trade, when the chart raises up, your “buy” trade will create profit. Once the chart is at the top open a new forex trade as a “sell” and yes, you have guessed it, when the chart falls, you will receive profit on your forex trade.

Don’t forget to close your trades when you have enough profit and my top tip is don’t be greedy! It is better to trade multiple forex lots and make small amounts of profit, than hold out for a large profit trade which could turn the other way and wipe you out. Uk Forex Brokers Mt4

Also, if you have a position or trade that is in the minus figures, open a trade in the opposite direction e.g. a buy or a sell and this might counter-act your loss.

Once you have learnt how to trade forex then you can look for an automatic trading robot. There are loads to choose from fapturbo, ibybot and many more and they all do very different tasks including hedging and scalping.

Then you need to find the best forex broker for scalping or a forex broker that will allow your ea/expert advisor to run with minimum hassles. You will find that some brokers perform re-quotes, this is a method used by the brokers to try to combat the forex scalping software. What this means is when you are scalping, you are trying to open and close positions very quickly, what the broker does is stall this transaction by re-quoting, thus saving or making a few pips/points/spread on the order, which in turn can totally throw your scalping software.

Sometimes this re-quote is a genuine delay between your ISP and the trading sever, so always check your internet connection and firewall settings if you are having regular forex requoting issues.

I have been trading forex both manually and with forex autotrading software for over 3 years and of the 15 brokers I have been with, here is a breakdown of the better brokers that allow scalping and don’t re-quote (often). Uk Forex Brokers Mt4

Real Time Forex Trading – Understanding Real Time Forex Trading

Real Time Forex Trading

Forex traders trade on real time basis as well. A real time forex trading is done on the live rates of exchange of the foreign currencies.

The order to purchase or sell is placed on the live exchange rate. This type of forex is trading electronically by anticipating the prices of currency pairs based on their technical analysis and other market fundamentals.

Requisites for forex trading:

Forex trade is not done on a particular venue. You need not go to any place for trading. All you need is a personal computer with a high-speed broadband connection and most recent software for trading. You can have the option to use a laptop with GPRS or Edge connection for internet.

There is no need to have an office or set up for real time forex trade. You can work from home, office or even while traveling. real time forex trading is done electronically with internet and its execution is tremendously fast.

The primary requirement, before stepping into this business, is to have the proper knowledge and understanding about this trade. If you have adequate understanding and patience, you can earn huge profits; otherwise, you may end up into losses. Real Time Forex Trading

How can You Get Proper Knowledge about real time forex trading?

You have to search a dependable person or a friend who can guide you and give you hints that are useful for real time forex. The other option is to first obtain online training before you start to trade. The online training on this is beneficial.

The training helps you to understand the way to purchase and sell currencies on internet before you invest any money and get ideas to form a specific plan or strategy and try it out to trade. You can get several other advantages from forex training:

The forex trading market is the biggest financial market in the world where nearly four trillion dollars are traded every day. After training in real time forex trading, you will confidently be able to enter this market and earn profits. Real Time Forex Trading

Like the stock market, forex markets also goes on wavering up and down. The training will provide you knowledge about how to profit from these fluctuations to your advantage.

Understanding of the market psychology is vital for a forex trader to make money in this business. You will be able to get benefits from the drifts and by looking at the various indicators.

It is a common observation that most of the beginners break down in this market as they just jump without any knowledge and experience and just go by the sentiments. With proper training, you can become a professional, and interpret and anticipate the movements more accurately and may turn out to be one of the top most earners in forex trading.

When you get training in this type of forex trading, you are well conversant with the software tools, utilize them more effectively, and rule out any possibilities to make a loss. Ultimately, you will be a winner. Real Time Forex Trading

Best Forex Trader In Nigeria – Succeeding As a Forex Trader

Best Forex Trader In Nigeria

Forex trading is one of the easiest business any human being on the face of the earth can venture into without restrictions and yet make cool money doing it. Although, you have to understand from the beginning that it is a speculative and highly volatile business and nobody can predict the outcome of forex trades 100% of the time. The element of luck or chance is at play in every trade you will ever place. That said, you can do this business with relative peace of mind that it is possible to make it big in the business if you know the A,B,C’s of the it.

FOREX market was opened only to multinational corporations, commercial banks, and central banks. They are the only ones allowed to trade in this vast and very liquid market, this was due to the fact that very heavy amount of money is needed to start the foreign currency exchange business. Thank God, today as stated above everyone or any interested fellow can venture into it with very little capital, some trading platforms allow people to start real life trading with as low as 0. Starting with that kind of small amount of money and yet make as much profit as possible and still end up becoming rich in the business. The only thing that is compulsory is a direct access to an internet ready computer.

In FOREX, currency is traded against one another. In order to become successful in FOREX, one must know when to trade specific kinds of currencies and which currency they should trade it against. A good knowledge of this fact will determine the success or failure of your forex trading business, it will also determine the volume of profit you will ever make in each trade you place. Another good thing about forex trading is that it open almost every day, and a lot of money is actually involved in the financial transactions every single day up to hundreds of billions of dollars. So if you decide for forex trading business you are dealing with a business with daily turn over of hundreds of billions. Best Forex Trader In Nigeria

To get started now, all you need to do is to register with one of the very many forex trading platforms on the internet, you will be given a demonstration account with virtual money to practice your knowledge and mastery of forex trading. If you use this demo account for a few weeks or months, you would have developed a lot of confidence before you actually start using your hard earned money to trade forex with your real life account. One of the reasons why forex trading is good for anybody is the grace to demo trade and use virtual money to test your knowledge of the business and to see whether forex trading is suitable for the you or not.

Another good reason to consider making forex trading a source of additional income is the ability to trade with little or no knowledge of forex with the aid of forex trading software, called robots. Many types of them are available for free and some for a token fee on the net. These software can help you to put winning trades, show you the best currency pairs to trade and the best time to enter into the trade. Please note that many people have lost their money in forex trading, it is a very risky business, nevertheless if all precautions are taken you are sure to make profit. Best Forex Trader In Nigeria

Forex Trading Company In Nigeria – Making Extra Cash Through Forex Trading

Forex Trading Company In Nigeria

With the passing of each day, the need to earn more money to be able to lead a comfortable level of life in this day and time has become very obvious. It is becoming increasingly necessary to earn more money to be able to cope with the needs of the time. You will need to pay the bills, the electricity, water and gas, and all other utilities that are very essential. For example, you need money to get a phone, load it with credit, get a satellite Television and pay for its subscription, and so on. If you have a family with children to cater for, your need for more money is very evident.

How do we get more money? In this write-up, I intend to encourage you to begin to consider the need to have an additional income stream. This additional income stream must be on part time basis to start with; meaning that you may not need to resign from your present employment, thereby earning from your present job and also earning from this new income stream which I am trying to introduce to you. If you can open up to yourself the multiple stream of income, you will have a never ending well of money making businesses that will keep pomping money to your bank account day in day out.

There are so many things you can do to make extra money without loosing your present job. You will do well to carefully choose a home business that can pomp money into your bank account even while you are sleeping. In this write-up, you can consider entering into FOREX TRADING business. This is a very good business that you can start with very little capital and still build your business from the ground floor upwards. If you choose this stream of income, you can start almost immediately, and you can start on a trial basis. Forex Trading platforms gives you the opportunity to test your knowledge of Forex before you start trading with your hard earned money, this is called “Demo Trading”. Forex Trading Company In Nigeria

What is FOREX?

Forex means foreign exchange market where currencies of nations are traded in pairs on against another. It is also called FX market. The forex market is now close to forty years old, because it was established in the early 1970’s. The forex market is one that is not based on any one business or investing in any one business, but the trading and selling of currencies. The forex market is a global market and anybody can be involved in it from any country, but a trading platform is needed to participate. There are so many forex trading platforms like Interbank FX, Ava, and so on.

What is traded in the forex market, that is, bought and sold, is something that can easily be liquidated, meaning it can be turned back to cash fast, or often times it is actually going to be turned to cash. From one currency to another, the availability of cash in the forex market is something that can happen fast for any investor from any country.

Those who trade forex must take time to study the system to see whether it is suited for them because this is basically a speculative endeavor. It carries with it the element of luck and no man can accurately predict the result of each trade one hundred percent of the time. However, there are systems in place called analysis, they are called fundamental analysis or technical analysis. You will need to study the two or a combination of the two to use as your own personal system of trading forex. The most important element in forex trading business is to develop a system you have come to trust over a period of time through trial and error. Since it is a type of business that carries with it a speculative result, you are advised to go into it with the capital that you can loose without it affecting your family expenditure. Forex Trading Company In Nigeria

If you go into it with this state of mind, and with such capital that its loss will not adversely affect you and your family, you are likely to trade with confidence that is needed for success in this endeavour. Two things to avoid in forex trading business are ‘fear’ and ‘greed’ they are monsters that have destroyed many forex traders, sunk millions of dollars into the emptiness of forex world. However, there are many others whose lives had been transformed and have enjoyed great prosperity through the active participation in this act of forex trading. I know many people whose only source of livelihood is based on nothing but forex trading business and they are not only living well they are highly prosperous and enviable in the society.

Lastly, for beginners, I recommend a proved and tested system, maybe a robot, forex signal software, or a sound technical training from the experts and please, demo trade for one month to three months before you begin to use your own hard earned money for real life trading. Forex Trading Company In Nigeria

How To Do Trading In India – Smart Executing of Trading Operation

How To Do Trading In India

If you are interested to invest in the share market of India but do not have time to get involved because of your hectic schedule in your job or business, you need not worry. There are solutions to every issue. Get the services of full service brokers who function from share trading platforms. Such share brokers will conduct every share trading activity on your behalf right from finding potential stocks and executing the trading operation. There are also share brokers who only execute the trade and others who give tips and guidance besides handling the transactions. Majority of investors take their own buying decisions. Online share trading in India is facilitated by click of the ‘buy’ and ’sell’ button besides defining the number of shares you want to buy; the rest of the process is taken care of by the broker. If you want to trade in bulk, you can get a direct access platform from your broker to be able to trade in numerous shares. Most full time investors have direct access platforms for trading.

Your notion of making quick profits in the share market of India is no doubt right but it all depends on how informative you are, whether you are able to devote time and efforts in finding out lucrative stocks, whether you get updated with Indian Sensex news in case you are trading in BSE stocks, and lot more factors. Many an investor chooses trading in the BSE market. Keeping track of the price movement in the Sensex India chart at an online trading platform, most of them trade in the same stock everyday for years together. Wise investors who are more oriented to making profits consider a number of parameters such as liquidity, market volatility, and available margins. How To Do Trading In India

The way you execute your trading ideas, buying pullbacks or breakouts or buying oversold and selling overbought, using indicator-based strategies, considering the conditions of entry, knowing when to exit do have an impact on the returns you get from your investment in the share market of India. The amount of money you are going to invest in a single trade also holds importance; beginners who are not yet confident enough should start the small way. Do the homework for finding an allotment that doesn’t cause any stress. It is but common for novice traders to take risks, investing more thus taking more risks. What happens in majority of the cases is loss. So, go for bulk investments once you know how to manage your risks, once you are well equipped enough to take the right decisions, and once you are confident enough. Profitable share trading in India is a result of such efforts.

Invest in Indian mutual funds for extra returns other than share trading. Read market news at online trading platforms or financial news platforms to know which mutual funds best suit your purpose. Indian mutual funds are offered by banks and financial institutions. Go online or visit your nearest bank for more information. How To Do Trading In India

How To Do Trading Online – Get Rich Forex Trading Online Forex From Home!

How To Do Trading Online

Can you really get rich trading Forex? The answer is yes – anyone has the potential but not everyone does but the good news is anyone can make a great second income and maybe you will have what it takes to become one of the super traders. If you understand the points in this article, you can enjoy Forex trading success. How To Do Trading Online

95% of traders lose money do they lose because they don’t have the potential to win? No they lose because they get the wrong education and another key factor they neglect is the importance of mindset. Let’s look at these points in more detail.

Forex trading is a specifically learned skill and that’s a fact. You don’t need to be a nerd or have a college degree, anyone can learn to win and this was proved by trading legend Richard Dennis.

To prove that anyone could learn with the right education, he taught a group of people who had never traded before to trade. His pupils ranged from a security guard to a lady clerk and he taught them in just two weeks, they then went on to make millions in real profits. So how did they do it?

They had a good mentor of course but the system Dennis taught was simple. It was a long term trend following system based on breakout trading which is a timeless way to make money. What most traders don’t understand though is – simple systems work better than complex ones because they have fewer elements to break, in the face of brutal market conditions and anyone can learn a simple system. How To Do Trading Online

So if anyone can learn a simple system and win why do so many traders lose?

Dennis knew the answer and it’s you can have a system which can make money but you need to apply it with discipline to make money and he therefore focused on making sure they had total confidence in it and could follow it with discipline. Its a fact, that most traders lose because they can’t keep their emotions out of their trading but when discipline breaks down, you will lose.

95% of traders lost 25 years ago and still lose today and the reason is simple – despite all the advances we have seen in technology and forecasting, traders will always lack discipline, its in their nature.
So how do you learn to trade with discipline?

You of course need confidence in what your doing but you must also have the mindset to take your losses and keep them small. Taking losses is not a failing, the market will give them to you but if you take them cheerfully, the market will reward you with some great trends and you can trade them to cover your losses and give you a great overall gain and second income.

If you want to trade Forex successfully, get a simple method and then choose to trade with discipline and you can enjoy currency trading success, it really is that simple. How To Do Trading Online

Currency Trading Profits ? a Simple System Making Millions!

Here we will reveal a system for currency trading profits, which has a logic that is so simple, ANY trader will see why it works, and why it will continue to work, as well as how they could be making big currency trading profits too!

If you use this system in currency trading, you will have the potential to catch EVERY major currency trend.

We have all heard this investment wisdom: “To make money buy low sell high”

However there is a better way to make big currency trading profits and the wisdom here is: “Buy high and sell higher”

This will become clear with some explanation:

Ignore Traditional Investment Wisdom if you want the Big Profits!

If you want to “buy low and sell high” you have to guess where a market is going to bottom and this is not easy. You are trying to PREDICT where a trend might start – this very often means the market goes lower and you lose.

Investors and traders are taught to “buy low and sell high” but when a huge move starts they watch and wait for the pullback – it never comes, the market simply goes higher, and they never get in.

The problem with this traditional investment wisdom is you end up trying to pick market bottoms, and try to get in on pullbacks, but when a market trades higher quickly, you miss the move.

This sees traders lose on trying to pick bottoms – they don’t make the profits they could have made from the big moves.

Breakout Systems are the Best for Catching the Big Profits

A breakout system does not try to predict a market bottom – it waits for CONFIRMATION.

It will wait for a market to break above a recent high, (resistance) or break below a market low, (support) if these levels are broken, a move will start, and astute traders ONLY trade the break – they don’t try to predict.

You can make big profits on these breaks – look at any currency you like: Japanese yen, Swiss Franc, British Pound, etc. and you will see huge moves from breakouts.

The Best Risk Reward

The breakout point provides the best risk to reward, to enter the trade.

Why? Lets take a hypothetical example:

The British Pound has traded up and tested resistance at 1.85 several times, and is currently trading at 1.70. The market rapidly trades up to 1.85, and immediately breaks to the upside, and quickly goes to 1.95

What has Actually Happened?

When the critical 1.85 area gives way, traders with stops on their short positions, start to cover, and new traders enter the long side of the trade. This causes a huge surge in price – as the area of resistance is so important.

If you are positioned to get in as the breakout occurs, your risk is low, and reward high.

Many traders don’t want to do this – they feel they are “chasing” the move, and want a pullback – it never comes, and they miss the big profits.

Keep in mind the old saying:

“A trend in motion is more likely to continue than reverse”

Check Your Charts

Most of the big currency moves in history have started with breakouts on the chart, then a huge quick move to the upside – with no PULLBACK

Big Currency Trading Profits can be yours!

Here we have looked at the concept, and why it’s successful, and you can see how uncomfortable it is to do – and that’s exactly the reason it’s so profitable!

Breakout Trading is Simple

All you need to use to trade breakouts, are traditional charts – and have some confirmation signals, to help you filter “true” from “false” breakouts – such indicators as RSI and Bollinger bands, are examples.

Astute traders are making huge profits every day from this simple method and you can too.

How To Do Trading Profit And Loss And Appropriation Accounts – Trading and Profit and Loss Account

How To Do Trading Profit And Loss And Appropriation Accounts

Trading Account

As already discussed, first section of trading and profit and loss account is called trading account. The aim of preparing trading account is to find out gross profit or gross loss while that of second section is to find out net profit or net loss. How To Do Trading Profit And Loss And Appropriation Accounts

Preparation of Trading Account

Trading account is prepared mainly to know the profitability of the goods bought (or manufactured) sold by the businessman. The difference between selling price and cost of goods sold is the,5 earning of the businessman. Thus in order to calculate the gross earning, it is necessary to know:

(a) cost of goods sold.

(b) sales.

Total sales can be ascertained from the sales ledger. The cost of goods sold is, however, calculated. n order to calculate the cost of sales it is necessary to know its meaning. The ‘cost of goods’ includes the purchase price of the goods plus expenses relating to purchase of goods and brining the goods to the place of business. In order to calculate the cost of goods ” we should deduct from the total cost of goods purchased the cost of goods in hand. We can study this phenomenon with the help of following formula:

Opening stock + cost of purchases – closing stock = cost of sales

As already discussed that the purpose of preparing trading account is to calculate the gross profit of the business. It can be described as excess of amount of ‘Sales’ over ‘Cost of Sales’. This definition can be explained in terms of following equation:

Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) -(Stock in the beginning + Purchases + Direct Expenses)

The opening stock and purchases along with buying and bringing expenses (direct exp.) are recorded the debit side whereas sales and closing stock is recorded on the credit side. If credit side is Jeater than the debit side the difference is written on the debit side as gross profit which is ultimately recorded on the credit side of profit and loss account. When the debit side exceeds the credit side, the difference is gross loss which is recorded at credit side and ultimately shown on the debit side of profit & loss account.

Usual Items in a Trading Account:

A) Debit Side

1. Opening Stock. It is the stock which remained unsold at the end of previous year. It must have been brought into books with the help of opening entry; so it always appears inside the trial balance. Generally, it is shown as first item at the debit side of trading account. Of course, in the first year of a business there will be no opening stock. How To Do Trading Profit And Loss And Appropriation Accounts

2. Purchases. It is normally second item on the debit side of trading account. ‘Purchases’ mean total purchases i.e. cash plus credit purchases. Any return outwards (purchases return) should be deducted out of purchases to find out the net purchases. Sometimes goods are received before the relevant invoice from the supplier. In such a situation, on the date of preparing final accounts an entry should be passed to debit the purchases account and to credit the suppliers’ account with the cost of goods.

3. Buying Expenses. All expenses relating to purchase of goods are also debited in the trading account. These include-wages, carriage inwards freight, duty, clearing charges, dock charges, excise duty, octroi and import duty etc.

4. Manufacturing Expenses. Such expenses are incurred by businessmen to manufacture or to render the goods in saleable condition viz., motive power, gas fuel, stores, royalties, factory expenses, foreman and supervisor’s salary etc.

Though manufacturing expenses are strictly to be taken in the manufacturing account since we are preparing only trading account, expenses of this type may also be included in the trading account.

(B) Credit Side

1. Sales. Sales mean total sales i.e. cash plus credit sales. If there are any sales returns, these should be deducted from sales. So net sales are credited to trading account. If an asset of the firm has been sold, it should not be included in the sales.

2. Closing Stock. It is the value of stock lying unsold in the godown or shop on the last date of accounting period. Normally closing stock is given outside the trial balance in that case it is shown on the credit side of trading account. But if it is given inside the trial balance, it is not to be shown on the credit side of trading account but appears only in the balance sheet as asset. Closing stock should be valued at cost or market price whichever is less. How To Do Trading Profit And Loss And Appropriation Accounts