Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.
Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:
Forex trading is easy: Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
"I will make money in Forex, if I can trade stocks successfully" Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
"I can make profit whenever I want if Forex market is open 24 hours a day" Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
"I can be a successful Forex trader just following someone else’s signals" Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
No commission is to be paid in Forex market: You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
Forex is a scam: Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
"I need to exactly predict the market outcome to be profitable in Forex" There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
"I need to use a very complex strategy to be successful in Forex" It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
"I need to have a lot of starting capital to get profit in Forex" Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
Forex is gambling because it’s completely random: Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.
Showing posts with label Basics Of Forex Trading.. Show all posts
Showing posts with label Basics Of Forex Trading.. Show all posts
Wednesday, December 16, 2009
Wednesday, November 4, 2009
Most Traded Currencies.
When people hear of currencies changing, they are often confused. When they hear of the dollar gaining or losing on other types of currency, that do not realize that the currency is actually being bought, sold, and traded. The forex market, also known as the foreign exchange market, is a way for companies, banks, and individuals to trade currencies to try to gain on their initial investments. The forex market is different and unique; the three markets (US, Europe, Asia) have at least one running at all times during the weekdays; this makes this a 24 hour a week-day market, working constantly on the week days to make sure currencies can be traded. All currencies have the opportunity to be traded, but there are obviously major players that are traded the most on the forex market.
In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible. Some Of the common pairs are:
EUR/USD Euro / US Dollar "Euro"
USD/JPY US Dollar / Japanese Yen "Dollar Yen"
GBP/USD British Pound / US Dollar "Cable"
USD/CAD US Dollar / Canadian Dollar "Dollar Canada"
AUD/USD Australian Dollar/US Dollar "Aussie Dollar"
USD/CHF US Dollar / Swiss Franc "Swissy"
EUR/JPY Euro / Japanese Yen "Euro Yen"
In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible. Some Of the common pairs are:
EUR/USD Euro / US Dollar "Euro"
USD/JPY US Dollar / Japanese Yen "Dollar Yen"
GBP/USD British Pound / US Dollar "Cable"
USD/CAD US Dollar / Canadian Dollar "Dollar Canada"
AUD/USD Australian Dollar/US Dollar "Aussie Dollar"
USD/CHF US Dollar / Swiss Franc "Swissy"
EUR/JPY Euro / Japanese Yen "Euro Yen"
Friday, October 23, 2009
How To Place A Forex Order.
Whether you are trading in a demo account or a live "real money" account, when you are ready to make a trade, you will need to place an order with your Forex broker. You will place an order to start a new trade or to end a trade. So now, we'll talk about the types of orders that apply to the Foreign Exchange Market.
Market Order – It is an order where you can buy or sell a currency pair at the market price the second that the order is processed. Customers utilizing ACM's online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instant; this means that the price assured at the exact time of the click will be given to the customer. Setting a market order by phone is quite similar but normally takes a few seconds more time.
Entry order – It is an order where you can buy or sell a currency pair when it attains a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period. The entry order is also studied by university students under forex trading education.
Limit Orders - A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. The trader specifies the price at which he wishes to buy/sell a certain currency pair and also specifies the duration that the order should remain active.
GTC (Good till cancelled): A GTC order remains active in the market until the trader decides to cancel it. The dealer will not cancel the order at any time therefore it is the customer's responsibility to remember that he possesses the order.
GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour.
For ACM the end of the trading day occurs at exactly 23:00 CET.
Stop orders - A stop order is also an order placed to buy or sell at a certain price. The order contains the same two variables, price and duration. The main difference between a limit order and a stop order is that stop orders are usually used to limit loss potential on a transaction whilst limit orders are used to enter the market, add to a pre-existing position and profit taking. The same variations are used to specify duration as in limit orders (GTC and GFD). Let's take the following example:
Example: Trader x Buys EUR/USD 100'000 @ 0.9340, he's expecting a 60 to 70 pip move in the market but he wants to protect himself in case he has overestimated the potential strength of the Euro. He knows that 0.9310 is a b support level so he places a stop loss order to sell at that level. Trader x has limited his risk on this particular trade to 30 pips or USD 300.
Another usage of a stop order is when a trader is expecting a price breakout to occur and wishes to grasp the opportunity to 'ride' the breakout. In this case a trade will place an order to buy or sell 'on stop'. To illustrate the logic behind this let's review the following scenario:
Example: Trader x sees EUR/USD breaking through the 0.9390 resistance level. He believes that if this happens, the price of EUR/USD could be headed to 0.9450 or over. At this point the market is at 0.9350 so trader x places an order to initiate a buying position of 500'000 at 0.9392 'on stop'.
OCO - An OCO (order cancels other) order is a mixture of 2 limit and/or stop orders. 2 orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled. To illustrate how an OCO order works let's take the following example:
Example: The price of EUR/USD is 0.9340. Trader x wants to either buy 500'000 at 0.9395 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls to 0.9300. The understanding is that if 0.9395 is reached, he will buy 500'000 and the 0.9300 order will be automatically cancelled.
Market Order – It is an order where you can buy or sell a currency pair at the market price the second that the order is processed. Customers utilizing ACM's online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instant; this means that the price assured at the exact time of the click will be given to the customer. Setting a market order by phone is quite similar but normally takes a few seconds more time.
Entry order – It is an order where you can buy or sell a currency pair when it attains a certain price target. In theory, this can be any price. You can set an entry order for the low price of a time period or the high price of a time period. The entry order is also studied by university students under forex trading education.
Limit Orders - A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. The trader specifies the price at which he wishes to buy/sell a certain currency pair and also specifies the duration that the order should remain active.
GTC (Good till cancelled): A GTC order remains active in the market until the trader decides to cancel it. The dealer will not cancel the order at any time therefore it is the customer's responsibility to remember that he possesses the order.
GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour.
For ACM the end of the trading day occurs at exactly 23:00 CET.
Stop orders - A stop order is also an order placed to buy or sell at a certain price. The order contains the same two variables, price and duration. The main difference between a limit order and a stop order is that stop orders are usually used to limit loss potential on a transaction whilst limit orders are used to enter the market, add to a pre-existing position and profit taking. The same variations are used to specify duration as in limit orders (GTC and GFD). Let's take the following example:
Example: Trader x Buys EUR/USD 100'000 @ 0.9340, he's expecting a 60 to 70 pip move in the market but he wants to protect himself in case he has overestimated the potential strength of the Euro. He knows that 0.9310 is a b support level so he places a stop loss order to sell at that level. Trader x has limited his risk on this particular trade to 30 pips or USD 300.
Another usage of a stop order is when a trader is expecting a price breakout to occur and wishes to grasp the opportunity to 'ride' the breakout. In this case a trade will place an order to buy or sell 'on stop'. To illustrate the logic behind this let's review the following scenario:
Example: Trader x sees EUR/USD breaking through the 0.9390 resistance level. He believes that if this happens, the price of EUR/USD could be headed to 0.9450 or over. At this point the market is at 0.9350 so trader x places an order to initiate a buying position of 500'000 at 0.9392 'on stop'.
OCO - An OCO (order cancels other) order is a mixture of 2 limit and/or stop orders. 2 orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is cancelled. To illustrate how an OCO order works let's take the following example:
Example: The price of EUR/USD is 0.9340. Trader x wants to either buy 500'000 at 0.9395 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls to 0.9300. The understanding is that if 0.9395 is reached, he will buy 500'000 and the 0.9300 order will be automatically cancelled.
Some Forex Quotations.
Now i'm going to post some famous forex quotes, this might sound off-topic but m going to post it anyways, :D
1.“If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
4. People who buy headlines eventually end up selling newspapers.
5. If you do not know who you are, the market is an expensive place to find out.
6. Never give advice-the smart don't need it and the stupid don't heed it.
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
10. When the ship starts to sink, don't pray-jump!
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
17. Volume and open interest are as important to the technician as price.
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
22. Every sunken ship has a chart.
1.“If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
4. People who buy headlines eventually end up selling newspapers.
5. If you do not know who you are, the market is an expensive place to find out.
6. Never give advice-the smart don't need it and the stupid don't heed it.
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
10. When the ship starts to sink, don't pray-jump!
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
17. Volume and open interest are as important to the technician as price.
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
22. Every sunken ship has a chart.
Monday, October 19, 2009
Understanding Trend Lines.
Trend Lines are the most powerful technical analysis tools. They allow you to gauge the trends direction, identify potential reversal levels and enter trades with low risk and high reward. In this article, you will learn how to use trend lines indicators in FOREX trading
An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels. In the Up Trend, Forex trend line that connects at least two lowest low (Low open/Close) will create a trend line. In the uptrend a trend line acts as Support.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market.In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above. In the Down Trend Forex trend line that connects at least two highest highs (High Open/Close) will create a trend line. In the downtrend a trend line acts as Resistance.
An uptrend creates a series of trends that have higher lows and highs. A trend line drawn between the rising lows can often be fairly accurate in determining where the market can find greater support during the next low trend and indicate fairly good buying levels. In the Up Trend, Forex trend line that connects at least two lowest low (Low open/Close) will create a trend line. In the uptrend a trend line acts as Support.
Many Forex traders will choose an area below the trend line at which stop orders are are placed resulting in a sharp sell off. New sellers are generally attracted by breaks below the uptrend line. It's quite normal to see a series of lower lows and lower highs during a downward trend in the market.In this case, the trend line is drawn in alignment with the descending highs and will mirror the analysis as described above. In the Down Trend Forex trend line that connects at least two highest highs (High Open/Close) will create a trend line. In the downtrend a trend line acts as Resistance.
Wednesday, October 14, 2009
Forex Trading In India: Legal Or Not?
Still i can see debates going on this topic that whether forex trading is legal in india or not? People are still in doubt. Those who are against the trading in india say that forex trading is illegal in india is that Only corporates are allowed to trade in forex - subject to the condition that they can use only their free dollar reserves. i.e. they cant purchase dollars by converting rupees into dollar, they can use only the existing dollars they have earned in normal business. Also another condition is that they cannot use leaverage of more than 10 times. Forex trading for indivisual is strictly not allowed for indians, forex trding is explicitly banned in FEMA and is non-bailable offence.
Well lets talk about what i feel that if you are intersted in forex trading Open an online share trading or forex trading or currency trading account whose registered Regulatory office is based anywhere out side Indian Jurisdcition. Then open an International Personal Banking Account in the same country bank where you hold trading account and I would like to say that it is allowed as per the LRS scheme FAQ point number 36 mentioned on http://www.rbi.org.in/scripts/FAQView.aspx?Id=53
Once you open a trading account AND also an international personal banking account in jurisdiction which falls outside India, then you can first of all send the money to you international personal banking account using the LRS scheme. And once it's remitted the powers of Indian jurisdiction is over. Then from that bank account simply transfer to your trading account which is also in the same country and does not falls in Indian Jurisdiction. This is the way and legal way to do forex trading using the LRS scheme and within legal limits.
In simple words select a broker online first then you just need to deposit funds in your online account with your credit card, or Paypal and do trading. You can also withdraw your funds through Paypal. Your bank won't even care where you spent your money, or from where you even got it.
HAPPY TRADING!
Well lets talk about what i feel that if you are intersted in forex trading Open an online share trading or forex trading or currency trading account whose registered Regulatory office is based anywhere out side Indian Jurisdcition. Then open an International Personal Banking Account in the same country bank where you hold trading account and I would like to say that it is allowed as per the LRS scheme FAQ point number 36 mentioned on http://www.rbi.org.in/scripts/FAQView.aspx?Id=53
Once you open a trading account AND also an international personal banking account in jurisdiction which falls outside India, then you can first of all send the money to you international personal banking account using the LRS scheme. And once it's remitted the powers of Indian jurisdiction is over. Then from that bank account simply transfer to your trading account which is also in the same country and does not falls in Indian Jurisdiction. This is the way and legal way to do forex trading using the LRS scheme and within legal limits.
In simple words select a broker online first then you just need to deposit funds in your online account with your credit card, or Paypal and do trading. You can also withdraw your funds through Paypal. Your bank won't even care where you spent your money, or from where you even got it.
HAPPY TRADING!
Sunday, September 20, 2009
Understanding The Forex Lingo(2).
Measuring the Transaction Cost:
The important aspect of the bid-ask spread is that this is used to measure the transaction cost of a round turn trade. A round turn is defined as both a buy trade and an offset sell trade having the same size of similar currency pair. In the example using the EUR/USD exchange rate of 1.2812/15, the transaction cost will be equal to three pips.
Here is the formula for calculating the transaction cost:
Transaction cost = Ask Price – Bid Price
Knowing the Cross Currency:
When you refer to cross currency, it means any pair where the U.S. Dollar is absent. If you trade in cross currency, you might experience erratic behavior or movement of price. That’s because you triggered an action which actually involves two USD trades.
Here is an example: a long Buy EUR/GBP is equals to buying EUR/USD while selling GBP/USD. The transaction cost for cross currency trades are normally higher.
Recognizing the Margin
If you open a new margin account with any Forex broker, you will be required to deposit a minimum amount in your account. The minimum deposit varies from broker to broker. This could be as low as $100 or can be higher up to $100,000.
When you execute a trade a percentage of the balance in you account will be allocated by the broker. This is called initial margin requirement. The basis of this margin requirement are underlying currency pair, existing price, and lots traded. The size of the lots is based always on the base currency.
If you have a mini account with a leverage of 200:1 or 5 percent margin, you will trade in mini lots. 1 mini lot will be equivalent $10,000. You will only need $50 for this mini lot ($10,000 x .5% = $50).
Recognizing the Leverage:
Leverage in Forex allows increasing trading accounts values by literally allowing traders operate with virtual money. For each real dollar trades fund their account with, Forex brokers ad more funds, increasing traders buying/selling capabilties on the currency market. A leverage of 200:1, for example means that for each dollar invested a broker adds 200 dollers on top, making the trading account 200 times larger. Thus, funding your account with $1000 at 200:1 leverage would enable you to oprate a $200 000 account.
Only traders with really large accounts may afford trading Forex without leverage. For all other traders leveraging their investments is often the only way to participate in Forex currency trading and be able to operate large trading lots while make reasonalbe profits from trading forex.
Understanding the Margin Call:
You have to be ware of margin call because all traders fear this. A margin call occurs when the broker tells you that you do not have sufficient balance in your account. This could be a result of losing an open position.
Margin trading is profitable. However you need to understand its risks. Be very sure that you thoroughly understand your margin account. You also have to read the margin agreement of the broker. You should ask your broker about this before you agree to anything.
If your account falls below the required security margin, some or all of your open positions will be closed and liquidated. There are cases when a margin call will not be received before the open positions are liquidated.
You can avoid margin calls by monitoring your existing balance. You also have to employ stop loss orders on all positions. This will minimize your risk.
The important aspect of the bid-ask spread is that this is used to measure the transaction cost of a round turn trade. A round turn is defined as both a buy trade and an offset sell trade having the same size of similar currency pair. In the example using the EUR/USD exchange rate of 1.2812/15, the transaction cost will be equal to three pips.
Here is the formula for calculating the transaction cost:
Transaction cost = Ask Price – Bid Price
Knowing the Cross Currency:
When you refer to cross currency, it means any pair where the U.S. Dollar is absent. If you trade in cross currency, you might experience erratic behavior or movement of price. That’s because you triggered an action which actually involves two USD trades.
Here is an example: a long Buy EUR/GBP is equals to buying EUR/USD while selling GBP/USD. The transaction cost for cross currency trades are normally higher.
Recognizing the Margin
If you open a new margin account with any Forex broker, you will be required to deposit a minimum amount in your account. The minimum deposit varies from broker to broker. This could be as low as $100 or can be higher up to $100,000.
When you execute a trade a percentage of the balance in you account will be allocated by the broker. This is called initial margin requirement. The basis of this margin requirement are underlying currency pair, existing price, and lots traded. The size of the lots is based always on the base currency.
If you have a mini account with a leverage of 200:1 or 5 percent margin, you will trade in mini lots. 1 mini lot will be equivalent $10,000. You will only need $50 for this mini lot ($10,000 x .5% = $50).
Recognizing the Leverage:
Leverage in Forex allows increasing trading accounts values by literally allowing traders operate with virtual money. For each real dollar trades fund their account with, Forex brokers ad more funds, increasing traders buying/selling capabilties on the currency market. A leverage of 200:1, for example means that for each dollar invested a broker adds 200 dollers on top, making the trading account 200 times larger. Thus, funding your account with $1000 at 200:1 leverage would enable you to oprate a $200 000 account.
Only traders with really large accounts may afford trading Forex without leverage. For all other traders leveraging their investments is often the only way to participate in Forex currency trading and be able to operate large trading lots while make reasonalbe profits from trading forex.
Understanding the Margin Call:
You have to be ware of margin call because all traders fear this. A margin call occurs when the broker tells you that you do not have sufficient balance in your account. This could be a result of losing an open position.
Margin trading is profitable. However you need to understand its risks. Be very sure that you thoroughly understand your margin account. You also have to read the margin agreement of the broker. You should ask your broker about this before you agree to anything.
If your account falls below the required security margin, some or all of your open positions will be closed and liquidated. There are cases when a margin call will not be received before the open positions are liquidated.
You can avoid margin calls by monitoring your existing balance. You also have to employ stop loss orders on all positions. This will minimize your risk.
Saturday, September 19, 2009
Understanding Forex Lingo.
As a novice or newbie trader, you have to learn the lingo of Forex before you ever think first ever trade. Some of the lingo or Forex terms you have learned already. Still, have a look to understand these terms:
Learning the Major and Minor Currencies:
There are eight commonly traded currencies at the Forex Market. USD, EUR, JPY, GBP, CHF, CAD, NZD, and AUD. These currencies are called the Majors or major currencies.
The rest of the currencies are commonly called as minor currencies. You do not have to worry about these minor currencies. They are there for professional use only.
Base Currency:
In foreign exchange markets, the base currency is the first currency in a currency pair. The second currency is named the quote currency (counter currency, terms currency). Exchange rates are quoted in per unit of the base currency. Note that FX market convention is the reverse of mathematical convention.
Currently the euro has first precedence for base currency; as a result, all currency pairs involving it should have the euro as the first currency. For example, between the US dollar and the euro the exchange rate will be identified as EUR/USD; the number is the amount of US dollars that can be traded for one euro.
The currency hierarchy for the majors is as follows:
* Euro
* Pound sterling
* Australian dollar
* New Zealand Dollar
* United States dollar
* Canadian Dollar
* Swiss franc
* Japanese Yen
Quote Currency:
In foreign exchange markets, the quote currency is the second currency in a currency pair.
The quote currency is also known as the counter currency.
If looking at the EUR/USD currency pair, the U.S. Dollar is the quote currency, and the Euro is the base currency.
Understanding The Pip
A pip is the smallest price increment in forex trading - pip stands for percentage in point.
Prices are quoted to the fourth decimal point in the forex market - for example EUR/USD might be bid at 1.1914 and offered at 1.1917. In this example we can see that the spread is 3 pips wide. The Japanese Yen (JPY) is an exception - it is quoted only to the second decimal point.
There is an exception for quotations for Japanese Yen against other currencies. For currencies in relation to Japanese Yen a pip is 0.01 or 1 cent. Then if you are trading USD/JPY in $100 000 lots, one pip will be equivalent to $1000.
Knowing the Bid Price
Bid simply means the price that the market is willing to buy for a particular currency pair. At this price, you will be able to sell the base currency. It is shown on the left of the quotation.
To illustrate, the quote for GBP/USD is 1.8812/15. Bid price is set at 1.8812. This simply means that you can sell 1 British Pound for 1.8812 U.S. Dollars.
Identifying the Ask Price
On the other hand, the ask is the selling price that market is willing to take for a particular currency pair. In this case, you will be able to buy the base currency. It is shown on the right of the quotation.
Here we will quote EUR/USD at 1.2812/15. The ask price set is 1.2815. Basically, you will be able to buy 1 Euro for 1.2815 U.S. Dollars. This is also commonly known as the offer price.
Knowing the Bid/Ask Spread
The difference between the bid and ask prices is called the spread. A dealer expression called “the big figure quote” refers to the first few digits of a specific exchange rate. These digits are not included in the dealer quote.
To give you an example, the USD/JPY exchange rate could be at 118.30/118.34. Dealers however will verbally quote this in terms of 30/34.
Continued....
Learning the Major and Minor Currencies:
There are eight commonly traded currencies at the Forex Market. USD, EUR, JPY, GBP, CHF, CAD, NZD, and AUD. These currencies are called the Majors or major currencies.
The rest of the currencies are commonly called as minor currencies. You do not have to worry about these minor currencies. They are there for professional use only.
Base Currency:
In foreign exchange markets, the base currency is the first currency in a currency pair. The second currency is named the quote currency (counter currency, terms currency). Exchange rates are quoted in per unit of the base currency. Note that FX market convention is the reverse of mathematical convention.
Currently the euro has first precedence for base currency; as a result, all currency pairs involving it should have the euro as the first currency. For example, between the US dollar and the euro the exchange rate will be identified as EUR/USD; the number is the amount of US dollars that can be traded for one euro.
The currency hierarchy for the majors is as follows:
* Euro
* Pound sterling
* Australian dollar
* New Zealand Dollar
* United States dollar
* Canadian Dollar
* Swiss franc
* Japanese Yen
Quote Currency:
In foreign exchange markets, the quote currency is the second currency in a currency pair.
The quote currency is also known as the counter currency.
If looking at the EUR/USD currency pair, the U.S. Dollar is the quote currency, and the Euro is the base currency.
Understanding The Pip
A pip is the smallest price increment in forex trading - pip stands for percentage in point.
Prices are quoted to the fourth decimal point in the forex market - for example EUR/USD might be bid at 1.1914 and offered at 1.1917. In this example we can see that the spread is 3 pips wide. The Japanese Yen (JPY) is an exception - it is quoted only to the second decimal point.
There is an exception for quotations for Japanese Yen against other currencies. For currencies in relation to Japanese Yen a pip is 0.01 or 1 cent. Then if you are trading USD/JPY in $100 000 lots, one pip will be equivalent to $1000.
Knowing the Bid Price
Bid simply means the price that the market is willing to buy for a particular currency pair. At this price, you will be able to sell the base currency. It is shown on the left of the quotation.
To illustrate, the quote for GBP/USD is 1.8812/15. Bid price is set at 1.8812. This simply means that you can sell 1 British Pound for 1.8812 U.S. Dollars.
Identifying the Ask Price
On the other hand, the ask is the selling price that market is willing to take for a particular currency pair. In this case, you will be able to buy the base currency. It is shown on the right of the quotation.
Here we will quote EUR/USD at 1.2812/15. The ask price set is 1.2815. Basically, you will be able to buy 1 Euro for 1.2815 U.S. Dollars. This is also commonly known as the offer price.
Knowing the Bid/Ask Spread
The difference between the bid and ask prices is called the spread. A dealer expression called “the big figure quote” refers to the first few digits of a specific exchange rate. These digits are not included in the dealer quote.
To give you an example, the USD/JPY exchange rate could be at 118.30/118.34. Dealers however will verbally quote this in terms of 30/34.
Continued....
Friday, September 18, 2009
Mini Forex Account.
As we discussed in the last article there is two types of account that a trader can open, but for a new trader it is advisable that he should open Mini Forex account first and gain some knowledge before opening a regular account. Mini forex account trading is a great method for investors with small amount of capitals to understand and join in the forex market. With a deposit of only $ 100, you can control a currency position of $ 10,000 as the majority of the forex brokers offer a 100 : 1 leverage.
Mini forex account can also give the beginner forex traders some ideas of trading, find out the tricks, and discover the strategies in order to be successful in the forex trading with no need to risk too much money. As what the most of today’s experienced and successful forex traders had implemented, you also should begin your forex trading with mini forex account.
The mini forex account obviously suitable for the beginner forex traders as it is beneficial to assist the traders to train and develop their trading, with less worry of achieving the targeted gain or loss.
In this type of forex account, the traders still will be able to access to all the features in the regular and full size of forex account. When you trade in the mini forex account, you can get the same tools, information, alerts, charts, graphics, indicators, and others. By having exactly the same features, it can contribute towards implementing successful strategies without the fear of missing out any big chance to make profit in the forex market.
There are other advantages when you trade in forex mini account. The forex mini account is available in small size of 10,000 units. You can start trading with a small amount of money of around $ 100 - $ 300. This will be useful before you start trading in regular or full size of forex account. You can try to trade in a forex mini account by dealing with one mini size lot only, and soon after that you can opt to place more mini lots.
The forex mini account traders are not restricted to trade only one lot at a time. Therefore, it is a perfect for you to enhance your experience in forex trading as well as build up your confidence. If you want to make a regular lot trade, you can just simply make ten mini lots trade.
Every forex trader interprets the forex market in their own ways, therefore they ask for numerous prices in accordance to their various chances and benefits. The broker will then shows the highest bid and the lowest ask price.
As you know the forex mini account entails a high leverage, which is 100 to 1 obviously because this is a normal application in the forex mini account trading and it is a normal degree of leverage. In addition to that, the risk for the forex mini account traders is counterbalance by the small loss risk that they may be made in forex mini account trades.
Normally, the average loss in forex mini account is only one tenth of the similar amount that traders could be losing in the forex regular account. For this reason, it is easier to apply a better self discipline in your forex trading strategy, as it is not so hard to allow a small amount of loss to go, in comparison to a larger amount of loss which could influence the traders to keep much longer and that is not so good forex trading strategy.
Another advantage of the forex mini account is that, due to the high degree of leverage in the forex mini account trading, you can make a series of small lots trades. This way, you can have more choices available and apply different forex trading strategies which is crucial for your forex trading learning and practices towards success.
When your risk is obviously cut down, so does your chance of incurring loss due to the low capital employed in contrast to the forex regular account trades.
Once you are gaining profit in your forex mini account trades consistently and your winning trades are much more than the losing trades, thenit is time to apply this knowledge, and experience to get in into the challenging forex market by trading in the forex normal account with bigger capital and bigger lot sizes.
However, just like any other type of trading, the forex mini account also has some drawbacks. There were some forex mini account traders who have made big amount losses which have caused by the incorrect leverage selection, interpreted wrongly the news announcement, short technical failures of forex trading technical tools, graphs, and charts, placed gutless points as well as less protection and unreasonable thought of forex trading.
You should set up in the beginning and then keep to your principles of risk management in your forex trading strategies and hold onto your stop loss points in order to maintain the safety trades. It is recommended that you can only lose around $ 200 when you trade in the forex mini account.
Mini forex account can also give the beginner forex traders some ideas of trading, find out the tricks, and discover the strategies in order to be successful in the forex trading with no need to risk too much money. As what the most of today’s experienced and successful forex traders had implemented, you also should begin your forex trading with mini forex account.
The mini forex account obviously suitable for the beginner forex traders as it is beneficial to assist the traders to train and develop their trading, with less worry of achieving the targeted gain or loss.
In this type of forex account, the traders still will be able to access to all the features in the regular and full size of forex account. When you trade in the mini forex account, you can get the same tools, information, alerts, charts, graphics, indicators, and others. By having exactly the same features, it can contribute towards implementing successful strategies without the fear of missing out any big chance to make profit in the forex market.
There are other advantages when you trade in forex mini account. The forex mini account is available in small size of 10,000 units. You can start trading with a small amount of money of around $ 100 - $ 300. This will be useful before you start trading in regular or full size of forex account. You can try to trade in a forex mini account by dealing with one mini size lot only, and soon after that you can opt to place more mini lots.
The forex mini account traders are not restricted to trade only one lot at a time. Therefore, it is a perfect for you to enhance your experience in forex trading as well as build up your confidence. If you want to make a regular lot trade, you can just simply make ten mini lots trade.
Every forex trader interprets the forex market in their own ways, therefore they ask for numerous prices in accordance to their various chances and benefits. The broker will then shows the highest bid and the lowest ask price.
As you know the forex mini account entails a high leverage, which is 100 to 1 obviously because this is a normal application in the forex mini account trading and it is a normal degree of leverage. In addition to that, the risk for the forex mini account traders is counterbalance by the small loss risk that they may be made in forex mini account trades.
Normally, the average loss in forex mini account is only one tenth of the similar amount that traders could be losing in the forex regular account. For this reason, it is easier to apply a better self discipline in your forex trading strategy, as it is not so hard to allow a small amount of loss to go, in comparison to a larger amount of loss which could influence the traders to keep much longer and that is not so good forex trading strategy.
Another advantage of the forex mini account is that, due to the high degree of leverage in the forex mini account trading, you can make a series of small lots trades. This way, you can have more choices available and apply different forex trading strategies which is crucial for your forex trading learning and practices towards success.
When your risk is obviously cut down, so does your chance of incurring loss due to the low capital employed in contrast to the forex regular account trades.
Once you are gaining profit in your forex mini account trades consistently and your winning trades are much more than the losing trades, thenit is time to apply this knowledge, and experience to get in into the challenging forex market by trading in the forex normal account with bigger capital and bigger lot sizes.
However, just like any other type of trading, the forex mini account also has some drawbacks. There were some forex mini account traders who have made big amount losses which have caused by the incorrect leverage selection, interpreted wrongly the news announcement, short technical failures of forex trading technical tools, graphs, and charts, placed gutless points as well as less protection and unreasonable thought of forex trading.
You should set up in the beginning and then keep to your principles of risk management in your forex trading strategies and hold onto your stop loss points in order to maintain the safety trades. It is recommended that you can only lose around $ 200 when you trade in the forex mini account.
Thursday, September 17, 2009
How To Open A New Forex Trading Account.
There are three easy steps to complete in starting a new online trading account with a Forex broker, namely:
1. An account type selection
2. Sign up
3. Account activation
Consider opening a demo account prior to trading a cent from your well-deserved money. In fact you may practice with two or three demos since it is free. Test a number of various brokers to get a feel for the one that suits you.
Different Account Types
To open a Forex trading, if you are prepared to open a live account, has options of signing up an account under your personal name or a business name. Moreover, there is an option on opening a "standard" account or a "mini" account (or "micro" account if offered). It is suggested that inexperienced traders or traders with little capital to trade ought to open a mini account. A standard account is for the veteran traders who have plenty of capital to trade.
Read the fine print at all times
When you want the broker to do the trading of your account then there is a “managed account” option in the functions for some brokers. However, you are here to gain the knowledge of Forex trading then do not opt for that. A managed account also requires a very large minimum deposit of $25,000 or higher and take note that a portion of the revenues goes to the broker.
Ensure as well that the account opened is a Forex spot account and not a “forwards” or “futures” account.
Sign Up for an Account
Sequentially to open an account some paperwork, which varies for each broker, are required for submission. Most commonly, these are made available in PDF format and can be seen and printed using Adobe Acrobat Reader program.
Information on Your Account Activation
The directions on completing your account activation will be sent through email when the broker has obtained all the important paperwork. When these steps are done then a final email with your username, password, and directions on how to fund your account will be sent.
1. An account type selection
2. Sign up
3. Account activation
Consider opening a demo account prior to trading a cent from your well-deserved money. In fact you may practice with two or three demos since it is free. Test a number of various brokers to get a feel for the one that suits you.
Different Account Types
To open a Forex trading, if you are prepared to open a live account, has options of signing up an account under your personal name or a business name. Moreover, there is an option on opening a "standard" account or a "mini" account (or "micro" account if offered). It is suggested that inexperienced traders or traders with little capital to trade ought to open a mini account. A standard account is for the veteran traders who have plenty of capital to trade.
Read the fine print at all times
When you want the broker to do the trading of your account then there is a “managed account” option in the functions for some brokers. However, you are here to gain the knowledge of Forex trading then do not opt for that. A managed account also requires a very large minimum deposit of $25,000 or higher and take note that a portion of the revenues goes to the broker.
Ensure as well that the account opened is a Forex spot account and not a “forwards” or “futures” account.
Sign Up for an Account
Sequentially to open an account some paperwork, which varies for each broker, are required for submission. Most commonly, these are made available in PDF format and can be seen and printed using Adobe Acrobat Reader program.
Information on Your Account Activation
The directions on completing your account activation will be sent through email when the broker has obtained all the important paperwork. When these steps are done then a final email with your username, password, and directions on how to fund your account will be sent.
Tuesday, September 15, 2009
How To Chose Right Broker For You.
You need to have an account with a broker before you can trade at the Forex market. So, how can you spot a broker? Simply said, a broker can be an individual or a company. The broker buys and sells orders based on the decision of the trader. Brokers take profit through commissions or fees for their rendered services.
There are so many brokers who will offer their services to you. You might feel overwhelmed. You need to make a little research before taking the offer of any broker. The time you spend researching will provide you with valuable insights about different broker services and fees.
Check if the Forex broker is registered
You need to determine the regulating agencies that exercise authority over the broker. Essentially, the Forex market is an unregulated market. Reactive regulation is the typical practice. This means that you will only get action after you lose your entire savings.
Forex brokers in the United States should be registered as a Futures Commission Merchant. The Commodity Futures Trading Commission exercise regulatory powers over them. The brokers should also be a member of the NFA. These agencies were created to protect you from abusive trading practices, fraud, and manipulation.
You will be able to verify the status of the Forex brokers with the Commodity Futures Trading Commission and NFA. Registration of a broker as well as its membership can be checked by phoning the NFA at (800) 621-3570. You can also visit the NFA web site at www.nfa.futures.org/basicnet/. Here you can find basic information about the broker and its history of disciplinary actions. Stick with registered brokers and choose those with excellent financial and clean record. Always avoid unregulated brokers.
The NFA seeks to boost its campaign to educate investors like you about Forex trading. They have a brochure called “Trading in the Retail Off-Exchange Foreign Currency Market.” This brochure is worthy of a Pulitzer Prize. Before you dive into the Forex market, the NFA highly recommends that you read this book.
The NFA also has an interactive and self directed program called Forex Online Learning Program. This program explains the intricacies of trading and the shows to you the risks involved in the trading at Forex. You can get the brochure and take the online learning program at no cost to you.
Check the Customer Service
You need 24 hour customer service from a broker because Forex is open 24 hours a day. Check if you can contact the broker either through phone call, live chat, or email. When you speak with representatives, determine if they are knowledgeable. Different Forex brokers offer different qualities of customer services. So it would be best if you can check this out before you open an account.Choose several brokers and try to contact their support service. If they respond quickly then this could be a good indicator that they will respond faster to your needs.
On the other hand, do not trust a broker if your queries cannot be answered satisfactorily. If you also did not get fast replies, then you better look for other brokers. Of course, you should be aware that sometimes, pre sales services are better than post sales services.
Types of Online Trading Platform
When checking out a forex broker, do look for these details:
1. Margin provided (usually 1-4%)
2. Their spreads for the currencies you’ll be trading (the EURUSD will usually be 3-4 pips)
3. Amount of funds required to start an account
4. Any fees for small trade sizes (many don’t charge fees for smaller trade sizes, but some do)
5. Any other fees (there will be rollover fees for positions held overnight with any provider, which are usually small, though the details of this fee can vary)
6. Whether the broker automatically closes your position if the position goes against you by the entire value of your account not used as margin for that trade (not that you’re likely to face this situation if you follow system rules, but just in case it does!)
7. What their charting package and forex trading platform is like
8. Whether the trading platform provide a demo account for you to practice on
9. How established the company is, and any problems within the company.
There are so many brokers who will offer their services to you. You might feel overwhelmed. You need to make a little research before taking the offer of any broker. The time you spend researching will provide you with valuable insights about different broker services and fees.
Check if the Forex broker is registered
You need to determine the regulating agencies that exercise authority over the broker. Essentially, the Forex market is an unregulated market. Reactive regulation is the typical practice. This means that you will only get action after you lose your entire savings.
Forex brokers in the United States should be registered as a Futures Commission Merchant. The Commodity Futures Trading Commission exercise regulatory powers over them. The brokers should also be a member of the NFA. These agencies were created to protect you from abusive trading practices, fraud, and manipulation.
You will be able to verify the status of the Forex brokers with the Commodity Futures Trading Commission and NFA. Registration of a broker as well as its membership can be checked by phoning the NFA at (800) 621-3570. You can also visit the NFA web site at www.nfa.futures.org/basicnet/. Here you can find basic information about the broker and its history of disciplinary actions. Stick with registered brokers and choose those with excellent financial and clean record. Always avoid unregulated brokers.
The NFA seeks to boost its campaign to educate investors like you about Forex trading. They have a brochure called “Trading in the Retail Off-Exchange Foreign Currency Market.” This brochure is worthy of a Pulitzer Prize. Before you dive into the Forex market, the NFA highly recommends that you read this book.
The NFA also has an interactive and self directed program called Forex Online Learning Program. This program explains the intricacies of trading and the shows to you the risks involved in the trading at Forex. You can get the brochure and take the online learning program at no cost to you.
Check the Customer Service
You need 24 hour customer service from a broker because Forex is open 24 hours a day. Check if you can contact the broker either through phone call, live chat, or email. When you speak with representatives, determine if they are knowledgeable. Different Forex brokers offer different qualities of customer services. So it would be best if you can check this out before you open an account.Choose several brokers and try to contact their support service. If they respond quickly then this could be a good indicator that they will respond faster to your needs.
On the other hand, do not trust a broker if your queries cannot be answered satisfactorily. If you also did not get fast replies, then you better look for other brokers. Of course, you should be aware that sometimes, pre sales services are better than post sales services.
Types of Online Trading Platform
When checking out a forex broker, do look for these details:
1. Margin provided (usually 1-4%)
2. Their spreads for the currencies you’ll be trading (the EURUSD will usually be 3-4 pips)
3. Amount of funds required to start an account
4. Any fees for small trade sizes (many don’t charge fees for smaller trade sizes, but some do)
5. Any other fees (there will be rollover fees for positions held overnight with any provider, which are usually small, though the details of this fee can vary)
6. Whether the broker automatically closes your position if the position goes against you by the entire value of your account not used as margin for that trade (not that you’re likely to face this situation if you follow system rules, but just in case it does!)
7. What their charting package and forex trading platform is like
8. Whether the trading platform provide a demo account for you to practice on
9. How established the company is, and any problems within the company.
Sunday, August 23, 2009
Warning Signs.
Here are few warning signs for forex trading to save yourself from any fraud dealing:
1. Stay Away From Opportunities That Sound Too Good to Be True.
2. Avoid Any Company that Predicts or Guarantees Large Profits.
3. Stay Away From Companies That Promise Little or No Financial Risk.
4. Don't Trade on Margin Unless You Understand What It Means.
5. Question Firms That Claim To Trade in the "Interbank Market"
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise. Be especially alert to the dangers of trading on-line.
7. Currency Scams Often Target Members of Ethnic Minorities.
8. Be Sure You Get the Company's Performance Track Record.
9. Don't Deal With Anyone Who Won't Give You Their Background.
1. Stay Away From Opportunities That Sound Too Good to Be True.
2. Avoid Any Company that Predicts or Guarantees Large Profits.
3. Stay Away From Companies That Promise Little or No Financial Risk.
4. Don't Trade on Margin Unless You Understand What It Means.
5. Question Firms That Claim To Trade in the "Interbank Market"
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise. Be especially alert to the dangers of trading on-line.
7. Currency Scams Often Target Members of Ethnic Minorities.
8. Be Sure You Get the Company's Performance Track Record.
9. Don't Deal With Anyone Who Won't Give You Their Background.
Thursday, August 20, 2009
How To Start With Forex Trading.
Well, after discussing some basic terms and other information lets talk about how to start with forex trading? This question is common among new investors that how to enter in forex trading so lets deal with it. To get started, once you've located a brokerage you would like to work with, you should open up a demo account, so you can start making practice trades. When you are ready to open a real account, its a good idea to also keep your demo account open. You will be able to test alternative trades with your demo account, which gives you the ability to keep learning and testing strategies. You will also be able to see if you are being too liberal or conservative in your real account, by testing out different trade amounts in your demo account and comparing the outcomes.
To become more successful with Forex, research is the name of the game. If you tend to jump in first and ask questions later, you may want to be a little more deliberate, and start by understanding the basics of how the market works, such as the trading terms and terminology that are used in Forex. There are many tutorials available on the Internet, and much of the basic information can be accessed at no cost. So, all the best.
To become more successful with Forex, research is the name of the game. If you tend to jump in first and ask questions later, you may want to be a little more deliberate, and start by understanding the basics of how the market works, such as the trading terms and terminology that are used in Forex. There are many tutorials available on the Internet, and much of the basic information can be accessed at no cost. So, all the best.
Wednesday, August 5, 2009
Different Statistics To Be Remember(Part 2).
Payroll Employment:
Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.
Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.
Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.
Durable Goods Orders:
Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.
Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.
Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.
Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.
Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.
Retail Sales:
Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.
Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.
Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.
Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.
Housing Starts:
Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.
The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.
Different Statistics To Be Remember(Part 1).
Trade Balance:
The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.
The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.
It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.
Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.
Gross Domestic Product:
The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.
GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.
As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.
A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.
Consumer Price Index:
The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.
The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.
Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.
Producer Price Index:
The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.
The PPI is considered important because it accounts for price changes throughout the manufacturing sector.
The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.
Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.
A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.
Wednesday, July 29, 2009
Day Trading.
FOREX trading can be done via day trading, but a very specialized form of it. Day trading is concerned with opening and closing market positions, or buying and selling securities on the same day. It is the job of day traders to buy and sell stocks rapidly throughout the day, and hope that, for the short time they own the stocks, which can be only a few minutes, or even seconds, their value will continue to climb or fall in order for them to make quick profits. However, day trading is a very risky form of trading, which can result in considerable financial losses over a short period of time. Their losses are all the more important, as day traders generally buy stocks on borrowed money, hoping to reap profits, but standing the risk of losses as well.
Day trading is not illegal or unethical, but it can be very risky. The bottom line is that day traders should not risk the money that they cannot afford to lose. Large losses can come as a result of owning stocks overnight, because the risk that their prices may change over this interval is extremely high. This is the reason why true day trading is not concerned with owning the stocks for more than a few hours, and definitely not from one day to the next.
Day trading is also a very stressful job, not only on account of the huge loss perspective, but also because it requires great concentration on the part of the traders, when they have to watch price fluctuations and ticker quotes in order to spot market trends.
The same potential for huge losses is present with FOREX trading as well. Traders have access to high margins with FOREX, which means they only need small outlays of cash to control large amounts of currency. This is why FOREX traders stand to gain huge profits, just as they run the risk of huge losses.
FOREX trading is unique for a number of reasons. One of them is that this market is impossible to manipulate, as it is free of any external controls. Another advantage is represented by the fact that the FOREX market is the largest liquid financial market in the world. The trading performed daily on this market reaches almost two trillion US dollars. The possibility to open and close positions in the market extremely quickly, due to its liquidity, is yet another advantage of FOREX trading.
Not all investors participate in the FOREX market for long-term hedge positions. There are FOREX traders who utilize margin trading in their attempt to gain large profits over a short period of time. This is the reason why the FOREX market has been associated with speculative investments. However, this combination of short-term and long-term investors, each with different investment strategies, generates an attractive environment.
Day trading is not illegal or unethical, but it can be very risky. The bottom line is that day traders should not risk the money that they cannot afford to lose. Large losses can come as a result of owning stocks overnight, because the risk that their prices may change over this interval is extremely high. This is the reason why true day trading is not concerned with owning the stocks for more than a few hours, and definitely not from one day to the next.
Day trading is also a very stressful job, not only on account of the huge loss perspective, but also because it requires great concentration on the part of the traders, when they have to watch price fluctuations and ticker quotes in order to spot market trends.
The same potential for huge losses is present with FOREX trading as well. Traders have access to high margins with FOREX, which means they only need small outlays of cash to control large amounts of currency. This is why FOREX traders stand to gain huge profits, just as they run the risk of huge losses.
FOREX trading is unique for a number of reasons. One of them is that this market is impossible to manipulate, as it is free of any external controls. Another advantage is represented by the fact that the FOREX market is the largest liquid financial market in the world. The trading performed daily on this market reaches almost two trillion US dollars. The possibility to open and close positions in the market extremely quickly, due to its liquidity, is yet another advantage of FOREX trading.
Not all investors participate in the FOREX market for long-term hedge positions. There are FOREX traders who utilize margin trading in their attempt to gain large profits over a short period of time. This is the reason why the FOREX market has been associated with speculative investments. However, this combination of short-term and long-term investors, each with different investment strategies, generates an attractive environment.
Disadvantages Of Forex Trading
After discussing advantages of forex trading we should consider disadvantages as well:
1. Leverage
Today, you can leverage your investment with an online forex broker by 200, or even 400 to 1 and this creates tremendous profit potential. But it's a fact that most traders actually over leverage and lose.
With leverage you need to be very accurate with the execution of your trading signals and very careful with your stop loss protection. When trading on leverage if you are not careful, a quick equity spike will wipe your position.
In stock trading you can buy and hold and you only risk what you have paid for the stock and so long as it comes back you make a profit and you can wait.
In forex trading its different - you have losses that are open ended and they pile up quickly. You can't just sit back - you need to take action.
As most traders lack discipline, they very often hope a position turns around and don't have a get out point. A small loss soon ends up being a big loss and their equity is gone. Most traders hate admitting their wrong - they want the big profit potential leverage gives them but don't think about the downside.
2. Volatility
Forex prices are volatile and make big moves everyday - combine this with leverage and you have a powerful tool for profits which of course can also cause losses.
Most traders have no idea about how volatility affects their trading and how to deal with it. Most forex traders have never heard of, let alone understand "standard deviation of price" yet it's an essential part of any traders forex education.
You have to know what is normal volatility and what isn't, to have any hope of succeeding with your forex trading strategy.
Most traders make the error of placing stops to close to their entry point and they get taken out by normal volatility and this is because they are normally over leveraged. Most traders try so hard to avoid risk they actually create it for themselves.
Tuesday, July 28, 2009
Advantage Of Forex Trading.
There are many advantages to trading spot foreign exchange as opposed to trading stocks and futures. Below are listed those main advantages.
1. Bid/Ask Spread rates
Spread rates have tightened dramatically in the last years. Most online forex brokers offer a spread of 5 pips on EURUSD which is the most widely traded and liquid currency pair.
In the futures market spreads can vary anywhere between 5 and 9 pips and can become even larger under illiquid market conditions (which tends to happen substantially more often in futures currencies).
2. Margins requirements
Usually a foreign exchange trading with a 1% margin is available. In layman's terms that means a trader can control a position of a value of USD 1'000'000 with a mere USD 10'000 in his account. By comparison, futures margins are not only constantly changing but are also often quite sizeable. Stocks are generally traded on a non-margined basis and when they are, it can be as restrictive as 50% or so.
3. 24 hour market
Foreign exchange market trading occurs over a 24 hour period picking up in Asia around 24:00 CET Sunday evening and coming to an end in the United States on Friday around 23:00 CET. Although ECNs (electronic communications networks) exist for stock markets and futures markets (like Globex) that supply after hours trading, liquidity is often low and prices offered can often be uncompetitive.
Futures markets contain certain constraints that limit the number and type of transactions a trader can make under certain price conditions. When the price of a certain currency rises or falls beyond a certain pre-determined daily level traders are restricted from initiating new positions and are limited only to liquidating existing positions if they so desire. This mechanism is meant to control daily price volatility but in effect since the futures currency market follows the spot market anyway, the following day the futures market may undergo what is called a 'gap' or in other words the futures price will re-adjust to the spot price the next day. In the OTC market no such trading constraints exist permitting the trader to truly implement his trading strategy to the fullest extent. Since a trader can protect his position from large unexpected price movements with stop-loss orders the high volatility in the spot market can be fully controlled.
Equity brokers offer very restrictive short-selling margin requirements to customers. This means that a customer does not possess the liquidity to be able to sell stock before he buys it. Margin wise, a trader has exactly the same capacity when initiating a selling or buying position in the spot market. In spot trading when you're selling one currency, you're necessarily buying another.
6. Trade Forex 24 hours a day
Forex market never sleeps. In Forex trading, you do not need to wait the market to open, you can always response to world latest movement and news immediately.
Every Sunday 5.00pm in New York, Forex market starts its week from Sydney, followed by Tokyo, Singapore, Hong Kong, London, and New York. In Forex tradng, you can always response to the market trend a lot faster than in any other trading market.
Leverage trading in Forex market
Also, with the flexibility of Forex market trading time, you can work on your trade in Forex during your free time. This means you can start small and work as part time trader before going full time on FX trading.
Introduction Of Forex/Foreign Exchange.
The foreign exchange market (currency, forex,) trades currencies. It lets banks and other institutions easily buy and sell currencies.
The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.
In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the woods system.
The foreign exchange market is unique because of
-
- its trading volumes,
- the extreme liquidity of the market,
- its geographical dispersion,
- its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
- the variety of factors that affect exchange rates.
- the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
- the use of leverage
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