Foreign Exchange or FOREX for several years defended weaker countries from abusing, and essentially, defended them all from worsening economic trends, uncontrolled capitalism, and defaulting state debts.
In 1971 Foreign Exchange or FOREX experienced a drastic change permitting National Banks, Large Corporations, and private entrepreneurs to occupy a share in profit making use of Foreign Exchange or FOREX.
It relates to the acceptability of various currencies, buying and selling of paired currencies between various states, expecting to profit off from the foreign exchange rate.
All of this is carried out below the umbrella of the Foreign Exchange or FOREX. It a bit different from Wall Street or any of the other chief trading places of the globe, Foreign Exchange or FOREX has no universal main office. It is an internationally based trading area that operates five days a week twenty four hours a day.
To function and earn within the environment of Foreign Exchange or FOREX you have to be a professional trader with the self-assurance of realizing that risk, and you got to he able, sharp and supportive.
Euro to dollar conversion is one of the major processes in the forex market; however, it pays, if you will be recognizing the related risks so that you will know what you are trading for in the globe of Foreign Exchange or FOREX. If you would like to be on the profitable site, not being too greedy is the way to go.
In day trading, one and a half trillion dollars is exchanged utilizing the Foreign Exchange or FOREX, for a few it can denote massive profits, for others it can lead to overwhelming losses? The special character of Foreign Exchange or FOREX needs one to be skilled to work with advantage of information to deal successfully within the Foreign Exchange or FOREX.
Foreign Exchange Prevents Uncontrolled Capitalism
PROLOGUE TO FOREX
Forex rates is the most important aspect that a trader should know. It is better to know the basics of forex before jumping into the trading. Forex has the biggest market world wide when compared to others generating about US$4 trillion trade every day.
Forex is operating worldwide round the clock with governments, national and central banks, hedge funds, corporate companies, various financial institutions, brokers, and currency speculators all participate in the forex trading to make money and upheld their economy. The forex market is closed only during the weekends and opened in all the weekdays. Forex plays an important role in foreign trade and foreign exchange rates.
Forex is also referred as Forex exchange trading or as FX and this involves only the buying and selling of one currency, according to its established value against another currency. Example, a trader buys the US dollars with the euro currency when the US dollar value is weak and sells the US dollars when its value is high against the euro currency. By this a trader can make profits.
Knowing the foreign exchange rate forms the cornerstone factor to predict forex trends and online forex brokers should essentially know this to efficiently practice their skill.
The established value of one currency to another is called exchange rate, which can rise or fall anytime owing to many factors like the stability of the government, stability of the economy, security of the country, etc. However market is also affected by market psychology, political factors, and economic factors like house prices and employment figures etc.
Some Best Rules To Increase Your Profits In Forex
Forex is simply similar to most other features of trading, you require being smart and do a few research. Here are a few plain rules that will defend forex broker/investor’s cash and give access to extra profits.
Do not apply complete margin: Regardless of how risk lenient you are, widening your margins to its outer limit is foolish that limits one’s capability to get benefit of other forex trading chances. A normal rule to pursue should be to keep away from applying more than two-thirds of one’s margin ability. This allows you have the room for instability in your currency trading account without risking the feared margin call.
Check the risk prize ratio of every foreign trade: A rule to pursue here is that the risk prize ratio should be a 1:2 ratio or yet more. A few traders as well apply 1:5, but this high ratio will once again restrict your trading skill. Make certain you carry out the estimations to choose whether your possible reward is value the possible risk. If not, maintain your eyes open for one more trade chance.
Margin trading is dangerous and losses here are a lot larger.
Thus currency traders who have simply gotten into foreign exchange trading should apply more than the lowest sum of margin just when the forex market is presenting a great trending currency pair.
If the above stated steps are recognized and pursued appropriately one is able to lessen risk of big losses and boosts the odds against making high profits.
Forex Trading Automation Saves Time
One of the methods of forex trading is to recognize how to make best use of the forex automation facility. Trading is actually a trade of your time and your money; however, it will be better if you know how to save time while you still trade. Automating your trade provides you with the time to work on your other work rather than sitting before the computer all the day for the trade.
Forex trading automation is significant in that it tends to save time. You should be sure that you are working as gainfully as possible. Forex automation is not tough to exercise and it can be greatly organize, if you understand the forex software that will be most suitable for your needs. There are many different kinds of forex trading software accessible; try out the tools and go with the one that provides with the tools that are most accessible to you.
You can purchase a forex trading system software that you can install on to your personal computer or you can even make use of an internet dependent system which will work directly in the browser. Both of these systems hold various benefits therefore judge with your personal liking on which system will be workable for you to the most.
They will as well contain drawbacks for you to think and you should be conscious of these in addition to knowing what you are actually looking for and what you have found in the software, which is very significant in selecting a software to learn forex systems.
This is good because without automation you will use more time than needed for a beneficial forex trading.
Simplicity Is The Main Thing To Attain Currency Trading Success
The basis for why several of the traders lose and do not attain currency trading success is regularly attributed to a lack of discipline, though this is not the main cause, it’s just a small part of the trouble.
The main cause is a short of “strong concentration”, this indeed should be looked in to as the majority of traders are ignorant of it.
If you desire to attain currency trading success you require “strong concentration” and this denotes concentrating on how and why forex markets actually function and what you have to do to eventually succeed. The majority of traders just will not follow this and they will lose.
Do your work smartly; don’t make things harder for yourself:
In several industries to attain success the more you place in the more you get out in terms of returns; this is not right in currency trading.
What you require to study is that to attain real good success in currency trading you will have to be working real smart, you must not be playing tough rather you must be applying an easy system that should have you spend less time and better profit.
You can make a better currency trading process in just an hour a day and create triple digit annual gains! Simplicity is the main thing to attain currency trading success.
Trade with likelihood:
These days, there is a massive industry that informs us of analytical theories and functions and you can choose market bottoms and tops with technical correctness.
The other huge fairy tale is day trading.
You can attempt to trade pretty harder as you desire, but the odds are not in your goodwill in day trading, as you will not have sufficient profits to wrap your predictable losses.
You require to trade better in the longer run and this is where the likelihood of success is more and this is one of the single method with which you will land up with success in currency trading.
Skilled Trading Policies In FOREX
Forex is the word that essentially describes the business of exchanging the currencies all over the world. Forex is also denoted by the term foreign exchange or FX. The world’s leading forex market carry out many trade activities, which are worthy of more than 1.5 trillion USD.
Forex trades are distinct from stock trading and there is not any kind of dealing with a central exchange that administers the world currency system. This is indeed a kind of accepted trading form between the central banks of every country.
Forex trade requires only telephones or any electronic device network which will hook up the corresponding person (buyers and sellers) all over the world for trading. Besides trading, forex market had also put forward a number of compensations in equities trading. Today, the internet is the major need for forex trading though the traditional methods are still on.
Basically the major ambition of any trade will be to be trading on the profitable side. Forex offers unlimited boundaries and at the extreme it beats the limitations of the other market such as share trading or equity.
Forex trading can be accomplished in 24 hours per day. Furthermore, regardless of forex being a risky trade, the main responsibilities for a trade to be constant and successful are the seller and buyer. The investors, companies and intuitions liquidity is also endowed by the bank.
Generally the traders who are willing to invest in the forex will scrutinize regarding the elemental and practical fact behind its trading. A lot of courses about forex trading are offered to the depositor which will help them in trading. These courses will impart the essential awareness on the basic dealings and it also provides with guidelines for the skilled trading policy.
Information About Margin In Forex Trade
Several forex traders are doubtful while applying the margin. But after that, they have small option and the majority of them have to employ the margin to do foreign trade.
One single lot includes 100,000 units of a currency in a normal account. One lot in Mini account may possibly include 10,000 units of a particular currency. This, as most of you would optimistically have the same opinion, is important cash to keep in an account. As well, the majority of people have been look to trade above one lot at a time.
And nearly all Forex trading firms need traders to have admission to margin funds. All in all there is just no options which will aid us turn clear of applying the margin in currency trading.
Significant aspect for a forex trader to bear in mind is that there are reasonable ways to employ the margin gainfully in addition to sensibly.
Margin is customizable: Margin is bendable and can be applied till the level at which the trader is comfy and thinks the requirement to exercise it. If the trader desires to play it protected, 5% to 10% of margin is measured comfy. For a trader who is start to taking a few risks, 40% to 50% percent of margin is measured standard or strong.
Therefore, the margin sum for every trade can be customized opening from zero to 100 percent. A person has to think every trade independently and has to create it a division of his long term forex currency trading strategy and create a well-versed verdict about how lot the margin is most appropriate for him.
Approach Is Most Important In FOREX
The approach to trading in the forex markets is no dissimilar to that mandatory for surfing. By joining together good analysis with efficient execution, your success forex rates will get better considerably and, similar to several skill sets, good forex trading appears from a mixture of talent and hard work. Here are some suggestions that you can make into a strategy to hand out you fine in all markets.
* Approach Is Most Important In FOREX:
* Prior to you begin to do foreign trade, be familiar with the value of appropriate homework. The foremost step is to line up your personal aims and nature with the tools and markets that you can contentedly relate to. For instance, if you recognize something on day trading, then see to that trade.
* Time Structure
* The time structure points out the form of forex trading that is suitable for your nature. Trading forex off of a five-minute chart implies that you are more comfy being in a position devoid of the disclosure to overnight risk. On the other hand, selecting weekly forex charts points out a console with overnight risk and a readiness to observe some days go opposing to your position.
* A foreign currency converter is a calculator that converts the denomination or amount of one foreign currency into the comparative values or amounts of other currencies. For instance, if you had $10 that required to be exchanged into the euro, currency of a nation you are visiting, you would require recognizing the dollar to euro conversion!
Some Important Tips For Foreign Currency Exchange
The Foreign Currency Exchange is a stable industry that experiences alterations because of the deviations in the foreign currency conversion rates. You should learn forex from the experience of others. While you aim to study everything out of your forex trading you will not actually recognize how others are creating profits.
To achieve something, you have to continually deal with trade in the forex market. You got to begin and end your trade with respect to the market information and the existing trends at the time of your decision making. Do not stay long expecting the value of the currency to increase to your expectation. It might not work out always. It is better to fix yourself with the market trends.
· Get an idea of the stop loss decision based on the existing situation while you trade. Do not initiate trading while there is a deficiency in liquidity.
· Get an idea of the separate trading systems for the high markets and the low markets. Don’t simply work with just a single trading strategy. Bring out your strategy with a focus and navigate per the market situation.
· Considering the market trend and other factors work in accordance with what your mind states. Decide accordingly on when things are likely bad and which they are right for the trade.
· Differentiate between rumors and real facts in the market. Make your buy and sell decisions accordingly.
· Begin trading after the market has gotten hot in for the day and end your trade before the end of the trading day.
· When it is an over buying of currencies you got to consider ending your trade. Do not do what others are doing all the time. When it is a bull market and the hike is too much it will for sure come down. With changeable foreign currency exchange rates, nothing is going to be steady.
Technical Analysis: How to Read the Price Action
Regardless of the school of analysis we belong to, most of us will have few problems with the statement that the price action is all that matters to trading, ultimately, because the only determinant of our profits or losses is the price itself. We may have very sensible, well-thought justifications for our Forex analysis and Forex strategy, but if we cannot confirm them with the price action, the sad fact is that they are worthless.
Technical analysis takes this concept one step further, and claims that all that matters to trading is the price action itself. In other words, traders should disregard news events, statistics and data, along with economic and political developments, and concentrate all their attention on the price itself. This attitude is justified on the basis of the belief that the price action, created by knowledgeable and profit-hungry traders, reflects all the information available to the public at any one time, and it is futile so seek an edge over the market by trying to stay updated on all data. Not only is it impossible, technical analysts contend, but also useless, since the price already incorporates all the available information in itself according to the interpretation of the best and most powerful minds in the market. Technical analysts exhort us to study the markets, and ignore everything else, thus gaining a strong focus on the only piece of information that matters, the price.
Critics of technical analysis counter that while the price does represent the total amount of bulls and bears in the market, it doesn't reflect a consensus, and as such cannot be taken as a speaking the opinion of market participants at large. In other words, there is no such thing as a market opinion. In addition, they add, although in the short term the price action is difficult to predict, in the longer term economic events establish clear trends which can easily be anticipated and exploited through fundamental analysis. Technical analysts defend their school by positing that fundamental analysis is difficult, no more reliable than technical studies, and more time-consuming.
The tools of technical analysis are all applied on the price action as depicted on charts. Indicators are used to evaluate any price pattern to generate buy or sell signals, while price patterns are interpreted to identify the underlying momentum. Technical analysis does not claim to create error-free, concrete answers to questions in traders' minds, but it does offer to identify the scenarios where the potential for a profitable trade is greatest. A technical trader must have a mind adapted and used to dealing with probabilities, and he must be ready to take losses when they are unavoidable as well.
Let's conclude this brief study by noting that in the chaotic environment of the Forex market diligent money management methods, and emotional control are just as important, if not more important than any kind of strategy or analysis. To learn Forex, we need to preserve our capital. And money management is what teaches us how to preserve it. With patience and commitment, it is not hard to succeed in Forex, but without those two, there's no point in entertaining dreams about bathing in pools of gold and silver either.
Point and Figure Charts: an Easy Way to Recognize Trends in Forex
To trade forex profitably, we need to catch trends and stick with them until they complete a healthy part of their development. While there are many indicators today available to the typical trader towards the purpose of identifying and trading trend patterns, point and figure charts stand among those for the simplicity of the signals generated and lack of clutter in the display. The strengths of the P&F chart is its simplicity. Although it may appear complicated or difficult at first sight to an inexperienced trader, in fact its laconic depiction of the market action makes it an ideal choice for trend following strategies where one would like to disregard most of the retracements, and volatility in favor of following the main momentum of the market.
A P&F chart consists of boxes and X and Os. An X indicates an uptrend, the price was rising during this period. An O indicates a period of falling prices. But unlike other kinds of charts, P&F charts do not record all the price action in a period. There are two important criteria for including any day's price movement on a P&F chart: box size and reversal amount. Box size determines the minimum amount by which the price action must move above the last trading days's close in a column of Xs (that is, in an uptrend), or below the close of the previous day in a column of Os (in a downtrend). Reversal amount determines the minimum movement when the price contradicts an ongoing trend. It is the minimum amount by which we'll need to negate a column of X's and begin a column of Os if the price goes down, and vice versa if it goes up. In other words, as long as the reversal remain less than the reversal amount in an uptrend, we'll have a column of X's, and when the same is the case in a downtrend, we'll have a column of Os. In the stock market, box size is often 1, and the retracement amount is 3.
It sounds complicated, but it really is very simple. Traders will buy or sell at reversal points. For example, when, after a period of X's the chart shows an O, it's likely that a reversal has taken place and it is time to short the market. Conversely, you may choose to jump in a trend after it emerges and keep buying and selling for as long as the main trend remains intact. Since the P&F chart only includes significant price movements, the reversals and trends indicated by it are thought to be more reliable.
The P&F chart is not exactly popular among traders, and many forex trading brokers do not include it in their standard packages. However, this does not make this tool any less efficient than others. If you favor this kind of charting in stock trading, and want to use it in forex, there's no reason to discourage you from doing so. The same rules and principles are valid, and due to the simple and uncomplicated nature of the P&F, you can even use your own hand calculations for drawing it at all times.
In order to learn to trade forex you must have the appropriate knowledge. ForexTraders.com offers free information to help educate yourself on strategies, analysis, how to choose among the many forex trading brokers and we even offer a free course!
FXOpen Forex Broker
FXOpen is a major Forex trading service providers for the Islamic traders, but it doesn't limit itself to Muslim traders only. Anyone can benefit their "no overnight interest" system which is rare for MetaTrader 4 platform broker. They also offer trading courses which might be useful to the beginning traders. Regular contests and deposit bonuses with e-gold and WebMoney payment options make FXOpen a reasonable player on the Forex brokers market.
Spreads — as low as 2 pips on EUR/USD.
Minimum deposit for micro account — only $1.
Minimum deposit for standard account — only $25.
Instant order executions and quote handling.
Margin leverage from 1:1 up to 1:500.
Free unlimited demo accounts available.
Regular technical research and market news available.
Experienced and helpful support.
100$ bonus on new standard accounts.
Trading contests.
Trading courses for new traders.
MetaTrader 4 platform.
Muslim friendly trading system.
Serious company for serious traders.
ECN (Electronic Communication Network) execution available through MetaTrader.
Liberty Reserve and WebMoney billing options.
To open account with FXOpen — complete a registration process on their site and download a free MetaTrader 4 trading platform. Then you will be able to deposit money into your trading account and enjoy your Forex trading process.
Build a Forex Trading Account You Can Be Proud of
If you prefer to scalp for a few pips based on a higher value lot size and trading many times a day, then your Forex trading strategy will be developed to maximise this plan.
If you trade intra-day, then you might only place a handful of trades per day and look for a greater pip gain. This would mean a sideways moving market is not for you and you would make the decision not to trade.
With Forex trading, it is commonly agreed that knowing when not to trade is as important as knowing when to trade!
Go through the motions of building the foundations to your career. Paper trade first until you are consistently successful, comfortable and confident with your strategy. Use a Forex trading demo account next to get to know your Forex broker's trading platform which will be a great help when you start to trade a live account!
Do you know your risk to reward strategy?
This is the amount you are prepared to risk in order to make a gain and is typically based on a 3 to 1 ratio. So if your stop loss was 10 pips below your entry point for a long trade, you would expect your trade to achieve a minimum of 30 pips.
This takes care of the risk management of your trade but what about the risk to your Forex trading account? How can we best protect your hard earned money and trading capital?
Well, we look to use a similar ratio for this too. The thought process is not to risk more than 3 percent of your total Forex trading account size on each open position. So if you had $1000 in your trading account you would only risk a maximum of $30 on each trade. If your stop loss was 10 pips, that would mean you could trade at $3 per pip and if your stop loss was 15 pips your trade would be based on $2 per pip.
Can you see how this strategy means you will be in the market long enough (assuming you activate your stop loss) to learn about trading and how to make profits?
If you keep growing your Forex trading account size in this way, you will achieve a growing trading balance, whilst protecting your capital.
This way you will still be trading having kept your trading account in order - achieving more than 90 percent of all other traders! If you reach this stage, you would have done very well indeed!
So, with Forex trading, by knowing which way the market is moving, you can apply to right strategy to trade, or not. Once you have your trading plan written, you can start paper trading, progressing to opening a demo account with a good Forex broker and finally on to a live account. Make sure you understand the risk strategy and grow your trading account slowly.
This will ensure you build the foundations of your Forex trading account and be proud of what you have achieved!
Trading Currency Through Online Forex Brokers
Financial institutions are generally the most influential in the forex market through high-volume, large-value forex currency transactions. Historically, banks enjoyed monopolistic access to the forex markets, but through the Internet, any forex speculator can also enjoy 24 hour access to the market via a forex broker.
Secure web connections today allow many forex traders to work from home, where ready access to news and other technical advice informs decisions on what forex positions to take. Similar moves are being made by stock brokers, who are also moving out of banks and other traditional institutions.
Your needs in the market will influence your choice of forex broker. Online forex brokerage firms, known as houses, provide those new to the forex market with detailed research, advice and simulators to learn how to use their forex trading tools. The experienced online forex trader is catered to by other broking houses, with in-depth advice, but less focus on forex trading instruction based on the assumption that you are familiar with the forex market. To make an informed choice, it is advisable to trial several differing online forex broking houses and their trading tools to find the best fit for your needs.
Avoiding Forex-Related Frauds and Scams
A lot of people have been 'burnt' from scam operations on the Internet. Their sites may look so perfectly legitimate that you doubt whether they would have gone through all that trouble building a trading platform just to steal your money. Beware.The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.
I started out with an Australian broker. Currently I am using an American one. I have not tried UK-based brokers but the British financial industry is one of the best. Companies that are based in countries such as Japan , Germany and France are probably just as good too, if their website speaks your language.
Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.
Take note that there are some fake regulatory bodies being thrown around in cyber-space as well. Take a look at how long they have been operating for. Try and search out any reviews or comments made about them. See if you can find forums where traders have discussions about their brokers.
Below is a list of things to keep in mind to help you avoid being a victim of a scam:
Stay Away From Opportunities That Sound Too Good To Be True
There are people who may have just acquired a large amount of money just and recently are the same and are shopping around for safe investment vehicles. These may include retirees who have access to their retirement funds. It is understandable why retirees would be drawn to 'high-return, low-risk investments'. This is also what makes them very vulnerable. If you identify yourself to be one of these people, be careful. A lot of deceitful characters are after your money. Furthermore, only allocate a tiny amount of your money to trading until you can start growing it. Not all people can trade successfully, so it is a venture you should take on haphazardly. It is your life savings at risk.
Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large Profits
Any form of trading is hard. Trading currencies is no different. Be wary of statements that make it sound easy. Statements like:
"Whether the market moves up or down, in the currency market you will make a profit";
"Make $1000 per week, every week";
"We are out-performing 90% of domestic investments";
"You'll make returns of 70% a year";
"Here is a no-risk strategy".
If they could make such returns, why would they even bother letting you know about it.
Be Wary Of Companies Who Downplay Investment Risks
Hold your wallet tight and zip up your purse when companies say that written risk disclosure agreements are routine formalities imposed by the government. Watch out for statements like:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day";
" We promise to recover any losses you have ".
Be Wary Of Companies That Claim To Trade In The 'Interbank Market'
Do not believe it when some people say that they have access to the 'Interbank market' or that they can give you access to trade in that market because that's where bargain prices can be obtained. This is not true. The 'interbank market' is not a place, it is not a physical building. It is simply a loose network of currency transactions that are negotiated between big financial institutions and other large companies.
Ethnic Minorities Are Often Targeted
Ethnic newspapers and television 'infomercials' are sometimes used to attract Russian, Chinese and Indian minorities. Sometimes these ads offer so-called 'job opportunities for account executives to trade foreign currencies', whereby the recruited 'account executive' is expected to use his own money to trade currencies and would often times be encouraged to recruit members like their friends and family to do the same.
Seek Out The Company's Background
Check any information you receive to be sure that the company is who they claim to be. If at all possible, try and get the background of the people operating the company. Do not rely solely on oral statements and promises made by the company's employees.
If You Are In Doubt, It Is Not Worth Risking Your Money
If after trying to solicit information and at the end of it all, you are still in doubt about the credentials of a particular company, my suggestion is to start looking elsewhere.
All-in-all it is difficult to trade Forex without a trading system.
Most obviously you'll begin testing it on your Forex demo account.
But how about improving it? Does your new trading system have everything for you to trade currencies successfully?
Why there is so much talk about having a Forex trading system?
- Without a trading system your trading preferences will change all the time: every new trade could easily have different reasons behind it.
- Without a trading system you can be late on entries due to constant hesistation as a result of battling with your intuition or a sudden second opinion.
Without a trading system you'll have more doubts about the best time to exit a trade or the best place to keep a protective stop.
- Without a trading system you cannot trade consistently and demand a disciplined trading from yourself.
- Without a trading system you cannot fully work out your money management and risks.
- Without a trading system you'll be prone to fear of losing and every time you would need to regain the confidence.
Where to find a good Forex trading system?
Beginner traders as well as experienced investors always search for the newest more efficient ways to trade and profit in Forex.
Whether you are looking to write your own Forex trading system or borrow and improve an existing one, there are several, so far the best, websites, which could be of a good help:
Forex-tsd.com — huge resource, known mostly for its best custom made MT4 indicators, has a good section with Forex trading systems.
Forexfactory.com — another huge forum with lots of free Forex trading systems, strategies, ideas, as well as expert advisors.
Forex-strategies-revealed.com — a neat collection of quality Forex trading systems: from simple to advanced.
Forex Market Offers Opportunity And Information
The forex market itself is basically a worldwide connection of traders, who make investment moves based on the price of currencies, or their values relative to other currencies. These traders constantly negotiate prices with other traders resulting in the fluctuation or movement of a currency's value. The value of a currency on the forex market also corresponds with supply. If there is greater demand for the Euro, let's say, then there will be less supply of it on the forex market, which means, in time, it will make a Euro more valuable compared to let's say the dollar. In short, in this forex market situation, one Euro would yield more dollars, subsequently weakening the dollar as well. Analyzing the forex market's fluctuations allows investors to make predictions on how a currency will move in relation to another currency. They then can make predictions and buy and sell currency accordingly.
While some people view the forex market as a place to see what their exchange rate will be when they travel abroad, others view it as an opportunity to make great gains in their financial planning and future.
Internet Marketing VS Forex Currency Trading
Have you noticed that when someone's trying to sell you something — such as a system for making money — they always make it look far easier than it is?
Let's look at two Internet businesses, almost as diametrically opposed as it's possible to be — Internet Marketing and Forex Currency Trading.
You've probably heard the old Internet adage — build a better website and they will come. Well it ain't true!
You could put up a site advertising dollars for a dime and they still wouldn't come — because they wouldn't know where to look!
Let's look at what you need to have in place in order to build a successful Internet marketing business.
First of all, you need a product. If you've been reading the recent Internet marketing blurb you'll know you need a niche product.
Actually, the new thing is sub-niche but whatever they call it, you need a product for which there is high demand but low supply.
Finding a suitable niche is the hardest part of the whole process but let's say you have a killer product, what else do you need?
The List.
Ask any Internet marketeer and they will say that the most important part of your business is your opt-in list.
For people to join your list you usually have to give them something of value such as a free eBook or report on a subject related to your main product line.
To keep them interested, you need to keep in touch with them offering them additional information, advice and tips.
Website.
To promote your opt-in list you need a website (although there are other ways of promoting your list, too) with features that will encourage people to sign up to your list.
You also need a killer website with killer copy to describe — and sell — your killer product. This may or may not be the same as the one you use for your opt-in list.
Killer copy.
Maybe you're not a good copywriter. There are many eBooks on the subject that can help you or you can pay someone to write copy for you.
You need a domain name, preferably one with some relation to the product but good domain names are becoming increasing difficult to find.
Ads.
To get people to visit your website in the first place you need to register it with the search engines.
SEO (Search Engine Optimisation) is an art in itself. You can mug up on the subject or pay someone to do the job for you (but be aware that not all experts are!).
You might also want to place ads for your list in newsletters and ezines. The better ones will charge you although you might get a free ad in return for an article.
Autoresponder.
To automate your business you need an autoresponder. These clever devices automatically send emails to everyone on your opt-in list at predetermined intervals, and contain predetermined copy.
For example, you could create a series of emails containing, say, five parts of a free course to be sent one a day over the first five days.
Then emails would be sent once a week advertising a different product each time.
Whenever anyone signs up to your list they automatically start at the beginning so everyone gets the full cycle of marketing material.
We haven't even looked at affiliate sales and marketing but I'm sure you get the picture.
The basic idea of selling over the Internet sounds good but there's a lot more to it than most people realise.
Forex Currency Trading
Someone said that trading is the last frontier, the last place where men and women can stand up and pit themselves against the world.
It sounds very Wild Westish but most of it is true! You win or lose entirely by your own efforts and if you win, it's like having your very own bank.
However, even owning a bank is a business and you still have to work hard to put the money there — and to keep it!
Unlike Internet marketing where all your efforts, in one form or another, are geared towards making people join your list and then selling them stuff,
Currency Trading has no customers. That's worth repeating — with currency trading, you don't need customers.
No customers means you don't need any of the associated accoutrements that go with Internet marketing such as:
Products
Web site
Domain name
Opt-in list
Ads
eBooks and reports
Autoresponder
Any other marketing aids
So far so good, but what do you have to do and what do you need? Well, you need to know what currency prices are doing.
Forex Trading — Opportunities for Individuals
Forex Trading-How Can Individual Investors Benefit?
Indeed large multinational and individual banks and other major financial institutions have dominated FX trading (also known as Forex trading), but there is a paradigm change in the nature and type of investing. According to one estimate, in the new millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new technologically driven economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy in Forex trading.
We know Forex trading is direct access trading of currencies. In the past, foreign exchange trading was limited to large banks and institutional traders but recent advancements in technology have allowed small traders to take advantage of the many benefits of Forex trading using online trading platforms to trade. Virtually Forex trading is done 24 hours day and almost 5 ? days of a week. In the recent times, online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor.
The Forex trading is perhaps the largest financial market in the world, with a daily average turnover of approximately $1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example EUR/USD or USD/JPY or USD/INR etc.
In the new millennium, the Forex trading has become accessible for an individual investor or small group of investors. In the current scenario, investors reap many benefits from Forex trading than stock market, e-mini futures and such other trading. Today mostly traders are choosing Forex trading than stock trading because there are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500 are listed on the NASDAQ. In spot Forex trading, you have 4 major markets, 24 hours a day 5.5 days a week. If you are so inclined, you have approximately 34 second-tier currencies to look at in your spare time. You can concentrate on the major forex and can find your trade. When you are investing in forex you can spend your afternoon on the golf course or with your spouse watching movie or celebrating holidays-in short it is easy and hassle free than stock/future market.
Opportunities for Individuals
Forex trading is one of the best home based online business opportunity you can find today. The Big Sharks know that and use the demand for information about Forex market to get every possible dollar in their hands.
Who are they? The answer is always easy — Follow the Money. There is one player on currency market (and in every other market) who never loses his share in every single trade. Brokerage service on Forex trading is claimed to be commission free, right? But you always pay your minimum 3 to 10 pips fee on each trade. Where those 3 to 10 pips go? Make your best guess!
There is almost no chance for a person who has no idea for the forces driving the Info market to save himself from being robbed and abused by those well advertised money machines. You can see their banners on your e-mail provider. You can watch their infomercials on every TV channel.
Be aware about the presence of those Big Sharks and be sure that the information they will try to sell to you is always available for free online. Most of the time the quality and the real value of that free information is much better than the one you will be asked to pay for.
Here is the story of a good friend of mine. He was very excited about Forex when he first time heard about it. That happened to be on one of those popular free seminars, organized by one of the Big Sharks on that field. So he got the bite without paying attention for the hook in it. He went to the next level — two days training for $1,995, only.
He came back more excited. He opened Forex trading account on that seminar, using a special form provided by the Big Shark Company. They honestly declared that by doing that the broker agrees to pay them one pip from each trade made by the customer recruited by them.
My friend started real trading, constantly increasing the amount of his investment until he put all of his savings into that Forex trading account. Everything was fine until one beautiful day of October. On that day he got the news: his broker filed under chapter 11.
He was broke. I asked him how successful was his trading? His answer was that he actually lost 30% of his investment, from trading, only. He was able to realize know that the training was completely inefficient and not even close enough to start trading with real money.
Something big was missing here. He was missing the big picture in the entire game. His trading experience was very frustrating. After each trade he felt like just hit the wall with a car flying with 100 miles per hour.
A few days ago my friend called me on the phone. He was very enthusiastic about a new Forex training package, just delivered to him. I decided to check it by myself, too.
The package is very detailed. All the missing information about the big picture is there. More than 20 hours of free videos are revealing all you need to know about that business. Zooming towards Forex trading is very smooth and on the level every beginner and advanced trader will tremendously benefit of.
The one unbeatable and shocking advantage of this package is that it delivers information, priced from between $3,000 and $10,000, for free.
Finally we got something valuable about Forex trading, very professionally developed, for free.
Probably, that will put the Big Sharks business on hold for awhile, for the good sake to all of us.
So, be careful and keep an eye on the Internet unlimited free resources if you want to self yourself from the Forex scam.
What's Fibonacci Forex Trading?
Fibonacci was an Italian mathematician and he is best remembered by his world famous Fibonacci sequence, the definition of this sequence is that it's formed by a series of numbers where each number is the sum of the two preceding numbers; 1, 1, 2, 3, 5, 8, 13 ...But in the case of currency trading what is more important for the forex trader is the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc.
These ratios are mathematical proportions prevalent in many places and structures in nature, as well as in many man made creations.
Forex trading can greatly benefit form this mathematical proportions due to the fact that the oscillations observed in forex charts, where prices are visibly changing in an oscillatory pattern, follow Fibonacci ratios very closely as indicators of resistance and support levels; maybe not to the last cent, but so close as to be really amazing.
Fibonacci price points, or levels, for any forex currency pair can be calculated in advance so that the trader will know when to enter or exit the market if the prediction given by the Fibonacci forex day trading system he uses fulfills its predictions.
Many people tries to make this analysis overly complicated scaring away many new forex traders that are just beginning to understand how the forex market works and how to make a profit in it. But this is not how it has to be. I can't say it's a simple concept but it is quite understandable for any trader once he or she has grasped the basics and has had some practice trading using Fibonacci levels along with other secondary indicators that will help to improve the accuracy of the entry and exit point for every particular trade.
Free chapters of a forex day trading system can be downloaded at http://www.1-forex.com in case you are interested in learning more about Fibonacci forex trading.
What are the most powerful figures that move Forex market?
Interest rate
Traditionally, if a country raises its interest rates, its currency will strengthen because investors will shift their assets to that country to gain higher returns.
Employment situation
Decreases in the payroll employment are considered as signs of a weak economic activity that could eventually lead to lower interest rates, which has negative impact on the currency.
Trade balance, budget and treasury budget
A country that has a significant Trade Balance deficit will generally have a weak currency as there will be continuous commercial sellings of its currency.
Gross Domestic Product (GDP)
GDP is reported quarterly and is followed very closely as it is a primary indicator of the strength of economic activity.
A high GDP figure is usually followed by expectations of higher interest rates, which is mostly positive for the currency.
Forex Fundamental Analysis. Basics
What is fundamental analysis?
Fundamental analysis in Forex is a type of market analysis which involves studying of the economic situation of countries to trade currencies more effectively.
It gives information on how the big political and economical events influence currency market. Figures and statements given in speeches by important politicians and economists are known among the traders as economical announcements that have great impact on currency market moves. In particular, announcements related to United States economy and politics are the primary to keep an eye on.
What is economic calendar?
Economic calendar is created by economists where they predict different economics figures and values according to previous months. It contains next data:
Date — Time — Currency — Data Released — Actual — Forecast — Previous
For example: If the forecast is better than the previous figure, then US dollar usually is going to strengthen against other currencies.
But when news are due, traders have to check the actual data.
Forex Trading Tips
Tip 1. Gamblers go to casino. All unproved, spontaneous actions in Forex trading — are a part of pure gambling.
Any attempt to trade without analysis and studying the market is equal to a game. Games are fun except when you lose real money...
Tip 2. Never invest money into a real Forex account until you practice on a Forex Demo account!
Allow at least 2 months for demo trading. Consider this: 90% of beginners fail to succeed in the real money market due to lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.
Tip 3. Go with the trend!
Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won't "kill" a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.
Tip 4. Always take a look at the time frame larger than the one you've chosen to trade with.
It gives the bigger picture of market price movements and thus helps to clearly define the trend. For example, when trading with 15 minute time frame, take a look at 1 hour charts.
In the same way: trading with 1 hour charts would require obtaining a picture of daily, weekly price movements.
If a trend in Forex is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying large trends, instead what's happening in the market here and now (on 1-5 minute time frame) is their main concern.
Tip 5. "Keep it simple, stupid" — applies to indicators, signals and trading strategies.
Too much information will create a controversial picture of when to trade and when not to. To avoid lots of confusion create a simple but working method of trading Forex.
Forecasting Forex Trading
What is Forex or Foreign Exchange: It is the largest financial market in the world, with a volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
What about Forecasting: Predicting current and future market trends using existing data and facts. Analysts rely on technical and fundamental statistics to predict the directions of the economy, stock market and individual securities.
For those who trade using the Forex, or foreign currency exchange, knowing how to forecast the Forex can make the difference between trading successfully and losing money. When you begin learning about Forex trading, it is vital that you understand how to forecast the Forex trading market.
There are a few methods that are used when forecasting the Forex. Each system is used to understand how the Forex works and how the fluctuations in the market can affect traders and currency rates. The two methods that are most often used are called technical analysis and fundamental analysis. Both methods differ in their own ways, but each one can help the Forex trader understand how the rates are affecting the currency trade. Most of the time, experienced traders and brokers know each method and use a mixture of the two to trade on the Forex.
One method used in forecasting foreign currency exchange is called technical analysis. This method uses predictions by looking at trends in charts and graphs from past Forex market happenings. This system is based on solid events that have actually taken place in the Forex in the past. Many experience Forex traders and brokers rely on this system because it follows actual trends and can be quite reliable.
When looking at the technical analysis in the Forex, there are three basic principles that are used to make projections. These principles are based on the market action in relation to current events, trends in price movements and past Forex history. When the market action is looked at, everything from supply and demand, current politics and the current state of the market are taken into consideration. It is usually agreed that the actual price of the Forex is a direct reflection of current events.
The trends in price movement are another factor when using technical analysis. This means that there are patterns in the market behavior that have been known to be a contributing factor in the Forex. These patterns are usually repeating over time and can often be a consistent factor when forecasting the Forex market. Another factor that is taken into consideration when forecasting the Forex is history. There are definite patterns in the market and these are usually reliable factors. There are several charts that are taken into consideration when forecasting the Forex market using technical analysis. The five categories that are look at include indicators, number theory, waves, gaps and trends.
Most of these can be quite complicated for those who are inexperienced using the Forex. Most professional Forex brokers understand these charts and have the ability to offer their clients well-informed advice about Forex trading.
Another way that experienced brokers and traders in the Forex use to forecast the trends is called fundamental analysis. This method is used to forecast the future of price movements based on events that have not taken place yet. This can range from political changes, environmental factors and even natural disasters. Important factors and statistics are used to predict how it will affect supply and demand and the rates of the Forex. Most of the time, this method is not a reliable factor on its own, but is used in conjunction with technical analysis to form opinion about the changes in the Forex market.
For those interesting in being involved with Forex trading, a basic understanding of how the system works is essential. Understanding both forecasting systems and how they can predict the market trends will help Forex traders be successful with their trading. Most experienced traders and brokers involved with the Forex use a system of both technical and fundamental information when making decisions about the Forex market. When used together, they can provide the trader with invaluable information about where the currency trends are headed.
Introduction To Fundamental Analysis: Forex
Forex traders almost always rely on analysis to make plan their trading strategies. There are two basic types of Forex analysis — technical and fundamental. This article will look at fundamental analysis and how it used in Forex trading.
Fundamental analysis refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.
Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.
Currency prices on the Forex are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.
Indicators
Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.
Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.
Interest Rates — can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.
Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.
International Trade — Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.
Other indicators include the CPI — a measurement of the cost of living, and the PPI — a measurement of the cost of producing goods. The GDP measures the value of all goods and services within a country, while the M2 Money Supply measures the total amount of all currency.
There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so Forex traders should be aware of them when preparing strategies. Up-to-date information is available on many websites and many Forex brokers supply this information as part of their trading service.
How To Get Started In Forex Trading
You may have been hearing about the foreign exchange market (Forex) and the investment advantages it offers. You would like to try it out, but don't know where to start. This short guide will give you the basics in Forex and tell you what you need to participate in this fast growing field.
Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
Forex is not simple, however, and education is needed to make wise investment decisions. Although it is relatively easy to start trading on the Forex, there are risks involved, so finding out as much as possible about the market is a good move for any beginner.
Forex traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.
Opening a Forex account is as simple as filling out a form and providing the necessary ID. The form will include a margin agreement that states that the broker can interfere with any trade it deems to be too risky. This is to protect the interests of the broker — most trades, after all, are done using the broker's money. Once your account has been established, you can fund it and begin trading.
Many brokers have different types of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in Forex trading for as little as $250, while standard accounts may have a minimum deposit of $1000 to $2500 depending on the broker. The amount of leverage — using borrowed money — varies with accounts. High leverage gives you more money to trade for a given investment.
HOWEVER — beginner traders are advised get accustomed to Forex by doing paper trades for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools that are at provided by most Forex brokers.
Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new Forex investor is strongly advised to use these demo accounts at least until they are showing consistently steady profits.
Each broker has their own set of software tools to aid in making transactions, but there are a few tools that are common to all Forex brokers. Real time quotes, news feeds, technical analyses and charts, and profit and loss analyses are some of the features you should expect to see on most online brokers' web sites.
Almost every broker operates on the Internet. To access their online services you should have a reasonably modern computer, a fast Internet connection, and an up-to-date operating system such as Windows XP. Once your account is set up, you can access it from any computer — just enter your account name and password. If for some reason you are not able get access to a computer, most brokers will allow you to make trades over the phone.
Online Forex Trading
Do you know what Forex trading is? Some people have heard of this type of trading, others have not. If you haven't, it might be something you are interested in trying. Forex trading stands for foreign exchange trading. What it consists of is the buying and selling of different currencies. This is done simultaneously, and there are people who make a lot of money with this kind of trading. This is apparent by the 1.9 million dollar turnover in this market that happens every day. Also a lot of it is done online. Online Forex trading is very popular.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
The Benefits of Trading The Forex Market
Historically, the FX market was available most to major banks, multinational corporations and other participants who traded in large transaction sizes and volumes. Small-scale traders including individuals like you and I, had little access to this market for such a long time. Now with the advent of the Internet and technology, FX trading is becoming an increasingly popular investment alternative for the general public.
The benefits of trading the currency market:
It is open 24-hours and it closes only on the weekends;
It is very liquid and efficient;
It is very volatile;
It has very low transaction costs;
You can use a high level of leverage (borrowed money) with ease; and
You can profit from a bull or a bear market.
Continuous, 24-Hour Trading
The currency exchange is a 24-hour market. You may decide to trade after you come home from work. Regardless of what time-frame you want to trade at whatever time of the day, there would be enough buyers and sellers to take the other side of your trade. This feature of the market gives you enough flexibility to manage your trading around your daily routine.
Liquidity And Efficiency
When there are a lot of buyers and a lot of sellers, you can expect to buy or sell at a price that is very close to the last market price. The currency market is the most liquid market in the world. Trading volume in the currency markets can be between 50 and 100 times larger than the New York Stock Exchange (Source: Oanda.)
When you are trading stocks, you may have experienced events where one piece of news accelerates or decelerates the price of the underlying stock you may have bought into. Perhaps a director has been kicked out by the shareholders of a company or the company has just released a new product and big investors are buying the shares of a particular company. Share prices can be drastically affected by the actions or inactions of one or a few individuals. So if you are relying on television reports and newspapers to get your news, most of the opportunities or warnings will have come too late for you to take advantage by the time you get them.
The value of currencies on the other hand is affected by so many factors and so many participants that the likelihood of any one individual or group of individuals drastically affecting the value of a currency is minute. Because of its sheer size, the currency market is hard to manipulate. The ability for people to engage in 'insider trading' is virtually eliminated. As an average trader, you are less disadvantaged. You are likely to be playing on relatively equal ground along with all the other traders and investors whom you are competing against.
Note about price gaps:
For those people who have already traded other markets, you probably know about price 'gaps'. 'Gaps' occur when prices 'jump' from one price level to another without having taken any incremental steps to get there. For example, you may be trading a share that closes at $10 at the end of today but due to some event that happens overnight; it opens tomorrow at $5 and continues to go downwards for the rest of the day.
Gaps bring about another degree of uncertainty that may meddle with a trader's strategy. Probably one of the most worrying aspects of this is when a trader uses stop-losses. In this case, if a trader puts a stop-loss at $7 because he no longer wants to be in a trade if the share price hits $7, his trade will remain open overnight and the trader wakes up tomorrow with a loss bigger than he may have been prepared for.
After looking at a couple of forex charts, you will realize that there are little price 'gaps' or none at all, especially on the longer-term charts like the 3-hour, 4-hour or the daily charts.
Volatility
Trading opportunities exist when prices fluctuate. If you buy a share for $2 and it stays there, there is no opportunity to make a profit. The magnitude of level of this fluctuation and its frequency is referred to as volatility. As a trader, it is volatility that you profit from. Large volume transactions and high liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day-traders. The high volatility of the currency market indicates that a trader can potentially earn 5 times more money from currency trading than trading the most liquid shares.
Volatility is a measure of maximum return that a trader can generate with perfect foresight. Volatility for the most liquid stocks are between 60 to 100. Volatility for currency trading is 500. (Source: Oanda.)
In this respect, currencies make a better trading vehicle for day-traders than the equity markets.
Low Transaction Costs
A currency transaction typically incurs no commission or transaction fees. For a forex trader, the spread is the only cost he or she needs to cover in taking on a position. In addition, because of the currency market's efficiency, there is little or no 'slippage' costs.
'Slippage' is the cost involved when traders enter the market at a price worse than the level they wanted to get into. For example, a trader wants to buy a share at $2.00 but by the time, the order gets executed, his gets to buy the shares at $2.50. That fifty cents difference is his slippage cost. Slippage cost affects large-volume traders a lot. When they buy large quantities of a commodity, it oversupplies the market with buy orders. This applies a pressure for the price to go up. By the time they get to buy all the quantities they wanted, the average price they got their commodities would be higher than the price they intended to get them for. Conversely, when they sell large quantities of a commodity, they oversupply the market with sell orders. This applies a pressure for the price to go down. By the time they finish selling all their commodities, their average selling price is less than what they initially intended to sell them for.
Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at small costs. As an approximate, you may only expect to have a spread of 0.03% of your position size. To give you an example, you can buy and sell 10,000 US Dollars and this will only incur a 3-point spread, equivalent to $3.
Leverage
There are not a lot of banks or people who would lend you money so that you can use it to trade shares. And if there are, it would be very hard for you to convince them to invest in you and in your idea that a certain share is going to go up or down. Therefore, most of the time, if you have a $10,000 account, you can only really afford to buy $10,000 worth of stocks.
In currency trading however, because you use 'borrowed money', you can trade $10,000 of a currency and you only need anywhere between fifty (For a margin lending ratio of 200:1) to two hundred dollars ( For a margin lending ratio of 50:1) in your trading account. This makes it possible for an average trader with a small trading account, under $10,000 to be able to profit sufficiently from the movements of the currency exchange rates. This concept is explained further in The Part-Time Currency Trader.
Introduction To Forex Trading
There are many markets: markets for stocks, futures, options and currencies. These are probably the most accessible markets for everyday traders like you and I. People easily understand the basics of trading shares, so I will occasionally use examples from that market.
I began trading shares first and then I moved on to trading currencies; therefore, most of the examples I will be using in this book are derived from trading currencies.
If you do not know a lot about currency trading, allow me to introduce it to you. It is what I trade and I believe that it is one of the best markets to trade because of its efficiency. The transaction costs to execute a trade are minimal and most brokers provide you with the tools and data you need to make your trading decisions, they usually provide them for free. The market is open 24 hours a day which allows you to design your trading hours around your daily commitments. It is very volatile, which is great for those people who are looking for day-trading opportunities.
The foreign exchange market is the market in which currencies are bought and sold against one another. People may loosely refer to this market under different labels, including foreign exchange market, forex market, fx market or the currency market.
The foreign exchange market is the largest market in the world, with daily trading volumes in excess of $1.5 trillion US dollars. All transactions involving international trade and investment must go through this market because these transactions involve the exchange of currencies.
It is the most perfect market that exists because it has a large number of buyers and sellers all selling the same products. There is a free flow of information and there are little barriers to participate.
The currency exchange market is an over-the-counter (OTC) market which means that there is not one specific location where buyers and sellers can actually meet to exchange currencies. Instead, transactions are conducted by phone, fax, e-mail or through the websites of brokers who specialize in currency trading.
The major dealing centres at the time of writing are: London , with about 30% of the market, New York , with 20%, Tokyo , with 12%, Zurich , Frankfurt, Hong Kong and Singapore , with about 7% each, followed by Paris and Sydney with 3% each. Because of the fact that these centres are all over the world, foreign exchange traders can execute transactions 24 hours a day. The market only closes on the weekends.
THE MAIN 'PLAYERS' IN THE FOREX MARKET
The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.
Consumers, including visitors of countries, tourists and immigrants, do need to exchange currencies when they travel so that they can buy local goods and services. These participants do not have the power to set prices. They just buy and sell according to the prevailing exchange rate. They make up a significant proportion of the volume being traded in the market.
Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.
Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.
Large commercial and investment banks are the 'price makers'. They are the ones who buy and sell currencies at the bid-and-offer exchange rates that they declare through their foreign exchange dealers.
Commercial banks deal with customers on one hand, and with the Interbank or other banks, on the other hand. They profit by utilizing the bid-and-offer spread. The bid price is the exchange rate that the buyer is willing to buy and the offer price is the exchange rate at which the seller is willing to sell. The difference is called the bid-offer spread. They also make profits from speculating about whether the exchange rate will rise or fall.
Central banks participate in the foreign exchange market in their effective duty as banks for their particular government. They trade currencies not for the intention of making profits but rather to facilitate government monetary policies and to help smoothen out the fluctuation of the value of their economy's currency.
What Is Forex Trading?
Forex trading is nothing more than direct access trading of different types of foreign currencies. In the past, foreign exchange trading was mostly limited to large banks and institutional traders. However recent technological advancements have made it so that small traders can also take advantage of the many benefits of forex trading just by using the various online trading platforms to trade.
The currencies of the world are on a floating exchange rate, and they are always traded in pairs. About 85 percent of all daily transactions involve trading of the major currencies. Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar (EUR/USD), US dollar against Japanese yen (USD/JPY), British pound against US dollar (GBP/USD) and US dollar against Swiss franc (USD/CHF).
If you think one currency will appreciate against another, you may exchange that second currency for the first one and be able to "stay" in it. If everything goes as you plan it, eventually you may be able to make the opposite deal in that you may exchange this first currency back for that other and then collect profits from it. As a note bear in mind that no dividends are paid on currencies.
Transactions on the FOREX market are performed by dealers at major banks or FOREX brokerage companies. FOREX is a necessary part of the worldwide market, so when you are sleeping in the comfort of your bed, the dealers in Europe are trading currencies with their Japanese counterparts. Therefore, the FOREX market is active 24 hours a day and dealers at major institutions are working 24/7 in three different shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution. Price movements on the FOREX market are very smooth and without the gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is somewhere around $1.2 trillion, so a new investor can enter and exit positions without any problems.
The fact is that the FOREX market never stops; even on September 11, 2001 you could still get your hands on two-side quotes on currencies. The currency market is the largest and oldest financial market in the world. It is also called the foreign exchange market or FX market for short. It is the biggest and most liquid market in the world, and it is traded mostly through the 24 hour-a-day inter-bank currency market.
When you compare them, you will see that the currency futures market is only one per cent as big. Unlike the futures and stock markets, trading currencies is not centered on an exchange. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S. it is truly a full circle trading game. In the past, the forex inter-bank market was not available to small speculators because of the large minimum transaction sizes and strict financial requirements. Banks, major currency dealers and sometimes even very large speculator were the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market brokers are able to break down the larger sized inter-bank units, and offer small traders like you and me the opportunity to buy or sell any number of these smaller units. These brokers give any size trader, including individual speculators or smaller companies, the option to trade at the same rates and price movements as the big players who once dominated the market.
Advantages of the Forex Market
What are the advantages of the Forex Market over other types of investments?
When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.
The Forex market is also very liquid. When trading Forex you have full control of your capital.
Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control
What is Forex?
FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
