The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets. "Foreign Exchange" is the simultaneous buying of one currency and selling of another. There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation. For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night. The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Forex Trading is not centralized on an exchange, as with the stock and futures markets.
The foreign exchange market is not a "market" in the traditional sense. There is no centralized location for trading as there is in futures or stocks. Trading occurs over the telephone and on computer terminals at thousands of locations worldwide. Foreign Exchange is also the world's largest and deepest market. Daily market turnover has skyrocketed from approximately 5 billion USD in 1977 to a staggering 1.5 trillion US dollars today; even more on an active day. Most foreign exchange activity consists of the spot business between the US dollar and the six major currencies (Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar) The FOREX market is so large and is controlled by so many participants that no one player, governments included, can directly control the direction of the market, which is why the FOREX market is the most exciting market in the world. Central banks, private banks, international corporations, money managers and speculators all deal in FOREX trading.
Streaming Forex Price Ticker
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Selasa, 26 Juni 2007
FIVE MOST WATCHED INDICATORS
Trade Using News: 5 Most Watched Indicators
Currencies do not become weaker or stronger randomly. A large portion of a currency's value is based on confidence in the economic strength of the country. Economic strength is judged by certain key indicators that are closely watched in FX trading. When these economic indicators change, the value of a currency will fluctuate. A currency is a proxy for the country it represents and the economic health of that country is priced into the currency.
Fundamental releases have become increasingly important market movers. When focusing on the impact that economic numbers have on price action in the FX market there are 5 indicators that are watched the most because of their potential to generate volume and to move prices in the market.
Why Does Economic News Impact Short-Term Trading?
The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data is released, it is vitally important to know what economists are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus.
Analyzing the longer-term ramifications of an unexpected monthly rise in prices can wait until after you've taken advantage of the short term trading opportunities presented by the data typically within the first thirty minutes following the release. Market expectations for all economic releases are published on our calendar and you should track these expectations along with the release date of the indicator.
Average Pip Ranges
1.Non Farm Payrolls – Unemployment Avg. Move: 124 Pips
2.FOMC Interest Rate Decisions Avg. Move: 74 Pips
3.Trade Balance Avg. Move: 64 Pips
4.CPI – Inflation Avg. Move: 44 Pips
5.Retail sales Avg. Move: 44 Pips
(2004 Data from DailyFX Research)
1. Non Farm Payrolls – Unemployment
The unemployment rate is a measure of the strength of the labor market. One of the ways analysts gauge the strength of an economy is by the number of jobs created, and the percentage of workers unable to find jobs. Strong job creation is indicative of economic growth, as companies must increase their workforce in order to meet demand. Release Schedule: First Friday of the month at 8:30am EST
2. FOMC Interest Rate Decisions
The Federal Open Market sets the discount rate, which is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board. Release Schedule: 8 meetings scheduled per year. Date is known in advance so check the economic calendar
3. Trade Balance
The balance of trade measures the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A trade surplus results if the value of exported goods exceeds that of imported goods, whereas a trade deficit exists if imported goods exceed exported goods. Release Schedule: Generally released around the middle of the second month following the reporting period. Check the economic calendar
4. CPI – Consumer Price Index
The CPI is a key gauge of inflation, as it measures the price of a fixed basket of consumer goods. Higher prices are considered negative for an economy, but since central banks often respond to price inflation by raising interest rates, currencies sometimes respond positively to reports of higher inflation. Release Schedule: Monthly - around the 13th of each month at 8:30am EST
5. Retail Sales
Retail sales is a measure of the total goods sold by a sampling of retail stores. It is used as a gauge of consumer activity and confidence as higher sales figures would indicate increased economic activity. Release Schedule: Monthly - around the 11th of each month at 8:30am EST
Source :RefcoFX
Currencies do not become weaker or stronger randomly. A large portion of a currency's value is based on confidence in the economic strength of the country. Economic strength is judged by certain key indicators that are closely watched in FX trading. When these economic indicators change, the value of a currency will fluctuate. A currency is a proxy for the country it represents and the economic health of that country is priced into the currency.
Fundamental releases have become increasingly important market movers. When focusing on the impact that economic numbers have on price action in the FX market there are 5 indicators that are watched the most because of their potential to generate volume and to move prices in the market.
Why Does Economic News Impact Short-Term Trading?
The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data is released, it is vitally important to know what economists are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus.
Analyzing the longer-term ramifications of an unexpected monthly rise in prices can wait until after you've taken advantage of the short term trading opportunities presented by the data typically within the first thirty minutes following the release. Market expectations for all economic releases are published on our calendar and you should track these expectations along with the release date of the indicator.
Average Pip Ranges
1.Non Farm Payrolls – Unemployment Avg. Move: 124 Pips
2.FOMC Interest Rate Decisions Avg. Move: 74 Pips
3.Trade Balance Avg. Move: 64 Pips
4.CPI – Inflation Avg. Move: 44 Pips
5.Retail sales Avg. Move: 44 Pips
(2004 Data from DailyFX Research)
1. Non Farm Payrolls – Unemployment
The unemployment rate is a measure of the strength of the labor market. One of the ways analysts gauge the strength of an economy is by the number of jobs created, and the percentage of workers unable to find jobs. Strong job creation is indicative of economic growth, as companies must increase their workforce in order to meet demand. Release Schedule: First Friday of the month at 8:30am EST
2. FOMC Interest Rate Decisions
The Federal Open Market sets the discount rate, which is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board. Release Schedule: 8 meetings scheduled per year. Date is known in advance so check the economic calendar
3. Trade Balance
The balance of trade measures the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A trade surplus results if the value of exported goods exceeds that of imported goods, whereas a trade deficit exists if imported goods exceed exported goods. Release Schedule: Generally released around the middle of the second month following the reporting period. Check the economic calendar
4. CPI – Consumer Price Index
The CPI is a key gauge of inflation, as it measures the price of a fixed basket of consumer goods. Higher prices are considered negative for an economy, but since central banks often respond to price inflation by raising interest rates, currencies sometimes respond positively to reports of higher inflation. Release Schedule: Monthly - around the 13th of each month at 8:30am EST
5. Retail Sales
Retail sales is a measure of the total goods sold by a sampling of retail stores. It is used as a gauge of consumer activity and confidence as higher sales figures would indicate increased economic activity. Release Schedule: Monthly - around the 11th of each month at 8:30am EST
Source :RefcoFX
TEN BASIC ERRORS OF A NEWCOMER
1. Trading when market has just opened
Within the first several minutes after opening, the market usually moves about or jumps somewhere abruptly. Experienced traders sometimes try to use their knowledge to forecast by the first market movements what trend is possible. But emotions will certainly play tricks with a newcomer.
2. Undue hurry in taking profit
Well, you opened a long position. Then, after a couple of days, you saw how much money you had earned and closed the position with joy. But this movement, as you would have gathered later, was just the beginning of a powerful up-trend. So, if you would not haste, you could earn 10 times more money. Use TakeProfit orders only on extraordinary occasions, when the resistance level is clearly seen. Normally, it is better to exit the market using StopLoss and trailing stop.
3. Adding lots in a losing position
This is a reverse example: you opened a long position, but price decreased. You doggedly insist on that "it would still grow, I just opened the position too early" and add by buying more lots. But the price goes on dropping and twices your losses. Remember: You should only add lots to a profitable position.
4. Closing positions starting with the best one
If you have some long positions and the price starts to decrease, you often instinctively try to fix your profit first and only then close losing positions (or let it work until the StopLoss triggers). This is a wrong tactics: If the whole market decreases, those positions will most probably lose that have already been unprofitable. But you have already had losses on them. This means you should close them first of all. Better positions will not fall so rapidly and, in case of a reversal, they will go up again. So do not haste to close a profitable position.
5. Revenge
A typical situation for a newcomer: A losing position has just been closed - and he or she starts opening new positions enthusiastically to requite the wrongs. This will result in new losses, so do not return to trading immediately after having lost. Rest a little.
6. The most preferable positions
Approach reasonably to your positions: Do not care especially for some of them, for example, for those where you bought at the lowest price - every trader is usually especially proud of such trades. It is clear that you are puffed up with self-admiration, but be careful and do not carry such a brilliant position to zero or even to minus.
7. Trading by the principle of 'bought for ever'
You were working on a relatively short period of time, opened up, and prices went up tremendously. And you say to yourself: "Aha, I've caught the start of a many years' up-trend", and hang this position "for ever". But things do not just happen: you either change essentially for much longer estimation periods or keep standard rules on your standard short period. Rules that will make you enter and quit the market even if there is a really powerful trend. Do not "marry" your position!
8. Closing of a profitable strategic position on the first day
Vice versa, if you trade not within a day, do not close a profitable position on the first day under no conditions. If even the price has been grown to a very high level, be patient: it can be higher tomorrow.
9. Closing a position when alerted to open an opposite position
Many trade with systems of continuous entering the market. These systems are always "inside of a position". This means, closing of a long position means for them opening of a short one. One can use such positions, but they must be closed earlier: the signal to close must be of higher priority than the signal to open an opposite position.
10. Doubts
You should not trade if you are not sure of your previous situation assessment. Having said to yourself "I'm sick with vague doubts", you should better close all your positions and reanalyze the situation. Or go for a walk. The latter recommendation is actual in all difficult cases, by the way. It helps for all diseases - try it yourself!
Within the first several minutes after opening, the market usually moves about or jumps somewhere abruptly. Experienced traders sometimes try to use their knowledge to forecast by the first market movements what trend is possible. But emotions will certainly play tricks with a newcomer.
2. Undue hurry in taking profit
Well, you opened a long position. Then, after a couple of days, you saw how much money you had earned and closed the position with joy. But this movement, as you would have gathered later, was just the beginning of a powerful up-trend. So, if you would not haste, you could earn 10 times more money. Use TakeProfit orders only on extraordinary occasions, when the resistance level is clearly seen. Normally, it is better to exit the market using StopLoss and trailing stop.
3. Adding lots in a losing position
This is a reverse example: you opened a long position, but price decreased. You doggedly insist on that "it would still grow, I just opened the position too early" and add by buying more lots. But the price goes on dropping and twices your losses. Remember: You should only add lots to a profitable position.
4. Closing positions starting with the best one
If you have some long positions and the price starts to decrease, you often instinctively try to fix your profit first and only then close losing positions (or let it work until the StopLoss triggers). This is a wrong tactics: If the whole market decreases, those positions will most probably lose that have already been unprofitable. But you have already had losses on them. This means you should close them first of all. Better positions will not fall so rapidly and, in case of a reversal, they will go up again. So do not haste to close a profitable position.
5. Revenge
A typical situation for a newcomer: A losing position has just been closed - and he or she starts opening new positions enthusiastically to requite the wrongs. This will result in new losses, so do not return to trading immediately after having lost. Rest a little.
6. The most preferable positions
Approach reasonably to your positions: Do not care especially for some of them, for example, for those where you bought at the lowest price - every trader is usually especially proud of such trades. It is clear that you are puffed up with self-admiration, but be careful and do not carry such a brilliant position to zero or even to minus.
7. Trading by the principle of 'bought for ever'
You were working on a relatively short period of time, opened up, and prices went up tremendously. And you say to yourself: "Aha, I've caught the start of a many years' up-trend", and hang this position "for ever". But things do not just happen: you either change essentially for much longer estimation periods or keep standard rules on your standard short period. Rules that will make you enter and quit the market even if there is a really powerful trend. Do not "marry" your position!
8. Closing of a profitable strategic position on the first day
Vice versa, if you trade not within a day, do not close a profitable position on the first day under no conditions. If even the price has been grown to a very high level, be patient: it can be higher tomorrow.
9. Closing a position when alerted to open an opposite position
Many trade with systems of continuous entering the market. These systems are always "inside of a position". This means, closing of a long position means for them opening of a short one. One can use such positions, but they must be closed earlier: the signal to close must be of higher priority than the signal to open an opposite position.
10. Doubts
You should not trade if you are not sure of your previous situation assessment. Having said to yourself "I'm sick with vague doubts", you should better close all your positions and reanalyze the situation. Or go for a walk. The latter recommendation is actual in all difficult cases, by the way. It helps for all diseases - try it yourself!
FOREX TRADING STRATEGY
Forex Trading Strategy - 6 Tips to Make Big Profits
By: Sacha Tarkovsky
If you want a successful FOREX trading strategy, you should incorporate the following tips into your existing strategy – you should then become a profitable currency trader.
The aim is not to just to make money, but to make big profits consistently.
Six Essential FOREX Trading Strategy Tips:
1. Get a Method you have Confidence in
You need to have total confidence in your method - so you can follow it with discipline.
Pick a simple, technical method - simple methods work best, as they’re more robust in the face of brutal market conditions - complicated methods tend to break.
Just use a few rules and parameters, and they should work across all markets – a technical trading system should work on ANY market that trends.
2. You need to have the Mindset to Take Risks!
You will read a lot about money management - but keep in mind risk = reward.
If you don’t take reasonable risks, you won’t make big profits.
2% is a commonly touted figure to risk per trade - but if you’re trading $10,000 that’s just $200.
Risk more if you’re confident - 10% is fine - you just need to be selective with your trades. You can have the best FOREX trading strategy, but you need to take calculated risks to make big gains.
3. Don’t Trade Frequently
The good trades only come around a few times a year, so focus on them.
Many traders think there are good opportunities everyday - there aren’t.
There’s no correlation between how often you trade, and how much money you will make - if you want to make big profits, you need patience.
4. Only Focus on the Long Term Trends
Forget day trading, and focus on the longer-term trends only - how can you make big profits in a day? - You can’t. Don’t forget you have to cover your losing days as well.
Always remember - brokers interested in making the maximum amount of commission, perpetrate the make money by day trading myth.
Currency trends last for months or years - focus on them, and milk them for all they’re worth.
5. Trade in Isolation
Don’t discuss your trading with anyone - the only way you’ll make big money is by doing it by yourself.
Have confidence in your ability and don’t let anyone put you off - this is an essential character trait of all great traders.
6. Work Hard not Smart
Many losing traders think the more effort they make with their FOREX trading strategy, the greater their trading skills will become – this is not true! You can learn a method in a short period of time, and if you have a simple robust method, you can do your analysis in about 30 minutes a day - and that’s it!
A Strategy for Big Gains
So there you have it - a FOREX strategy designed to make you big profits.
Many of the above tips are not conventional wisdom - but keep in mind that 90% of traders don’t make big gains – and they follow the herd.
Step away from the crowd, and incorporate the above tips into your existing FOREX trading strategy – you could become very rich!
By: Sacha Tarkovsky
If you want a successful FOREX trading strategy, you should incorporate the following tips into your existing strategy – you should then become a profitable currency trader.
The aim is not to just to make money, but to make big profits consistently.
Six Essential FOREX Trading Strategy Tips:
1. Get a Method you have Confidence in
You need to have total confidence in your method - so you can follow it with discipline.
Pick a simple, technical method - simple methods work best, as they’re more robust in the face of brutal market conditions - complicated methods tend to break.
Just use a few rules and parameters, and they should work across all markets – a technical trading system should work on ANY market that trends.
2. You need to have the Mindset to Take Risks!
You will read a lot about money management - but keep in mind risk = reward.
If you don’t take reasonable risks, you won’t make big profits.
2% is a commonly touted figure to risk per trade - but if you’re trading $10,000 that’s just $200.
Risk more if you’re confident - 10% is fine - you just need to be selective with your trades. You can have the best FOREX trading strategy, but you need to take calculated risks to make big gains.
3. Don’t Trade Frequently
The good trades only come around a few times a year, so focus on them.
Many traders think there are good opportunities everyday - there aren’t.
There’s no correlation between how often you trade, and how much money you will make - if you want to make big profits, you need patience.
4. Only Focus on the Long Term Trends
Forget day trading, and focus on the longer-term trends only - how can you make big profits in a day? - You can’t. Don’t forget you have to cover your losing days as well.
Always remember - brokers interested in making the maximum amount of commission, perpetrate the make money by day trading myth.
Currency trends last for months or years - focus on them, and milk them for all they’re worth.
5. Trade in Isolation
Don’t discuss your trading with anyone - the only way you’ll make big money is by doing it by yourself.
Have confidence in your ability and don’t let anyone put you off - this is an essential character trait of all great traders.
6. Work Hard not Smart
Many losing traders think the more effort they make with their FOREX trading strategy, the greater their trading skills will become – this is not true! You can learn a method in a short period of time, and if you have a simple robust method, you can do your analysis in about 30 minutes a day - and that’s it!
A Strategy for Big Gains
So there you have it - a FOREX strategy designed to make you big profits.
Many of the above tips are not conventional wisdom - but keep in mind that 90% of traders don’t make big gains – and they follow the herd.
Step away from the crowd, and incorporate the above tips into your existing FOREX trading strategy – you could become very rich!
FOREX TRADING CONCEPT
Forex Trading Concept
Foreign Exchange is the simultaneous buying of one currency and selling of another. The foreign exchange market ( FOREX ) is the largest financial market in the world, with a volume of over $1.3 trillion daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. 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. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another across the major financial centers.
Traditionally, investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971.
Forex Trading Advantages
A 24-hour market - A trader may take advantage of all profitable market conditions at any time. There is no waiting for the opening bell.
High liquidity - The Forex market with an average trading volume of over $1.3 trillion per day. It is the most liquid market in the world. It means that a trader can enter or exit the market at will in almost any market condition minimal execution marries or risk and no daily limit.
Low transaction cost - The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be smaller.
Uncorrelated to the stock market - A trader in the Forex market involves selling or buying one currency against another. Thus, there is no correlation between the foreign currency market and the stock market. Bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader.
Inter-bank market - The backbone of the Forex market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over the counter ( OTC ) market.
No one can corner the market - The Forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
Posted by Pierre Wee at 3:55 PM 0 comments Links to this post
Monday, January 29, 2007
Ten Basic Errors of a Newcomer
1. Trading when market has just opened
Within the first several minutes after opening, the market usually moves about or jumps somewhere abruptly. Experienced traders sometimes try to use their knowledge to forecast by the first market movements what trend is possible. But emotions will certainly play tricks with a newcomer.
2. Undue hurry in taking profit
Well, you opened a long position. Then, after a couple of days, you saw how much money you had earned and closed the position with joy. But this movement, as you would have gathered later, was just the beginning of a powerful up-trend. So, if you would not haste, you could earn 10 times more money. Use TakeProfit orders only on extraordinary occasions, when the resistance level is clearly seen. Normally, it is better to exit the market using StopLoss and trailing stop.
3. Adding lots in a losing position
This is a reverse example: you opened a long position, but price decreased. You doggedly insist on that "it would still grow, I just opened the position too early" and add by buying more lots. But the price goes on dropping and twices your losses. Remember: You should only add lots to a profitable position.
4. Closing positions starting with the best one
If you have some long positions and the price starts to decrease, you often instinctively try to fix your profit first and only then close losing positions (or let it work until the StopLoss triggers). This is a wrong tactics: If the whole market decreases, those positions will most probably lose that have already been unprofitable. But you have already had losses on them. This means you should close them first of all. Better positions will not fall so rapidly and, in case of a reversal, they will go up again. So do not haste to close a profitable position.
5. Revenge
A typical situation for a newcomer: A losing position has just been closed - and he or she starts opening new positions enthusiastically to requite the wrongs. This will result in new losses, so do not return to trading immediately after having lost. Rest a little.
6. The most preferable positions
Approach reasonably to your positions: Do not care especially for some of them, for example, for those where you bought at the lowest price - every trader is usually especially proud of such trades. It is clear that you are puffed up with self-admiration, but be careful and do not carry such a brilliant position to zero or even to minus.
7. Trading by the principle of 'bought for ever'
You were working on a relatively short period of time, opened up, and prices went up tremendously. And you say to yourself: "Aha, I've caught the start of a many years' up-trend", and hang this position "for ever". But things do not just happen: you either change essentially for much longer estimation periods or keep standard rules on your standard short period. Rules that will make you enter and quit the market even if there is a really powerful trend. Do not "marry" your position!
8. Closing of a profitable strategic position on the first day
Vice versa, if you trade not within a day, do not close a profitable position on the first day under no conditions. If even the price has been grown to a very high level, be patient: it can be higher tomorrow.
9. Closing a position when alerted to open an opposite position
Many trade with systems of continuous entering the market. These systems are always "inside of a position". This means, closing of a long position means for them opening of a short one. One can use such positions, but they must be closed earlier: the signal to close must be of higher priority than the signal to open an opposite position.
10. Doubts
You should not trade if you are not sure of your previous situation assessment. Having said to yourself "I'm sick with vague doubts", you should better close all your positions and reanalyze the situation. Or go for a walk. The latter recommendation is actual in all difficult cases, by the way. It helps for all diseases - try it yourself!
Foreign Exchange is the simultaneous buying of one currency and selling of another. The foreign exchange market ( FOREX ) is the largest financial market in the world, with a volume of over $1.3 trillion daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. 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. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another across the major financial centers.
Traditionally, investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971.
Forex Trading Advantages
A 24-hour market - A trader may take advantage of all profitable market conditions at any time. There is no waiting for the opening bell.
High liquidity - The Forex market with an average trading volume of over $1.3 trillion per day. It is the most liquid market in the world. It means that a trader can enter or exit the market at will in almost any market condition minimal execution marries or risk and no daily limit.
Low transaction cost - The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be smaller.
Uncorrelated to the stock market - A trader in the Forex market involves selling or buying one currency against another. Thus, there is no correlation between the foreign currency market and the stock market. Bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader.
Inter-bank market - The backbone of the Forex market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over the counter ( OTC ) market.
No one can corner the market - The Forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
Posted by Pierre Wee at 3:55 PM 0 comments Links to this post
Monday, January 29, 2007
Ten Basic Errors of a Newcomer
1. Trading when market has just opened
Within the first several minutes after opening, the market usually moves about or jumps somewhere abruptly. Experienced traders sometimes try to use their knowledge to forecast by the first market movements what trend is possible. But emotions will certainly play tricks with a newcomer.
2. Undue hurry in taking profit
Well, you opened a long position. Then, after a couple of days, you saw how much money you had earned and closed the position with joy. But this movement, as you would have gathered later, was just the beginning of a powerful up-trend. So, if you would not haste, you could earn 10 times more money. Use TakeProfit orders only on extraordinary occasions, when the resistance level is clearly seen. Normally, it is better to exit the market using StopLoss and trailing stop.
3. Adding lots in a losing position
This is a reverse example: you opened a long position, but price decreased. You doggedly insist on that "it would still grow, I just opened the position too early" and add by buying more lots. But the price goes on dropping and twices your losses. Remember: You should only add lots to a profitable position.
4. Closing positions starting with the best one
If you have some long positions and the price starts to decrease, you often instinctively try to fix your profit first and only then close losing positions (or let it work until the StopLoss triggers). This is a wrong tactics: If the whole market decreases, those positions will most probably lose that have already been unprofitable. But you have already had losses on them. This means you should close them first of all. Better positions will not fall so rapidly and, in case of a reversal, they will go up again. So do not haste to close a profitable position.
5. Revenge
A typical situation for a newcomer: A losing position has just been closed - and he or she starts opening new positions enthusiastically to requite the wrongs. This will result in new losses, so do not return to trading immediately after having lost. Rest a little.
6. The most preferable positions
Approach reasonably to your positions: Do not care especially for some of them, for example, for those where you bought at the lowest price - every trader is usually especially proud of such trades. It is clear that you are puffed up with self-admiration, but be careful and do not carry such a brilliant position to zero or even to minus.
7. Trading by the principle of 'bought for ever'
You were working on a relatively short period of time, opened up, and prices went up tremendously. And you say to yourself: "Aha, I've caught the start of a many years' up-trend", and hang this position "for ever". But things do not just happen: you either change essentially for much longer estimation periods or keep standard rules on your standard short period. Rules that will make you enter and quit the market even if there is a really powerful trend. Do not "marry" your position!
8. Closing of a profitable strategic position on the first day
Vice versa, if you trade not within a day, do not close a profitable position on the first day under no conditions. If even the price has been grown to a very high level, be patient: it can be higher tomorrow.
9. Closing a position when alerted to open an opposite position
Many trade with systems of continuous entering the market. These systems are always "inside of a position". This means, closing of a long position means for them opening of a short one. One can use such positions, but they must be closed earlier: the signal to close must be of higher priority than the signal to open an opposite position.
10. Doubts
You should not trade if you are not sure of your previous situation assessment. Having said to yourself "I'm sick with vague doubts", you should better close all your positions and reanalyze the situation. Or go for a walk. The latter recommendation is actual in all difficult cases, by the way. It helps for all diseases - try it yourself!
Rabu, 20 Juni 2007
HOW TO MAKE MONEY TRADING FOREX
In the FX market, you buy or sell currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.
The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Example of making money by buying Euros :
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18 ( EUR=+10,000 ; USD=-11,800*)
Two weeks later, the trader exchanges his 10,000 Euro back into US dollar at the exchange rate of 1.2500 (EUR=-10,000 ; USD =+12,500**)
The trader has earned a profit of $700 (USD.12,500 – USD.11,800)
*EUR $10,000 x 1.18 = US $11,800
** EUR $10,000 x 1.25 = US $12,500
An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.
How to Read an FX Quote
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:
GBP/USD = 1.7500
The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar)..
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.
The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.
You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.
Long/Short
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.
The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price at which you (as the trader) will sell.
The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price at which you will buy.
The difference between the bid and the ask price is popularly known as the spread.
Let's take a look at an example of a price quote taken from a trading platform:
On this GBP/USD quote, the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker makes it so easy for you to trade away your money.
If you want to sell GBP, you click "Sell" and you will sell pounds at 1.7445. If you want to buy GBP, you click "Buy" and you will buy pounds at 1.7449.
In the following examples, we're going to use fundamental analysis to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry! We will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on…
EUR/USD
In this example euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar.
If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold euros in the expectation that they will fall versus the US dollar.
USD/JPY
In this example the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen.
If you believe that Japanese investors are pulling money out of U.S. financial markets and coverting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USD
In this example the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the United States in terms of economic growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar.
If you believe the British's economy is slowing while the United State's economy remains strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHF
In this example the USD is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.
If you believe that the US housing market bubble burst will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
I don't have enough money to buy $10,000 euros. Can I still trade?
You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with as little as $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.
Margin trading in the foreign exchange market is quantified in “lots”. We will be discussing these in depth in our next lesson. For now, just think of the term "lot" as the minimum amount of currency you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg, they come in dozens or "lots" of 12. In Forex, it would be just as foolish to buy or sell $1 EUR, so they usually come in "lots" of $10,000 or $100,000 depending on the type of account you have.
For Example:
* You believe that signals in the market are indicating that the British Pound will go up against the US Dollar.
* You open 1 lot ($100,000) for buying the Pound with a 1% margin at the price of 1.5000 and wait for the exchange rate to climb. This means you now control $100,000 worth of British Pound with $1,000. Your predictions come true and you decide to sell.
* You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency). So for an initial capital investment of $1,000, you have made 50% return. Return equals your $500 profit divided by your $1,000 you risked to trade.
Your Actions :
You buy 100,000 pounds at the GBP/USD exchange rate of 1.5000 (GBP=+100,000 ; USD=-150,000 ; Your Money = $1,000 )
You blink for two seconds and the GBP/USD exchange rate rises to 1.5050 and you sell. (GBP=-100,000 ; USD=+150,500 ; Your Money = $1,500)
You have earned a profit of $500. (USD.150,500 – USD.150,00)
Rollover
No, this is not the same as rollover minutes from your cell phone carrier! For positions open at your broker's "cut-off time" usually 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are all closed before 5pm EST, the established end of the market day.
Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) – and the client will earn funds as a result. Ask your broker or dealer about specific details regarding rollover.
Are you still confused and in need of an example? No problem - we discuss rollover more in depth in our School of Pipsology, so you'll be able to go there to learn more.
Demo Trading
You can open a demo account for free with most Forex brokers. This account has the full capabilities of a "real" account. Why is it free? It’s because the broker wants you to learn the ins and outs of their trading platform, and have a good time trading without risk, so you’ll fall in love with them and deposit real money. The demo account allows you to learn about the Forex markets and test your trading skills with ZERO risk.
YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.
I REPEAT, YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.
"Don't Lose Your Money" Declaration
Place your hand on your heart and say...
"I will demo trade for at least 2 months before I trade with real money."
Now touch your head with your index finger and say...
"I am a smart and patient Forex trader!"
By Babypips
The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Example of making money by buying Euros :
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18 ( EUR=+10,000 ; USD=-11,800*)
Two weeks later, the trader exchanges his 10,000 Euro back into US dollar at the exchange rate of 1.2500 (EUR=-10,000 ; USD =+12,500**)
The trader has earned a profit of $700 (USD.12,500 – USD.11,800)
*EUR $10,000 x 1.18 = US $11,800
** EUR $10,000 x 1.25 = US $12,500
An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.
How to Read an FX Quote
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:
GBP/USD = 1.7500
The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar)..
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.
The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.
You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.
Long/Short
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.
The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price at which you (as the trader) will sell.
The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price at which you will buy.
The difference between the bid and the ask price is popularly known as the spread.
Let's take a look at an example of a price quote taken from a trading platform:
On this GBP/USD quote, the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker makes it so easy for you to trade away your money.
If you want to sell GBP, you click "Sell" and you will sell pounds at 1.7445. If you want to buy GBP, you click "Buy" and you will buy pounds at 1.7449.
In the following examples, we're going to use fundamental analysis to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry! We will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on…
EUR/USD
In this example euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar.
If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold euros in the expectation that they will fall versus the US dollar.
USD/JPY
In this example the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen.
If you believe that Japanese investors are pulling money out of U.S. financial markets and coverting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USD
In this example the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the United States in terms of economic growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar.
If you believe the British's economy is slowing while the United State's economy remains strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHF
In this example the USD is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.
If you believe that the US housing market bubble burst will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
I don't have enough money to buy $10,000 euros. Can I still trade?
You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with as little as $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.
Margin trading in the foreign exchange market is quantified in “lots”. We will be discussing these in depth in our next lesson. For now, just think of the term "lot" as the minimum amount of currency you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg, they come in dozens or "lots" of 12. In Forex, it would be just as foolish to buy or sell $1 EUR, so they usually come in "lots" of $10,000 or $100,000 depending on the type of account you have.
For Example:
* You believe that signals in the market are indicating that the British Pound will go up against the US Dollar.
* You open 1 lot ($100,000) for buying the Pound with a 1% margin at the price of 1.5000 and wait for the exchange rate to climb. This means you now control $100,000 worth of British Pound with $1,000. Your predictions come true and you decide to sell.
* You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency). So for an initial capital investment of $1,000, you have made 50% return. Return equals your $500 profit divided by your $1,000 you risked to trade.
Your Actions :
You buy 100,000 pounds at the GBP/USD exchange rate of 1.5000 (GBP=+100,000 ; USD=-150,000 ; Your Money = $1,000 )
You blink for two seconds and the GBP/USD exchange rate rises to 1.5050 and you sell. (GBP=-100,000 ; USD=+150,500 ; Your Money = $1,500)
You have earned a profit of $500. (USD.150,500 – USD.150,00)
Rollover
No, this is not the same as rollover minutes from your cell phone carrier! For positions open at your broker's "cut-off time" usually 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are all closed before 5pm EST, the established end of the market day.
Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) – and the client will earn funds as a result. Ask your broker or dealer about specific details regarding rollover.
Are you still confused and in need of an example? No problem - we discuss rollover more in depth in our School of Pipsology, so you'll be able to go there to learn more.
Demo Trading
You can open a demo account for free with most Forex brokers. This account has the full capabilities of a "real" account. Why is it free? It’s because the broker wants you to learn the ins and outs of their trading platform, and have a good time trading without risk, so you’ll fall in love with them and deposit real money. The demo account allows you to learn about the Forex markets and test your trading skills with ZERO risk.
YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.
I REPEAT, YOU SHOULD DEMO TRADE FOR AT LEAST 2 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.
"Don't Lose Your Money" Declaration
Place your hand on your heart and say...
"I will demo trade for at least 2 months before I trade with real money."
Now touch your head with your index finger and say...
"I am a smart and patient Forex trader!"
By Babypips
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