This lesson is provided by Neal Hughes at FibMaster.
So much time is spent on entering a trade. Today I want to focus on some exit strategies. This is not a full Fibonacci course, so if you don't understand the basics I suggest that you visit my website for help with those aspects.
Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you're sitting on the sidelines while the market continues well beyond your exit.
In this lesson I'll show you how to bank those profits before they turn against you.
First look at this FOREX chart (JPY hourly chart).
Let's imagine that you were clever (or lucky) enough to enter long near point "A". You're feeling pretty good when price reaches "B". So good that you don't want to exit, because the up-thrust just before "B" give the impression that this market wants to go further.
Before you know it, the market reverses and heads towards "C". Right at "C" you get scared and bail out with a little profit. Not much profit compared to exiting at point "D" or even at "F".
You exit near "C", and feel relieved until you see the market heading (thrusting) up to point "D". You stop kicking yourself long enough to enter when it breaks above "B", just a little before the high at "D".
Soon after your entry near "D", the market retraces to "E", and on the way breaks below the high of "B". Breaking below the high of "B" feels scary because you're thinking this chart could be back at "A" in a flash. So you exit at "E" licking your wounds with a loss in this trade.
You start to notice more frustration now, when you enter somewhere between "E" and "F". You're feeling good near "F", but then the chart dives to "G" and you're stunned! This is a losing day for your account, and it's beginning to hurt.
By this time you feel like the whole market is watching your trades, and they're doing exactly the opposite of what you are doing. You start thinking that they wait for you to enter before they slam you and empty your account..
You have wasted your emotional capital, you don't want to trade any more. You don't have the stomach to consider shorting the rally after "G" to take profits at "H".
There must be a better way!
Banking those profits.
You should seriously consider using profit targets to improve your trading performance. There are several ways to do this, my preference is to use Fibonacci techniques.
On the following chart, I have added a Fibonacci expansion using points "A, B, C". This provides us with three profit targets. They are at 116.52, 116.93, and 117.59, see the blue arrows.
If I add another Fibonacci expansion using points "C, D, E", then two more profit targets are added, at 116.87 and at 117.22 . I have not added those studies to the chart, in order to keep things simple for now. You will notice the 116.87 target is quite close to the profit target at 116.93 in the above paragraph. And the 117.22 target is remarkably close to the swing high at 117.32 which is between E and F. We'll ignore those for simplicity, just remember that Fibonacci is excellent at predicting probable turning points.
The trick with Fibonacci is that the market sometimes blows right through a profit target. So what do you do then? Simple - you stay in the trade! But sometimes the market reverses shortly after a profit target.
Sometimes the market respects a certain Fibonacci level, sometimes not. Some Fibonacci levels are "stronger" than others. Advanced Fibonacci techniques are able to help determine which have more validity, but that is beyond the scope of this lesson. What mechanism could you use to exit the trade?
One practical method of timing a trade is to use an oscillator. Another is to use a moving average. When an oscillator shows a decline of momentum, or when price crosses a moving average, you could exit the trade. Let's explore the "oscillator" option in the following chart.
In that chart, I have removed the Fibonacci studies (less clutter), leaving the blue arrows for profit targets. At the bottom I have added the default Stochastic per E*Signal charting software. I have added a red vertical line whenever the Stochastic "fast" blue line crosses the "slow" red line just after price rises above the Fibonacci target. If you exited when price reached those vertical red lines, you'd be a happy trader!
Already you can see the potential of using profit targets with an exit trigger.
You may want to research the following:
Possibly exiting a partial position at each profit target.
Consider entering long again on the dips, when the chart begins to rally again.
Consider using multiple time-frames, perhaps Fibonacci studies on the hourly chart, and exit triggers on 5 minute charts.
Monday, September 21, 2009
Main Drawbacks of Forex Traders
Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? There is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn’t that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management
Most traders forget about this important aspect of trading. They think they shouldn’t be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That’s right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn’t that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management
Most traders forget about this important aspect of trading. They think they shouldn’t be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That’s right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
Signs a Stock is Set to Plummet
Nobody has said it in so many words, but we are at the closing stages of the recession. In a time when the market is going to rise and fall as it stabilizes, it is central to recognize when a stock is about to stagger. Everyone knows the essentials. Pass up investing in companies that create sub par earnings, has frail cash flow, or a less than ample balance sheet. On the other hand, there are other nasty characteristics a stock can retain that will drop it into the toilet in rainy economic weather. Keep an eye out for these other symptoms that illustrate an landslide ahead.
It is not uncommon for a company to reduce their earnings guidance. That can happen for a number of typical reasons that happen in the cycle a company goes through: slightly dropped earnings, a damaged economy, etc. Just make certain that the corporation in question clears the bar they set in that quarter. Why is that? Of course you are more concerned about the value of the stock than the revenue earned from them. Regrettably, some shareholders, particularly those with controlling interest are so worried about the revenue coming in and the performance of the company that value will go downward as people sell for poorer and lower prices to get out if they do not have faith in the supervision of the corporation.
It is also not unusual for insiders at a company to sell off some shares, particularly if life changes they are undertaking involve quick funds. Other times, you may be looking at an insider that just wants to make some speedy income or vary their holdings. Now and then if a bunch of executives all distribute of some of their shares at one time, you are looking at a disastrous future. You start to wonder, What do they know that I am not aware of? Be very wary of executives selling at or near their low points. That tells you the executives think their money is better somewhere else, and yours very well may be too.
One more signal that a stock may be in dilemma is when a company abruptly discontinues its guidance toward the investment industry. This may signal that the company has no idea or belief to have an idea of when earnings could come in. This may also have a slight signal in the way of product or service diversification. The company and its stockholders are in danger if the company cannot keep up with the accelerating market and/or does not come up with original, original products or services to keep up or stay at the forefront of the industry. You do not want to invest in a company that is gambling all their funds on one horse.
Keep an eye on industry trends as well. Sometimes the nature of the industry at that minute can impact that one company and its competitors at the same time. For example, General Motors, Chrysler and Ford all came down with the same sickness at the same time, due to the same amount overdue and the same mistakes. That was the time all GM, Chrysler and Ford stockholders bailed at once, and correctly so. Investors with a sharp eye that receive good, up-to-date news and suggestions from a website like this one may be able to limit or prevent losses just by watching these early signs.
It is not uncommon for a company to reduce their earnings guidance. That can happen for a number of typical reasons that happen in the cycle a company goes through: slightly dropped earnings, a damaged economy, etc. Just make certain that the corporation in question clears the bar they set in that quarter. Why is that? Of course you are more concerned about the value of the stock than the revenue earned from them. Regrettably, some shareholders, particularly those with controlling interest are so worried about the revenue coming in and the performance of the company that value will go downward as people sell for poorer and lower prices to get out if they do not have faith in the supervision of the corporation.
It is also not unusual for insiders at a company to sell off some shares, particularly if life changes they are undertaking involve quick funds. Other times, you may be looking at an insider that just wants to make some speedy income or vary their holdings. Now and then if a bunch of executives all distribute of some of their shares at one time, you are looking at a disastrous future. You start to wonder, What do they know that I am not aware of? Be very wary of executives selling at or near their low points. That tells you the executives think their money is better somewhere else, and yours very well may be too.
One more signal that a stock may be in dilemma is when a company abruptly discontinues its guidance toward the investment industry. This may signal that the company has no idea or belief to have an idea of when earnings could come in. This may also have a slight signal in the way of product or service diversification. The company and its stockholders are in danger if the company cannot keep up with the accelerating market and/or does not come up with original, original products or services to keep up or stay at the forefront of the industry. You do not want to invest in a company that is gambling all their funds on one horse.
Keep an eye on industry trends as well. Sometimes the nature of the industry at that minute can impact that one company and its competitors at the same time. For example, General Motors, Chrysler and Ford all came down with the same sickness at the same time, due to the same amount overdue and the same mistakes. That was the time all GM, Chrysler and Ford stockholders bailed at once, and correctly so. Investors with a sharp eye that receive good, up-to-date news and suggestions from a website like this one may be able to limit or prevent losses just by watching these early signs.
Forex Avenue: The Road to Riches
In my continuing quest to provide visitors of my site with a large amount of options to chose from when considering working from home I have done some research on Forex trading. I first learned of Forex trading while pursuing my MBA program. For those of you who have never heard of this, Forex trading is the exchange of foreign currency.
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
by Scott Bianchi
I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.
Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.
While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.
by Scott Bianchi
Sunday, September 20, 2009
Price Action: The Perfect Forex Trading System
Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.
Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.
There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.
Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.
Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.
So, how to create a perfect Forex trading system?
First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.
Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.
Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.
Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.
There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.
Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.
Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.
So, how to create a perfect Forex trading system?
First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.
Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.
Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.
Investing in Forex
Investing in foreign currencies is a relatively new avenue of investing. There are considerably fewer people are aware of this market than there are people aware of several other avenues of investing. Trading foreign currency, also known as forex, is the most lucrative investment market that exists. There are several factors that make this true among which, successful forex traders earn realistic profits of one hundred plus percent each month. Compared to some of the better known investment markets such as corporate stocks, this is an unheard of return on investment. It's very necessary to mention here that a person who invests in forex must, without exception, make it a point to learn the detailed, but simple strategies and information surrounding the market. This very fact is what makes the difference between successful forex traders and other traders.
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
I hope this information gives you a clear understanding of how you can turn your investing into a true method of making your money work harder for you.
by Joe Clinton
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
I hope this information gives you a clear understanding of how you can turn your investing into a true method of making your money work harder for you.
by Joe Clinton
Foreign Exchange Market
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market. They may only participate indirectly through brokers or banks and may be targets of forex scams.
Contents
* Market size and liquidity
* Trading characteristics
* Market participants
o Banks
o Commercial Companies
o Central Banks
o Investment Management Firms
o Hedge Funds
o Retail Forex Brokers
* Speculation
* Reference
* See also
* External links
Market size and liquidity
The foreign exchange market is unique because of:
* its trading volume,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours - 24 hours a day (except on weekends).
* the variety of factors that affect exchange rates,
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004
* $600 billion spot
* $1,300 billion in derivatives, ie
o $200 billion in outright forwards
o $1,000 billion in forex swaps
o $100 billion in FX options.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 Currency Traders % of overall volume, May 2005 Rank Name % of volume
1 Deutsche Bank 17.0
2 UBS 12.5
3 Citigroup 7.5
4 HSBC 6.4
5 Barclays 5.9
6 Merrill Lynch 5.7
7 J.P. Morgan Chase 5.3
8 Goldman Sachs 4.4
9 ABN AMRO 4.2
10 Morgan Stanley 3.9
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $1,000,000.
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' cheques. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips.
Trading characteristics
There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
Top 6 Most Traded Currencies Rank Currency ISO 4217 Code Symbol
1 United States dollar USD $
2 Eurozone euro EUR €
3 Japanese yen JPY ¥
4 British pound sterling GBP £
5-6 Swiss franc CHF -
5-6 Australian dollar AUD $
The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers order flow. Trading legend Richard Dennis has accused central bankers of leaking information to hedge funds. [1]
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.
On the spot market, according to the BIS study, the most heavily traded products were:
* EUR/USD - 28 %
* USD/JPY - 17 %
* GBP/USD (also called cable) - 14 %
and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.
Market participants
According to the BIS study Triennial Central Bank Survey 2004
* 53% of transactions were strictly interdealer (ie interbank);
* 33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;
* and only 14% were between a dealer and a non-financial company.
Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
Commercial Companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
Central Banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.
Investment Management Firms
Investment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.
Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.
Hedge Funds
Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.
Retail Forex Brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.
In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").
Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.
A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.
The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].
Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view [7]. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.
Contents
* Market size and liquidity
* Trading characteristics
* Market participants
o Banks
o Commercial Companies
o Central Banks
o Investment Management Firms
o Hedge Funds
o Retail Forex Brokers
* Speculation
* Reference
* See also
* External links
Market size and liquidity
The foreign exchange market is unique because of:
* its trading volume,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours - 24 hours a day (except on weekends).
* the variety of factors that affect exchange rates,
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004
* $600 billion spot
* $1,300 billion in derivatives, ie
o $200 billion in outright forwards
o $1,000 billion in forex swaps
o $100 billion in FX options.
Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 Currency Traders % of overall volume, May 2005 Rank Name % of volume
1 Deutsche Bank 17.0
2 UBS 12.5
3 Citigroup 7.5
4 HSBC 6.4
5 Barclays 5.9
6 Merrill Lynch 5.7
7 J.P. Morgan Chase 5.3
8 Goldman Sachs 4.4
9 ABN AMRO 4.2
10 Morgan Stanley 3.9
The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $1,000,000.
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' cheques. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips.
Trading characteristics
There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
Top 6 Most Traded Currencies Rank Currency ISO 4217 Code Symbol
1 United States dollar USD $
2 Eurozone euro EUR €
3 Japanese yen JPY ¥
4 British pound sterling GBP £
5-6 Swiss franc CHF -
5-6 Australian dollar AUD $
The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers order flow. Trading legend Richard Dennis has accused central bankers of leaking information to hedge funds. [1]
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.
On the spot market, according to the BIS study, the most heavily traded products were:
* EUR/USD - 28 %
* USD/JPY - 17 %
* GBP/USD (also called cable) - 14 %
and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.
Market participants
According to the BIS study Triennial Central Bank Survey 2004
* 53% of transactions were strictly interdealer (ie interbank);
* 33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;
* and only 14% were between a dealer and a non-financial company.
Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
Commercial Companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
Central Banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.
Investment Management Firms
Investment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.
Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.
Hedge Funds
Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.
Retail Forex Brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.
In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").
Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.
A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.
The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].
Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view [7]. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.
Chart Topping Patterns to Avoid: Climax Top Off a Parabolic Move
This pattern occurs when a stock rises very quickly out of a base and gets overextended. Stocks in a Parabolic Move can double or triple in value in a very short period of time (usually less than two weeks). As an investor you certainly don’t want to be one of the last passengers on the train and get quickly thrown off. Some examples of this pattern are shown below.
Avoid Parabolic Move
Notice the quick move upward in MCOM back in July. In 5 trading days it went from $20 to $57 for a gain of 185%. Also notice that on the biggest volume day (point A) that it gapped up strongly to $53 and then closed poorly around $41. This was the Climax Top Off the Parabolic Move. As an investor you should have sold this day if you had bought the stock in the $20’s. Meanwhile you certainly should have not bought this stock this day. Notice how the stock eventually pulled all the way back to $20 by early August (point B).
Climax Top Off a Parabolic Move
Another example of a Climax Top Off a Parabolic Move is demonstrated by LWIN. This stock skyrocketed from $30 to $95 in 10 trading days for a whopping gain of 217%. The Climax Top occurred on the 10th and 11th days of trading as the volume peaked (point A). The stock then sold off and retreated back quickly to around $42 by late November.
As you can see stocks that go up very quickly, in a Parabolic Move, can also come down just as fast. My advice is if you buy a stock and it doubles or triples in value in a very short period of time (1 to 2 weeks) take your profits and congratulate yourself for a job well done. If you become greedy then you could lose most of your gains as the above examples indicate. Furthermore if your buying a stock in this type of move be very careful and watch out for the Climax Top if the stock is trading on its biggest volume day.
Avoid Parabolic Move
Notice the quick move upward in MCOM back in July. In 5 trading days it went from $20 to $57 for a gain of 185%. Also notice that on the biggest volume day (point A) that it gapped up strongly to $53 and then closed poorly around $41. This was the Climax Top Off the Parabolic Move. As an investor you should have sold this day if you had bought the stock in the $20’s. Meanwhile you certainly should have not bought this stock this day. Notice how the stock eventually pulled all the way back to $20 by early August (point B).
Climax Top Off a Parabolic Move
Another example of a Climax Top Off a Parabolic Move is demonstrated by LWIN. This stock skyrocketed from $30 to $95 in 10 trading days for a whopping gain of 217%. The Climax Top occurred on the 10th and 11th days of trading as the volume peaked (point A). The stock then sold off and retreated back quickly to around $42 by late November.
As you can see stocks that go up very quickly, in a Parabolic Move, can also come down just as fast. My advice is if you buy a stock and it doubles or triples in value in a very short period of time (1 to 2 weeks) take your profits and congratulate yourself for a job well done. If you become greedy then you could lose most of your gains as the above examples indicate. Furthermore if your buying a stock in this type of move be very careful and watch out for the Climax Top if the stock is trading on its biggest volume day.
Reading a Forex Quote
Total newbies to the foreign exchange market can find reading a Forex quite intimidating (even baffling) at first. In fact, this is the most common initial hurdle. The quote is brief, but it packs in a great deal of useful information. And although it doesn't make a lick of sense to a newcomer, here's a quick, simple explanation of what it means.
A Forex quote is always based on a pair of currencies, where you're simultaneously selling one currency and buying another. And there are two prices, one for selling and the other for buying (bid price and ask price). When reading a Forex quote, it might typically look like this: USD/JPY 106.52/56
The first currency is called the base currency and the other is the quote currency. The base currency value is always 1 (in this case 1 US dollar). The number in the quote tells you how many of the quote currency (Japanese yen) you can buy with one US dollar.
And that number - 106.52/56 - is a shortened version of two numbers (106.52 and 106.56). The lower number is the bid price; the other is the ask price. The bid price shows how much a dealer will buy the base currency for. The ask price shows how much a dealer is willing to sell it for.
If you saw 106.52/56 when reading a Forex quote, it would mean that you could sell US dollars and receive 106.52 yen per dollar. On the other hand, if you wanted to buy US dollars, you would have to pay 106.56 yen for each dollar.
The difference between the bid price and the ask price in a Forex quote is called the "spread," and each tiny 0.01 unit is called a "pip." In our example, the spread for our USD/JPY quote is four pips. The spread for the most commonly traded currencies is usually that small. In general, you'll do most of your trading in US dollars, Japanese yen, Great Britain pounds, Euros, Swiss francs or Australian dollars. Also please keep in mind that when the competition really heats up some spreads will be as small as one pip.
On the other hand, for less heavily traded currencies, you may run into much larger spreads. But don't think that a small spread means tiny profits (or losses). When you're trading hundreds of thousands of units, even that one pip spread can mean big money.
Let's say you're dealing with just 100 US dollars. Selling your hundred dollars for 10,652 yen and buying them for 10,656 yen only amounts to a four yen difference. But most Forex traders will be dealing with amounts of 100,000 US dollars (or many multiples). So now we know, when reading a Forex quote, that even such an unimpressive little four-pip spread amounts to considerably more (at 4,000 yen, and probably several multiples of that).
And of course, similar trades may be repeated throughout the day and the week. This means that anytime you're reading a Forex quote, you'll recognize that this tiny little spread is more important than its meager size at first suggests.
A Forex quote is always based on a pair of currencies, where you're simultaneously selling one currency and buying another. And there are two prices, one for selling and the other for buying (bid price and ask price). When reading a Forex quote, it might typically look like this: USD/JPY 106.52/56
The first currency is called the base currency and the other is the quote currency. The base currency value is always 1 (in this case 1 US dollar). The number in the quote tells you how many of the quote currency (Japanese yen) you can buy with one US dollar.
And that number - 106.52/56 - is a shortened version of two numbers (106.52 and 106.56). The lower number is the bid price; the other is the ask price. The bid price shows how much a dealer will buy the base currency for. The ask price shows how much a dealer is willing to sell it for.
If you saw 106.52/56 when reading a Forex quote, it would mean that you could sell US dollars and receive 106.52 yen per dollar. On the other hand, if you wanted to buy US dollars, you would have to pay 106.56 yen for each dollar.
The difference between the bid price and the ask price in a Forex quote is called the "spread," and each tiny 0.01 unit is called a "pip." In our example, the spread for our USD/JPY quote is four pips. The spread for the most commonly traded currencies is usually that small. In general, you'll do most of your trading in US dollars, Japanese yen, Great Britain pounds, Euros, Swiss francs or Australian dollars. Also please keep in mind that when the competition really heats up some spreads will be as small as one pip.
On the other hand, for less heavily traded currencies, you may run into much larger spreads. But don't think that a small spread means tiny profits (or losses). When you're trading hundreds of thousands of units, even that one pip spread can mean big money.
Let's say you're dealing with just 100 US dollars. Selling your hundred dollars for 10,652 yen and buying them for 10,656 yen only amounts to a four yen difference. But most Forex traders will be dealing with amounts of 100,000 US dollars (or many multiples). So now we know, when reading a Forex quote, that even such an unimpressive little four-pip spread amounts to considerably more (at 4,000 yen, and probably several multiples of that).
And of course, similar trades may be repeated throughout the day and the week. This means that anytime you're reading a Forex quote, you'll recognize that this tiny little spread is more important than its meager size at first suggests.
Main Drawbacks of Forex Traders
Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? There is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn’t that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management
Most traders forget about this important aspect of trading. They think they shouldn’t be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That’s right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn’t that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management
Most traders forget about this important aspect of trading. They think they shouldn’t be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That’s right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
Forex Market Overview
Introduction
The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.
Excerpt from the BIS:
"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS
Structure
* Decentralised 'interbank' market
* Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
* The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
* Online trading began in the mid to late 1990's
Source: BIS Triennial Survey 2007
Trading Hours
* 24 hour market
* Sunday 5pm EST through Friday 4pm EST.
* Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America
Size
* One of the largest financial markets in the world
* $3.2 trillion average daily turnover, equivalent to:
o More than 10 times the average daily turnover of global equity markets1
o More than 35 times the average daily turnover of the NYSE2
o Nearly $500 a day for every man, woman, and child on earth3
o An annual turnover more than 10 times world GDP4
* The spot market accounts for just under one-third of daily turnover
1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.
Source: BIS Triennial Survey 2007
Major Markets
* The US & UK markets account for just over 50% of turnover
* Major markets: London, New York, Tokyo
* Trading activity is heaviest when major markets overlap5
* Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6
5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve
Average Daily Turnover by Geographic Location
Source: BIS Triennial Survey 2007
Concentration in the Banking Industry
* 12 banks account for 75% of turnover in the U.K.
* 10 banks account for 75% of turnover in the U.S.
* 3 banks account for 75% of turnover in Switzerland
* 9 banks account for 75% of turnover in Japan
Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:
* Moving averages
* RSI
* Fibonacci retracements
* Stochastics
* MACD
* Momentum
* Bollinger bands
* Pivot point
* Elliott Wave
Currencies
* The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day
Currency Codes
* USD = US Dollar
* EUR = Euro
* JPY = Japanese Yen
* GBP = British Pound
* CHF = Swiss Franc
* CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
* AUD = Australian Dollar
* NZD = New Zealand Dollar
Average Daily Turnover by Currency
N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.
Source: BIS Triennial Survey 2007
Currency Pairs
* Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"), USD/CHF
* Dollar bloc: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi")
* Major crosses: EUR/JPY, EUR/GBP, EUR/CHF
Average Daily Turnover by Currency Pair
Source: BIS Triennial Survey 2007
The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.
Excerpt from the BIS:
"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS
Structure
* Decentralised 'interbank' market
* Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
* The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
* Online trading began in the mid to late 1990's
Source: BIS Triennial Survey 2007
Trading Hours
* 24 hour market
* Sunday 5pm EST through Friday 4pm EST.
* Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America
Size
* One of the largest financial markets in the world
* $3.2 trillion average daily turnover, equivalent to:
o More than 10 times the average daily turnover of global equity markets1
o More than 35 times the average daily turnover of the NYSE2
o Nearly $500 a day for every man, woman, and child on earth3
o An annual turnover more than 10 times world GDP4
* The spot market accounts for just under one-third of daily turnover
1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.
Source: BIS Triennial Survey 2007
Major Markets
* The US & UK markets account for just over 50% of turnover
* Major markets: London, New York, Tokyo
* Trading activity is heaviest when major markets overlap5
* Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6
5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve
Average Daily Turnover by Geographic Location
Source: BIS Triennial Survey 2007
Concentration in the Banking Industry
* 12 banks account for 75% of turnover in the U.K.
* 10 banks account for 75% of turnover in the U.S.
* 3 banks account for 75% of turnover in Switzerland
* 9 banks account for 75% of turnover in Japan
Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:
* Moving averages
* RSI
* Fibonacci retracements
* Stochastics
* MACD
* Momentum
* Bollinger bands
* Pivot point
* Elliott Wave
Currencies
* The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day
Currency Codes
* USD = US Dollar
* EUR = Euro
* JPY = Japanese Yen
* GBP = British Pound
* CHF = Swiss Franc
* CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
* AUD = Australian Dollar
* NZD = New Zealand Dollar
Average Daily Turnover by Currency
N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.
Source: BIS Triennial Survey 2007
Currency Pairs
* Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"), USD/CHF
* Dollar bloc: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi")
* Major crosses: EUR/JPY, EUR/GBP, EUR/CHF
Average Daily Turnover by Currency Pair
Source: BIS Triennial Survey 2007
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
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
by Heather Redmond
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
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.
The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.
by Heather Redmond
How Forex Money Management Protects Currency Traders
If you consider Forex money management a boring distraction from the real fun of Forex trading, you've missed the whole point. Before you can make any real and consistent gains in the Forex, you must come to understand that money management is just as important as the trading part. One of the most essential ingredients of successful Forex trading is the unfailing use of money management techniques to minimize losses and protect your gains.
Before you even begin laying out money and making trades, you'll want to decide on a set of Forex money management guidelines. Placing bets without any kind of safety net is irresponsible toward yourself and your family.
Successful traders recommend that you start small and gain a gut-level grasp of the markets before moving on to bigger bets. Hoping for a big score right at the beginning is the mark of a casino gambler, not an investor.
The best advice:
Keep your risk, right from the beginning, at about one percent or less of your total equity on any one trade. Keeping your risk low, in the one percent range, protects you if disaster strikes and you have a string of losses. You could actually survive 20 consecutive bad trades and still have 80 percent of your equity remaining. Taking tiny little one percent baby steps may seem boring, but it certainly beats being wiped out by a run of adverse trades. It will ensure that you're still around to invest next week, next month and next year. It also helps you safely build confidence, judgment and experience.
Many new Forex traders ask how much they should put into their trading account. The surest and wisest advice is never, ever bet your rent or grocery money. In other words, only use money you can afford to lose. Yes, I know that in your special case there aren't going to be any losses, and you're in a big hurry to make it big. But long experience says it's not going to happen that way for you either. If you were to lose everything you invest, would you and your family still eat okay? Would you still be in your home, or would you have to move into your brother-in-law's basement? Just think about this, okay?
It's important for you to know about the four stops. These are standard (and very wise) ways to prevent losses from ravaging your finances as you begin trading the Forex markets. You or your broker can use one or more of these four stops to protect your money.
1. Equity Stop
This stop lets you decide beforehand how much you're prepared to risk on a single trade, and you won't risk anything beyond that percentage. A beginner may set the equity stop to one or two percent. Once you've gained considerable experience, you might eventually raise this to five percent, but never forget that at the 5% level, ten consecutive bad trades (not impossible) could wipe out half of your account.
Downside: This stop makes no allowance for positive fluctuations. The protection is strong, but if you never vary from it, you may miss out on some of the more profitable trades. When you're a newbie, the safety net it provides while you're learning is more important than any gains you might miss while you'e learning.
2. Chart Stop
The trading charts that technical analysis provides can be accurate indicators of market movements. Technically minded traders who live, eat and breathe mathematics and probabilities often love chart stops. But the smart ones don't get reckless. They also include equity stops in their calculations.
Downside: Generating charts and analyzing them can take significant time for newbies. This is time in which the market has moved on, leaving all that beautifully charted data a little (or a lot) outdated.
3. Volatility Stop
Related to the chart stop but more complex, this one assigns risk values according to volatility rather than price action. Until you're experienced in Forex trading, it's best to leave this difficult technique to your broker. It's based on subtle and sophisticated evaluations of high versus low volatility of currency pairs and assigns greater or lesser risk to each market situation.
Downside: Demands steady, unflinching nerves and a great deal of experience.
4. Margin Stop
With the Margin Stop you're deciding beforehand that you'll get out of any trade before you're out of money. If you have ,000 in your account, setting your margin to 0 means you'll trade with the top textarea,500 but if your losses ever reach that amount, you'll close your position and preserve that last 0.
Downside: It's hard to find a downside to the Margin Stop. You keep control of your account, even when using an account manager.
Forex money management is essential when trading in the currency markets. And these stops are important backup measures to be used in tandem with your own patience, caution and growing judgment to minimize losses while maximizing your gains.
Before you even begin laying out money and making trades, you'll want to decide on a set of Forex money management guidelines. Placing bets without any kind of safety net is irresponsible toward yourself and your family.
Successful traders recommend that you start small and gain a gut-level grasp of the markets before moving on to bigger bets. Hoping for a big score right at the beginning is the mark of a casino gambler, not an investor.
The best advice:
Keep your risk, right from the beginning, at about one percent or less of your total equity on any one trade. Keeping your risk low, in the one percent range, protects you if disaster strikes and you have a string of losses. You could actually survive 20 consecutive bad trades and still have 80 percent of your equity remaining. Taking tiny little one percent baby steps may seem boring, but it certainly beats being wiped out by a run of adverse trades. It will ensure that you're still around to invest next week, next month and next year. It also helps you safely build confidence, judgment and experience.
Many new Forex traders ask how much they should put into their trading account. The surest and wisest advice is never, ever bet your rent or grocery money. In other words, only use money you can afford to lose. Yes, I know that in your special case there aren't going to be any losses, and you're in a big hurry to make it big. But long experience says it's not going to happen that way for you either. If you were to lose everything you invest, would you and your family still eat okay? Would you still be in your home, or would you have to move into your brother-in-law's basement? Just think about this, okay?
It's important for you to know about the four stops. These are standard (and very wise) ways to prevent losses from ravaging your finances as you begin trading the Forex markets. You or your broker can use one or more of these four stops to protect your money.
1. Equity Stop
This stop lets you decide beforehand how much you're prepared to risk on a single trade, and you won't risk anything beyond that percentage. A beginner may set the equity stop to one or two percent. Once you've gained considerable experience, you might eventually raise this to five percent, but never forget that at the 5% level, ten consecutive bad trades (not impossible) could wipe out half of your account.
Downside: This stop makes no allowance for positive fluctuations. The protection is strong, but if you never vary from it, you may miss out on some of the more profitable trades. When you're a newbie, the safety net it provides while you're learning is more important than any gains you might miss while you'e learning.
2. Chart Stop
The trading charts that technical analysis provides can be accurate indicators of market movements. Technically minded traders who live, eat and breathe mathematics and probabilities often love chart stops. But the smart ones don't get reckless. They also include equity stops in their calculations.
Downside: Generating charts and analyzing them can take significant time for newbies. This is time in which the market has moved on, leaving all that beautifully charted data a little (or a lot) outdated.
3. Volatility Stop
Related to the chart stop but more complex, this one assigns risk values according to volatility rather than price action. Until you're experienced in Forex trading, it's best to leave this difficult technique to your broker. It's based on subtle and sophisticated evaluations of high versus low volatility of currency pairs and assigns greater or lesser risk to each market situation.
Downside: Demands steady, unflinching nerves and a great deal of experience.
4. Margin Stop
With the Margin Stop you're deciding beforehand that you'll get out of any trade before you're out of money. If you have ,000 in your account, setting your margin to 0 means you'll trade with the top textarea,500 but if your losses ever reach that amount, you'll close your position and preserve that last 0.
Downside: It's hard to find a downside to the Margin Stop. You keep control of your account, even when using an account manager.
Forex money management is essential when trading in the currency markets. And these stops are important backup measures to be used in tandem with your own patience, caution and growing judgment to minimize losses while maximizing your gains.
Friday, September 18, 2009
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.
Profit From A Bull And Bear Market
When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade 'downwards'. This is why the currency market has been occasionally referred to as the eternal bull market.
This is an excerpt, modified from the book: The Part-Time Currency Trader.
by Marquez Comelab
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.
Profit From A Bull And Bear Market
When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade 'downwards'. This is why the currency market has been occasionally referred to as the eternal bull market.
This is an excerpt, modified from the book: The Part-Time Currency Trader.
by Marquez Comelab
Forex Fundamental Analysis
Forex Fundamental Analysis
The two primary approaches of analyzing Forex markets are technical analysis and fundamental analysis. Fundamental analysis comprises the examination of economic indicators, asset markets and political considerations when evaluating a nation’s currency in terms of another. The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide forex fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment.
Here we look at some of the major Forex fundamental factors that play a role in the movement of a currency:
Economic Indicators
Economic indicators are reports released by the government or a private organization that detail a country’s economic performance. These economic indicators can be released on a weekly basis, but the more common report is monthly. Indicators are based around a number of economical situations, of which the two primary factors are that of International trade and Interest. Subsidiary factors also include Consumer Price Index (CPI), Purchasing Managers Index (PMI), Durable goods orders, retail sales and Producer Price Index (PPI).
Currency’s Interest Rates
One of the major indicator factors, Interest rates, are a key economic function of any nation. Generally, when a country raises its interest rates, the country’s currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country’s stock market when there is a hike of interest rates.
International Trade
The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. A trade deficit can be an economic disaster for a government and a currency. A deficit may appear when a country is importing more than it is exporting, meaning that more money is leaving and less is coming in. In some ways, however, a trade deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement.
The two primary approaches of analyzing Forex markets are technical analysis and fundamental analysis. Fundamental analysis comprises the examination of economic indicators, asset markets and political considerations when evaluating a nation’s currency in terms of another. The focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. There is no single set of beliefs that guide forex fundamental analysis, yet most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment.
Here we look at some of the major Forex fundamental factors that play a role in the movement of a currency:
Economic Indicators
Economic indicators are reports released by the government or a private organization that detail a country’s economic performance. These economic indicators can be released on a weekly basis, but the more common report is monthly. Indicators are based around a number of economical situations, of which the two primary factors are that of International trade and Interest. Subsidiary factors also include Consumer Price Index (CPI), Purchasing Managers Index (PMI), Durable goods orders, retail sales and Producer Price Index (PPI).
Currency’s Interest Rates
One of the major indicator factors, Interest rates, are a key economic function of any nation. Generally, when a country raises its interest rates, the country’s currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country’s stock market when there is a hike of interest rates.
International Trade
The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. A trade deficit can be an economic disaster for a government and a currency. A deficit may appear when a country is importing more than it is exporting, meaning that more money is leaving and less is coming in. In some ways, however, a trade deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement.
Forex Enterprise — A Full Review
A new marketing course to hit the internet by Nick Marks that advertises earnings of $1000 a day and $30,000 a month respectively. This turnkey system generating multiple streams of income is relatively new and so it is my pleasure to review it for you.
After purchasing you are given a login page where you are introduced to the system which is in website format. Everything is easy to access and well organized.
After Nick gives you a little pep talk about positive thinking and goal setting, you will be introduced to his first recommendation: join Coastal Vacations. While not a part of his main Forex system this is a recommendation I could've done without.
In the pay per click section you are given a large list of keywords that Nick found convert really well with his system. Some of the keywords in the list have bid prices already attached to them so you can get front page exposure.
The course also has $50 in free adwords credit that unfortunately only works with new accounts so I was out of luck. If you don't already have an account this is worth the price of the course alone.
The forex course shows you some inexpensive traffic methods and provides links to these sources. He also covers stuff like pop-over ads, e-mail lists and autoresponders. Not bad information by any means, and is an alternative to pay per click advertising if you have a smaller budget.
He has an ebook package that seemed like it was going to be really cool as there were dozens of bonus ebooks and software programs covering everything from creating ebooks and website templates, to getting top positions in the major search engines.
As I took a closer look at this package I realized there were some bargain bin informational products included. However, there were also alot of goodies in there as well that I found rather useful. You get so many ebooks and software in here that it really is worth far more than the price of the course.
There is a section on becoming an Ebay power seller in 90 days that goes into a fair amount of detail and wasn't bad. However, Ebay isn't something I have ever been particularly interested in doing. There is also a section on baccarat strategies that I had no interest in.
One of the last sections of his course introduces you to e-currency exchanging using the DXINONE system. It is a great way to acquaint yourself with this increasingly popular opportunity without having to buy standalone e-currency courses which can cost a couple hundred dollars.
The author has combined several effective ways to earn money online and rolled them all into one course. While I didn't jump up and down about all of his strategies, the free ebooks, software, and adwords credit make Forex Enterprise worth the money.
by Joey Merrick
After purchasing you are given a login page where you are introduced to the system which is in website format. Everything is easy to access and well organized.
After Nick gives you a little pep talk about positive thinking and goal setting, you will be introduced to his first recommendation: join Coastal Vacations. While not a part of his main Forex system this is a recommendation I could've done without.
In the pay per click section you are given a large list of keywords that Nick found convert really well with his system. Some of the keywords in the list have bid prices already attached to them so you can get front page exposure.
The course also has $50 in free adwords credit that unfortunately only works with new accounts so I was out of luck. If you don't already have an account this is worth the price of the course alone.
The forex course shows you some inexpensive traffic methods and provides links to these sources. He also covers stuff like pop-over ads, e-mail lists and autoresponders. Not bad information by any means, and is an alternative to pay per click advertising if you have a smaller budget.
He has an ebook package that seemed like it was going to be really cool as there were dozens of bonus ebooks and software programs covering everything from creating ebooks and website templates, to getting top positions in the major search engines.
As I took a closer look at this package I realized there were some bargain bin informational products included. However, there were also alot of goodies in there as well that I found rather useful. You get so many ebooks and software in here that it really is worth far more than the price of the course.
There is a section on becoming an Ebay power seller in 90 days that goes into a fair amount of detail and wasn't bad. However, Ebay isn't something I have ever been particularly interested in doing. There is also a section on baccarat strategies that I had no interest in.
One of the last sections of his course introduces you to e-currency exchanging using the DXINONE system. It is a great way to acquaint yourself with this increasingly popular opportunity without having to buy standalone e-currency courses which can cost a couple hundred dollars.
The author has combined several effective ways to earn money online and rolled them all into one course. While I didn't jump up and down about all of his strategies, the free ebooks, software, and adwords credit make Forex Enterprise worth the money.
by Joey Merrick
Master the Number 1 Forex Dealing Platform: Mt4 platform
Most Forex dealers tender this platform to their clients, in adding up to their own error contaminated and quality lacking programs they urbanized causing traders to practically lose cash by the time they learn how to employ it. Mastering mt4 is a duty do firstly on training accounts to keep away from losing capital in the live account. Important running advice that can barely go over a page can hoard you a fortune in probable losses due to lack of information of this platform. Each Forex broker must have his own kind of Metatrader dealing platform so it will reveal the broker policy in respect to hedging and margin procedure.
Most attention should be paid to the Metatrader 4 summary line, It provides a trader an idea of what is going on on the account as: Balance means account balance including recent proceeds, but hovering profit/loss not integrated, Equity means same balance but after floating profit/loss integrated, Margin means the amount of your deposit laid out for your open orders, FREE MARGIN is the amount of protection against the market and the amount of your Equity that is not consumed yet, and also not been consumed by your losing positions, When you run out of FREE Margin, one or more of your better positions will be liquidated resulting on brutal loss ! To avoid margin calls do not use more 10% of your buying or selling strength and you should be able to endure normal market conditions, If market is very unpredictable use only 5% of your Free margin. Before you run out of Free Margin you have the choice to slam positions with least losses to Free Margin, After you run out of FREE margin most losing positions will be closed in order to free margin in the account.
A lot of novice traders start with this software by opening a Forex deal without any thought on how to secure the trade. I have seen this happening, There is a switch to open a trade but there is no button to close the trade, because once the trade is shown in the terminal window it can be double clicked to show the close trade switch.
If you choose Metatrader 4 as your trading platform of choice you should do some inquiries on Currencyy trading brokers, download to your computer their Metatrader platforms and try it on virtual accounts. After practicing for few months you should have an outline of the superior brokers so it would be time to evaluate one of these brokers on a small live account, followed by a comparison between the virtual and real accounts of this broker, pay attention to requote requests and times you get tiring trade context errors and no tie errors. Begin your ordinary Forex account with the broker who's practice account mimics the live account paramount. pass up brokers who have big differences between demo and live accounts. No matter how a good trader you turn into, practicing in virtual accounts should be perpetual to master International currency.
The Mt4 now happen to be at release 4 with newer updates coming irregularly from your broker, Version 5 should become offered shortly this annual and is likely to be more than just a revise, it is going to be an immense improvement.
Most attention should be paid to the Metatrader 4 summary line, It provides a trader an idea of what is going on on the account as: Balance means account balance including recent proceeds, but hovering profit/loss not integrated, Equity means same balance but after floating profit/loss integrated, Margin means the amount of your deposit laid out for your open orders, FREE MARGIN is the amount of protection against the market and the amount of your Equity that is not consumed yet, and also not been consumed by your losing positions, When you run out of FREE Margin, one or more of your better positions will be liquidated resulting on brutal loss ! To avoid margin calls do not use more 10% of your buying or selling strength and you should be able to endure normal market conditions, If market is very unpredictable use only 5% of your Free margin. Before you run out of Free Margin you have the choice to slam positions with least losses to Free Margin, After you run out of FREE margin most losing positions will be closed in order to free margin in the account.
A lot of novice traders start with this software by opening a Forex deal without any thought on how to secure the trade. I have seen this happening, There is a switch to open a trade but there is no button to close the trade, because once the trade is shown in the terminal window it can be double clicked to show the close trade switch.
If you choose Metatrader 4 as your trading platform of choice you should do some inquiries on Currencyy trading brokers, download to your computer their Metatrader platforms and try it on virtual accounts. After practicing for few months you should have an outline of the superior brokers so it would be time to evaluate one of these brokers on a small live account, followed by a comparison between the virtual and real accounts of this broker, pay attention to requote requests and times you get tiring trade context errors and no tie errors. Begin your ordinary Forex account with the broker who's practice account mimics the live account paramount. pass up brokers who have big differences between demo and live accounts. No matter how a good trader you turn into, practicing in virtual accounts should be perpetual to master International currency.
The Mt4 now happen to be at release 4 with newer updates coming irregularly from your broker, Version 5 should become offered shortly this annual and is likely to be more than just a revise, it is going to be an immense improvement.
Saturday, September 12, 2009
Forex Signal Trading Gives the Traders One More Analytical Tool
Forex signal trading has emerged as an important support service for forex traders. This service is run either by forex brokers or by independent analysts who monitor and analyze the forex market. These analysts identify forex trends using several indicators. Based on this analysis, they suggest profitable entry and exit points to forex traders for a fee.
Most analysts offer signals for only the most popular currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF. However, there are some specialty services also that offer signals for the lesser-traded pairs.
The charges for these services vary from analyst to analyst, and depend upon the range of services bought by the trader. For instance, a basic subscription service offers email alerts of entry/exit opportunities to traders while a more comprehensive service provides this information through SMS, cell phone or pager alerts also.
Some signal trading services also provide live charts for the traders to make their judgment. Irrespective of the level of service, a trader should be prepared to pay a minimum subscription fee of $100 a month.
However, the success of a forex signal service should not be measured in isolation or over a relatively short period of time. The traders should use these signal services only as an extra indicator, as one more tool in their trading toolbox. A good way to judge the analytical skills of signal trading service is to ask for historical data. This can expose the claims of trading signal service.
The biggest benefit of signal trading services is that they save the traders the bother of analyzing or crunching data. However, this does not mean that the traders should depend upon them exclusively to maximize their profits or minimize their losses. This should happen only when the traders develop sufficient trust in certain signal trading services. Otherwise, the traders should use their own judgment and market grapevine to decide the trades.
While Forex signal trading gives the trader’s one more analytical tool, each trader must use his or her best judgment before making the trade. Forex signal trading software is a great tool, but should never be used solely to base the trade decision upon. You would be better off relying on your past experience and gut instinct when analyzing signal trading data. You will also want to rely on your basic fundamental analysis. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.
Most analysts offer signals for only the most popular currency pairs, such as EUR/USD, USD/JPY, GBP/USD and USD/CHF. However, there are some specialty services also that offer signals for the lesser-traded pairs.
The charges for these services vary from analyst to analyst, and depend upon the range of services bought by the trader. For instance, a basic subscription service offers email alerts of entry/exit opportunities to traders while a more comprehensive service provides this information through SMS, cell phone or pager alerts also.
Some signal trading services also provide live charts for the traders to make their judgment. Irrespective of the level of service, a trader should be prepared to pay a minimum subscription fee of $100 a month.
However, the success of a forex signal service should not be measured in isolation or over a relatively short period of time. The traders should use these signal services only as an extra indicator, as one more tool in their trading toolbox. A good way to judge the analytical skills of signal trading service is to ask for historical data. This can expose the claims of trading signal service.
The biggest benefit of signal trading services is that they save the traders the bother of analyzing or crunching data. However, this does not mean that the traders should depend upon them exclusively to maximize their profits or minimize their losses. This should happen only when the traders develop sufficient trust in certain signal trading services. Otherwise, the traders should use their own judgment and market grapevine to decide the trades.
While Forex signal trading gives the trader’s one more analytical tool, each trader must use his or her best judgment before making the trade. Forex signal trading software is a great tool, but should never be used solely to base the trade decision upon. You would be better off relying on your past experience and gut instinct when analyzing signal trading data. You will also want to rely on your basic fundamental analysis. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.
Investing in Forex
Investing in foreign currencies is a relatively new avenue of investing. There are considerably fewer people are aware of this market than there are people aware of several other avenues of investing. Trading foreign currency, also known as forex, is the most lucrative investment market that exists. There are several factors that make this true among which, successful forex traders earn realistic profits of one hundred plus percent each month. Compared to some of the better known investment markets such as corporate stocks, this is an unheard of return on investment. It's very necessary to mention here that a person who invests in forex must, without exception, make it a point to learn the detailed, but simple strategies and information surrounding the market. This very fact is what makes the difference between successful forex traders and other traders.
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
I hope this information gives you a clear understanding of how you can turn your investing into a true method of making your money work harder for you.
by Joe Clinton
A few additional points, which create such powerful leverage for investors within the forex market are: The amount of capital required to begin investing in the market is only three hundred dollars. For the most part, any other investment market is going to demand thousands of dollars of the investor in the beginning. Also, the market offers opportunities to profit regardless what the direction of the market may be; In most commonly known markets investors sit and wait for the market to begin an up trend before entering a trade. Even then, investors, as a rule must sit and wait some more to be able to exit the trade with a nice profit. Given that the forex market produces several up, down, and sideways trends in a single day, it can easily be seen that forex stands head and shoulders above other markets. Additionally there are trading strategies, which are taught that provide for compounded profits; these are profits on top of profits. In addition, free demo accounts are available within the industry of forex trading, which facilitate the sharpening of skills without the risk losing any capital. And the advantage regarding the time factor in trading foreign currency is a very attractive point for any investor. Compared to one of the most sought after avenues of investing, which often requires forty or more hours each week, namely in the real-estate market, the forex market requires a much smaller demand on the investor's time. Forex trading requires approximately ten to fifteen hours each week to earn a full time income. It's easy to see that the advantages and great leverage that exist in the forex market, make it among the most lucrative, time liberating, and easy to enter by far.
I hope this information gives you a clear understanding of how you can turn your investing into a true method of making your money work harder for you.
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High Probability Trading
This tutorial is provided by Neal Hughes at FibMaster
Even traders with limited experience start to realize that we are not trying to capture every market move. We want to improve our odds and reduce our frustration by filtering, for high-probability trades.
The combination of trend and Fibonacci techniques can provide powerful signals for higher probability trading. We already know that trend-lines have some validity, and so do Fibonacci levels. Combine the two, to improve your chances.
The following charts are the USD/British Pound GBP. First, the daily chart as of October 5th 2005. I have drawn a red down-sloping trend-line joining the two recent swing highs.
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The chart has moved down since early September , making a down-trend of consecutive "waves" with lower swing highs and lower swing lows. There were several opportunities to take advantage of the down-move. In this tutorial we will focus on the October 6th opportunity.
In a down-trend we want to short those swing highs, and take profits on swing lows. We don't want to short every time we **think** we have a swing high. If you have tried that, you know about whipsaw and fake-outs already haha. We only want the best trades, those which are more likely to succeed. So how do we choose an optimum entry point?
Our odds are improved if we have a swing high near a down-sloping trend-line (in red on the chart). Markets tend to reverse at Fibonacci levels. So if we have a significant resistance level near a trend-line we have an even better chance of success.
The next chart shows the GBP with Fibonacci resistance levels. Notice the "SK Resistance" level. This represents an area of significant resistance, with a higher probability of a reversal.
If you are new to Fibonacci, those studies look like a confusing series of colored lines. Learning how to use these Fibonacci studies, and which of them are stronger (higher probability), is really easy! I have made two video seminars that explain this.
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That "SK Resistance" level, coinciding with a trend-line is an optimum shorting zone. If the market reaches that area (we can't be sure it will), and if the market resists there, we want to take a short position. Once the resistance materializes, it will be difficult for the market to move against us.
Most of us are not trading the daily chart, but we can use the longer-term charts to find **powerful** trends and Fibonacci levels. The next chart is a 60-minute chart. I choose 60-minutes because it clearly shows when resistance has materialized. You may prefer a 30 minute or 5 minute chart.
The following 60-minute chart shows how the Pound rallied to the SK resistance level, and the trend-line. It rallied over those, tested them briefly, then retreated. There are several ways to determine whether resistance has materialized. I have some very powerful techniques for that purpose. However we want this tutorial to focus on some basics. So for now we will use the obvious breaking of the rising trend as our trigger.
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Notice how the market broke down, and never looked back! That is what happens when you combine trend-lines with Fibonacci techniques. The best trades go your way and keep on going. That is a characteristic of higher-probability trading.
If this tutorial makes sense, you are ready for my Fibonacci Trading videos! My two introductory videos are inexpensive, and they receive glowing reviews almost daily. You can take your trading to the next level, bring these powerful techniques to your trading just by watching my video seminars.
Even traders with limited experience start to realize that we are not trying to capture every market move. We want to improve our odds and reduce our frustration by filtering, for high-probability trades.
The combination of trend and Fibonacci techniques can provide powerful signals for higher probability trading. We already know that trend-lines have some validity, and so do Fibonacci levels. Combine the two, to improve your chances.
The following charts are the USD/British Pound GBP. First, the daily chart as of October 5th 2005. I have drawn a red down-sloping trend-line joining the two recent swing highs.
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The chart has moved down since early September , making a down-trend of consecutive "waves" with lower swing highs and lower swing lows. There were several opportunities to take advantage of the down-move. In this tutorial we will focus on the October 6th opportunity.
In a down-trend we want to short those swing highs, and take profits on swing lows. We don't want to short every time we **think** we have a swing high. If you have tried that, you know about whipsaw and fake-outs already haha. We only want the best trades, those which are more likely to succeed. So how do we choose an optimum entry point?
Our odds are improved if we have a swing high near a down-sloping trend-line (in red on the chart). Markets tend to reverse at Fibonacci levels. So if we have a significant resistance level near a trend-line we have an even better chance of success.
The next chart shows the GBP with Fibonacci resistance levels. Notice the "SK Resistance" level. This represents an area of significant resistance, with a higher probability of a reversal.
If you are new to Fibonacci, those studies look like a confusing series of colored lines. Learning how to use these Fibonacci studies, and which of them are stronger (higher probability), is really easy! I have made two video seminars that explain this.
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That "SK Resistance" level, coinciding with a trend-line is an optimum shorting zone. If the market reaches that area (we can't be sure it will), and if the market resists there, we want to take a short position. Once the resistance materializes, it will be difficult for the market to move against us.
Most of us are not trading the daily chart, but we can use the longer-term charts to find **powerful** trends and Fibonacci levels. The next chart is a 60-minute chart. I choose 60-minutes because it clearly shows when resistance has materialized. You may prefer a 30 minute or 5 minute chart.
The following 60-minute chart shows how the Pound rallied to the SK resistance level, and the trend-line. It rallied over those, tested them briefly, then retreated. There are several ways to determine whether resistance has materialized. I have some very powerful techniques for that purpose. However we want this tutorial to focus on some basics. So for now we will use the obvious breaking of the rising trend as our trigger.
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