Forex Trading Guide

6 Steps To A Rule-Based Forex Trading

2011-01-09T08:49:00.000-08:00

A trading system is more than just having a rule or set of rules for when to enter and when to exit a trade. It is a comprehensive strategy that takes into account six very important factors, not the least of which is your own personality. In this article, we will cover the general approach to creating a rule-based trading system.

Step 1: Examine Your Mindset
(A) Know who you are: When trading the markets, your first priority is to take a look at yourself and note your own personality traits. Examine your strengths and your weaknesses, then ask yourself how you might react if you perceive an opportunity or how you might react if your position is threatened. This is also known as a personal SWOT analysis. But do not lie to yourself. If you are not sure how you would act, ask the opinion of someone who knows you well.

(B) Match your personality to your trading: Be sure that you are comfortable with the type of trading conditions you will experience in different time frames. For example, if you have determined that you are not the kind of person who likes to go to sleep with open positions in a market that is trading while you sleep, perhaps you should consider day trading so that you can close out your positions before you go home. However, you must then be the kind of person who likes the adrenalin rush of constantly watching the computer throughout the day. Do you enjoy being computer-bound? Are you an addictive or compulsive person? Will you drive yourself crazy watching your positions and become afraid to go to the bathroom in case you miss a tick? If you are not sure, go back and re-audit your personality to be certain. Unless your trading style matches your personality, you will not enjoy what you are doing and you will quickly lose your passion for trading.

(D) Be objective: Do not become emotionally involved in your trade. It does not matter whether you are wrong or right. What matters, as George Soros says, is that “you make more money when you are right than what you lose when you are wrong.” Trading is not about ego, although for most of us it can be disconcerting when we plan a trade, apply our entire logical prowess and then find out that the market does not agree. It is a matter of training yourself to accept that not every trade can be a winning trade, and that you must accept small losses gracefully and move on to the next trade.

(E) Be disciplined: This means that you have to know when to buy and sell. Base your decisions on your pre-planned strategy and stick to it. Sometimes you will cut out of a position only to find that it turns around and would have been profitable had you held on to it. But this is the basis of a very bad habit. Don’t ignore your stop losses - you can always get back into a position. You will find it more reassuring to cut out and accept a small loss than to start wishing that your large loss will be recouped when the market rebounds. This would more resemble trading your ego than trading the market.

(F) Be patient: When it comes to trading, patience truly is a virtue. Learn to sit on your hands until the market gets to the point where you have drawn your line in the sand. If it does not get to your entry point, what have you lost? There is always going to be an opportunity to make gains another day.

(G) Have realistic expectations: This means that you won’t lose your focus on reality and miraculously expect to turn $1,000 into $1 million 10 trades. What is a realistic expectation? Consider what some of the best fund managers in the world are capable of achieving - perhaps anywhere from 20-50% per annum. Most of them achieve much less than that and are well-paid to do so. Go into trading expecting a realistic rate of return on a consistent basis; if you manage to achieve a growth rate of 20% or better every year, you will be able to outperform many of the professional fund managers.

Step 2: Identify Your Mission and Set Your Goals
(A) With anything in life, if you don’t know where you are going, any road will take you there. In terms of investing, this means you must sit down with your calculator and determine what kind of returns you need to reach your financial goals.

(B) Next, you must start to understand how much you need to earn in a trade and how often you will have to trade to achieve your goals. Don’t forget to factor in losing trades. This can bring you to the realization that your trading methodology may be in conflict with your goals. Therefore, it is critical to align your methodology with your goals. If you are trading in standard 100,000 lots, your average value of a pip is around $10. So how many pips can you expect to earn per trade? Take your last 20 trades and add up the winners and losers and then determine your profits. Use this to forecast the returns on your current methodology. Once you know this information, you can figure out if you can achieve your goals and whether or not you are being realistic.

Step 3: Ensure You Have Enough Money
(A) Cash is the fuel needed to start trading and without enough cash, your trading will be hampered by a lack of liquidity. But more important, cash is a cushion against losing trades. Without a cushion, you will not be able to withstand a temporary drawdown or be able to give your position enough breathing space while the market moves back and forth with new trends.

(B) Cash cannot come from sources that you need for other important events in your life, such as your savings plan for your children’s college education. Cash in trading accounts is “risk” money. Also known as risk capital, this money is an amount that you can afford to lose without affecting your lifestyle. Consider trading money as you would vacation savings. You know that when the vacation is over the money will be spent and you are OK with that. Trading carries a high degree of risk. Treating your trading capital as vacation money does not mean that you are not serious about protecting your capital, rather it means freeing yourself psychologically from the fear of losing so that you can actually make the trades that will be necessary to grow your capital. Again, perform a personal SWOT analysis to be sure the necessary trading positions aren’t contrasting with your personality profile.

Step 4: Select a Market That Trades Harmoniously
(A) Pick a currency pair and test it over different time frames. Start with the weekly charts, then proceed to daily, four-hour, two-hour, one-hour, 30-minute, 10-minute and five-minute charts. Try to determine whether the market turns at strategic points most of the time, such as at Fibonacci levels, trendlines or moving averages. This will give you a feeling of how the currency trades in the different time frames.

(B) Set up support and resistance levels in different time frames to see if any of these levels cluster together. For example, the price at 127 Fibonacci extension on the weekly time frame may also be the price at a 1.618 extension off of a daily time frame. Such a cluster would add conviction to the support or resistance at that price point.

Repeat this exercise with different currencies until you find the currency pair that you feel is the most predictable for your methodology.

(C) Remember, passion is key to trading. The repeated testing of your set-ups requires that you love what you are doing. With enough passion you will learn to accurately gauge the market.

(D) Once you have a currency pair that you feel comfortable with, start reading the news and the comments regarding the particular pair you have selected. Try to determine if the fundamentals are supporting what you believe the chart is telling you. For example, if gold is going up, that would probably be good for the Australian dollar, since gold is a commodity that is generally positively correlated to the Australian dollar. If you think gold is going to go down, then wait for the appropriate time on the chart to short the Aussie. Look for a line of resistance to be the appropriate line in the sand to get timing confirmation before you make the trade.

Step 5: Test Your Methodology for Positive Results
(A) This step is probably what most traders really think of as the most important part of trading: A system that enters and exits trades that are only profitable. No losses - ever. Such a system, if there were one, would make a trader rich beyond his wildest dreams. But the truth is, there is no such system. There are good methodologies and better ones and even very average methods that can all be used to make money. The performance of a trading system is more about the trader than it is about the system. A good driver can get to his destination in virtually any vehicle, but an untrained driver will probably not make it, no matter how great fast the car is.

(B) Having said the above, it is necessary to pick a methodology and implement it many times in different time frames and markets to measure its success rate. Often a system is a successful predictor of the market direction only 55-60% of the time, but with proper risk management, the trader can still make a lot of money employing such a system.

(C) Personally, I like to use a system that has the highest reward to risk, which means that I tend to look for turning points at support and resistance levels because these are the points where it is easiest to identify and quantify the risk. Support is not always strong enough to stop a falling market, nor is resistance always strong enough to turn back an advance in prices. However, a system can be built around the concept of support and resistance to give a trader the edge required to be profitable.

(D) Once you have designed your system, it is important to measure its expectancy or reliability in various conditions and time frames. If it has a positive expectancy (it produces more profitable trades than losing trades) it can be used as a means to time entry and exit in the markets.

Step 6: Measure Your Risk-to-Reward Ratios and Set Your Limits
(A) The first line in the sand to draw is where you would exit your position if the market goes against you. This is where you will place your stop loss.

(B) Calculate the number of pips your stop is away from your entry point. If the stop is 20 pips away from the entry point and you are trading a standard lot, then each pip is worth approximately $10 (if the U.S. dollar is your quote currency). Use a pip calculator if you are trading in cross currencies to make it easy to get the value of a pip.

(C) Calculate the percentage your stop loss would be as a percentage of your trading capital. For example, if you have $1,000 in your trading account, 2% would be $20. Be sure your stop loss is not more than $20 away from your entry point. If 20 pips are equal to $200, then you are too leveraged for your available trading capital. To overcome this, you must reduce your trading size from a standard lot to a mini-lot. One pip in a mini-lot is equal to approximately $1. Therefore, to maintain your 2% risk-to-capital, the maximum loss should be $20, which requires that you trade only one mini-lot.

(D) Now draw a line on your chart where you would want to take profit. Be sure this is at least 40 pips away from your entry point. This will give you a 2:1 profit-to-loss ratio. Since you cannot know for sure if the market will reach this point, be sure to slide your stop to breakeven as soon as the market moves beyond your entry point. At worst, you will scratch your trade and your full capital will be intact.

(E) If you get knocked out on your first attempt, don’t despair. Often it is your second entry that will be correct. It is true that “the second mouse gets the cheese.” Often the market will bounce off your support if you are buying, or retreat from your resistance if you are selling, and you will enter the trade to test that level to see if the market will trade back to your support or resistance. You can then catch profits the second time around.

Summary
By fusing psychology, fundamentals, a trading methodology and risk management, you’ll have the tools to select an appropriate currency pair. All that is left to do is repeatedly practice trading until the strategy is ingrained in your psyche. With enough passion and determination, you will become a successful trader.

SOURCE: Investopedia

Spread-To-Pip Potential: Which Pairs Are Worth Day Trading

2010-06-26T04:45:00.000-07:00

Spreads play a significant factor in profitable forex trading. When we compare to the average spread to the average daily movement many interesting issues arise. Namely, some pairs are more advantageous to trade than others. Secondly, retail spreads are much harder to overcome in short-term trading than some may anticipate. Third, a "larger" spread does not necessarily mean the pair is not as good for day trading when compared to some lower spread alternatives. Same goes for a "smaller" spread - it does not mean it is better to trade than a larger spread alternative.

Establishing a Base Line
To understand what we are dealing with, and which pairs are more suited to day trading, a base line is needed. For this the spread is converted to a percentage of the daily range. This allows us to compare spreads versus what the maximum pip potential is for a day trade in that particular pair. While the numbers below reflect the values in existence at a particular period of time, the test can be applied at any time to see which currency pair is offering the best value in terms of its spread to daily pip potential. The test can also be used to cover longer or shorter periods of time.

These are the daily values and approximate spreads (will vary from broker to broker) as of April 7, 2010. As daily average movements change so will the percentage that the spread represents of the daily movement. A change in the spread will also affect the percentage. Please note that in the percentage calculation the spread has been deducted from the daily average range. This is to reflect that retail customers cannot buy at the lowest bid price of the day shown on their charts.

EUR/USD
Daily Average Range (12):105
Spread: 3
Spread as a percentage of maximum pip potential: 3/102= 2.94%
USD/JPY
Daily Average Range (12):80
Spread: 3
Spread as a percentage of maximum pip potential: 3/77= 3.90%
GBP/USD
Daily Average Range (12):128
Spread: 4
Spread as a percentage of maximum pip potential: 4/124= 3.23%
EUR/JPY
Daily Average Range (12):121
Spread: 4
Spread as a percentage of maximum pip potential: 4/117= 3.42%
USD/CAD
Daily Average Range (12):66
Spread: 4
Spread as a percentage of maximum pip potential: 4/62= 6.45%
USD/CHF
Daily Average Range (12):98
Spread: 4
Spread as a percentage of maximum pip potential: 4/94= 4.26%
GBP/JPY
Daily Average Range (12):151
Spread: 6
Spread as a percentage of maximum pip potential: 6/145= 4.14%

Which Pairs to Trade
When the spread is placed into percentage terms of the daily average move, it can be seen that the spread can be quite significant and have a large impact on day-trading strategies. This is often overlooked by traders who feel they are trading for free since there is no commission.

If a trader is actively day trading and focusing on a certain pair, making trades each day, it is most likely they will trade pairs that have the lowest spread as a percentage of maximum pip potential. The EUR/USD and GBP/USD exhibit the best ratio from the pairs analyzed above. The EUR/JPY also ranks high among the pairs examined. It should be noted that even though the GBP/USD and EUR/JPY have a four-pip spread they out rank the USD/JPY which commonly has a three pip spread.

In the case of the USD/CAD, which also has a four-pip spread, it was one of the worst pairs to day trade with the spread accounting for a significant portion of the daily average range. Pairs such as these are better suited to longer term moves, where the spread becomes less significant the further the pair moves.

Adding Some Realism
The above calculations assumed that the daily range is capturable, and this is highly unlikely. Based simply on chance and based on the average daily range of the EUR/USD, there is far less than a 1% chance of picking the high and low. Despite what people may think of their trading abilities, even a seasoned day trader won't fair much better in being able to capture an entire day's range - and they don't have to.

Therefore, some realism needs to be added to our calculation, accounting for the fact that picking the exact high and low is extremely unlikely. Assuming that a trader is unlikely to exit/enter in the top 10% of the average daily range, and is unlikely to exit /enter in the bottom 10% of the average daily range, this means that trader has 80% of the available range available to them. Entering and exiting within this area is more realistic than being able to enter right in the area of a daily high or low.

Using 80% of the average daily range in the calculation provides the following values for the currency pairs. These numbers paint a portrait that the spread is very significant.

EUR/USD
Spread as a percentage of possible (80%) pip potential: 3/81.6= 3.68%
USD/JPY
Spread as a percentage of maximum pip potential: 3/61.6= 4.87%
GBP/USD
Spread as a percentage of possible (80%) pip potential: 4/99.2= 4.03%
EUR/JPY
Spread as a percentage of possible (80%) pip potential: 4/93.6= 4.27%
USD/CAD
Spread as a percentage of possible (80%) pip potential: 4/49.6= 8.06%
USD/CHF
Spread as a percentage of possible (80%) pip potential: 4/75.2= 5.32%
GBP/JPY
Spread as a percentage of possible (80%) pip potential: 6/116= 5.17%

With the exception of the EUR/USD, which is just under, 4%+ of the daily range is eaten up by the spread. In some pairs the spread is a significant portion of the daily range when factoring for the likely possibly that the trader will not be able to accurately pick entries/exits within 10% of the high and low which establish the daily range.

SOURCE: INVESTOPEDIA

Forex: Ichimoku Cloud Filters Information Storm

2010-04-20T19:12:00.000-07:00

The Ichimoku Kinko Hyo or equilibrium chart isolates higher probability trades in the forex market. It is new to the mainstream, but has been rising incrementally in popularity among novice and experienced traders. More known for its applications in the futures and equities forums, the Ichimoku displays a clearer picture because it shows more data points, which provide a more reliable price action. The application offers multiple tests and combines three indicators into one chart, allowing the trader to make the most informed decision. Learn how the Ichimoku works and how to add it to your own trading routine.

Getting to Know Ichimoku
Before a trader can trade effectively on the chart, a basic understanding of the components that make up the equilibrium chart need to be established. Created and revealed in 1968, the Ichimoku was developed in a manner unlike most other technical indicators and chart applications. Usually formulated by statisticians or mathematicians in the industry, the indicator was constructed by a Tokyo newspaper writer named Goichi Hosoda and a handful of assistants running multiple calculations.What they came up with is now used by many Japanese trading rooms because it offers multiple tests on the price action, creating higher probability trades. Although many traders are intimidated by the abundance of lines drawn when the chart is actually applied, the components can be easily translated into more commonly accepted indicators.

Essentially made up of four major components, the application offers the trader key insight into FX market price action. First, we'll take a look at both the Tenkan and Kijun Sens. Used as a moving average crossover, both lines are simple translations of the 20- and 50-day moving averages, although with slightly different time frames.

1. The Tenkan Sen - Calculated as the sum of the highest high and the lowest low divided by two. The Tenkan is calculated over the previous seven to eight time periods.

2. The Kijun Sen - Calculated as the sum of the highest high and the lowest low divided by two. Although the calculation is similar, the Kijun takes the past 22 time periods into account.

Now let's take a look at the most important component, the Ichimoku "cloud", which represents current and historical price action. It behaves in much the same way as simple support and resistance by creating formative barriers. The last two components of the Ichimoku application are:

3. Senkou Span A - The sum of the Tenkan Sen and the Kijun Sen divided by two. The calculation is then plotted 26 time periods ahead of the current price action.

4. Senkou Span B - The sum of the highest high and the lowest low divided by two. This calculation is taken over the past 44 time periods and is plotted 22 periods ahead.

Once plotted on the chart, the area between the two lines is referred to as the Kumo, or cloud. Comparatively thicker than your run-of-the-mill support and resistance lines, the cloud offers the trader a thorough filter. Instead of giving the trader a visually thin price level for support and resistance, the thicker cloud will tend to take the volatility of the currency markets into account. A break through the cloud and a subsequent move above or below it will suggest a better and more probable trade. Let's take a look Figure 2's comparison.

To Recap:

1. Refer To The Kijun / Tenkan Cross - The potential crossover in both lines will act in similar fashion to the more recognized moving average crossover. This technical occurrence is great for isolating moves in the price action.

2. Confirm Down / Uptrend With Chikou - Confirming that the market sentiment is in line with the crossover will increase the probability of the trade as it acts in similar fashion with a momentum oscillator.

3. Price Action Should Break Through The Cloud - The impending down/uptrend should make a clear break through of the cloud of resistance/support. This decision will increase the probability of the trade working in the trader's favor.

4. Follow Money Management When Placing Entries - By adhering to strict money management rules, the trader will be able to balance risk/reward ratios and control the position.

The Round Up
This indicator is intimidating at first, but once the Ichimoku chart is broken down, every trader from novice to advanced will find the application helpful. Not only does it mesh three indicators into one, but it also offers a more filtered approach to the price action for the currency trader. Additionally, this approach will not only increase the probability of the trade in the FX markets, but will assist in isolating only the true momentum plays. This is opposed to riskier trades where the position has a chance of trading back former profits.

Read More - Investopedia

Weekend Analysis: A Path To Forex Profits

2010-02-20T23:46:00.000-08:00

There are three basic reasons for doing a weekend analysis. The first reason is that you want to establish a "big picture" view of a particular market in which you are interested. Doing this analysis over the weekend, when the markets are closed, is helpful because such an analysis can be made when the markets are not in dynamic flux and, therefore, you don't need to react to situations as they are unfolding.

Secondly, the analysis will help you to set up your trading plans for the coming week, which in turn will help you to decide what trading plans you might want to implement. Remember, shooting from the hip can leave a hole in your pocket! Weekend analysis should be more akin to an architect preparing a blue print from which he will take the steps, based on his blue print, to construct the different aspects of the building he's designed.

Finally, the reason for undertaking a weekend analysis is to build a routine preparation method that will help to build a trading plan in the area in which you are focusing so you can establish the necessary mindset for the upcoming week. A good analysis is how you can "psych" yourself up for the oncoming trading activity.

Preparing for the Week
Since this is a forex article, the emphasis is on the necessary preparation for trading forex during the coming week. But the preparatory steps can also be used and are helpful if you trade stocks, bonds or commodities. It's important to remember that none of the markets are actually separate, or trade in a vacuum. All the markets are interdependent, so that in a global economy the purchase of bonds, equities, goods and services all have an effect on the levels of supply and demand for currencies. Therefore, the price levels of the various currencies will vary when money flows around the world as investment searches for the highest and safest yields.

Understand the Drivers
The art of successful trading is partly due to an understanding of the current relationships between markets and the reasons that these relationships exist. It is important to understand the causative factors that are in play at the moment. Remember, though, that these relationships can and do change over time. Once you have a grasp on the existing relationships, then a study of price charts and the statements of the pundits, insiders, brokers and news services can be either reinforcing or ignored depending on your particular reading of the circumstances.

For example, a stock market recovery could be explained by investors who are anticipating an economic recovery. These investors believe that companies will have improved earnings and, therefore, greater valuations in the future. Hence they believe that now is a good time to buy! Or it can be that speculation, based on a flood of liquidity, is fueling momentum and that good old greed is pushing prices higher and higher until all players are on board so that the selling can begin.

A weekend analysis should be a basis for an understanding of the circumstances currently in play. These are the true fundamentals. Therefore the first question to ask is, why? Why are these things happening? What are the drivers behind the market actions?

Technical Drivers
Many technical analysts believe that patterns or certain price levels on charts can also be the drivers of trader behavior. They believe that so many traders are watching for these patterns that they become self-fulfilling prophecies. There has long been a debate, for example, whether a Fibonacci level is a number that is a measurement of some natural force or whether it is valid just because so many people watch for the number to occur and then trade accordingly. Whatever the reason, there are certain patterns and levels that will trigger trader action.

The News
The news also fuels actions. Traders wait for the news releases to confirm or deny their hypotheses and then enter or exit their trades. If these news releases occur at certain technical levels then they attract even more trader activity and can increase the odds of a successful trade. Not every news release is always valid for timing a trade. Those releases that occur at specific chart confluences can have a more dramatic effect on the volatility of the market and will provide better trading opportunities.

Setting Up a Trading Plan
By doing a weekend analysis, a trader can prepare for the coming week and, depending on the type of trading he or she likes to do, such as scalping the news, or trading the five minute charts or waiting for a swing trade setup, he or she will have a blueprint to guide his trading. The old adage of "plan your trade – and trade your plan," is sage advice.

Source - Investopedia

Is Your Forex Broker A Scam?

2010-01-14T22:26:00.000-08:00

If you do an internet search on forex broker scams, the number of results returned is staggering. While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business. Fortunately, they eventually get weaned out.

However, when you're looking to trade forex, it's important to know which brokers are reliable and viable, and to avoid the ones that aren't. In order to sort out the strong brokers from the weak, and the reputable ones from those with shady dealings, we must go through a series of steps before depositing a large amount of capital with a broker. Trading is hard enough in itself, but when a broker is implementing practices that work against the trader, making a profit can be nearly impossible.

Separating Fact from Fiction
When faced with all sorts of forums posts, articles and disgruntled comments about a broker, we must remember that many traders fail and never make a profit. Many of these disgruntled traders then post content online that blames the broker (or some other outside influence) for their own failed trading strategies. Thus, when researching a potential forex broker, traders must learn to separate fact from fiction.

In many cases, it may seem to a trader that a broker was intentionally trying to cause a loss. Complaints such as: "As soon as I placed the trade, the direction of the market reversed;" "The broker stop hunted my positions;" or "I always had slippage on my orders, and never in my favor" are not uncommon. These types of experiences are common to all traders, and it is quite possible that the broker is not at fault.

New forex traders often fail to trade with a tested strategy or trading plan. Instead, they make trades when psychology dictates they should. If a trader feels the market has to move in one direction or the other, there is a 50% chance he or she will be correct. When the rookie trader enters a position, often he or she is entering right at a time when their emotions are waning; experienced traders are aware of these junior tendencies and step in, taking the trade the other way. This befuddles new traders and leaves them feeling that the market - or their brokers - are out to get them and take their individual profits. Most of the time this is not the case, it is simply a failure by the trader to understand market dynamics.

On occasion, losses are the broker's fault. This can occur when a broker attempts to rack up trading commissions at the client's expense. There have been reports of brokers arbitrarily moving quoted rates to trigger stop orders when other brokers' rates have not gone to that price. Luckily for traders, this is not likely to occur. One must remember that trading is usually not a zero-sum game, and brokers primarily make commissions with increased trading volumes. Overall, it is in the best interest of brokers to have long-term clients who trade regularly and thus sustain capital or make a profit.

The slippage issue can often be attributed to a psychological phenomenon. It is common practice for inexperienced traders to panic; they fear missing a move, so they hit their buy key; or they fear losing more and so they hit the sell key. In volatile exchange rate environments, the broker cannot ensure that an order will be executed at the desired price. This results in sharp movements and often slippage. The same is true for stop or limit orders. Some brokers guarantee stop and limit order fills, while others do not. Even in more transparent markets, slippage occurs, markets move and we don't always get the price we want.

Therefore, often what is perceived as a scam is just the trader not understanding the market he or she is trading.

The Real Problem
Real problems can begin to develop when communication between a trader and his or her broker begins to break down. If a trader does not get email responses from his or her broker, the broker fails to answer the phone, or provides vague answers to a trader's questions, these are red flags that a broker may not be looking out for the client's best interest.

Any arising issues should be resolved and explained to the trader and the broker should also be helpful and display good customer relations. One of the most detrimental issues that may arise between a broker and a trader in this case is the trader's inability to withdraw money from a trading account.

Protecting Yourself
Protecting yourself from unscrupulous brokers in the first place is ideal. The following steps should help:

Do an online search for reviews of the broker. Take what is said and filter it based on what was said in the first section; could this be just a disgruntled trader? In the same search, find if there are outstanding legal actions against the broker.
Make sure there are no complaints about not being able to withdraw funds. If there are, contact the user if possible and ask them about their experience.
Read through all the fine print of the documents when opening an account. Incentives to open account can often be used against the trader when attempting to withdraw funds. For instance, if a trader deposits $10,000 and gets a $2,000 bonus, and then the trader loses money and attempts to withdraw some remaining funds, the broker may say he or she cannot withdraw because the bonus cannot be withdrawn. Read the fine print and make sure to understand all contingencies in regards to withdrawals and whether incentives impact withdrawals.
If you are satisfied with your research on a particular broker, open a mini account or an account with a small amount of capital. Trade it for a month or more and then attempt a withdrawal. If everything has gone well, it should be relatively safe to deposit more funds. If you have problems, attempt to discuss them with the broker. If that fails, move on and post a detailed account of your experience online so others can learn from your experience.

More information here - INVESTOPEDIA

Learn Forex Trading With Forex Nitty Gritty

2009-12-14T19:30:00.000-08:00

I found an article in ezinearticles talking about Forex Nitty Gritty so i wanted to share it here. I just would like to let you know that the article below is from the author's experience about Nitty Gritty.

Article Source: ezinearticles

I wanted to talk a little about how to learn Forex trading with Forex Nitty Gritty.

Unlike some people, I'm not going to pretend to denounce Forex Nitty Gritty as a scam, then try and tell you to buy it. Frankly, it really doesn't matter to me if you buy it or not. I'm just here to give you my opinion.

Forex Nitty Gritty is a new Forex trading course released by Bill Poulos. This is the same 30+ year trader and mentor that has produced trading courses such as Forex Profit Accelerator (which I've been using and loving for about 8 months or so now), and Forex Income Engine (which in my opinion was a complete flop until he recently re-released it as Forex Income Engine 2.0).

However, Forex Nitty Gritty is different than Forex Profit Accelerator and Forex Income Engine in many ways. First, Forex Nitty Gritty was designed and developed for the beginner Forex traders. His previous courses, and many others I've seen, are generally developed for more experienced and advanced traders. Then beginning traders get it, don't have any idea what to do with it, don't ask for support from his great support staff, and return it, frustrated. But Forex Nitty Gritty, being designed for the beginner, leaves that all behind.

Another way it is different, is that it has great support specifically to help the Forex trader beginner learn and understand how to trade Forex. All too often, I see trading systems and methods, Forex robots and automated trading systems, aimed at taking money from unsuspecting people and providing nothing of value. Forex Nitty Gritty has redefined customer support by providing a LOT of ways for the beginning forex trader to learn.

And Forex Nitty Gritty is priced for beginners too. It doesn't cost thousands of dollars like many other great courses. As a matter of fact, it costs less than almost all of the forex courses, robots, automated trading systems and other such things. It doesn't cost much more than those junky 20 page ebooks that people sell to unsuspecting beginners. And Forex Nitty Gritty is MUCH MORE than that. As a matter of fact, here is only SOME of the things you'll learn with Forex Nitty Gritty:

The Overview Module covers topics such as (but not limited to) What Forex is, who trades Forex, explaining the forex markets, forex pairs and forex trading requirements.

Module 2 starts teaching the mechanics of forex, such as what the major pairs are, the most active hours traded, how to read price quotes, leverage and margin, how to calculate profit and loss, order types, buying and selling, forex software, bar and candlestick charts, and timeframes.

Trading mechanics are continued in Module 3, teaching investing vs. trading, fundamental and technical analysis, indicators and technical tools, common price patterns, and even talks a bit about Forex Robots, Automated Trading Systems, and "Black Box" systems.

And Forex Nitty Gritty comes with another 4 modules to provide amazing learning potential for beginner forex traders!

So to all those people that try and pass off Forex Nitty Gritty as a scam, I say shame on you. You either believe in a product, or you don't. Do I think it will work for everybody? Nope. I think that it is the perfect course for a beginning forex trader, IF you want to put forth a little time and effort to actually learn how to trade forex profitably. No, this isn't the golden egg laying goose either. But for less than a hundred bucks, it provides you with SO MUCH incredible information about how to trade forex, it would be silly to pass up on it, if you truly want to learn.

The information in this course, the way it is presented, the support you get along with the course, all the examples and topic by topic training you recieve, to make sure you "get it" is worth its weight in gold. You can spend a hundred bucks on a good dinner or two. Isn't it worth that to truly learn and understand the Forex markets?

I think it is. Even I got something out of this course. Yes, for the price, I couldn't pass it up either. And Forex Nitty Gritty was worth every penny, and more.

Term For The Day

2009-11-12T03:19:00.000-08:00

What is Federal Open Market Committee (FOMC)

The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members, and five reserve bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate their service of one-year terms.

Forex Trading Rules: No Excuses, Ever

2009-10-19T03:17:00.000-07:00

Our boss once invited us into his office to discuss a trading program that he wanted to set up. "I have one rule only," he noted. Looking us straight in the eye, he said, "no excuses."

Instantly we understood what he meant. Our boss wasn't concerned about traders booking losses. Losses are a given part of trading and anyone who engages in this enterprise understands and accepts that fact. What our boss wanted to avoid were the mistakes made by traders who deviated from their trading plans. It was perfectly acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each. However, it was inexcusable to lose 10% on one trade because the trader refused to cut his losses, or worse yet, added to a position beyond his risk limits. Our boss knew that the first scenario was just a regular part of business, while the second one could ultimately blow up of the entire account.

The Need For Rationalization
In the quintessential '80s movie, "The Big Chill", Jeff Goldblum's character tells Kevin Kline's that "rationalization is the most powerful thing on earth. As human beings we can go for a long time without food or water, but we can't go a day without a rationalization."

This quote has strikes a chord with us because it captures the ethos behind the "no excuses" rule. As traders, we must take responsibility for our mistakes. In a business where you either adapt or die, the refusal to acknowledge and correct your shortcomings will ultimately lead to disaster.

Case In Point
Markets can and will do anything. Witness the blowup of Long Term Capital Management (LTCM). At one time, it was one of the most prestigious hedge funds in the world, whose partners included several Nobel Prize winners. In 1998, LTCM went bankrupt, nearly bringing the global financial markets to its knees when a series of complicated interest rate plays generated billions of dollars worth of losses in a matter of days. Instead of accepting the fact that they were wrong, LTCM traders continued to double up on their positions, believing that the markets would eventually turn their way.

It took the Federal Reserve Bank of New York and a series of top-tier investment banks to step in and stem the tide of losses until the portfolio positions could be unwound without further damage. In post-debacle interviews, most LTCM traders refused to acknowledge their mistakes, stating that the LTCM blowup was the result of extremely unusual circumstances unlikely to ever happen again. LTCM traders never learned the "no excuses" rule, and it cost them their capital.

No Excuses
The "no excuses" rule is most applicable to those times when the trader does not understand the price action of the markets. If, for example, you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. No excuses. Ever. That's the rule professional traders live by.

Source: Investopedia

Forex Trading Rules: Risk Can Be Predetermined; Reward Is Unpredictable

2009-10-11T23:48:00.000-07:00

If there is one inviolable rule in trading, it must be "stick to your stops". Before entering every trade, you must know your pain threshold. This is the best way to make sure that your losses are controlled and that you do not become too emotional with your trading.

Trading is hard; there are more unsuccessful traders than there are successful ones. But more often than not, traders fail not because their ideas are wrong, but because they became too emotional in the process. This failure stems from the fact that they closed out their trades too early, or they let their losses run too extensively. Risk MUST be predetermined. The most rational time to consider risk is before you place the trade - when your mind is unclouded and your decisions are unbiased by price action. On the other hand, if you have a trade on, you want to stick it out until it becomes a winner, but unfortunately that does not always happen. You need to figure out what the worst-case scenario is for the trade, and place your stop based on a monetary or technical level. Once again, we stress that risk MUST be predetermined before you enter into the trade and you MUST stick to its parameters. Do not let your emotions force you to change your stop prematurely.

The Risk
Every trade, no matter how certain you are of its outcome, is simply an educated guess. Nothing is certain in trading. There are too many external factors that can shift the movement in a currency. Sometimes fundamentals can shift the trading environment, and other times you simply have unaccountable factors, such as option barriers, the daily exchange rate fixing, central bank buying etc. Make sure you are prepared for these uncertainties by setting your stop early on.

The Reward
Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small. Money management becomes extremely important in this case. Referencing our rule of "never let a winner turn into a loser", we advocate trading multiple lots. This can be done on a more manageable basis using mini-accounts. This way, you can lock in gains on the first lot and move your stop to breakeven on the second lot - making sure that you are only playing with the house's money - and ride the rest of the move using the second lot.

Make the Trend Your Friend
The FX market is a trending market. Trends can last for days, weeks or even months. This is a primary reason why most black boxes in the FX market focus exclusively on trends. They believe that any trend moves they catch can offset any whipsaw losses made in range-trading markets. Although we believe that range trading can also yield good profits, we recognize the reason why most large money is focused on looking for trends. Therefore, if we are in a range-bound market, we bank our gain using the first lot and get stopped out at breakeven on the second, still yielding profits. However, if a trend does emerge, we keep holding the second lot into what could potentially become a big winner.

Half of trading is about strategy, the other half is undoubtedly about money management. Even if you have losing trades, you need to understand them and learn from your mistakes. No strategy is foolproof and works 100% of the time. However, if the failure is in line with a strategy that has worked more often than it has failed for you in the past, then accept that loss and move on. The key is to make your overall trading approach meaningful but to make any individual trade meaningless. Once you have mastered this skill, your emotions should not get the best of you, regardless of whether you are trading $1,000 or $100,000. Remember: In trading, winning is frequently a question of luck, but losing is always a matter of skill.

Source: Investopedia

Forex Trading Rules: What Is Mathematically Optimal Is Psychologically Impossible

2009-10-02T01:09:00.000-07:00

Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions of dollars on a computer backtest. The majority of such strategies have extremely impressive win-loss and profit ratios, often demonstrating $3 of wins for just $1 of losses. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money. Why? Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end, typically forcing the worst possible move out of the trader at the wrong time.

Trading Is More Art Than Science
As E. Derman, head of quantitative strategies at Goldman Sachs, a leading investment banking firm, once noted, "In physics you are playing against God, who does not change his mind very often. In finance, you are playing against God's creatures, whose feelings are ephemeral, at best unstable, and the news on which they are based keeps streaming in."

This is the fundamental flaw of most beginning traders. They believe that they can "engineer" a solution to trading and set in motion a machine that will harvest profits out of the market. But trading is less of a science than it is an art; and the sooner traders realize that they must compensate for their own humanity, the sooner they will begin to master the intricacies of trading.

Textbook Vs. Real World
Here is one example of why in trading what is mathematically optimal is often psychologically impossible.

The conventional wisdom in the markets is that traders should always trade with a 2:1 reward-to-risk ratio. On the surface this appears to be a good idea. After all, if the trader is only correct 50% of the time, over the long run she or he will be enormously successful with such odds. In fact, with a 2:1 reward-to-risk ratio, the trader can be wrong 6.5 times out of 10 and still make money. In practice this is quite difficult to achieve.

Imagine the following scenario: You place a trade in GBP/USD. Let's say you decide to short the pair at 1.7500 with a 1.7600 stop and a target of 1.7300. At first, the trade is doing well. The price moves in your direction, as GBP/USD first drops to 1.7400, then to 1.7360 and begins to approach 1.7300. At 1.7320, the GBP/USD decline slows and starts to turn back up. Price is now 1.7340, then 1.7360, then 1.7370. But you remain calm. You are seeking a 2:1 reward to risk. Unfortunately, the turn in the GBP/USD has picked up steam; before you know it, the pair not only climbs back to your entry level but then swiftly rises higher and stops you at 1.7600.

You just let a 180-point profit turn into a 100-point loss. In effect, you created a -280-point swing in your account. This is trading in the real world, not the idealized version presented in textbooks. This is why many professional traders will often scale out of their positions, taking partial profits far sooner than two times risk, a practice that often reduces their reward-to-risk ratio to 1.5 or even lower. Clearly that's a mathematically inferior strategy, but in trading, what's mathematically optimal is not necessarily psychologically possible.

Source: Investopedia

Forex Trading Rules: Know the Difference Between Scaling In and Adding to a Loser

2009-09-21T20:32:00.000-07:00

One of the biggest mistakes that traders make is to keep adding to a losing position, desperately hoping for a reversal. As traders increase their exposure while price travels in the wrong direction, their losses mount to a point where they are forced to close out their positions at a major loss or wait numbly for the inevitable margin call to automatically do it for them. Typically in these scenarios, the initial reasoning for the trade has disappeared, and a smart trader would have closed out the position and moved on.

However, some traders find themselves adding into the position long after the reason for the trade has changed, hoping that by magic or chance things will eventually turn their way.

We liken this to driving in a car late at night and not being sure whether you are on the right road. When this happens, you are faced with two choices:

To keep on going down the road blindly and hope that you will find your destination before ending up in another state
To turn the car around and go back the way you came, until you reach a point from where you can actually find the way home.

This is the difference between stubbornly proceeding in the wrong direction and cutting your losses short before it is too late. Admittedly, you might eventually find your way home by stumbling along back roads - much like a trader could salvage a bad position by catching an unexpected turnaround. However, before that time comes, the driver could very well have run out of gas, much like the trader can run out of capital.

Do Not Make a Bad Position Worse
Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade.There are, however, times when adding to a losing position is the right way to trade. This type of strategy is known as scaling in.

Plan Your Entry and Exit and Stick To It
The difference between adding to a loser and scaling in is your initial intent before you place the trade.

If your intention is to ultimately buy a total of one regular 100,000 lot and you choose to establish a position in clips of 10,000 lots to get a better average price (instead of the full amount at the same time) this is called scaling in. This is a popular strategy for traders who are buying into a retracement of a broader trend and are not sure how deep the retracement will be; therefore, the trader will scale down into the position in order to get a better average price. The key is that the reasoning for this approach is established before the trade is placed and so is the "ultimate stop" on the entire position. In this case, intent is the main difference between adding to a loser and scaling in.

Source: Investopedia

Forex Trading Rules: Being Right but Being Early Simply Means that You are Wrong

2009-09-10T22:47:00.000-07:00

There is a great Richard Prior routine in which the comic lectures the audience about how the only way to respond when your spouse catches you cheating red-handed is by calmly stating, "Who are you going to believe? Me? Or your lying eyes?" While this line always gets a huge laugh from the crowd, unfortunately, many traders take this advice to heart. The fact of the matter is that eyes do not lie. If a trader is short a currency pair and the price action moves against him, relentlessly rising higher, the trader is wrong and needs to admit that fact - preferably sooner rather than later.

Analysis of the EUR/USD 2004-2005
In FX, trends can last far longer than seem reasonable. For example, in 2004 the EUR/USD kept rallying - rising from a low of 1.2000 all the way to 1.3600 over a period of just two months. Traders looking at the fundamentals of the two currencies could not understand the reasons behind the move because all signs pointed to dollar strength.

True enough, the U.S. was running a record trade deficit, but it was also attracting capital from Asia to offset the shortfall. In addition, U.S. economic growth was blazing in comparison to the Eurozone. U.S. gross domestic product (GDP) was growing at a better than 3.5% annual rate compared to barely 1% in the Eurozone. The Fed had even started to raise rates, equalizing the interest rate differential between the euro and the greenback. Furthermore, the extremely high exchange rate of the euro was strangling European exports - the one sector of the Eurozone economy critical to economic growth. As a result, U.S. unemployment rates kept falling, from 5.7-5.2%, while German unemployment was reaching post-World War II highs, climbing into the double digits.

What If You Took a Short Position and Exited Early?
In this scenario, dollar bulls had many good reasons to sell the EUR/USD, yet the currency pair kept rallying. Eventually, the EUR/USD did turn around, retracing the whole 2004 rally to reach a low of 1.1730 in late 2005. But imagine a trader shorting the pair at 1.3000. Could he or she have withstood the pressure of having a 600-point move against a position? Worse yet, imagine someone who was short at 1.2500 in the fall of 2004. Could that trader have taken the pain of being 1,100 points in drawdonw?

The irony of the matter is that both of those traders would have profited in the end. They were right but they were early. Unfortunately, in currency markets, close is not good enough. The FX market is highly leveraged, with default margins set at 100:1. Even if the two traders above used far more conservative leverage of 10:1, the drawdown to their accounts would have been 46% and 88%, respectively.

Right Place, Right Time
In FX, successful directional trades not only need to be right in analysis, but they also need to be right in timing as well.. That's why believing "your lying eyes" is crucial to successful trading. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong.

Source: Investopedia

Why isn't the EUR/USD currency pair quoted as USD/EUR?

2009-08-31T22:18:00.000-07:00

In a currency pair, the first currency in the pair is called the base currency and the second is called the quote currency.

Currency pairs can be separated into two types, direct and indirect. In a direct quote, the domestic currency is the base currency, while the foreign currency is the quote currency. An indirect quote is just the opposite: the foreign currency is the base currency and the domestic currency is the quote currency. For an American trader, the EUR/USD quote is an indirect one. So, for example, a quote of 0.80 EUR/USD would mean that it takes 0.80 euros to purchase US$1.

Although nearly 89% of the currency trades made around the world involve the U.S. dollar, the EUR/USD currency pair is always quoted indirectly. The reason for this is mostly convention. A EUR/USD quote could easily be shown as USD/EUR by making a simple calculation, but there are no strict rules that determine whether a currency pair is shown directly or indirectly. The way currency pairs are quoted can also vary depending on the country in which the trader lives - most countries use direct quotes, while the U.K., Australia, New Zealand and Canada prefer indirect quotes.

Source: Investopedia

Forex Trading Rules: Always Pair Strong With Weak

2009-08-19T04:13:00.000-07:00

Every baseball fan has a favorite team. The true fan knows who the team can easily beat, who they will probably lose against and who poses a big challenge. Placing a gentleman's bet on the game, the baseball fan knows the best chance for success occurs against a much weaker opponent. Although we are talking about baseball, the logic holds true for any contest. When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading.

Matching Up Currency Pairs
When we trade currencies, we are always dealing in pairs - every trade involves buying one currency and shorting another. So, the implicit bet is that one currency will beat out the other. If this is the way the FX market is structured, then the highest probability trade will be to pair a strong currency with a weak currency. Fortunately, in the currency market, we deal with countries whose economic outlooks do not change instantaneously. Economic data from the most actively traded currencies are released every single day, which acts as a scorecard for each country. The more positive the reports, the better or stronger a country is doing; on the flip side, the more negative the reports, the weaker the country's performance.

Pairing a strong currency with a weak currency has much deeper ramifications than just the data itself. Each strong report gives a better reason for the central bank to increase interest rates, which increases the currency's yield. In contrast, the weaker the economic data, the less flexibility a country's central bank has in raising interest rates, and in some instances, if the data comes in extremely weak, the central bank may even consider lowering interest rates. The future path of interest rates is one of the biggest drivers of the currency market because it increases the yield and attractiveness of a country's currency.

Using Interest Rates
In addition to looking at how data is stacking up, an easier way to pair strong with weak may be to compare the current interest rate trajectory for a currency. For example, EUR/GBP (which is traditionally a very range-bound currency pair) broke out in the first quarter of 2006. The breakout occurred to the upside because Europe was just beginning to raise interest rates as economic growth improved.

The sharp contrasts in what each country was doing with interest rates forced the EUR/GBP materially higher and even turned the traditionally ranged-bound EUR/GBP into a mildly trending currency pair for a few months. The shift was easily anticipated, making EUR/GBP a clear trade based on pairing a strong currency with a weak currency. Because strength and weakness can last for some time as economic trends evolve, pairing the strong with the weak currency is one of the best ways for traders to gain an edge in the currency market.

Source: Investopedia

Simulated Forex Trading

2009-07-27T03:50:00.000-07:00

As I was browsing the net, I found an article in ezinearticle site about simulated forex trading and I was kinda curious about this.. So here's some information about this:

Simulated Forex trading is the best opportunity that beginner Forex traders have to practice their Forex skills. This article will go into detail discussing what simulated Forex trading is and why beginners must try simulated forex trading before they risk their own money. Keep reading to get access to a $100,000.00 simulated Forex trading account of your own!

Simulated Forex trading is practicing Forex trading without risking any of your own money. This is an ideal way for beginner Forex traders to perfect their Forex knowledge before taking the next step of trading on Forex with their own money.

Simulated Forex trading allows the trader to make trades just like you would in a real Forex market with your own money.

With simulated forex trading the beginner Forex trader gets the full functionality of an online Forex broker at zero risk to the Forex trader.

Simulated Forex trading involves the same real charts and live price data as would occur if trading live. Simulated Forex trading will give beginner Forex traders, or traders needing to improve their self-confidence, the same fundamental Forex experience as if you were in the live "real" Forex market by allowing the Forex trader to gat the same live Forex streaming data used by successful, professional Forex traders.

Simulated Forex Trading allows the Forex trader to keep their emotions at bay. While you won't feel your pulse racing as it would if you were risking tens of thousands of dollars, it gives Forex traders a fantastic starting ground to practice their Forex fundamentals before taking it into the real world and putting their hard-earned money at risk.

Simulated Forex trading allows beginner Forex traders to learn the fundamentals of Forex money management and to perfect their Forex technical analysis skills, which are one of the most critical fundamentals of every Forex trader.

I would strongly discourage any beginner Forex trader starting out with their own money. To do so is virtual financial suicide. I suggest you start simulated Forex trading immediately. Make sure that the simulated Forex trading account has access to a reasonable amount of money to play trade with. At least $75,000 is the ideal. Keep reading to get access to a $100,000.00 simulated Forex trading account.

Source: http://ezinearticles.com/?Simulated-Forex-Trading---What-Simulated-Forex-Trading-Is-and-Why-You-Need-It&id=516891

How is the forex spot rate calculated?

2009-07-07T20:23:00.001-07:00

The forex spot rate is determined by supply and demand. Banks all over the world are buying and selling different currencies to accommodate their customers’ requirements for trade or to exchange one currency into another.

For example, an American bank receives a deposit from a German bank on behalf of their client who wants to buy something from a company in America. The German client has to pay the American supplier in dollars. The German client has euros and these euros need to be exchanged then for dollars. The German buyer will instruct his bank to exchange the euros to dollars and transfer the money to the U.S. supplier. If the bank doesn't have a supply of dollars, it will buy the dollars from another bank and sell euros.

The sum total of all banks selling dollars and all banks buying dollars creates a supply and demand for U.S. Dollars. If the demand for dollars increases then the dollar will appreciate against other currencies. If the demand drops then the dollar depreciates against the other currencies. The rates are set by all the participating banks bidding and offering currencies all day long amongst each other. This is the interbank system and is the way currencies are traded and the way exchange rates are determined.

Source: INVESTOPEDIA

Forex Trading Rules: Trigger Fundamentally, Enter and Exit Technically

2009-06-25T04:04:00.000-07:00

Should you trade based upon fundamentals or technicals? This is the $64 million question that traders have debated for decades and will probably continue to debate for decades to come.

Technical Analysis Vs. Fundamental Analysis
Technicals are based on forecasting the future using past price movements, also known as price action. Fundamentals, on the other hand, incorporate economic and political news to determine the future value of the currency pair.

The question of which is better is far more difficult to answer. We have often seen fundamental factors rapidly shift the technical outlook, or technical factors explain a price move that fundamentals cannot. So the answer to the question is to use both. Both methods are important and have a hand in impacting price action. The real key, however, is to understand the benefit of each style and to know when to use each discipline. Fundamentals are good at dictating the broad themes in the market, while technicals are useful for identifying specific entry and exit levels. Fundamentals do not change in the blink of an eye: in the currency markets, fundamental themes can last for weeks, months and even years.

Using Both to Make a Move
For example, one of the biggest stories of 2005 was the U.S. Federal Reserve's aggressive interest rate tightening cycle. In the middle of 2004, the Federal Reserve began increasing interest rates by quarter-point increments. The Fed let the market know very early on that it was going to be engaging in a long period of tightening and, as promised, it increased interest rates by 200 basis points in 2005. This policy created an extremely dollar- bullish environment in the market that lasted for the entire year.

Against the Japanese yen, whose central bank held rates steady at zero throughout 2005, the dollar appreciated 19% from its lowest to highest levels. USD/JPY was in a very strong uptrend throughout the year, but even so, there were plenty of retraces along the way. These pullbacks were perfect opportunities for traders to combine technicals with fundamentals to enter the trade at an opportune moment.

Fundamentally, it was clear that the market was a very dollar-positive environment; therefore, technically, we looked for opportunities to buy on dips rather than sell on rallies. A perfect example was the rally from 101.70 to 113.70. The retracement paused right at the 38.2% Fibonnci support, which would have been a great entry point and a clear example of a trade that was based on fundamentals but looked for entry and exit points based on technicals.

In the USD/JPY trade, trying to pick tops or bottoms during that time would have been difficult. However, with the bull trend so dominant, the far easier and smarter trade was to look for technical opportunities to go with the fundamental theme and trade with the market trend rather than to trying to fade it.

Source: Investopedia

Forex Trading Rules: Never Risk More Than 2% Per Trade

2009-06-11T19:06:00.000-07:00

Never risk more than 2% per trade. This is the most common - and yet also the most violated - rule in trading and goes a long way toward explaining why most traders lose money. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. This is the primary reason why the 2% stop-loss rule can never be violated. No matter how certain the trader may be about a particular outcome, the market, as the well known economist John Maynard Keynes, said, "can stay irrational far longer that you can remain solvent."

Swinging for the Fences

Most traders begin their trading careers, whether consciously or subconsciously, by visualizing "The Big One" - the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1 billion profit in a single day! But the cold hard truth of the markets is that instead of winning "The Big One", most traders fall victim to a single catastrophic loss that knocks them out of the game forever.

Why the 2% Rule?

The best way to avoid such a fate is to never suffer a large loss. That is why the 2% rule is so important in trading. Losing only 2% per trade means that you would have to sustain 10 consecutive losing trades in a row to lose 20% of your account. Even if you sustained 20 consecutive losses - and you would have to trade extraordinarily badly to hit such a long losing streak - the total drawdown would still leave you with 60% of your capital intact. While that is certainly not a pleasant position to find yourself in, it means that you need to earn 80% to get back to breakeven - a tough goal but far better than the 400% target for the trader who lost 75% of his capital.

Article Source: Investopedia

Forex Trading Rules: Logic Wins; Impulse Kills

2009-05-27T19:12:00.000-07:00

More money has been lost by trading impulsively than by any other means. Ask a novice why he went long on a currency pair and you will frequently hear the answer, "Because it has gone down enough - so it's bound to bounce back." We always roll our eyes at that type of response because it is not based on reason - it's nothing more than wishful thinking.

We never cease to be amazed how hard-boiled, highly intelligent, ruthless businesspeople behave in Las Vegas. Men and women who would never pay even one dollar more than the negotiated price for any product in their business will think nothing of losing $10,000 in 10 minutes on a roulette wheel. The glitz, the noise of the pits and the excitement of the crowd turn these sober, rational businesspeople into wild-eyed gamblers. The currency market, with its round-the-clock flashing quotes, constant stream of news and the most liberal leverage in the financial world tends to have the same impact on novice traders.

Trading Impulsively Is Simply Gambling
It can be a huge rush when a trader is on a winning streak, but just one bad loss can make the same trader give all of the profits and trading capital back to the market. Just like every Vegas story ends in heartbreak, so does every tale of impulse trading. In trading, logic wins and impulse kills. The reason why this maxim is true isn't because logical trading is always more precise than impulsive trading. In fact, the opposite is frequently the case. Impulsive traders can go on stunningly accurate winning streaks, while traders using logical setups can be mired in a string of losses. Reason always trumps impulse because logically focused traders will know how to limit their losses, while impulsive traders are never more than one trade away from total bankruptcy. Let's take a look at how each trader may operate in the market.

Read more in Investopedia

Forex Trading Rules: Never Let a Winner Turn Into a Loser

2009-05-18T18:44:00.000-07:00

I already tackled about the Introduction on the trading rules in forex. Here's the first rule in the list: Never let a winner turn into a loser

Repeat: Protect your profits. Protect your profits. Protect your profits. There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower. If you haven't already experienced this feeling firsthand, consider yourself lucky - it's a woe most traders face more often than you can imagine and is a perfect example of poor money management.

Managing Your Capital

The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. One of the cardinal rules of trading is to protect your profits - even if it means banking only 15 pips at a time. To some, 15 pips may seem like chump change; but if you take 10 trades 15 pips at a time, that adds up to a respectable 150 points of profits. Sure, this approach may seem like trading like penny-pinching grandmothers, but the main point of trading is to minimize your losses and, along with that, to make money as often as possible.

The bottom line is that this is your money. Even if it is money that you are willing to lose, commonly referred to as risk capital, you need to look at it as "you versus the market". Like a soldier on the battlefield, you need to protect yourself first and foremost.

There are two easy ways to never let a winner turn into a loser. The first method is to trail. The second is a derivative of the first, which is to trade more than one lot.

Trailing Your Stops

Trailing stops requires work but is probably one of the best ways to lock in profits. The key to trailing stops is to set a near-term profit target. For example, if your "near-term target" is 15 pips, then as soon as you are 15 pips in the money, move your stop to breakeven. If it moves lower and takes out your stop, that is fine, since you can consider your trade a scratch and you end up with no profits or losses. If it moves higher, with each 5-pip increment you boost up your stop from breakeven by 5 pips, slowly cashing in gains. Just imagine it like a blackjack game, where every time you take in $100, you move $25 to your "do not touch" pile.

Trading In Lots

The second method of locking in gains involves trading more than one lot. If you trade two lots, for example, you can have two separate profit targets. The first target would be placed at a more conservative level, closer to your entry price, say 15 or 20 pips, while the second lot is much further away, through which you are looking to bank a much larger reward-to-risk-ratio. Once the first target level is reached, you would move your stop to breakeven, which in essence embodies the first rule: "Never let a winner turn into a loser".

Of course, 15 pips is hardly a rule written in stone. How much profit you bank and by how much you trail the stop is dependent upon your trading style and the time frame in which you choose to trade. Longer term traders may want to use a wider first target such as 50 or 100 pips , while shorter term traders may prefer to use the 15-pip target. Managing each individual trade is always more art than science. However, trading in general still requires putting your money at risk, so we encourage you to think in terms of protecting profits first and swinging for the fences second. Successful trading is simply the art of accumulating more winners than stops.

Source: Investopedia

Forex Trading Rules: Introduction

2009-05-11T19:29:00.000-07:00

Why Trade in Currencies?

There are 10 major reasons why the currency market is a great place to trade:

1. You can trade to any style - strategies can be built on five-minute charts, hourly charts ,daily charts or even weekly charts.
2. There is a massive amount of information - charts, real-time news, top level research - all available for free.
3. All key information is public and disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot sizes can be customized, meaning that you can trade with as little as $500 dollars at nearly the same execution costs as accounts that trade $500 million.
6. Customizable leverage allows you to be as conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is cleanly accounted for in the P&L.
8. You can trade 24 hours a day with ample liquidity ($20 million up)
9. There is no discrimination between going short or long (no uptick rule).
10. You can't lose more capital than you put in (automatic margin call)

Fair Warning
This tutorial is designed to help you develop a logical, intelligent approach to currency trading base on 10 key rules. The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. That is why we show you failures as well as successes - so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each idea that we present.

The 10 Rules
1. Never Let a Winner Turn Into a Loser
2. Logic Wins, Impulse Kills
3. Never Risk More Than 2% per Trade
4. Trigger Fundamentally, Enter and Exit Technically
5. Always Pair Strong With Weak
6. Being Right but Being Early Simply Means That You Are Wrong
7. Know the Difference Between Scaling In and Adding to a Loser
8. What is Mathematically Optimal Is Psychologically Impossible
9. Risk Can Be Predetermined, but Reward Is Unpredictable
10. No Excuses, Ever

Trading is an art rather than a science. Therefore, no rule in trading is ever absolute (except the one about always using stops!) Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you grounded - and out of harm's way.

Source: Investopedia

Asian Currencies News

2009-05-03T17:28:00.000-07:00

If you are trading and use the fundamental analysis, then you should keep up with the economic news and events. Here's one news I found in bloomberg when I was searching for the latest news.

Asian Currencies Fall, Led by Ringgit, on Spreading Swine Flu

April 27 (Bloomberg) -- The Malaysian ringgit and the Singapore dollar were among the biggest decliners in Asian currencies on concern spreading swine flu will damp global economic growth and investor confidence in emerging-market assets.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, dropped the most in a week and Asian stocks slid as funds based abroad sought safety in the U.S. currency and Treasuries. The ringgit also declined on bets the central bank will cut its benchmark interest rate to a record low this week in an effort to halt a slump in exports and industrial production.

“The swine flu is affecting sentiment and keeping the dollar bid,” said Carl Rajoo, an economist at Forecast Singapore Pte Ltd. “It’s causing a bit of a risk aversion. Sentiment is less optimistic. The risk of a global pandemic is severe.”

The ringgit snapped a two-day gain, weakening 0.4 percent to 3.5988 per dollar as of 5:12 p.m. in Kuala Lumpur from 3.5855 on April 24, according to data compiled by Bloomberg. Singapore’s dollar fell 0.2 percent to S$1.4936 and the Philippine peso slipped 0.5 percent to 48.677.

U.S. President Barack Obama's administration declared a public-health emergency because of a growing number of swine flu cases. In Mexico, 100 people have died from flu-related causes, while infections were also confirmed in Canada, and suspected in Brazil, Europe and New Zealand, sending the respective currencies lower. Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its flu response level to “serious” from “alert.”

Economic Calendar

2009-04-20T05:18:00.000-07:00

What is Economic Calendar and what is the use of it in trading Forex? Well, the economic calendar can be found at some of the forex websites, an example will be Forex Factory. It will help forex traders and investors about the upcoming major news and events. Here are some of the best ways to make money using a forex calendar. Some of the very important and common economic information is interest rate announcements, non-farm pay roll, consumer price index, unemployment rates(which is the main concern in the financial world right now), retail sales, manufacturing PMI and lots more. There are news release almost everyday.

If you are trading on technical and does not keep up with recent economics events, then you are missing out on a big part of the financial world. You will need to know the forex market conditions even if you are using technical analysis for your forex trading.

For example, you have a good forex strategy and it makes you nice profits consistently, but the strategy does not tell you when is a choppy market. Then how do you judge when is a choppy market? Here comes the market conditions that you will need to know. By keeping tabs on the forex calendar, you will be handed an extra edge on how your forex trading systems should be trading.

By knowing the timing of economic news release, it is not a forex signal for trading. In fact, you should not be trading 2 to 3 hours before any data is released which has got to do to the related currency pairs. For example, when there is going to be a interest rate announcement (a very big event) for U.S, then you should not be trading pairs like EUR/USD, USD/CHF, AUD/USD etc. This is to help you filter out those whipsaws that might happen when the announcement is being made.

Sometimes when a news is released, there will be a huge movement for a few minutes before the trend reverses again, those are fake signals that you would not want to take in. It is recommended that you take in trading signals around 15 minutes to 30 minutes only after the market is stabilized.

Without the aid of a forex calendar, you will hardly know when to act because you will have to be sure what is happening around and when is it happening. It's very usual for a trader to check the forex calendar for a few times a day as it is one of the criteria in a trading plan.

Forex advice and tips

2009-04-08T06:31:00.000-07:00

The best forex trading advice starts with treating it like a business, keeping in mind that you are going against highly trained professionals who trade in the forex market for a living.

In that regard, you must follow a tested and proven forex trading system. Now, you may start out with a forex day trading method that generates profitable trades right away, or you may not.

Quite frankly, it doesn't matter much to your long term success, as losing trades are a normal and expected cost of doing business. With that stated, your objective should simply be to have far more winning trades than losing trades consistently.

The forex trading advice you ultimately decide to implement to execute trades should put the odds of a winning trade in your favor using a trading system designed to capture 20-50 pips per trade during the first 1-3 hours following specific key economic announcements.

Forex markets provide multiple opportunities to trade and profit within a 24 hour period. This can be a two edged sword at times because it can mean very late night or early morning trades.

Let's face it no one really wants to monitor trade positions 24 hours a day, five days per week. The stress and fatigue factor is far too great to effectively trade at a profitable level over time.

You can greatly reduce stress and improve your forex trading using an economic calendar to schedule trades for no more than an hour or so daily. Get in, get out and shut it down for the day with fewer losses and more trades in your favor.

Avoid losing thousands of dollars of your hard earned money trading with free or cheap tools, software and education materials unless you are absolutely certain they are the very best on the market. Expect to invest at least a few hundred dollars for the proper trading tools.

Forex trading tools that deliver fast and accurate data in a timely manner is the key ingredient to trading success. Having access to reliable information at the right moment often determines whether a trader makes or loses money.

The forex trading platform you ultimately select to trade forex should provide prices in real time with the same liquidity offered to institutional traders such as hedge funds. You can be assured your dealer-broker has staying power if it can handle the volume of liquidity required by commercial traders.

Source: http://ezinearticles.com/?Forex-Trading-Advice-and-Success-Tips&id=341113

Automated Forex Trading - The Pros and Cons

2009-04-01T07:33:00.000-07:00

Many individuals that trade currency use one of the automated forex trading systems that are readily available today. The advances in technology in recent years have enabled trading of all sorts of commodities to break though into the digital era, thus making access much easier for the individual. Automated forex trading systems are available for currency trading now and have distinct advantages over other methods of trading.

Any individual using automated forex trading systems can now access the trading floor 24 hours a day. Unlike the stock exchange, forex trading occurs round the clock because even though the individual markets close, there is always another one open somewhere in the world. An automated forex trading system can access those markets and trade for you whenever the time is right.

Automated forex trading is easy enough to set up when you find the right system for you. There are options to explore that give you different access levels, but all will monitor changes in the currency market and alert you to changes. Automated forex trading systems will also obey your instructions. All any individual has to do is set preferences and requests and the automatic forex trading system will do the rest!

However, there are ongoing debates as to just how effective the automated forex trading systems are. Some individuals hail them as the best thing to happen to the financial industry because of the accessibility factor. However, the majority of traditional and long-standing traders of currency are still skeptical about the effectiveness of using a program to manage your portfolio instead of watching over it yourself.

Trusting technology is extremely hard for individuals that have been used to operating in a certain way. However, the main concern is the failsafe and recovery processes in place to prevent a major crash. Automated forex trading is actually digitally computerized and can only work if the system of which it is a part is fully operational. A virus or bug could actually wipe out an account and prevent trading if it happens to take hold. Advocates say that this is not possible, but whether it is or not is not known at this stage.

In truth, there is only one major disadvantage of an automated forex trading system. However, the pros most definitely outweigh it for anyone new to the floor. An automatic forex trading system can give a beginner help and can also give him or her an advantage that would otherwise have been unavailable. An automated forex trading system can certainly get you off on the right foot, as long as you do your research before hand!

Source: http://ezinearticles.com/?Automated-Forex-Trading---The-Pros-And-Cons-Of-Letting-A-Computer-Manage-Your-Investments&id=666462

Fundamental Analysis

2009-03-18T18:20:00.000-07:00

We already know that trading in the foreign exchange market (forex) rely on the two: technical analysis and fundamental analysis. This time, we will tackle about the other analysis which is the fundamental.

Fundamental Analysis in Forex is a type of market analysis which involves studying of the economic situation of countries to trade currencies more effectively.

Fundamental analysis involves examining the intrinsic value of a nation’s currency based on economic news releases that reflect the strength, or weakness, of a country’s economy. Fundamental traders follow these news announcements, known as “fundamental indicators,” because they paint a picture of a currency's strength in relation to other countries.

Economic Indicator

Fundamental analysis involve a lot of analysis on the macroeconomic situation.

Thus, economy indicators of the country such as GDP growth rates, unemployment rates, retail sales, and interest rate are used heavily in when valuating a country's currency. Some of the frequent used economy indicators in Forex trading are as below:

The Gross Domestic Product

Retail Sales

Interest Rates

Unemployment Rate

Industrial Production Reports

Consumer Price Index (CPI)

Manufacturing PMI-ISM

Manufacturing Production

While technical analysis gets into actual and historic movements in the forex market, fundamental analysis, on the other hand, takes an overview of forex movements. Fundamental analysis paints for the forex traders a broad picture of the conditions affecting the price of a currency. In order to get the best analysis, forex traders have to supplement their findings in the fundamental analysis with that of the technical analysis.

Technical Analysis in Forex

2009-03-09T05:19:00.000-07:00

There are 2 basic types of analysis you can take when approaching the forex:

Technical Analysis and Fundamental Analysis

There has always been a constant debate as to which analysis is better and which analysis is suited for your trading. So before choosing which is best, you need to know a little bit of both.

This time, we'll talk about Technical Analysis.

Technical Analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments.

Focuses on what actually happens in a market. Charts are based on market action involving:

Price

Volume

Open interest (futures only)

The most IMPORTANT thing you will ever learn in technical analysis is the trend. The reason for this is that you are much more likely to make money when you can find a trend and trade in the same direction. Technical analysis can help you identify these trends in its earliest stages and therefore provide you with very profitable trading opportunities.

The technical trader is concerned with studying patterns of price movement on the chart in order to predict the direction of current and future trends in the Forex market. The decision to buy, sell, or hedge a current position – or to stay out of the market entirely – is made upon this analysis. Identify recurring patterns and make educated assessments to guide your decisions; should you initiate a trade at the current price, or set your system to open a position at a future price?

The goal of the technical analyst is simple: to make profitable Forex trades by identifying past patterns that have historically led to a predictable outcome. However, the potential risk should always be considered. A recurring pattern is not precise and does not guarantee a desirable or expected price movement.

Money Management

2009-03-01T05:20:00.000-08:00

What is money management? It is managing risk in your trading. Most traders calculate potential profit before making a trade. Professional traders calculate risk before making a trade. Forex money management is one of the most key affairs you can read before you actually begin taking live trades.

It is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market.

Forex trading is not a guaranteed money maker 100% of the time, unlike what the ads seem to indicate. Experienced investors know this, and they know that some of their trades will lose money. The reason they're still successful is that they plan for these losses so that in the long term they remain profitable.

Money management is what full time and professional forex traders seen as one of the most important factor to succeed in forex trading. Below are the 3 proven techniques that forex trading experts always practice:

1. Only Risk Maximum Of 5% of capital Per Trade

Capital Preservations are very important, it can determine whether you are able to survive in the long run in the forex market. The reason for risking only maximum of 5% is that you still have ample capital to trade even if you loose a few trades. I risk only 1% of my capital per trade.

Never put all the eggs in one basket. Although you might have forex trading signals which gives you good probability trades, but this #1 rule should form a general part of your trading system, so that you don't risk too much on a trade.

2. Have a Healthy Risk to Reward Ratio

A lot of forex traders only care about making profits in the market. Some don't mind making small profits although their risk for that particular trade is higher. This is a huge mistake. Never risk more than what you can potentially make. For example, you should have a reward of at least 60 pips when you risk 30 pips, this is a healthy risk to reward ratio of 1:2.

This rule ensures you to be profitable, winning more than you loose. So let's say out of 5 trades, if you loose 3, which is total of 90 pips (30 pips lost per trade), you win the other 2 trades (60 pips per trade), you will still make 30 pips net(120 pips - 90 pips).

3. Do Not Open Multiple Positions Until First Trade Is In Profits

You may be confident that the first forex trade that you opened will be profitable, but do not open a second position until you see the profits from the first trade. This helps you to keep calm if the first position is in loss, and you don't have another burden from the second trade.

Those above may seem simple but actually require much discipline in real fact. That is what makes the difference between professional traders and retail traders, you need the right forex education. But give yourself a chance by getting forex tips, tutorials and trading system from my FREE ebook, to learn how to trade forex successfully like the professionals.

Currency Converter

2009-02-20T10:33:00.000-08:00

According to Investopedia, a currency converter is a calculator that converts the value or quantity of one currency into the relative values or quantities of other currencies. For example, if you had $1 that needed to be exchanged into the local currency of a country you are visiting, you would need to know the dollar- euro conversion, if you were traveling to certain parts of Europe, the dollar-pound conversion if you were in traveling in the United Kingdom, the dollar-yen conversion if you were traveling in Japan, the Canadian dollar-U.S. dollar conversion if you were traveling in Canada or the Swiss francs-dollar conversion if you were traveling in Switzerland. A currency converter stores the most recent market valuations of the world's currencies, which allows individuals to compare the value of one currency against those of others in the database. The values of the different currencies are determined based on the supply or demand of dealing prices between international banks.

Currency conversions also can be determined by contacting a local bank and asking for exchange rates. However, the rates that are quoted to retail customers at a bank may differ slightly from those at which banks trade among themselves because banks make a small profit on the exchange rate each time they buy or sell a currency. The rates shown on online rate converter tools usually do not take this retail profit into account.

To find the value of any country's currency and compare it to the currencies of other countries, online resources such as the Yahoo! Finance Currency Converter can be helpful. In addition, charts showing currency prices over various periods of time are available, which will help you gain perspective on the value of a specific currency over time.

Happy Valentine's Day

2009-02-14T16:13:00.000-08:00

Let me greet you Happy Valentine's Day everyone..

Enjoy the day with your loved ones...

Pivot Point Trading

2009-02-03T01:00:00.000-08:00

To trade forex using a pivot point is basically a value around which it is expected that trends will reverse or breakout and therefore it is a point of a lot of importance around the quantitative day trading that many people do. The idea is to use the numbers for the previous day to calculate the different values that will be of importance in the area and therefore use those calculated numbers to make the trades for that specific day. Professional traders and market makers use pivot points to identify important support and resistance levels.

The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

The calculation for a pivot point is shown below:

* O = open price from previous day

* C = closing price from previous day

* H = high value from previous day

* L = low value from previous day

Calculate the pivot point (PP) first…

*PP = (H + C + L) / 3

Then calculate the first support and resistance levels (S1 and R1)…

* S1 = (2*PP) – H

* R1 = (2*PP) – L

Then calculate the second support and resistance levels (S2 and R2)…

*S2 = PP – (R1 – S1)

*R2 = PP + (R1 – S1)

Then calculate the third support and resistance levels (S3 and R3)…

*S3 = L – 2(H – PP)

*R3 = H + 2(PP – L)

The three most important pivot points are R1, S1 and the actual pivot point. Don’t worry you don’t have to perform these calculations yourself. Your charting software will automatically do it for you and plot it on the chart.

There are number of ways that you can apply the pivot point and the support and resistance levels in relation to the pivot point. The only set rule for you to keep in mind is this; if the opening price for the day is below the pivot point, then your preference should be towards sell/short trades whereas if the opening price for the day is above the pivot point, you should be looking primarily for buy/long trades.

Top Most Tradeable Currencies

2009-01-27T07:52:00.000-08:00

I received an e-mail from Investopedia.com about an article - Top 8 Most Tradeable Currencies. I would like to share it here in my blog so I will sum up a little the content from that article.

1. U.S. Dollar (USD)
Central Bank: Federal Reserve (Fed)

Created in 1913 by the Federal Reserve Act, the Federal Reserve System (also called the Fed) is the central banking body of the

U.S.

The system is itself headed by a chairman and board of governors, with most of the focus being placed on the branch known as the Federal Open Market Committee (FOMC). The FOMC supervises open market operations as well as monetary policy or interest rates.

The current committee is comprised of five of the 12 current Federal Reserve Bank presidents and seven members of the Federal Reserve Board, with the Federal Reserve Bank of New York always serving on the committee. Even though there are 12 voting members, non-members (including additional Fed Bank presidents) are invited to share their views on the current economic situation when the committee meets every six weeks.

Sometimes referred to as the greenback, the U.S. dollar (USD) is the home denomination of the world's largest economy, the

United States

. As with any currency, the dollar is supported by economic fundamentals, including gross domestic product, and manufacturing and employment reports. However, the U.S. dollar is also widely influenced by the central bank and any announcements about interest rate policy. The U.S. dollar is a benchmark that trades against other major currencies, especially the euro, Japanese yen and British pound.

2. European Euro (EURO)
Central Bank: European Central Bank (ECB)

Headquartered in Frankfurt, Germany, the European Central Bank is the central bank of the 15 member countries of the Eurozone. In similar fashion to the United States' FOMC, the ECB has a main body responsible for making monetary policy decisions, the Executive Council, which is composed of five members and headed by a president. The remaining policy heads are chosen with consideration that four of the remaining seats are reserved for the four largest economies in the system, which include Germany, France, Italy and

Spain

. This is to ensure that the largest economies are always represented in the case of a change in administration. The council meets approximately 10 times a year.

3. Japanese Yen (JPY)
Central Bank: Bank of Japan (JoP)

Established as far back as 1882, the Bank of Japan serves as the central bank to the world's second largest economy. It governs monetary policy as well as currency issuance, money market operations and data/economic analysis. The main Monetary Policy Board tends to work toward economic stability, constantly exchanging views with the reigning administration, while simultaneously working toward its own independence and transparency. Meeting 12-14 times a year, the governor leads a team of nine policy members, including two appointed deputy governors.

The Japanese yen (JPY) tends to trade under the identity of a carry trade component. Offering a low interest rate, the currency is pitted against higher-yielding currencies, especially the

New Zealand

and Australian dollars and the British pound. As a result, the underlying tends to be very erratic, pushing traders to take technical perspectives on a longer-term basis. Average daily ranges are in the region of 30-40 pips, with extremes as high as 150 pips. To trade this currency with a little bit of a bite, focus on the crossover of London and

U.S.

hours (6am - 11am EST).

4. British Pound (GBP)
Central Bank: Bank of England (BoE)

As the main governing body in the

United Kingdom

, the Bank of England serves as the monetary equivalent of the Federal Reserve System. In the same fashion, the governing body establishes a committee headed by the governor of the bank. Made up of nine members, the committee includes four external participants (appointed by the Chancellor of Exchequer), a chief economist, director of market operations, committee chief economist and two deputy governors.

A little bit more volatile than the euro, the British pound (GBP, also sometimes referred to as "pound sterling" or "cable") tends to trade a wider range through the day. With swings that can encompass 100-150 pips, it isn't unusual to see the pound trade as narrowly as 20 pips. Swings in notable cross currencies tend to give this major a volatile nature, with traders focusing on pairs like the British pound/Japanese yen and the British pound/Swiss franc. As a result, the currency can be seen as most volatile through both London and

U.S.

sessions, with minimal movements during Asian hours (5pm - 1am EST).

5. Swiss Franc (CHF)
Central Bank: Swiss National Bank (SNB)

Different from all other major central banks, the Swiss National Bank is viewed as a governing body with private and public ownership. This belief stems from the fact that the Swiss National Bank is technically a corporation under special regulation. As a result, a little over half of the governing body is owned by the sovereign states of

Switzerland

. It is this arrangement that emphasizes the economic and financial stability policies dictated by the governing board of the SNB. Smaller than most governing bodies, monetary policy decisions are created by three major bank heads who meet on a quarterly basis.

Similar to the euro, the Swiss franc (CHF) hardly makes significant moves in the any of the individual sessions. As a result, look for this particular currency to trade in the average daily range of 35 pips per day. High-frequency volume for this currency is usually pitted for the London session (2am - 8am EST).

6. Canadian Dollar (CAD)
Central Bank: Bank of Canada (BoC)

Established by the Bank of Canada Act of 1934, the Bank of Canada serves as the central bank called upon to "focus on the goals of low and stable inflation, a safe and secure currency, financial stability and the efficient management of government funds and public debt." Acting independently, Canada's central bank draws similarities with the Swiss National Bank because it is sometimes treated as a corporation, with the Ministry of Finance directly holding shares. Despite the proximity of the government's interests, it is the responsibility of the governor to promote price stability at an arm's length from the current administration, while simultaneously considering the government's concerns. With an inflationary benchmark of 2-3%, the BoC has tended to remain a shade more hawkish rather than accommodative when it comes to any deviations in prices.

Keeping in touch with major currencies, the Canadian dollar (CAD) tends to trade in similar daily ranges of 30-40 pips. However, one unique aspect about the currency is its relationship with crude oil, as the country remains a major exporter of the commodity. As a result, plenty of traders and investors use this currency as either a hedge against current commodity positions or pure speculation, tracing signals from the oil market.

7. Australian/New Zealand Dollar (AUD/NZD)
Central Bank: Reserve Bank of Australia/Reserve Bank of New Zealand (RBA/RBNZ)

Offering one of the higher interest rates in the major global markets, the Reserve Bank of

Australia

has always upheld price stability and economic strength as cornerstones of its long-term plan. Headed by the governor, the bank's board is made up of six members-at-large, in addition to a deputy governor and a secretary of the Treasury. Together, they work toward to target inflation between 2-3%, while meeting nine times throughout the year. In similar fashion, the Reserve Bank of

New Zealand

looks to promote inflation targeting, hoping to maintain a foundation for prices.

Both currencies have been the focus of carry traders, as the Australian and

New Zealand

dollars (AUD and NZD) offer the highest yields of the seven major currencies available on most platforms. As a result, volatility can be experienced in these pairs if a deleveraging effect takes place. Otherwise, the currencies tend to trade in similar averages of 30-40 pips, like other majors. Both currencies also maintain relationships with commodities, most notably silver and gold.

8. South African Rand (ZAR)
Central Bank: South African Reserve Bank (SARB)

Previously modeled on the United Kingdom's Bank of England, the South African Reserve Bank stands as the monetary authority when it comes to

South Africa

. Taking on major responsibilities similar to those of other central banks, the SARB is also known as a creditor in certain situations, a clearing bank and major custodian of gold. Above all else, the central bank is in charge of "the achievement and maintenance of price stability". This also includes intervention in the foreign exchange markets when the situation arises.

Interestingly enough, the South African Reserve Bank remains a wholly owned private entity with more than 600 shareholders that are regulated by owning less than 1% of the total number of outstanding shares. This is to ensure that the interests of the economy precede those of any private individual. To maintain this policy, the governor and 14-member board head the bank's activities and work toward monetary goals. The board meets six times a year.

Seen as relatively volatile, the average daily range of the South African rand (ZAR) can be as high as 1,000 pips. But don't let the wide daily range fool you. When translated into dollar pips, the movements are equivalent to an average day in the British pound, making the currency a great pair to trade against the U.S. dollar (especially when taking into consideration the carry potential). Traders also consider the currency's relationship to gold and platinum. With the economy being a world leader when it comes to exports of both metals, it is only natural to see a correlation similar to that between the CAD and crude oil. As a result, consider the commodities markets in creating opportunities when economic data is scant.

FOREX GLOSSARY

2009-01-12T19:11:00.001-08:00

The most commonly used terminology in Forex Trading

Accrual - The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals , over the period of each deal.

Adjustment - Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or. Adjustment - Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.

Appreciation - A currency is said to 'appreciate' when it strengthens in price in response to market demand.

Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.

Ask (Offer) Price - The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.

At Best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.

At or Better - An order to deal at a specific rate or better.

B

Balance of Trade - The value of a country's exports minus its imports.

Bar Chart - A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.

Base Currency - The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

Bear Market - A market distinguished by declining prices.

Bid Price - The bid is the price at which the market is prepared to buy a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can sell the base currency. It is shown on the left side of the quotation. For example, in the quote USD/CHF 1.4527/32, the bid price is 1.4527; meaning you can sell one US dollar for 1.4527 Swiss francs.

Bid/Ask Spread - The difference between the bid and offer price.

Big Figure - The first two or three digits of a foreign exchange price or rate. Examples: If the USD/JPY bid/ask is 115.27/32, the big figure is 115. On a EUR/USD price of 1.2855/58 the big figure is 1.28. The big figure is often omitted in dealer quotes. The EUR/USD price of 1.2855/58 would be verbally quoted as "55/58".

Book - In a professional trading environment, a 'book' is the summary of a trader's or desk's total positions.

Broker - An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a 'dealer' commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

Bretton Woods Agreement of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.

British Retail Consortium (BRC) Shop Price Index – Measures the rate of inflation at various surveyed retailers. This index only looks at price changes in goods purchased in retail outlets.

Bull Market - A market distinguished by rising prices.

Bundesbank - Germany's Central Bank.

C

Cable - Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.

Canadian Ivey Purchasing Managers (CIPM) Index – A monthly gauge of Canadian business sentiment issued by the Richard Ivey Business School.

Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Carry Trade – Refers to the simultaneous selling of a currency with a low interest rate, while purchasing currencies with higher interest rates. Examples are the JPY crosses such as GBP/JPY and NZD/JPY.

Cash Market - The market in the actual financial instrument on which a futures or options contract is based.

Central Bank - A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.

Cleared Funds - Funds that are freely available, sent in to settle a trade.

Closed Position - Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will 'square' the postion.

Clearing - The process of settling a trade.

Contagion - The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the 'Asian Contagion'.

Collateral - Something given to secure a loan or as a guarantee of performance.

Commission - A transaction fee charged by a broker.

Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.

Construction Spending – Measures the amount of spending towards new construction, released monthly by the U.S. Department of Commerce's Census Bureau.

Contract - The standard unit of trading.

Counter Currency - The second listed Currency in a Currency Pair.

Counterparty - One of the participants in a financial transaction.

Country Risk - Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

Cross Currency Pairs - A pair of currencies that does not include the U.S. dollar. For example: EUR/JPY or GBP/CHF.

Currency symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc

Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Currency Pair - The two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency Risk - the probability of an adverse change in exchange rates.

Current Account – The sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically is the key component to the current account.

D

Day Trader - Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.

Dealer - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

Deficit - A negative balance of trade or payments.

Delivery - An FX trade where both sides make and take actual delivery of the currencies traded.

Department of Communities and Local Government (DCLG) UK House Prices – A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market.

Depreciation - A fall in the value of a currency due to market forces.

Derivative - A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.

Devaluation - The deliberate downward adjustment of a currency's price, normally by official announcement.

Discount Rate – Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank.

E

Economic Indicator - A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

End Of Day Order (EOD) - An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.

European Monetary Union (EMU) - The principal goal of the EMU is to establish a single European currency called the Euro, which will officially replace the national currencies of the member EU countries in 2002. On Janaury1, 1999 the transitional phase to introduce the Euro began. The Euro now exists as a banking currency and paper financial transactions and foreign exchange are made in Euros. This transition period will last for three years, at which time Euro notes an coins will enter circulation. On July 1,2002, only Euros will be legal tender for EMU participants, the national currencies of the member countries will cease to exist. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.

EURO - the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

European Central Bank (ECB) - the Central Bank for the new European Monetary Union.

Eurozone Organization for Economic Co-operation and Development (OECD) Leading Indicator – A monthly index produced by the OECD. It measures overall economic health by combining ten leading indicators including: average weekly hours, new orders, consumer expectations, housing permits, stock prices, and interest rate spreads.

Eurozone Labor Cost Index – Measures the annualized rate of inflation in the compensation and benefits paid to civilian workers and is seen as a primary driver of overall inflation.

F

Factory Orders – The dollar level of new orders for both durable and nondurable goods. This report is more in depth than the durable goods report which is released earlier in the month.

Federal Reserve (Fed) - The Central Bank for the United States.

First In First Out (FIFO) - Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.

Flat/square - Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

Foreign Exchange - (Forex, FX) - the simultaneous buying of one currency and selling of another.

Forward - The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

Forward Points - The pips added to or subtracted from the current exchange rate to calculate a forward price.

French Central Government Balance – The difference between the central government's monthly income and spending.

Fundamental Analysis - Analysis of economic and political information with the objective of determining future movements in a financial market.

Futures Contract - An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

FX - Foreign Exchange.

G
G7 - The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

Going Long - The purchase of a stock, commodity, or currency for investment or speculation.

Going Short - The selling of a currency or instrument not owned by the seller.

Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross National Product - Gross domestic product plus income earned from investment or work abroad.

Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

H

Hedge - A position or combination of positions that reduces the risk of your primary position.

"Hit the bid" - Acceptance of purchasing at the offer or selling at the bid.

I

Industrial Production – Measures the total value of output produced by manufacturers, mines and utilities. This data tends to react quickly to the expansions and contractions of the business cycle and can act as a leading indicator of employment and personal income.

Inflation - An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Initial Margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks.

Intervention - Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Introducing Broker - A person or corporate entity which introduces accounts to FOREX.com for a fee.

ISM Manufacturing Index – An index that assesses the state of US manufacturing sector by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

ISM Non-Manufacturing – An index that survey service sector firms for their outlook, representing the other 80% of the U.S. economy not covered by ISM MANUFACTURING REPORT. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

J

Japanese Economy Watchers Survey – Measures the mood of businesses that directly service consumers such waiters, drivers, and beauticians. Readings above 50 generally signal improvements in sentiment.

Japanese Machine Tool Orders – Measures the total value of new orders placed with machine tool manufactures. Machine tool orders are a measure of the demand for machines that make machines, a leading indicator of future industrial production. Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase

K

Kiwi - Slang for the New Zealand dollar.

L

Leading Indicators - Statistics that are considered to predict future economic activity.

Leverage - Also called margin. The ratio of the amount used in a transaction to the required security deposit.

LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.

Limit order - An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below 102. (ie 116.50)

Liquidation - The closing of an existing position through the execution of an offsetting transaction.

Liquidity - The ability of a market to accept large transaction with minimal to no impact on price stability.

Long position - A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long.

Lot - A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.

M

Manufacturing Production – Measures the total output of the manufacturing aspect of the Industrial Production figures. This data only measure the 13 sub sectors that relate directly to manufacturing. Manufacturing makes up approximately 80% of total Industrial Production.

Margin - The required equity that an investor must deposit to collateralize a position.

Margin Call - A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

Market Maker - A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.

Market Risk - Exposure to changes in market prices.

Mark-to-Market - Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.

Maturity - The date for settlement or expiry of a financial instrument.

N

Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.

O

Offer (ask) - The rate at which a dealer is willing to sell a currency. See Ask (offer) price

Offsetting transaction - A trade with which serves to cancel or offset some or all of the market risk of an open position.

One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

Open order - An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.

Open position - An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.

Over the Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.

Overnight Position - A trade that remains open until the next business day.

Order - An instruction to execute a trade at a specified rate.

P

Personal Income – Measures an individuals' total annual gross earnings from wages, business enterprises and various investments. Personal income is the key to personal spending, which accounts for 2/3 of GDP in the major economies.

Pips - The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.

Political Risk - Exposure to changes in governmental policy which will have an adverse effect on an investor's position.

Position - The netted total holdings of a given currency.

Premium - In the currency markets, describes the amount by which the forward or futures price exceed the spot price.

Price Transparency - Describes quotes to which every market participant has equal access.

Profit /Loss or "P/L" or Gain/Loss - The actual "realized" gain or loss resulting fromtrading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.

Purchasing Managers Index Services (France, Germany, Eurozone, UK) – Measures an outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Readings above 50 generally indicate expansion, while reading below 50 suggest economic contraction.

Q

Quote - An indicative market price, normally used for information purposes only.

R

Rally - A recovery in price after a period of decline.

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - The price of one currency in terms of another, typically used for dealing purposes.

Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Retail Sales – Measures the monthly retail sales of all goods and services sold by retailers based on a sampling of variety of different types and sizes. This data gives a look into consumer spending behavior, which is a key determinant of growth in all major economies.

Revaluation - An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.

Risk Management - the employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

Roll-Over - A rollover is the simultaneous closing of an open position for today's value date and the opening of the same position for the next day's value date at a price reflecting the interest rate differential between the two currencies.

The spot forex market is traded on a two-day value date. For example, for trades executed on Monday, the value date is Wednesday. However, if a position is opened on Monday and held overnight (remains open after 1700 ET), the value date is now Thursday. The exception is a position opened and held overnight on Wednesday. The normal value date would be Saturday; because banks are closed on Saturday the value date is actually the following Monday. Due to the weekend, positions held overnight on Wednesday incur or earn an extra two days of interest. Trades with a value date that falls on a holiday will also incur or earn additional interest.

Round trip - Buying and selling of a specified amount of currency.

S

Settlement - The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

Short Position - An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

Simple Moving Average (SMA) – A simple average of a pre – defined amount of price bars. For example, a 50 period Daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied here.

Spot Price - The current market price. Settlement of spot transactions usually occurs within two business days.

Spread - The difference between the bid and offer prices.

Square - Purchase and sales are in balance and thus the dealer has no open position.

Sterling - slang for British Pound.

Stop Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49. Refer to Trading Handbook for FOREX.com's Stop Loss Policy.

Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

Swissy - Market slang for Swiss Franc.

T

Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Tick - A minimum change in price, up or down.

Tomorrow Next (Tom/Next) - Simultaneous buying and selling of a currency for delivery the following day.

Trade Balance – Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken.

Transaction Cost - the cost of buying or selling a financial instrument.

Transaction Date - The date on which a trade occurs.

Turnover - The total money value of all executed transactions in a given time period; volume.

Two-Way Price - When both a bid and offer rate is quoted for a FX transaction.

U

UK HBOS House Price Index – Measures the relative level of UK house prices for an indication of trends in UK real estate sector and their implication for overall economic outlook. This index is the longest monthly data series of any UK housing index, put out by the largest UK mortgage lender (Halifax Building Society/Bank of Scotland).

UK Producers Price Index Input – Measures the rate of inflation experienced by manufacturers when purchasing materials and services. This data is closely scrutinized since it can be a leading indicator of consumer inflation.

UK Producers Price Index Output – Measures the rate of inflation experienced by manufacturers when selling goods and services.

UK Claimant Count Rate – Measures the number of people claiming unemployment benefits. The claimant count figures tend to be lower than the unemployment data since not all unemployed are eligible for benefits.

UK Jobless Claims Change – Measures the change in the number of people claiming benefits over the previous month.

UK Average Earnings Including Bonus/ Excluding bonus – Measures the average wage including/excluding bonuses paid to employees. This is measured QoQ from the previous year.

UK Manual Unit Wage Costs – Measures the change in total labor cost expended in the production of one unit of output.

Unemployment Rate – Measures the total workforce that is unemployed and actively seeking employment, measured as the percentage of the labor force.

University of Michigan's Consumer Sentiment Index – Polls 500 US households each month. The report is issued in a preliminary version mid – month and a final version at the end of the month. Questions revolve around individuals attitudes about the US economy. Consumer sentiment is viewed as a proxy for the strength of consumer spending.

Unrealized Gain/Loss - The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains' Losses become Profits/Losses when position is closed.

Uptick - a new price quote at a price higher than the preceding quote.

Uptick Rule - In the U.S., a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.

US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.

V

Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.

Variation Margin - Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.

The VIX or Volatility Index – Shows the market's expectation of 30 – day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".

Volatility (Vol) - A statistical measure of a market's price movements over time.

W

Wedge Chart Pattern – Chart formation that shows a narrowing price range over time, where price highs in an ascending wedge are incrementally less, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout, and descending wedges typically terminate with upside breakouts.

Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Wholesale Prices – Measures the changes in prices paid by retailers for finished goods. Inflationary pressures typically show up here earlier than the headline retail.

Y

Yard - Slang for a billion.
Yield - It is the income on invested capital in the form of percent. It is counted for the term of one year.

Choosing a Forex Broker

2009-01-12T06:33:00.000-08:00

Before trading Forex you need to set up an account with a Forex Broker. So what exactly is a broker? In simplest terms, a broker is an individual or a company that buys and sells orders according to the trader's decisions. Brokers earn money by charging a commission or a fee for their services.

Find out if the broker is regulated

When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with.

Traders are recommended to deal only with authorized currency traders. If you are trading in United States, make sure your Forex brokerage firm is registered with Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). Also, most large brokerage firms are connected in some way to a bank or financial institution. Since the majority of Forex business is based on credit, the partnership with financial institution is crucial to offers their clients better in Forex investment.

Customer Service

Forex is a 24-hour market, so 24-hour support is a must! Can you contact the firm by phone, email, chat, etc.? Do the reps seem knowledgeable? The quality of support can vary drastically from broker to broker, so be sure to check them out before opening an account.

Online Trading Platform

Trading software is very important. Get a feel for the options that are available by trying out a demo account at a few online brokers. Good trading software will show live prices that you can actually trade at, not just indicative quotes. It will offer Limit and Stop orders, and ideally will let you attach these to your entry order. One-Cancels-Other orders are another useful feature - they mean you can set up your trade and then leave the software to get on with it. And the most important feature of all - can you actually understand the platform? Having all the bells and whistles is of no use if you can't use them, so again, get a demo account and give it a go.

Spreads

Currencies are normally traded in pairs of ask-bid price. The difference of the selling (bid) and the buying (ask) is known as spread. For example of EUR/USD 1.2435/1.2440, the Forex quote here means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435, and the spread is (1.2440 - 1.2435) = 0.0005. As Forex brokers do not charge commissions on their client trades, they are making money off the spreads. If the spreads are low, this means they are offering a cheaper service and thus traders have better profit value. Thus, Forex brokerage that offers lower spread is more preferred.

Leverage

Some brokers offer 1:50 trade margins and some offer 1:200. The fact is leverage level might varies a lot for different brokerage firm. While higher trade margin does not guarantee your profit in Forex market, higher trade margin however will give you a better chance to win big when the opportunity comes. High leverage level is especially important when you have little capital outlay.

Demo Trading Part II - Disadvantages

2009-01-06T03:00:00.000-08:00

In my previous post, we tackled about DEMO TRADING and the importance of it. It is indeed a great way to get started in forex trading. It is used to be known as "paper trading". It allows you to get a taste for what type of events move markets and how they move. It gives traders who are new to forex a chance to get some 1st hand knowledge of all the nuances of live trading.

So there are many benefits of paper trading most especially to the newbies. Not only that, demo accounts do not cost anything and you can develop and test a system without a risk. But then, there seem to be found some disadvantages of using Demo Accounts.

1. NO UNDERSTANDING OF REAL RISK - The demo account saves you from potentially massive losses while learning, but does not teach you anything about dealing with the emotions you will feel once you lose.

2. DOES NOT INTRODUCE YOU TO FEAR - There is no fear when you are demo trading. If you start losing badly on a demo account - simply start a new one. So it does not teach you how to handle the emotion of fear.

3. NO SOUND MONEY MANAGEMENT - A demo account comes with a large amount of money deposited in it. These large amounts set up a psychological expectation to make large amounts of profit easily. This can encourage excessive risk taking once you switch to a live account with real money. The big difference is, when you have a live account and lose, it’s for real.

4. INTRODUCE YOU TO THE RAPTURE OF GREED - The whole point of trading is to make money and the more money you make - the stronger the pull of your greed becomes. It is intoxicating and can take complete control of you.

Conclusion:

A Demo Account is the only way one get real, in the trench battle experience without getting burned. You start by getting familiarized with the features and interface on the forex platform. That's all!

So try to familiarize everything you have to know and learn by demo trading and then try going live afterwards. You can try micro and mini accounts, so if you lose then it would not a big deal since you are not trading big money.

Demo Account is just for LEARNING PURPOSE. It's also a good way to test a system/method to see if it works before losing your money.

Excessive paper trading is not a good idea. There is a tendency for newbie traders to remain in demo trading for too long. Eventually you'll have to step out of your comfort zone and start trading with real money.

Demo Trading

2008-12-30T00:00:00.000-08:00

DEMO TRADING or paper trading involves normal fx trading activities such as entering into buy (or sell) trades, setting stop orders, and exiting the market. It's basically the same as actual trading except for one crucial difference: You're not trading with real money.

It allows new traders to familiarize themselves with the brokers' trading platforms - for example, to learn how to place buy and sell orders, as well as how to set stop orders etc. It's a common occurrence for new traders to enter into a buy trade when they want to sell, and vice versa. Without a paper trading account, they'll be paying for such simple errors with real money.

Most says that one of the best ways to check out Forex trading and see if it is truly something that you like and feel that you can make money in is to open a forex demo account. This strategy allows you to view the account online and see how the account would perform if it were a real account.

The vast majority of reputable brokerage houses offering Forex Trading make these accounts available because they know that if you study and learn how to trade effectively you will be comfortable making larger trades, which in turn will make them more money. But of course, there's limit for demo trading.

Like other things, Demo Trading has disadvantages as well which will be tackled in my next post.

Happy New Year everybody!

Calculating Profit and Loss

2008-12-26T09:37:00.000-08:00

The foreign exchange market is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in currency pairs. To understand how the exchange rate can affect the value of your Forex investment, a trader should know how to read a Forex quote.

Most online forex trading platforms like automatically calculate the Profit & Loss of a traders. However, it is useful to understand how the calculation process is.

Let's illustrate how to calculate the P&L:

The current bid/ask price for EUR/USD is 1.2320/23, meaning you can buy 1 euro with 1.2323 US dollars or sell 1 euro for 1.2320 US dollars.

Suppose you decide that the Euro is undervalued against the US dollar. To execute this strategy, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.

So you make the trade: to buy 100,000 euros you pay 123,230 dollars (100,000 x 1.2323). Remember, at 1% margin, your initial margin deposit would be $1,232 for this trade.

As you expected, Euro strengthens to 1.2395/98. Now, to realize your profits, you sell 100,000 euros at the current rate of 1.2395, and receive $123,950.

You bought 100k Euros at 1.2323, paying $123,230. You sold 100k Euros at 1.2395, receiving $123,950. That's a difference of 72 pips, or in dollar terms ($123,950 - $123,230 = $720).

So the total profit is US $720

That is how the process of calculation is done. When calculating profit or loss, the trader should consider the spread as well as the interest differential.

Forex Charting

2008-12-19T03:59:00.000-08:00

In Forex Trading, when becoming a Forex trader you can definitely use great tools available to you, such as Forex charting. The charts produced by Forex analysis can give you great insight into different aspects of the market, including movements. By using charts in foreign exchange you can study the behavior of the market over a greater amount of time and analyze them and how they affect trading.

Forex charting is a method of providing financial data, in this case the performance of world currency, in the form of different types of charts called currency charts. Currency charts represent a single period in time: a minute, a month, a year, depending on how the charts are packaged.

The forex charts are generated by charting software, which go through historical as well as current data and generate the big picture for the trader. The trader can select the charting software based on his specific needs. Dailyfx offers free forex charts with live FXCM Quotes.

There are many people who are very interested in Online Forex Trading but fear that they may suffer some losses due to lack of experience or knowledge. If this is the case, you should open an online trading account with the appropriate forex charting software. This virtual account enables you to learn about currency trading and the market without investing money and without having to establish a commitment.

Every trader should have to be aware and keep these points in mind:

*Ensure that the charts are as up to the minute and accurate as they claim.

*The charts should give meaningful and significant information at a glance.

*The charts should integrate with the trading platform that the trader is using.

*The trader should be able to view more than one chart at a time to get the fullest possible picture of forex’s current behavior.

Forex Volatility

2008-12-14T21:34:00.000-08:00

There is one thing in particular that wipes out more trader equity than anything else, the volatility! From 1980's up to this time, the distinctive characteristic of the foreign exchange market was its volatility. A currency volatility that was a reflection of major imbalances between national economies.

Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

Most forex traders simply can’t deal with volatility. Every trader should learn to deal with it in forex and that means knowing and understanding standard deviation or you will lose all your money! Currencies are volatile, and in theory you can trade for thousands in profits every day.

Volatility is typically measured in two ways

* Historical Volatility

Historical volatility is a measure of how much an exchange rate has varied over a given time period. Historical volatility is backward looking.

* Implied Volatility

Implied volatility is estimated of a security's price. In general, this volatility increases when the market is bearish and decreases when the market is bullish.

Understanding of standard deviation is important in forex trading, it tells you how volatile prices are. So what is it? Standard deviation is a statistical term that refers to and shows the volatility of price in any currency or financial instrument. It measures how widely values are dispersed from the mean or average.

Trading Tidbits

2008-12-11T07:26:00.000-08:00

Here are few advices that we usually hear from professional traders:

‘let your winners run and cut your losing trades quickly.”

"Leave your emotions at the door."

"Buy above and sell low."

“Don’t buy at resistance and don’t sell at support.”

"the trend is your friend."

“buy the pullbacks in a trending market.”

But what are these tidbits got to do when in the first place, most traders doesn't have a discipline to follow their own rules? What more a tidbits that they only usually hear from other traders..

One of the problem in trading forex is the ability to grasp everything about the market.

It's really a sad fact..

But i guess the turning point of that is learning from your own mistakes.. and realize what was the main reason of your downfall..

And that would be the time for you to wake up and face the reality that the industry of forex is not so friendly.. It's risky and there are lots of shark out there waiting to swallow.

Forex Trading Software

2008-12-06T00:00:00.000-08:00

The Foreign Exchange Market is a high paced fast moving market. In order for you to make good trades you need good information. So if you plan to start Online Forex Trading, you will need the right software system to give you the ability to collect information on market prices and make Forex trades quickly and easily. And with the right software and a high speed internet connection, everything is only mouse click away. You just need to decide on which software is best for you.

Forex trading software has proven itself to be an essential when it comes to trading on the Forex market especially those who are just beginning in the Forex market.

Forex trading software comes in two basic flavors :

Client based software

Web based software

Client based Forex trading software is downloaded and then installed on your computer. The biggest draw back to a client based system is that you can only access it from the computer on which it is installed. You also need to be concerned with the security on your system.

Web based software lets you login in with an internet connection and you can use any computer anywhere. Web based software tends to less vulnerable to viruses and hackers because of the high security implemented. Online based forex trading system are hosted on secure servers, the same type of servers credit card processing is handled on. This gives you a great deal of protection, as your data is encrypted. Also, backups and mirrors of your account data are made by your software provider to protect you from data loss.

You can find many forex trading software by searching it through google like FXCM and AC-Markets.

So, which one you choose to work with depends on your preference and other more technical factors. You ultimately should choose to work with the software that you personally find easiest and most intuitive to use, that you personally find easiest and most intuitive to use.

Trading with Strategy

2008-12-04T19:26:00.000-08:00

Being a successful trader is not just a simple matter. Trading requires time, market/trading knowledge and market/trading understanding, dedication and a large amount of self restraint.

So, what is really a trading strategy? A trading strategy is a system you'll use to help you make successful trades and a good trading system can help increase your success.

Stock trading is very different from forex trading. Just by using forex trading strategies will give you more advantages and help you realize even greater profits. There are a wide range of strategies available to traders. You just have to choose what's comfortable with you and that you fully understand the strategies used in forex trading. Forex trading strategies are one of the key to successful forex trading. They are designed to help traders get the most from their forex trading and help minimize their losses.

Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves. You should take the time to understand the forex trading strategy, study the components independently, go a deeper understanding of the strategic mechanisms and master them. If you recognize the components, internalize its use, and make consistent profits into your forex trading account, then you have your own Forex trading strategy.

When developing a trading strategy, many things must be considered. Most importantly, a trader must choose or create a strategy that fits himself. Many things must be considered: working knowledge in forex, risk-tolerance, skill, experience, interests, how the market works, etc. Once a trading strategy is chosen, it can be developed on numerous software platforms.

Few tips for preparing your strategy will be:

Always trade with the trend.

Never risk all your trading capital in a single trade.

Follow strict discipline to limit your loss.

Whenever you are in doubt, get out of the trade.

Trade Forex

Forex Overtrading

2008-12-01T00:00:00.000-08:00

It is said that overtrading ranks as one of the most common trading pitfalls in fx trading. It is the greatest single cause for losses in the markets. Whether you are winning now or losing now, ninety-five or more percent of all traders trade too often.

So what is exactly is overtrading and how are we going to recognize and prevent it? A good definition of overtrading is taking a position which is too large in relation to the available trading capital.

Overtrading typically comes in two main forms:

1. trading too many positions at once or trading too frequently in the market

2. always having an open position.

An essential tip in forex currency trading is that you should have no more than 5 positions when trading in the market. Any more than that will cause detriment on your focus in each one of your trades which will generate negative effects on your transactions.

Overtrading also causes impulsive trading. The trading that is done without control and caused by greed. It leads to more risk in your account and also reduces your win loss ratio. It also increases your cost of trading as each time you are trading ,you are paying the broker commissions.

One way to control a loss is by reducing your size. The problem with traders is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. It takes tremendous discipline to hold yourself back from overtrading. So having the strength to grind your way back from a loss is important in trading.

Forex Trading System

What is Margin Call?

2008-11-30T19:47:00.000-08:00

Why is that Margin Call pops up easily in your trading? What is the importance of it in your trades?

First, let's tackle what Margin really is. Margin in forex trading is the collateral that your broker requires to ensure that you can cover any losses you might take on your positions. The margin available will limit the size of your position. It is used by the broker to maintain your position. Your broker basically takes your margin deposit and pools them with everyone else’s margin deposits, and uses this one deposit to be able to place trades with the interbanks.

If you’re broker offers a leverage of 100:1, you’re margin will be 1%; if a broker requires a margin of 2%, you’re leverage will be 50:1 (100:2). The normal trade margins are 100:1 and 150:1, or even 200:1 trade margins.

By utilizing margin, traders are increasing their purchasing power so that they can own more lots without fully paying for it.

The amount of leverage you use will depend on your broker and what you feel comfortable with. There was a time when it was difficult to find companies prepared to offer margin accounts but nowadays you can get leverage from a high as 1% with some brokers. This means you could control $100,000 with only $1,000.

Typically the broker will require a minimum account size, also known as account margin or initial margin e.g. $10,000. Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.

For example, for every $1,000 you have, you can trade 1 lot of $100,000. So if you have $5,000 they may allow you to trade up to $500,000.

The minimum security (Margin) for each lot will very from broker to broker. In the example above the broker required a one percent margin. This means that for every $100,000 traded the broker wanted $1,000 as security on the position.

You might be wondering how to get margin and leverage. Here's a little formula for you to learn how.

Margin Formula: M (Margin) =100/L (Leverage)

Example 1: your leverage is 50:1

M=100/L
M=100/50
M=2

Your margin in this case is 2%

Leverage Formula: L=1/M=1M*100

(Leverage equals 1 devided by margin value times 100 )

So, if you know the margin, just divide the margin from 1 and than multiply the sum by 100

Example 2:

Let’s say Margin is 0.5%, so M=0.5

L=1/M=1M*100
L=1/0.5=2*100
L=200

Your leverage in this case is 200:1

If you use the entire usable margin, that is the time you'll get a margin call. So If the equity in the account drops below your usable margin, a margin call will occur and this is where all of the trader’s open positions are being automatically closed, thus preventing the trader from entering into debt.

Forex Training

Fear and Greed - Bad or Good?

2008-11-27T19:31:00.001-08:00

The word Greed is the selfish desire for or pursuit of money, wealth, power, food or other possessions, especially when this denies the same goods to others. It is generally considered a vice, and is one of the seven deadly sins in Catholicism.

In FOREX, people who trade will typically view fear and greed as the enemy. However, there are some good parts of these emotions. All traders experience emotion.

Let's identify the good and negative methods in which fear and greed control your forex trading.

The Good Side:

Greed gets us into the Forex market, and makes us want to stay.
Greed pushes us into trades that meet our criteria.
Fear of loss convinces us to put in the effort and time needed to develop a good plan of trading.
Fear and greed make us become more confident traders.

The Bad Side:

Fear causes us to stop on our wins, fearing we will lose our profits.
Being greedy causes us to ignore our money management regulations and exposes our portfolios to the possibility of catastrophic losses.
Fear causes us to lay aside, having not pulled the trigger, even though the opportunity matched our criteria.
Greed will trigger the impulse to make a trade when the market is on the move, because we don't want to miss the chance, even though it violates the rules that we have set.

Fear and greed may destroy our profits, they can also inspire and drive us to become better traders. Consider the list above and determine in what ways fear and greed affect you and the decisions you make. Capitalize on the positive and try to eliminate the negative.

Forex Trading Strategies

Forex Education

2008-11-27T19:25:00.000-08:00

There are many people who are interested in forex currency trading. But before you start trading in forex, getting a good trading education is important. The forex market is largely a technical market with its own forex terms and processes so it is important you grasp the fundamentals with an online forex trading education.

One of the most important goals in most people's lives is to obtain a good education. Each different type of education will serve its own purpose, and a forex education will aid people who are interested in pursuing a career as a forex trader. People can obtain this type of education in a variety of ways. The most traditional method is to attend classes or getting a forex training.

A forex tutorial is a good way to acquire knowledge about the working of forex markets. The beginner learns the market terms, the basic trading skills and the techniques to chart market movements. These are useful skills to acquire for any individual who wants to be a forex trader. One of the best way to acquire knowledge about forex trading is Babypips.com, most especially the beginners.

It’s important you do not rush through your online forex trading education. Forex education is crucial for beginners so just take your time to understand and start trading in small amounts to practice. As the saying goes, practice make perfect.

Forex Trading Course

What is Leverage in Forex?

2008-11-26T19:47:00.000-08:00

Leverage on Foreign Exchange involves borrowing a certain amount of the money needed to invest in something. In the case of online forex trading, that money is usually borrowed from a broker. Frex currency trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up - and control - a huge amount of money.

It plays an important role in forex trading. In fact it’s one of the main reasons why it is so popular. It basically enables you to trade positions that are far greater than the amount of money you have in your trading account.

A leverage of 200:1, for example, means that for each dollar invested a broker adds 200 dollars on top, making the trading account 200 times larger. Thus, funding your account with $1000 at 200:1 leverage would enable you to operate a $200 000 account.

Benefits:

It requires to put up a small percentage of the total trading lot. For example, if the leverage was 100:1 and you wanted to trade $100,000 worth of currency on a margin of 1%, your required deposit would only be $1,000.

Obviously the major benefit is that you can potentially make huge profits if you use high amounts of leverage and make consistent winning calls. However this is extremely risky and very hard to do because any short-term volatility may wipe you out completely.

The most obvious pitfall associated with Forex leverage is due to the amount of losses that can be incurred if trading conditions take a turn for the worse and your trade moves in the opposite direction to your prediction. In this case, using leverage would multiply potential losses.

Although losses are all part of trading on the Foreign Exchange market, if leverage is not understood then losses will always be significant. The main preventative measure for limiting losses is to include stop losses or limit orders on your trades. This way, even when a high leverage is used, you can roughly work out potential losses and know whether you can afford to absord the loss or to pass on the trade before placing it.

Forex Trading Videos

Forex Trading Scam

2008-11-26T19:21:00.000-08:00

Forex scams attract customers with sophisticated-sounding offers. Promoters often lure investors with the concept of leverage: the right to control a large amount of foreign currency with an initial payment representing only a fraction of the total cost. Coupled with predictions about supposedly inevitable increases in currency prices, these contracts are said to offer huge returns over a short time, with little or no downside risk.

According from the source, Wikipedia, A forex scam is any trading scheme used to defraud individual traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading "has become the fraud du jour," according to Michael Dunn of the U.S. Commodity Futures Trading Commission. But "the market has long been plagued by swindlers preying on the gullible," according to the New York Times. "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal. The North American Securities Administrators Association says that "off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud".

Here are some tips for you to avoid being a victim of forex scam.

Stay away from opportunities that seem too good to be true - Get-rich-quick schemes, including those involving forex currency trading, tend to be frauds.

Avoid any company that predicts or guarantees large profits - Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.

Stay Away From Companies That Promise Little or No Financial Risk - Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.

Don't Trade on Margin unless You Understand What It Means - Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.

Question Firms That Claim To Trade in the "Interbank Market" - Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.

Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise - Be aware that if you transfer funds to foreign firms it may be very difficult or impossible to recover your funds.

Currency Scams Often Target Members of Ethnic Minorities - What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash so be aware of that.

Be Sure You Get the Company's Performance Track Record - Get as much information as possible about the firm's or individual's performance record. You should be wary of any person who is not willing to do so or who provides you with incomplete information.

Don't Deal With Anyone Who Won't Give You His Background - Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm's employees. Ask for all information in written form.

Forex Trading Education

Forex Micro and Mini Account

2008-11-25T19:50:00.000-08:00

Online Forex brokers offer "mini" and "micro" trading accounts, some with a minimum account deposit of $300 or less. It doesn't mean that you should open immediately an account with the bare minimum but it does makes Forex much more accessible to the average individual who doesn't have a lot of start-up trading capital.

If you were just a starter and still learning about Forex Market, a good idea for you would be what is called the Forex mini and micro accounts.

Mini Account is trading with mini lot sizes, generally 10,000 units of the base currency. It is great for those who want to start off with a fairly low investment. It is more realistic option for smaller businesses that would like to get involved in the world market with very little available.

Micro Account is trading with micro lot sizes, generally 1,000 units of the base currency. As the very name suggests micro forex accounts are meant for small small investors and individuals who like to participate in the international currency trading. It will give individuals and small scale investors a chance to experiment with currency trading without making huge investment in the currency trading market.

Most brokers offer very small “mini-accounts” and even smaller "micro-account" for as little as a couple hundred bucks. These little cute accounts are a great way to get started and test the traders trading skills and gain experience. They are good ways to get your feet wet without drowning.

By starting with these accounts, a trader loses only a small amount on every losing transaction making it easier to stick to a disciplined trading strategy. In the long run, this will lead to much better trading results.

Other advantage of trading with these accounts is that traders are allowed flexibility in regards to customizing the trades and minimizing the risks.

Mini and Micro forex trading are a good way to start trading Foreign Exchange Market most especially for starters with a small amount of money. A trader can test various forex trading system without a lot o risk, keep good records and refine the trading techniques.

As the trading improves and you build your portfolio, a trader can graduate from mini forex trading to larger and more typical forex trading contracts with confidence that you have a profitable trading system in place.

What is Forex Pip?

2008-11-25T19:45:00.000-08:00

A pip is the smallest price increment in online forex trading. Pip stands for percentage in point. The value of pip refers to the amount of money you gain/lose for each pip you gain or lose in currency trading.

Exchange rate usually consists of an integer part and 4 decimal points (or 2 decimal points when expressed per 100 units like e.g. dollar/yen). Thus the decimals are expressed either at 10th thousands or hundreds. Each such 0.0001 is called basis point or pip. E.g. a 50 pips change of 1.5000 is either 1.5050 or 1.49.50. The Japanese Yen (JPY) is an exception - it is quoted only to the second decimal point.

CALCULATING PIP VALUES

Pip Value = 1 pip x Trade Size

Example: USD/CAD

If you trade 1 lot (1 standard lot, equal to USD 100,000 trade size), the pip value will be:

Pip Value = 0.0001 x 100,000 = 10 (US Dollar)

If you trade 0.1 lot (1 mini lot, equal to USD 10,000 trade size), the pip value will be:

Pip Value = 0.0001 x 10,000 = 1 (US Dollar)

If you trade 0.01 lot (1 micro lot, equal to USD 1,000 trade size), the pip value will be:

Pip Value = 0.0001 x 1,000 = 0.1 (US Dollar)

Learn Forex

Overview of Forex Trading

2008-11-25T18:19:00.000-08:00

The Foreign Exchange( the currency or forex or fx) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.

The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

In Stock Market, all participants have access to the same prices, while the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread.

Foreign Exchange Trading or fx trading, clients are able to hedge against, or speculate upon, changes in the exchange rate of two currencies. A currency trading is the simultaneous buying of one currency and selling of another one. The currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross ( for example, the Euro/US dollar, or the GB pound/Japanese yen). The most commonly traded currencies are the so-called "majors" - EURUSD, USDJPY, USDCHF and GBPUSD.

The foreign exchange market is not unified. There is no single dollar rate. Dollar rate varies from one country to another, this is 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 not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading.

The trading centers in Tokyo, New York and London are the centers of forex trading. However, all are interconnected. Tokyo may be the center for the Asian market, New York for the US and London for Europe but notice the chain of one to the other two.

Forex Trading Videos

PRIVACY POLICY

2008-11-01T17:53:00.000-07:00

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