Forex

What is an Online Forex Trading?

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For-ex stands for Foreign Exchange; it is a global market for dealing currencies at floating exchange rates. The foreign exchange is worlds biggest currency market, on an average everyday pound one to two trillion is traded in the foreign exchange. The trade is mostly done over the internet and telephone lines. Online forex trading is a fast, safe and easy mode of investing. It offers huge returns like twenty to thirty percent every month, yes unbelievable but truth, however thats only in some cases and you need a lot of experience to be able to extract that amount of interest!

There is no fixed centre for the trade so all the trade is done over telephone, internet and fax. The foreign exchange trade witnessed a massive boom only after online forex trading systems were introduced, internet and telephone has helped the trade grow from 70 billion a day in the 80s to around 1.5 trillion to 2 trillion today.

The currency market is made up of around five thousand institutions most of which are international banks, central government banks, commercial companies as well as big brokers and all these are connected with each other and do business on the go through online forex trading system. The major centers for online forex trading are New York, Frankfurt, London, Paris, Tokyo, Hong Kong, Bombay among others, and all these centers also communicate and deal through online forex trading. The benefits of online forex trading are listed below:

- Currency market never sleeps: online forex trading allows you to keep track and deal from anywhere at anytime.
- Mini accounts: some websites offer mini accounts that allow you to get started with as less as 200.
- No Commission! Online forex trading is commission free, theres no exchange or hidden fee either. Your broker earns from the spreads.
- Instant: its instant unlike offline trade which may involve paperwork.

The nature of the market is such that risk comes inherent and can not be separated but risk can be minimized if you are trading at the right point of time and the right point of time can be anytime only online forex trading allows you to be there at the right time as all other methods as explained above are slow and usually take up a lot of time in processing.

December 23, 2010 · Tagged with

Forex

What Are The Order Types Used By Forex Traders?

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During the last decade, Forex trading has become one of the most attractive business opportunities to ever hit people’s interest around the world. Every day people from many walks in life is actively considering entering the profitable world of the currency markets due to its accessibility and trading characteristics.

One of the first things you will do once you decide you want to enter and learn about the forex markets will be to choose your forex broker and then download the free trading platform software from your broker website.

When you first open your trading station software, you will find that there are a number of ways to enter the market or, said in another way, there are a number of ways to place an initial order to buy or sell any currency pair.

One of these types of orders is what is called a Market order; this is an order to buy or sell a currency pair at the market price considering the instant that the order is received and processed (which is usually within seconds of hitting the “OK” button on your trading platform). When a market order is placed, you are simply saying “I’ll buy or sell the currency pair at whatever price it is at when my order gets processed.”

There is a different way to enter the market that is called an Entry order; this is an order to buy or sell a currency pair when it reaches a certain price target; which you should determine by using your knowledge of technical and fundamental indicators. In theory this can be any price. You could set an entry order for the low price of a time period, or the high price of the same time period’; it all depends on your intentions, to sell or to buy. As an example, one usual recommendation is that you should always set an entry order to be the same price as the ‘open price of the time period. When you place an entry order to buy, for example, you are simply saying “I want to buy this currency pair at a given future price and if it never reaches that price, I won’t purchase the pair.”

Stop and Limit orders are two different ways to exit a trade, automatically (i.e., without closing out your position via the click of your mouse or manually), after the trade is entered. And they are widely used as safety locks so you won’t end losing everything in a bad trade. In short, you must always use stops and limits when trading the forex markets.

A stop order is used to stop losses. A limit order (recommended if you can’t monitor your open trade) is used to redeem profits. Where these orders are placed, in relation to your open trade, depends on the direction of the entry order, this is; if you buy or sell.

Remember; a stop order is always placed below the current market value of that currency pair when you are in a long (buy) trade. And a limit order is always placed above the current market value of that currency pair when you are in a long (buy) trade.

December 16, 2010 · Tagged with

Forex

Understanding What Influences Forex Prices

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This article will explain some of the differences between Technical Analysis and Fundamentals and explain a bit about each type of trading. Excerpts are taken from the best-selling book Market Wizards where Jack Schwager interviews Ed Seykota and Bruce Kovner.

Ed is a trend trader (uses technical analysis) and also relies on hunches from 20 years of experience. He definitely emphasizes his reliance on technical analysis. While reading this, I liken, the hunches to knowing the effect fundamentals can have on a market although I could be mistaken, they could be purely from reading lots of charts so well. Here are is exact words Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them funny-mentals. However, if you catch on early, before others believe, then you might have valuable surprise-a-mentals.

Ed says his priorities when trading are the long term trend, the current charts and picking a good spot to buy or sell, in that order.

Bruce says technical is awesome and very useful but by no means disregards fundamentals.

Its important to note that technical analysis is a critical method of understanding the history of market movements and hence useful to identify trends. It doesnt actually tell us where the currency is going but analyses historical data. We then need to use our own intelligence to see what the activity of trading says about future trades.

Technical Analysis can be compared to taking a patients temperature. To ignore it is ignorance and it can tell you whether a market is active, or cold and dormant.

It also picks up unusual behaviour. Anything that creates a new chart pattern is something unusual. He also says Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.

Its the fundamentals that will help to indicate whether a trading value will increase or decrease.

Everything that makes a country tick, in Forex terms. Consumer spending, government spending, employment cost index, government policy, political concerns and even an individual event can influence the market heavily.

In summary, the fundamentals will indicate the direction of a price but not exact prices. The chart analysis or technical analysis is better for that, so together you can really increase your chances of coming away with some pips.

The reason technical analysis is so emphasized is that many traders use charts to trade and at any given time, will be drawing the same lines of resistance and same lines of support. So if you can read the charts well, you have an awesome chance of predicting market movements. The best way to learn about the effect of fundamentals is to learn one piece of economic data at a time. This will help you make better-educated trades.

December 9, 2010 · Tagged with

Forex

Understanding the Basics of Forex Trading

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Forex trading or Foreign Exchange Trading refers to the simultaneous tradingthat is, buying and sellingof two different currencies. It is done between and among major financial institutions, central banks, small retail currency traders or speculators, large international companies, government institutions, companies with overseas operations and the like.

Based on the amount of money being traded, the international forex trading market is the worlds biggest financial market. Everyday, forex trading market gets an average revenue of US 1 trillionan amount far greater than the total revenues produced by all the stock and bond markets in the world.

Characteristics

Forex trading is a kind of over-the-counter tradingit occurs directly between to financial institutions or currency traders. The trading markets may be interconnected but there is no single unified market. Hence, there is also no single or standard rate. Each rate or price depends on what is being traded. However, the traders traditionally use nearly similar rates.

Another characteristic of a forex trading is that it operates 24 hours; thus, one can trade any time of the day. Also, there is no need of an exchange floor, it operates through a global electronic network where trading occurs over the telephone and computer networks. This characteristic also prevents delays that consume a lot of time.

Forex trading market is also very competitive and is highly liquid. This allows the parties to get low dealing costs and better price.

Top Currency Traders and Major Currencies Traded

Wall Street Journal Europe says ten major currencies account for 73 percent of the total forex trading volume. Among them are Deutsche Bank, UBS, Citigroup, HSBC, Barclays, Merrill Lynch, J.P. Morgan Chase, Goldman Sachs, ABN Amro, and Morgan Stanley.

Among the currencies mostly traded are the US, Canadian, and Australian pounds; Euro; Yen; and Swiss Franc.

A study conducted by the Bank for International Settlements says that the most traded products are EuroUSD, USDJPY, and GBPUSD. The study noted that in spite euros continuous growth, forex trading market remains to be concentrated in pounds.

The Trade

Trade happens when you accept the offered price and when the dealer confirms. Exchange floor is no longer required, as mentioned earlier.

In every trade, two currencies are always involved and the currencies traded serve as the products traded. Each currency has a price expressed in another currency such as 1 euro is equivalent to 1.204 pound. In the said example, the euro trader sells the euro and buys the pound. There are no further costs in the trade. There are no commissions and other fees as well.

Large multinational companies engage in forex trading when they are buying from and selling goods to other countries. However, this kind of forex trading encompass only a small portion of he daily activities in the foreign exchange market. Most of the trading activities are carried out by currency speculators who earn from the changes in value of a particular currency.

Key players in the Market

BIS study shows that more than 50%of the forex trading transactions are interbank transactions. Trading revenues of most commercial establishments and currency speculators are deposited in the bank.

Central banks also play a big role in the forex trading market. These banks control the supply of money, interest, inflation and target rates in order to stabilize the forex trading market.

December 2, 2010 · Tagged with

Forex

Understanding Forex – #4 – Money Management.

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This is a series of articles about The Foreign Exchange Market. You will learn here what Forex is , how it works and how profitable it can be. The whole series contain the following articles . . .

1.What is Forex

2.Technical analysis

3.Fundamental analysis

4.Money management

5.Compound interest

Money Management.

This is one of the most important aspects of a good trading system. Even if your market forecasts are accurate, you may still not be profitable in the long run unless you implement proper money management techniques.

Money management refers to how you manage your trading capital. It has to do with how much money you invest on each trade. Also, how much do you expect to make on each trade compared to how much you are risking. Furthermore, you can also use different kinds of orders that allow you to manage your trades automatically like stop loss, limit order and trailing stop.

In my opinion the two more important aspects of money management are position sizing and expectancy. Position sizing refers to the size of your positions. You should not risk more than 1% – 2% per trade.

Expectancy refers to how much do you expect to make vs how much you are willing to lose. The expectancy should be always positive. For example, if you enter a position and you expect to realize a 50 pips profit while you are willing to lose only 15 pips, that’s positive expectancy.

The example above means that you can be wrong three times in a row and still be profitable the fourth time. A method to implement positive expectancy on your trading strategies is by using trailing stops. I will explain this now and the other orders that I mentioned above.

Let’s start with a stop loss order. This one helps you automatically close a losing position and prevent it from decreasing your total trading capital. Why you need stop orders? Many things could go against you and make you lose big time.

The platform you are treading on could freeze. The placecomputer you are trading from could go off power. Market news could drive the price of currencies mad quickly. Do you get the point? Many people use stop loss orders just as an “insurance” against these events taking place.

Something else a stop loss order could be good for is to establish an automatic trading system. Some trading systems do not require you to be in front of your computer all day. You can set them on autopilot and let the marketplatform do its thing. If the market moves against you, the stop loss will be triggered and your losing position will be cancelled automatically.

The second order mentioned above is the limit order. This one is good to automatically take a profit once the price of the currency pair has moved to a desired level. You can use a limit order for the same purpose you use a stop loss order. It is good to automate your trading in general. Once the target price is reached, the limit order will be triggered canceling your winning position and preventing it from turning into a losing position.

Now, something very important about trading “cut your loses short, let your winners run.” Most traders do this the other way around. That’s why they lose in the long run.

Some of the easiest ways you can implement this technique is by using a trailing stop. These kinds of orders let you get positive expectancy, which is one of the most important aspects about money management as mentioned above.

A trailing stop is like a limit order and a stop order at the same time. For example, let’s say that you enter a position and the market moves in your favor. Then notice what happens.

With a trailing stop you have a chance that you don’t have with a limit order. If the market keeps moving in the direction you expected, the trailing stop order will move with the market. This way there is no limit to how much profits you can get. On the other hand if after moving in your favor the trend retraces a certain percentage, the trailing stop will be triggered canceling the position and preventing it from turning into a losing trade.

These are common techniques used in most successful trading systems. You can learn other important aspects about Forex like technical analysis and fundamental analysis from other articles on this series.

EasyWebRiches 2006

November 25, 2010 · Tagged with

Forex

Understanding Forex – #2 – Technical Analysis

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This is a series of articles about The Foreign Exchange Market. You will learn here what Forex is , how it works and how profitable it can be. The whole series contain the following articles . . .

1.What is Forex

2.Technical analysis

3.Fundamental analysis

4.Money management

5.Compound interest

Technical Analysis.

Unless you are new to trading you probably know already that technical analysis is a method of forecasting future price movement of commodities, securities, etc (in this case currencies) based on chart analysis, pattern formations, technical indicators, etc. Forex can be traded technically and in my opinion it is quiet predictable.

No trading strategy will work 100% of the time. That’s why you need proper money management techniques. Anyway, technical analysis is important to determine where the price of the currencies is going, also when to enter and exit positions.

There are different technical analysis techniques that you can implement to your trading strategies. I show here how to use technical indicators which is a very common technique among most technical traders.

There are many technical indicators. Some of them are more common and useful than others. In my opinion you won’t need dozens of them to know when to enter or exit a trade. It is about quality, not quantity. I think though that it is better to relay on a few indicators than in only one.

If you trade based on the signals of only one indicator, you may miss some important information about the market that other technical indicators would reveal to you. By using a few technical indicators instead of only one, you can make more educated and accurate choices.

So, I will show you here some very common technical indicators and how they are used to forecast market prices. Remember that technical indicators are the basis of technical analysis systems.

You can implement three different aspects to your trading systems. One is technical analysis as I explain here. The other is fundamental analysis. The third one is money management as I explain in my other articles on this series.

Common technical indicators and their definitions:

1. Average Directional Index – ADX

An indicator used in technical analysis to determine the strength of a prevailing trend.

2.Exponential Moving Average – EMA

A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data.

3.Moving Average Convergence Divergence – MACD

A trend-following momentum indicator that shows the relationship between two moving averages of prices.

4.Bollinger Band

A band plotted two standard deviations away from a simple moving average.

5.Fibonacci – There are many Fibonacci indicators like the following . . .

a.Fibonacci Time Zones

b.Fibonacci Fan

c.Fibonacci Channel

d.Fibonacci Arc

c.Fibonacci Clusters

d.Fibonacci NumbersLines

e.Fibonacci Retracement

f.Fibonacci Extensions

6.Relative Strength Index – RSI

A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.

7.Stochastic Oscillator

A technical momentum indicator that compares a security’s closing price to its price range over a given time period.

8.Williams %R

In technical analysis, this is a momentum indicator measuring overbought and oversold levels, similar to a stochastic oscillator.

You can learn more about these technical indicators and how they are used if you visit www.investopedia.com. Most technical analysis systems combine at least a few technical indicators to forecast the market. I think that proper technical analysis skills are an important aspect of most successful trading systems.

You can learn more about Forex and trading systems from my other articles on this series. I covered here important aspects of technical analysis, but most successful trading systems need some fundamental analysis andor money management too.

EasyWebRiches.com 2006

November 18, 2010 · Tagged with

Forex

Trading Flexibility In The Forex Market

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How does a trader test hisher strategies and abilities without paying (or paying too much) for hisher mistakes ?
I would say there are three possible answers.

One first answer, of course, is by paper trading. Paper trading means that you do not actually execute your orders, but you only “bookkeep” them, testing on paper what their results would be.

At the next level you can trade in a simulated account. This is similar to paper trading, as you are not trading with real money, but just testing the result of your strategies; on the other side with a simulated account you are really using you Broker platform so you are at the same time training yourself in dealing with order execution issues.
Simulated accounts are nowadays offered by many Brokers; in the Forex market it is common to get this feature.

Say you trade your strategy for some time with a simulated account, and everything goes fine; you would expect that real trading should go fine as well. Still, there is an issue you did not deal with: your emotions. These will come into the game only when you trade with your real money. Emotions can do a big difference. They often explain differencies in results between traders that can be absolutely comparable in terms of market know-how and strategy. Why ? because they often force you not to follow the rules of your trading plan. Emotions can make you a hard life in keeping the necessary discipline.

So, how to deal with the emotional issue of trading ? There are ways to learn also in this topic, of course, but in this case your own direct experience is more difficult to replace, in my opinion. However, the experience can be expensive, of course. A possible solution is to trade with real money, but in a very small size. This is always a good idea at the beginning. Start small, gain experience and then increase gradually your trading size.

So the third answer to our first question is: by trading small. You might object that, if the trading size is too small, your emotional involvement will also be small, so the aim of putting emotions into the game is missed. Partly, this is true. However, the difference between using real money and just playing with numbers is there. And the decision about how big the size should be, is just yours.

The forex market gives you big flexibiliy about your trading size.
First, because the minimum required to open an account can be really small, in the order of 300. Trading size of course can be small too. The Forex market offers you a great leverage possibility, but again, how much of it to use is something that only you can decide.
Second, because in the forex market it is common for Brokers not to charge a fix commission to trades. The cost of the trade is generally represented only by the bid-ask spread. This means that small trades are not penalized by fix commissions.
This flexibility can offer an advantage for traders who want to gain experience before moving forward.

Good trading,
Roberto Zarotti

November 4, 2010 · Tagged with

Forex

The Philosophy Of Winning In Trading the Forex Market -The

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The Philosophy Of Winning In Trading the Forex Market -The Sure Way To Become A Successful Trader

Everyone who enters into the forex market to trade always starts off with good intentions. They will invariably aim to win. They are there to make gigantic profits in the market. After all, it is a keen interest in trading that has led to their involvement in trading the forex market.

In all my years of trading, I have yet to meet a complete newbie who is in the forex market to trade without spending at least some time to learn how to trade. At worst, the newbie to forex trading has at least learned the technical terms to trading, and has at least entered his trading account to look at the trading platform and the trading interface provided by his broker.

In the quest to become a better trader, most forex traders I know would have learnt the use of many tools, usually technical tools. To them, the tools are their weapons of war. Many use technical trading systems to help them get a more accurate analysis of price movements, and to study price trends. Some use simple trend trading methods such as trendlines, others use price patterns of congestion and outbreaks, some use the more sophisticated Elliot wave counting and WD Gann squaring of price and time, and some even neural networks forecasting and astronomy. Yet, with the help of many trading tools, a big majority of traders are still unprofitable.

Herein lies the problem with many traders.

In forex trading, like in all forms of market trading, the amount of tools you use, whether singly or in synergy, will not guarantee your success. Having a battery of technical indicators to provide you a technical reading will not ensure your success in trading.At best, these technical indicators will help you understand the market trend more, or might even serve to confuse you especially if they generate conflicting signals.

Forex trading, is just like fighting a battle, and the following principle holds true:

“It’s not the sword that wins the battle.

It’s the Warrior whos wielding it.

It’s the warrior who’s wielding the sword that will determine the outcome of the battle. In other words, if you are a forex trader, it is your trading discipline, and the proper use of the trading tool or method that will ensure your success.It is you, the trading warrior, who wields the trading tool correctly that can ensure the battle is won.

Therefore to become a successful trader, you will need to master your self – to follow a set trading method and to execute the trades based on a trading plan, where you will follow stringently to the best trading setups and exit at pre-determined stop losses. Without trading discipline, you will not be able to master your trades, and you will find profits hard to come by.

It is only when you master yourself to conduct discipline trading and also master your trades by following a proven trading methodology with a timely and suitable entry and exit strategy that you can become a profitable trader.

October 21, 2010 · Tagged with

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