Introduction To Forex Trading

There are many markets: markets for stocks, futures, options and currencies.

These are probably the most accessible markets for everyday traders like

you and I. People easily understand the basics of trading shares, so I will

occasionally use examples from that market.

I began trading shares first and then I moved on to trading currencies;

therefore, most of the examples I will be using in this book are derived

from trading currencies.

If you do not know a lot about currency trading, allow me to introduce

it to you. It is what I trade and I believe that it is one of the best markets

to trade because of its efficiency. The transaction costs to execute a

trade are minimal and most brokers provide you with the tools and

data you need to make your trading decisions, they usually provide

them for free. The market is open 24 hours a day which allows you to

design your trading hours around your daily commitments. It is very

volatile, which is great for those people who are looking for

day-trading opportunities.

The foreign exchange market is the market in which currencies

are bought and sold against one another. People may loosely

refer to this market under different labels, including foreign

exchange market, forex market, fx market or the currency market.

The foreign exchange market is the largest market in the world,

with daily trading volumes in excess of $1.5 trillion US dollars.

All transactions involving international trade and investment

must go through this market because these transactions

involve the exchange of currencies.

It is the most perfect market that exists because it has a

large number of buyers and sellers all selling the same

products. There is a free flow of information and there

are little barriers to participate.

The currency exchange market is an over-the-counter (OTC)

market which means that there is not one specific location

where buyers and sellers can actually meet to exchange

currencies. Instead, transactions are conducted by phone,

fax, e-mail or through the websites of brokers who specialize

in currency trading.

The major dealing centres at the time of writing are: London ,

with about 30% of the market, New York , with 20%, Tokyo , with

12%, Zurich , Frankfurt, Hong Kong and Singapore , with about

7% each, followed by Paris and Sydney with 3% each. Because

of the fact that these centres are all over the world, foreign

exchange traders can execute transactions 24 hours a day.

The market only closes on the weekends.

THE MAIN 'PLAYERS' IN THE FOREX MARKET

The five broad categories of participants are: consumers,

businesses, investors, speculators, commercial banks,

investment banks and central banks.

Consumers, including visitors of countries, tourists and

immigrants, do need to exchange currencies when they travel

so that they can buy local goods and services. These

participants do not have the power to set prices. They just

buy and sell according to the prevailing exchange rate.

They make up a significant proportion of the volume

being traded in the market.

Businesses that import and export goods and services

need to exchange currencies to receive or make payments

for goods they may have bought or

services they may have rendered.

Investors and speculators require currencies to buy

and sell investment instruments such as shares,

bonds, bank deposits or real estate.

Large commercial and investment banks are the 'price

makers'. They are the ones who buy and sell currencies

at the bid-and-offer exchange rates that they declare

through their foreign exchange dealers.

Commercial banks deal with customers on one hand, 

and with the Interbank or other banks, on the other hand.

They profit by utilizing the bid-and-offer spread. The bid

price is the exchange rate that the buyer is willing to buy

and the offer price is the exchange rate at which the seller

is willing to sell. The difference is called the bid-offer spread.

They also make profits from speculating about whether the

exchange rate will rise or fall.

Central banks participate in the foreign exchange market

in their effective duty as banks for their particular government.

They trade currencies not for the intention of making profits

but rather to facilitate government monetary policies and to

help smoothen out the fluctuation of the value

of their economy's currency

 

 

 

 

 

The 6 Advantages Forex Trading Has

Over Other Investments

There are many different advantages to trading forex

instead of futures or stocks, such as:

1. Lower Margin

Just like futures and stock speculation, a forex trader has

the ability to control a large amount of the currency basically

by putting up a small amount of margin. However, the margin

requirements that are needed for trading futures are

usually around 5% of the full value of the holding, or 50%

of the total value of the stocks, the margin requirements for

forex is about 1%. For example, margin required to trade

foreign exchange is $1000 for every $100,000. What this

means is that trading forex, a currency trader's money can

play with 5-times as much value of product as a futures

trader's, or 50 times more than a stock trader's. When you

are trading on margin, this can be a very profitable way to

create an investment strategy, but it's important that you

take the time to understand the risks that are involved

as well. You should make sure that you fully understand

how your margin account is going to work. You will want

to be sure that you read the margin agreement between

you and your clearing firm. You will also want to talk to

your account representative if you have any questions.

The positions that you have in your account could be

partially or completely liquidated on the chance that the

available margin in your account falls below a

predetermined amount. You may not actually get

a margin call before your positions are liquidated.

Because of this, you should monitor your margin

 balance on a regular basis and utilize stop-loss orders

on every open position to limit downside risk.

2. No Commission and No Exchange Fees

Even though you do not have to pay a commission

charge to a broker to match the buyer up with the seller,

the spread is usually larger than it is when you are

trading futures. For example, if you were trading a

Japanese Yen/US Dollar pair, forex trade would

have about a 3 point spread (worth $30). Trading

a JY futures trade would most likely have a spread

of 1 point (worth $10) but you would also be

charged the broker's commission on top of that.

This price could be as low as $10 in-and-out for

self-directed online trading, or as high as $50

for full-service trading. It is however, all inclusive

pricing though. You are going to have to compare

both online forex and your specific futures

commission charge to see which commission

is the greater one.

3. Limited Risk and Guaranteed Stops

When you are trading futures, your risk can

be unlimited. For example, if you thought that

the prices for Live Cattle were going to continue

their upward trend in December 2003, just

before the discovery of Mad Cow Disease

found in US cattle. The price for it after that

fell dramatically, which moved the limit down

several days in a row. You would not have been

 able to leave your position and this could have

wiped out the entire equity in your account as

a result. As the price just kept on falling, you

would have been obligated to find even more

money to make up the deficit in your account.

4. Rollover of Positions

When futures contracts expire, you have to

plan ahead if you are going to rollover your

trades. Forex positions expire every two days

and you need to rollover each trade just so

that you can stay in your position.

5. 24-Hour Marketplace

With futures, you are generally limited to trading

only during the few hours that each market

is open in any one day. If a major news story

breaks out when the markets are closed, you

will not have a way of getting out of it until the

market reopens, which could be many hours

away. Forex, on the other hand, is a 24/5

market. The day begins in New York, and

follows the sun around the globe through

Europe, Asia, Australia and back to the

US again. You can trade any time you

like Monday-Friday.

6. Free market place

Foreign exchange is perhaps the largest

market in the world with an average daily

volume of US$1.4 trillion. That is 46 times

as large as all the futures markets put together!

With the huge number of people trading forex

around the globe, it is very hard for even

governments to control the price of their

 own currency.

 

 

 

  

Forex Trading Guide- How to deal with Forex Trading

Buying and selling of different currencies of the world is known as forex trading.

Forex or foreign exchange market is the largest trading market in the world.

Forex trading market deals with more than US$2 trillion everyday. It has

become favorite option for currency traders. Foreign exchange market is

extremely different from stock exchange market. Currency trading is always

done in pairs like USD/EUR or USD/GBP etc. Forex trading market

works 24 hours a day.

Several investors and traders are joining forex trading every day.

First time investors should keep in mind that forex trading works

on certain principles. They should remember that it is an investment

not an income. Currency can fluctuate at any time so right time

investment is the best investment in forex trading. You should have

another source of income while dealing in forex trading. If you are

a first time investor don't believe in demo trading because it can

dangerous in long run. After getting all information about broker's

system you can start forex trading with small amounts. You should

always invest that amount for which you can bear profit or loss.

Sometimes forex trading is a risky business but the trader can

reduce the risk by following best trading strategy. Trader should

know the right time to enter and exit the market. Forex trading is

an easy and simple trading business. You can do forex trading

while sitting in your home. It requires a PC with Internet connection

and a bit of time. You can perform all the transactions online with

a small fee and the best thing of forex trading is that you don't

have to pay large amounts to professional. Forex trading market

offers a large number of online options for currency trading.

Before joining it you've to search for the best option

to achieve your goals.

Beginners can use forex trading software programs to

track and analyze market conditions. These programs

will help you in finding the best investment opportunities.

Forex trading software enables you to make right

decisions about investments. Beginners shouldn't try to

predict the forex trading markets because currency

fluctuation may occur anytime. You can handle forex

trading by using trading system and money

management strategy.

Don't be emotional in forex trading. You should

behave like a businessman that can efficiently test

the market data. Testing system and best money

management strategy lets you to invest your capital

in the best way. While paying minor attention to the

ups and downs of the forex trading market you can

easily maximize your profits. You can make profitable

trades by focusing on the hours when market

generally makes their biggest moves.

With some research, a lot of skill and a bit of

luck you can enjoy forex-trading market completely.

You've to be smart at the time of making choices

and taking risks. The trading process is so simple

and can be done with a small amount. You don't

have to wait for the opening and closing of stock

market because it works for twenty-four hours.

Several trading companies are providing free

information online. You can search for required

information before making any decisions. Some

companies also offer free trail periods;

 you can also check it out.

 

 

 

Methods or Techniques for Trading

the Forex Market

The Forex market offers the trader numerous opportunities

and can be  very profitable to trade and also very exciting.

The most important Forex market is the spot market as

it has very large volume. The market is

called the spot market because trades

are settled immediately,  or "on the spot".With

Forex trading there are also

considerable risk factors. It isseriously

crucial that you fully understand the implications

of margin trading and the particular

 pitfalls and opportunities that foreign

exchange trading offers.  There are unique benefits

to trading the Forex market, but

 you need to understand exactly how each

trade you enter works.  In other words, why you

are entering into a trade, and

 being able to keep a calm  easy

 mind. Fear and greed  are, without a

doubt, the  enemies of the successful

Forex trader.  There are two commonethods

or techniques of trading the Forex market. F

irstly, technical analysis focuses on price

patterns and uses charting to distinguish

 them. Technical analysis  focuses on price

action and  market behavior. With the  

use of various indicators, you will be able to recognize and

combine pattern  recognision with your

favorite indicator for confirmation to

take a trade. It is not necessary  to use

a large variety of indicators,usually 2-3 are quite adequate, 

especially if you are combining

 indicators with price patterns. The indicators are available on

 most trading software, and all calculations are done

automatically within the software. The problem with

 trading indicators only is that, firstly they are lagging price,

and then you are only looking  at the right side of your chart,

 waiting to see what will happen.  What about the left side, or

 the side of your chart that is telling you what has already

happened? This is a very important aspect of trading,

 I call this the bigger picture. A good chart is priceless if

 it helps to identify a great opportunity.

Momentum analysis is a  measure of the change in

 Forex trading trends over a  certain period of time. Certain

momentum indicators will show if a currency is overbought or

oversold, and these are common  and very useful tools for

technical analysis.

 

 

 

 

 

 

 

 

 

 

 

FOREX: Starting your own trading

The presented article is intended for those who just turned

their eyes toward Forex. Beginning traders who are still learning

the basics of the foreign exchange market may also find something

of interest here. While experienced traders won't gain anything

worth their time reading this article.

Basically there are 4 steps which can be defined as "must do" for

those who wish to start trading Forex. Though, their order is not

particularly important, the more important part is their content,

to which the great attention and responsibility must be paid.

First step is finding a right Forex broker which will be your

tool in trading. You can have a great strategy, good technical

analysis skills or an outstanding intuition but you will eventually

fail if you choose a bad broker. A good Forex broker is one

that will not still your money, will be doing real trading with

your positions, supports your preferred deposit/withdraw

methods and has fast and helpful user support service.

It is nice if a broker is registered with some sort of

governmental financial commission. One of the most

important aspects of the broker is it's trading platform

— but for a new trader this part is not so important as

for expert traders. Still you'll probably want to trade with

some powerful and informative platform as a MetaTrader

or its analogs. For new traders the more important is a

demo account which can be used to trade virtual money

while you are training your Forex skills. If you are new trader,

start only with the demo account! Don't lose your money

 

on your first mistakes!

Second step is learning the basics of Forex trading. If you

already found your Forex broker, you will easily get all

information from its website or user support. There are

many articles and websites dedicated to Forex basics

in the World Wide Web. All you need to do is just

google for "forex trading basics" and you'll find

everything you wanted and even more.  

 

 

 

 

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The Perfect Forex Trading System

Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.

 

Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair.  In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.

 

There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.

 

Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up.  Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.

 

Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.

So, how to create a perfect Forex trading system?

First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.

 

Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.

 

Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.

 

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