Contents 1. Forex Education ......................................................................................... 3 1.1.
The Human Mind vs. Computers in Forex Trading ..................................................................... 3
1.2.
How to Stop Losing Your Money in Forex .................................................................................. 4
1.3.
Over Trading is a Forex Trader’s Biggest Mistake ...................................................................... 6
1.4.
Clean Up Your Forex Trading with Price Action ......................................................................... 7
1.5.
A Forex Broker Involvement Option........................................................................................... 9
1.6.
A Forex Quickie – How to Get an Educated Quick Start............................................................. 9
2. Forex School............................................................................................. 11 2.1.
Floating Rates versus Fixed Rates ............................................................................................ 11
2.2.
Basic Concepts for the Currencies Market ............................................................................... 13
2.3.
Fundamental Factors that Affect Currency Values .................................................................. 15
2.4.
Why Central Banks and Interest Rates are so Important ......................................................... 18
2.5.
The Eight Major Central Banks ................................................................................................. 18
2.6.
Currency ETFs Simplify Trading ................................................................................................ 20
2.7.
Hedging Against Risk ................................................................................................................ 21
2.8.
How Currency ETFs Work ......................................................................................................... 21
2.9.
What makes currencies move? ................................................................................................ 21
2.10.
Economic Factors and Currency Trends ............................................................................... 21
3. Forex Story ............................................................................................... 23 3.1.
A Weak US Dollar: How Does That Impact You? ...................................................................... 23
3.2.
American Clients are Moving Forex Account to Offshore Forex Brokers ................................ 24
3.3.
Avoiding Forex - Related Frauds and Scams............................................................................. 25
3.4.
Billionaire Clusters .................................................................................................................... 25
3.5.
Choosing a Good Forex Broker ................................................................................................. 26
3.6.
Does Forex Make Money? ........................................................................................................ 27
3.7.
Don’t get rid of your junk bonds yet ........................................................................................ 27
3.8.
Fundamental Factors That Affect Currency Values .................................................................. 28
3.9.
Learn Forex With Forex Broker ................................................................................................ 29
3.10.
Make Money with Currency Trading .................................................................................... 30
3.11.
Profitable Forex Strategies and Techniques ......................................................................... 32
3.12.
An Insight into Robert Kuok’s Life ........................................................................................ 33
3.13.
Should You Bet against the Dollar? ...................................................................................... 34
3.14.
The difference between individual Forex brokers, Forex traders and currency traders ..... 36
3.15.
Trading Forex on News Releases .......................................................................................... 37
3.16.
Why Do Forex Traders Need Forex Brokers? ....................................................................... 39
4. Forex Tips ................................................................................................. 41 4.1.
Getting Started ......................................................................................................................... 41
4.2.
Advantages of Forex ................................................................................................................. 43
4.3.
Saving Yourself from Forex Pitfalls ........................................................................................... 43
4.4.
Trading Forex 101 ..................................................................................................................... 45
1. Forex Education 1.1.
The Human Mind vs. Computers in Forex Trading
There are numerous Forex trading softwares out there but when it comes to effective analysis and trading, the human mind triumphs.
Price action reflects the aggregate belief structure of all market participants Free markets are created by the beliefs that human beings hold and act on about whether the price of a particular security is too high, too low, or just right. Markets are a reflection of human emotion and price action is a picture created by it. Markets can change very quickly, just like human moods and emotions. It is counter-intuitive to suggest that a computer trading program could do a better job analyzing and trading a market than a skilled human mind. Relying on a mechanical trading program to effectively predict the outcome of something that is almost purely emotional seems a bit silly since computers are anything but emotional although the programs do indeed some advantages over the human mind, mainly in trading psychology.
Computers are not emotional Computer trading programs lack the ability to commit emotional trading problems that plague aspiring Forex traders. Being emotionless, a Forex “robot” trading program is only going to operate according to how it is programmed. We can learn from the computers about managing our emotions when trading the markets. We can learn that we should not react to the market based on what happened in a previous trade, we should only react to the market based on what it is currently doing and whether or not our trading edge is present. There is no need to use Forex trading robots as long as we use our ability to interpret emotion and develop “gut” trading instinct to our advantage, and not let this ability to work against us by giving into the emotion that result from winning or losing trades. Emotional trading mistakes are the main reason why most traders fail to make money consistently in the markets and the elimination of emotional trading mistakes is the biggest advantage computers have over the human mind in the market. As far as analyzing and picking entries, the human mind is far superior than computers.
Developing your discretionary Forex trading sense is important Markets do form similar signals that are somewhat repetitive over time but the decision to pull the trigger on a trade is a lot more than what a computer program can calculate. A large part of Forex trading success is gut-feel which is really something that traders need to develop. We can develop our discretionary trading instinct built on the foundation of price action, its discretionary price action trading, meaning you don’t take every single price action signal that forms. Instead, you learn to trade these price action setups according to market conditions and from confluent levels in the market. It is not just the price action setup or signal we are looking for, it is the properly formed price action signal occurring in the proper market conditions or at the proper level that we are looking for.
A computer can’t teach you to trade A computer cannot teach you to trade effectively. The most successful traders in the world are not blindly entering buy and sell signal derived from some trading “robot”. They are acting on years of live market experience and a very refined trading sense that is built upon analyzing price action.
1.2. How to Stop Losing Your Money in Forex All of us experience losing trades, it’s just part of being a trader, but if you are finding that you’re losing more money than you’re making and you don’t know how to stop it, you probably have bigger issues that you need to face and fix. The following is a two-part program that will hopefully provide you with the insight you need to stop losing money more than you are making in the markets. Part 1: Master your mind The main reason why most Forex traders lose money is because instead of consciously controlling their emotions in the market by preempting all aspects of their trading, they get caught up in a game of emotional trading, mostly because emotional trading is easier to do and offers more “excitement” than disciplined, controlled trading. The Forex market essentially offers traders two options: 1. Gamble your money away in an up and down emotional roller-coaster of trading 2. Learn to master your mind by becoming a disciplined trader and make slow but consistent money over time Assuming that your aim and goal is to become a disciplined trader and foster proper trading mindset in order not to gamble away all your money in the markets, there are two primary aspects of mastering your Forex trading mindset:
Understand and implement proper Forex money management to attain mastery of your mind To attain the proper Forex trading mindset and really master your own emotions when interacting with the markets, you will first need to understand and implement proper Forex money management. So many traders become emotional when trading because they either risk too much money or trade too frequently. To avoid that, you must learn to become a disciplined Forex trader and not over trade.
Design and use a Forex trading plan and Forex trading journal to maintain mastery of your mind In this section we’ll talk a little about how to maintain the mastery of your mind once you’ve attained it. The two main “tools of the trade” for maintaining mastery of your mind as you trade the markets are Forex trading plan and Forex trading journals. Having a Forex trading
plan that details all of your trading strategies and setups is crucial for navigating the market in an objective and logical manner. The trading journal is necessary to track all of your trades so that you develop a track record that reflects your ability to remain disciplined and also to create something that gives you accountability. The journal is a tangible piece of evidence that reflects your ability to trade properly and maintain a disciplined trader. Part 2: Master your Forex trading strategy The next thing to do to stop losing money in the Forex markets is to truly master your Forex trading strategy. A lot of traders are simply “running and gunning” and don’t really know what they are looking for in the markets which induces emotional trading because you end up “shooting” at anything that moves instead of “sniping”, in other words, if you haven’t truly mastered your trading strategy, you are likely to over-trade.
Master one strategy at a time The first step is to master one aspect of any trading strategy at a time. The “specialization” allows for a deeper understanding thus, it is highly recommended you master one Forex trading strategy at a time in order to become a “specialist” in each.
Trade Forex like a sniper After fully mastering an effective trading strategy like price action, it’s time to implement it. Unfortunately, many traders fail at this aspect because they don’t have the patience to trade like a sniper even after mastering their strategy. You must learn to pick and choose your entries wisely and not trade too frequently.
Focus your trading efforts on the daily charts Finally, the last tip to stop losing money is that less is more in Forex. In every regard, trading less is almost always better than trading more. The market is not going away, don’t freak out if you miss a good setup. You need to learn to trade the daily charts first and truly accept the fact that lower time frames are inherently lower probability and contain more random price movements “noise” than their clearer higher time-frame counterparts. Most traders believe early on in their trading careers that they will find more opportunities on the lower time frames but all they are really doing is trading lower-probability trade setups and inducing overtrading by looking at the charts too often.
1.3. Over Trading is a Forex Trader’s Biggest Mistake The most prevalent trading mistake that Forex traders make is perhaps over-trading. Below are some solid tips to help you overcome this extremely destructive emotional trading problem.
Are you over trading? If you don’t know if you are over-trading you probably are. Most traders who are not making money consistently in the markets are over-trading, whether they realize it or not. The problem is that it can be difficult for the trader to know if they are over trading or not because it has many different ways of “sneaking” up on you without you realizing it. It is very easy to become fixated on a less-than perfect trade setup and forget about your trading plan and not be consciously aware of whether or not you are over-trading. Due to the fact that the emotioninducing situations that occur in the market can sometimes be hard to detect and even overwhelming, we have to combat this enemy by planning out our trading plan and trading strategies while we are away from the market and not in any trades.
The best way to stop over-trading is before you start Because it can be difficult to realize you are over-trading when you are “in the moment” of trading, it is best to simply go on the offensive against over-trading by planning your trading strategy and trading plan in advance. Think of trading as a sort of war. The war basically boils down to your logical or objective brain mechanisms vs,.your “fight or flight” or emotional brain mechanisms. It is extremely difficult to over-ride thousands of years of human-brain evolution especially “in the moment”. The best way to win this war is to make a comprehensive Forex trading plan, and stick to it passionately.
Trading like a sniper Previously I discussed the importance of learning to trade like a sniper. It is very important to overcoming over-trading problems. If you are over-trading, you are definitely not trading like a sniper. Not having mastered a proven and effective trading strategy like price action will also induce over-trading. If you don’t know what your trading strategy is, and/ or have not fully mastered it, there is no way you can trade with a high enough rate of skill to pick your trades like a sniper. Basically, if you don’t know exactly what you are looking for in the market you will end up over-trading at every little thing that looks like a trade.
Over-exposure Another way many traders end up over-trading is by over-exposure to correlated Forex currency pairs. This point of over-trading by trading too many currency pairs at one time also brings up the point that over-trading is basically the same as over-leveraging your trading account. Some traders get lulled into thinking by taking multiple positions they are diversifying or spreading their risk out, but in fact most of the time they are just adding risk by taking a larger position spread out among multiple pairs. Try viewing over-trading as two emotional
trading errors in love; over-trading and over-leveraging, because by over-trading you are also risking too much money.
Less is more If you really want to stop over-trading, you are going to have to realize that less is more in Forex. Unfortunately, many Forex traders come into the market with the opposite attitude. Aspiring traders tend to think that more trading is better, more indicators are better, more analysis is better, more hours in front of the computer is better, etc. Spending too much time in front of your charts induces over-trading because you will over-analyze the nearly limitless amount of market-related variables out there and end up “manifesting” signals that aren’t actually there. Learn to “set and forget” and trade end-of-day strategies to greatly reduce your chances of becoming a chronic over-trader. Over-analyzing leads to over-trading. Obviously in the beginning of your trading career, you’ll need to spend more time with the markets because you’ll need to learn and master your strategy, but once this is done, there is no point in sitting in front of the computer for hours trying to “figure out” what is going to happen because you can’t “figure out”, all you can do is master your Forex strategy, develop a plan and routine around it, and follow it with discipline. Many traders try trading 15 different trading patterns or setups or who knows what else. My price action strategies are effective yet concise. Condense many redundant candlestick patterns into a handful of powerful price action strategies that are easy to learn and to trade.
You can control yourself but not the market Simply put, over-traders are trying to control the market. You need to stop and ask yourself if you think you feel like you are trying to control the market. Once you realize and fully accept that you really have no control over the market, you will begin to think differently because you will realize have to master a trading edge and then you have to only trade when the market shows you your edge.
1.4. Clean Up Your Forex Trading with Price Action The Forex market has its own language which takes the form of price movement. In order to understand and “speak” the language, you must learn how to read the price action that occurs on a clean, indicator free, price chart. Everything that happens in a market is ultimately reflected on a price chart. When you are learning to interpret and trade price action, you are simultaneously interpreting and making sense out of all the global economic variables that can affect a market. Many traders go wrong in assuming that they will be able to read the market more effectively by trying to interpret news, indicators and/ or trading software. It is like believing that you will have an easier time driving down the road on a dark foggy night than you will on a clear sunny day.
Forget about Forex trading robots and trading software Robots and trading software are futile because they cannot develop a savvy trading sense and an “eye” for the market. Identifying Forex market bias and picking your trades wisely is key to
what makes a trader successful over the long-term. Very often people who have a knack for discipline and organization are good traders.
Ditch the indicators and the mess Indicators are derivations of price action. By putting messy indicators all over the chart, makes the natural price action clues harder to interpret. Indicators give no advantage but actually just confuse and frustrate you by making the “real” picture of the market harder to decipher. Each indicator that you put on your chart basically just separates you further from the real story of the market. Traders tend to get excited about new indicators, thinking that an indicator will somehow show them the market from a more advantageous perspective or that it will give them “perfect” entry and exit strategies that will take the guess work out of trading. Successful trading is about developing your ability to analyze price, maintain discipline, and generally just control yourself in the market. Trading with indicators will destroy Forex trading success.
News trading is unnecessary There is nothing wrong with getting up to speed on current Forex market news and other global economic events but many traders take it too far and end up trying to trade off their interpretation of what might happen based on some news event that has either just happened or is about to be released. This line of thinking is that price movement is fueled largely on human emotion or feeling about what is most likely to happen. Traders trade their beliefs about a market, and when an economic news release is pending, traders tend to trade based on their expectations of how the news will affect the market. Once the news actually comes out, the expectations have changed, and traders now have nothing to “bet on”. This is why price will often move the opposite direction from what is implied by a particular economic news release. The good news is that price action strategies form as a result of people trading their expectations and beliefs about a market. By simply learning to trade these price action strategies we can forget about over-analyzing and interpreting the vast amount of news events that occur each day in the market. Think of price action as the final result of a catalyst that causes a market to move. Whatever the catalyst is, it will eventually be filtered through either a human brain or a computer trading program, and both of these will make their mark. By learning to read these “marks”, we are getting the most accurate and relevant “picture” of the aggregate belief structure of all market participants. Learning to trade based on simple price action trading setups is the most efficient, effective, and easiest way to trade.
Learning price action is key You need to clean up your charts if you truly want to clean up your trading and turn it around. Every other system is just a derivative of price anyway. Learning price action is the key to your Forex trading success.
Price action aids in developing the best mindset for trading. A clear and confident mindset is needed, learning to trade off price action does not cause the amount of confusion that other trading systems or strategies can. When you trade off an unencumbered price chart you are seeing the clearest, most accurate picture of the market. Once you have learnt to interpret and identify a handful of high-probability price action setups you can effectively trade without indicators or other messy distractions on your charts. This is the easiest thing you can do right now to greatly increase your chances of success as a Forex trader.
1.5. A Forex Broker Involvement Option To trade on the Forex market, one must use a Forex broker. Similar to a stock broker, a Forex broker can also make suggestions about which moves to make when exchanging foreign currency. Some even supply technical analysis to some of their clients and offer tips on research to improve their success as Forex traders. Typically, a Forex broker is a banking institution who may buy up large amounts of a certain currency. For years, banks were the only ones who had access to the Forex markets but with the internet, today, any Forex trader who subscribes with a Forex broker, can access the market 24 hours a day. As with stock brokers, institutions such as banks are less of an option for the individual Forex trader who works from home, monitoring the news and gaining insight into certain technical information to help with his or her trading decisions. You can choose a Forex broker depending on your needs. If you’re new to the field, there are houses and even online Forex brokers who may cater to your needs, provide in-depth research, ample time to demonstrate their products and so on. Other Forex brokers are more suitable for experienced online Forex traders. They too offer advice but may be less likely to offer instructional help advisable to read about and even run a demonstration on several different online Forex brokers before going with one.
1.6. A Forex Quickie – How to Get an Educated Quick Start Forex or foreign exchange market is the largest financial market in the world dealing with currencies. Unlike other financial markets, the Forex market has neither physical location nor central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another. It is all about money from all over the world that is bought, sold, and traded. On the Forex, anyone can buy and sell currency. When dealing with foreign exchange, it is possible to buy the currency of one country, and sell it to make a profit. The stock market and Forex have some similarities. Both involve buying and selling to make a profit but there are some differences. Unlike the stock market, Forex has a higher liquidity. It means a lot more money is changing hands every day. Compared to stock market, Forex has no place where it is exchanged and it never closes. It involves trading between banks and brokers all over the world and provides round the clock access during the business week. Forex trading has higher leverage than the stock market. A Forex trader can expect higher profits when they are experienced and understand how it works. There is also potential for losing a lot of money as well.
There are many terminologies when dealing with Forex and learning to trade on the Forex can be somewhat complicated for the novice trader. When looking at the names used in the Forex, a symbol is composed of two parts. The first one is one currency and the second half is the second currency that is being used. For example, “usdjpy” means “US dollars” and “Japanese yen”. Learning what currency symbols mean is important when learning about Forex. A broker is usually a good idea for those using the Forex. When it comes to trading on the Forex, brokers are professionals and their experience is invaluable, especially to new traders. There are several factors to consider when it is time to find a broker. Look out for someone that offers low spreads. The spreads is calculated in pips, or the difference between the price at which currency can be purchased or sold at any given time. Because Forex brokers do not charge commissions, they make money off of the spreads, or difference. Look at this information and compare with other brokers before choosing a broker. When looking for a broker, look for one that is backed by a big financial institution. Forex bankers are generally associated with large banks or other types of financial institutions. If a broker is not with a large bank, keep looking. Also look for a broker that is registered with the Futures commission Merchant (FCM) and that is regulated by the Commodity Futures Trading Commission (CFTC). By making sure that the broker is properly registered and backed by a large bank or institution, ensures that you are getting an experienced and reliable broker in trading on Forex. Be certain that the broker has access to the latest research tools and data since it is important that brokers understand and have access to charts, graphs, news and data in real time. This will ensure that the broker is making wise decisions based on accurate Forex forecast. It is also advisable to look for a broker that can offer a wide range of account options. They should offer mini-accounts with a smaller minimum deposits and a standard account which gives anyone interested in Forex the opportunity to trade at a level where they are most comfortable.
2. Forex School 2.1. Floating Rates versus Fixed Rates The foreign exchange market (FX or Forex) is the largest market in the world. Over $1 trillion is traded in the currency markets on a daily basis. What is an Exchange Rate?
It is the rate at which one currency can be exchanged for another In other words, it is the value of another country’s currency compared to that of your own currency Just as the price of any asset, it is the price at which you can buy that currency
Fixed Rate
The price currency can be determined against each another with two ways which are fixed rate and pegged rate These are rates the government (central bank) sets and maintains as the official exchange rate A set price will be determined against a major world currency Usually the major world currency used is U.S. dollar, but also sometimes other currencies such as Euro, Yen or a basket of currencies are used The central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged to maintain the local exchange rate This ensure the appropriate money supply, appropriate fluctuation in the market (inflation or deflation) and ultimately the exchange rate The central bank can also adjust the official exchange rate when necessary
Floating Rate
Unlike the fixed rate, it is determined through the supply and demand by the private market and constantly changing It is often termed “self-correcting” as any differences in supply and demand will be automatically corrected in the market No currency is wholly fixed or floating in reality Market pressure can also influences changes in exchange rate in the fixed regime Sometimes, a “black market” which is more reflective of actual supply and demand may develop when a local currency does reflect its true value against its pegged currency The central bank will often be forced to revalue or devalue the official rate due to this so that the rate is in the line with the unofficial one This thereby halting the activity of the black market The central bank may also intervene when it is necessary to ensure stability and to avoid inflation even though it is less often for the central bank of the floating regime to interfere
The World Once Pegged
There was a global fixed exchange rate between 1870 and 1914 Currencies was link to gold which means the value of a local currency was a fixed at a set exchange rate to gold ounces It is known as the gold standard This allowed for unrestricted capital mobility as well as global stability in currencies and trade However the gold standard was abandoned with the start of World War I The conference at Breton Woods, in an effort to generate global economic and increased volumes of global trade at the end of World War II, established the basic rules and regulations governing international exchange An international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade It is also to maintain the monetary ability of countries and therefore that of the global economy It was agreed that currencies would once again be fixed, or pegged, only this time to the U.S. dollar which in turn was pegged to gold at USD35/ounce This meant that the value of a currency was directly linked to the U.S. dollar However if a country needed to readjust the value of its currency, it could approach the IMF to adjust the pegged value of its currency This peg was maintained until 1971, when the U.S. dollar could no longer hold the value of the pegged rate of USD35/ounce of gold Major government adopted a floating system from then on All attempts to move back to a global peg were eventually abandoned in 1985 No major economies have gone back to a peg since then and the use of gold as a peg has been completely abandoned
Why Peg?
The reasons to peg a currency are linked to stability In today’s developing especially, a country may decide to peg its currency to create a stable atmosphere for foreign investment Investors will not have to worry about daily fluctuations as with a peg they will always know what their investment value is Pegged currency also can help to lower inflation rates and generate demand, which results from greater confidence in the stability of the currency Fixed regimes, however can often lead to severe financial crises since a peg is difficult to maintain in the long run. This was seen in the Mexican (1995), Asian and Russian (1997) financial crises An attempt to maintain a high value of the local currency to the peg resulted in the currencies eventually becoming overvalued Countries with pegs are often associated with having unsophisticated capital markets and weak regulating institutions The peg therefore there to help create stability in such an environment
It takes a stronger system as well as a mature market to maintain a float When a country is forced to devalue its currency, it also required to proceed with some of the economic reform in an effort to strengthen its financial institutions Some government may choose to have a “floating” or “crawling” peg, whereby the government reassesses the value of the peg periodically and then changes the peg rate accordingly Usually the change is devaluation, but one that is controlled so that market panic is avoided This method is used in the transition from a peg to a floating regime It allows the government to “save face” by not being forced to devalue in an uncontrollable crisis Although the peg has worked in creating global trade and monetary stability, it was used only at a time when all the major economies were part of it While a floating regime is not without its flaws, it has proven to be a more efficient means of determining the long term value of a currency and creating equilibrium in the international market
2.2. Basic Concepts for the Currencies Market
You don’t have to be a daily trader to take advantage of the Forex market You are participating in the Forex market every time you travel overseas or exchange your money into a foreign currency According to the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity conducted by the Bank of International Settlements, the Forex market generated $3.2 trillion dollars worth of transactions daily. This makes the Forex market the quiet giant of finance, dwarfing over all other capital markets in its world Despite its overwhelming size, when it comes to trading currencies, the concepts are simple. Below are some of the basic concepts that all investors need to understand.
Eight Major Currencies
In the currency market, investors only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. The eight countries that make up the majority of trade in the currency market are: i. United States ii. Euro zone (the ones to watch are Germany, France, Italy and Spain) iii. Japan iv. United Kingdom v. Switzerland vi. Canada vii. Australia viii. New Zealand
These economies have the largest and most sophisticated financial markets in the world By strictly focusing on these countries, investor can take advantage of earning interest income on the most credit worthy and liquid instrument in the financial markets Economic data is released from these countries on almost daily basis, allowing investors to stay on top of the game when it comes to assessing the health of each country and its economy
Yield and Return
When it comes to trading currencies, the key to remember is that yields drives return All currencies are quoted in pairs, because each currency is valued in relation to another In every foreign exchange transaction, investors are using the proceeds from the currency they sold to purchase the currency they are buying Every currency in the world comes attached with an interest rate set by the central bank of the currency’s country Investors are obligated to pay the interest on the currency that they have sold But they also have the privilege of earning interest on the currency that they have bought
Leveraging Returns
Forex market also offers tremendous leverage often as high as 100:1 This means that investors can control $10 000 worth of assets with as little as $100 of capital Leverage can also be a double-edged sword It can create massive profits when you are correct and may also generate huge losses when you are wrong Usage of leverage basically exacerbates any sort of market movements As easily as it increases profit, it can just as quickly cause large losses However, these losses can be capped through the usage of stops. Almost all Forex brokers offer the protection of a margin watcher (a piece of software that watches your position 24 hours a day, five days a week and automatically liquidates it once margin requirements are reached) This process insures that your account will never post a negative balance and your risk will be limited to the amount of money in your account
Carry Trade
Currency values never remain stationary and it is this dynamic that gave birth to one of the most popular trading strategies of all time, the carry trade Carry traders hope to earn not only the interest rate differential between the two currencies, but also look for their positions to appreciate in value There have been plenty of opportunities for big profits in the past
Carry Trade Success
The key in creating a successful carry trade strategy is not simply to pair up the currency with the highest interest rate against a currency with the lowest rate Rather, far more important than the absolute spread itself is the direction of the spread In order for carry trades to work best, you need to be long a currency with an interest rate that is in processes of expanding against a currency with a stationary or contracting interest rate This dynamic can be true if the central bank of the country that you are long is looking to raise interest rates or if the central bank of the country that you are short is looking to lower interest rates
Getting to Know Interest Rates
Knowing where interest rates are headed is important in Forex trading requires a good understanding of the underlying economics of the country in question Countries that are performing very well with strong growth rates and increasing inflation will probably raise interest rates to tame inflation and control growth Countries that are facing difficult economic conditions ranging from a broad slowdown in demand to a full recession will consider the possibility of reducing interest rates
Conclusion
Thanks to the widespread availability of electronic trading networks, Forex trading is now more accessible than ever The largest financial market in the world offers a world of opportunity for investors who take the time to get to understand it and learn how to mitigate the risk of trading here
2.3. Fundamental Factors that Affect Currency Values
Those trading in the Forex market rely on the same two basic forms of analysis that are used in the stock market which are fundamental analysis and technical analysis The uses of technical analysis in Forex are much the same, in which price is assumed to reflect all news and the charts are the objects of analysis But unlike companies, countries have no balance sheets Since fundamental analysis is about looking at the intrinsic value of an investment, it application in Forex entails looking at the economic conditions that affect the valuation of a nation’s currency Some of the major fundamental factors that play a role in the movement of a currency:
Economic Indicators
They are reports released by the government or a private organization that detail a country’s economic performance Economic reports are the means by which a country’s economic health is directly measured, but do remember that a great deal of factors and policies will affect a nation’s economic performance These reports are released at scheduled times, providing the market with an indication of whether a nation’s economy has improved or declined The effects of these reports are comparable to how earnings reports, SEC fillings and other releases may affect securities In Forex, as in a stock market, any deviation from the norm can cause large price and volume movements You may recognize some of these economic reports, such as the unemployment number, which are well publicized Others, like housing stats, receive little coverage Each indicator serves a particular purpose and can be useful Four major reports which are comparable to particular fundamental indicators used by equity investors are listed below:
Gross Domestic Product (GDP)
GDP is considered the broadcast measure of a country’s economy, and it represents the total market value of all goods and services produced in a country during a given year Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures which are the advance report and the preliminary report Significant revisions between these reports can cause considerable volatility The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth
Retail Sales
The retail-sales report measures the total receipts of all retail stores in a given country This measurement is derived from a diverse sample of retail stores throughout a nation The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy
Revisions to advanced reports of retail sales can cause significant volatility The retail sales can be compared to the sales activity of a publicly traded company
Industrial Production
This reports shows the change in the production of factories, mines and utilities within a nation It also reports their ‘capacity utilization’, the degree to which the capacity of each of these factories is being used It is ideal for a nation to see an increase of production while being at its maximum or near maximum capacity utilization Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry, and in turn the trading of and demand for energy, is heavily affected by changes in weather Significant revisions between reports can be caused by weather changes, which in turn, can cause volatility in the nation’s currency
Consumer Price Index (CPI)
The CPI is a measure of the change in the price of consumer goods across over 200different categories This report, when compared to the nation’s exports, can be used if a country is making or losing money on its products and services Be careful, however, to monitor the exports (it is a focus that is popular with many traders) because the prices of exports often change relative to a currency’s strength or weakness Some of the other major indicators include the purchasing managers index (PMI), and housing starts And don’t forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey All of these provide a valuable resource to traders, if used properly
So, How Are These Used?
Since economic indicators gauge a country’s economic state, changes in the conditions reported will therefore directly affect the price and volume of a country’s currency It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency’s price There are third-party reports, technical factors and many more other things that also can drastically affect a currency’s valuation
Tips When Conducting Fundamental Analysis in the Forex Market
Keep an economic calendar on hand Keep an eye on the future Be informed about the economic indicators that are capturing most of the market’ attention at any given time Know the market expectations for the data and pay attention to whether or not the expectations are met Don’t react too quickly to the news Pay attention to these revisions
Conclusion
There are many economic indicators and even more private reports that can be used to evaluate the fundamentals of Forex It’s important to take the time to not only look at the numbers, but also understand what they affect a nation’s economy When properly used, these indicators can be invaluable resource for any currency trader
2.4. Why Central Banks and Interest Rates are so Important
Interest rates are the sole factor that keeps the currency markets moving With interest rates, international investors will have a solid reason to shift their money from a country to the other to find the best yields The direction of which the interest rates are going will determine the outcome
2.5. The Eight Major Central Banks U.S. Federal Reserve System (The Fed)
Is the most influential central bank in the world The valuation of many currencies is affected by the Fed The Federal Open Market Committee (FOMC) is consisted of seven governors of the Federal Reserve Board plus five presidents of the 12 district reserve banks, and they all decide on interest rates within the Fed Ben Bernanke, who is the Chairman of the Federal Reserve, believes in inflation targeting and printing money to avoid deflation
European Central Bank (ECB)
The group that decides on changes to monetary policy is the governing council of the ECB
Since the ECB is a central bank, it’ll usually give the market ample notice by warning of an impending move through comments to the press whenever it plans on making a change to interest rates ECB normally maintains the annual growth in consumer prices below 2% ECB is interested in preventing against excess strength in its currency as this will pose a risk to its export market Jean-Claude Trichet is the current president of the European Central Bank, and he manages the monetary policy of 12 nations
Bank of England (BoE)
Under the wings of Mervyn A.King, the governor of the Bank of England, the BoE is highly regarded as one of the most effective central banks Keeping the prices stable and maintaining confidence in the currency are the monetary policy mandate of the BoE Since the central bank has an inflation target of 2%, the central bank will try to curb inflation, and if it’s at a level far below 2%, this will prompt the central bank to take measures to boost inflation
Bank of Japan (BoJ)
The BoJ has more active interest compared to ECB in preventing an excessively strong currency since Japan is heavily dependent on exports The BoJ is outspoken when it comes to excess currency volatility and strength The central bank’s top focus is the inflation in order to ensure stability of the financial system and to maintain price stability Toshihiko Fukui, the governor of Bank of Japan, has implemented new policies geared toward greater transparency
Swiss National Bank (SNB)
Rather than a specific target rate, the SNB determines the interest rate band The SNB isn’t interested in seeing its currency become too strong as is very dependent on export The SNB ensures price stability while taking the economic situation into account Jean-Pierre Roth is the current chairman of the Swiss National Bank
Bank of Canada (BoC)
A consensus vote by Governing Council determines the monetary policy decisions within the Bank of Canada BoC focuses on maintaining the integrity and value of the currency The central bank has an inflation target of 1-3%, and it has done a good job of keeping inflation within that band David Dodge, the former governor of the Bank of Canada, has been credited for carefully balancing inflation with currency appreciation
Reserve Bank of Australia (RBA)
The RBA focuses on ensuring the stability of currency, maintenance of full employment and economic prosperity and welfare of the people of Australia The central bank has an inflation target of 2-3% per year Glenn Stevens, the governor of the Reserve Bank of Australia, is expected to keep a close eye on inflation as the Australian economy continues to boom
Reserve Bank of New Zealand (RBNZ)
The central bank governor ultimately holds the decision-making power on monetary policy RBNZ aims to maintain price stability and to avoid instability in output, interest rates and exchange rates The RBNZ has an inflation target of 1.5% Failure to meet the inflation target could result in the dismissal of the governor of the RBNZ Alan Bollard, the governor of the Reserve Bank of New Zealand, has condemned large current account deficits and raised New Zealand interest rates to a high level of 8.25%
Summing It All Up
The inflation target is the key for most central banks If inflation exceeds the central bank’s target, it will have a bias toward tighter monetary policy If inflation is lower than the initial target, , the central bank will have to loosen monetary policy A solid way to predict where a currency pair may be headed is by combining the relative monetary policies of two central banks The currency pair is expected to move in the direction of the interest rate spread when a central bank is sticking to the status quo while the other one is raising interest rates
2.6. Currency ETFs Simplify Trading
For the majority of investors, it’s of utmost importance to minimize risk while retaining upside potential A great way to diversify a portfolio is by having different currencies to benefit from some of the same things that may hurt stock indexes, bonds or commodities It’s quite a workload to dig into currencies as a trader or investor In order to understand the Forex market and use it to diversify risk, the new currency exchange-traded funds (ETFs) will make it simpler To diversify your holdings and to learn more about this unique way of using currencies , read more on the CurrencyShares Euro ETF (PSE:FXE), CurrencyShares British Pound ETF (PSE:FXB), and General Electric (NYSE:GE)
2.7. Hedging Against Risk
There are two types of risk that any investors will face: : idiosyncratic risk and systemic risk Idiosyncratic risk is the risk that makes an individual stock’s price fall To overcome idiosyncratic risk, you’ll need to diversify your account across a broad range of stocks or stock-based ETFs Systemic risk is the exposure you have to the entire stock market falling You could easily mitigate systematic risk in your account and take advantage of large macroeconomic trends around the world by putting your money not only into the stock market but also in the Forex market through these funds
2.8. How Currency ETFs Work
ETF management firms buy and hold currencies in a fund They then sell shares of that fund to the public You can buy and sell ETF shares just like you buy and sell stock shares Investors value the shares of the ETF at 100 times the current exchange rate for the currency being held. To profit from the exchange rate of the dollar versus the euro, the British pound, the Canadian dollar, the Japanese yen, the Swiss franc, the Australian dollar and a few other major currencies, you can use ETFs
2.9. What makes currencies move?
Currencies will often channel in the very long term unlike the stock market Inflation and issues around monetary policy may prevent a currency from growing in value indefinitely Among the factors that influence the value and movement of currency pairs include interest rates, stock market yields, economic growth and government policy
2.10.
Economic Factors and Currency Trends
Oil and the Canadian Dollar
Commodity prices will drive currency values if an economy is a commodity producer and exporter There are three major currencies that are known as “commodity” currencies that exhibit very strong correlations with oil, gold and other raw materials, and it includes the Canadian Dollar (CAD) One ETF that can be traded to profit from the moves in the CAD/USD pair is CurrencyShares Canadian (PSE:FXC) Because of the effect that higher energy prices can have on stock values, this is especially useful for stock traders
Plus, it also provides another way for stock traders to speculate on rising commodity prices without having to venture into the futures market There is opportunity to take advantage of the move the market will make as it “catches up” with oil when imbalances occur in the falling oil prices To diversify their holdings and speculate on rising energy prices, long-term traders can short the ETF of falling oil prices
Interest Rates and the Swiss Franc
Dramatic correlation exists between bond yields and the Swiss franc The CurrencyShares Swiss Franc Trust (PSE:FXF) is the one ETF that can be used to profit from the Swiss franc, or “Swissie” When the Swissie is rising in value, the ETF rises as well, as it costs more U.S. dollars to buy a Swiss franc When bond yields are rising, the Swissie falls, and vice versa The value of the Swissie will frequently rise and fall with bond yields depending on interest rates If yields are falling, the stock market should be falling as well
3. Forex Story 3.1. A Weak US Dollar: How Does That Impact You? Advantages 1) Increased Exports weaker dollar increases the competitiveness of US goods it boosts foreign demand while keeping US consumer demand domestic however, it benefits the sales of US corporations-more jobs and consumer spending helps to reduce the trade deficit 2) Foreign Investment foreigners as big buyers of US real estate-could provide the support that the US housing market needs to avoid a major crash if the dollar continues to fall, foreign investors may begin to load up on companies with sound fundamentals- less vulnerable to a US economic slowdown both of these factors are contingent upon the US dollar showing signs of stabilizationforeign investors will only swoop in with size when they believe that dollar weakness is nearing an end less contingent upon the outlook for the US dollar- weaker dollar also makes US corporations more attractive buyout targets-sovereign wealth funds of countries are on the lookout for good investment opportunities 3) Increased Tourism a big part of the US economy Canadians represent the biggest group of travelers into the US- expect their share to rise even further now that the Canadian dollar is trading at parity with the US dollar Disadvantages 1) Higher Costs for Foreign Goods With a trade deficit of $59.2 billion, US consumers import far more than they exportnumber one country that the US imports from is Canada, which is why the recent strength of the Canadian dollar is so important 2) Tighter Monetary Policy Higher costs for foreign goods imports inflation-in order to get out of a crisis, the Federal Reserve will usually lower interest rates aggressively-lead to bubbles in the financial market, forcing the Fed to hike interest rates 3) Foreign Travel Becomes More Expensive From a consumer level, the weakness of the US dollar makes foreign travel more expensive, particularly to countries like Europe and Australia
Can the US Dollar Fall Further?
Yes A trend in the currency market can last far longer than many people would expect Interest rate outlooks play a major role in the future direction of currencies so with the market pricing in another 125bp of easing by the end of next year, the US dollar could easily fall to 1.50 against the Euro At some point, the benefits of a weaker dollar such as increased exports and foreign investment will help to turn the US economy around, at which point the dollar will begin to rise once again
What Does This Mean for Your Investments?
The value of the US dollar or currencies does matter Companies that do a lot of foreign sales will benefit the most because their foreign currency revenue will be higher-their earnings from currency conversion will be larger The industries with the greatest foreign sales exposure are energy, technology and consumer staples Companies that produce commodities usually also benefit from dollar weakness The companies that will be hurt the most are big importers
3.2. American Clients are Moving Forex Account to Offshore Forex Brokers
Online Forex trading industry is one of the most dynamic online industries Most online Forex traders are US citizens The recent events regarding the top poker rooms active on US market also give effect to the Forex market. No one saw events on the Black Friday coming as they were totally unexpected The level of uncertainty in the online environment raised due to this event This is because the Forex industry was already in a tough situation after the US Commodity Futures Trading Commission (CFTC) imposed new regulations. The number of Forex brokers that accept US traders had been limited due to the new regulations by CFTC Most of the brokers available on the US market have low leverages and unfavourable trading conditions More and more US traders look for offshore Forex brokers with higher leverages and better trading conditions due to this matter The foreign brokers also are not allowed to accept US traders The only option available for the US traders at this moment is the binary option trading All major binary option traders accept US traders. Binary option brokers are licensed and regulated by trustfully boards and commissions All binary options brokers have high profit rates Most of them offer up to 85% profit for options expiring in the money and up to 15% refund for options expiring out of the money. The binary options trading has many advantages compared to the traditional Forex trading
The most attractive ones is the higher returns on investment and the shorter option expiration times being
3.3. Avoiding Forex - Related Frauds and Scams Geographical Location of the Broker
Do not sign up for unregulated and under-developed countries Responsibility - trader to protect capital, broker to convince investment Reliable countries: Australia, US, UK, Japan, Germany, France
License Numbers
License numbers brokers may have registered with regulatory bodies Regulatory bodies- monitor finance and investment industries, impose strict rules to safeguard investment Beware of fake regulatory bodies- check how long is their operation, search reviews made about them, find forums discussing about their brokers
Pre-cautions
Stay away from opportunities that sound too good to be true- only allocate a tiny amount of money to trading until you can start growing it Avoid individuals or organizations who claim to predict or guarantee large profits- be wary of statements that make it sound easy Be wary of companies who downplay investment risks- written risk disclosure agreement are routine formalities imposed by the government Be wary of companies that claim to trade in the ‘Interbank Market’-it is a loose network of currency transactions that are negotiated between nig financial institutions and other large companies Ethnic minorities are often targeted- ethnic newspapers and television ‘infomercials’ Seek out the company’s background- check the information you receive, get the background of people operating the company, do not rely solely on oral statements and promises Do not invest if you have doubts after you have gone through the information
3.4. Billionaire Clusters If you want to become a billionaire, read these findings made from an analysis of a database of 657 self-made billionaires: Education
A significant percentage of billionaires had parents with a high aptitude for math. The most common professions of the parents include engineers, accountants and small-business owners
More than 20% of the self-made American billionaires have either never started or never completed college. Just think Bill Gates, Steve Jobs, Michael Dell, Larry Ellison, and Theodore Waitt 55% of billionaires who derive their fortunes from finance have graduate degrees Nearly 90% of those who have MBAs obtained their master’s degree from one of three Ivy League schools: Harvard, Columbia or University of Penn’s Wharton School of Business
Work
At least 11 current and recent billionaire financiers including Edward Lampert, Daniel Och, Tom Steyer and Richard Perry had worked at investment banking, trading, or asset management divisions in Goldman Sachs early in their careers Several billionaires suffered a bitter professional setback early in their careers which heightened their fear of failure
Social
Several current and former billionaires, such as Edward Lampert, Blackstone co-founder Steven Schwarzman and FedEx founder Frederick Smith, rounded out their Yale careers as members of Skull and Bones, the secret society portrayed with enigmatic relish by Hollywood in movies. 42 out of 380 self-made American tycoons were born in September, more than any other month
3.5. Choosing a Good Forex Broker
A Forex broker is an intermediary between a trader and a currency market
Is the Broker I Want to Use Regulated?
All regulated brokers must submit financial reports to regulatory authorities When they fail to do it, authorities have the right to fine them or terminate their membership The brokers must be regulated by their local regulatory authorities It allows investors to dispute any resolution - increasing the investor protection
Trading Conditions
Spread – the smaller the spread on currency pairs the better the conditions are for investors and traders Platform execution – how fast and consistent are the execution of trades Fractional trading – Some brokers allow investors and traders to trade on a fractional basis, instead of trading full lots “100,000 units” or “300,000 units”, they allow you to trade “163,345 units” or “325,911 units”, helpful for trades risking certain percentage of their balance on each trade Safety of funds – make sure trading funds are kept in a segregated account or at least insured
LIVE CHAT Feature
Enables to get in touch with a representative anytime you need for different kind of problems, like withdrawals, deposits etc Check the promo offers that the broker is offering you
3.6. Does Forex Make Money?
Any individuals who has a computer and Internet connection can dabble in Forex 95% lose money, the majority fail to make consistent profits, so do your homework before starting Forex trading Set a realistic mindset: commitment to learn and get a proper education, application of the knowledge learned, discipline, and perseverance Experienced traders – traders who have been learning new Forex trading knowledge for a few months Novice, those who have 1 to 3 years of Forex experience, get acquainted with the workings of the Forex, learn the terminology and working with a demo account on a trading platform
Most Critical
Develop mental discipline and emotional control necessary for safe trading, not for people who are not in control of their emotions, gamblers Successful traders are those who perform careful market analysis, have an understanding of how the market moves and have a strict control of equity management
Home-based Job
Once the skills have been acquired, the Forex can provide a substantial form of income
Making a Decision
Do your homework, get Forex education, examine current workload and circumstances and be honest about your personality style Enables to get in touch with a representative anytime you need for different kind of problems, like withdrawals, deposits etc Check the promo offers that the broker is offering you
3.7. Don’t get rid of your junk bonds yet
The worries about hedge fund meltdowns, having too many of them in existence and the history of tight spreads is not going to take down these high yield bonds This attention has actually caused spreads enough for portfolio managers to earn money in the second half The crisis should not spill over into equities and they also should not severely damage highyield bonds
Patience will lead you through the crisis just fine
3.8. Fundamental Factors That Affect Currency Values Fundamental analysis is one of the two basic forms of analysis used in the stock market. Since fundamental analysis is about looking at the intrinsic value of an investment, its application in Forex entails looking at the economic conditions that affect the valuation of a nation’s currency. Some of the major fundamental factors that play a role in the movement of a currency:
Economic Indicators economic indicators are reports released by the government or a private organization that detail a country’s economic performance these reports are released at scheduled times examples are unemployment numbers and housing stats
Below are four major reports of economic indicators: 1. Gross Domestic Product (GDP)
the broadest measure of a country’s economy represents the total market value of all goods and services produced in a country during a given year most traders focus on the advance report and the preliminary report issued in the months before the final GDP figures as the GDP figure itself is often considered a lagging indicator
2. Retail Sales
the retail-sales report measures the total receipts of all retail stores in a given country this measurement is derived from a diverse sample of retail stores throughout a nation useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables can be used to predict the performance of more important lagging indicators and to assess the immediate direction of an economy
3. Industrial Production
shows the change in the production of factories, mines and utilities within a nation reports the degree to which the capacity of each of these factories is being used traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry is heavily affected by changes in weather
4. Consumer Price Index (CPI)
CPI is a measure of the change in the prices of consumer goods across over 200 different categories
Can be used to see if a country is making or losing money on its products and services when compared to a nation’s exports It is popular with many traders because the prices of exports often change relative to a currency’s strength or weakness
Other major indicators include:
purchasing managers index (PMI) producer price index (PPI) durable goods report employment cost index (ECI) housing starts privately issued reports such as the Michigan Consumer Confidence Survey
So, How Are These Used?
Keep an economic calendar on hand that lists the indicators and when they are due to be released Keep an eye on the future; often markets will move in anticipation of a certain indicator or report due to be released at a later time Be informed about the economic indicators that are capturing most of the market’s attention at any given time Know the market expectations for the data and then pay attention to whether or not the expectations are met Don’t react too quickly to the news. Often, numbers are released and then revised
3.9. Learn Forex With Forex Broker Forex Trading Business
Forex is basically dealing in Foreign Exchange Investors purchase and sell currencies depend on the conditions The buying and selling of currencies help investors in getting good returns on the investments Like in stock market ‘buy when the market is low, sell when the market is high’
Forex Traders
Understand Forex and the nature of the business - take classes or training courses To be successful, you should be able to predict the market, its changes, keep track of the rise and fall of currencies Books, tutorials and software help you to learn the techniques and methods to do the business
Get Started on Forex
The Internet makes it easy to do Forex trading - many Forex brokerage firms offer online trading facilities
Learning Forex
Get educated on the principles and logics of Forex trading
3.10.
Make Money with Currency Trading
Forex: FOReign EXchange market, refers to an international exchange market where currencies are bought and sold
Forex as a Unique Market
free of external controls and that it cannot be manipulated the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day-near impossible to significantly affect the price of a major currency-traders are able to open and close positions within a few seconds as there are always willing buyers and sellers variance of participants- longer term hedge investors, while others utilize massive credit lines to seek large short term gains- the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies
How Forex Works
Transactions in foreign currencies are not centralized on an exchange-thus take place all over the world via telecommunications Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday) In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online) It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.
Marginal Trading
Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in Forex investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term “lot” refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.
When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.
Investment Strategies: Technical Analysis and Fundamental Analysis
The two fundamental strategies in investing in Forex are Technical Analysis or Fundamental Analysis.
Technical Analysis
Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency’s future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.
A Fundamental Analysis
A fundamental analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumours. By the numbers, a country’s economy depends on a number of quantifiable measurements such as its Central Bank’s interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.
Make Money with Currency Trading on Forex
Forex investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on Forex means that potential profits are enormous relative to initial capital investments.
Another benefit of Forex is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in Forex short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.
3.11.
Profitable Forex Strategies and Techniques
One must be careful when trading in the Forex market, as it is a risky one. Just take a look at these stats and you will see why:
95% of traders lose money, 5% make it and less than 1% become rich at Forex. It is dangerous that you can trade at huge leverage as much as 400 to 1, meaning that for every dollar that you have for trading you can trade 400. For example, if you have $1,000 on your account you can trade as much as $400,000. Despite that, people blindly gamble their money at Forex despite some not having a clue about what this market is about.
Here are some profitable Forex strategies and techniques: 1. Do not look for a holy grail of trading
Learn a whole lot about this market Don’t waste time searching for a trading strategy that allows you to have guaranteed profits. There are none.
2. Use Technical Analysis and Fundamental Analysis i.
ii.
Technical Analysis Master technical analysis by predicting future price movements and analyzing past price data and graphical patterns Get a graphic of certain currencies and crosscheck against the data that you have observe Add technical indicators to the graphs while you are trading. www.oanda.com is one broker that allows you to add technical indicators to the graphs Use technical indicators such as MACD (Moving average convergence divergence), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA and Elliot Waves Fundamental Analysis Keep updated on news such as the countries’ economies of the currencies that you are trading, unemployment index or anything that could drastically affect the price of the currencies
Obtain important financial news from sites such as www.bloomberg.com, www.businessweek.com, www.economist.com, money.cnn.com or www.reuters.com
3. Use money management strategies
Do not risk more than 1% of the money that you have on your account Expect always to receive more profits than the money that you risk to lose
3.12.
An Insight into Robert Kuok’s Life
Tan Sri and his brothers owe their upbringing to their mother:
His mother is described as gentle, strongly inculcate the values of honesty- don’t cheat, lie and steal- and don’t envy other people for their extra material or physical wealth. His mother was the guide with strong moral principles and was the influence that ties the group together. She taught the children not to be greedy, to practice giving the society through charity and donations. She kept the children focused on the big picture in business and reminded them that one could high morality in making money. Avoid businesses that bring harm, destruction or grief to people such as gambling, drugs, arms sales, loan-sharking and prostitution.
Tan Sri and his brothers then decided to establish Kuok Brothers Limited:
His father had re-registered the firm as a sole proprietorship after Japanese surrendered and died shortly after that on 25 December 1948 without leaving a will. The first meeting was done at their home, a little shop house, in Johor Bharu on 1 April 1949. His mother and few cousins were present at the small roundtable.
Tan Sri worked hard and maintained that honesty is the best policy in business:
He practices humble, straight, genuine and don’t take advantage of people in business If you want to be a successful businessman, he said, you need to brush all your senses They started small and grew covering many industries and operations worldwide His success is not possible without the founding members, colleagues and employees
His thoughts on staff and employees
Must have criteria: honest, hardworking and intelligent, brilliance is nothing without good attitude Pioneers in group in early years did not enjoy significant and substantial rewards- difficult years, capitalism Group and employee foundations help their descendents Success of the company depends on the unity of all employees Must endeavour to maintain and practice values of integrity and honesty, reject greed and arrogance
His thoughts on for businessmen/women
Reverse the Chinese phrase “failure is the mother of success”- success often breeds failure; it makes you arrogant and complacent
His thoughts on capitalism
The way forward in today’s world If allowed growing unchecked, it will become destructive, needs to be inspected thoroughly and consistently because in capitalism, man needs ambition and greed to drive him A sound capitalist system requires very strongly led, enlightened, wise governments, politicianstatesmen must be willing to sacrifice their lives for the sake of the people His thoughts on China and challenges
Restoration of education in morals- begin from the root up, imbuing and infusing moral lessons and morality The establishment of a rule of law, accept the principle of rule of law, train upright judges and lawyers to uphold the legal system
His thoughts on wealth
For the generation of greater wealth- continue to invest, create prosperity and jobs in the country Part of wealth should be applied to the betterment of mankind
3.13.
Should You Bet against the Dollar?
The U.S. dollar hit an all-time low in April 2008 The dollar rallied strongly in last fall’s financial crisis but it has once again fallen as the world economy has recovered As of 19 October 2009, the IntercontinentalExchange Dollar Index has fallen about 15% from the high it reached in early March The effect of the weakening dollar is that it’s cheaper for people in other countries to buy American-made goods and services but more expensive for Americans to buy things sold in other currencies
The Explosion of Currency Funds
There used to be only one mutual funds and exchange-traded funds that allow people to bet on the rise or fall of various currencies - Franklin Templeton Hard Currency Several more such funds have sprung up, namely ProFunds Rising U.S. Dollar and ProFunds Falling U.S. Dollar There are several leveraged dollar funds that provide twice the returns of the USDX too Rydex Strengthening Dollar 2x Strategy, Direxion Monthly Dollar Bull 2x, Monthly Dollar Bear 2x and Rydex Weakening Dollar 2x Strategy
Are Currency Funds Worth Owning?
Don’t look at the performance of funds and think that they would make good returns. This thinking is dangerous as currency movements are especially volatile and highly unpredictable Diversify a portfolio and hedge against the possibility of a further fall in the dollar
Other Options for Currency Exposure
Get foreign-currency exposure through foreign-stock funds, as long as they’re unhedged, but keep in mind that foreign bond funds can be very volatile Some domestic-stock funds can benefit from dollar weakness if they hold a lot of multinational firms that get a large chunk of their revenues abroad Rev up your portfolio even further with an unhedged foreign bond fund. Because the dollar has been in the doldrums, they’ve been among the best-performing fixed-income funds
The 7 New Rules of Financial Security Rule No. 1: Risk
You shouldn’t run from risky investments just because they lost money How much risk you can take is a matter of how much you can lose and still meet your basic goals
Rule No. 2: Cash
Build up an emergency fund first if you have to choose between building cash savings and a retirement fund at the same time Move some of that balance to low-risk investment options as you build your cash funds if all your assets are in a 401(k)
Rule No. 3: Human capital
Assess your human capital and use it as your baseline Think about how long you’ll be working, the stability of your current job and your ability to change careers if you have to If you’ve been an aggressive investor, it may be time to shift more of your assets to safer ground
Rule No. 4: Borrowing
Be conservative about debt Get a mortgage you can afford for the life of the loan and put at least 20% down
Rule No. 5: Housing
Have modest expectations for your house as a wealth builder There are pluses to owning your own place - you don’t risk being priced out as rents go up, a 30-year mortgage is a tool that forces you to save and eventually, you own a house
Rule No. 6: Diversification
Check your funds and see if you already own some of those assets Plug your holdings into Morningstar.com’s Instant X-Ray tool Buy funds that kill two birds with one stone
Rule No. 7: Retirement
Delaying retirement by a year could increase your annual retirement income by 9% You could find another lower-paid or part-time position
3.14. The difference between individual Forex brokers, Forex traders and currency traders Tasks and scope
Forex brokers: communicate and deal with investors Forex traders and currency traders: monitor the global foreign exchange market, manage clients’ funds in the currency market using their expertise and knowledge A Forex broker can share a client with the Forex trader where the broker brings in the funds and the trader manages the funds
Qualification
a tertiary education preferably majoring in business finance or marketing training - trainee will be assigned to a senior trader to assist him in daily trading activities-take the trainee at least six months to have a good feel of the market and small funds will be allocated to the trainee to manage a base salary and bonus which is depending on individual performance could face penalty such as deduction in bonuses or even get sack if they do not meet the standard performance requirement for the company
Before embarking on the career option of being a Forex trader, it would be interesting to know more from the perspective of a former Forex trader, just so to be better anticipated:
a Forex trader expert in the four major currencies operational in a small boutique currency trading company in San Francisco the working hours was almost 16 hours per days specialized in private investors’ funds and managing those funds were high in pressure and stress-private investors will call you anytime to check their Forex trading positions and Forex account balances the payout was high but the working hour was dreadful was promoted to head the marketing department of the company and the function is to draw in new clients’ funds for the company , training and motivating the Forex brokers and traders the challenging part is to maintain them
the job required the individual to be high in stress tolerance, and be able to commit long working hours the Forex brokers turnover is extremely high even though the payout is good
3.15.
Trading Forex on News Releases
One of the great advantages of trading currencies is that the forex market is open 24 hours a day (from 5pm EST on Sunday until 4pm EST Friday). Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U.S. economic news, but also to news from around the world. With at least eight major currencies available for trading at most currency brokers and more than 17 derivatives of them, there is always some piece of economic data slated for release that traders can use to inform the positions they take. Generally, no less than seven pieces of data are released daily from the eight major currencies or countries that are most closely followed. So for those who choose to trade news, there are plenty of opportunities. Here we look at which economic news releases are released when, which are most relevant to forex (FX) traders, and how traders can act on this market-moving data. Which Currencies Should Be Your Focus? The following are the eight major currencies: 1. U.S. dollar (USD) 2. Euro (EUR) 3. British pound (GBP) 4. Japanese yen (JPY) 5. Swiss franc (CHF) 6. Canadian dollar (CAD) 7. Australian dollar (AUD) 8. New Zealand dollar (NZD) 9. Note that since the U.S. dollar is on the “other side” of 90% of all currency trades, U.S. economic releases tend to have the most pronounced impact on the market. Next are a sample of some of the more liquid derivatives based on the currencies above: 1. 2. 3. 4. 5. 6.
EUR/USD USD/JPY AUD/USD GBP/JPY EUR/CHF CHF/JPY
What Are the Key Releases? When trading news, there are two key releases to pay attention to each week. There are two ways to do so:
Checking a calendar - Daily FX provides a very comprehensive calendar
Know which data is important - Daily FX calendar bolds the important releases and also lists the “consensus” figures
These are the most important economic releases for any country: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Interest rate decision Retail sales Inflation (consumer price or producer price) Unemployment Industrial production Business sentiment surveys Consumer confidence surveys Trade balance Manufacturing sector surveys
The importance of these releases may change depending on the current state of the economy. Therefore, it is important to be updated on what the focus of the market is on at the moment. How Long Does the Effect Last?
the market could still be absorbing or reacting to news releases hours, if not days, after they are released the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day the impact on order flow is still very pronounced on the third day and is still observable on the fourth day
How Do I Actually Trade News?
look for a period of consolidation ahead of a big number trade the breakout on the back of the number keep in mind is that, on the back of a good number, a strong move should also see a strong extension
Can I Avoid Getting Hit by Volatility When Trading News?
trade FX SPOT options if you don’t want to face the risk of a reversal FX SPOT options are viable alternatives for those who do not care to get whipsawed in the markets by undue volatility there are many different exotic options online which have barrier levels which determines the profitability the payout is predetermined and the premium or price of the option is based on the payout
The following are the most popular types of exotic options to use to trade news releases:
Double one-touch option
this option has two barrier levels
One-touch option
3.16.
this option has one barrier level slightly less expensive than a double one-touch option payout is only made if the barrier is breached prior to expiration a good option to buy if you have a view on whether the number will be stronger or weaker than the market’s consensus forecast
Double no-touch option
either one of the levels must be breached prior to expiration in order for the option to become profitable and for the buyer to receive the payout if neither barrier level is breached prior to expiration, the option expires worthless the perfect option to trade for news releases because it is a pure non-directional breakout play
the exact opposite of a double one-touch option neither barrier level can be breached before expiration, else the option payout is not made great for news traders who think that the economic release will not cause a pronounced breakout in the currency pair and that it will continue to range trade
Why Do Forex Traders Need Forex Brokers?
In order to access the Forex as a retail trader, we need brokers to provide us with a platform to trade from, liquidity and reliable execution of our trades. Understand the basic differences from one to the other, and also to have a good understanding of what your choices are
What are the differences between brokers?
A Forex broker acts as an intermediary for these small trades and assist in advice and recommendation Each brokerage house can have commission rates, minimum balances and account requirements that make it essential for any Forex trader to research and become familiar with before opening an account Two categories: Market Makers/Dealing Desks and Straight Through Processing Brokers (STP)/Non Dealing Desks Market makers provide the liquidity for a given currency market themselves, make their money off of the spreads (the difference between the bid and the ask) and by pacing hedges, or bet against their customers When you place a trade with a Market Maker, more than likely, they will be taking the other side of that trade in the expectation that you will lose These brokers however, do charge commissions for each trade you place with the advantage to you being a tighter spread
Do Your Research First
Which type of broker you choose is dependent on what type of trading you do If you are a day trader and a scalper, then it will probably be better for you to enjoy tighter spreads and just pay the transaction fee because you are attempting to make a profit with a smaller expected move by virtue of the very short time frame with this style of trading Conversely, if you are a swing or a position trader, holding onto a position for days, weeks or maybe even months, then the spread is of less consequence to you because your expected move will easily overcome this Knowing what type of trading you will be doing is a big part of choosing which type of brokerage house is best for you Bucket shops are essentially fake brokers that work out of boiler rooms acting as legitimate Forex brokers.
4. Forex Tips 4.1. Getting Started 1. Top Reasons to Trade Forex • Market transparency as an advantage (easier to handle risk and execute orders) • Money-making regardless of current market trends/conditions • Limitless potential in earning • Low transaction cost with no commissions to trade or account maintenance charged by brokers • Outcomes predicted accurately via “Technical Analysis” • Positive leverage with ease of buying and selling • Constant trading period with continuous electronic currency exchange 2. Get Started in Forex Trading • Equip yourself with complete Forex software (e.g. real-time quotes, news feeds, technical analyses and charts, profit-and-loss analyses etc) • Establish a legit Forex account for trading. Different charges apply for different types of account • Get accustomed to Forex by “Paper Trading” (transactions practice with no real capital involved) • Get a reputable broker to manage transactions • Be well-informed on the market prior to trading and risking money 3. To Invest or Not to Invest in Forex Trading? • It’s a jackpot in the Forex market when two countries are concerned in trading, and when cash is traded for product, services or a mix of these items • Expect a larger outcome back after watching the stock market shared by a corporation (with the risk of gaining or losing as the currency exchange differs daily from country to country) • Make or lose cash depends solely on the trading of cash • The margins of trading are typically near each alternative • See firsthand what a gain or loss will be like • Get involved first as a spectator with an investment advisor or broker 4. An Introduction to Forex Trading Rules • Never have any excuses • Reward is unpredictable but risk can be predetermined • Anything that is mathematically optimal means psychologically impossible • Know the difference between scaling in and adding to a loser • Being right but being early simply means that you are wrong • Always make sure that weakness goes hand in hand with strong • Trigger fundamentally, enter and exit technically • Never risk more than 2% per trade • Logic wins most of the time, impulse kills all the time • Never let a winner turn into a loser
5. How to Choose a Good Forex Broker • Inform yourself on the specific broker that you will want to work with and collect important information on certain aspects • Ask yourself if the broker that you’d like to use is regulated (all regulated brokers must submit financial reports to regulatory authorities) • The brokers must be regulated by their local regulatory authorities • Choose brokers with clear trading conditions (e.g. safety of funds, fractional trading, platform execution, spread, etc) • Get a broker with reliable customer support (a broker with Live Chat feature is highly recommendable) • Get a broker who has great promo offers for you (for instance, some brokers offer 10% bonus on the first deposit) • Review and understand the distance in the bid price and ask price before settling on one particular broker as every brokerage has different spreads • Identify a broker who deals in a particular currency pair • It is vital that you do business with a professional and trustworthy broker • Try, research and do some reading on the type of company you are going in for • Check for your broker’s reputation prior to finalizing your selection 6. Concentrating on Your Forex Affair • You will lose money if you don’t devote your full concentration to the trade that you have on at the moment • It’s essential that you learn to concentrate while executing a trade and scrupulously monitor the market action during a trade • You must be well rested and relaxed if you want to maintain your focus • Get proper sleep and nutrition since trading is often chaotic and full of stress • You won’t be able to keep your mind focused on trading if you’re tired or hungry • It’s also important to control your stress levels as stress depletes psychological energy • The best way to limit stress is through risk management. If you know that you are doing your best to keep potential losses to a minimum, you’ll feel more comfortable and can focus most of your psychological attention on trading • Concentration is essential for profitable trading. The more you concentrate, the more you feel you are in control. And when you feel your body and mind are synchronized with the market, you’ll trade profitably 7. Take the Plunge and Just Do It • Parting with your hard earned money always takes some self-convincing and it’s understandable that putting your money on the line to trade can be particularly hard. However, it’s the attractive alternatives to one trade that cause your indecisiveness most of the time • There are several ways to steer clear of your analysis-paralysis or at least limit its effects. For one, realize that you aren’t perfect and that you don’t have to be perfect to be a successful trader • Stop being a control freak. Every time you think you’ve got the market figured out, it sets you straight by taking your money
• Uncertainty is part of the game, so accept it. You’ll be better for it • Try taking smaller positions and only use money that won’t break your bank (if lost) if you can’t make moves forward in your trading • It will be easier to get moving to the next opportunity knowing that you only lost the absolute minimum to enter the trade • Observe yourself over-analyzing and realize that everything has its own risks. It’s now or never
4.2. Advantages of Forex 1. The Gains of Mastering Currency trading with Forex Training • You’ll be able to gain better insight and perspective within the market by studying the basics of exchanging currency comprehensively • Any speculators who have better preparation with in-depth knowledge regarding Forex stand better chance in achieving success • You’ll be thoroughly guided on your own strengths and weaknesses by your mentor during Forex training • You’ll become much aware of your unique tendencies of trading tactic and You’ll also be able to pick the best strategy during your Forex training course • You’ll most definitely be boosting the profitability of your respective trades while honing your best trading technique • Learning how to lose some cash is also vital during your training as it’ll give you actual life scenarios of the negative side of Forex, and that you also get to learn every little detail that needs to be done if you found yourself facing the similar situation • Good Forex training will teach you correct values, such as dedication, persistence, and tenacity, which will all give you a solid foundation of the Forex market
4.3. Saving Yourself from Forex Pitfalls 1. Saving yourself from Forex Scams • Be aware about the presence of those Big Sharks and be sure that the information they will try to sell to you is always available for free online • Most of the time the quality and the real value of that free information is much better than the one you will be asked to pay for • Be careful and keep an eye on the internet unlimited free resources if you want to save yourself from Forex scams 2. Spotting Forex Frauds • When someone is promoting a Forex system that guarantees no risk, it’s a scam • It is a fact that there are risks with Forex trading, and generally anyone who claims otherwise is a liar, or more likely a criminal
• A Forex scam is a web site that guarantees profits. Nobody can guarantee profits and Forex trading. It is up to you as an investor to perform • When someone is promising employment opportunities for people using their system, it’s a scam (this is typically a trick into getting you to spend your money with them) • Make sure to check the company’s claims out and assure that they are members of one of these organizations before dealing with them as all reputable Forex trading web sites will be a member of the CFTC or the NFA • In lots of cases Forex scams can become highly technical, involving brokers manipulating prices in ways that cannot be tracked by the average trader 3. Watch out for Traps • Before you make a decision on whether or not something is a bargain, it’s advisable that you look past the share price or valuation and examine the fundamentals of the company, the industry and the economy • For investors to discover the real values about a particular company, it must be done through research or stock price and not instinct. • Beware of your impulsive urge to recoup losses. Desperate investors are typically more willing to take outsize bets on individual stocks or narrowly focused exchange-traded funds • Learn the virtues of investment basics such as compound interest and dividends to overcome the risk trap • It’s a terrible idea for anyone to ditch their professional help • Never do everything on your own without any help from the pro • A low-risk strategy will produce minimal returns, hence you need to be prepared to invest some of it in riskier products • Never try to judge exactly the right moment to get into the market and then jump out again a day or two later • It’s better to look past the hype and invest small amounts regularly, an approach known as dollarcost averaging as opposed to acting on every new development • A strategy based on a solid asset-allocation plan and dollar-cost averaging is more likely to lead to sustainable gains over the longer haul • Since your emotions could sometimes overpower your logical thinking, you should find ways to start thinking logically again • Make a list of your investment goals, plan solid strategies, and stick to them 4. The Worst Forex Trading Strategy Will Make You Lose Everything • Bad investors average down by buying shares of a sinking asset to decrease their overall average price per share • Just because a share is cheap now that doesn’t mean it’s not going to get any cheaper • If a trader uses an averaging down system and uses margins, their losses will be magnified even further • Never average down and risk even more
5. Reasons Why Traders Lose • Traders were not mentally prepared. You should always understand the emotional aspects of trading and be prepared to deal with them before you put your money on the line as the situation could be stressful • Traders were risking too much per trade. Don’t take trades if it forces you to risk too much. Before thinking about profit, make sure that you understand the risks and manage it • Traders don’t understand how the market works, key indicators, key numbers, and ideal times to trade. You simply must educate yourself and be prepared to do battle • Traders don’t have a proven trading methodology. You will end up quitting the game after a string of losses with no proven trading method or strategy 6. Common Mental Mistakes New Traders Make • Not thinking in probabilities. Never beat yourself up and accept your trade losses wholeheartedly as it is normal • Jumping at the wrong time. Don’t be afraid to miss the first 25% of the move; and get out after 75%. Catching 50% of a confirmed move will produce awesome results • Fooling your own self. The final outcome of your trade should be a stop loss triggered, breakeven, or profit taken. Once the trade is completed, don’t dwell on it • Being overconfident. It’s hard to consistently remain mentally focused and stay disciplined. Know that going in and you increase your chances of success big time 7. Essential Tips to Avoid Forex Pitfalls • Be very careful and wary about infamous “black box” systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced • Consider individual trade details; analyze your losses and the telling losing streaks • If you’re trading with 40 to 60-point stop focusing on what’s happening today as the market will probably move too quickly to consider the long-term future • Don’t go and lose half of the money next time on a fancy when you make money on a well thoughtout strategic trade. Always stick to your strategy and invest profits on the next trade that matches your long-term goals • Never trust any demos as demo trading often causes new traders to learn bad habits • Focus on your current position(s) and place reasonable stop losses at the time you do the trade • Try to remember that the market often behaves illogically, so don’t get fully committed to any one trade; after all it’s just a trade
4.4. Trading Forex 101 1. Forex Brokers Could Help Maximize your Success • Being inexperience is one of the reasons to consider using a Forex broker to trade in the high-risk international currencies market • The level of profits depends only on your abilities as well as your timely decision • In the Forex market, currencies are always priced in pairs
• In the wholesale market, currencies are quoted out to four decimal places, with the last placeholder called a point or a pip • The value of a pip is determined by the pair of currencies being traded, the rate at which the currency pair is trading and the size of the position being traded 2. Top Tips on Forex Scalping • Scalping is a single buying and selling approach involving short-term movements in exchange rates • A short-term scalp trade could possibly only final a number of minutes • Scalping is basically a kind of short-term trading if you open and close orders in the exact day or within just a few hours • You can make extra revenue with this approach to investing than any other if you discover ways to scalp the markets appropriately • Scalping also usually requires you to produce instant selections that can cause losses • If you ever enter a little trade, the market continues to be going to movement together with the all round pattern. Never trade against the substantial pattern • In essence, you should always have enough experience to learn how your currency will behave, and constantly watch your chosen currency each day • You must target tiny wins to obtain a substantial winning rate 3. Commissions, Spreads, and Trading Costs • Like most trading, there will always be costs involved in Forex • Most investors will have a trading account with a broker somewhere and will have investment funds deposited in that account when it comes to trading stocks • The broker will then execute the trades on behalf of the account holder • The broker will want to be compensated in return for providing that service • When it comes to stocks, the broker will earn a commission for executing the trade, and they’ll charge either a fixed dollar amount per trade, or a dollar amount per share, or a scaled commission based on how big your trade is • When you buy the stock you get charged commission, and when you sell that same stock you get charged another commission • The spread is the difference between the bid price and the ask price for the currency being traded • The broker will add this spread onto the price of the trade and keep it as their fee for trading • Spreads can vary based on what currencies you’re trading and what type of account you open • Most brokers will give you different spreads for different currencies • Think about what currencies you are most likely to be trading and find out what your spreads will be for those currencies • Some brokers will offer different spreads for different types of accounts • When trading Forex, understand that the “spread” is truly your most important consideration for trading costs • Spreads can vary significantly between brokers, account types and currencies traded • Make sure you understand what currencies you are going to be trading, how frequently, and in what type of account and use those factors to help decide which broker can offer you the best trading costs
4. Trading the Forex Market Techniques • It’s really crucial for anyone who’s interested in Forex trading to fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers • With technical analysis and the use of various indicators, you’ll be able to recognize and combine pattern recognition with your favourite indicator for confirmation to take a trade as technical analysis focuses on price action and market behaviour • The indicators may be found on most trading software, with the calculations are all done within the software • Aside from technical analysis, fundamental analysis in trading is a very effective way to forecast economic conditions, but not necessarily exact market prices 5. The Best Forex Trading Tips • Trade pairs instead of currencies. Success or failure in Forex trading depends on being right about both currencies and how they impact one another, not just one • It’s not really advisable for you to get trading advices from too many different sources as multiple input will only result in multiple losses • Tiny margins may be dangerous to novice traders as it can appeal to the greed factor that destroys many Forex traders • You should always have a solid strategy that details your trading approach • Trading during off-peak hours can be advantageous as you can hedge your positions and move them around when there is far small trade volume is going through (which also means smaller risk) • Never trade on a short-term basis as the spread you are trading on will make the odds against you far too high 6. Why Forex Brokers are Needed by Forex Traders • You’ll need brokers to provide you with a platform to trade from, liquidity and reliable execution of your trades in order to access the Forex as a retail trader • The Forex broker acts as an intermediary for these small trades, and they also can assist in advice, recommendations and much more • It’s essential for any Forex trader to research and become familiar with each brokerage house before opening an account as they might have different commission rates, minimum balances and account requirements • It’s important to understand the basic differences from one to the other, and also to have a good understanding of what your choices are prior to selecting a brokerage firm 7. The Margin and Leverage of Forex Trading • You can increase your buying power by trading currencies on margin • Your account will close some or all open positions in the event that money in your account falls below margin requirements (usable margin). Also known as the Margin Call • Margin Call prevents your account from falling into a negative balance, even in a highly volatile, fast moving market • Make sure you know the difference between usable margin and used margin • The word “margin” means something very different in Forex than it does in stocks
• A trader can borrow up to 50% of a stock’s value to buy that stock if you trade on margin with stocks • Margin is the minimum required balance to place a trade in Forex. The money you deposit acts as collateral for your trades when you open a Forex trading account (this deposit is called margin) • Since leverage magnifies your profits and your losses, it’s crucial that you monitor your account balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk • As long as you have a solid risk management plan in place, leverage is an exceptionally good tool that can be utilized to increase your buying power and return on capital 8. Currency Trading Common Questions • Currency trading does not take place on a regulated exchange • Currency trading isn’t controlled by any central governing body as there are no clearing houses to guarantee the trades and there is no arbitration panel to adjudicate disputes • Once the price clears the cost of the spread, there are no additional fees or commissions • All trades exist simply as computer entries and are netted out depending on market price • When a trader makes a trade he or she is always long one currency and short the other as currencies are always traded in pairs • The majority will trade the seven most liquid currency pairs in the world • Carry is the most popular trade in the currency market and is practiced by both the largest hedge funds and the smallest retail speculators • The trader goes long the currency with a high interest rate and finances that purchase with a currency with a low interest rate • The best time to position in the carry is during the start of the rate-tightening cycle, which allows the trader to ride the move as interest rate differentials increase 9. Technical Tools to Improve Trading • Fibonacci Retracement - You can use the numbers in the Fibonacci technique when trading in conjunction with support (the price where the stock has stopped falling in the past) and resistance levels (the price where prices have stopped rising previously) • Aroon Indicator - the Aroon indicator can help pinpoint the strength of a trend and the chances that it will continue. It also helps to uncover an emerging trend and enable you to take profits or protect yourself from losses • Turn the volume up - Volume is defined as the number of shares that trade during a period of time such as an hour, a day, a week or a month. By using volume in conjunction with movements in the stock you can spot the right areas to get into a trade