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Investing in Forex

2008-11-29T07:36:00.000-08:00

Forex market or foreign exchange market is a place where you can buy and sell different currencies. Buying and selling of currencies is handled by a Forex broker. Forex market is, in fact a global market that does not have one central office. Due to the advent of internet, it is now easy to start Forex trading. Forex online a common method of trading currencies within the market.

When trading different currencies you make a lot of money on the fluctuations of exchange rates between currencies. Currencies fluctuate constantly against one another no matter what is the economic condition in individual countries. In short, Forex trading is a recession proof business. One of the most unique features of Forex market is that it offers a huge potential to all its customers, both companies and individual traders have equal opportunities in Forex trading. There are a number of advantages of trading Forex, which are given below:

Market works its own:
People are under the impression that brokerage firms can modify the flow of currency. In reality Forex market is an independent international market that can be influenced by certain factors but definitely not by the wills (wants) of brokerage firms and traders

Trade Forex when you want and make your own Forex trading schedule:
You can trade 5 days a week and 24 hrs a day. It is open to small businesses, corporations, investment funds, commercial banks and private individuals. The major trading sessions in Asia, Europe and US allow you to trade whenever you want.

Big potential:
Benefits from high advantage are tremendous. Forex market is interesting for speculators as well for beginners. No experience whatsoever is required if you make use of a quality trading system.

Start up costs:
The start up costs needed to trade Forex as compared to other traditional businesses is extremely low. If you have a computer and an internet connection, you can trade from the confines of your home.

Trade from anywhere:
If you like travelling, then this is definitely a dream business for you. Just take a laptop and you will be able to trade Forex and earn money anywhere. You have complete freedom of location.

Forex is the most liquidated and the biggest market in the world
Overall volume of foreign exchange market is approximately $2 trillion. Almost all this amount involves trading of major currency pairs.

Trade in both bearish and bullish market:
In Forex market, you can trade in both the directions as compared to other markets. Many Forex trading firms allow you to open account with a minimum value of 100 USD.

The Origin of Forex

2008-11-29T04:54:00.000-08:00

The origin of FOREX trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon.

Those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World war, most Central banks supported their currencies with convertibility to gold. However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in FOREX market activity. From 1931 until 1973, the FOREX market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the FOREX markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The FOREX exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions, at present it also includes the dot com booms and the world wide web. The size of the FOREX market now dwarfs any other investment market

. The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market, It is estimated that more than USD 1,200 Billion are traded every day. It can be said easily that FOREX market is a lucrative opportunity for the modern day savvy investor.

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The Forex Market and Understanding Foreign Exchange Rates

2008-11-29T04:40:00.001-08:00

Unlike the stock exchange, the Forex Market (foreign exchange market) is a relatively new player to the investment world. Today’s current Forex market model started in the early 1970’s, and today it represents the biggest financial market around, even surpassing the stock market. With trading surpassing $2 trillion dollars per day, the Forex market attracts more and more investors all the time. Before an investor starts trading on the Forex market, he should grasp the fundamentals of how exchange rates work.

Exchange rates

Basically, the exchange rate represents the rate of exchange between two currencies. Most currencies are traded, or paired up against the dollar. The five most common currencies traded on the market are the dollar (USD), euro (EUR), the yen (JPY), the British pound (GBP), and the Swiss franc (CHF). Some other currencies that are traded are the Australian dollar, the Canadian dollar, and the Hong Kong dollar.

In the exchange rate or ratio, the numerator represents the quote currency and the denominator the base currency, which always equals one.

Let’s say that an investor wants to exchange euros for dollars. In this case, the euro currency is the quote currency, or how much currency you have to exchange. The base currency is the dollar. The investor researches the current exchange rate (euros converted into dollars) either on the Internet, through the bank, broker, etc., and then multiplies that amount by the number of euros to exchange. Let’s say that the exchange rate is 1.57959. That means that 1.57959 euros must be paid to receive one dollar. If he has 1000 euros to exchange, then he can receive $1,579.59 (1000 x 1.57959).

On the flip side, the exchange rate can also tell the investor how much he’ll receive if he converts dollars back into euros. If he has $1000, he can either divide that amount by the same euro to dollar exchange rate ($1000/1.57959 = 633.07 euros), or look up the conversation rate for dollars to euros on the Internet, etc. (i.e. .633072) and multiply it by the amount of dollars to exchange ($1000 x .633072 = 633.07 euros).

Once the exchange rate concept is understood, the investor can feel more confident in investing in the Forex market.

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Forex Trading scam

2008-11-29T04:39:00.000-08:00

Have you ever encountered an online promotion for a forex system, strategy or software? If so, I bet that the promoter promises great wealth in no time, something like ” this incredible system makes $3, 000 a day ” or ” I am making money in my sleep using this automated trading software ” and so on. Very tempting for some of us. And as this ” Forex Systems ” hype is relatively new, even veteran traders ask themselves whether these systems are for real.

The exactness is that some of these forex merchandise are indeed total scams. But absolute is again not logical to foresee that ALL of them worth nobody. Luckily, we live in the hot poop ticks, locality a scam cannot hold office close for spun out. So if you encounter a forex system, strategy or software for sale, conclude not carry lazy and search the net for relevant blogs, forex forums and reviews. If the product is a scam, you will familiar conceive physical quite delicate. However, lease ‘ s spiel that you treasure a decent, reliable Forex System - what rap you assume from sound? Will positive well deliver? Fine, flying start by commercial the following questions:

Am I disciplined?

Most traders purchase a first-rate trading system or software but operate not have the discipline to trade according to the system ‘ s rules. Some traders achieve not credence the system they have tried bought and endeavor to chicken feed the rules from day one. Others certainty the system prime, but next a few bad trades source losing confidence and contract apprehensiveness and attraction genie their decisions. I itch admit - substantial was very insolvable for me to faith a system that was created by someone too many. Solitary when I tacit the logic late the system I began to fashion confidence, traded stow away discipline and somewhere made profits.

Are my expectations fitting my ration?

The size of your trading invoice will halt your lifelike profit expectations. If you have a mini account ( a keep of between 500 to 10, 000 US dollars ), irrefutable means that for trading the EUR / USD, a 1 pip movement in your favor equals 1 US dollar in profit. So if you are a very rad trader stifle a very superb trading system, a stupendous trading point veil a total of 500 pips hike, equals US$ 500 in profit. I guess you cannot quit your job yet. But if you have a one million dollar account, you can definitely earn US$ 1, 000 per pip. So it takes only 3 pips to make US$3, 000 a day. I hope you get the point.

Do I have enough knowledge?

Even the best system is operated by a real person. And each trader is a unique individual. Consequently, if you ask a group of traders to trade the same system, under the same conditions, you will probably get totally different results. Yes, some traders do make money in their sleep using profitable forex systems, but the human factor will always be there. So get yourself a good trading system, but do not stop there. Be ready to acquire a sound knowledge in forex trading and keep expending your knowledge over time.

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Forex for Beginners

2008-11-29T04:38:00.000-08:00

Introduction

The guidelines below are based on those written for the original ForexCentral, which proved very popular. They are recommended reading for novice or unsuccessful traders who feel they need to create a trading strategy or add discipline to their current trading strategy.

Always place Stop-Loss orders

The most common and important risk management tool in forex trading is the Stop-Loss order.
A Stop-Loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against your position.
We recommend you always place a Stop-Loss order immediately after a new position is opened, as it can be very tempting to overrun losses on losing trades if a Stop-Loss order hasn’t been placed.
So often have I seen situations where a novice trader is 500 points out of the money when he only intended to make or lose 50! By not placing a Stop-Loss order the trader has lost much more than planned, and the Risk/Reward Ratio (guideline 3) is exceedingly poor.
In order to avoid this scenario you must follow a simple rule - Always place Stop-Loss orders, liquidity of the Forex market ensures Stop-Loss orders can be easily executed.

Usually place Take-Profit orders

Aswell as placing Stop-Loss orders, we recommend in most cases to enter Take-Profit orders at the same time using the OCO order function that most trading systems now have. The reason for this is similar to that for placing Stop-Loss orders.

Whereas with losing positions it can be very tempting to overrun losses, with winning positions it can be just as tempting to lock in a profit too early. By placing limits you will eliminate the risk of not being patient enough and taking profit too early.
However, you may feel confident in your ability not to profit take too early, prefering to monitor the market and taking profit at an opportune moment. In this case placing only a Stop-Loss order is an option.

Positive Risk/Reward Ratio

You should always trade using a positive Risk/Reward Ratio. By a positive Risk/Reward ratio we mean “The amount you’re willing to make on a trade should be more than or equal to the amount you’re willing to lose”.
All successful traders trade using a positive Risk/Reward ratio. There is no sense in having five 30 pip winning trades, and then one 200 pip losing trade because at the end of the day you are 50 pips down!
Unfortunately, many novice and unsuccessful traders use a negative Risk/Reward ratio. When trading this way losing positions are always going to be greater than profitable ones, and it can be difficult to recoup the losses in the short term.
It is not uncommon for unsuccessful traders to increase trade size in order to recoup losses quickly, therefore greatly increasing trading risk relative to trading equity (see “Managing your Margin”).
This is a recipe for disaster, you must trade with consistancy and control.
The easiest way to manage your Risk/Reward is to use the Stop-Loss and Take-Profit orders mentioned above.

Overtrading

Some online forex brokers now offer 3 to 5 pip spreads in the liquid currencies such as EUR/USD and USD/JPY. These are very competitive prices which a few years ago were unthinkable. As recently as the mid 1990’s brokers were quoting 10 pip spreads in the major currencies plus a commission!
Thankfully due to the internet, the current boom in Forex trading and the competition between Forex brokers, those days are well and truly over.
The excellent value available from trading on tight spreads works very much to the traders advantage. However, you should avoid overtrading and entering trades for just a 5-10 pip profit or loss. Even trading this way on 3 pip spreads can adversely affect your profitability.

Below are examples of both a winning trade and losing trade when trading for a 10 pip profit or loss:

Winning Trade:

Buy EUR/USD at 1.2020 (price = 17/20)
Sell EUR/USD at 1.2030 (price = 30/33)

Market moves 13 pips before taking profit

Losing Trade:

Buy EUR/USD at 1.2020 (price = 17/20)
Sell EUR/USD at 1.2010 (price = 10/13)

Market moves 7 pips before taking loss

The above example highlights that the risk/reward of trading for a 10 pip profit or loss is poor.
For the same 10 pips P&L, the market must move 13 pips for your winning position, but only 7 pips for your losing position.

As a general rule of thumb, we recommend that your Take-Profit or Stop-Loss levels are at least 10 times the spread you have traded on. This strategy will help avoid overtrading and improve risk/reward.

Chasing the Market

If you are a day trader or short term trader, in general we recommend not to “chase the market”.
By this we mean you shouldn’t for example buy Euro after it has already risen 100 pips and is trading at the days highs. Or sell USDJPY after it has come off 150 pips and is trading near the days lows. The rationale behind this is that in many cases the market will consolidate and there will be better opportunities to enter into a new position.
A common scenario when chasing the market is panic buying or selling when a novice trader reverses a position in the hope that they can quickly make back losses. Unfortunately what often happens is that they simply instead end up repeatedly buying the high, and selling the low. This situation must obviously be avoided.

Managing your Margin

We recommend you only risk a maximum of 10% of your total trading equity on a single trade.
10% may sound like too little risk considering many online Forex brokers offer 1% margin or 100 times leverage. However, trading on high leverage can be very risky as you could lose everything in a single trade. By risking only 10% of your equity on a single trade, you will still be able to make good profits from successful trades whilst avoiding the risk of being wiped out during a bad streak.
Even the most profitable traders can have losing streaks in which they could for example have 3 or 4 consecutive losing positions.

Finally…

Successful Forex trading is a long term investment which can produce excellent returns if traded with control, discipline, patience and consistency. Your target should be to make substancial profits over the course of anything over 3 months. Wanting to double your money in a week is not the right mindset with which to start trading. The risks involved are way too high and belong in the casino!

We recommend your continued education and research so you can learn as much as you can about currency trading. The Tutorials at ForexCentral are an excellent starting point.
In Forex Trading the old cliche definately rings true - Knowledge equals Power!
Well that’s it for the guidelines. I hope you find them useful, informative and most importantly, PROFITABLE!

Source :ForexCentral

The Market Psychology

2008-11-29T04:29:00.000-08:00

Market Psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a “flight to quality,” with investors seeking a “safe haven“. There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franchas been a traditional safe haven during times of political or economic uncertainty.

Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.

“Buy the rumor, sell the fact:” This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being “oversold” or “overbought”. To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. “What to watch” can change over time. In recent years, for example, money supply, employment, trade balancefigures and inflation numbers have all taken turns in the spotlight.

Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns

Source:wikipedia

About Forex

2008-11-29T04:25:00.000-08:00

The foreign exchange (currency, forex or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks,central banks, currency speculators, corporations,governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional turnover was reported to be over US $3.2 trillion in April 2007 by the Bank for International Settlement. Since then, the market has continued to grow. According to Euromoney’s annual FX Poll, volumes grew a further 41% between 2007 and 2008.

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