Hi,
Earlier you found out a bit of information about the real world of money and how today it’s nothing more than the paper it’s printed on. You also read that although it’s worth something in the country of issue, its worth something else compared to other currencies. This is a big opportunity for making profits when the constantly changing gap between the Dollar, the Yen, the Euro and all the other currencies.
Today we’ll introduce the name of this process of investing in currencies. You may have heard the term Forex before is a shortened term for Foreign Exchange Trading. Previously, we discussed how you’re already a trader because you trade your efforts for fiat currency with which to purchase goods and services. We also mentioned that the Forex market is huge; $1.5 trillion is exchanged every day five and a half days a week.
Around the world, Forex transactions make up one of the major sources of income for many central banks. The financial report of one of the largest Swiss bank Union Bank of Switzerland (UBS) showed that 80% of the profits generated in 1994 were made from currency conversion operations. Such renowned banks as Citibank, Chase Manhattan Bank, Barclays Bank, Societe generale Bank get their major income on Forex.
Governments trade currencies as well to help balance their trade figures. Over the years, as more major currencies began to float, the currency market just kept growing. But all along, individual investors were not able to enter the market because of the large amount of funds required to participate. Only large investors having hundreds of thousands of dollars at their disposal could afford to trade on Forex. During the early nineties that began to change as more automated electronic information became available and wealthy individuals took advantage of the opening. One legendary trading operation made by George Soros in 1992 on selling the British pound gave him 2 billion dollars of net profit in two weeks!
Up until 1996, individual investors only had access to the Forex world through the illiquid futures market and the un-tradable cash bank market. With the entry of the super-wealthy investors, the electronics and techniques for smaller entries grew. Today, with powerful home PCs and instant trading information, individuals trade currencies 24 hours a day worldwide. All this makes for a very large-scale opportunity simply because you can get in on it just like the big boys.
Something that is very unique to the currency world is the use of instant electronic information, down to every 15 seconds in real time. By using your home PC to directly place buy and sell orders, you bypass all the usual intermediaries and delays inherent in all the other markets. This instantaneous technology allows you to buy or sell currencies with equal ease. You can sell a particular currency when you see the trend is downward or buy when you see it moving upward.
Another thing the wealthy investors brought with them was the use of leverage to compound their investments and profits. Nowadays, an individual can trade currencies with as little as $10,000 in a standard account. Even better for all of us is the idea of mini-trades that allow as little as $500 to control a two hundred times as much money for entering a currency trade.
Entering this gigantic market as an individual investor may seem daunting. The good news is that having proper training, reliable resources and a working alliance among those who are also trading and exchanging information improves not only safety of principal, but results as well.
That’s what Venture Resources Group is all about training and participation in a controlled and safer environment. VRG has all the tools and the training to use them efficiently and effectively. Of course, the proof is in the pudding, as they say. The track record of VRG members speaks for itself.
As stated before, the growing and changing currency world of Forex has matured to the point of welcoming in individual investors. With highly leveraged funds but none of the usual downside found elsewhere to using them, you can join others from all walks of life who are successfully making money at Forex.

–About–

Source: ArticleTrader.com

The purpose of this article is to introduce the Forex market to those who have little clue about. As with many markets there are many derivative of the central market such as Futures, Options and Forwards. In this article we will only be discussing the Forex Market. The word FOREX is derived from the words Foreign Exchange; and is the largest financial market in the world. Unlike many markets the Forex Market is open 24 hours per day and has an estimated $1.3 trillion in turnover every day. This tends to lead to a very liquid market and thus a desirable market to trade because the volume is always there.

Unlike many other securities the Forex Market does not have a fixed exchange. It is primarily traded through financial institutions, banks, brokers, dealers and private individuals. Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advantage of the Internet and growing competition it is now easily within the reach of most investors.

The Foreign Exchange Market owes its existence to the 1971 abandonment of the Bretton Woods accord and the subsequent unwinding of the regime of universal fixed exchange rates. Although currency trading is inherently governmental (central banks) and institutional (commercial and investment banks), the Foreign Exchange market is also the province of non-banking international corporations, hedge funds and individual private investors and speculators.
Technological innovations like the Internet have made it available for private investors to monitor currency markets and to trade via intermediaries (Forex Brokers).

The Forex Market is very attractive for private investors because:
1. They can trade 24 hours, 5 days a week with continuous access to global dealers just using an Internet connection or a phone;
2. The playground; is an enormous liquid market making it easy to exchange most currencies;
3. The market volatility leads to large profits in a very short time (e.g.: +USD 300 / 20 minutes trading session);
4. Leveraged trading with low margin requirements;
5. No commission taken by the Forex Brokers.

The Forex trading instruments are margin products, which mean that your investment exposure can be a multiple of the cash that you lay down. Margin enables traders to trade in markets with high minimum units of trading and enhances the profit rate. Forex is still a relatively unknown territory and most investors are afraid of investing in it. It is true that it is the most dangerous trading market. Advantages come with disadvantages. And so with Forex Trading.

Technical indicators
Relative Strength Index (RSI): The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater, then the instrument is assumed to be overbought (a situation in which prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation in which prices have fallen more than the market expectations).

Stochastic oscillator: This is used to indicate overbought/oversold conditions on a scale of 0-100%. The indicator is based on the observation that in a strong up trend, period closing prices tend to concentrate in the higher part of the period’s range. Conversely, as prices fall in a strong down trend, closing prices tend to be near to the extreme low of the period range. Stochastic calculations produce two lines, %K and %D that are used to indicate overbought/oversold areas of a chart. Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal.

Moving Average Convergence Divergence (MACD): This indicator involves plotting two momentum lines. The MACD line is the difference between two exponential moving averages and the signal or trigger line, which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in the trend is likely.

Fibonacci numbers: The Fibonacci number sequence (1, 1, 2,3,5,8,13,21,34…) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number.
Gann numbers: W.D. Gann was a stock and a commodity trader working in the ’50s who reputedly made over $50 million in the markets. He made his fortune using methods that he developed for trading instruments based on relationships between price movement and time, known as time/price equivalents. There is no easy explanation for Gann’s methods, but in essence he used angles in charts to determine support and resistance areas and predict the times of future trend changes. He also used lines in charts to predict support and resistance areas.
Waves Elliott wave theory: The Elliott wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave patterns shows a five-wave advance followed by a three-wave decline.

Gaps Gaps are spaces left on the bar chart where no trading has taken place. An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day. A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness. A breakaway gap is a price gap that forms on the completion of an important price pattern. It usually signals the beginning of an important price move. A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap. An exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending.

Trends A trend refers to the direction of prices. The breaking of a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading range. Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy, particularly in futures trading or a market with a strong up or down trend.

–About–

Source: ArticleTrader.com

Stocks or Foreign Exchange
Many people would like to invest in stocks or Forex but are not really sure of the difference between the two and don’t know which is the right choice for them.
There is little doubt that there are many options out there for you. But, it is hard to say which the right choice is until you gather some information about them and then make the right choice.
Stock trading is similar to owning part of a company or organization. You purchase the stocks so that the company can then use this money to reinvest to increase their profits. Most people know about the stock trading market and have a basic understanding of how it works.
On the other hand, though, not many realize what Forex trading actually is. Forex trading is a type of investing that deals with currency trading.
In its basic form, you cash in US dollars for the currency of another country. You cash out when you make a profit or to cut your losses short.
The Forex market is a truly global marketplace where billions of dollars are traded everyday. Here, you can make a lot of money and lose a lot of money fairly quickly.
Forex trading is a relatively new method of investing. It is a good choice for someone who is willing to take greater risk for a greater reward.
In stock trading, you can make smaller profits in the short-term and only in the long-term can you make a significant profit.
It is often wise for the beginner to dabble in stocks trading before looking at Forex trading. It is an excellent way to get your feet wet without a whole lot of risk.
Nevertheless, it is important to note that anyone who is a beginner in the field of investments should pay close attention to details here. It is important for both types of investments that due diligence is paid in order to make any money.
Study both forms of investments and do some paper trading. This simply means you make decisions to buy or sell but don’t put any real money down.
The key here is to track results like you would do for a real trade. Initially, you will make mistakes, so go easy on yourself.
With experience you will start to make profits on a consistent basis. When this happens, start putting some money on your trades.
For hundreds of years stocks have been a popular investment. Companies issue stocks to raise capital for expansion and new projects. Each share of the stock represents a partial ownership in the company. When the company makes a profit, the value of the stocks rise. Stock owners can sell their shares for a profit, or hold on to the stock for even more gain in the future. Sometimes companies will issue dividends — part of the profits that are distributed to share holders.
Stock Exchanges
Stocks are traded on stock exchanges. Most stocks are bought and sold through brokers who charge a commission or fee for this service. United States stock exchanges include the New York Stock Exchange (NYSE), the American Stock Exchange, and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Most stocks are listed only on 1 exchange.
Long-Term Trading Vs. Day Trading
Stocks were traditionally seen as long-term investments. So-called “blue chip” stocks, those having proven value over many years, often formed the basis of an investment portfolio.
Short-term trading is a relatively new phenomenon in stock trading, made possible by the advent of the internet. Day traders attempt to take advantage of large daily fluctuations in the market by buying and selling many times in a single trading day. This is relatively risky, and any profits are reduced by the broker commissions charged on each transaction.
FOREX
The Foreign Exchange Market (FOREX) is quite different from the stock exchange. FOREX is primarily a short-term market. Most traders enter and exit deals within a 24 hour period — sometimes within a few minutes. Many FOREX trades can be made in 1 day without building up a large brokerage fee, because FOREX trades are commission-free. Brokers earn money by setting a spread — the difference between asking and selling prices.
The FOREX is the largest financial market in the world, with transactions worth $1.5 trillion every day. By comparison, all the American stock exchanges combined handle about $100 billion. The huge volume of FOREX allows it to be 1 of the most liquid markets in the world. There is always a buyer and seller for any type of currency, because the world economy relies on the movement of goods from country to country. The stock market is less liquid because participants may choose to hold their investments indefinitely or move on to other markets.
The FOREX is not based in any 1 location. Trading markets are located worldwide and, due to time zone differences, trades can be made 24 hours a day, 5 days a week. Trading begins in Sydney, Australia on Monday morning (Sunday afternoon New York time) and continues non-stop until Friday afternoon New York time. Stock exchanges have more limited trading hours. While it is possible to trade on exchanges worldwide, each exchange is independent and operates for just 7 hours a day. It is not possible to buy or sell a certain stock that is traded only on 1 stock exchange when that exchange is closed.
Other FOREX Advantages
It is more predictable than stocks; it follows well-established trends.
It allows high leverage — typically 100:1 as opposed to 2:1 on the stock market
It doesn’t require a large investment — mini accounts as small as $250 can get you started in FOREX.
FOREX trading is not without risk. Neither is the stock market. Either trading vehicle requires education, planning, discipline, and some disposable income.
Forex Online Trading
The Foreign Exchange Market (better known as the FOREX or FX market) as we know it today was established in 1971, following the abolishment of fixed currency exchanges. Operating 24 hours a day, 5 days a week, the daily currency trades on the FOREX market are worth in the region of $1.9 trillion US dollars making it the world’s largest market and putting the major stock markets firmly into second place.
Put simply, the FOREX market is a world-wide market for buying and selling currency and involves both major organizations, such as central government and international commercial banks and commercial companies, as well as smaller players in the form of brokerage houses and individual brokers.
Unlike the better-known world stock markets, however, the FOREX market does not have a ‘home’ as such, although there are major trading centers around the world in cities such as New York, London, Tokyo, Frankfurt and others.
The FOREX market is in effect a ‘digital’ market, with trades being carried out by telephone and increasingly over the internet.
The buying and selling of currencies is necessary to support trade between countries in today’s global marketplace and, as the major world currencies fluctuate against one another there is, and will continue to be, money to be made from currency transactions.
The major players in the market are of course buying and selling in single deals often running into many millions of dollars. The smaller players however, the brokerage houses and individual brokers, are often trading in individual deals of as little as one hundred thousand dollars.
It means quite simply that you too can join this market and, providing you take the time to learn the ins and outs of the currency markets and have a little bit of capital to invest, you can enjoy a very reasonable income from your online trading efforts.
You will not of course be able to trade on your own and will need to use a broker, but many brokers will allow you to open an account online and start trading with anywhere between $250 and $1,000.
FOREX trading is not everybody’s cup of tea of course but its major advantage lies in the fact that it is a highly liquid market that does not involve the commission payments and paperwork which many people find a problem when it come to many other forms of trading.
It is, however, a ‘technical’ market and you should not venture into it unless you are prepared to take the time to learn the basic principles underlying this currency market and to become competent in the use of some of the ‘tools of the trade’, such as technical and fundamental analysis.
But don’t be put off by this. It is not necessary to become an expert in these markets to profit from them. With a little time and effort you can quite easily gain enough of an understanding of the currency markets to start making money through online trading and, in time, you will be surprised at just how quickly you can become quite an expert.
Forex, or Foreign Exchange, is the simultaneous exchange of one country’s currency for that of another. This market of exchange has more daily volume, both buyers and sellers, than any other in the world. Taking place in the major financial institutions across the globe, the forex market is open 24-hours a day.
Currencies are quoted in pairs. The first listed currency is known as the base currency, while the second is called the counter or quote currency. In the wholesale market, currencies are quoted using five significant numbers, with the last placeholder called a point or a pip.
The forex market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is the high degree of leverage available.
Advantages of Forex trading
Leverage. Huge leverage is available in Forex trading, often up to 100:1 meaning that large profits can be generated from small margin deposits.
Liquidity. The enormous size and global trading of the forex markets means that the markets in the major currency pairs are very liquid making trade executions almost instant with little slippage.
Ability to go short. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has equal potential to profit in a rising or falling market.
Trends. Fundamentally, the value of a country’s currency is determined by interest rates and the strength of the economy in relation to other countries. Currencies, therefore, have a greater tendency to trend until the fundamentals change.
Disadvantages of Forex trading
Leverage. With huge leverage available to forex traders the danger is that positions which carry too much risk for the account size can be taken on, leading to margin calls. Effective money management rules must be adhered to.
Brokers. Retail traders must use a broker rather than dealing directly in the interbank market. The broker will be the counterparty in all transactions and is, effectively, making the market. They can, therefore, widen spreads or even refuse to trade during volatile trading conditions. To avoid dealing with brokers an alternative to forex is to use futures. See online futures trading for more details.
Spreads. As the retail trader must use a broker to trade, they cannot deal at the interbank rates. A broker will generally quote a fixed spread of 3-20 pips depending on the currency pair. The underlying interbank rate might be as little as 1 pip.
Forex is a very large market but for most retail traders dealing with brokers the odds are shifted against them.
Online futures trading provides a much more level playing field for most traders who want to take part in forex trading.
Forex Benefits over Futures
From Agricultural Products to Financial Instruments
The origins of the modern futures market lies in the agriculture markets of the 19th century. Farmers started selling contracts to deliver agricultural products at a later date. This was done to anticipate market needs and stabilize supply and demand during off seasons.
The current futures market has moved far beyond agricultural products. It is a worldwide market for all sorts of commodities, including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds.
When the futures market is played by speculators, the actual goods are not important because there is no expectation of delivery. Rather, it is the contract itself that is traded, the value of which changes constantly throughout the day as expectations change regarding the value of the commodity itself.
Win or Lose
In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date.
Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise, or by buying short (from the seller) if they expect prices to fall. Futures accounts are settled every day.
At the end of the contract period, the contract itself is settled. The final contract buyer can now take delivery of his truckload of whatever. Of course, he may opt to just start the process all over again by writing up a contract to deliver his whatever on a certain date at a certain price.
FOREX Benefits
The foreign exchange market (FOREX) has several advantages over the futures market.
More Liquid. FOREX is an extremely liquid market. As the largest financial market in the world it dwarfs the futures market in daily exchanges. This means that FOREX stop orders can be executed more easily and with less slippage. The FOREX is open 24 hours a day, 5 days a week. Most futures exchanges are open 7 hours a day. This makes FOREX more liquid and allows FOREX traders to take advantage of trading opportunities as they arise rather than waiting for the market to open.
Commission-Free. FOREX transactions have no commissions. Brokers earn money by setting a spread — the difference between what a currency can be bought at and what it can be sold at. In contrast, traders must pay a commission or brokerage fee for each futures transaction they enter into.
Instant Transactions. Because of the high volume of trading, FOREX transactions are executed almost instantly. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade — not necessarily the price of your transaction.
Safeguards. Final prices in futures are always a little uncertain because of market gap and slippage. The FOREX is less risky because of built-in safeguards in the trading system.
Why should you consider foreign exchange?
One compelling reason is that it is a huge business, trading nearly two trillion U.S. dollars on a daily basis. The potential to make money is out there for the well-informed trader.
The forex market is the largest in the world. It is larger than the U.S. stock market, and has a daily trading volume larger than all the world’s stock markets combined.
The following list provides a few reasons why forex trading is a smart move.
1. It’s Easy
If you feel the idea of trading on the stock market is intimidating, you’re not alone. There is no way that anyone, including professional brokers, can know enough about all the stock options. Therefore, many traders specialize or focus on particular areas of the stock market, and many individuals are left to rely on the opinions of the professionals, who may or may not be good at their craft.
Trading on the forex market, in contrast, is much simpler. The primary currencies traded are the U.S. dollar, the Japanese yen, and the British pound. There is less to keep track of, so conducting research and analysis can be much easier.
2. You can do it from Home
If you’re interested in getting involved in forex trading, all you need is a computer and a bit of time.
Granted, conducting some research is wise if you want to make the best choices. But once you have an idea of your strategy, you can conduct transactions online for minimal fees and without having to pay a professional to do it for you (although this is an option).
There are a number of online options for trading foreign exchange, so you’ll need to conduct some research to determine the best choice for you. If you know others who trade this way, ask for their preferences.
Conducting a simple Google search on forex trading will yield many results, so review and choose carefully.
3. The Investment is Minimal
To get involved in currency trading, you do not need to invest a lot of cash upfront. Many trading options are available for a small investment, some as low as a few hundred dollars. This allows new traders in particular to get involved, learn the process, and risk very little.
To trade in the forex market, you need to determine your risk limit, and not invest above that amount. Because the initial investment can be low, many people can get involved that may not be able to invest in other options, such as traditional stocks.
Forex trading is a good way to enter the trading market.
4. You Can Make Money
While trading on the forex market takes some research, skill, and a bit of luck, it is possible to make money. The potential for huge payoffs is at times exaggerated, but there are traders making large amounts of money in this market.
The key is to learn what you are doing and make smart choices. This can include determining how much you are able and willing to risk, taking risks when necessary, and learning as much as you can about the market.
Trading on the forex market also offers you more leverage than in other markets. You can use smaller amounts of money to your advantage, and the trading process is simpler than in other markets.
5. It’s Flexible
Trading on the Foreign Exchange market is a 24-hour process, which means that you don’t need to wait for the opening and closing of the exchange to know where you stand. You can make trades at any time of the day, which gives you much more control than if you are operating in the traditional stock market. This also allows traders to respond to breaking news immediately.
The advantages of real-time trading are advantageous in that traders have a much better understanding of their investments. Conversely, in the traditional stock market, after-hours activities, for example, can affect stock values, but the affects are not immediately available.
If you’re interested in trading on the forex market, do your research. Many trading companies provide free information online. The more you know, the better you decisions you’ll be able to make. Many of these same companies offer free trial periods as well, which you can use to get your feet wet and determine if currency trading is for you.
Is There Any Money Left In Currency Trading?
Currency trading may be one of the most liquid forms of trading, but it is also a volatile market that requires strategy if you wish to make money. The truth is that more people make small profits in this market, while a few are highly successful.
The constant change makes this form of trading exciting and with a high profit potential; however, making a fast buck in this market may not be as easy as it used to be.
The exchange rate is known as the foreign-exchange rate, forex rate, or FX rate and is one of the largest markets in the world, trading trillions of U.S. dollars each day.
Currency trading gained enormous popularity in the 1990s, and continues today. One reason this type of trading is so popular is that it can be done from a computer, 24 hours a day. There are fewer currencies to trade with, which makes learning the practice much easier (as opposed to learning about the many stock options available). The most commonly traded currencies are the U.S. dollar, the Japanese yen, and the British pound.
Currencies are traded in pairs. The trader buys the one that he or she believes will appreciate in value over the other. Currency fluctuates as there is demand for it. Interest rates tend to be an indication of a currency’s demand. The higher a country’s interest rate, the higher demand. However, countries will sometimes try to create demand for a currency by changing interest rates. The well-informed trader needs to conduct research and make educated guesses on a currency’s future.
Currency Trading is Big Business
The currency trading business is big. An estimated two trillion in U.S. dollars is exchanged each day. The forex market is the largest in the world.
Because it can be done from home, many people are interested in getting involved, and the payoff can be big. It is also possible to get involved with little investment. Traders simply determine how much they are able and willing to risk, and they can enter the market.
As with other forms of trading, watching the market and making calculated decisions is more likely to result in a profit than making decisions based on emotions, hunches, or preferences.
Many courses are available on currency trading. Learning more about the process can help traders make better choices.
Choosing a quality course is also a matter that requires a bit of research. However, currency markets fluctuate on both short and long-term timelines, and learning how to best track these changes and the events that affect the markets can help traders, especially those new to the process.
The allure of making quick cash is still out there, however, as it is possible to close a contract after a few minutes, hours, days, or weeks.
Is it Nearing its Peak?
The currency trading frenzy, which expanded rapidly during the 1990s, may be reaching a peak. Why? While in some ways currency trading is easy, many people who enter the market do not make money. The idea that you can make quick cash is not as easy as it sounds.
Additionally, while traditional stocks are based on a company’s physical assets and product, currency trading is not absolute. Further, governments control, or attempt to control currencies to reach political objectives.
Unforeseen events, such as natural disasters, can also alter a currency’s value, making it more difficult to make an educated guess on a currency’s future.
Finally, the global marketplace is changing currencies around the world (the Euro is one such example).
This does not mean that a person cannot make money in the currency market. However, as the global marketplace continues to expand and global politics affect currencies, it is much more difficult to determine a currency’s value.
Making money in the Foreign Exchange market is possible, but it is not easy. Even economists have a difficult time estimating the future of currencies and purchasing power, so a trader must conduct thorough research, determine trends, and try to make the best guess possible.
Making Money with Money
Forex trading is one of the fastest-growing markets for making money in today’s world economy.
If you are part of the forex trading game, you need well-thought-out and planned strategies. You also need up-to-the minute information and reliable data to help you along the way.
With this said, in order to be successful with forex, you’ll want to invest in high-quality products to help you analyze, watch and track the forex market. No little project at all. The good news to you is that there are options out there to help you do just that.
First of all, realize that forex trading is an excellent market to trade in. It has the ability to make you money without a whole lot of investing. And, you can trade with whatever you have, not necessarily millions of dollars.
To get into the forex market, it makes sense to pay attention to the numbers for some time. Then, you’ll have a good feel for it long before your dollars are involved.
But, once you do get in, you’ll need up-to-the minute information.
Consider the purchase of and use of valuable forex trading software programs.
These programs can help you to track what is happening and in some, it will help you to better analyze the information as well. Of course, this in turn will help you to make the right decisions about your investments.
While market trading is always risky, many find that forex trading, when done right, is one of the most profitable without much start up investment opportunities out there.
With the ability that you have to monitor and respond virtually instantly to the world’s market in forex, you are better able to make the right decisions which will then lead to those gains you are seeking.
Trading in the Forex Requires Some Caution
Whether it is in the millions or thousands, trading in the Forex is a bit risky. There are a lot of players involved and if you don’t arm yourself properly with knowledge about the Forex you may just get swamped.
The Forex is the largest, most vibrant market in the whole wide world. The financial world has never had a market that involves so much transaction.
Over a trillion dollars worth of different currencies exchange hands everyday. Some lose in the trade, while some hit the jackpot and make tons of money.
The Forex is characterized by its unpredictability and the liquidity because it deals with foreign currencies and each one’s value influenced by their own country.
That’s why anyone who is greatly considering joining the Forex trade should think twice, thrice and maybe even ten times before doing so. This is not an arena for the weak and nervous.
The Forex is a very complex financial arena and only those with enough knowledge, experience and financial capability can join the foray.
Managing the risk factors is a priority task for those professionals who do this everyday. They direct and manage accounts from their investors, full confidence is placed on them and their client’s success is also their success.
Some professional Forex brokers have placed high value on their credibility. The more clients they have, the more they earn as well. They make a profit by eating a slice of their client’s profit. If they have made a name for themselves in the Forex trade, they don’t need to go look for clients; the clients will look for them and invest.
There are those, however, who want to manage their own portfolios. A word of caution though — educate yourself first about the trade.
Learn the ropes and tricks of the game before throwing your hat in the ring. Try to gain access to many self-learn and self-study websites that can impart their knowledge with you.
Try out the website of the Federal Commodities Futures Trading Commission (CFTC), there they offer consumer reports as well as articles about applicable laws in Forex trading.
Many Forex management firms maintain a website that offers free online tutorials and brochures. You may need all the educational information about the Forex that you can get your hands on.
They may not outright say it, but the best and the finest and most skilled Forex traders have learned all the secrets of the game. From trading signals technical indicators, and theories that could explain about the market behavior.
When you have mastered these skills, you can have a more accurate prediction of the direction of the market resulting to lower risks and higher profits. Even when dealing with money managers, they have to be knowledgeable about the trade so they can be on top of their investments.
Have a constant conversation with your broker and be updated about your account.
For the self-traders, some of them are very admirable to have the courage to act as their own money managers.
As with any business, success will come only after hard work and diligent research.
With Forex trading you should always be on your toes for developments. A wise Forex trader knows that learning and educating about Forex trading never ceases.
What Exchange Rates Exactly Are
You hear about foreign exchange market, FX, forex, exchange rates, etc., everyday, but things aren’t exactly clear for you. Here are some pieces of information that will hopefully help you understand these quite confusing terms.
The first thing you should understand is what exactly an exchange rate is. A simple definition of the exchange rate sounds like this: a rate for exchanging one currency for another. The exchange rate is the price of a currency, like every product or service has its own price.
This means that a certain country’s currency has a certain value compared to another country’s currency. You need to be aware of the different exchange rates whenever you travel to another country and you have to buy that country’s currency. For instance, if you are from France and you travel to the U.S.A and the exchange rate is 1.10 dollars for a Euro, this means that you can buy a bit more than a dollar for your Euro.
If you are worried about how much you can buy for your currency in another country, you should know that one product’s price should theoretically stay the same, regardless the currency it is used to evaluate its value. The reason for this is that the exchange rate is keeping the keeping the value of the currency at its own level.
If you are wondering about the way this exchange rate is being calculated, you should know there are two methods that are being used for this. The first method is the fixed rate. This fixed rate is being set and maintained by a country’s central bank and it is considered to be the official exchange rate for that certain currency.
The price level for the currency is being determined by comparing it to a major currency like the Euro or the US dollar. The central bank is buying and selling its own currency in order to keep the exchange rate at the level which has been previously set.
Another method for setting the exchange rate for a currency is the ‘floating’ method. This method is determining the exchange rate by using the supply and demand balance for that currency on the private market.
This type of exchange rate is sometimes called ‘self-correcting’ because the market is automatically correcting the differences between the supply and the demand for the currency. This kind of exchange rate is constantly being modified based on the supply and demand levels.
It may seem like the floating exchange rate is closer to the real value of a currency because the price is being determined by the supply and demand for that currency. This is not entirely correct as this kind of exchange rate is very sensible to speculations.
The black market may strongly influence the exchange rate for the currency. Therefore, a fixed regime should be also applied as it permits the market to put pressure on the exchange rate.
In conclusion, no exchange rate is being determined entirely on a fixed or floating method. A combination of these two methods is normally used to set the price for a certain currency for an accurate value of the currency.
Forex Trading Online
Forex trading online is a fast way to use your investment capital to it’s fullest. The Forex markets offer distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures.
Here are seven reasons why you’ll want to look into Forex Trading online.
1 - Forex is the largest market.
Forex trading volume of more than 1.9 billion, more than 3 times larger than the equities market and more than 5 times bigger than futures, give Forex traders nearly unlimited liquidity and flexibility.
2 - Forex never sleeps!
You can execute forex trading online 24/7, from 7AM New Zealand time on Monday morning, to 5PM New York time on Friday evening. No waiting for markets to open: they’re open all night! This makes Forex trading online a very attractive component that fits easily into your day (or night!)
3 - No Bulls or Bears!
Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.
4 - Forex Trading online offers great leverage!
You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Mini-FX accounts, which can typically be opened with only $200-300, offer 0.5% margin, meaning that $50 in trading capital can control a 10,000 unit currency position. This is why people are flocking to Forex trading online as a way to highly leverage their investments.
5 - Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points.
6 - Forex trading online is commission free!
That’s right! No commissions, no exchange fees or any other hidden fees. This is a very transparent market, and you’ll find it very easy to research the currencies and the countries involved. Forex brokers make a small percentage of the bid/ask spread, and that’s it. No longer any need to compute commissions and fees when executing a trade.
7 - Forex trading online is instant!
The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!
Forex trading online can get you where you want to go quicker and more profitably than any other form of trading.
Trying Forex Trading with the Best Strategy and Approach
With the way things are today, more people are getting interested in investing their dollars to make them grow faster. The problem is, not too many people are willing to take the risk of investing it, and so they just let their money rut in banks.
Not that there’s anything wrong with banks’ it’s just that they have low rates and the money takes a long time to grow.
If you want real money, you have to have the guts to risk it. Making money takes money; risks are always involved if you want to have money fast and big.
One of the largest arenas where you can invest is Forex (Foreign Exchange).
Forex trading is open 24 hours and never sleeps. Transactions are done all over the world via telephones and computers, money exchanges hand in the number of millions in just mere seconds.
Forex trading is composed of thousands of banks and individual Forex trading companies that monitor development all over the world, developments that may influence the value of their currency.
Forex trading deals with the exchange of currencies from different countries. The idea is to determine the rise and fall of the value of a certain currency and trade when it is deemed advisable.
For small Forex trading transactions, managed accounts are the ideal — they are for the cautious because they have the least risky participation. Here you entrust your investments along with others to a reliable, honest and ethical seasoned Forex brokers. These Forex brokers use their extensive knowledge and experience and use their strategy to make your money grow, for a fee of course.
With the rise of the internet, Forex trading can be done in a click of the mouse. Money travels through space and wires all the time. The computers have done a big help in the growth of Forex trading, transactions can now be done anytime anywhere. Since somebody is up at a given time everyday anywhere in the world, you will never lose someone to trade with.
There are two basic and fundamental ways to analyze and evaluate foreign exchange trading. There is the technical analysis and the fundamental analysis. There is a huge difference between the two.
In Fundamental analysis, Forex analyzers and brokers watch out for causes to market fluctuation. These causes may include the political condition of the country, their laws and legislations, financial policies, their growth rate and other factors as well.
Technical analysis of Forex trading includes graphs, charts and other method of measuring past data to see the indication of the rise and fall of currencies. They get all the information they need and use them to calculate and forecast the possible direction of a certain currency.
There is a lot to learn about Forex trading; even the seasoned broker learns something new every day.
Forex trading has huge returns in an instant if you catch the right moment and transaction. But always remember there is still risk. Forex trading can be quite a gamble, especially if your forecast is wrong.
Before investing your money in any firm, try to investigate about its record and history in Forex trading.
The Worst Forex Trading Strategy Ever That You Might Be Using
You may be wondering, why would David Jenyns write about the worst Forex trading strategy around?
There are a couple of reasons:
First, to warn you about the worst Forex trading strategy, because you really don’t want to end up using this system.
Second, because once you know the worst possible Forex trading strategy, the one that is designed to maximize your losses over the long run, then you can reverse it to craft a strategy which does the exact opposite.
With what you learn from the worst Forex trading strategy, you will be able to create a system that will produce some tremendous long-term gains.
The worst Forex trading strategy I’m referring to, which is simply the worst Forex trading strategy I have ever encountered, is known as averaging down. This horrifying Forex trading strategy is the process of buying more shares that you had previously acquired, as the price drops.
Traders often purchase shares this way in an effort to reduce their initial entry price.
Only bad investors average down by buying shares of a sinking assests to decrease their overall average price per share. This Forex trading strategy is hardly ever effective, and is often like throwing good money after bad. It also magnifies a trader’s loss if the share keeps dropping.
Remember, just because a share is cheap now that doesn’t mean it’s not going to get any cheaper.
However, let’s examine how this devastating Forex trading strategy works.
Say you bought 1,000 shares at $40.
The novice investor may not have a stop loss in place, and the share price falls to $30. Here comes the stupidity of this Forex trading strategy – to average down, the novice trader might by another 1,000 shares at $30 to lower the average cost per share that he’d already purchased. So, his average cost per share would now be $35.
Unfortunately, the share price may fall even further, and the novice trader will again buy more shares to reduce the average cost per share. They end up buying more and more into a share that’s losing their money.
Now, imagine this Forex trading strategy being applied to a portfolio of assets. In the end, all the capital will automatically be allocated to the worse performing assets in the portfolio while the best performing assets are sold off. The result is, at best, a disastrous underperformance versus the market.
If a trader uses an averaging down system and uses margins, their losses will be magnified even further.
The biggest problem with this Forex trading strategy is that a trader’s gains are cut short, and the losers are left to run.
My advice is – never average down.
The process of buying a share, watching it fall, and then throwing more money at it in the hopes that you’ll either get back to break even or make a bigger killing is one of the most misguided pieces of advice on Wall Street. Never be faced with a situation where you’ll ask yourself, Should I risk even more than I originally intended in a desperate attempt to lower my cost and save my butt?
Instead, design a simple, robust system with good money management rules. I can practically guarantee the results will be better than averaging down.
You can draw some useful parallels between running a business and Forex trading. For instance, most successful businesses keep statistics on everything from their conversion rate, to their average dollar sale, to the number of people that come in the door.
Businesses do this to keep on top of how they are doing on a day-to-day basis and businesses must first take score before beginning to improve on that score.
Using a Forex back testing plan in your trading works exactly the same way.
Now that you’re looking at Forex trading as a business, you need to learn some valuable statistics about your system so you can improve it’s performance.
You would use a Forex back-testing method. You can’t improve your system unless you have something to measure it against. How could you expect to improve your trading unless you knew what it was you were looking to improve? You can discover these measurements and other valuable information about your trading system, by using a Forex back testing plan.
There are two ways that you can use a Forex back testing plan to back test a system.
You can do it manually, which can be a drawn-out and labor-intensive process, or you can do it with the aid of some software packages.
Unfortunately, I recommend you do it by hand when you first start out. You’ll get a much better feel for your system, and you’ll understand exactly how using a Forex back testing plan works in all its intricacies.
Once you have the Forex back testing plan and the in-depth knowledge, you could look at finding a software package that does it for you.
There are a few major statistics on your Forex back testing plan that you need that you will uncover through back testing.
The first statistic you need to become familiar with is the R multiple principal. R stands for risk, the risk you take on any trade when you enter the market. The R multiple of a trade is the ratio of the profit or loss compared to the amount of money risked to make the profit or loss.
Therefore, if you risk $200 in your initial purchase, and you make a profit of $1,000, you have made five times the amount you risked in the trade. You have an R multiple of five. This statistic gives you a good idea of the relative size of your profits to your losses. You can compare the average size of your winning trades with the average size of your losing trades.
The next statistic you’ll find useful is your win-to-loss ratio. This is how many times you get a winning trade in proportion to how many times you get a losing trade. For example, if you had ten trades, four of those trades were winners, and six were losers, your win to loss ratio is simply four to six. This is your hit rate; you’ll get 40% of your trades correct.
With these two simple statistics, you can calculate the average size of your profits and of your losses, multiply these figures with your win-to-loss ratio, and calculate on average how much money you make with every dollar you risk.
For those of you who think this sounds like a too much work, particularly using a Forex back-testing plan that you need to do to uncover these statistics, consider this scenario: Imagine yourself trading a system that you knew had a win to loss ratio of 60/40. You made profit on every six trades and lost one out of every four.
How do you think you would feel, where would your confidence level be, after you traded the system for a little while and you received a string of 11 losses in a row?
Now, you know that this system has a win to loss ratio of six to four. Would you have the confidence to open another trade if your system brought up another buy signal after getting 11 trades wrong?
Unless you use Forex a back-testing plan to back-test your system, I doubt that your confidence level will remain high. That trading system may be a fantastic profitable system. However, since you didn’t use your Forex back-testing plan to back-test it, you don’t know that historically this system received up to 13 losses in a row, but was still profitable.
Here’s another point you may not have picked up unless you used your Forex back testing plan. Once you’ve set your money management rules and you begin to trade, you will likely experience a string of losses.
Countless times, I’ve had clients who get disheartened by this fact because they don’t understand the nature of setting good management.
If you’re adhering to the rules of cutting your losses short and letting your profits run, because you’re cutting your losses short, those trades are going to last for a shorter amount of time.
This means once you begin trading the odds of getting losses early in the game are much higher than getting a winning trade. This is particularly true when you consider that many successful trading systems run on a 40/60 win to loss ratio. However, you will never know the intricacies of your system unless you use a Forex back testing plan and back test it.
Using a Forex back-testing plan will help you to understand what works and what doesn’t. It will give you the statistics to gauge the effectiveness of your trades. It fills in your scorecard, and allows you to make improvements.
But, you shouldn’t simply believe everything I’ve told you. Instead, you need to prove it to yourself by using some Forex back-testing plans and back test your system.
Forex Trading: Risky Business
You can see the claims on some FOREX web sites, implying that FOREX is a risk-free pastime.
No investment is risk-free.
In FOREX you are trading substantial sums of money, and there is always a possibility that a trade will go against you. There are several trading tools that can minimize your risk, yes, but eliminate it, no. With caution, and above all education, the FOREX trader can learn how to trade profitably and minimize loss.
The Scams
FOREX scams were fairly common a few years ago. The industry has cleaned up considerably since then. Still, you should exercise caution before signing up with a FOREX broker by checking their background.
Reputable FOREX brokers will be associated with large financial institutions like banks or insurance companies, and they will be registered with the proper government agencies.
In the United States, brokers should be registered with the Commodities Futures Trading Commission or a member of the National Futures Association.
You can also check with your local Consumer Protection Bureau and the Better Business Bureau.
The Risks
Assuming you are dealing with a reputable broker, there are still risks to FOREX trading. Transactions are subject to unexpected rate changes, volatile markets and political events.
• Exchange Rate Risk: refers to the fluctuations in currency prices over a trading period. Prices can fall rapidly, resulting in substantial losses unless stop loss orders are used (see below).
• Interest Rate Risk: can result from discrepancies between the interest rates in the 2 countries represented by the currency pair in a FOREX quote. This discrepancy can result in variations from the expected profit or loss of a particular FOREX transaction.
• Credit Risk: is the possibility that 1 party in a FOREX transaction may not honor their debt when the deal is closed. This may happen when a bank or financial institution declares insolvency. Credit risk can be minimized by dealing on regulated exchanges, which require members to be monitored for credit worthiness.
• Country Risk: is associated with governments that may become involved in foreign exchange markets by limiting the flow of currency. There is more country risk associated with “exotic” currencies than with major countries that allow the free trading of their currency.
Limiting Your Risk
FOREX trading can be risky, but there are ways to limit risk and financial exposure. Every trader should have a trading strategy; i.e., knowing when to enter and exit the market, and what kind of movements to expect. Developing strategies requires education, which is the key to limiting risk.
At all times follow the basic rule: Never use money that you cannot afford to lose.
Every FOREX trader needs to know at least the basics about technical analysis and how to read financial charts. He should study chart movements and indicators and understand how charts are interpreted.
There is a vast amount of information on FOREX trading available both on the Internet and in print. If you want to be successful at FOREX, then educate yourself.
Stop-Loss Orders
Even the most knowledgeable traders, however, can’t predict with absolute certainty how the market will behave.
For this reason, every FOREX transaction should take advantage of available tools designed to minimize loss.
Stop-loss orders are the most common way to minimizing risk. A stop-loss order contains instructions to exit your position if the price reaches a certain point.
If you take a long position (expecting the price to rise) you would place a stop loss order below the current market price.
If you take a short position (expecting the price to fall) you would place a stop loss order above the current market price.
Stop loss orders can be used in conjunction with limit orders to automate FOREX trading. Limit orders specify that an open position should be closed at a specified profit target.
How Currencies are traded in the FOREX Market
Currencies are traded in dollar amounts called “lots”. At 100:1 leverage, one lot is equal to $1000 which controls $100,000 of a given currency. This leverage is known as “margin” and some brokers will allow traders even higher leverage than 100:1. This superhigh leverage is one of the reasons that Forex trading has become so popular.
Currencies are always traded in pairs. Each pair has unique notation that expresses which currencies are being traded.
The symbol for a currency pair will always be in the form ABC/XYZ. ABC/XYZ is not a real currency pair, just an example of how currency pairs are stated in the market. I
n this particular example, ABC is the symbol for one country’s currency and XYZ is the symbol for another country’s currency.
Listed below are some common symbols used. There are symbols for other currencies as well, but these are the most commonly traded ones.
USD - The US Dollar
EUR - The currency of the European Union “EURO”
GBP - The British Pound
JPN - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar
As mentioned earlier, currencies are traded in pairs in Forex trading. Thus, a trade always compares one currency to another in terms of how the two currency prices will move relative to each other.
Some of the common pairs traded are:
EUR/USD Euro / US Dollar
USD/JPY US Dollar / Japanese Yen
GBP/USD British Pound / US Dollar
USD/CAD US Dollar / Canadian Dollar
AUD/USD Australian Dollar/US Dollar
USD/CHF US Dollar / Swiss Franc
EUR/JPY Euro / Japanese Yen
When you place an order to buy the EUR/USD, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency pair, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.
In Forex trading, currencies are traded on a price interest point (know as a “pip”) system. Each currency pair has its own pip value. Since we have a listed currency pair (i.e., EUR/USD, EUR/AUD), we need a way to talk about its associated number or price. When you see a price quote, you’ll see something listed like this:
USD/JPY: 118:51/55
The first component (before the slash) refers to the bid price (what you obtain in JPY when you sell USD). In this example, the bid price is 118.51.
The second component (after the slash) is used to obtain the ask price (what you have to pay in JPY if you buy USD). In this example, the ask price is 118.55.
The difference between the bid and the ask price is referred to as the spread. In the example above, the spread is .04 or 4 pips.
Forex Broker Involvement Optional
To trade on the forex market, the largest financial market on the planet, one must use a forex broker.
Not unlike a stock broker, a forex broker can also makes suggestions about which moves to make when exchanging foreign currency. Some forex brokers even supply technical analysis to some of their clients and offer tips on research to improve their success as forex traders.
Typically in the forex market 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 today with the Internet, any forex trader, who subscribes with a forex broker, can access the market 24 hours a day.
Today, as with stock brokers, the brick and mortar 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.
Choosing a forex broker may depend on your needs.
If you are new to the field, there are houses, or online forex brokers who may cater to your needs, providing in-depth research, ample time to demo their product and so on.
Other forex brokers are geared toward the experienced online forex trader. They too offer advice, but may be less likely to offer instructional help with the information, assuming that you may already know how it may or may not benefit you when you read it.
It is advisable to read about and even run a demo on several different online forex brokers before going with one.
How to Choose a Forex Broker
When it comes to getting started in Forex trading, there are quite a few things that you have to consider. The first thing to do is to find and choose the right broker to help you in making your trades.
Here are some things that you need to look for in making your choice:
Low Spreads
The spread, which is calculated in pips, is the difference between the price at which a currency can be bought and the price at which it can be sold at any specific point in time.
Forex brokers don’t charge a commission, so this difference is how they are going to make money.
When you’re comparing brokers, you’ll find that the difference in spreads in Forex is as large as the difference in commissions in the stock arena. What this means is that lower spreads will save you money and therefore, look for a broker that offers low spreads.
Quality of the Institution
Unlike equity brokers, Forex brokers are usually attached to large banks or lending institutions because of the large amounts of capital that are required. Also, Forex brokers should be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).
You can find this and other financial information and statistics about a Forex brokerage on the company’s website or the website of its parent company. You’ll want to make sure that your broker is backed by a reliable institution.
Extensive Tools and Research
Forex brokers offer many different trading platforms for their clients just like brokers in other markets do. These different trading platforms often show realtime charts, technical analysis tools, real-time news and data, and even support for the various trading systems.
Before you commit to any one broker, you’ll need to be sure to request free trials so that you can test their different trading platforms. Brokers usually provide technical as well as fundamental commentaries, economic calendars, and other research as a means of assisting you.
Basically, you’ll want to find a broker who will give you everything that you need to succeed.
A Variety of Leverage Options
Leverage is a key necessity in Forex trading because the price deviations (the sources of profit) are just set at mere fractions of a cent. Leverage, which is expressed as a ratio between total capitals that is available to actual capital, which is the amount of money a broker will lend you for trading. For example, when you have a ratio of 100:1, this means that your broker would lend you $100 for every $1 of actual capital. Many brokerage firms will offer you as much as 250:1.
Of course, you need to remember that lower leverage also means lower risk of a margin call, but it also means that you will get a lower bang for your buck (and vice-versa).
Basically if you have limited capital, you need to make sure that your broker offers high leverage. If capital is not a problem, you can rest assured that any broker that has a wide variety of leverage options should suffice.
A variety of options lets you vary the amount of risk you are willing to take. For example, less leverage (and therefore less risk) may be preferable if you are dealing with highly volatile (exotic) currency pairs.
A Look at Online Forex Brokers
An online forex broker is a firm that facilitates retail trading using Internet technologies.
Global Forex Trading (GFT) is one of the popular online forex brokers. It provides retail traders with a free demo trading account, allows users to open a live account, gives live help, provides software called DealBook FX 2, and allows viewing of account documents. (DealBook FX 2 can be downloaded for the demo trading account).
Gain Capital Groups Online Forex offers 200:1 leverage. In some cases, the total return on investment is higher due to leverage. For example, with $1000 cash in a margin account, the investor can control up to $200,000 in notional value. Of course, trading on leverage magnifies both the investors profits and losses.
GCI Financial Ltd. offers commission-free online trading in forex. GCI offers Internet trading software, fast and efficient execution, and 0.5% margin requirements. This broker offers USD or Euro denominated trading accounts. The spreads are 3 pips in EUR/USD and USD/JPY, and are 4 to 5 pips for other major commissions. Clients can hedge by opening positions in the same currency in opposite directions. Risk to the investor is limited to the deposited funds. Market analysis and research, real-time charts, and forex trading signals are available at no charge.
ACM, part of the REFCO group, offers 3 pip spreads on all major currencies, which works out to between 0.02% and 0.03% on the dollar value. They also offer commission-free trading, and forex trading with a 1% margin, which means that a trader can control $1,000,000 with $10,000 in his account.
There are many online forex brokers that offer free demo accounts for potential forex traders to practice trading. It is only a matter of registering and starting demo trading to get a feel for forex trading.
In addition, at most sites, traders can find free forex news to assist them with their trade strategies.
Are Trading Mistakes Costing You Money In The Forex Market?
The 2% rule is a powerful tool in Forex trading.
By adopting this rule you’re using a strategy that decreases the size of your losses during losing streaks, an important consideration.
There is, however one small caveat that you need to be aware of when using the 2% rule to calculate how many Forex shares you are going to buy.
As you know, the number of shares you can purchase is determined by your maximum loss and the size of your stop. This means that by increasing your risk, you can also increase the dollar value of the position you open.
By simply shrinking your stop size, that is by setting a tighter stop loss, you can increase the dollar value of the position you open.
To avoid a situation where you could end up with excessively large positions that may put your Forex trading float at risk, you can choose to introduce an extra rule. This rule would limit the dollar value of a position to be no more than a set percentage of your entire Forex trading float.
For example, you might decide that you’ll never open a position that has a dollar value of more than 25% of your entire Forex trading float. This rule would only be executed if, after calculating the formula that determines how many shares you buy, you find the dollar value of that position would greater than 25% of your float. If this happened, you would scale down the position to make sure it did not exceed that 25%.
The percentage that you decide upon will depend on the type of system you’re trading, the size of your float, and your personal tolerance for risk.
Generally, smaller Forex trading floats might use 25%, and larger Forex trading floats might use as little as 10% or even 5%.
There are no definitive numbers, and the percentage that you choose will depend on your personal circumstances.
Once this tendency is corrected for you will have all your money management rules in place, ready to control your risk in the Forex market.
Now you need to take the next step. Test your system to find out which of the variables best suit you, remembering always that position sizing is the most significant part of any system design.
It is the lynchpin of money management.
Once you’ve tested your system, and fine-tuned your rules, you will be well on your way to becoming a successful Forex trader.
A Day in the Life of a Forex Trader
Are you looking into breaking into the field of professional foreign exchange trading? Or are you already a forex trader doing it regularly? Either way, this article may be of interest to you.
The forex trader is a different breed of human being. They utilize the markets to earn a living everyday. We have a look into the insight of a day in the life of a forex trader.
Any professional forex trader has the potential to make massive returns from their initial investment or on the nastier side any trader can make massive losses. It is not a game of chance, trading is a skill of emotional control and sound decision making. Traders have an understanding of market mechanics and their behavior as a response of economic trends.
Traders make their living from taking advantage of price differences between the buy and sell price of currency pairs and more importantly they make their money by following the market trend. If you yourself have studies forex charts you may notice how the price fluctuates - there are only three directions the price can do: rise, fall or stay the same. Currency prices only stay the same if the currency value is not floated and fixed to a certain value. Traders make their money on the difference on price so the trader can either buy long and hope the currency rises or sell short as the currency drops in price and still makes a profit.

The advanced forex trader waits for a new trade or rather waits for the right time to open a new trade by looking for the right indicators and signs to signal an entry into the foreign exchange market.
There are two things that the forex trader can do at home to watch out for an entry signal: look at charts or wait for news.
Traders watch for the right trending signals to enter a trade. And the primary rule for the trader is that the trend is your friend. Stick to the trend and you wont get hurt.
Secondly, traders also watch the news. They must know what economic data is coming out on which days and what that data means to the future of the economy of the respective countries. If they dont keep track of these facts and economic data and indicators they may find that some currencies are especially volatile during these news announcement events and see the market jump. The forex trader must be ready for these economic announcements to ensure they can anticipate the increased market activity.

Once the forex trader has successfully entered into a trade, a trade that is going well the trader then simply rides the trend to completion, implementing a trailing stop to lock in profits as the price trends the way the trader wanted the trend to go. But if the trade goes sour, the forex traders need to exit the trade with grace. The trader must cut their losses to succeed in the business of foreign exchange trading.

Hopefully this has given you an overview of what a professional forex trader does to make a living from simply taking advantage over the price difference. The technique is to enter a trade correctly using trend analysis or a news announcement and then follow the rules of “riding the trend” or the “trend is your friend” with “cutting your losses quickly.”
Million Dollar Forex Investing Mistakes
Anytime that you are investing in the Forex market, you are going into the Market blind. You don’t know what point of the investing trend you are entering in at.
You might be investing in a Forex stock just before the trend changes. Smart investing means you need to protect your trading fl

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Source: ArticleTrader.com

Common Questions about Currency Trading

Although forex is the largest financial market in the world, it is relatively unfamiliar terrain to retail traders. Until the popularization of internet trading a few years ago, FX was primarily the domain of large financial institutions, multinational corporations and secretive hedge funds. But times have changed, and individual investors are hungry for information on this fascinating market. Whether you are an FX novice or just need a refresher course on the basics of currency trading, read on to find the answers to the most frequently asked questions about the forex market.

How does this market differ from other markets?
Unlike the trading of stocks, futures or options, currency trading does not take place on a regulated exchange. It is not controlled by any central governing body, there are no clearing houses to guarantee the trades and there is no arbitration panel to adjudicate disputes. All members trade with each other based upon credit agreements. Essentially, business in the largest, most liquid market in the world depends on nothing more than a metaphorical handshake.

At first glance, this ad-hoc arrangement must seem bewildering to investors who are used to structured exchanges such as the NYSE or CME. (To learn more, see Getting To Know Stock Exchanges.) However, this arrangement works exceedingly well in practice: because participants in FX must both compete and cooperate with each other, self regulation provides very effective control over the market. Furthermore, reputable retail FX dealers in the United States become members of the National Futures Association (NFA), and by doing so they agree to binding arbitration in the event of any dispute. Therefore, it is critical that any retail customer who contemplates trading currencies do so only through an NFA member firm.

The FX market is different from other markets in some other key ways that are sure to raise eyebrows. Think that the EUR/USD is going to spiral downward? Feel free to short the pair at will. There is no uptick rule in FX as there is in stocks. There are also no limits on the size of your position (as there are in futures); so, in theory, you could sell $100 billion worth of currency if you had the capital to do it. If your biggest Japanese client, who also happens to golf with Toshihiko Fukui, the Governor of the Bank of Japan, told you on the golf course that BOJ is planning to raise rates at its next meeting, you could go right ahead and buy as much yen as you like. No one will ever prosecute you for insider trading should your bet pay off. There is no such thing as insider trading in FX; in fact, European economic data, such as German employment figures, are often leaked days before they are officially released.

Before we leave you with the impression that FX is the Wild West of finance, we should note that this is the most liquid and fluid market in the world. It trades 24 hours a day, from 5pm EST Sunday to 4pm EST Friday, and it rarely has any gaps in price. Its sheer size (it trades nearly US$2 trillion each day) and scope (from Asia to Europe to North America) makes the currency market the most accessible market in the world.

Where is the commission in FX?
Investors who trade stocks, futures or options typically use a broker, who acts as an agent in the transaction. The broker takes the order to an exchange and attempts to execute it as per the customer’s instructions. For providing this service, the broker is paid a commission when the customer buys and sells the tradable instrument.

The FX market does not have commissions. Unlike exchange-based markets, FX is a principals-only market. FX firms are dealers, not brokers. This is a critical distinction that all investors must understand. Unlike brokers, dealers assume market risk by serving as a counterparty to the investor’s trade. They do not charge commission; instead, they make their money through the bid-ask spread.

In FX, the investor cannot attempt to buy on the bid or sell at the offer like in exchange-based markets. On the other hand, once the price clears the cost of the spread, there are no additional fees or commissions. Every single penny gain is pure profit to the investor. Nevertheless, the fact that traders must always overcome the bid/ask spread makes scalping much more difficult in FX.

What is a pip?
Pip stands for “percentage in point” and is the smallest increment of trade in FX. In the FX market, prices are quoted to the fourth decimal point. For example, if a bar of soap in the drugstore was priced at $1.20, in the FX market the same bar of soap would be quoted at 1.2000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100th of 1%. Among the major currencies, the only exception to that rule is the Japanese yen. Because the Japanese yen has never been revalued since the Second World War, 1 yen is now worth approximately US$0.08; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i.e. to 1/100th of yen, as opposed to 1/1000th with other major currencies).

What are you really selling or buying in the currency market?
The short answer is “nothing”. The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader’s account.

The primary reason the FX market exists is to facilitate the exchange of one currency into another for multinational corporations who need to trade currencies continually (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity). However, these day-to-day corporate needs comprise only about 20% of the market volume. Fully 80% of trades in the currency market are speculative in nature, put on by large financial institutions, multi-billion dollar hedge funds and even individuals who want to express their opinions on the economic and geopolitical events of the day.

Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, she would, in essence, have exchanged euros for dollars and would now be “short” euro and “long” dollars. To better understand this dynamic, let’s use a concrete example. If you went into an electronics store and purchased a computer for $1,000, what would you be doing? You would be exchanging your dollars for a computer. You would basically be “short” $1,000 and “long” 1 computer. The store would be “long” $1,000 but now “short” 1 computer in its inventory. The exact same principle applies to the FX market, except that no physical exchange takes place. While all transactions are simply computer entries, the consequences are no less real.

Which currencies are traded?
Although some retail dealers trade exotic currencies such as the Thai baht or the Czech koruna, the majority trade the seven most liquid currency pairs in the world, which are the four majors:
• EUR/USD (euro/dollar)
• USD/JPY (dollar/Japanese yen)
• GBP/USD (British pound/dollar)
• USD/CHF (dollar/Swiss franc)
and the three commodity pairs:
• AUD/USD (Australian dollar/dollar)
• USD/CAD (dollar/Canadian dollar)
• NZD/USD (New Zealand dollar/dollar)
These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP) account for more than 95% of all speculative trading in FX. Given the small number of trading instruments - only 18 pairs and crosses are actively traded - the FX market is far more concentrated than the stock market.

What is carry?
Carry is the most popular trade in the currency market, practiced by both the largest hedge funds and the smallest retail speculators. The carry trade rests on the fact that every currency in the world has an interest rate attached to it. These short-term interest rates are set by the central banks of these countries: the Federal Reserve in the U.S., the Bank of Japan in Japan and the Bank of England in the U.K.

The idea behind the carry is quite straightforward. The trader goes long the currency with a high interest rate and finances that purchase with a currency with a low interest rate. In 2005, one of the best pairings was the NZD/JPY cross. The New Zealand economy, spurred by huge commodity demand from China and a hot housing market, has seen its rates rise to 7.25% and stay there (at the time of writing), while Japanese rates have remained at 0%. A trader going long the NZD/JPY could have harvested 725 basis points in yield alone. On a 10:1 leverage basis, the carry trade in NZD/JPY could have produced a 72.5% annual return from interest rate differentials alone without any contribution from capital appreciation. Now you can understand why the carry trade is so popular! But before you rush out and buy the next high-yield pair, be aware that when the carry trade is unwound, the declines can be rapid and severe. This process is known as carry trade liquidation and occurs when the majority of speculators decide that the carry trade may not have future potential. With every trader seeking to exit his or her position at once, bids disappear and the profits from interest rate differentials are not nearly enough to offset the capital losses. Anticipation is the key to success: the best time to position in the carry is at the beginning of the rate-tightening cycle, allowing the trader to ride the move as interest rate differentials increase.

FX Jargon
Every discipline has its own jargon, and the currency market is no different. Here are some terms to know that will make you sound like a seasoned currency trader:
• Cable, sterling, pound - alternative names for the GBP
• Greenback, buck - nicknames for the U.S. dollar
• Swissie - nickname for the Swiss franc
• Aussie - nickname for the Australian dollar
• Kiwi - nickname for the New Zealand dollar
• Loonie, the little dollar - nicknames for the Canadian dollar
• Figure - FX term connoting a round number like 1.2000
• Yard - a billion units, as in “I sold a couple of yards of sterling.”

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

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

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

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

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

What the trader will want to do here is use the crossover to initiate the position - this is similar to a moving average crossover. Looking at our example in Figure 1, we see a clear crossover of the Tenkan Sen (black line) and the Kijun Sen (red line) at point X. This decline simply means that near-term prices are dipping below the longer term price trend, signaling a downtrending move lower.

Figure 1 - A crossover in similar Western branded fashion

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

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

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

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

Taking our USD/CAD example, we see a comparable difference between the two. Although we see a clear support at 1.1522 in our more standard chart (Figure 2), we subsequently see a retest of the level. At this point, some trades probably will be stopped out as the price action comes back against the level, which is somewhat concerning for even the most advanced trader. However, in our Ichimoku example (Figure 3), the cloud serves as an excellent filter. Taking the volatility and apparent take back into account, the cloud suggests a better trade opportunity on a break of the 1.1450 figure. Here, the price action does not trade back, keeping the trade in the overall downtrend momentum.

Last is the Chikou Span. Seen as simple market sentiment, the Chikou is calculated using the most recent closing price and is plotted 22 periods behind the price action. This feature suggests the market’s sentiment by showing the prevailing trend as it relates to current price momentum. The interpretation is simple: as sellers dominate the market, the Chikou span will hover below the price trend while the opposite occurs on the buy side. When a pair remains bid in the market or is bought up, the span will rise and hover above the price action.

Putting It All Together
Like everything else, there’s no better substitute for learning but through application. Let’s break down the best method of trading the Ichimoku cloud technique.

Trading The Cloud…
Taking our U.S. dollar/Japanese yen example in Figure 4, we’ll zoom in on a more recent scenario in Figure 5. With the currency pair fluctuating in a range between 116 and 119 figures for the beginning of the year, traders were anxious to see a breakout of the persistent range. Here, the cloud is a product of the range-bound scenario over the first four months and stands as a significant support/resistance barrier. With that established, we look to the Tenkan and Kijun Sen. As mentioned before, these two act as a moving average crossover with the Tenkan representing a more short-term moving average and the Kijun acting as the base line. As a result, the Tenkan dips below the Kijun, signaling a decline in price action. However, with the crossover occurring within the cloud at Point A in Figure 5, the signal remains unclear and will need to be clear of the cloud before an entry can be considered. We can also confirm the bearish sentiment through the Chikou Span, which at this point remains below the price action. Conversely, if the Chikou was above the price action, it would confirm bullish sentiment. Putting it all together, we are now looking for a short position in our U.S. dollar/Japanese yen currency pair.

Because we are equating the cloud to a support/resistance barrier, we will want to see a close of the session below the cloud before initiating any type of short sell position. As a result, we will be entering at Point B on our chart. Here, we have a confirmed break of the cloud as the price action stalls on a support level at 114.56. The trader, at this point, can opt to place the entry at the support figure of 114.56 or place the order one point below the low of the session. Placing the order one point below would act as confirmation that the momentum is still in place for another move lower. Subsequently, we place the stop just above the high of the candle within the cloud formation. In this example, it would be at Point C or 116.65. The price action should not trade above this price if the momentum remains. Therefore, we have an entry at 114.22 and a corresponding stop at 116.65, leaving our risk out at 243 pips. In keeping with sound money management, the trade will have to have a minimum of a 1:1 risk/reward ratio with a preferable 2:1 risk/reward for legitimate opportunities. In our example, we will maintain a 2:1 risk/reward ratio as the price moves lower to hit a low of 108.96 before pulling back. This equates to roughly 500 pips and a 2:1 risk to reward - a profitable opportunity. One key note to remember: notice how the Ichimoku is applied to longer time frames, in this instance the daily. With the volatility in shorter time frames, the application will tend not to work as well as with many technical indicators.

7 Things Every Investor Must Know!

To Recap:

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

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

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

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

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

The Foreign Exchange Interbank Market
According to an April 2004 report by the Bank for International Settlements, the foreign exchange market has an average daily volume of close to $2,000 billion, making it the largest market in the world. Unlike most other exchanges such as the New York Stock Exchange or the Chicago Board of Trade, the FX market is not a centralized market. In a centralized market, each transaction is recorded by price dealt and volume traded. There is usually one central place back to which all trades can be traced and there is often one specialist or market maker. The currency market, however, is a decentralized market. There isn’t one “exchange” where every trade is recorded. Instead, each market maker records his or her own transactions and keeps it as proprietary information. The primary market makers who make bid and ask spreads in the currency market are the largest banks in the world. They deal with each other constantly either on behalf of themselves or their customers. This is why the market on which banks conduct transactions is called the interbank market.

The competition between banks ensures tight spreads and fair pricing. For individual investors, this is the source of price quotes and is where forex brokers offset their positions. Most individuals are unable to access the pricing available on the interbank market because the customers at the interbank desks tend to include the largest mutual and hedge funds in the world as well as large multinational corporations who have millions (if not billions) of dollars. Despite this, it is important for individual investors to understand how the interbank market works because it is one the best ways to understand how retail spreads are priced, and to decide whether you are getting fair pricing from your broker. Read on to find out how this market works and how its inner workings can affect your investments.

Who makes the prices?
Trading in a decentralized market has its advantages and disadvantages. In a centralized market, you have the benefit of seeing volume in the market as a whole but at the same time, prices can easily be skewed to accommodate the interests of the specialist and not the trader. The international nature of the interbank market can make it difficult to regulate, however, with such important players in the market, self-regulation is sometimes even more effective than government regulations. For the individual investor, a forex broker must be registered with the Commodity Futures Trading Commission as a futures commission merchant and be a member of the National Futures Association (NFA). The CFTC regulates the broker and ensures that he or she meets strict financial standards.

According to the “Wall Street Journal Europe” (February 2006), 73% of total forex volume is done through 10 banks. These banks are the brand names that we all know well, including Deutsche Bank, UBS, Citigroup and HSBC. Each bank is structured differently but most banks will have a separate group known as the Foreign Exchange Sales and Trading Department. This group is responsible for making prices for the bank’s clients and for offsetting that risk with other banks. Within the Foreign Exchange group, there is a sales and a trading desk. The sales desk is generally responsible for taking the orders from the client, getting a quote from the spot trader and relaying the quote to the client to see if they want to deal on it. This three-step process is quite common because even though online foreign exchange trading is available, many of the large clients who deal anywhere from $10 million to $100 million at a time (cash on cash), believe that they can get better pricing dealing over the phone than over the trading platform. This is because most platforms offered by banks will have a trading size limit because the dealer wants to make sure that it is able to offset the risk.

On a foreign exchange spot trading desk, there are generally one or two market makers responsible for each currency pair. That is, for the EUR/USD, there is only one primary dealer that will give quotes on the currency. He or she may have a secondary dealer that gives quotes on a smaller transaction size. This setup is mostly true for the four majors where the dealers see a lot of activity. For the commodity currencies, there may be one dealer responsible for all three commodity currencies or, depending upon how much volume the bank sees, there may be two dealers. This is important because the bank wants to make sure that each dealer knows its currency well and understands the behavior of the other players in the market. Usually, the Australian dollar dealer is also responsible for the New Zealand dollar and there is often a separate dealer making quotes for the Canadian dollar. There usually isn’t a “crosses” dealer - the primary dealer responsible for the more liquid currency will make the quote. For example, the Japanese yen trader will make quotes on all yen crosses. Finally, there is one additional dealer that is responsible for the exotic currencies such as the Mexican peso and the South African rand. This setup is mimicked usually across three trading centers - London, New York and Tokyo. Each center passes the client orders and positions to another trading center at the end of the day to ensure that client orders are watched 24 hours a day.

How do banks determine the price?
Bank dealers will determine their prices based upon a variety of factors including, the current market rate, how much volume is available at the current price level, their views on where the currency pair is headed and their inventory positions. If they think that the euro is headed higher, they may be willing to offer a more competitive rate for clients that want to sell euros because they believe that once they are given the euros, they can hold onto them for a few pips and offset at a better price. On the flip side, if they think that the euro is headed lower and the client is giving them euros, they may offer a lower price because they are not sure if they can sell the euro back to the market at the same level at which it was given to them. This is something that is unique to market makers that do not offer a fixed spread.

How does a bank offset risk?
Similar to the way we see prices on an electronic forex broker’s platform, there are two primary platforms that interbank traders use: one is offered by Reuters Dealing and the other is offered by the Electronic Brokerage Service (EBS). The interbank market is a credit-approved system in which banks trade based solely on the credit relationships they have established with one another. All of the banks can see the best market rates currently available; however, each bank must have a specific credit relationship with another bank in order to trade at the rates being offered. The bigger the banks, the more credit relationships they can have and the better pricing they will be able access. The same is true for clients such as retail forex brokers. The larger the retail forex broker in terms of capital available, the more favorable pricing it can get from the interbank market. If a client or even a bank is small, it is restricted to dealing with only a select number of larger banks and tends to get less favorable pricing.

Both the EBS and Reuters Dealing systems offer trading in the major currency pairs, but certain currency pairs are more liquid and are traded more frequently over either EBS or Reuters Dealing. These two companies are continually trying to capture each other’s market shares, but as a guide, the following is the breakdown where each currency pair is primarily traded:
EBS Reuters
EUR/USD GBP/USD
USD/JPY EUR/GBP
EUR/JPY USD/CAD
EUR/CHF AUD/USD
USD/CHF NZD/USD

Cross currency pairs are generally not quoted on either platform, but are calculated based on the rates of the major currency pairs and then offset through the legs. For example, if an interbank trader had a client who wanted to go long EUR/CAD, the trader would most likely buy EUR/USD over the EBS system and buy USD/CAD over the Reuters platform. The trader then would multiply these rates and provide the client with the respective EUR/CAD rate. The two-currency-pair transaction is the reason why the spread for currency crosses, such as the EUR/CAD, tends to be wider than the spread for the EUR/USD.

The minimum transaction size of each unit that can be dealt on either platforms tends to one million of the base currency. The average one-ticket transaction size tends to five million of the base currency. This is why individual investors can’t access the interbank market - what would be an extremely large trading amount (remember this is unleveraged) is the bare minimum quote that banks are willing to give - and this is only for clients that trade usually between $10 million and $100 million and just need to clear up some loose change on their books.

Conclusion
Individual clients then rely on online market makers for pricing. The forex brokers use their own capital to gain credit with the banks that trade on the interbank market. The more well capitalized the market makers, the more credit relationships they can establish and the more competitive pricing they can access for themselves as well as their clients. This also means that when markets are volatile, the banks are more obligated to give their good clients continuously competitive pricing. Therefore, if a forex retail broker is not well capitalized, how they can access more competitive pricing than a well capitalized market maker remains questionable. The structure of the market makes it extremely difficult for this to be the case. As a result, it is extremely important for individual investors to do extensive due diligence on the forex broker with which they choose to trade.
Stop Hunting With The Big Players

The forex market is the most leveraged financial market in the world. In equities, standard margin is set at 2:1, which means that a trader must put up at least $50 cash to control $100 worth of stock. In options, the leverage increases to 10:1, with $10 controlling $100. In the futures markets, the leverage factor is increased to 20:1. For example, in a Dow Jones futures e-mini contract, a trader only needs $2,500 to control $50,000 worth of stock. However, none of these markets approaches the intensity of the forex market, where the default leverage at most dealers is set at 100:1 and can rise up to 200:1. That means that a mere $50 can control up to $10,000 worth of currency. Why is this important? First and foremost, the high degree of leverage can make FX either extremely lucrative or extraordinarily dangerous, depending on which side of the trade you are on. In FX, retail traders can literally double their accounts overnight or lose it all in a matter of hours if they employ the full margin at their disposal, although most professional traders limit their leverage to no more than 10:1 and never assume such enormous risk. But regardless of whether they trade on 200:1 leverage or 2:1 leverage, almost everyone in FX trades with stops. In this article, you’ll learn how to use stops to set up the “stop hunting with the big specs” strategy.

Stops are Key
Precisely because the forex market is so leveraged, most market players understand that stops are critical to long-term survival. The notion of “waiting it out”, as some equity investors might do, simply does not exist for most forex traders. Trading without stops in the currency market means that the trader will inevitably face forced liquidation in the form of a margin call. With the exception of a few long-term investors who may trade on a cash basis, a large portion of forex market participants are believed to be speculators, therefore, they simply do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged.

Because of this unusual duality of the FX market (high leverage and almost universal use of stops), stop hunting is a very common practice. Although it may have negative connotations to some readers, stop hunting is a legitimate form of trading. It is nothing more than the art of flushing the losing players out of the market. In forex-speak they are known as weak longs or weak shorts. Much like a strong poker player may take out less capable opponents by raising stakes and “buying the pot”, large speculative players (like investment banks, hedge funds and money center banks) like to gun stops in the hope of generating further directional momentum. In fact, the practice is so common in FX that any trader unaware of these price dynamics will probably suffer unnecessary losses.

Because the human mind naturally seeks order, most stops are clustered around round numbers ending in “00″. For example, if the EUR/USD pair was trading at 1.2470 and rising in value, most stops would reside within one or two points of the 1.2500 price point rather than, say, 1.2517. This fact alone is valuable knowledge, as it clearly indicates that most retail traders should place their stops at less crowded and more unusual locations.

More interesting, however, is the possibility of profit from this unique dynamic of the currency market. The fact that the FX market is so stop driven gives scope to several opportunistic setups for short-term traders. In her book “Day Trading The Currency Market” (2005), Kathy Lien describes one such setup based on fading the “00″ level. The approach discussed here is based on the opposite notion of joining the short-term momentum.

Taking Advantage of the Hunt
The “stop hunting with the big specs” is an exceedingly simple setup, requiring nothing more than a price chart and one indicator. Here is the setup in a nutshell: On a one-hour chart, mark lines 15 points of either side of the round number. For example, if the EUR/USD is approaching the 1.2500 figure, the trader would mark off 1.2485 and 1.2515 on the chart. This 30-point area is known as the “trade zone”, much like the 20-yard line on the football field is known as the “redzone”. Both names communicate the same idea - namely that the participants have a high probability of scoring once they enter that area.

The idea behind this setup is straightforward. Once prices approach the round-number level, speculators will try to target the stops clustered in that region. Because FX is a decentralized market, no one knows the exact amount of stops at any particular “00″ level, but traders hope that the size is large enough to trigger further liquidation of positions - a cascade of stop orders that will push price farther in that direction than it would move under normal conditions. Therefore, in the case of long setup, if the price in the EUR/USD was climbing toward the 1.2500 level, the trader would go long the pair with two units as soon as it crossed the 1.2485 threshold. The stop on the trade would be 15 points back of the entry because this is a strict momentum trade. If prices do not immediately follow through, chances are the setup failed. The profit target on the first unit would be the amount of initial risk or approximately 1.2500, at which point the trader would move the stop on the second unit to breakeven to lock in profit. The target on the second unit would be two times initial risk or 1.2515, allowing the trader to exit on a momentum burst. Aside from watching these key chart levels, there is only one other rule that a trader must follow in order to optimize the probability of success. Because this setup is basically a derivative of momentum trading, it should be traded only in the direction of the larger trend. There are numerous ways to ascertain direction using technical analysis, but the 200-period simple moving average (SMA) on the hourly charts may be particularly effective in this case. By using a longer term average on the short-term charts, you can stay on the right side of the price action without being subject to near-term whipsaw moves.

Conclusion
The “stop hunt with the big specs” is one of the simplest and most efficient FX setups available to short-term traders. It requires nothing more than focus and a basic understanding of currency market dynamics. Instead of being victims of stop hunting expeditions, retail traders can finally turn the tables and join the move with the big players, banking short-term profits in the process.

Inside Day Bollinger Band Turn Trade
We have long been taught that to be a successful trader, your objective should be to buy low and sell high or buy high and sell higher (and vice versa for shorts). Different strategies approach this most basic definition of speculation in various ways. Trend traders look to buy strength on the breakout and sell weakness on the breakdown. Good trend traders can make great sums of money in the long term with just a few big winners. However, most find applying trend trading far more difficult than the theory behind it. Simply stated, the human brain is not wired to trade trends. For example, buying the breakout in GBP/USD at 1.8000 (after it had bottomed at 1.7229 34 weeks earlier) and holding until 1.9000 sounds great, but human tendency makes it difficult to buy something at what is perceived as a high price (such as 1.8000). Furthermore, false breakouts will whipsaw a trader out of many trades - it simply isn’t an efficient way to trade. On the other hand, traders that attempt to pick bottoms and tops usually get blown out of the water because they either do not have a method or they fail to follow their method - the end result is akin to attempting to stop a freight train by standing in front of it. Traditional trend trading (buying and selling breakouts) seems far too challenging from a psychological point of view, but for a novice trader, picking tops and bottoms at the same time is simply dangerous. What we need is a relative definition of high and low and a filter to help identify proper top and bottom trades. In this article we’ll take a look at the inside day Bollinger band, which can help objectively measure what is high and low.

Combining Inside Days with Bollinger Bands
Prices at the upper Bollinger band are considered high and prices at the lower Bollinger band are considered low. However, just because prices have hit the upper Bollinger does not necessarily mean that it is a good time to sell. Strong trends will ‘ride’ these bands and wipe out any trader attempting to buy the ‘low’ prices in a downtrend or sell the ‘high’ prices in an uptrend. Therefore, just buying at the lower band and selling at the upper band is out of the question. By definition, price makes new highs in an uptrend and new lows in a downtrend, which means that they will naturally be hitting the bands. With this information in mind, our filter will require that buy signals occur only if the candle following the one that hits the Bollinger band does not make a new high or low. This type of candle is commonly known as an inside day. The best time frames to look for the inside days are daily charts, but this strategy can also be used on hourly, weekly and monthly charts. Combining inside days with Bollinger bands increases the likelihood that we are only picking a top or bottom after prices have hit extreme levels. As a rule of thumb, the longer the time frame, the rarer the trade will be, but the signal will also be more significant.

Candlesticks and their respective patterns illustrate the psychology of the market at a particular point in time. Specifically, the inside candle represents a period of contracted volatility. If, in an uptrend, volatility begins to slow and the market fails to make a new high (as illustrated by the inside candle), then we can deduce that strength is waning and that the chance for a reversal exists. When combined with a Bollinger band, we ensure that we are trading a reversal only by either selling high prices (higher Bollinger band) are buying low prices (lower Bollinger band). In this way, we trade for the big move; not necessarily selling the low tick or buying the bottom tick but definitely buying near the relative bottom and selling near the relative top. The key is confirmation.

Since Bollinger bands typically use a length of 20, we can employ a 20-period simple moving average (SMA) as a target to take profit. The 20 period SMA will trade equidistant from the upper and lower Bollinger bands. To catch large moves, allow the pair to trade through the 20-period SMA and then trail your stop with the moving average, only closing trades on the close after the pair crosses the SMA again. The examples below will shed light on this process.

We have four guidelines. We’ll call these guidelines (rather than rules) because this is a strategy that involves discretion. The guidelines present a trade setup that may or may not result in a trade.

For longs:

1. Look for the currency pair to hit or come very close to hitting the lower Bollinger.

2. Wait for next candle and make sure that the next candle’s low is greater than or equal to the previous candle’s low and that the high is also less than or equal to the previous period’s high. If so, go long at the open of the third candle.

3. The initial stop is placed a few pips below the previous candle’s low.

4. Trail stop on a closing basis with the 20-period SMA.

For shorts:

1. Look for the currency pair to hit or come very close to hitting the upper Bollinger.

2. Wait for next candle and make sure that the next candle’s high is less than or equal to the previous candle’s high and that the low is also greater than or equal to the previous period’s low. If so, go short at the open of the third candle.

3. The initial stop is placed a few pips above the previous candle’s high.

4. Trail stop on a closing basis with the 20-period SMA.

Longer Term Charts
The inside day Bollinger band setup can also be used to identify major turns on weekly or even monthly charts for the longer-term position trader. The following examples show signals of our setup at major tops in GBP/USD (weekly chart) in Figure 4, a major bottom in EUR/GBP (weekly chart) in Figure 5 as well as well as a buy signal that indicated an all-time low in EUR/USD back in late 2000 on the monthly