Currency futures are futures markets where the underlying commodity is a currency exchange rate, such as the Euro to US Dollar exchange rate, or the British Pound to US Dollar exchange rate. Currency futures are essentially the same as all other futures markets (index and commodity futures markets), and are traded in exactly the same way.
Futures based upon currencies are similar to the actual currency markets (often known as Forex), but there are some significant differences. For example, currency futures are traded via exchanges, such as the CME (Chicago Mercantile Exchange), but the currency markets are traded via currency brokers, and are therefore not as controlled as the currency futures. Some day traders prefer the currency markets, and some day traders prefer the currency futures. I recommend the currency futures as they do not suffer from some of the problems that currency markets suffer from, such as currency brokers trading against their clients, and non centralized pricing.
Thursday, July 29, 2010
What is Sport Maket
A commodities or securities market in which goods are sold for cash and delivered immediately. Contracts bought and sold on these markets are immediately effective.
A futures transaction for which commodities can be reasonably expected to be delivered in one month or less. Though these goods may be bought and sold at spot prices, the goods in question are traded on a forward physical market.
A futures transaction for which commodities can be reasonably expected to be delivered in one month or less. Though these goods may be bought and sold at spot prices, the goods in question are traded on a forward physical market.
Tuesday, July 27, 2010
Advantages of the Forex Market
When people think finance, they often think of Forex, or Foreign Exchange. Foreign Exchange is just what you thought it is – the exchange of foreign currencies. It is similar to the stock market in a sense, but does have both its advantages, and disadvantages. Nonetheless, it is a great market, and given you know what you are doing, has the potential to make one lots, and lots of money.
Firstly, we will focus on the advantages of the Forex Market.
Trading around the clock
The great thing about Forex is trading hours. At 3PM (Eastern Time) on Sunday, the market begins, and it closes at 5PM on Friday. Thus, it is easy to work, no matter what time zone you are located in. Time is not an issue.
Small investment
The investment required to join Forex is nowhere near as much as is required in some other markets (for example, the stock market). One can start in the Forex market with only $100.
Liquidity
Statistics show that 3 trillion dollars are traded in the Forex Market every day. With so much being traded daily, Forex traders do not have a problem making money.
Trading internationally
With the Forex market, you can trade from anywhere in the world, with anywhere in the world. As long as you have a PC and a connection to the internet, you’re good to go.
You can make money, either way
Even if the economy is not at its best, you can still make money with Forex. When looking at the stock market, it is very difficult, if not impossible, to make decent money during a hard-hit economy. With Forex, currency exchange rates continue to fluctuate constantly, meaning there is a higher chance to profit.
The simplicity
Once again, comparing to the stock market, the Forex market does not have many currency pairs. Thus, it is much easier to keep track of things. With the stock market, there are thousands and thousands of stocks, making things much more complicated.
Demo Accounts
Many people want to join a new market, but with joining a new market, comes hesitancy. Thus, Forex offers a free demo account to anybody who wants one. With a demo account, you are doing exactly what you would with a real account, except the money is obviously not real. The demo account gives those that are hesitant a chance to get a feel for the market, and see how much potential there is to make money.
Needless to say, the Forex Market is one that is allowing millions of people around the world to profit, right from the comfort of their home. For anybody who has not yet checked out the buzz around Forex, they should do so. Who knows, you may hit it big with Forex!
Firstly, we will focus on the advantages of the Forex Market.
Trading around the clock
The great thing about Forex is trading hours. At 3PM (Eastern Time) on Sunday, the market begins, and it closes at 5PM on Friday. Thus, it is easy to work, no matter what time zone you are located in. Time is not an issue.
Small investment
The investment required to join Forex is nowhere near as much as is required in some other markets (for example, the stock market). One can start in the Forex market with only $100.
Liquidity
Statistics show that 3 trillion dollars are traded in the Forex Market every day. With so much being traded daily, Forex traders do not have a problem making money.
Trading internationally
With the Forex market, you can trade from anywhere in the world, with anywhere in the world. As long as you have a PC and a connection to the internet, you’re good to go.
You can make money, either way
Even if the economy is not at its best, you can still make money with Forex. When looking at the stock market, it is very difficult, if not impossible, to make decent money during a hard-hit economy. With Forex, currency exchange rates continue to fluctuate constantly, meaning there is a higher chance to profit.
The simplicity
Once again, comparing to the stock market, the Forex market does not have many currency pairs. Thus, it is much easier to keep track of things. With the stock market, there are thousands and thousands of stocks, making things much more complicated.
Demo Accounts
Many people want to join a new market, but with joining a new market, comes hesitancy. Thus, Forex offers a free demo account to anybody who wants one. With a demo account, you are doing exactly what you would with a real account, except the money is obviously not real. The demo account gives those that are hesitant a chance to get a feel for the market, and see how much potential there is to make money.
Needless to say, the Forex Market is one that is allowing millions of people around the world to profit, right from the comfort of their home. For anybody who has not yet checked out the buzz around Forex, they should do so. Who knows, you may hit it big with Forex!
Comparison between Forex & Stocks Markets
Both the Forex market and Stock market involve some kind of risk. Even though the risks associated in trading Forex are generally higher, the Forex market has some advantages over the Stock market which makes the Forex market a very desirable trading ground. Some of these advantages are:
- Higher Leverage
- 24 Hour Trading
- Commission Free
- Short Selling
- Different Instruments
Higher Leverage:
Forex trading provides leverage that is much higher than in trading stocks. Although higher leverage usually means higher risk, the high leverage gives traders the option to benefit from the slightest changes in the market prices. For example, at a leverage of 1:100, the trader can invest only $1,000 and get the possibility to benefit from entering a $100,000 trade. If you put $100,000 into a currency and the currency's price moves 1% against you, the value of the capital will have decreased to $99,000 - a loss of $1,000, or all of your invested capital, representing a 100% loss. In the equities market, most traders do not use leverage, therefore a 1% loss in the stock's value on a $1,000 investment, would only mean a loss of $10. Traders should note that trading using leverage may increase potential gains as well as losses on any given trade.
Due to the extreme liquidity of the Forex market, margins are low and leverage is high. It is not possible to find such low margin rates in the equities markets; most margin traders in the equities markets need at least 50% of the value of the investment available as margin, whereas Forex traders need as little as 1%.
Though currencies don't tend to move as sharply as stocks on a percentage basis (where a company's stock can lose a large portion of its value in a matter of minutes after a bad announcement), it is the leverage in the Forex market that creates the volatility.
- Higher Leverage
- 24 Hour Trading
- Commission Free
- Short Selling
- Different Instruments
Higher Leverage:
Forex trading provides leverage that is much higher than in trading stocks. Although higher leverage usually means higher risk, the high leverage gives traders the option to benefit from the slightest changes in the market prices. For example, at a leverage of 1:100, the trader can invest only $1,000 and get the possibility to benefit from entering a $100,000 trade. If you put $100,000 into a currency and the currency's price moves 1% against you, the value of the capital will have decreased to $99,000 - a loss of $1,000, or all of your invested capital, representing a 100% loss. In the equities market, most traders do not use leverage, therefore a 1% loss in the stock's value on a $1,000 investment, would only mean a loss of $10. Traders should note that trading using leverage may increase potential gains as well as losses on any given trade.
Due to the extreme liquidity of the Forex market, margins are low and leverage is high. It is not possible to find such low margin rates in the equities markets; most margin traders in the equities markets need at least 50% of the value of the investment available as margin, whereas Forex traders need as little as 1%.
Though currencies don't tend to move as sharply as stocks on a percentage basis (where a company's stock can lose a large portion of its value in a matter of minutes after a bad announcement), it is the leverage in the Forex market that creates the volatility.
24 Hour Trading:
The Forex market is a true 24 hour market, unlike the Stock markets which operate during specific hours during the day. A trader can optimize his trading schedule based on his geographical location or according to his time schedule. The Stock markets often can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when desired.
Commission Free:
Unlike the Stock market where there must be a middleman who charges a commission, the Forex market is a commission free market that requires no middlemen. It is a transparent market where brokers make their profit from the bid/ask price differences, also known as spreads. There are absolutely no hidden fees or charges to trade in the Forex market; all the trader needs to do is fund his account and he is ready to go.
Short Selling:
Traders in the Forex market can benefit from both the rising market (Bull Market) and falling market (Bear Market). Forex offers the opportunity to profit in both rising and declining markets because with each trade, you are buying and selling simultaneously, and short-selling is, therefore, inherent in every transaction although some stocks have the same option, this is somehow limited to certain conditions. . For example, it is difficult to short-sell in the U.S. equities market because of strict rules and regulations regarding the process. This means that a crisis or falling market is not necessarily bad for the Forex trader, in fact it can be very profitable. But in a declining stock market, it is only with extreme ingenuity that an investor can make a profit.
On the other hand, since the Forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position - as they are in the equities market.
Different Instruments :
Forex market has very few instruments compared to the thousands found in the stock market. The majority of Forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow because rather than having to cherry-pick between 10,000 stocks to find the best value, all that FX traders need to do is “keep up” on the economic and political news of eight countries.
The Forex market is a true 24 hour market, unlike the Stock markets which operate during specific hours during the day. A trader can optimize his trading schedule based on his geographical location or according to his time schedule. The Stock markets often can hit a lull, resulting in shrinking volumes and activity. As a result, it may be hard to open and close positions when desired.
Commission Free:
Unlike the Stock market where there must be a middleman who charges a commission, the Forex market is a commission free market that requires no middlemen. It is a transparent market where brokers make their profit from the bid/ask price differences, also known as spreads. There are absolutely no hidden fees or charges to trade in the Forex market; all the trader needs to do is fund his account and he is ready to go.
Short Selling:
Traders in the Forex market can benefit from both the rising market (Bull Market) and falling market (Bear Market). Forex offers the opportunity to profit in both rising and declining markets because with each trade, you are buying and selling simultaneously, and short-selling is, therefore, inherent in every transaction although some stocks have the same option, this is somehow limited to certain conditions. . For example, it is difficult to short-sell in the U.S. equities market because of strict rules and regulations regarding the process. This means that a crisis or falling market is not necessarily bad for the Forex trader, in fact it can be very profitable. But in a declining stock market, it is only with extreme ingenuity that an investor can make a profit.
On the other hand, since the Forex market is so liquid, traders are not required to wait for an uptick before they are allowed to enter into a short position - as they are in the equities market.
Different Instruments :
Forex market has very few instruments compared to the thousands found in the stock market. The majority of Forex traders focus their efforts on seven different currency pairs: the four majors, which include (EUR/USD, USD/JPY, GBP/USD, USD/CHF); and the three commodity pairs (USD/CAD, AUD/USD, NZD/USD). All other pairs are just different combinations of the same currencies, otherwise known as cross currencies. This makes currency trading easier to follow because rather than having to cherry-pick between 10,000 stocks to find the best value, all that FX traders need to do is “keep up” on the economic and political news of eight countries.
Monday, July 26, 2010
Spots Market and Futures Market
Spots Markets
More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value.
Futures Markets
In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates.
More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value.
Futures Markets
In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates.
What Does Stock Market Mean?
The term for the overall market in which shares are issued and traded on exchanges or in over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy because it provides companies with access to capital and allows investors to own companies and participate in economic growth.
The stock market is made up of the primary and secondary markets. The primary market is where new issues (IPOs) first are offered, with any subsequent trading going on in the secondary market.
The stock market is made up of the primary and secondary markets. The primary market is where new issues (IPOs) first are offered, with any subsequent trading going on in the secondary market.
Sunday, July 25, 2010
What is a Forex Chart?
Forex trading involves the sale of a currency, and the simultaneous purchase of another with the purpose of closing the position at a later time with a profit. Unlike in the stock or commodities markets where prices are routinely quoted in USD, the price of a currency can be quoted in any other currency due to the essentially bartering nature of currency transactions where live, as well as historical forex charts are used to identifytrends and entry /exits points for trades.
The forex market is the most liquid and active market in the world. At every single second an enormous amount of transactions gets executed, with the total daily turnover being regularly estimated to reach trillions of dollars. If we did not make use of an analytical tool such as a forex chart to place the data into a more compact form where it can be visually examined and analyzed, we would be in possession of a vast sea of difficult to interpret numbers. The forex trading chart, then, is a visual aid that makes the recognization of trends, and patterns in general easier, and makes the application of technical tools of analysis at all possible.
Charts are categorized according to the way price action is depicted as well as the time frame of the period being examined. Imagine that we have 4-hourly candlestick chart of the EURUSD pair. This means that each candlestick on the graph presents the price data of a four-hour long period in a compact form. What happens inside that time period is irrelevant. If we had chosen an hourly chart, each candlestick on the chart above would be replaced by four different candlesticks.
There are many ways of depicting the price action on a forex trading chart. Bar charts, candlestick charts, line forex trading charts are a few of the many options available, with each offering its own advantages in some aspect of analysis and utility. But they all do the same thing: they plot the prices of a day (or some mathematical manipulation of the price data) to the time series on the horizontal axis which is then used by traders to evaluate and understand the market action for the purpose of making a profit.
Since currencies are traded in pairs, it’s impractical and not very useful to draw a pure USD forex chart. Instead we have the option of drawing (or rather having the software plot for us) a chart of the USDJPY pair, or the AUDUSD pair, since it is only possible to quote a currency in terms of another. On the other hand, there are some forex charts that take weighted average of such currency pairs to derive an overall index for a currency. The famous USD index, is a good example.
Charts are the keys that allow us to unlock the secrets of forex trading. The subject covers a vast ground, and only by continuous practice can we expect to acquire the necessity fluency and expertise in evaluating them. The language of forex charts is really the language of currency trading. It will take some time to learn it, but when you are a native speaker, so to speak, your imagination and creativity are the only limits to your potential.
The forex market is the most liquid and active market in the world. At every single second an enormous amount of transactions gets executed, with the total daily turnover being regularly estimated to reach trillions of dollars. If we did not make use of an analytical tool such as a forex chart to place the data into a more compact form where it can be visually examined and analyzed, we would be in possession of a vast sea of difficult to interpret numbers. The forex trading chart, then, is a visual aid that makes the recognization of trends, and patterns in general easier, and makes the application of technical tools of analysis at all possible.
Charts are categorized according to the way price action is depicted as well as the time frame of the period being examined. Imagine that we have 4-hourly candlestick chart of the EURUSD pair. This means that each candlestick on the graph presents the price data of a four-hour long period in a compact form. What happens inside that time period is irrelevant. If we had chosen an hourly chart, each candlestick on the chart above would be replaced by four different candlesticks.
There are many ways of depicting the price action on a forex trading chart. Bar charts, candlestick charts, line forex trading charts are a few of the many options available, with each offering its own advantages in some aspect of analysis and utility. But they all do the same thing: they plot the prices of a day (or some mathematical manipulation of the price data) to the time series on the horizontal axis which is then used by traders to evaluate and understand the market action for the purpose of making a profit.
Since currencies are traded in pairs, it’s impractical and not very useful to draw a pure USD forex chart. Instead we have the option of drawing (or rather having the software plot for us) a chart of the USDJPY pair, or the AUDUSD pair, since it is only possible to quote a currency in terms of another. On the other hand, there are some forex charts that take weighted average of such currency pairs to derive an overall index for a currency. The famous USD index, is a good example.
Charts are the keys that allow us to unlock the secrets of forex trading. The subject covers a vast ground, and only by continuous practice can we expect to acquire the necessity fluency and expertise in evaluating them. The language of forex charts is really the language of currency trading. It will take some time to learn it, but when you are a native speaker, so to speak, your imagination and creativity are the only limits to your potential.
Hedging in the Forex Market
For those who are not familiar with the Forex market, the word “hedging” could mean absolutely nothing. However, those who are regular traders know that there are many ways to use this term in trading. Most of the time when you hear this phrase it means that you are trying to reduce your risk in trading. It is something that everyone who plans to invest should know about. It is a technique that can protect your investments to some degree.
What Is It?
While hedging is a popular trading term, it is also one that seems a little mysterious. It is much like an insurance plan. When you hedge, you insure yourself in case a negative event may occur. This does not mean that when a negative event occurs you will come out of it completely unaffected. It only means that if you properly hedge yourself, you won’t experience a huge impact. Think of it like your auto insurance. You purchase it in case something bad happens. It does not prevent bad things from happening, but if they do, you are able to recover a lot better than if you were uninsured.
Anyone who is involved in trading can learn to hedge. From huge corporations to small individual investors, hedging is something that is widely practiced. The manner in which they do this involves using market instruments to offset the risk of any negative movement in price. The easiest way to do this is to hedge an investment with another investment. For example, the way most people would deal with this is to invest in two different things with negative correlations.
This is still costly to some people; however, the protection you get from doing this is well worth the cost most of the time. When you begin learning more about hedging, you start to understand why not many people completely know what it is all about. The techniques used to hedge are done by using derivatives. These are complicated instruments of finance and most often only used by seasoned investors.
What Is It?
While hedging is a popular trading term, it is also one that seems a little mysterious. It is much like an insurance plan. When you hedge, you insure yourself in case a negative event may occur. This does not mean that when a negative event occurs you will come out of it completely unaffected. It only means that if you properly hedge yourself, you won’t experience a huge impact. Think of it like your auto insurance. You purchase it in case something bad happens. It does not prevent bad things from happening, but if they do, you are able to recover a lot better than if you were uninsured.
Anyone who is involved in trading can learn to hedge. From huge corporations to small individual investors, hedging is something that is widely practiced. The manner in which they do this involves using market instruments to offset the risk of any negative movement in price. The easiest way to do this is to hedge an investment with another investment. For example, the way most people would deal with this is to invest in two different things with negative correlations.
This is still costly to some people; however, the protection you get from doing this is well worth the cost most of the time. When you begin learning more about hedging, you start to understand why not many people completely know what it is all about. The techniques used to hedge are done by using derivatives. These are complicated instruments of finance and most often only used by seasoned investors.
Thursday, July 22, 2010
Risks of the Forex Market
Every FOREX currency trading system has inherent risks
Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.
Scams
FOREX scams were fairly common a few years ago. The industry has cleaned up considerably since then, but you still need to exercise caution when signing up with a FOREX broker. Do some background checking – 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 (CFTC) or a member of the National Futures Association (NFA). You can also check with your local Consumer Protection Bureau and the Better Business Bureau.
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 when trading FOREX. Stop loss orders specify that the open position should be closed if currency prices pass a predetermined level. Stop loss orders can be used in conjunction with limit orders to automate FOREX trading – limit orders specify an open position should be closed at a specified profit target.
Interest Rate Risk – can result from discrepancies between the interest rates in the two 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 one 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 is 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 currencies that allow the free trading of their currency.
Limiting Risk in your FOREX currency trading system
FOREX trading can be risky, but there are ways to limit risk and financial exposure. Every FOREX trader should have a trading strategy – knowing when to enter and exit the market and what kind of movements to expect. Developing strategies requires education - the key to limiting FOREX risk. At all times follow the basic rule: Do not place money in the FOREX 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, know what you are doing.
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 ways of minimizing risk when placing an entry order. A stop-loss order contains instructions to exit your position if the currency price reaches a certain point. If you take a long position (expecting the price to rise) you would place a stop loss order below current market price. If you take a short position (expecting the price to fall) you would place a stop loss order above current market price.
As an example, if you take a short position on USD/CDN it means you expect the US dollar to fall against the Canadian dollar. The quote is USD/CDN 1.2138/43 - you can sell US$1 for 1.2138 CDN dollars or sell 1.2143 CDN dollars for US$1.
You place an order like this:
Sell USD: 1 standard lot USD/CDN @ 1.2138 = $121,380 CDN
Pip Value: 1 pip = $10
Stop-Loss: 1.2148
Margin: $1,000 (1%)
You are selling US$100,000 and buying CDN$121,380. Your stop loss order will be executed if the dollar goes above 1.2148, in which case you will lose $100.
However, USD/CDN falls to 1.2118/23. You can now sell $1 US for 1.2118 CDN or sell 1.2123 CDN for $1 US.
Because you entered the transaction by selling US dollars (buying short), you must now buy back US dollars and sell CDN dollars to realize your profit.
You buy back US$100,000 at the current USD/CDN rate of 1.2123 for a cost of 121,223 CDN. Since you originally sold them for CDN$121,380 you made a profit of $157 Canadian dollars or US$129.51 (157 divided by the current exchange rate of 1.2123).
Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.
Scams
FOREX scams were fairly common a few years ago. The industry has cleaned up considerably since then, but you still need to exercise caution when signing up with a FOREX broker. Do some background checking – 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 (CFTC) or a member of the National Futures Association (NFA). You can also check with your local Consumer Protection Bureau and the Better Business Bureau.
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 when trading FOREX. Stop loss orders specify that the open position should be closed if currency prices pass a predetermined level. Stop loss orders can be used in conjunction with limit orders to automate FOREX trading – limit orders specify an open position should be closed at a specified profit target.
Interest Rate Risk – can result from discrepancies between the interest rates in the two 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 one 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 is 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 currencies that allow the free trading of their currency.
Limiting Risk in your FOREX currency trading system
FOREX trading can be risky, but there are ways to limit risk and financial exposure. Every FOREX trader should have a trading strategy – knowing when to enter and exit the market and what kind of movements to expect. Developing strategies requires education - the key to limiting FOREX risk. At all times follow the basic rule: Do not place money in the FOREX 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, know what you are doing.
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 ways of minimizing risk when placing an entry order. A stop-loss order contains instructions to exit your position if the currency price reaches a certain point. If you take a long position (expecting the price to rise) you would place a stop loss order below current market price. If you take a short position (expecting the price to fall) you would place a stop loss order above current market price.
As an example, if you take a short position on USD/CDN it means you expect the US dollar to fall against the Canadian dollar. The quote is USD/CDN 1.2138/43 - you can sell US$1 for 1.2138 CDN dollars or sell 1.2143 CDN dollars for US$1.
You place an order like this:
Sell USD: 1 standard lot USD/CDN @ 1.2138 = $121,380 CDN
Pip Value: 1 pip = $10
Stop-Loss: 1.2148
Margin: $1,000 (1%)
You are selling US$100,000 and buying CDN$121,380. Your stop loss order will be executed if the dollar goes above 1.2148, in which case you will lose $100.
However, USD/CDN falls to 1.2118/23. You can now sell $1 US for 1.2118 CDN or sell 1.2123 CDN for $1 US.
Because you entered the transaction by selling US dollars (buying short), you must now buy back US dollars and sell CDN dollars to realize your profit.
You buy back US$100,000 at the current USD/CDN rate of 1.2123 for a cost of 121,223 CDN. Since you originally sold them for CDN$121,380 you made a profit of $157 Canadian dollars or US$129.51 (157 divided by the current exchange rate of 1.2123).
The Bid and Ask in the Forex Market
The Forex Bid Price
The Forex bid is the price at which the Forex trading online investors are prepared to buy a certain Forex currency pair for. This is the price that is set for the selling of the trader's base currency. The bid price is seen on the left side of the Forex quote. For example, for the EUR/USD quote 1.2728/31, the bid price is 1.2728. This means you can sell one Euro for $1.2728.
The Forex Ask Price
The ask price is the price at which the market is willing to sell the currency pair. This is the price that is set for the buying of the currency pair by the trader. When you place a Forex order, The ask price is seen on the right side of the Forex trading quote. In the previous example of the EUR/USD 1.2728/31, the ask price is 1.2731. It means you can buy 1 Euro for $1.2731.
The Forex Bid-Ask Spread
The bid ask spread is the difference between the bid and the ask price, or the amount by which the ask price is larger than the bid price. This is the difference between the highest figure the buyer is willing to buy the Forex currency and the lowest price the seller is willing to sell it. For example, if the bid price is $1 and the ask price is $1.1, then the bid-ask spread is $0.1. The Forex trading bid ask spread is usually worth only a few Forex pips, because the online Forex has large liquidity.
The Forex bid is the price at which the Forex trading online investors are prepared to buy a certain Forex currency pair for. This is the price that is set for the selling of the trader's base currency. The bid price is seen on the left side of the Forex quote. For example, for the EUR/USD quote 1.2728/31, the bid price is 1.2728. This means you can sell one Euro for $1.2728.
The Forex Ask Price
The ask price is the price at which the market is willing to sell the currency pair. This is the price that is set for the buying of the currency pair by the trader. When you place a Forex order, The ask price is seen on the right side of the Forex trading quote. In the previous example of the EUR/USD 1.2728/31, the ask price is 1.2731. It means you can buy 1 Euro for $1.2731.
The Forex Bid-Ask Spread
The bid ask spread is the difference between the bid and the ask price, or the amount by which the ask price is larger than the bid price. This is the difference between the highest figure the buyer is willing to buy the Forex currency and the lowest price the seller is willing to sell it. For example, if the bid price is $1 and the ask price is $1.1, then the bid-ask spread is $0.1. The Forex trading bid ask spread is usually worth only a few Forex pips, because the online Forex has large liquidity.
Wednesday, July 21, 2010
How To Read Forex Charts ?
Learning the basic skills in Forex, such as how to read Forex charts, is really important.
This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual Forex trading system.
By the time you finish this article, you'll learn how to read Forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven't traded forex before.
Firstly, let's revise the basics of a forex trading as this relates directly to how to reade forex charts.
Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.
And your trade size (face value) is the amount of base currency that you're trading. In this example, if you want to buy 100 000 EURUSD, you're buying 100 000 EUROs.
Now let's have a look at the 5 important steps on how to read a forex chart:
1. If you buy the currency pair, that is, you're long the position, realise that you're looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.
On the other hand if you sell the currency pair to short the position, then you're looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.
Pretty simple so far.
2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.
So ensure that the chart you're looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you're trading, and to save and reuse this layout.
3. On most forex charts, it is the BID price rather than the ask price that's displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.
If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you'll sell at assuming no slippage.
If on the other hand, you place an order to buy when the chart price is the same price, then you'll actually buy at 1.3333. A forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.
Also note that on many platforms, when you're placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either "stop if bid" or "stop if offered".
4. Realise that the times shown on the bottom of forex charts are set to the particular time zone that the forex provider's charts are set to, be it GMT, New York time, or other time zones.
It's handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you're trading major economic announcements.
You'll need to convert the time of an announcement to your local time, and the chart time, so you'll know when the announcement is going to happen, and therefore when you need to trade.
5. Finally, check whether the times on your forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else's in this way.
The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!
So there you have it.
You now have the 5 essential keys to how to properly read forex charts, which will help you to avoid the common mistakes which many forex beginners make when looking at charts, and which will speed up your progress when you're looking at forex charting packages, and forex trading systems that you want to trade!
Now that you know this, practice looking at forex charts with each of these 5 points in mind.
So get to it!
Forex Technical Analysis
Technical Analysis
One of the underlying tenets of technical analysis is that historical price action predicts future price action. Since the Forex is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price activity, thereby increasing the statistical significance of the forecast. This makes it the perfect market for traders that use technical tools, such as trends, charts and indicators.
It is important to note that, in general, the interpretation of technical analysis remains the same regardless of the asset being monitored. There are literally hundreds of books dedicated to this field of study, but in this tutorial we will only touch on the basics of why technical analysis is such a popular tool in the Forex market.
Minimal Rate Inconsistency
One of the underlying tenets of technical analysis is that historical price action predicts future price action. Since the Forex is a 24-hour market, there tends to be a large amount of data that can be used to gauge future price activity, thereby increasing the statistical significance of the forecast. This makes it the perfect market for traders that use technical tools, such as trends, charts and indicators.
It is important to note that, in general, the interpretation of technical analysis remains the same regardless of the asset being monitored. There are literally hundreds of books dedicated to this field of study, but in this tutorial we will only touch on the basics of why technical analysis is such a popular tool in the Forex market.
Minimal Rate Inconsistency
There are many large players in the Forex market, such as hedge funds and large banks, that all have advanced computer systems to constantly monitor any inconsistencies between the different currency pairs. Given these programs, it is rare to see any major inconsistency last longer than a matter of seconds. Many traders turn to technical analysis because it presumes that all the factors that influence a price - economic, political, social and psychological - have already been factored into the current exchange rate by the market. With so many investors and so much money exchanging hands each day, the trend and flow of capital is what becomes important, rather than attempting to identify a mispriced rate.
Trend or Range
Trend or Range
One of the greatest goals of technical traders in the Forex market is to determine whether a given pair will trend in a certain direction, or if it will travel sideways and remain range-bound. The most common method to determine these characteristics is to draw trend lines that connect historical levels that have prevented a rate from heading higher or lower. These levels of support and resistance are used by technical traders to determine whether or not the given trend, or lack of trend, will continue.
Generally, the major pairs - such as the EUR/USD, USD/JPY, USD/CHF and GBP/USD - have shown the greatest characteristics of trend, while the currency pairs that have historically shown a higher probability of becoming range-bound have been the currency crosses (pairs not involving the U.S. dollar). The two charts below show the strong trending nature of USD/JPY in contrast to the range-bound nature of EUR/CHF. It is important for every trader to be aware of the characteristics of trend and range, because they will not only affect what pairs are traded, but also what type of strategy should be used.
Generally, the major pairs - such as the EUR/USD, USD/JPY, USD/CHF and GBP/USD - have shown the greatest characteristics of trend, while the currency pairs that have historically shown a higher probability of becoming range-bound have been the currency crosses (pairs not involving the U.S. dollar). The two charts below show the strong trending nature of USD/JPY in contrast to the range-bound nature of EUR/CHF. It is important for every trader to be aware of the characteristics of trend and range, because they will not only affect what pairs are traded, but also what type of strategy should be used.
Tuesday, July 20, 2010
How to Choose a Forex Broker
With so many different choices out there, how does a Forex "newbie" pick a broker? Chances are most new traders have no idea on where to start - and that's okay! We're here to help! We have put together a simple three step process to help you find a broker that YOU think will best suit YOUR needs. You might be thinking now, "Three steps? That's it?" Yesssiirrrr!
In the first step, you will go through some of the main questions you need ask yourself when reviewing different brokers. Then you will take a look at different brokers and their available features. We have put together a comparison guide by taking some of the most frequently asked questions across the internet, and surveyed some of the most frequently asked about brokers out there, so that you don't have to.
With this guide, you can narrow your choices down and take the final step of talking with different brokers and demo trading on different platforms. Simple, right? Let's begin...
Step 1: Do your research
Before comparing brokers, do you know what to look for? No? Well, here are a few of the main questions you should ask yourself:
1. Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they're based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn't registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
2. Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
3. How much or how little leverage will a broker give you? We highly recommend you review "Leverage the Killer"before deciding on how much leverage would be suitable for your trading style. The phrase, "Less is More," can save every newbie
4. Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading "micro" lots. Not every broker has this feature.
5. Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
6. Does this broker over premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?
1. Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they're based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn't registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
2. Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
3. How much or how little leverage will a broker give you? We highly recommend you review "Leverage the Killer"before deciding on how much leverage would be suitable for your trading style. The phrase, "Less is More," can save every newbie
4. Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading "micro" lots. Not every broker has this feature.
5. Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
6. Does this broker over premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?
Step 2: Compare brokers
I will suggest you one of the best brokers with gives u best offers and low spreads which is WSBROKERS , you can see their offers through this link http://www.wsbrokers.com/
Step 3: Open demo accounts and ask questions.
Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don't be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.
Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.
Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.
Forex Glossary
Aggressor: A trader dealing on an existing price in the market.
Appreciation: The increase in the value of an asset.
Arbitrage: Profiting from differences in the price of a single currency pair that is traded on more than one market.
Ask: The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.
Ask Price: See 'ask'.
Ask Rate: See 'ask'.
Asset: An item having commercial or exchange value.
Back Office: The office location, or department, where the processing of financial transactions takes place.
Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Bid: The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.
Bid/Ask Spread: The point difference between the bid and offer (ask) price.
Big Figure: The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bull Market: A market which is on a consistent upward trend.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Buy On Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Cable: The British pound/US Dollar exchange rate GBP/USD.
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close).
Carry (Interest-Rate Carry): The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.
Central Bank: A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Closing Market Rate: The rate at which a position can be closed based on the market price at end of the day.
Commission: The fee levied by an institution to undertake a trade on behalf of a customer.
Confirmation: Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.
Counterpart: A participant in a financial transaction.
Cross-Rate: The exchange rate between 2 currencies where neither of the currencies are USD.
Currency: Money issued by a government.
Currency Pair: The two currencies that make up a foreign exchange rate. IE: USD/YEN.
Currency Risk: The possibility of an unfavorable change in exchange rates.
Day Order: A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trade: A trade opened and closed on the same trading day.
Day Trader: A trader who buys and sells on the basis of small short-term price movements.
Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day.
Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation: A fall in the value of a currency due to market forces.
Devaluation: The act by a government to reduce the external value of its currency.
Discretionary Account: An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Euro: The common currency adopted by eleven European nations(Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.
European Central Bank (ECB): The Central Bank for the new European Monetary Union.
Execution: The Process of completing an order or deal.
Federal Deposit Insurance Corporation (FDIC): The regulatory agency responsible for administering bank depository insurance in the United States.
Federal Reserve (Fed): The Central Bank of the United States.
Fill: The process of completing a customer's order to buy or sell a currency pair.
Fill Price: The price at which a buy or sell order was executed.
Financial Risk: The risk that a firm will be unable to meet its financial obligations.
Flat: Term describing a trading book with no market exposure.
Forward: A transaction that settles at a future date.
Forward Points: The points that are added to or subtracted from the spot rate to calculate the forward rates for a forward foreign exchange transaction. These points are based on the differential between the interest rates of the two currency pairs.
Forward Price: (See forward rates).
Forward Rates: The net price resulting from calculating the forward points and subtracting them from the existing spot rate. This is the rate at which a currency can be purchased or sold for delivery in the future.
Good Till Cancelled Order (GTC): A buy or sell order which remains open until it is filled or canceled.
Hedge: A transaction that reduces the risk on an existing investment position.
Initial Margin: The deposit a customer needs to make before being allocated a trading limit.
Initial Margin Requirement: The minimum portion of a new security purchase that an investor must pay for in cash.
Jobber: A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Liquidity: Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes.
Long: See long position.
Long Position: In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.
Maintenance: A set minimum margin that a customer must maintain in his margin account
Margin: The amount of money needed to maintain a position.
Margin Account: An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.
Margin Call: A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short).
Mark-to-Market: The theoretical value of an open position at the current market price.
Market Close: This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.
Market-Maker: A person or firm that provides liquidity making two-sided prices (bids and offers) in the market.
Market Order: A customer order for immediate execution at the best price available when the order reaches the marketplace.
Market Rate: The current quote of a currency pair.
Market Risk: The risks that occur when general market pressures cause the value of an investment to fluctuate.
Maturity: The date on which payment of a financial obligation is due.
Momentum: The tendency of a currency pair to continue movement in a single direction.
OCO-One Cancels the Other Order: A combination of two orders in which the execution of either one automatically cancels the other.
Offer: The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.
Open Order: Buy or sell order that remains in force until executed or cancelled by the customer.
Open Position: Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.
Order: A customer's instructions to buy or sell currencies.
Overnight Position: Trader's long or short position in a currency at the end of a trading day.
Pip: The smallest increment of change in a foreign currency price, either up or down.
Price: The price at which the underlying currency can be bought or sold.
Price Transparency: The ability of all market participants to "see" or deal at the same price.
Principal Value: The original amount invested by the client.
Quote: A simultaneous bid and offer in a currency pair.
Rate: Price at which a currency can be purchased or sold against another currency.
Resistance: Price level at which technical analysts note persistent selling of a currency.
Revaluation: Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
Risk (Foreign Exchange Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Roll-Over: The process of extending the settlement value date on an open position forward to the next valid value date.
Sell Limit Order: An order to execute a transaction only at a specified price (the limit) or higher.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.
Settlement: The actual delivery of currencies made on the maturity date of a trade.
Short: See short position.
Short position: In foreign exchange, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is 'short', and the secondary currency is 'long'.
Short Squeeze: The pressure on short sellers to cover their positions as a result of sharp price increases.
Spot Market: Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot/Next or S/N roll: The process of moving the spot settlement value date on an open position forward to the next valid value date. This process will affect the profit or loss on the overnight position. The forward points reflect the difference in interest rates between the currencies being rolled over.
Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
Spread: This point or pip difference between the bid and ask price of a currency pair.
Sterling: Another term for the British currency, 'The Pound'.
Stop (loss) Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Stop Order (or stop): An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Support Levels: A price at which a currency or the currency market will receive considerable buying pressure.
Swap: A transaction which moves the maturity date of an open position to a future date.
Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Tick: The smallest possible change in a price, either up or down.
Tomorrow Next (Tom/Next), (T/N), T/N Roll: The process of moving the settlement value date on an open position forward from one business day after the trade date (tomorrow), to the next valid value date (next), the spot value date.
Transaction Date: The date on which a trade occurs.
Turnover: The total volume of all executed transactions in a given time period.
Two-Way Price: A quote in the foreign exchange market that indicates a bid and an offer.
Value Date: The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Variation Margin: Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
Volatility (VOL): Statistical measure of the change in price of a financial currency pair over a given time period.
Yard: A slang word used in the currency industry meaning 'billion'.
Appreciation: The increase in the value of an asset.
Arbitrage: Profiting from differences in the price of a single currency pair that is traded on more than one market.
Ask: The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.
Ask Price: See 'ask'.
Ask Rate: See 'ask'.
Asset: An item having commercial or exchange value.
Back Office: The office location, or department, where the processing of financial transactions takes place.
Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Bid: The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.
Bid/Ask Spread: The point difference between the bid and offer (ask) price.
Big Figure: The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bull Market: A market which is on a consistent upward trend.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Buy On Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Cable: The British pound/US Dollar exchange rate GBP/USD.
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close).
Carry (Interest-Rate Carry): The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.
Central Bank: A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Closing Market Rate: The rate at which a position can be closed based on the market price at end of the day.
Commission: The fee levied by an institution to undertake a trade on behalf of a customer.
Confirmation: Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.
Counterpart: A participant in a financial transaction.
Cross-Rate: The exchange rate between 2 currencies where neither of the currencies are USD.
Currency: Money issued by a government.
Currency Pair: The two currencies that make up a foreign exchange rate. IE: USD/YEN.
Currency Risk: The possibility of an unfavorable change in exchange rates.
Day Order: A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trade: A trade opened and closed on the same trading day.
Day Trader: A trader who buys and sells on the basis of small short-term price movements.
Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day.
Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation: A fall in the value of a currency due to market forces.
Devaluation: The act by a government to reduce the external value of its currency.
Discretionary Account: An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Euro: The common currency adopted by eleven European nations(Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.
European Central Bank (ECB): The Central Bank for the new European Monetary Union.
Execution: The Process of completing an order or deal.
Federal Deposit Insurance Corporation (FDIC): The regulatory agency responsible for administering bank depository insurance in the United States.
Federal Reserve (Fed): The Central Bank of the United States.
Fill: The process of completing a customer's order to buy or sell a currency pair.
Fill Price: The price at which a buy or sell order was executed.
Financial Risk: The risk that a firm will be unable to meet its financial obligations.
Flat: Term describing a trading book with no market exposure.
Forward: A transaction that settles at a future date.
Forward Points: The points that are added to or subtracted from the spot rate to calculate the forward rates for a forward foreign exchange transaction. These points are based on the differential between the interest rates of the two currency pairs.
Forward Price: (See forward rates).
Forward Rates: The net price resulting from calculating the forward points and subtracting them from the existing spot rate. This is the rate at which a currency can be purchased or sold for delivery in the future.
Good Till Cancelled Order (GTC): A buy or sell order which remains open until it is filled or canceled.
Hedge: A transaction that reduces the risk on an existing investment position.
Initial Margin: The deposit a customer needs to make before being allocated a trading limit.
Initial Margin Requirement: The minimum portion of a new security purchase that an investor must pay for in cash.
Jobber: A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.
Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Liquidity: Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes.
Long: See long position.
Long Position: In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.
Maintenance: A set minimum margin that a customer must maintain in his margin account
Margin: The amount of money needed to maintain a position.
Margin Account: An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.
Margin Call: A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short).
Mark-to-Market: The theoretical value of an open position at the current market price.
Market Close: This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.
Market-Maker: A person or firm that provides liquidity making two-sided prices (bids and offers) in the market.
Market Order: A customer order for immediate execution at the best price available when the order reaches the marketplace.
Market Rate: The current quote of a currency pair.
Market Risk: The risks that occur when general market pressures cause the value of an investment to fluctuate.
Maturity: The date on which payment of a financial obligation is due.
Momentum: The tendency of a currency pair to continue movement in a single direction.
OCO-One Cancels the Other Order: A combination of two orders in which the execution of either one automatically cancels the other.
Offer: The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.
Open Order: Buy or sell order that remains in force until executed or cancelled by the customer.
Open Position: Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.
Order: A customer's instructions to buy or sell currencies.
Overnight Position: Trader's long or short position in a currency at the end of a trading day.
Pip: The smallest increment of change in a foreign currency price, either up or down.
Price: The price at which the underlying currency can be bought or sold.
Price Transparency: The ability of all market participants to "see" or deal at the same price.
Principal Value: The original amount invested by the client.
Quote: A simultaneous bid and offer in a currency pair.
Rate: Price at which a currency can be purchased or sold against another currency.
Resistance: Price level at which technical analysts note persistent selling of a currency.
Revaluation: Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
Risk (Foreign Exchange Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Roll-Over: The process of extending the settlement value date on an open position forward to the next valid value date.
Sell Limit Order: An order to execute a transaction only at a specified price (the limit) or higher.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.
Settlement: The actual delivery of currencies made on the maturity date of a trade.
Short: See short position.
Short position: In foreign exchange, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is 'short', and the secondary currency is 'long'.
Short Squeeze: The pressure on short sellers to cover their positions as a result of sharp price increases.
Spot Market: Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot/Next or S/N roll: The process of moving the spot settlement value date on an open position forward to the next valid value date. This process will affect the profit or loss on the overnight position. The forward points reflect the difference in interest rates between the currencies being rolled over.
Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
Spread: This point or pip difference between the bid and ask price of a currency pair.
Sterling: Another term for the British currency, 'The Pound'.
Stop (loss) Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Stop Order (or stop): An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Support Levels: A price at which a currency or the currency market will receive considerable buying pressure.
Swap: A transaction which moves the maturity date of an open position to a future date.
Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Tick: The smallest possible change in a price, either up or down.
Tomorrow Next (Tom/Next), (T/N), T/N Roll: The process of moving the settlement value date on an open position forward from one business day after the trade date (tomorrow), to the next valid value date (next), the spot value date.
Transaction Date: The date on which a trade occurs.
Turnover: The total volume of all executed transactions in a given time period.
Two-Way Price: A quote in the foreign exchange market that indicates a bid and an offer.
Value Date: The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Variation Margin: Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
Volatility (VOL): Statistical measure of the change in price of a financial currency pair over a given time period.
Yard: A slang word used in the currency industry meaning 'billion'.
Monday, July 19, 2010
What is Forex Trading
The off-exchange retail foreign currency market, also referred to as the 'Forex' or 'FX' market, is one of the largest financial and investment markets in the world. Forex is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen. Forex investors use various methods of analysis (both technical and fundamental) in an effort to predict future price movement and thus profit from well timed transactions. Trading currencies is a very risky form of investing. Any funds used when speculating on the values of currency prices should be considered as risk capital.
10 Advantages of the Forex Market
1. Foreign Exchange Option Trading Has No Commissions
Foreign Exchange option trading does not involve any commissions. This means less money taken and more money for investing. If you make frequent trades, commissions can really add up quickly. FOREX option trading minimizes your trading costs while maximizing your potential investment return at the same time.
2. Foreign Exchange Option Trading Combines FOREX and Options Trading
Foreign Exchange Option trading has the benefits of both the FOREX market and options trading, so you see more benefits. Foreign currency options open up the investment market even further, so you have more investment options available to meet your investing needs.
3. FOREX Market Has High Liquidity
The foreign currency exchange market is considered the most liquid market in the world. This high level of liquidity makes it a terrific market for investment, because investments are very easily converted into cash. Because the market consists of currencies, there is never a problem in cashing out on an investment.
4. Foreign Exchange Option Trading Has High Volume
The foreign exchange market is one of the biggest markets in the world, with an extremely high volume. This means many opportunities to invest in foreign currency options. There is never a problem finding the type of trade that you are looking for because of the market volume.
5. Small Investment Is Required With Foreign Exchange Option Trading
A foreign exchange trader does not need to have a large amount to invest to get in on the trading activity. An amount as small as a couple hundred dollars may very well be enough to get started in foreign exchange option trading. This amount is much less than what is required in many other investment options. This allows you to start investing and seeing returns much faster.
6. Foreign Exchange Option Trading Offers Twenty Four Hour Trading
The foreign exchange market is the only market that is open twenty four hours a day, around the clock. This means you never have to wait for the market to open before you can trade. This benefit makes the FOREX market unique and one of a kind. The market travels the globe, and trades can be arranged any hour of the day or night, no matter what the date, day, or time is. This makes the market trading hours very convenient for all traders no matter where they live.
7. Foreign Exchange Option Trading Has Electronic Convenience
The FOREX market offers electronic convenience, because the entire market and all trading done on it are done electronically. There is no physical location for the market, unlike stocks and Wall Street. This means that all a foreign exchange trader needs to initiate a trade is a computer with an Internet connection or a telephone. This makes trading foreign currency options very easy and convenient.
8. Trading Losses Can Be Managed By Foreign Exchange Hedging
Foreign Exchange option trading allows trading losses and risks to be managed by hedging. This can keep traders from suffering huge losses of investment capital, by allowing them to hedge their investments by using options.
9. Foreign Exchange Option Trading Always Has a Bull Market
The Foreign Exchange market is always a bull market. This market always has currencies that are rising in value, as well as those that are falling in value. This means that a foreign exchange trader can always find bullish conditions with some currencies traded on the market.
10. Fewer Manipulation Risks with Foreign Exchange Option Trading
Because The FOREX market is a global market, there is a lower manipulation risk. Unlike stocks, currencies can not be manipulated as easily, so this risk is much lower. The size of the market also makes manipulation extremely unlikely.
Friday, July 2, 2010
Introduction to Forex
Forex stands for the Foreign Exchange market, also abbreviated by "FX", and it is one of the most exciting, fast-paced markets around the world. It was established in 1971 when fixed currency exchange was introduced. Forex is when one currency is traded by another. The Forex market is the largest financial market in the world, with a daily turnover of $3.20 trillion. The major traders in this market are large banks, central banks, multinational corporations, governments and currency speculators. It is a true 24-hour market, operating from Sunday 5:00 PM ET to Friday 5:00PM ET.
Unlike other financial markets, investors can respond to currency fluctuations caused by economic, political events and psychological effects at the time they occur - day and night. Currencies are traded in pairs, usually against the US Dollar, such as Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
The extreme liquidity and the availability of high leverage and margin trading have helped to spur the market's rapid growth and made it the ideal place for many traders. Any position can be opened and closed within minutes, or can be held for months and years. The price fluctuations of the currencies are based on objective considerations of supply and demand and cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks or governments, to move prices at will.
Until recently, trading in the Forex market had been the domain of governments, large financial institutions and corporations, central banks, hedge funds and extremely wealthy individuals. The emergence of new technologies such as the internet has changed all of this, and now it is possible for small time and home investors to buy and sell currencies easily with the click of a mouse through their home computer.
Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in Euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. Dollars (USD) into Euros. The same goes for traveling. An English tourist in Paris can't pay in Sterling to see the Louvre because it's not the locally accepted currency. As such, the tourist has to exchange the Sterling for the local currency, in this case the Euros, at the current exchange rate.
The need to exchange currencies is the primary reason why the Forex market is the largest, most liquid financial market in the world.
What Is Forex ?
Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $3.2 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Subscribe to:
Posts (Atom)