Reading Quotes

One of the biggest sources of confusion for those new to the currency market is the standard for quoting currencies. In this section, we'll go over currency quotations and how they work in currency pair trades.

When a currency is quoted, it is done in relation to another currency, so that the value of one is reflected through the value of another. Therefore, if you are trying to determine the exchange rate between the U.S. dollar (USD) and the Japanese yen (JPY), the quote would look like this:

USD/JPY = 105.25

This is referred to as a currency pair. The currency to the left of the slash is the base currency, while the currency on the right is called the quote or counter currency. The base currency (in this case, the U.S. dollar) is always equal to one unit (in this case, 1 USD), and the quoted currency (in this case, the Japanese yen) is what that one base unit is equivalent to in the other currency. The quote means that US$1 = 105.25 Japanese yen. In other words, US$1 can buy 105.25 Japanese yen.

Direct Quote vs. Indirect Quote
There are two ways to quote a currency pair, either directly or indirectly. A direct quote is simply a currency pair in which the domestic currency is the base currency; while an indirect quote, is a currency pair where the domestic currency is the quoted currency. So if you were looking at the Canadian dollar as the domestic currency and U.S. dollar as the foreign currency, a direct quote would be CAD/USD, while an indirect quote would be USD/CAD. The direct quote varies the foreign currency, and the quoted, or domestic currency, remains fixed at one unit. In the indirect quote, on the other hand, the domestic currency is variable and the foreign currency is fixed at one unit.

For example, if Canada is the domestic currency, a direct quote would be 0.85 CAD/USD, which means with C$1, you can purchase US$0.85. The indirect quote for this would be the inverse (1/0.85), which is 1.18 USD/CAD and means that USD$1 will purchase C$1.18.

In the Forex spot market, most currencies are traded against the U.S. dollar, and the U.S. dollar is frequently the base currency in the currency pair. This would apply to the above USD/JPY currency pair, which indicates that US$1 is equal to 119.50 Japanese yen.

However, not all currencies have the U.S. dollar as the base. The Queen's currencies - those currencies that historically have had a tie with Britain, such as the British pound, Australian Dollar and New Zealand dollar - are all quoted as the base currency against the U.S. dollar. The Euro, which is relatively new, is quoted the same way as well. This is why the EUR/USD quote is given as 1.55, for example, because it means that one euro is the equivalent of 1.55 U.S. dollars.

Most currency exchange rates are quoted out to four digits after the decimal place, with the exception of the Japanese yen (JPY), which is quoted out to two decimal places.

Avoiding/lowering risk when trading Forex

Trade like a technical analyst. Understanding the fundamentals behind an investment also requires understanding the technical analysis method. When your fundamental and technical signals point to the same direction, you have a good chance to have a successful trade, especially with good money management skills. Use simple support and resistance technical analysis, Fibonacci Retracement and reversal days. Be disciplined. Create a position and understand your reasons for having that position, and establish stop loss and profit taking levels. Discipline includes hitting your stops and not following the temptation to stay with a losing position that has gone through your stop/loss level. When you buy, buy high. When you sell, sell higher. Similarly, when you sell, sell low. When you buy, buy lower. Rule of thumb: In a bull market, be long or neutral - in a bear market, be short or neutral. If you forget this rule and trade against the trend, you will usually cause yourself to suffer psychological worries, and frequently, losses. And never add to a losing position.

Hedging in the Forex Market

Just like in the stock market, forex investors often use a strategy called hedging to decrease some of the risk associated with trading. Many people think of hedging as buying an insurance policy for their currency position, and it acts in much the same way. By using investment instruments known as derivatives, forex traders can rest easy knowing that any losses will be covered by the backup plan.

One type of derivative that many forex traders use to hedge a position is a futures contract, which is an agreement to exchange one currency for another at a specified date in the future at the price on the last closing date. Currency futures are bought and sold on a market just like any other instrument such as stocks or currencies, and are a great way to hedge against changing currency exchange rates. For example, say you used dollars to take a long position in euros, but you are a little worried that the price of euros will fall relative to the dollar. One thing you could do is take out a futures contract on dollars using euros. As external factors affect the price of currencies, the price of futures contracts rise and fall as well, allowing your euros-to-dollars contract to counteract your long position in euros. If the euro weakens, the futures contract price rises, and vice-versa, so you have therefore eliminated the risk from your currency investment.

Another form of hedging in the forex market that is practiced regularly is done by businesses that deal internationally. A company that has many customers in Europe may be concerned that a weakening euro would cost it money in the long run, as the original price quoted in euros wouldn’t translate into as many dollars going forward. By taking a long position in dollars using euros, the company would make just as much money in the forex market as it lost due to the fall in the euro’s value. Likewise, if it lost money in the forex market due to a fall in the value of the dollar, the company would make up for it in increased profits due to the greater value of the euros it is bringing in while selling its products. The position in the forex market has effectively neutralized any threat the company may have faced due to a weakening euro. This type of hedging can take several other forms, including futures contracts and options.

Traditional forex options are derivatives that allow the buyer to purchase an amount of currency from another trader for a set price, and make a great hedging tool. Again, these are instruments that are traded on the open market, and the investor is under no obligation to follow through with the option. But sometimes following through is a good way to negate a currency loss. For example, a person who bought an allotment of yen with dollars wants to hedge against the price of yen falling relative to the dollar. What he can do is buy an option to purchase the same amount of dollars using yen at the price for which he originally bought the yen. Since options only cost a small fraction of their denomination, this investor has just taken out an insurance policy on his long yen position for a relatively small amount of money. If the price of yen rises, then he has made a profit on his long position and he is just out the money he used to buy the option. But, if the dollar strengthens relative to the yen, he can always wait and exercise his option, buying additional yen at the now reduced rate as specified by the currency option. Thus, for a small option price, he has negated the loss he incurred when the dollar strengthened and the yen weakened.

By using instruments such as futures contracts and options, traders can hedge their currency positions for a fraction of what they paid for their original investment. Also, businesses operating internationally often hedge in the forex market as well, taking currency positions to offset any losses caused by fluctuation in exchange rates. Hedging is a powerful tool that serves well those who take the time to use it.

Fundamental Versus Technical Analysis

While technical analysis concentrates on the study of market action, fundamental analysis focuses on the economic forces which cause prices to move higher, or lower, or stay the same. The fundamental approach examines all of the relevant factors affecting the exchange-rate between two currencies to determine the intrinsic value of each currency.



The intrinsic value is what the fundamentals indicate one currency is actually worth against another currency. If this intrinsic value is under the current market price, then the currency is overpriced and should be sold. If market price is below the intrinsic value, then the market is undervalued and should be bought. Both of these approaches to market forecasting attempt to solve the same problem, that is, to determine the direction prices are likely to move. They just approach the problem from different directions.



A "fundamentalist" studies the cause of market movement, while a technician studies the effect. Most market traders classify themselves as either technicians or fundamentalists. In reality, there is a lot of overlap. Most fundamentalists have a working knowledge of the basic tenets of chart analysis. At the same time, most technicians have at least a passing awareness of the fundamentals.



The problem is that the charts and fundamentals are often in conflict with each other. Usually at the beginning of important market moves, the fundamentals do not explain or support what the market seems to be doing. It is at these critical times in the trend that these two approaches seem to differ the most. Usually they come back into sync at some point, but often too late for the trader to act. One explanation for these seeming discrepancies is that market price tends to lead the known fundamentals.



Stated another way, market price acts as a leading indicator of the fundamentals or the conventional wisdom of the moment. While the known fundamentals have already been discounted and are already "in the market," prices are now reacting to the unknown fundamentals. Some of the most dramatic market movements in history have begun with little or no perceived change in the fundamentals. By the time those changes became known, the new trend was well underway.

Margin Call in the Forex Market

Many new Forex traders all of sudden receive a margin call. Maybe they did not educate themselves properly about forex trading and started trading. Have you ever received the dreaded forex margin call? Whatever, you must be very clear about what is a forex margin call. But contrary to the popular opinion that a margin call represents that worst case scenario for the currency trader, this is far from the truth. The risk that is assumed when trading aggressively the currency markets often results in receiving a margin call. The worst case could be far worse.


If there would have been no margin call, the possibility of owing additional funds to your broker in case of a loss could not be ruled out. To owe additional funds to the broker is actually the worse case scenario. A margin call protects a trader from losing 100% or even more of the money in the trading account. A margin call is in fact a safeguard. The uncomfortable position of owing additional funds to the forex broker is largely avoided because of the existence of the margin call.

If you have been trading stocks you might have actually received a call or a text message from your stock broker that you need to add more funds to your trading account. So in stock trading, you will receive an actual call from your stock broker to add more funds to your margin account when equity is running low in your stock trading account. A margin call is not actually a physical call from your broker in forex trading unlike the world of stock trading.

In forex trading when the trader no longer has enough equity in the trading account to keep the open positions viable, the trading platform software automatically closes out all the open positions and immediately realizes all losses at the prevailing market rates.

Prices can move extremely fast in forex markets and because of the high leverage used, every price move is magnified. There are good reasons for automated margin calls in forex trading, although this may seem a bit cold hearted.

The trading account can become depleted very quickly with not enough time to call for more funds when the traders equity runs low in forex trading. The forex margin call closes all open positions to help ensure that the trader does not lose the entire account or worse as a safeguard measure.

Lets make it clear with an example. Suppose you have $1500 in your trading account. So exactly when is a margin call triggered? This depends exactly on the number and the size of the lots being traded, the leverage chosen and the equity in the account. Suppose you use a leverage of 100:1 to trade in standard lots of $100,000.

You want to trade one lot of EUR/USD. Since your account is in US Dollars, you need to convert it into Euros. Suppose the EUR/USD exchange rate is 1.3465. So you need $1346 to trade standard lot Euros 100,000 of EUR/USD. This is because Euros 1000 are needed to control Euros 100,000.

Suppose you are a new forex trader. You dont know much about forex trading. However you have read that it is a great opportunity to make money. Naturally you are very enthusiastic about trading forex as quickly as possible. So you dont know that stop losses are used to minimize downside risk in trading. You start trading without putting stop losses in place. Your trading account has $1500. The margin required to keep the trade open is $1346. Each pip is exactly equal to $10 in this case.

There are no stop losses in place. The chances are you are going to receive a margin call soon. When can you expect to receive a margin call? You will receive a margin call when your equity drops below $1346. You have $1500 equity in your trading account. Your open position will be automatically closed when you receive a margin call. That means once you lose the excess equity in your account above the margin required to trade a standard lot that is $1500-$1346= $154. Assuming that there are no spreads involved. This is equal to just 15.4 pips loss. This example will make it clear the fast moving nature of the forex market and how using high leverage can suddenly result in getting a margin call.

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.

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

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

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.

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?

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.

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.

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.