The foreign exchange market (Forex) offers many advantages to investors. But you need to know where to begin.
This short guide will give you the Forex basics, so you can quickly start participating in this fast growing market.
In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980's the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
A Learning Curve
Forex is not simple, though, so you'll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the Forex, there are risks involved.
Your first move as a beginner should be to find out as much as possible about the market before risking a dime.
Find A Broker
Forex traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.
Open an Account
Opening a Forex account is as simple as filling out a form and providing the necessary identification. The form includes a margin agreement which states that the broker may interfere with any trade deemed to be too risky. This is to protect the interests of the broker, since most trades are done using the broker's money.
Once your account has been established, you can fund it and begin trading.
Many brokers offer a variety of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in Forex trading for as little as $250. Standard accounts may have a minimum deposit of $1000 to $2500, depending on the broker. The amount of leverage (how much borrowed money you can use) varies with account type. High leverage accounts give you more money to trade for a given investment.
Trades are commission-free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread': the difference between bid and ask prices.
Paper Trading
Beginning traders are strongly advised get accustomed to Forex by doing "paper trades" for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools provided by most Forex brokers.
Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new Forex investor should use these demo accounts at least until they are consistently showing profits.
Forex Software
Each broker has its own set of software tools for making transactions, but there are a few tools that are common to all Forex brokers. Real-time quotes, news feeds, technical analyses and charts, and profit-and-loss analyses are some of the features you can expect to see on most online brokers' web sites.
Almost every broker operates on the Internet. To access a broker's online services you'll need a reasonably modern computer, a fast Internet connection, and an up-to-date operating system. Once your account is set up, you can access it from any computer just by entering your account name and password. If for some reason you are unable get to a computer, most brokers will allow you to make trades over the phone.
There are lots of ways to make money. Forex trading is just one more potential stream of income -- if you are prepared to learn and practice.
Saturday, November 24, 2007
Tuesday, November 6, 2007
Forex And The Art Of Timing
At this precise moment in time there are four ordinary people trading the British Pound (GBP) versus the U.S. Dollar (USD).
There is nothing surprising in that. In fact many thousands of people are at this precise moment, most likely doing exactly the same.
What you may find surprising about these four individuals, lets call them John, Mary, Joe and Susan, are their individual trade results so far. Remember, they are all in their trades right now.
John is long the GBP and is showing profit. Mary is also long the GBP and is showing a loss. Joe is short the GBP and is also showing a loss. Susan is also short the GBP and is in profit.
Why is this?
If you take a look at a long term chart of the GBP/USD you will find that the GBP has been in an up trend since around February 2002, starting at a price of 1.3931 and has risen at it’s zenith to 2.0652 a rise of 6,721 pips or a reward of $67,210 for 1 standard lot at 100:1 leverage (not allowing for roll over interest), and is currently at a price of 2.0312
John bought the GBP against the USD in May 2002 at 1.4461. He got the timing right and is currently showing a profit of 5,851 pips or for 1 single standard lot at 100:1 leverage, $58,510 (not allowing for roll over interest).
Currencies tend to trend rather well over time, but they do not move in a straight line. They have periods when they are trending, periods when they retrace, periods when they consolidate and periods when they resume the trend.
Currencies can also reverse the trend and establish a new trend in the opposite direction, but we are looking at the GBP/USD which at the time of writing is still in the same direction of trend that it has been in since 2002.
Mary unfortunately got the timing wrong. She bought the GBP/USD on July 24th 2007 at 2.0650 and is currently down 338 pips or minus $3,380 (not allowing for roll over interest).
Joe also got his timing wrong when on March 31st 2006 he sold the GBP/USD at 1.8248 and is currently showing a loss of over $20,000.
Finally, we look at Susan’s trade. She sold the GBP yesterday at 2.0473 and is currently in profit by 161 pips.
So what is the lesson here? Despite what people may say, trading the Forex market is not as simple as deciding “Will it go up? or Will it go down?” because as you can see from the example above, even if you are right – you can still make a loss if you get the timing wrong.
One of the important aspects of trading is being on “the right side of the market”. You could say that in some respects, like life in general, “timing is everything”.
There is nothing surprising in that. In fact many thousands of people are at this precise moment, most likely doing exactly the same.
What you may find surprising about these four individuals, lets call them John, Mary, Joe and Susan, are their individual trade results so far. Remember, they are all in their trades right now.
John is long the GBP and is showing profit. Mary is also long the GBP and is showing a loss. Joe is short the GBP and is also showing a loss. Susan is also short the GBP and is in profit.
Why is this?
If you take a look at a long term chart of the GBP/USD you will find that the GBP has been in an up trend since around February 2002, starting at a price of 1.3931 and has risen at it’s zenith to 2.0652 a rise of 6,721 pips or a reward of $67,210 for 1 standard lot at 100:1 leverage (not allowing for roll over interest), and is currently at a price of 2.0312
John bought the GBP against the USD in May 2002 at 1.4461. He got the timing right and is currently showing a profit of 5,851 pips or for 1 single standard lot at 100:1 leverage, $58,510 (not allowing for roll over interest).
Currencies tend to trend rather well over time, but they do not move in a straight line. They have periods when they are trending, periods when they retrace, periods when they consolidate and periods when they resume the trend.
Currencies can also reverse the trend and establish a new trend in the opposite direction, but we are looking at the GBP/USD which at the time of writing is still in the same direction of trend that it has been in since 2002.
Mary unfortunately got the timing wrong. She bought the GBP/USD on July 24th 2007 at 2.0650 and is currently down 338 pips or minus $3,380 (not allowing for roll over interest).
Joe also got his timing wrong when on March 31st 2006 he sold the GBP/USD at 1.8248 and is currently showing a loss of over $20,000.
Finally, we look at Susan’s trade. She sold the GBP yesterday at 2.0473 and is currently in profit by 161 pips.
So what is the lesson here? Despite what people may say, trading the Forex market is not as simple as deciding “Will it go up? or Will it go down?” because as you can see from the example above, even if you are right – you can still make a loss if you get the timing wrong.
One of the important aspects of trading is being on “the right side of the market”. You could say that in some respects, like life in general, “timing is everything”.
What Is The Foreign Exchange?
Foreign Exchange is the simultaneous buying of one currency and selling of another. The off exchange retail foreign currency market ( FOREX ) is the largest financial market in the world, with a volume of over $1.9 trillion daily. Unlike other financial markets, the Forex market has no physical location, no central exchange.
It operates through an electronic network of banks, corporations and individuals trading one currency for another, spanning from one zone to another across the major financial centers. Traditionally, investors’ only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes.
Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. High liquidity - The Forex market with an average trading volume of over $1.9 trillion per day. It is the most liquid market in the world.
Low transaction cost - The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be smaller. Uncorrelated to the stock market - A trader in the Forex market involves selling or buying one currency against another.
Thus, there is no correlation between the foreign currency market and the stock market. Bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies.
Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader. Inter-bank market - The backbone of the Forex market consists of a global network of dealers.
They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over the counter ( OTC ) market.
No one can corner the market - The Forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
It operates through an electronic network of banks, corporations and individuals trading one currency for another, spanning from one zone to another across the major financial centers. Traditionally, investors’ only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes.
Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. High liquidity - The Forex market with an average trading volume of over $1.9 trillion per day. It is the most liquid market in the world.
Low transaction cost - The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be smaller. Uncorrelated to the stock market - A trader in the Forex market involves selling or buying one currency against another.
Thus, there is no correlation between the foreign currency market and the stock market. Bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies.
Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader. Inter-bank market - The backbone of the Forex market consists of a global network of dealers.
They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over the counter ( OTC ) market.
No one can corner the market - The Forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
Saturday, November 3, 2007
Beginner's Guide to Forex and Automated Forex
Forex, or foreign exchange trading, is growing by leaps and bounds. It is becoming as popular (if not more) than the stock market, and Forex traders are discovering small fortunes every day! If you're new to Forex, you might find it to be confusing at first. Use the quick beginner's guide to Forex below to learn more about Forex and automated Forex.
What is Forex?
Forex is the act of trading various currencies from around the world. The Forex market started in the 1970s, but has in recent years caught on like wildfire in the stock market world. Forex trading systems record about USD $1.5 trillion in transactions every single day!
The goal in Forex trading is to make a profit when currency values increase or decrease within a currency pair. You will trade only when you expect the value of a currency to increase. In a currency pair, when the currency you bought increases, then you must sell the other currency to make a profit. An open trade, or open position, is a type of trade in which you have already purchased or sold a currency pair, but have not yet bought back an equivalent amount.
The five most significant currency pairs in Forex right now are USD/Yen, Euro/Yen, Pound/USD, Swiss franc/USD, and the Euro/USD.
To get started in Forex trading, you will create a Forex account through a Forex broker. Then, you will need to create a Forex trading strategy that works best for you. The strategy you choose should be tested using a practice account if possible before you start investing your real money. This will enable you to become familiar with Forex trading without risk.
Advantages and Disadvantages of Forex Trading
Forex trading offers a number of advantages. It offers more chances to make short-term profits than the stock market because money moves faster in Forex. The trading opens and closes within only a few seconds, so money can be made quickly. Also, Forex trading is easier to monitor than the stock market because you are only keeping up with currencies, not hundreds or thousands of companies.
There are a few disadvantages as well. Forex trading is risky as is the stock market. Because trading occurs so frequently, Forex trading requires constant monitoring throughout the day to enjoy maximum benefits. Those who don't have time to monitor their Forex trading might lose more than they gain.
Automated Forex
With a new Forex trading system called automated Forex, you can enjoy the benefits of Forex without continual monitoring. Automated Forex is accomplished through trading software. The software monitors the Forex market for you by receiving Forex signals from trading systems and by using daily charts to analyze trends in Forex 24/7. The creation of automated Forex was based on a manual technique that has been used successfully by trading experts for years.
Automated Forex software is available from a number of companies online and offers you the advantage of around-the-clock trading. With these easy day trade signals, your automated Forex software will be able to trade for you while you're away and while you're sleeping. You never have to do the trading yourself, and you don't have to worry about it constantly when you're away. It's like having an expert advisor system in your own home or office PC.
Forex trading can be lucrative for you if you study the system and find a great strategy. Use online resources and helpful automated Forex tools to get started right away!
What is Forex?
Forex is the act of trading various currencies from around the world. The Forex market started in the 1970s, but has in recent years caught on like wildfire in the stock market world. Forex trading systems record about USD $1.5 trillion in transactions every single day!
The goal in Forex trading is to make a profit when currency values increase or decrease within a currency pair. You will trade only when you expect the value of a currency to increase. In a currency pair, when the currency you bought increases, then you must sell the other currency to make a profit. An open trade, or open position, is a type of trade in which you have already purchased or sold a currency pair, but have not yet bought back an equivalent amount.
The five most significant currency pairs in Forex right now are USD/Yen, Euro/Yen, Pound/USD, Swiss franc/USD, and the Euro/USD.
To get started in Forex trading, you will create a Forex account through a Forex broker. Then, you will need to create a Forex trading strategy that works best for you. The strategy you choose should be tested using a practice account if possible before you start investing your real money. This will enable you to become familiar with Forex trading without risk.
Advantages and Disadvantages of Forex Trading
Forex trading offers a number of advantages. It offers more chances to make short-term profits than the stock market because money moves faster in Forex. The trading opens and closes within only a few seconds, so money can be made quickly. Also, Forex trading is easier to monitor than the stock market because you are only keeping up with currencies, not hundreds or thousands of companies.
There are a few disadvantages as well. Forex trading is risky as is the stock market. Because trading occurs so frequently, Forex trading requires constant monitoring throughout the day to enjoy maximum benefits. Those who don't have time to monitor their Forex trading might lose more than they gain.
Automated Forex
With a new Forex trading system called automated Forex, you can enjoy the benefits of Forex without continual monitoring. Automated Forex is accomplished through trading software. The software monitors the Forex market for you by receiving Forex signals from trading systems and by using daily charts to analyze trends in Forex 24/7. The creation of automated Forex was based on a manual technique that has been used successfully by trading experts for years.
Automated Forex software is available from a number of companies online and offers you the advantage of around-the-clock trading. With these easy day trade signals, your automated Forex software will be able to trade for you while you're away and while you're sleeping. You never have to do the trading yourself, and you don't have to worry about it constantly when you're away. It's like having an expert advisor system in your own home or office PC.
Forex trading can be lucrative for you if you study the system and find a great strategy. Use online resources and helpful automated Forex tools to get started right away!
Developing a Forex Strategy That Wins
Many individual investors are dipping their toes in the waters of Forex trading, but can't quite figure out a sound Forex strategy. For the uninitiated, Forex is a term that's used for foreign currency exchange. Although it's the biggest financial market on the planet, you're not going to find it in the New York Stock Exchange or NASDAQ because foreign currency is traded in an independent market. Almost three-quarters of the trading volume is conducted by fewer than a dozen international banks.
Although only about two percent of Forex activity comes from individual investors, those numbers are growing. In the past, the difference between the bid and ask prices (referred to as "pips") of a currency pair were very low for international banks and much higher for individual, or "retailer," traders. Today, however, lower pips are available to individuals.
Another development that is favorable for individual investors is a "Forex robot," or automated Forex software. Because foreign currency markets are open somewhere in the world virtually 24 hours a day, constant monitoring by individual investors isn't feasible. Such vigilance is only possible with auto Forex trading, which operates within a certain set of parameters.
Developing a Forex strategy that wins often depends upon which Forex robot you choose. Forex trading programs are also called expert advisors (or EAs), and are typically built on a platform called Meta Trader 4. Because the downfall of many Forex traders (and those trading in the stock market as well) is buying and selling based on impulse, a Forex robot takes the emotional aspect out of trading and bases decisions upon historical data, timing, and price.
On the foreign exchange market, currencies are traded in pairs (the Euro vs. the U.S. dollar, for example), which are designated by three-letter codes. Thus, EUR/USD is the designation for the Euro vs. the U.S. dollar, whereas JPY/GBP is the Japanese yen vs. the British pound sterling.
When a currency pair moves into the automated Forex system's pre-determined trading parameters, the Forex robot opens a trade. When the pair reaches a certain profit point - again, one that is pre-determined - the trade is closed. If the initial trade moves in the wrong direction, the robot will open a second trade that is designed to compensate for the loss of the third trade. When the loss has been compensated for, both trades will be closed.
The best Forex strategy is to use an EA that incorporates historical data to calculate and project the market with 95 percent accuracy or more. You should also use a system that comes with settings that you can then adjust to conform to your trading style and objectives. When you do, you'll be able to take advantage of the dynamic Forex market during all trading hours - even when you're asleep!
Although only about two percent of Forex activity comes from individual investors, those numbers are growing. In the past, the difference between the bid and ask prices (referred to as "pips") of a currency pair were very low for international banks and much higher for individual, or "retailer," traders. Today, however, lower pips are available to individuals.
Another development that is favorable for individual investors is a "Forex robot," or automated Forex software. Because foreign currency markets are open somewhere in the world virtually 24 hours a day, constant monitoring by individual investors isn't feasible. Such vigilance is only possible with auto Forex trading, which operates within a certain set of parameters.
Developing a Forex strategy that wins often depends upon which Forex robot you choose. Forex trading programs are also called expert advisors (or EAs), and are typically built on a platform called Meta Trader 4. Because the downfall of many Forex traders (and those trading in the stock market as well) is buying and selling based on impulse, a Forex robot takes the emotional aspect out of trading and bases decisions upon historical data, timing, and price.
On the foreign exchange market, currencies are traded in pairs (the Euro vs. the U.S. dollar, for example), which are designated by three-letter codes. Thus, EUR/USD is the designation for the Euro vs. the U.S. dollar, whereas JPY/GBP is the Japanese yen vs. the British pound sterling.
When a currency pair moves into the automated Forex system's pre-determined trading parameters, the Forex robot opens a trade. When the pair reaches a certain profit point - again, one that is pre-determined - the trade is closed. If the initial trade moves in the wrong direction, the robot will open a second trade that is designed to compensate for the loss of the third trade. When the loss has been compensated for, both trades will be closed.
The best Forex strategy is to use an EA that incorporates historical data to calculate and project the market with 95 percent accuracy or more. You should also use a system that comes with settings that you can then adjust to conform to your trading style and objectives. When you do, you'll be able to take advantage of the dynamic Forex market during all trading hours - even when you're asleep!
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