What is Foreign Exchange (FX or Forex)?

What is Foreign Exchange (FX or Forex)?

Foreign Exchange (FOREX) is the simultaneous buying and selling of a nation's currency for another. The foreign exchange market is the most liquid and largest financial market in the world, with the equivalent of over $1.5 trillion changing hands daily; more than all the major equity markets combined. Unlike other financial markets, the Forex market has no physical location or central exchange, but rather operates via an interbank market 24 hours a day through a global electronic network of banks, corporations, and individuals, spanning from one time zone to another in all the major financial centers, starting with Sydney and ending in New York. Approximately 80% of transactions take place between the US dollar, euro, Japanese yen, British pound, Swiss franc, and Australian and Canadian dollar.

The foreign exchange market was traditionally the domain of the major banks and international corporations. With the growth of online trading platforms and new regulations and policies, the Forex market is finally open to retail investors and smaller financial institutions.


The Role of Forex in the Global Economy

Since most, if not all, of the transactions in the world involve currencies, the foreign exchange market has an incredible reach of influence into every financial facet such as the equities and bond markets, private property, and manufacturing assets. The currency rates determined by this market play a vital role in the financing of government deficits, as well as equity ownerships in real estate holdings and in other companies. The influence of the Forex market affects your purchasing power, hence your every day consumption decisions.

History of the Forex Market

In an effort to keep cash from draining out of war-ravaged Europe and provide international monetary stability, the Bretton Woods Agreement was initiated in 1944. This agreement pegged the U.S. dollar to the price of gold, and other currency values to the U.S. dollar. Then in 1971, the disintegration of the Bretton Woods Agreement led to the emergence of the modern era of the foreign exchange market. The U.S. dollar was no longer convertible into gold, signaling an increase in currency market volatility and trading opportunities.

Following the collapse in 1973 of the subsequent Smithsonian and European Joint Float Agreements, we saw the true beginning of the free-floating currency exchange system among the major industrialized nations, which meant that the Forex market would now be driven by the forces of supply and demand.

The rapid growth of the euro-dollar market –the market for US dollar deposits in banks outside the US- was a major catalyst in the development of foreign exchange trading. It was the precursor to the broader Euromarkets; those in which assets are deposited outside the currency of origin. The Eurodollar market was born in the 1950s when Russia's oil revenue - all in dollars -- was deposited outside the US in fear of it being frozen by US regulators.

The U.S. government responded to the growth in the pool of offshore dollars with laws restricting lending of that currency to foreigners. U.S. companies found the euro market attractive for its higher yields, as well as a favorable center for holding excess liquidity, providing short-term loans and financing imports and exports. Thus, London became the preeminent offshore market and the leader in global finance for its convenient location and its ability to link Asian and American markets.

In the 1980s, the advent of computers and technology brought about the acceleration of cross-border capital movements, extending the market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later. Additionally, the popularity and increasing reliability of online currency trading offered to private investors and financial institutions has led to the democratizing of the foreign exchange market and the widening of the retail market.

Market Players

In the last few years, the foreign exchange market has evolved into one not only transacted by banks but also by many other kinds of financial institutions such as brokers and market-makers, non-financial corporations, investment firms, hedge funds, and day traders.

Foreign exchange is an 'over the counter' (OTC) market, meaning there is no central exchange. The foreign exchange market moves through the trading ‘centers’ (in order of importance): London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris, and Hong Kong. In the retail market, customers demand a written, legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade.

Market participants have various reasons for involvement in foreign exchange. Asset managers, sophisticated investors, and major corporations such as importers and exporters utilize the Forex market to diversify their portfolio holdings, hedge against their foreign or domestic currency denominated assets, and/or profit from price fluctuations. Whatever their motive may be, they all play a role in the demand and supply for currencies.

Understanding Forex Quotes
The first step in trading is to understand currency quotes. Since foreign exchange is the simultaneous purchase and sale of two currencies, the quote will always be given in pairs. Each pair has a base currency, which is the first listed currency (e.g. USD/CHF). When the quote rises, it means that the base rate has strengthened in value, since $1 could buy more francs, and vice versa. The base rate, which is normally the U.S. dollar, is set to a value of $1. There are a few major pairs in which the dollar is not the base currency, such as the British pound (GBP/USD), the euro (EUR/USD), and the Australian and New Zealand dollars (AUD/USD, NZD/USD). If the GBP/USD rises in price, then the British pound is rising in purchasing power versus the US dollar.


ADVANTAGES OF FOREX VS EQUITIES

Forex Brings Profit In Bear And Bull Markets

Unlike the equity market, the foreign exchange market does not got through bullish and bearish cycles. Due to the lack of restriction on short-selling, theopportunity to profit from a currency is ever present, whether its value is going up or down.

Superior Liquidity And 24-Hour Trading

The foreign exchange market is the largest and most liquid market in the world, with a daily turnover of $1.5 trillion and trades around the clock, starting on Sunday at 5:00 PM Eastern Standard Time with the opening of the markets in Australia and Singapore. Trading follows in Japan, and Europe, which open at 2:00 AM and 3:00 AM Eastern Time on Monday, respectively. The market closes on Friday 4:00PM Eastern Standard Time. Meanwhile, the equity market is only open from 9:30AM to 4:00 PM Eastern Standard Time, thus limiting your opportunity to trade and make profits.

100:1 Leverage

Leverage refers to the buying power an instrument gives its holder. A 2:1 leverage, for example (a standard value for equity accounts), will give the holder an exposure twice the size of his investment. FX International Group offers an average leverage of 100:1 and as much as 400:1, depending on the platform used. Trading with FX International Group on average will provide you with 100:1 leverage and even up to 400:1 in some circumstances, which exceeds the 2:1 margin offered in equity accounts. This means that a standard position of $1,000 provides you with the buying power of $100,000 currencies.

Although trading with highly leveraged positions is very risky and can result in the loss of the entire initial investment, substantial leverage is also a powerful moneymaking tool if managed appropriately. This high degree of leverage is essential in the Forex market because a major currency moves less than 1% per day, on average.

Commission-Free Trading

The lack of commission charges in the foreign exchange market combined with the consistently narrow spreads on major exchange rate pairs offered by FX International Group, make Forex the most inexpensive market to trade in. Forex


ADVANTAGES OF FOREX VS. FUTURES

Liquidity

The Forex market is the heavyweight of all markets with $1.5 trillion daily transactions, as opposed to the $30 billion daily volume limited liquidity available in the futures market. Stop-loss orders and limit orders are executed without slippage and requoting.

100:1 Leverage

One of the factors that sets the Forex market apart from all other markets is the substantial leverage offered. With US$1,000 per position, the trader holds US$100,000 worth of a currency (a 100:1 leverage, compared to a 15:1 leverage offered by the futures market). FX International Group stands to offer up to 400:1 leverage depending on size of funds and risk level.

Forex Trades 24-Hours A Day

Like the equities market, the futures market offers limited trading hours, whereas the Forex market trades around the globe 24 hours a day, opening Sunday at 5:00PM Eastern Time, and closing on Friday at 4:00PM.

Commission Free Trading

There are no commission charges when trading currencies. With consistently low spreads on the major pairs, trading Forex with FX International Group is less expensive than trading any other market, including the Futures market which normally carries a commission and exchange fee.

Flexibility

Unlike the futures market, where a trader is locked into a position, the spot currency market offers traders the flexibility to respond to news, events, or catastrophes in a matter of seconds in order to profit from changing market conditions or prevent greater losses

Option Arbitrage in the Forex Market

Option Arbitrage in the Forex Market

What is arbitrage? Arbitrage is the simultaneous buying and selling of identical financial instruments taking advantage of price discrepancies between different brokers, exchanges, clearing firms, etc. and thus looking in a profit. On paper, arbitrage is a risk-less trading strategy. In the real world however, risks abound. So why trade arbitrage? Well, if the risks can be managed, arbitrage can be extremely profitable if you can find the opportunities and take advantage of the opportunities before they disappear. After all, the arbitrage opportunity is present because one side is slow to react to market news, momentum, etc. When it corrects the opportunity is gone.

Why arbitrage forex options? Well, because the opportunity exists if you look far it. The forex market is a cash inter-bank / inter-dealer market. In simplest terms, this means the foreign currencies traded in the forex market are traded directly between banks, foreign currency dealers and forex investors wishing either to diversify, speculate or to hedge foreign currency risk. The forex market is not a "market" in the traditional sense due to the fact that there is no centralized location for forex trading activity and, therefore, trades placed in the forex market are considered over-the-counter (OTC). Forex trading between parties occurs through computer terminals, exchanges and over telephones at thousands of locations worldwide. Therefore the forex market is not as efficient as the NYSE for example. Price discrepancies exist between trading platforms, clearing firms, banks, etc if only for a small period of time. Options pricing is also affected for the same reasons but since there are other components involved in pricing an option than just the price of underlying currency, they tend to exist for longer periods of time.

One of the most common causes of option pricing differences is the calculation of volatility. Volatility is generally the standard deviation measured over a period of time. Sounds simple enough right? Well, if compare the volatility measure across different forex option providers, you’ll likely find differences as large as 2%. When you find this you have also probably found an arbitrage opportunity.

Now that you’ve found an arbitrage opportunity, how do you trade it? Well, that’s a bit trickier and this article cannot possibly cover all the risks associated with pulling off the trade but I will list some issues you should consider.

First of all, are the options really the same? Are the contract sizes, expiration dates and times the same? American or European style?

You also need to consider execution risk. Will there be slippage. Will there be a time delay in getting filled. Is the market moving too fast?

Exit strategy, how are you going to exit the trade and still capture the profit? What happens if the options expire in-the money? Out-of-the-money? What if you get assigned a position on one option but not the other?

These are just a few of the issues one must consider when trying to profit from option arbitrage. The key to option arbitrage is not unlike any other trade -- planning and risk management. Plan the trade, manage the risks, and execute the plan and you will be successful.

Author:
John Nobile Senior Account Executive CFOS/FX http://www.cfosfx.com jnobile@cfosfx.com

Terms:Articles may be reprinted provided content is not edited and links are kept live
Source:www.articledepot.co.uk

A Forex Trading System

The Importance of a Forex Trading System

In order to trade foreign currency effectively, it is an absolute necessity to have a forex trading system in place. This system will be some kind of framework, composed primarily of rules that include four key factors:
1. The point at which you enter a trade.
2. The point at which you exit a trade.
3. The size of your trade.
4. The markets that you will trade in.

These four points must be defined before you begin actively trading foreign currency. The system you devise should be able to consistently demonstrate the ability to make a profit before you jump in with a lot of capital. The fact is, many traders new to forex tend to open up an account and then jump in head first. They usually lose money and then give up on forex or take a step back, do some more research and jump right back in. The key, though, is to establish a trading system that can provide a degree of consistency that both your account and your emotions can stand. Until such a system is in place, you'll probably continue to lose more money than you take in.

It's a good idea to establish three different strategies and then incorporate them into your trading plan. That is, a short, medium and long term trading strategy.

Whatever trading system you devise, just know that money management is crucial to having success in the forex market. There are often fundamental factors that move currency rates rapidly in different directions in just minutes. It is important to limit your losses by always using stop-loss points and only trading when good opportunities present themselves

Online Forex

Q1: When you consider that the foreign exchange market has become the world's largest financial market, with over $1.5 trillion USD traded daily, where does it go from here?

A1:The FX market is unique, in the UK there is no central exchange, we trade via the inter bank market. With more and more private individuals taking up margin trading and new forex brokers setting up, I can only see the market grow in the near future.

Q2: Other than great liquidity, what are the principal benefits attached to the forex market?

A2: There is less to consider when trading the forex markets, there are only a number of variables that affect the pricing.

Main advantages include

Forex Market allows 24 hour trading

Greater leverage - with most brokers offering 100 – 1,

Less starting capital required,

More Liquidity - day trading has to have enough volume to make it worth our while. The currency market is more liquid than all the world stock markets put together. Currencies are always in action,

Free trading systems

Better for shorting - There are artificial controls built into the market to prevent it from going down too fast. The reason is that we live in a biased world that likes to see things go up instead of down. One of these artificial contraptions is the "uptick rule," which comes into play when shorting stocks, making it more difficult to sell a stock short than to buy it. This is unheard of in the currency market. Selling currencies short while day trading is just as easy as buying them.

Ideal for Short Term Traders -

Q3: Limited market access, liquidity issues-after market hours, commission fees, capital requirements and short selling/stop restrictions are just some of the issues investors face when considering other markets. Given that the forex market removes many of these traditional barriers and therefore does not restrict the forex traders' ability to make a trade at the right time, are we likely to see an increase in trading volumes this year?

A3: With all these advantages, traders are finding it hard not to trade currencies, online trading volumes across all products is increasing at a substantial rate, however FX trading, predominantly amongst retail investors is becoming very popular.

Q4: There is stiff competition amongst online forex service providers for retail forex traders with some claiming to offer the same degree of technical analysis enjoyed by the world's largest banks and institutional traders. Is this possible?

A4: Technical Analysis has come a long way, more and more forex provides now have partnerships with firms who provide analysis. However the banks still have an advantage, the markets are still not under perfectly competitive economic model. The banks will always have access to information that is not readily available, ISX FX currently sources its information from a number of banks to fill this gap.

Q5: Do you subscribe to the theory that forex is less volatile than stocks because the market is much deeper?

A5: As a bet on the direction of a national economy, no currency has ever dropped 25 percent in a day, or imploded as rapidly and completely as an Enron or a Parmalat. In the wake of those scandals, many companies are meting out information more cautiously, making it harder to get the real "scoop" on stocks one problem of trading with too-high leverage is that one piece of surprise news can wipe out one's capital. If you treat forex trading like a business, including proper money management, you have a better chance of success."

Q6: U.S. interest rates-decade lows; global trade wars and terrorism fears have dominated the headlines recently. What impact has this had on retail volumes?

A6: The above factors have all led to a decline in the dollar. This coupled with tighter regulation of brokers has given investors more confidence in brokers. Also the stock market crash has driven individuals to look at the profit opportunities offered by forex.

Q7: Stateside the Commodity Futures Trading Commission (CFTC) has brought 58 actions against firms, since its new powers were awarded in 2000. Given that certain brokers continue to abuse the system, with investor money sometimes not being traded in the markets promised. What can investors do protect themselves?

A7: The retail forex market is in essence betting, as with any bookmaker there is always a risk that you will not get your winnings, or the odds will be highly stacked against you. With tighter regulation and increased competition, this risk of default has largely disappeared. The risk of price manipulation still exists and this will never really go away. Investors need to ensure that they have an independent price source and trade with a broker who offers true one click dealing. Most brokers work on the basis of the law of large numbers, acting like the bucket shops of 50 years ago, they do not hedge any positions and are directly competing against there clients. This will always lead to price manipulation and further actions by authorities will inevitably be taken.

Q8: What is this best way for “currency rookies” to get involved in the market?

A8: Like with any new form of trading you need to know what you are doing, especially as there is margin involved. Take all the time you need to learn this new trading skill well -- practice everything you learn with a demo account before you consider going 'live' with your own money. Investors should read books, attend seminars and paper trade until they are comfortable with there strategy.

by: Rafik Patel

Getting Started In Forex Trading

How To Get Started In Forex Trading

You may have been hearing about the foreign exchange market (FOREX) and the investment advantages it offers. You would like to try it out, but don't know where to start. This short guide will give you the basics in FOREX and tell you what you need to participate in this fast growing field.

Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised 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.

FOREX is not simple, however, and education is needed to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved, so finding out as much as possible about the market is a good move for any beginner.

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.

Opening a FOREX account is as simple as filling out a form and providing the necessary ID. The form will include a margin agreement that states that the broker can interfere with any trade it deems to be too risky. This is to protect the interests of the broker – most trades, after all, are done using the broker's money. Once your account has been established, you can fund it and begin trading.

Many brokers have different types of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250, while standard accounts may have a minimum deposit of $1000 to $2500 depending on the broker. The amount of leverage – using borrowed money – varies with accounts. High leverage gives you more money to trade for a given investment.

HOWEVER – beginner traders are 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 that are at 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 is strongly advised to use these demo accounts at least until they are showing consistently steady profits.

Each broker has their own set of software tools to aid in 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 should expect to see on most online brokers' web sites.

Almost every broker operates on the Internet. To access their online services you should have a reasonably modern computer, a fast Internet connection, and an up-to-date operating system such as Windows XP. Once your account is set up, you can access it from any computer – just enter your account name and password. If for some reason you are not able get access to a computer, most brokers will allow you to make trades over the phone.

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.

Author:
Hana Lee: This article provided courtesy of http://www.day-trader-futures.com

Terms:Articles may be reprinted provided content is not edited and links are kept live
Source: www.articledepot.co.uk

FOREX Trading Philosophy

Keen on starting FOREX trading? Why would you not be… Many beginning FOREX traders are captivated by the allure of easy money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' – these claims have a grain of truth in them, but the reality of FOREX is a bit more complex. As with anything in life, what you put in will determine what you get out.


There are two common mistakes that many beginner traders make – trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose you money, and have you waste your time. FOREX traders need to have a rational trading strategy and not allow emotions to rule their trading decisions.

The two emotions prevalent in the above example is greed (entering the market immediately) and fear (selling when the market temporarily moves against you). Investing and these two emotions do not gel at all. Keep them out of your trading and you will see results.

To make rational trading decisions the FOREX trader must be well-educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.

The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? Who is successful and why are they successful? This knowledge will allow you to identify successful trading strategies and use them as models for your own.

There are 5 major groups of investors who participate in FOREX – Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one thing that all the groups (except traders) have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.

If you do not keep yourself in check, nobody else will. Why should they worry if you aimlessly waste your money?

This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must play by the same rules. That is studying these strategies and rules before starting to trade is so important.

FOREX Trading Philosophy - Money Management

Money management is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market.

This may sound like Greek now! If it does, you have more reason to get to know these terms. Knowledge will empower you on any investment market, including FOREX.

There are various strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000.

When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1000 to $3000 – preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position.

As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.

By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.

As you can see, the novice needs to get through quite a bit of education, understanding and planning before those 'risk-free' trading, 'high returns' and 'low investment' promises will come into play. What are you waiting for? Get yourself a decent FOREX Trading Education. If you need more information, feel free to visit http://www.investing-smarter.com.

Dries Cronje has a BSc (Actuarial Science) degree and is currently studying to be an actuary. He has worked as an ACtuarial Consultant for almost five years.


By Dries Cronje

Becoming a Successful Forex Trader

Making the decision to trade forex, whether its full time or just once in a while, requires answering a lot of questions about yourself and your methods. If you haven't been able to answer some fundamental problems, it's probably not time to attempt trading for a living. You have to make sure that in addition to working out your forex trading system you need to create a workable equity management system as well.

The forex market will do what all markets tend to do. At times that means taking on a, seemingly, life of its own. Do not be too eager to jump into the game with a large stake until you've come to terms what exactly you're trying to accomplish. And certainly don't be too quick to jump from a secure situation or job into the trading game full time unprepared. You have to realize that emotions, and likely your success, are directly related to the size of your margin account. If you see that your account is dwindling and, assuming you're relying on this money for living expenses, you might find that your emotions start to affecty the way you trade. Pretty soon, greed keeps you in too long or fear takes you out too soon, and you are forced to break the trading rules that you had previously formed.

If you want to become a serious and successful forex trader, you need to know how much you can lose and how much you need in your bank account to be comforable psychologically. After you've answered these questions honestly and accepted your finding (and of course established a proven trading system, etc.) then it will be time for some serious trading.

If you plan to trade forex full time, you need to treat it like a job or a business, and not like a get rich quick scheme. You have to manage your finances, adjust your lifestyle as needed, and work hard. Your success will not necessarily depend on your IQ or someone else's trading system. It will come from your work ethic and your discipline, and your ability to maintain your emotions and follow through on the plans and systems that you've worked so hard to establish.
Happy Trading!

How to Trade FOREX Like a Professional?

Trade like a professional. Learn the rules, use the tools and techniques. Start small, use your head and not your heart. Learn the entry and exit points and go for medium term trades and not be glued to the screen.

Making money from trading “forex” trading requires skill, strategy, spare money and nerves of steel. Why? Because of the shear volatility in the market. Simply put, there are just too many unpredictable variables and any one of them could affect the position of a chosen trade. It is not all doom and gloom. Anyone can make money provided he/she uses his/her head and not their heart. In addition to that, they must follow and adhere to a some simple rules. An example of a simple rule which one particular trader followed was “ I come into the market to make $500 per day. And, as soon as I have made my $500 my work for the day is done ”. He goes home. Don’t be greedy. Always, have a clear head.

Here are the tools and techniques to help you trade:-

1)Learn to read the charts and understand the implications of currency movements. Charts give you an invaluable insight into any given trade, its history and some indication of its future movement. For example, if the charts show an upward trend of 2% per day for the past 5 days. That is a good signal. (Sharescope for a fee will give you access to a tool and data which you can analyse and play with)

2)At what point should you take a position? Normal rule of thumb is when the trade has moved higher than the previous high. Or lower than the previous low. Fifty two week high is also good indicator for a position. Conversely, 52 week low is good indicator. How can I learn about charts? That is very simply. Read a book by Martin Pringle. Martin explains charting to you using videos so nothing is left to chance.

3)Taking a position means betting on the trade movement either up or down. If you take the view that the trade is going to go up then buy a 50 pence per point movement. What if the trade goes against me? Yes that is likely and can happen to anyone in the market. To prevent incurring big losses put a stop loss point some 10 or 15 points below the price of your trade. Say $/Euro is your trade; price of your trade is 1234 for the sake of illustration. Then your stop loss point will be 1219 meaning at point 1219 you will be taken out of the market and you will have lost £7.50 in total as opposed to unlimited loss. If, on the other hand, market follows your prediction and moves up 300 points; you will have made £150. You can bank that money by moving the stop loss point 15 points below the new position.

I am still very confused? Trading requires an understanding of the market, the charts and tools. Some tools are internet based so being familiar with the internet is a must. In order to really understanding trading, ones needs to go on a training course for weekend.

The other option is to learn by trial and error. All the spread betting companies offer you a free trading trial run with an imaginary account. What happens in practice is a make believe account with say $100,000 for you to play with? You go and try your luck until you have either made a decision to open a real account or you have spent all the money but did not make any progress. The other advantage of opening a real account is that you have access to a big learning resource consisting of audio and video presentations by experts of courses etc.

Finally, trading like a professional is not being glued to the screen but enjoying the experience. Therefore, the tips and words of wisdom from professionals are trade medium term trades as opposed to day trades. Last but not least, Market Wizard is a great book to read because all the traders: rich and poor, are interviewed for you to refer to and learn from. Good luck.

Article Source:Articuli.com

Tips For Profitable Forex Trading

Written by Susan Jan

To be successful in FOREX trading you need experience, capital and a solid trading system. Keeping things simple can also help you better focus on your trading. Here are some tips that can help you during FOREX trading:

1. The first and last ticks are always the most expensive. Get in late and out early.

2. Never add money when you are losing.

3. When everyone else is in, then it is time for you to get out.

4. Always determine a stop and a profit objective before you enter a trade. Place stops that are based on market information, and not your account balance.

5. It is always easier to enter a losing trade.

6. News is only important when the market doesn't react in the direction of the news.

7. In a bull market, you never want to sell a dull market, in a bear market, you should certainly never buy a dull market.

8. There are times, due to a lack of liquidity, or excessive volatility, when you should not trade at all.

9. It helps to read yesterday's paper each day to learn from what the market did.

10. There are at least three types of markets such as up trending, range bound, and down trading, and you should have a different trading strategy for each.

11. Up market and down market patterns are always there, with one always been more dominant. Select trades that move along with the trend.

Article Source:Articuli.com

Choosing A Forex Broker

by: Geoff Turnbull

With currency trading becoming ever more popular, the number of brokers is growing at a rapid rate. What should one look at when deciding which broker to open an account with? These are the important points to consider.

Spread

Because currencies, unlike futures and stocks, are not traded through a central exchange, the spread can be different depending on the broker you use, so it's well worth checking a few out before you open an account. Most forex brokers publish live or delayed prices on their websites so you can compare spreads, but check if the spread is fixed or variable. A fixed spread means exactly that - it will always be the same no matter what time of day or night it is. Some brokers use a variable spread, which might appear to be nice and small when the market is quiet, but when things get busy they can widen the spread which means the market must move more in your favor before you start to make a profit. Fixed spreads are generally slightly wider than the variable spreads are when at their narrowest, but over the long term fixed can be safer.

Execution

Some brokers will show live prices on their trading platform, but will they honor them when it comes to pushing the Buy or Sell button? The best way to find out is to open a demo account and give them a test drive. This will also give you the opportunity to see what the speed of execution is like - when you want to buy, you want to buy now, not sit around waiting for ten minutes whilst your order is confirmed!

Trading Platform

Good trading software will show live prices that you can actually trade at, not just indicative quotes. It will offer Limit and Stop orders, and ideally will let you attach these to your entry order. One-Cancels-Other orders are another useful feature - they mean you can set up your trade and then leave the software to get on with it. And the most important feature of all - can you actually understand the platform? Having all the bells and whistles is of no use if you can't use them, so again, get a demo account and give it a go.

Support

Forex is a 24 hour market, so your broker should offer 24 hour support. You might not be trading at 3am, but that could be what time it is in your brokers head office on the other side of the planet, so make sure there will be somebody there to pick up the phone if things go wrong. You should also check if you can close positions over the phone - essential in case your PC or internet connection crash at a critical moment.

Backing

Finally, before opening an account do a little homework and find out about the company. Forex brokers are regulated, but that doesn't mean they all have equal backing. If the market collapses, you want to know that they've got the reserves to cope with it and will still be around when you decide to withdraw your cash. If a broker is elusive when it comes to questions about their parentage and financial backing, then steer clear.

In Conclusion

Choosing a forex broker isn't difficult, but don't rush the decision. Check out a few, and always get a demo account first to make sure you're happy with the way everything works before sending off your opening balance.

About The Author

Geoff Turnbull is a full time day trader, and a contributor to http://www.forexheaven.com

Why Trade Forex?

Until the late 1990's, large financial institutions dominated the Forex market. Over the last several years the market has witnessed a dramatic evolution, with independent firms offering direct access to the forex market via internet-enabled trading platforms. Savvy individual investors are now tapping into the FX market's significant profit potential, with access to the same pricing, market data and tools used by institutions, hedge funds and professional traders.
In some ways, Forex is very similar to other financial markets. For example, Forex is traded with recognizable patterns and clearly-defined technical applications, comparable to those found in stock trading. But the real advantages of Forex trading are obvious in the market's unique features. Forex attracts so much investor interest due to the many advantages not found in other financial markets, such as:

Greater Buying Power - Many forex brokers offer up to 200:1 leverage, much higher than the standard 2:1 leverage granted by equity brokers.

24-hour Trading Activity - In the forex market, traders can respond to breaking news immediately, day and night. Since currencies are traded worldwide, 24 hours a day, they are not vulnerable to after hours reports and value loss.

Superior Liquidity - With almost $2 trillion in daily transactions, Forex is the largest and most liquid market in the world. The sheer volume of this market helps ensure price stability and the execution of orders are fair market prices.

Ultimately, investors from equities, futures, and other financial markets are lured to forex trading by the market's superior liquidity, lower transaction costs, and 24-hour access.