Forex Position Trading: Forex position trading approach is yet another trouble-free technique to boost your position size without increasing your risk. This trading tactic is very effective with mini lots. The major highlight with this technique is that - with forex position trading your exposure to the market is less and so therefore is no need to monitor the market continuously. Moreover, you may even earn profit with negligible loss that can further boost your trading confidence. For Example- you might make a short trade on EUR/USD at 1.40. If the pair is ultimately trending lower, but happens to retrace up, and you take another short at say 1.42, your average position would be 1.41. Once the EUR/USD drops back below 1.41, you will be back in overall profit.
Today forex trading is all about watching your options when you make a trade. Aside from using effective risk management and extreme vigilance, advanced trading can be an alternate way to make profits and control losses. Nevertheless, these above mentioned advanced trading techniques are more about using the market behavior to your advantage. Utilizing these advanced techniques can give you the edge from other average trader.
Saturday, August 15, 2009
Techniques for Advanced Forex Trading
Forex Scalping: It is a latest technique of trading where profits are taken after relatively small moves in the forex market. It is a technique where trading is done over small time frames, and smaller profits are taken more frequently. As the position exposed to the market is shorter, it automatically reduces the risk of adverse market events causing the price to go against the trade. It is a different approach to most other forex strategies, but still requires you to analyze the market to ensure that the set up for a trade is present. This type of trading greatly appeals to day traders and those who look to reduce the risk involved in trading currencies.
Forex Hedging: It is a technique that helps in reducing some of the risk involved in holding an open forex position. It decreases the risk by taking both sides of a trade at once. If your broker allows it, a simple way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.
It is important to understand that much of the risk involved in holding any forex position is market risk; i.e. if the market falls sharply, your losses may escalate dramatically. So if you have an open Forex position with fine projection but you think the currency pair may reverse against you, it is advised to hedge your position.
Forex Hedging: It is a technique that helps in reducing some of the risk involved in holding an open forex position. It decreases the risk by taking both sides of a trade at once. If your broker allows it, a simple way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.
It is important to understand that much of the risk involved in holding any forex position is market risk; i.e. if the market falls sharply, your losses may escalate dramatically. So if you have an open Forex position with fine projection but you think the currency pair may reverse against you, it is advised to hedge your position.
Techniques for Advanced Forex Trading
Forex is a potential platform for earning substantial profit. In fact it is one of the largest trading markets of the world. Featuring an average daily trade of US$ 2 trillion and above, this market is best known for its high scale trading volume and intense liquidity. Adding to this, today with the advancement of technology it can be done from anywhere of the world. Backed up by world-wide web, you can easily trade in the forex market at the comfort of your own home. However, it is important to understand that fx trading is based hugely on speculation. You must be smart enough to guess exactly when the rate of a certain currency pair will rise and go down, and then buy or sell based on that. Indeed it is said that if you learn to study the speculation of this market, you will have a better chance of getting profit.
Today, it is more advanced and turned into an active investment arena, where only a factual understanding of the intricacies and complexities can make your capital grow every day. Moreover, like any other business, it also involves some amount of risks. There is no shot fx trading technique for success in the currency trading market, but there are some well-known techniques that can assist you formulate a good advanced foreign exchange trading strategy. Here are few essential techniques that can help you cut your losses and increases profits:
Today, it is more advanced and turned into an active investment arena, where only a factual understanding of the intricacies and complexities can make your capital grow every day. Moreover, like any other business, it also involves some amount of risks. There is no shot fx trading technique for success in the currency trading market, but there are some well-known techniques that can assist you formulate a good advanced foreign exchange trading strategy. Here are few essential techniques that can help you cut your losses and increases profits:
Tuesday, August 11, 2009
Forex Killer Secrets For Massive Trading Profits
“The forex trading market will be doubled in just three years. This is all due to active participation of the fund managers and pension funds, says research by David Kurtz, published in Financial Times on October 9, 2006.”
“According to studies, 95% of the learned burn their money in the market as against the 5% cream of the crop, who enjoy magnificent currency trading success”
“According to studies, 95% of the learned burn their money in the market as against the 5% cream of the crop, who enjoy magnificent currency trading success”
Do you want a consistent source of income? Do you want to work from home and still earn enormous amounts? Have you tried forex trading but have seen your investments plummet always? Despite your innumerous effort, you are not able to make substantial profits. What if you get the key to earn profit month after month? How about making your neighbors jealous of your new luxury car? How would it feel working by poolside in a big house, and a vacation every month? What would be life like if you could spend ample number of hours with your sweet little kid? Sounds like a dream, isn’t it?
Forex Online Trading: Some Advices To Build Quick Wealth
With every passing day, hundreds and thousands of Internet users are born. So, what are their intentions? Amongst others, one of the most tempting motives is to participate in online trading. The latest trends of online trading have made life easier for traders by providing them with the latest updates, precise information, and above all, the advantage to trade from their comfy seats.
Investments- The Synonyms For Risks
If you are impressed by the idea of online trading, from the beginning of this article, here is something more important than what you have heard till now. While switching from offline trading to online trading, an important aspect has firmly held its position. 
We are talking about risk factor involved in any type of investment and here are some expert advices to tackle it:
We are talking about risk factor involved in any type of investment and here are some expert advices to tackle it:Forex Wealth Building With Most Apposite Trading Signals
The importance of Forex signals could not be overlooked, as these signals escort the most apposite entry and exit points to the market. If you, as an investor in forex trading market, are able to find best trading signal provider, you automatically become eligible to earn huge profits. Forex trading is most enchanting investment options, only if you are able to access right set of tools like trading signals. These signals mark the probability of success as well as failure for every investment in forex trading.
What Is Importance Of Forex Signals
Forex signals are the basic entities, which are capable of letting your investments to flourish in right direction. Here are few ways, by which forex signals provide help to the investors:
Online Forex Trading Course
If you are interested in forex trading I think it is time for you to start off by getting some good forex course or forex training. Forex Trading Course is a necessity for everybody who interested in this field. As you knew there are a lot of money is involved in this business. If we don’t have some forex trading knowledge or experiences that supposed we got from forex training, I am sure we will lose a lot of money. May be some of us not even know what is forex trading. Forex that stands for foreign exchange is basically exchange of currency between various countries. By doing this we hope gain some profit.
To get forex trading course we can go through online and search from various online forex course. We can also get forex trading course from our local college campus.
Online Trading Academy is well-known as an online services that offering forex trading course. Their online trading course is free and contains with many video tutorial that really helpful both for beginner and professional who want to get more knowledge in forex trading. I think their website is full with tools that we need if we want to involve in forex business. Online Trading Academy is also has every resource that we need whether in forex market, stocks and options. It is hard to find website that provide some kind of source that relatively complete for us
Forex Successful Currency Trading
The Foreign Exchange - Forex, FX - market is one of the biggest markets today. Daily turnover has skyrocketed from approximately 5 billion USD in 1977, to a staggering 3 trillion (and more) US dollars today. This is more than 40 times the daily turnover of the NASDAQ.
Forex currency trading is attractive to traders as currency markets are cnstantly fluctuating and there is potential to profit whether a currency is going up or down. Traders trade on margin which leverages their potential gains. What also makes it so popular is that there is no centralized location for trading as there is in futures or stocks, as trading occurs around the clock over the telephone and on computer terminals at thousands of locations worldwide.
Currency trading occurs when one country's currency is traded for another country's currency at the prevailing exchange rate. All currency is traded in LOTS. Each lot has a different amount of currency. Currency trading is carried out on a point (or pip) system. Traders are trying to capture points. Depending on the currency, each point is worth a different amount. For example, if the Brittish Pound is worth about $10 per point that is traded per lot and you trade 1 lot and capture 40 points, you make $400.
Saturday, July 4, 2009
Forex Currency Trading For Beginners
Forex Currency Trading For Beginners
Forex trading is perhaps one of the most attractive propositions for any investor these days. The main reason behind it is the potential in the forex market. What is more, the excitement of something happening all the time can't be resisted by many. Fortunes change in minutes and who would like to be on the side lines watching.
And if are someone who has been not just on the sidelines but out of the stadium itself, forex trading is the sale and purchase of international currencies. Forex currency trading for beginners could be understood as earning profits due to difference in sale and purchase prices. As is the rule of any business, if you purchase for less and sell for more, you are making a profit and vice versa loss.
It is true that anyone from anywhere can start transactions in foreign trading. The only requirements are a good internet connection and a funded forex account. But every trade has its fundamentals and without having an idea about the fundamentals one must not take the plunge.
The Best Forex Products Reviewed:
Forex Brokers
Strategy Services
Training Courses
Analysis Software
Here are a few fundamentals to suit forex currency trading for beginners.
Learning is the key to any field and the field of forex trading is no different. It should be the very first thing that you should do. You can take the help of books, video tutorials, online learning materials etc.You might also like to attend seminars and workshops related to forex trading. Implementation of charting in trading, learning to use indicators to find out the best time to enter or exit a market and using a demo account to simulate trading are a few ways to learn the intricacies of the market. Efforts in the beginning save a lot of bucks in the futures.
Whether it is forex trading for beginners or it is for any expert, you must plan your trade. Forex trading is a means of achieving some end. It might be to earn money or gain financial freedom or any such goals. You must be very clear with what you want and how much you want and more important than that how much can you afford losing. If you do that you would be in a good position to benefit from forex trading in the coming times.
Even if you are thinking about forex currency trading for beginners, there is one thing that is a sine qua non for any beginner. It is maturity. Yes, discipline also plays a vital role. Always remember that emotions have no role to play in forex currency trading. Greed and over cautiousness are two things which would always prove harmful to you. A lot of factors have contributed to the popularity of forex markets. There is no problem with market access, no problem of liquidity, no problem with short selling and yes there is zero commission fees. But with all these benefits, there is always the factor of market risks and no trader should forget it.
Forex trading is perhaps one of the most attractive propositions for any investor these days. The main reason behind it is the potential in the forex market. What is more, the excitement of something happening all the time can't be resisted by many. Fortunes change in minutes and who would like to be on the side lines watching.
And if are someone who has been not just on the sidelines but out of the stadium itself, forex trading is the sale and purchase of international currencies. Forex currency trading for beginners could be understood as earning profits due to difference in sale and purchase prices. As is the rule of any business, if you purchase for less and sell for more, you are making a profit and vice versa loss.
It is true that anyone from anywhere can start transactions in foreign trading. The only requirements are a good internet connection and a funded forex account. But every trade has its fundamentals and without having an idea about the fundamentals one must not take the plunge.
The Best Forex Products Reviewed:
Forex Brokers
Strategy Services
Training Courses
Analysis Software
Here are a few fundamentals to suit forex currency trading for beginners.
Learning is the key to any field and the field of forex trading is no different. It should be the very first thing that you should do. You can take the help of books, video tutorials, online learning materials etc.You might also like to attend seminars and workshops related to forex trading. Implementation of charting in trading, learning to use indicators to find out the best time to enter or exit a market and using a demo account to simulate trading are a few ways to learn the intricacies of the market. Efforts in the beginning save a lot of bucks in the futures.
Whether it is forex trading for beginners or it is for any expert, you must plan your trade. Forex trading is a means of achieving some end. It might be to earn money or gain financial freedom or any such goals. You must be very clear with what you want and how much you want and more important than that how much can you afford losing. If you do that you would be in a good position to benefit from forex trading in the coming times.
Even if you are thinking about forex currency trading for beginners, there is one thing that is a sine qua non for any beginner. It is maturity. Yes, discipline also plays a vital role. Always remember that emotions have no role to play in forex currency trading. Greed and over cautiousness are two things which would always prove harmful to you. A lot of factors have contributed to the popularity of forex markets. There is no problem with market access, no problem of liquidity, no problem with short selling and yes there is zero commission fees. But with all these benefits, there is always the factor of market risks and no trader should forget it.
How You Can Trade Multiple Positions
To be a highly successful trader, novice traders must have a good trading plan. Trading multiple positions can be difficult without proper money management. Usually, traders will develop their own techniques of money management, based on their financial positions, trading styles, etc. One of the most popular strategies in money management is the Pyramid strategy, using which traders can effectively multiply Forex gains, with a relatively low risk.
Pyramiding is a strategy in which traders take advantage of high performing assets, by adding new positions at upper levels or doing what is called 'averaging up.' Traders trade multiple positions, after an increase in assets, with an intent to maximize profits. Averaging in a falling market is a very dangerous strategy, as the assets are getting lost, rather than being acquired. Pyramiding provides opportunities for traders to increase their positions, as the market goes up and at the same time, reduces their risk exposure.
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For example, Mr. X sees an opportunity in the USD/JPY pair and wants to trade with a $10,000 amount by taking a long position at 95.00. He also decides to take a stop loss of 2%, just in case the market goes against him. Rather than putting all of his money in at once, he decides to trade with $5000 and after an hour, when the trade goes in his favor, he invests an additional $3000 at 95.62. Let's say the pair rises sharply from thereon, he invests a further $2000 at 97.65, closing the trade at 99 with a profit of 400 pips.
Practical Examples
1. Long Positions - In an example of the US Dollar and Swiss Franc (USD/CHF), where traders played with multiple positions and adding new positions at each successive move to new highs:
In this example, the main entry points at which traders make long positions are; 1.0562, 1.0801, and 1.0916. Here, the exit point is 1.1567, at which all the long positions are closed.
2. Short Positions- Like with the long pyramiding strategy, traders can also hedge their risk using a short pyramiding strategy. The only difference will be that the strategy is applied when the market is in a downtrend.
This is again an example of the US Dollar and Swiss Franc (USD/CHF), where traders play with multiple positions and add new positions, at each successive move to new lows. In this example, the main entry points at which trader makes short positions are; 1.1700, 1.1673, and 1.1408. Here, the exit point is 1.10901 at which all the short positions are squared off.
Key Takeaways
Trading multiple positions without a good trading plan is very difficult but traders can make this easy, with the help of the Pyramiding strategy through which, traders can add more positions to the trade, whilst lowering their risk exposure at the same time.
Pyramiding is a strategy in which traders take advantage of high performing assets, by adding new positions at upper levels or doing what is called 'averaging up.' Traders trade multiple positions, after an increase in assets, with an intent to maximize profits. Averaging in a falling market is a very dangerous strategy, as the assets are getting lost, rather than being acquired. Pyramiding provides opportunities for traders to increase their positions, as the market goes up and at the same time, reduces their risk exposure.
--- advertisment ---
For example, Mr. X sees an opportunity in the USD/JPY pair and wants to trade with a $10,000 amount by taking a long position at 95.00. He also decides to take a stop loss of 2%, just in case the market goes against him. Rather than putting all of his money in at once, he decides to trade with $5000 and after an hour, when the trade goes in his favor, he invests an additional $3000 at 95.62. Let's say the pair rises sharply from thereon, he invests a further $2000 at 97.65, closing the trade at 99 with a profit of 400 pips.
Practical Examples
1. Long Positions - In an example of the US Dollar and Swiss Franc (USD/CHF), where traders played with multiple positions and adding new positions at each successive move to new highs:
In this example, the main entry points at which traders make long positions are; 1.0562, 1.0801, and 1.0916. Here, the exit point is 1.1567, at which all the long positions are closed.
2. Short Positions- Like with the long pyramiding strategy, traders can also hedge their risk using a short pyramiding strategy. The only difference will be that the strategy is applied when the market is in a downtrend.
This is again an example of the US Dollar and Swiss Franc (USD/CHF), where traders play with multiple positions and add new positions, at each successive move to new lows. In this example, the main entry points at which trader makes short positions are; 1.1700, 1.1673, and 1.1408. Here, the exit point is 1.10901 at which all the short positions are squared off.
Key Takeaways
Trading multiple positions without a good trading plan is very difficult but traders can make this easy, with the help of the Pyramiding strategy through which, traders can add more positions to the trade, whilst lowering their risk exposure at the same time.
Risk to Reward Ratio Explained...
Risk to reward ratio is used by traders and investors to calculate the ratio of potential gain to potential loss in a Forex trade. Mathematically, this ratio is calculated by dividing the amount of the expected profit with the amount of the assumed risk.
Risk to reward ratio = Risk (potential loss*)/ Reward (Potential Gain**)
Before jumping into the market, traders should know how to calculate the risk/reward ratio and how it is applicable to trading. Risk is the most certain and dangerous aspect of trading. Every trade carries some amount of risk and it is essential for traders to know how much risk is present in a particular trade and how he/she can minimize that risk, so that their trading capital is protected. The best way is to calculate it is by using the risk/reward ratio.
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For example,
1. If the trader is taking a risk of 1 pip to get the profit of 2 pips, then the risk/reward ratio is 1:22. If the trader is looking for a profit of 100 pips, with a tight stop loss of 75 pips, then the risk /reward ratio is 75:100 (75/100), which is 0.75.3. If the trader is expected to earn the profit (reward) of $1320, with a stop loss of $350, then the risk /reward ratio is $1320:$350($1320/$350) or 3.7714:1.
How to determine the risk/reward ratio?
Step 1 Risk - The very first step for a trader is to determine that how much risk is he/she is ready to assume on a particular trade. Stop loss is the best way through which traders calculate the risk value.
Step 2 Reward - Reward is the profit on an investment. Basically, this is the gain in currency pair value that a trader is hoping or attempting to earn from the currency price movement.
Example1. Let's say a trader has an account with Easy-Forex and deposits $5000 in his/her account for 20:1 leverage. The trader can trade with $100000 with the help of leverage and decides to take a risk of only 2% of his/her trading capital, which is $100 ($5000 * 2%) and to book profits, when the trading amount goes above $200. It means he/she will be out of the trade, once he/she is either -$100 or +$200.
Hence,Risk/Reward Ratio is = 100/200 = 1:2
Key Takeaways
Risks and reward are two sides of a single coin. Every one wants the reward side of the coin but nobody wants to accept the risk. Burying your head in the sand will not make the risk go away, but taking it out and doing a little homework will definitely make the risk hurt a lot less. The risk and reward ratio clears the loss that a trader will be looking at, from a potential Forex trade.
Risk to reward ratio = Risk (potential loss*)/ Reward (Potential Gain**)
Before jumping into the market, traders should know how to calculate the risk/reward ratio and how it is applicable to trading. Risk is the most certain and dangerous aspect of trading. Every trade carries some amount of risk and it is essential for traders to know how much risk is present in a particular trade and how he/she can minimize that risk, so that their trading capital is protected. The best way is to calculate it is by using the risk/reward ratio.
--- advertisment ---
For example,
1. If the trader is taking a risk of 1 pip to get the profit of 2 pips, then the risk/reward ratio is 1:22. If the trader is looking for a profit of 100 pips, with a tight stop loss of 75 pips, then the risk /reward ratio is 75:100 (75/100), which is 0.75.3. If the trader is expected to earn the profit (reward) of $1320, with a stop loss of $350, then the risk /reward ratio is $1320:$350($1320/$350) or 3.7714:1.
How to determine the risk/reward ratio?
Step 1 Risk - The very first step for a trader is to determine that how much risk is he/she is ready to assume on a particular trade. Stop loss is the best way through which traders calculate the risk value.
Step 2 Reward - Reward is the profit on an investment. Basically, this is the gain in currency pair value that a trader is hoping or attempting to earn from the currency price movement.
Example1. Let's say a trader has an account with Easy-Forex and deposits $5000 in his/her account for 20:1 leverage. The trader can trade with $100000 with the help of leverage and decides to take a risk of only 2% of his/her trading capital, which is $100 ($5000 * 2%) and to book profits, when the trading amount goes above $200. It means he/she will be out of the trade, once he/she is either -$100 or +$200.
Hence,Risk/Reward Ratio is = 100/200 = 1:2
Key Takeaways
Risks and reward are two sides of a single coin. Every one wants the reward side of the coin but nobody wants to accept the risk. Burying your head in the sand will not make the risk go away, but taking it out and doing a little homework will definitely make the risk hurt a lot less. The risk and reward ratio clears the loss that a trader will be looking at, from a potential Forex trade.
Crucial Money Management Guidelines
Money is the opposite of the weather. Nobody talks about it, but everybody does something about it" - Rebecca Johnson"Managing money requires more skill than making it."
The last phrase indicates the importance of money management in trading and this is the key skill for traders, if they intend to earn large profits from the Forex market.
Money Management is the fundamental element of successful trading. It is the process of planning, organizing, and controlling money related matters in a Forex trading 'strategy,' in which money management plays a crucial role in helping traders to establish a trading plan, work out their trading capital and make investments in accordance to their risk bearing capacity. Money management also helps in determining the ideal risk exposure for individuals.
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Generally, money management is related to the allocation of funds, more specifically; diversification and portfolio management. This is the most important aspect of trading that every trader must know, to preserve capital and make gains.
Risk is something that nobody wants to see in their portfolio, but unfortunately it is present in every financial portfolio or a trading decision. To minimize or hedge the risks; money management is very vital.
How does it relate to Forex trading?
There is a popular quote in trading that goes like; "Never trade with money which you cannot afford to lose." This quote is absolutely applicable here; novice traders must follow this rule by not trading in markets unnecessarily (or overtrading), without any clear direction or strategy. The importance of money management can be summarized as follows:-
1. Important in forming trading strategies - Money management is very useful in making trading strategies. A trading system with proper money management can provide mammoth returns to traders in the long term. 2. Helpful in managing risk - Managing risk is not difficult but it is nonetheless critical. Diversification and trading rules can be implemented to manage risk and reduce the downsides that are associated with a trade. For example, according to expert traders; averaging does not make sense in a falling market but it is good when the market goes up. Hence, when the market falls, they exit from long positions by taking a tight stop loss. On the other hand, if the market moves in their favor, they start adding new positions on every upward move.3. Helps in defensive trading - For a beginner, money management is very helpful in defensive trading. Novice traders can use trading objectives, limits and strategies to remain within a moderate zone, without going overboard with aggressive and risky trades, while they still make good returns.
Key Takeaways
Based on the principles of money management, traders can stop trading if their portfolio or individual pair goes below a particular percentage of stop loss. The main motive behind money management is to place a limit on the likelihood and extent of losses. With the help of money management, traders can increase the number of winning positions and reduce losing positions, while balancing their investments with their risk.
The last phrase indicates the importance of money management in trading and this is the key skill for traders, if they intend to earn large profits from the Forex market.
Money Management is the fundamental element of successful trading. It is the process of planning, organizing, and controlling money related matters in a Forex trading 'strategy,' in which money management plays a crucial role in helping traders to establish a trading plan, work out their trading capital and make investments in accordance to their risk bearing capacity. Money management also helps in determining the ideal risk exposure for individuals.
--- advertisment ---
Generally, money management is related to the allocation of funds, more specifically; diversification and portfolio management. This is the most important aspect of trading that every trader must know, to preserve capital and make gains.
Risk is something that nobody wants to see in their portfolio, but unfortunately it is present in every financial portfolio or a trading decision. To minimize or hedge the risks; money management is very vital.
How does it relate to Forex trading?
There is a popular quote in trading that goes like; "Never trade with money which you cannot afford to lose." This quote is absolutely applicable here; novice traders must follow this rule by not trading in markets unnecessarily (or overtrading), without any clear direction or strategy. The importance of money management can be summarized as follows:-
1. Important in forming trading strategies - Money management is very useful in making trading strategies. A trading system with proper money management can provide mammoth returns to traders in the long term. 2. Helpful in managing risk - Managing risk is not difficult but it is nonetheless critical. Diversification and trading rules can be implemented to manage risk and reduce the downsides that are associated with a trade. For example, according to expert traders; averaging does not make sense in a falling market but it is good when the market goes up. Hence, when the market falls, they exit from long positions by taking a tight stop loss. On the other hand, if the market moves in their favor, they start adding new positions on every upward move.3. Helps in defensive trading - For a beginner, money management is very helpful in defensive trading. Novice traders can use trading objectives, limits and strategies to remain within a moderate zone, without going overboard with aggressive and risky trades, while they still make good returns.
Key Takeaways
Based on the principles of money management, traders can stop trading if their portfolio or individual pair goes below a particular percentage of stop loss. The main motive behind money management is to place a limit on the likelihood and extent of losses. With the help of money management, traders can increase the number of winning positions and reduce losing positions, while balancing their investments with their risk.
The 3 Basic Fundamentals of Money Management
Money management is a part of investment management that teaches us how much risk an investor can and should take up. Money management in some form or the other is also referred to as the asset allocation, portfolio allocation, trade management, position management and size management. In Forex trading, money management requires trade planning, which helps in cutting losses and preserving capital.
The following are the key guidelines for money management which can help an investor in allocating their funds wisely, in turn helping them with greater capital appreciation.
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Good money management starts with good planning and planning starts with the setting up of specific financial goals. Set long terms goals for your financial needs in terms of retirement, education, children, etc., and see how forex trading fits in. Ideally, forex trading shouldn't be a whimsical reaction to a night of binge drinking, so to speak!
The second guideline for money management, as experts suggest, is that the total investment of funds should at any time, be no more than 50% of the total capital available to an investor . The other half of the available funds should be kept in reserve, in case of any market downturn or adverse direction.
Another critical aspect of money management is never to put all your eggs in one basket- often tempted by potentially large gains, novice investors will dump a large sum of money in a single Forex contract. This, while offers a potentially large gain, can also mean the end of your entire life's hard earned savings. Again, having a trading plan with clear risk tolerance metrics is critical. Experts suggest that the total investment in any pair should be limited to 10-15%, of the total portfolio.
The amount of risk in any trade should be limited to no more than 2% of the total invested capital. This is essentially a cap on how much risk or loss a trader is willing to bear, if there is any downturn or adversity in the market.
A trader should not invest capital in just a single pair, but ideally in multiple pairs, to achieve the benefits of diversification. For instance, take EUR/USD, USD/JPY, and AUD/CAD. Rather than putting all the money in one pair, traders can make portfolio of different pairs, according to their choices (based on research) and can take long or short positions.
2 contract - Long Position in EUR/USD.2 contract - Short Position in USD/JPY.2 contract - Long Position in AUD/CAD.
The given guidelines are essentially just that- guidelines! They cannot be thought of as strict rules. For instance, based on one's own preferences, a Forex trader may choose to invest up to 20% in a single contract. However, these guidelines on money management can be a critical asset for novice and expert traders alike, in helping them create a sensible trading system, set limits on their trading, make realistic trading goals and earn profits through intelligent Forex trading.
Key Takeaways
The recipe for success in FX trading: Sound entry/exit strategy, money management and emotional control. Don't put all your money in one market or one trade, design a portfolio and set goals. Remember, diversification is the key to effective portfolio returns while trading Forex!
The following are the key guidelines for money management which can help an investor in allocating their funds wisely, in turn helping them with greater capital appreciation.
--- advertisment ---
Good money management starts with good planning and planning starts with the setting up of specific financial goals. Set long terms goals for your financial needs in terms of retirement, education, children, etc., and see how forex trading fits in. Ideally, forex trading shouldn't be a whimsical reaction to a night of binge drinking, so to speak!
The second guideline for money management, as experts suggest, is that the total investment of funds should at any time, be no more than 50% of the total capital available to an investor . The other half of the available funds should be kept in reserve, in case of any market downturn or adverse direction.
Another critical aspect of money management is never to put all your eggs in one basket- often tempted by potentially large gains, novice investors will dump a large sum of money in a single Forex contract. This, while offers a potentially large gain, can also mean the end of your entire life's hard earned savings. Again, having a trading plan with clear risk tolerance metrics is critical. Experts suggest that the total investment in any pair should be limited to 10-15%, of the total portfolio.
The amount of risk in any trade should be limited to no more than 2% of the total invested capital. This is essentially a cap on how much risk or loss a trader is willing to bear, if there is any downturn or adversity in the market.
A trader should not invest capital in just a single pair, but ideally in multiple pairs, to achieve the benefits of diversification. For instance, take EUR/USD, USD/JPY, and AUD/CAD. Rather than putting all the money in one pair, traders can make portfolio of different pairs, according to their choices (based on research) and can take long or short positions.
2 contract - Long Position in EUR/USD.2 contract - Short Position in USD/JPY.2 contract - Long Position in AUD/CAD.
The given guidelines are essentially just that- guidelines! They cannot be thought of as strict rules. For instance, based on one's own preferences, a Forex trader may choose to invest up to 20% in a single contract. However, these guidelines on money management can be a critical asset for novice and expert traders alike, in helping them create a sensible trading system, set limits on their trading, make realistic trading goals and earn profits through intelligent Forex trading.
Key Takeaways
The recipe for success in FX trading: Sound entry/exit strategy, money management and emotional control. Don't put all your money in one market or one trade, design a portfolio and set goals. Remember, diversification is the key to effective portfolio returns while trading Forex!
What is Meant by Money Management
'What to do', 'when to do' and 'with how much money;' these are the basic questions which every trader has to think about before he/she starts trading. Successful Forex trading requires in-depth knowledge of price forecasting through which traders know exactly 'what to do,' (which currency to buy, which currency to sell, etc.). After selecting the currency, the next question is 'when to do,' (means the right time to enter the market to buy the pair). Last but not the least, for successful trading, money management is the key to earning long term profitability in the Forex.
--- advertisment --- Proper management of money- No trader can make profits in the market without the proper knowledge of money management. Money management helps traders gain an edge in terms of lowering risk exposure while still staying in the green. Nobody can control the market, but they can control the amount of money and risk on each and every trade that they make. Money management is a skill that traders have to acquire with experience and patience. When should the lot size be doubled? How to manage the capital with risk? How much should I risk on this trade? These are some of the key questions, which every trader wants to be clear about, before jumping in to the market. Traders can apply money management techniques, through the following simple rules:2 % rule - Most of the traders in the market follow the 2% trading rule, which means they exit from the trade when the pair goes below 2% of the capital.For example, if one trader invested $1000 in the market, then he/she should decide to exit from the trade, when their trade value falls by $20.Lot size - Lot size plays an important role in trading. Some traders believe in entering the market all at once (or buy lots at once), while on the other hand; some traders believe in pyramiding or averaging, which refers to the incremental purchase of lots, when the market is moving in their favor.Setting a financial plan - In today's world, financial planning is very important, whether it's an individual or a family, corporation or sole proprietorship; all of them need to manage their money. Everyone thinks about their children's education, marriage and retirement. A financial plan is a plan in which a budget related to future saving and spending is laid out. Everyone wants to gain profits in his/her life, whether it comes from business, investment or trading. Forex is a nonstop market and a very good option for those who want to earn a few extra bucks after their day job. Key Takeaways
In order to be successful in trading, novice traders have to follow the three step method:
A) To conduct research to forecast future price trend on the basis of the fundamental and technical analysis. B) To make trading plans, as per their research as well as financial situationC) Conduct proper money management and always go with their trading strategy.
--- advertisment --- Proper management of money- No trader can make profits in the market without the proper knowledge of money management. Money management helps traders gain an edge in terms of lowering risk exposure while still staying in the green. Nobody can control the market, but they can control the amount of money and risk on each and every trade that they make. Money management is a skill that traders have to acquire with experience and patience. When should the lot size be doubled? How to manage the capital with risk? How much should I risk on this trade? These are some of the key questions, which every trader wants to be clear about, before jumping in to the market. Traders can apply money management techniques, through the following simple rules:2 % rule - Most of the traders in the market follow the 2% trading rule, which means they exit from the trade when the pair goes below 2% of the capital.For example, if one trader invested $1000 in the market, then he/she should decide to exit from the trade, when their trade value falls by $20.Lot size - Lot size plays an important role in trading. Some traders believe in entering the market all at once (or buy lots at once), while on the other hand; some traders believe in pyramiding or averaging, which refers to the incremental purchase of lots, when the market is moving in their favor.Setting a financial plan - In today's world, financial planning is very important, whether it's an individual or a family, corporation or sole proprietorship; all of them need to manage their money. Everyone thinks about their children's education, marriage and retirement. A financial plan is a plan in which a budget related to future saving and spending is laid out. Everyone wants to gain profits in his/her life, whether it comes from business, investment or trading. Forex is a nonstop market and a very good option for those who want to earn a few extra bucks after their day job. Key Takeaways
In order to be successful in trading, novice traders have to follow the three step method:
A) To conduct research to forecast future price trend on the basis of the fundamental and technical analysis. B) To make trading plans, as per their research as well as financial situationC) Conduct proper money management and always go with their trading strategy.
How You Can Get Experience Trading
Real market experience can be very risky for novice traders, because in the beginning they have to start with nothing but risk- their hard earned money can be easily lost due to lack of knowledge and practice. However, is it also possible to gain real market experience without actually betting the farm? The answer is yes, thankfully!
Many Forex trading brokers offer a demo trading account so that their clients can watch real-time market activity, without trading with their actual money. In such an account, traders trade real contracts at actual prices, albeit with virtual money. Demo trading account provides novice traders an excellent opportunity to learn about the Forex market. In Forex trading, this can be the difference between going bankrupt and learning the ropes without actually fighting the fight. Traders or investors can easily download the trading software and after registering their basic details.
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The demo account usually comes with the benefit of learning how to use that specific software or terminal as well. While most terminals come with standard features, some such as Easy Forex come with additional features such as Inside Viewer. Gaining familiarity with the terminal itself can be a critical asset in forex trading. Demo accounts usually have all the features available in a real trading account and are usually free to download from nearly every broker.
Some of the advantages of the demo trading account are as follows:-
1. Easy to understand real market conditions - The best way to understand real market conditions is to watch the market closely to understand what exactly is going on. As it is not advisable for novice traders to take trades in the market without having in-depth knowledge about the market, a demo account is very beneficial, nay, recommended!
2. Easy to learn software by taking trades- To learn the software is not a difficult task for anyone. Novice or experienced traders can easily operate on this software and it usually takes a few minutes to a couple of hours to gain familiarity with the key functions- how to enter an order in the system, how to read bid and ask rates, how to view portfolio balances and how to use the toolbars.
3. Easy to learn charting techniques- The biggest advantage of any demo trading platform for traders is the tick by tick live data that is not easily available outside the demo system. Another advantage of the demo account is the ability to read and plot charts and indicators that are available on the system. Different terminals come with different features, although almost all of them have the basics- moving averages, RSI, stochastic oscillators, Fibonacci retracement and others
4. Live market update- Live market news and updates are also available. These help in gaining fundamental insight on factors that have a bearing on the forex market- GDP and other micro/macro economic indicators, employment numbers, etc.
Demo trading is thus a boon for novice traders. Through 'virtual trading', beginners can understand the market, learn to execute trades, take advantage of charting and other features and at the same time, become a skilled forex trader.
Many Forex trading brokers offer a demo trading account so that their clients can watch real-time market activity, without trading with their actual money. In such an account, traders trade real contracts at actual prices, albeit with virtual money. Demo trading account provides novice traders an excellent opportunity to learn about the Forex market. In Forex trading, this can be the difference between going bankrupt and learning the ropes without actually fighting the fight. Traders or investors can easily download the trading software and after registering their basic details.
--- advertisment ---
The demo account usually comes with the benefit of learning how to use that specific software or terminal as well. While most terminals come with standard features, some such as Easy Forex come with additional features such as Inside Viewer. Gaining familiarity with the terminal itself can be a critical asset in forex trading. Demo accounts usually have all the features available in a real trading account and are usually free to download from nearly every broker.
Some of the advantages of the demo trading account are as follows:-
1. Easy to understand real market conditions - The best way to understand real market conditions is to watch the market closely to understand what exactly is going on. As it is not advisable for novice traders to take trades in the market without having in-depth knowledge about the market, a demo account is very beneficial, nay, recommended!
2. Easy to learn software by taking trades- To learn the software is not a difficult task for anyone. Novice or experienced traders can easily operate on this software and it usually takes a few minutes to a couple of hours to gain familiarity with the key functions- how to enter an order in the system, how to read bid and ask rates, how to view portfolio balances and how to use the toolbars.
3. Easy to learn charting techniques- The biggest advantage of any demo trading platform for traders is the tick by tick live data that is not easily available outside the demo system. Another advantage of the demo account is the ability to read and plot charts and indicators that are available on the system. Different terminals come with different features, although almost all of them have the basics- moving averages, RSI, stochastic oscillators, Fibonacci retracement and others
4. Live market update- Live market news and updates are also available. These help in gaining fundamental insight on factors that have a bearing on the forex market- GDP and other micro/macro economic indicators, employment numbers, etc.
Demo trading is thus a boon for novice traders. Through 'virtual trading', beginners can understand the market, learn to execute trades, take advantage of charting and other features and at the same time, become a skilled forex trader.
The 3 Basic Principles of Trading
Trading is a risky business whether it is stock, commodity or Forex trading. It requires discipline, patience and experience, not to mention knowledge. In financial assets (like stocks, commodities, Forex), there is no perfect buy or sell. When someone buys, another person sells, which means that someone might end up with the short end of the stick. Trading can a tough job even for experienced traders as they have to follow a set of rules defined by him before taking up the trade.
1. Discipline- Discipline is the key to success in trading. Traders can become successful in the financial market only if they follow set rules and strategies in trading. In the beginning, profit and loss should not matter for novice traders; the only thing that matters is how they trade as in the long term, traders will make huge profits if they follow the discipline of trading. Disciplined trading also helps traders overcome the problem of greed and fear. Some of the basic rules which have to be followed by traders are as follows:-
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A) HonestyB) Set trading hoursC) A clear view of how much loss are they able and willing to bearD) Profit targets
2. Market psychology- Market sentiments also play a key role in trading. Greed, fear, emotions and expectations are the most important factors which affect investment or trading decisions. Behavioral finance generally disagrees with economics' concept that the market behaves rationally and it is difficult for traders to go with a rational decision in the irrational market. Market psychology suggests that the market's sentiment, whether it is positive or negative, ends up being the key direction for the market, whether the pair is undervalued or overvalued. Technical analysts use chart patterns, trends, oscillators and other important momentum indicators to gauge the expected behavior of the market. Technical analysis reflects not only the fundamentals but also the emotions of the crowd.
3. Trading system- A trading system is a set of rules and parameters defined by traders, based on which they execute forex trades. It provides guidelines on entry points, exit points and the most significant factor- the stop loss, which traders have to keep in the front of their minds before even entering a trade. It is essential for every trader to design a trading system so that it takes the emotion out of the game and saves a lot of time. Things that traders have to keep in mind, while designing a trading system are as follows:-
A) Designate all key parameters, including entry and exit points, as well as stop loss.B) Decide the trading amount.C) Select the time frame or holding periodD) Make extensive use of technical indicators such as RSI, OBV, and stochastic oscillatorE) Back-test the system.F) Start trading!
In summary, beginners and experienced traders alike must remember the key principles of forex trading- discipline, method and a strong understanding of market psychology.
1. Discipline- Discipline is the key to success in trading. Traders can become successful in the financial market only if they follow set rules and strategies in trading. In the beginning, profit and loss should not matter for novice traders; the only thing that matters is how they trade as in the long term, traders will make huge profits if they follow the discipline of trading. Disciplined trading also helps traders overcome the problem of greed and fear. Some of the basic rules which have to be followed by traders are as follows:-
--- advertisment ---
A) HonestyB) Set trading hoursC) A clear view of how much loss are they able and willing to bearD) Profit targets
2. Market psychology- Market sentiments also play a key role in trading. Greed, fear, emotions and expectations are the most important factors which affect investment or trading decisions. Behavioral finance generally disagrees with economics' concept that the market behaves rationally and it is difficult for traders to go with a rational decision in the irrational market. Market psychology suggests that the market's sentiment, whether it is positive or negative, ends up being the key direction for the market, whether the pair is undervalued or overvalued. Technical analysts use chart patterns, trends, oscillators and other important momentum indicators to gauge the expected behavior of the market. Technical analysis reflects not only the fundamentals but also the emotions of the crowd.
3. Trading system- A trading system is a set of rules and parameters defined by traders, based on which they execute forex trades. It provides guidelines on entry points, exit points and the most significant factor- the stop loss, which traders have to keep in the front of their minds before even entering a trade. It is essential for every trader to design a trading system so that it takes the emotion out of the game and saves a lot of time. Things that traders have to keep in mind, while designing a trading system are as follows:-
A) Designate all key parameters, including entry and exit points, as well as stop loss.B) Decide the trading amount.C) Select the time frame or holding periodD) Make extensive use of technical indicators such as RSI, OBV, and stochastic oscillatorE) Back-test the system.F) Start trading!
In summary, beginners and experienced traders alike must remember the key principles of forex trading- discipline, method and a strong understanding of market psychology.
How To Make Money Trading Forex
Buying and selling in the forex market is like buying or selling stocks, bonds and commodities market. The only difference is that currencies are traded in pairs, while on the other hand individual scrips and commodities are traded in the stock and commodity markets. Traders who are experienced in trading in other markets can still easily understand Forex markets. Novice traders may face a little difficulty in the beginning, but with a little investment of time, they can easily understand the forex market.
Leverage and cost are the beauty of Forex trading, which gives an additional edge to the Forex market as compared to equity and other markets. The most important thing for trading in Forex is to understand Forex quotes and be able to calculate profit and loss. Examples can be a good way to understand currency pips and trade 'balances'. In Forex market, the key is to compare one currency to another and to think about whether the price will fluctuate in favor of the trader or not. Let's understand this with the help of an example.
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Example of Stock and commodities:-
In this example, a trader bought 100 shares of Microsoft at $20 and sold the stock in the next month at the rate of $22, which means that the trader made the profit of $200 at the end of the trade.
In the next example, the trader bought Gold for $930 and after a week sold it for $940, for the gain of $10, making a profit of $1000 on the trade.
Leverage and cost are the beauty of Forex trading, which gives an additional edge to the Forex market as compared to equity and other markets. The most important thing for trading in Forex is to understand Forex quotes and be able to calculate profit and loss. Examples can be a good way to understand currency pips and trade 'balances'. In Forex market, the key is to compare one currency to another and to think about whether the price will fluctuate in favor of the trader or not. Let's understand this with the help of an example.
--- advertisment ---
Example of Stock and commodities:-
In this example, a trader bought 100 shares of Microsoft at $20 and sold the stock in the next month at the rate of $22, which means that the trader made the profit of $200 at the end of the trade.
In the next example, the trader bought Gold for $930 and after a week sold it for $940, for the gain of $10, making a profit of $1000 on the trade.
What is a PIP and How is it Calculated?
Before trading, it is essential for traders to clearly understand the concept of Point in Percentage (or pip), so that they can easily calculate their profits and losses.
PIP - Pip means percentage in points. This is the smallest price increment a currency can make. In Forex, prices are quoted up to the 4th decimal point, which is 1/100th of a cent. Most of the pairs in Forex market are quoted to 4 decimal points (.0001); however there is an exception with the Japanese Yen for which prices are quoted only to two decimal points. For instance:-
1. EUR/USD- The pair is traded at 1.3568 and if the pair moves from 1.3568 to 1.3569, then the movement in the pair is 1 pip. In the same way, if the pair moves further up to 1.3588, then the movements in the pair is equivalent to 20 pips.
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2. USD/JPY- In the USD/JPY, prices are quoted up to 2 decimal points like 95.65, 98.89. If the pair is traded at 95.65 and rises up to 95.66; it shows an increase in the pair movement of 1 pip.
Lot Size- Spot Forex markets are traded in lots. The standard size of a lot is 100,000 units. A 'mini' lots are also available with some brokers, which is equal to 10,000 units each. A 'micro' lots consists of 1,000 units, but this lot size is not always available.
Calculation of pip value:
Formula Pip Value = (One pip/exchange rate) * lot size
PIP - Pip means percentage in points. This is the smallest price increment a currency can make. In Forex, prices are quoted up to the 4th decimal point, which is 1/100th of a cent. Most of the pairs in Forex market are quoted to 4 decimal points (.0001); however there is an exception with the Japanese Yen for which prices are quoted only to two decimal points. For instance:-
1. EUR/USD- The pair is traded at 1.3568 and if the pair moves from 1.3568 to 1.3569, then the movement in the pair is 1 pip. In the same way, if the pair moves further up to 1.3588, then the movements in the pair is equivalent to 20 pips.
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2. USD/JPY- In the USD/JPY, prices are quoted up to 2 decimal points like 95.65, 98.89. If the pair is traded at 95.65 and rises up to 95.66; it shows an increase in the pair movement of 1 pip.
Lot Size- Spot Forex markets are traded in lots. The standard size of a lot is 100,000 units. A 'mini' lots are also available with some brokers, which is equal to 10,000 units each. A 'micro' lots consists of 1,000 units, but this lot size is not always available.
Calculation of pip value:
Formula Pip Value = (One pip/exchange rate) * lot size
What Do You Need To Keep in Mind
There are few small yet important factors which traders should keep in mind while trading Forex, particularly for novice traders.
1. Start small and grow with experience- "Big money attracts big profits." This statement is the biggest trap that a novice trader can fall into. It definitely is true for experienced traders who have a hold on the market. However, novice traders are not advised to enter the market with large sums of money. Inexperienced traders should play in the market with small amounts of capital so that their losses, if any, will be limited and the gain in terms of experience is high.
2. Don't play with huge leverage - "The more leverage you use (greed), the more fearful you become (fear), which ultimately results in wrong decisions."
In the forex market, leverage is typically high and can become a burden for the novice trader. As novices are attracted by quick, large profits, they fall in the trap of trading with high leverage which comes back to bite them as a trade turns the wrong way.
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3. No Speculative Trading or overtrade- Speculative trading is very harmful for both new traders as well as for those who have a lot of experience in the market. For novice traders, given the lack of knowledge about the market, acting on instinct or 'tips' from unreliable sources can be very harmful. However, trading on non-quantifiable metrics can be extremely harmful for even experienced traders.
4. Do your proper research before taking an order.
Do your homework! This goes completely opposite to speculative trading. It is important to understand fundamentals and the general technical characteristics of the forex contract, before entering a trade.
Analysis is the first thing that every trader should do before taking any position. Traders must have a clear idea why he/she is buying; whether on the basis of the fundamental analysis or on the basis of the technical analysis, or purely based on a 'he said, she said'.
5. Decide your stop loss and profit target- Always cut your losses and let your profits run- financial trading can never make good of emotions. A novice trader in particular, can become very attached to an instrument or position and refuse to cancel out a trade that's not yielding positive returns. Traders must define their profit target and stop loss ahead of the trade. After taking the position, they must follow discipline and do things according to their trading plan.
6. Always keep your trading history- Traders should always maintain their trading history, so that they can easily refer to it to learn from their previous mistakes and also for understanding future trends.
"Plan your trade and trade your plan"
After conducting thorough analysis, it is important to make a trading plan, covering not only entry and exit points, but also the amount of money to be thrown into the ring. Losses made with a good plan are far better for novice traders than making profits with speculative trades. In the long term, trading with a good plan will yield positive results.
Thus, remember they key tenets of trading- start small, plan your trades, research before you leap and don't get too tempted by leverage!
1. Start small and grow with experience- "Big money attracts big profits." This statement is the biggest trap that a novice trader can fall into. It definitely is true for experienced traders who have a hold on the market. However, novice traders are not advised to enter the market with large sums of money. Inexperienced traders should play in the market with small amounts of capital so that their losses, if any, will be limited and the gain in terms of experience is high.
2. Don't play with huge leverage - "The more leverage you use (greed), the more fearful you become (fear), which ultimately results in wrong decisions."
In the forex market, leverage is typically high and can become a burden for the novice trader. As novices are attracted by quick, large profits, they fall in the trap of trading with high leverage which comes back to bite them as a trade turns the wrong way.
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3. No Speculative Trading or overtrade- Speculative trading is very harmful for both new traders as well as for those who have a lot of experience in the market. For novice traders, given the lack of knowledge about the market, acting on instinct or 'tips' from unreliable sources can be very harmful. However, trading on non-quantifiable metrics can be extremely harmful for even experienced traders.
4. Do your proper research before taking an order.
Do your homework! This goes completely opposite to speculative trading. It is important to understand fundamentals and the general technical characteristics of the forex contract, before entering a trade.
Analysis is the first thing that every trader should do before taking any position. Traders must have a clear idea why he/she is buying; whether on the basis of the fundamental analysis or on the basis of the technical analysis, or purely based on a 'he said, she said'.
5. Decide your stop loss and profit target- Always cut your losses and let your profits run- financial trading can never make good of emotions. A novice trader in particular, can become very attached to an instrument or position and refuse to cancel out a trade that's not yielding positive returns. Traders must define their profit target and stop loss ahead of the trade. After taking the position, they must follow discipline and do things according to their trading plan.
6. Always keep your trading history- Traders should always maintain their trading history, so that they can easily refer to it to learn from their previous mistakes and also for understanding future trends.
"Plan your trade and trade your plan"
After conducting thorough analysis, it is important to make a trading plan, covering not only entry and exit points, but also the amount of money to be thrown into the ring. Losses made with a good plan are far better for novice traders than making profits with speculative trades. In the long term, trading with a good plan will yield positive results.
Thus, remember they key tenets of trading- start small, plan your trades, research before you leap and don't get too tempted by leverage!
How Does The Forex Market Differ From
How does the forex market differ from the Equity market?
The main differences between Forex and Stock markets are as follows:
Basis
Forex Market
Equity Market
24 hour market
Yes
No
Volume and Liquidity
Very High
Less than Commodities and Forex
Commission
No
Yes
Exchange
No
Yes
Margin Trading
High
Low
Manipulation
Difficult
Commonplace
1. 24 Hour Market - The major difference between the forex and equity market is that forex market is a non-stop, continuous market which gives full freedom for traders to choose their own time to trade. On the other hand, the stock or equity market opens for about 8 hours a day from Monday to Friday, depending on the exchange in question.
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2. Volume and Liquidity - Volume and liquidity are the biggest advantages of the forex market, leading to its substantial popularity among traders. The volume in Forex markets is about 100 times higher than global equity markets. Liquidity plays a crucial role in its popularity, which helps traders exit trades easily when the market is not favorable.
3. Commission and Transaction cost - Transaction cost and Commission in the forex market is close to nil. This is also another reason that forex is becoming a strong alternative to equity markets, particularly as corporate fraud and crashing markets take their toll on investors. In addition, equity markets involve substantial brokerage and commissions which increase the overall cost of trading.
4. Exchange trading - Forex market is an inter-bank market and most transactions is carried out over the phone or the internet between banks on behalf of their customers. Only Currency futures are traded on the exchange. In the case of equity markets, trading cannot take place in the absence of an exchange- even in case of the Over-the-Counter (OTC) market.
5. Margin Trading - In forex trading, margin trading is a common norm as currencies are traded based on a margin (initial and maintenance margin). However, in case of equity markets, margins are typically expensive are not commonplace. Cash is the most common form of trading in the spot equity market. In addition, the forex market involves much higher leverage than in the case of equity markets. For instance, forex brokers can provide tremendous leverage of upto 50X or even 100X. Equity markets typically involve much smaller amounts of say 10X.
6. Manipulation and intervention - Manipulation in the stock market is very common, in the form of insider trading, block deals, etc. This adds to the risk of the equity markets across the world. In case of forex, however, manipulation is very difficult as the market is much larger and far more complex.
Equity operators and market makers play their own game by buying and selling blocks of equity to manipulate stock prices. Typically, the only intervention in the forex market is done by government bodies, particularly the central banks, who buy and sell currencies to maintain a certain level of currency valuation
The main differences between Forex and Stock markets are as follows:
Basis
Forex Market
Equity Market
24 hour market
Yes
No
Volume and Liquidity
Very High
Less than Commodities and Forex
Commission
No
Yes
Exchange
No
Yes
Margin Trading
High
Low
Manipulation
Difficult
Commonplace
1. 24 Hour Market - The major difference between the forex and equity market is that forex market is a non-stop, continuous market which gives full freedom for traders to choose their own time to trade. On the other hand, the stock or equity market opens for about 8 hours a day from Monday to Friday, depending on the exchange in question.
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2. Volume and Liquidity - Volume and liquidity are the biggest advantages of the forex market, leading to its substantial popularity among traders. The volume in Forex markets is about 100 times higher than global equity markets. Liquidity plays a crucial role in its popularity, which helps traders exit trades easily when the market is not favorable.
3. Commission and Transaction cost - Transaction cost and Commission in the forex market is close to nil. This is also another reason that forex is becoming a strong alternative to equity markets, particularly as corporate fraud and crashing markets take their toll on investors. In addition, equity markets involve substantial brokerage and commissions which increase the overall cost of trading.
4. Exchange trading - Forex market is an inter-bank market and most transactions is carried out over the phone or the internet between banks on behalf of their customers. Only Currency futures are traded on the exchange. In the case of equity markets, trading cannot take place in the absence of an exchange- even in case of the Over-the-Counter (OTC) market.
5. Margin Trading - In forex trading, margin trading is a common norm as currencies are traded based on a margin (initial and maintenance margin). However, in case of equity markets, margins are typically expensive are not commonplace. Cash is the most common form of trading in the spot equity market. In addition, the forex market involves much higher leverage than in the case of equity markets. For instance, forex brokers can provide tremendous leverage of upto 50X or even 100X. Equity markets typically involve much smaller amounts of say 10X.
6. Manipulation and intervention - Manipulation in the stock market is very common, in the form of insider trading, block deals, etc. This adds to the risk of the equity markets across the world. In case of forex, however, manipulation is very difficult as the market is much larger and far more complex.
Equity operators and market makers play their own game by buying and selling blocks of equity to manipulate stock prices. Typically, the only intervention in the forex market is done by government bodies, particularly the central banks, who buy and sell currencies to maintain a certain level of currency valuation
Here Are Some Essential Terms For Forex Traders...
Basic Forex Glossary
1. Bears - Bears are the opposite of bulls, and they bet on a falling market. Hence, they are by virtue of their expectations, short traders.
2. Bid / Ask Price - Bid price is the price quoted by the bidder to purchase a currency. The ask price is the price which is offered by the trader on the other side of the trade.
3. Bid / Ask Spread - The difference between the bid and ask price is called the spread. This is also the main indicator which helps in predicting the volatility in the market. If the spread is more, it indicates high volatility and if it less it shows low volatility.
4. Bulls - Bulls refer to traders who trade in an uptrend. In other words, bulls are essentially long traders and expect the price to go up.
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5. Cross rates - Cross rate is also an exchange rate between two currencies, ut traded in another market. For instance, GBP/CHF is a primary currency pair in the UK and Switzerland, but a cross rate in the US and Japan.
6. Good till Day - this is an order that's placed with a broker to be valid for only that day. If the specified limits are not reached, the order gets automatically cancelled at the end of the trading day.
7. Good till cancelled - A good till day order, except that it remains valid until the limit is met. It is mostly not favored by brokers or traders as it exposes them to long term market risks.
8. Initial Margin - Initial margin is the money deposited by investors before entering into a contract. This is sort of a down payment on a loan- it needs to be furnished with the broker in order to participate in a forex trade.
9. Long / Short Entry - Long means buying a currency or pair. This is a position to buy (plus) assets or instruments when an investor believes that the market will go up. On the other hand, when investors want to take advantage of downward moves, they take short positions.
10. OTC - Over the Counter (OTC) market is where transactions take place over the phone between banks and dealers. No interaction takes place between the parties.
11. Stop loss - Stop loss is the amount of loss which traders or investors are ready to bear in an unexpected turn of events. In a trading system, stop loss play a key role for traders by limiting their downside by automatically completing a round-trade. For instance, if someone bought EUR/USD at 1.3575 on a bullish expectation, and the pair starts falling, the stop loss can automatically be triggered, at say, 1.3400, to limit losses due to a crash.
12. Transaction Cost - Transaction cost is the cost of buying and selling a financial instrument. The Bid/Ask spread is also the transaction cost and is the income earned by the bank in a forex trade. For example, in the USD/JPY bid/ask is 96.60/96.62, and the transaction cost is 2 pips.
13. Volume - Volume is the quantity of trade. It indicates the total quantity and amount of trading that took place in a financial market.
14. Volatility - Volatility is the measure of movement in prices over a period of time. Beta and standard deviation are the two statistical measures through which one can estimate volatility.
15. Limit order - Limit order is an order placed by traders to buy or sell a currency pair automatically at a specified price. This is also the way stop losses are executed by forex traders.
1. Bears - Bears are the opposite of bulls, and they bet on a falling market. Hence, they are by virtue of their expectations, short traders.
2. Bid / Ask Price - Bid price is the price quoted by the bidder to purchase a currency. The ask price is the price which is offered by the trader on the other side of the trade.
3. Bid / Ask Spread - The difference between the bid and ask price is called the spread. This is also the main indicator which helps in predicting the volatility in the market. If the spread is more, it indicates high volatility and if it less it shows low volatility.
4. Bulls - Bulls refer to traders who trade in an uptrend. In other words, bulls are essentially long traders and expect the price to go up.
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5. Cross rates - Cross rate is also an exchange rate between two currencies, ut traded in another market. For instance, GBP/CHF is a primary currency pair in the UK and Switzerland, but a cross rate in the US and Japan.
6. Good till Day - this is an order that's placed with a broker to be valid for only that day. If the specified limits are not reached, the order gets automatically cancelled at the end of the trading day.
7. Good till cancelled - A good till day order, except that it remains valid until the limit is met. It is mostly not favored by brokers or traders as it exposes them to long term market risks.
8. Initial Margin - Initial margin is the money deposited by investors before entering into a contract. This is sort of a down payment on a loan- it needs to be furnished with the broker in order to participate in a forex trade.
9. Long / Short Entry - Long means buying a currency or pair. This is a position to buy (plus) assets or instruments when an investor believes that the market will go up. On the other hand, when investors want to take advantage of downward moves, they take short positions.
10. OTC - Over the Counter (OTC) market is where transactions take place over the phone between banks and dealers. No interaction takes place between the parties.
11. Stop loss - Stop loss is the amount of loss which traders or investors are ready to bear in an unexpected turn of events. In a trading system, stop loss play a key role for traders by limiting their downside by automatically completing a round-trade. For instance, if someone bought EUR/USD at 1.3575 on a bullish expectation, and the pair starts falling, the stop loss can automatically be triggered, at say, 1.3400, to limit losses due to a crash.
12. Transaction Cost - Transaction cost is the cost of buying and selling a financial instrument. The Bid/Ask spread is also the transaction cost and is the income earned by the bank in a forex trade. For example, in the USD/JPY bid/ask is 96.60/96.62, and the transaction cost is 2 pips.
13. Volume - Volume is the quantity of trade. It indicates the total quantity and amount of trading that took place in a financial market.
14. Volatility - Volatility is the measure of movement in prices over a period of time. Beta and standard deviation are the two statistical measures through which one can estimate volatility.
15. Limit order - Limit order is an order placed by traders to buy or sell a currency pair automatically at a specified price. This is also the way stop losses are executed by forex traders.
What Are Direct and Indirect Quotes? How Do You Read Forex Quotes?
Direct and Indirect QuoteIn the foreign exchange market, two rates are quoted in pairs by market makers (or dealers). Exchange rate - Foreign Exchange rate (or FX rate) is the rate at which the one currency is valued in terms of another currency. For e.g., 1USD = 96.62 JPY. This is the exchange rate between the US Dollar and Japanese Yen, which means that 1 US dollar is equal to 96.62 Yen.
Direct Quote - A direct quote means indicates how many units of local currency traders need to buy one unit of foreign currency. In other words, it's the home currency price of 1 unit of foreign currency. In a direct quote, the domestic currency is always listed as the base currency.
For instance, for a US trader to compare the Singapore Dollar (SGD), to say, the US Dollar, the pair will be listed as USD/SGD, which indicates how many US Dollar are required to buy one Singapore Dollar. Here, the USD is the base and the SGD is the counter currency.
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Indirect Quote - Indirect quote indicates how many foreign currencies are needed to purchase one unit of domestic currency. In an indirect quote, the foreign currency is the base currency and the domestic currency is the counter or quote currency.
For instance, if Singapore is the foreign market, then an Indirect Quote will be displayed as SGD/USD. This quotation is the reverse of direct quote which means that how many Singapore Dollars are needed to buy a single US Dollar.
Learn how to read FX quotes
In the Forex market, currencies are traded in pairs and it is not difficult to understand forex quotes. Currency pairs consist of two currencies; Base currency and Quote currency. Base currency is the first currency of the pair (numerator) and the second one is called the quote currency (denominator). For e.g. In the USD/JPY pair, the US Dollar is the base currency and the Yen is the quote currency.
Before start trading, traders have to understand basic terminology. The most important thing is to be able to read forex quotes and to understand how to simultaneously buy one currency and sell the other.
For example:1. USD/CAD- the picture below depicts a typical forex quote and shows how to read the bid and ask prices for the USD/CAD. Here, the US Dollar is the base currency and the Canadian Dollar is the quote currency. The bid price for the pair is 1.1735 and the ask price is 1.1738. If a trader takes this trade, then it means that he is buying the US Dollar and simultaneously selling the Canadian Dollar.
Direct Quote - A direct quote means indicates how many units of local currency traders need to buy one unit of foreign currency. In other words, it's the home currency price of 1 unit of foreign currency. In a direct quote, the domestic currency is always listed as the base currency.
For instance, for a US trader to compare the Singapore Dollar (SGD), to say, the US Dollar, the pair will be listed as USD/SGD, which indicates how many US Dollar are required to buy one Singapore Dollar. Here, the USD is the base and the SGD is the counter currency.
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Indirect Quote - Indirect quote indicates how many foreign currencies are needed to purchase one unit of domestic currency. In an indirect quote, the foreign currency is the base currency and the domestic currency is the counter or quote currency.
For instance, if Singapore is the foreign market, then an Indirect Quote will be displayed as SGD/USD. This quotation is the reverse of direct quote which means that how many Singapore Dollars are needed to buy a single US Dollar.
Learn how to read FX quotes
In the Forex market, currencies are traded in pairs and it is not difficult to understand forex quotes. Currency pairs consist of two currencies; Base currency and Quote currency. Base currency is the first currency of the pair (numerator) and the second one is called the quote currency (denominator). For e.g. In the USD/JPY pair, the US Dollar is the base currency and the Yen is the quote currency.
Before start trading, traders have to understand basic terminology. The most important thing is to be able to read forex quotes and to understand how to simultaneously buy one currency and sell the other.
For example:1. USD/CAD- the picture below depicts a typical forex quote and shows how to read the bid and ask prices for the USD/CAD. Here, the US Dollar is the base currency and the Canadian Dollar is the quote currency. The bid price for the pair is 1.1735 and the ask price is 1.1738. If a trader takes this trade, then it means that he is buying the US Dollar and simultaneously selling the Canadian Dollar.
How Much Capital Do You Need To
How much does an individual have to pay to start trading in Forex?
Forex trading is far easier than trading equities, as traders need to cover only a few major currencies such as the USD, GBP, EUR, and JPY. Trading forex is still not child's play and warrants good knowledge and awareness about the world's different markets, economy, and currencies pairs, in addition to news and current affairs that affect forex.
In order to start trading forex, in addition to the basic money required, some other requirements are mandatory.
1. Open an account with a broker - The first step is to open an account with a reputable and reliable broker - easyforex.com for instance. Traders have the choice of opening an account on their own name or (family members), or even an account on their business name. Various brokers provide various kinds of account types; Easyforex provides 4 types of accounts as follows:-
Account Type
Minimum Deal
Margin
Mini:
$2,500 minimum deal
$200 margin
Gold:
$50,000 minimum deal
$500 margin
Platinum:
$250,000 minimum deal
$5,000 margin
VIP:
$500,000 minimum deal
$10,000 margin
Shariah (Islamic) Accounts are also available for those traders that would like to remain Shariah compliant, particularly muslim traders.
Platinum and VIP accounts are used by expert trades who understand the market better than the novice traders. Small or Novice traders who have a small amount of capital can use the Gold and Mini account as their main purpose is to learn the forex trading.
2. Complete Registration work - After deciding on the account type, traders have to go through a some registration formalities in which they need to provide some personal information (like name, address, date of birth), etc. along with payments, bank account and other related informatoin
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3. Activation - After the completion of paperwork, brokers will get in touch with the client to notify of activation, after which they will provide details on accessing the terminal or platform for trading in forex. Money can be deposited in a number of ways; this needs to be clarified with the broker beforehand. However, most brokers will accept the common payment methods such as credit card, PayPal and wire transfer.
After opening an account, the main question is how much capital will be required by a novice trader in the beginning? Money management plays a key role in trading decisions. For a novice trader, a smaller amount is better ,as their main aim is to gain familiarity with forex trading, atleast for starting out. This amount cannot be fixed; it differs from person to person- while one novice trader might say $1,000 is sufficient, another might think a minimum of $5,000 is required. The decision is a personal one, and like we said earlier, money management is critical.
For instance, Mr. X is 30 years old, working as a bank manager in New York. He wants to start trading in forex. His annual income is $30,000 and has a savings account with a balance of $40,000. A financial planner advised him to go for a 40:30:30 capital allocation plan, which means he places 40% in a risky investment (such as equity and forex) and the remainder in bonds and money market instruments. Based on this plan, he may choose to start with a balance of $5,000 to trade forex, where he can invest upto $250,000 in the market (platinum account with
Forex trading is far easier than trading equities, as traders need to cover only a few major currencies such as the USD, GBP, EUR, and JPY. Trading forex is still not child's play and warrants good knowledge and awareness about the world's different markets, economy, and currencies pairs, in addition to news and current affairs that affect forex.
In order to start trading forex, in addition to the basic money required, some other requirements are mandatory.
1. Open an account with a broker - The first step is to open an account with a reputable and reliable broker - easyforex.com for instance. Traders have the choice of opening an account on their own name or (family members), or even an account on their business name. Various brokers provide various kinds of account types; Easyforex provides 4 types of accounts as follows:-
Account Type
Minimum Deal
Margin
Mini:
$2,500 minimum deal
$200 margin
Gold:
$50,000 minimum deal
$500 margin
Platinum:
$250,000 minimum deal
$5,000 margin
VIP:
$500,000 minimum deal
$10,000 margin
Shariah (Islamic) Accounts are also available for those traders that would like to remain Shariah compliant, particularly muslim traders.
Platinum and VIP accounts are used by expert trades who understand the market better than the novice traders. Small or Novice traders who have a small amount of capital can use the Gold and Mini account as their main purpose is to learn the forex trading.
2. Complete Registration work - After deciding on the account type, traders have to go through a some registration formalities in which they need to provide some personal information (like name, address, date of birth), etc. along with payments, bank account and other related informatoin
--- advertisment ---
3. Activation - After the completion of paperwork, brokers will get in touch with the client to notify of activation, after which they will provide details on accessing the terminal or platform for trading in forex. Money can be deposited in a number of ways; this needs to be clarified with the broker beforehand. However, most brokers will accept the common payment methods such as credit card, PayPal and wire transfer.
After opening an account, the main question is how much capital will be required by a novice trader in the beginning? Money management plays a key role in trading decisions. For a novice trader, a smaller amount is better ,as their main aim is to gain familiarity with forex trading, atleast for starting out. This amount cannot be fixed; it differs from person to person- while one novice trader might say $1,000 is sufficient, another might think a minimum of $5,000 is required. The decision is a personal one, and like we said earlier, money management is critical.
For instance, Mr. X is 30 years old, working as a bank manager in New York. He wants to start trading in forex. His annual income is $30,000 and has a savings account with a balance of $40,000. A financial planner advised him to go for a 40:30:30 capital allocation plan, which means he places 40% in a risky investment (such as equity and forex) and the remainder in bonds and money market instruments. Based on this plan, he may choose to start with a balance of $5,000 to trade forex, where he can invest upto $250,000 in the market (platinum account with
What Are The Different Types of Forex Traders?
Who can trade in the Forex market?
In the forex market, investors or (traders) are of three main types- Hedgers, Speculators and Arbitrageurs. All of these investors contribute to the substantial liquidity of the forex market. This classification is on the basis of their trading orientation or objective- to hedge currency fluctuations, making a quick profit from price differential or simply betting on expected rise and fall of the currencies.
1. Hedgers - Hedgers are investors who aim to eliminate the risk of fluctuations in currency rates, based on which their basic revenue or profitability depends. The hedger's motive is not to make a huge gain but rather to safeguard their existing position. Hedging also helps investors and corporates (particularly export oriented) lock their profit stream by taking another position in the derivatives market. In general, it is like insurance against the probability of a loss due to currency rate changes. The loss cannot be avoided completely, but the hedge can minimize the extent of the loss. A perfect hedge is rare, but investors can reduce or minimize their risk in the event that the market goes against them. For Example - X YZ Ltd. has a main office in the US and one subsidiary in Japan. If the Japanese Yen weakens, it could reduce the revenue or profit in the Japanese segment. To overcome this situation, XYZ can hedge their position by making a short position in the Yen. If the Yen weakens they will get a profit from the short position which can be used to offset the business loss.
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2. Speculators - Speculators tend to act like other equity or debt traders, taking a single position, intending to make a profit from the movement in price. Speculators usually end up taking a certain amount of risk, with the hope of a substantial profit. For Example - Speculators may short the US dollar, with the hope that with a fall in the US GDP numbers, the USD may weaken. When the dollar actually falls, they will cover their positions making a profit.
3. Arbitrageurs - Arbitrageurs are those investors who trade in two different markets, exchanges or contracts, to simultaneously to take advantage of price inefficiencies. Price inefficiencies are very time sensitive, meaning that once a gap occurs, it has to be taken advantage of very quickly or it will be lost. Typically speaking, arbitrage is a very low risk strategy as a trade is only made when the opportunity is available. For Example - Exchange rates EUR/USD = 0.6522, (New York) EUR/USD = .6524 (London) with $10,000 one can buy 6522 Euros in New York, and with another $1000 one can short 6524 in London. With the help of that traders can earn 4 pips without any risk.
In the forex market, investors or (traders) are of three main types- Hedgers, Speculators and Arbitrageurs. All of these investors contribute to the substantial liquidity of the forex market. This classification is on the basis of their trading orientation or objective- to hedge currency fluctuations, making a quick profit from price differential or simply betting on expected rise and fall of the currencies.
1. Hedgers - Hedgers are investors who aim to eliminate the risk of fluctuations in currency rates, based on which their basic revenue or profitability depends. The hedger's motive is not to make a huge gain but rather to safeguard their existing position. Hedging also helps investors and corporates (particularly export oriented) lock their profit stream by taking another position in the derivatives market. In general, it is like insurance against the probability of a loss due to currency rate changes. The loss cannot be avoided completely, but the hedge can minimize the extent of the loss. A perfect hedge is rare, but investors can reduce or minimize their risk in the event that the market goes against them. For Example - X YZ Ltd. has a main office in the US and one subsidiary in Japan. If the Japanese Yen weakens, it could reduce the revenue or profit in the Japanese segment. To overcome this situation, XYZ can hedge their position by making a short position in the Yen. If the Yen weakens they will get a profit from the short position which can be used to offset the business loss.
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2. Speculators - Speculators tend to act like other equity or debt traders, taking a single position, intending to make a profit from the movement in price. Speculators usually end up taking a certain amount of risk, with the hope of a substantial profit. For Example - Speculators may short the US dollar, with the hope that with a fall in the US GDP numbers, the USD may weaken. When the dollar actually falls, they will cover their positions making a profit.
3. Arbitrageurs - Arbitrageurs are those investors who trade in two different markets, exchanges or contracts, to simultaneously to take advantage of price inefficiencies. Price inefficiencies are very time sensitive, meaning that once a gap occurs, it has to be taken advantage of very quickly or it will be lost. Typically speaking, arbitrage is a very low risk strategy as a trade is only made when the opportunity is available. For Example - Exchange rates EUR/USD = 0.6522, (New York) EUR/USD = .6524 (London) with $10,000 one can buy 6522 Euros in New York, and with another $1000 one can short 6524 in London. With the help of that traders can earn 4 pips without any risk.
What Are The Advantages of Trading Forex?
What trade Forex?
Traditionally, equity markets or debt markets have been the sole center of attention for most investors and traders around the world. Currency markets have much to offer, over and above the other traditional and upcoming markets such as commodities, it's not surprising that the volumes in Forex are far above and beyond any other exchange.
1. Non Stop Market (24 Hour Market) - Forex market is a 24 hour market open from Sunday afternoon EST to Friday afternoon EST. In FX markets, traders can decide their own timings to trade.Even those individuals who don't have time to trade during say, their office hours can trade the - the market is always open. The market is connected electronically so it is easy for buyers and sellers to trade without physically meeting.
2. High Liquidity - Liquidity can be one of the biggest assets for traders; this is perhaps the biggest advantage of forex markets. The forex market is the largest financial market with trade value of over $4 trillions a day.
3. Low Transaction Cost - The forex market is a direct OTC market involving trades directly with the market makers- hence does not involve commission. This means that traders have to pay little or no money to middlemen. Under normal conditions, the retail transaction cost is less than .01%.
4. Interbank Rate -The Forex market is connected through a network of dealers or major commercial banks, which deal only through electronic networks and telephones. The forex market does not have any organized exchange such as the NYSE or the LME.
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5. Not easy to manipulate by operators - Forex markets involve large sums of money, which is why it is rather difficult for any trader, operator or market maker to manipulate the market for a sustained period of time.
6. Not Regulated - the forex market is basically not regulated. However, the market makers- commercial banks, etc., are monitored via the relevant rules and regulations in place for them.
7. Hedging, Speculation and Arbitrage - A majority of market participants in forex markets is based on speculative activity, which in turn provides the substantial liquidity available for forex trading .In addition to speculation, hedging and arbitrage are common in the forex market. Banks, institutions, government bodies and jobbers frequently use the forex market to hedge positions in corporate settings (export based businesses). Arbitrageurs are another type of speculative trader who trade on price differential in various currency pairs
8. Highly Leverage - Leverage or Margin makes it possible for a trader to trade in much larger quantities than would be otherwise possible. In the forex market, use of leverage is common and typically brokers provide a tremendous amount of margin to traders.
9. Bull opportunities - When traders shorts one currency, he or she is buying or 'long' trading another. This means that there is always an opportunity for bulls to stay active in the market.
10. Market Information - News and information related to currencies is easily available for investors of the Forex market through various online as well as offline sources.
Traditionally, equity markets or debt markets have been the sole center of attention for most investors and traders around the world. Currency markets have much to offer, over and above the other traditional and upcoming markets such as commodities, it's not surprising that the volumes in Forex are far above and beyond any other exchange.
1. Non Stop Market (24 Hour Market) - Forex market is a 24 hour market open from Sunday afternoon EST to Friday afternoon EST. In FX markets, traders can decide their own timings to trade.Even those individuals who don't have time to trade during say, their office hours can trade the - the market is always open. The market is connected electronically so it is easy for buyers and sellers to trade without physically meeting.
2. High Liquidity - Liquidity can be one of the biggest assets for traders; this is perhaps the biggest advantage of forex markets. The forex market is the largest financial market with trade value of over $4 trillions a day.
3. Low Transaction Cost - The forex market is a direct OTC market involving trades directly with the market makers- hence does not involve commission. This means that traders have to pay little or no money to middlemen. Under normal conditions, the retail transaction cost is less than .01%.
4. Interbank Rate -The Forex market is connected through a network of dealers or major commercial banks, which deal only through electronic networks and telephones. The forex market does not have any organized exchange such as the NYSE or the LME.
--- advertisment ---
5. Not easy to manipulate by operators - Forex markets involve large sums of money, which is why it is rather difficult for any trader, operator or market maker to manipulate the market for a sustained period of time.
6. Not Regulated - the forex market is basically not regulated. However, the market makers- commercial banks, etc., are monitored via the relevant rules and regulations in place for them.
7. Hedging, Speculation and Arbitrage - A majority of market participants in forex markets is based on speculative activity, which in turn provides the substantial liquidity available for forex trading .In addition to speculation, hedging and arbitrage are common in the forex market. Banks, institutions, government bodies and jobbers frequently use the forex market to hedge positions in corporate settings (export based businesses). Arbitrageurs are another type of speculative trader who trade on price differential in various currency pairs
8. Highly Leverage - Leverage or Margin makes it possible for a trader to trade in much larger quantities than would be otherwise possible. In the forex market, use of leverage is common and typically brokers provide a tremendous amount of margin to traders.
9. Bull opportunities - When traders shorts one currency, he or she is buying or 'long' trading another. This means that there is always an opportunity for bulls to stay active in the market.
10. Market Information - News and information related to currencies is easily available for investors of the Forex market through various online as well as offline sources.
Different Forex Markets & Their Timings
Forex Market Timings and Major Trading banks:Forex markets are open 24 hours a day from Sunday afternoon EST (Eastern Standard Times) to Friday afternoon EST. In the 5 days of week, there is always one financial market open all the time, when one market close other remains open. For e.g. when London market close New York market remains open, when New York market close then Australian Market open that's why there is no opening bell in the Forex Market.
Forex Markets starts in New Zealand, followed by Australia, Asia (and particularly Japan), the Middle East, Europe (with London being the main financial center) and America. Practically Speaking, Forex Markets never stop.
Best Trading Hours to Trade:
The answer is simple the best time to trade or the best time to take position when most of the markets are open because the volumes are high at that particular point of time and the most of the traders are active. As everyone knows that forex is a 24 hours market so the best entry point for trader is when several countries are trading at the same time. Across the world, the forex market operates from 8 A.M to 4 P.M. Hence to take advantage of heavy volume traders can take trades when the forex market hours in different countries are overlapping.
Forex Markets starts in New Zealand, followed by Australia, Asia (and particularly Japan), the Middle East, Europe (with London being the main financial center) and America. Practically Speaking, Forex Markets never stop.
Best Trading Hours to Trade:
The answer is simple the best time to trade or the best time to take position when most of the markets are open because the volumes are high at that particular point of time and the most of the traders are active. As everyone knows that forex is a 24 hours market so the best entry point for trader is when several countries are trading at the same time. Across the world, the forex market operates from 8 A.M to 4 P.M. Hence to take advantage of heavy volume traders can take trades when the forex market hours in different countries are overlapping.
How Many Currencies Are Traded In The FX Market?
Common Currencies traded in the FX Market.
Currency Name
Country Name
Symbol
Short Name
US Dollar
US
USD
Greenback
Pound
UK
GBP
Cable
Swiss Franc
Switzerland
CHF
Swissy
Japanese Yen
Japan
JPY
Yen
Canadian Dollar
Canada
CAD
Loonie
Euro
Euro Members
EUR
Fiber
Australian Dollar
Australia
AUD
Aussie
New Zealand Dollar
New Zealand
NZD
Kiwi
In the FX market, currencies are traded in pairs e.g. EUR/USD, USD/CAD, GBP/USD and USD/JPY etc. In pairs, the numerator is called the 'base' currency while the denominator is the 'counter' or 'quote' currency. While the gamut of currencies traded worldwide covers practically every national currency, in a practical sense, only a few are actively traded.
Currency trading usually covers those countries which are economically sound and politically stable. For example, the US dollar, Japanese Yen and the Euro are the world's most actively traded currencies, based on their economies' reputation for being reliable, stable and standard. In a broader spectrum, the eight most traded currencies are the U.S. Dollar (USD), the Canadian Dollar (CAD), the Euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian Dollar (AUD) and the Japanese Yen (JPY).
--- advertisment --- U.S. Dollar - Official currency of the United States of America; also known as Buck or Greenback British Pound - Also known as Sterling, Pound Sterling, British Pound or the Cable (for the GBP/USD pair), it is the currency of the United Kingdom and its dependencies. Canadian Dollar - Official currency of Canada. Also known as LoonieJapanese Yen - Official currency of Japan, the Yen.Swiss Franc - Official currency of Switzerland, commonly referred to as Swissy.Euro - The euro is the currency of 12 of the 25 nations that form the European Union; also known as Fiber.Australian Dollar - The official currency of the Commonwealth of Australia; also known as Aussie.New Zealand Dollar - The New Zealand dollar, often informally referred to as the Kiwi.
There are almost 27 pairs that come out of the combination of the above 8 currencies. However, 18 out of the possible 27 pairs are most commonly traded, hence highly liquid and easy to trade. These pairs are:
USD/CAD
EUR/USD
USD/CHF
EUR/GBP
USD/JPY
AUD/CAD
GBP/USD
GBP/CHF
NZD/USD
GBP/JPY
AUD/USD
CHF/JPY
EUR/CAD
AUD/JPY
EUR/AUD
AUD/NZD
EUR/JPY
EUR/CHF
Understanding currency pairs and tradingEUR/USDHere, the Euro is the base currency and the Greenback is the counter Currency. If the Euro weakens, the pair will fall, and vice versa, other things being equal. On the other hand, if the US economy is expected to weaken, the US dollar is likely to fall, in which case one is advised to make a short trade on the US dollar. In such a case, the pair offers a good opportunity to trade long and short and at the same time, create a sort of hedge.
Currency Name
Country Name
Symbol
Short Name
US Dollar
US
USD
Greenback
Pound
UK
GBP
Cable
Swiss Franc
Switzerland
CHF
Swissy
Japanese Yen
Japan
JPY
Yen
Canadian Dollar
Canada
CAD
Loonie
Euro
Euro Members
EUR
Fiber
Australian Dollar
Australia
AUD
Aussie
New Zealand Dollar
New Zealand
NZD
Kiwi
In the FX market, currencies are traded in pairs e.g. EUR/USD, USD/CAD, GBP/USD and USD/JPY etc. In pairs, the numerator is called the 'base' currency while the denominator is the 'counter' or 'quote' currency. While the gamut of currencies traded worldwide covers practically every national currency, in a practical sense, only a few are actively traded.
Currency trading usually covers those countries which are economically sound and politically stable. For example, the US dollar, Japanese Yen and the Euro are the world's most actively traded currencies, based on their economies' reputation for being reliable, stable and standard. In a broader spectrum, the eight most traded currencies are the U.S. Dollar (USD), the Canadian Dollar (CAD), the Euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian Dollar (AUD) and the Japanese Yen (JPY).
--- advertisment --- U.S. Dollar - Official currency of the United States of America; also known as Buck or Greenback British Pound - Also known as Sterling, Pound Sterling, British Pound or the Cable (for the GBP/USD pair), it is the currency of the United Kingdom and its dependencies. Canadian Dollar - Official currency of Canada. Also known as LoonieJapanese Yen - Official currency of Japan, the Yen.Swiss Franc - Official currency of Switzerland, commonly referred to as Swissy.Euro - The euro is the currency of 12 of the 25 nations that form the European Union; also known as Fiber.Australian Dollar - The official currency of the Commonwealth of Australia; also known as Aussie.New Zealand Dollar - The New Zealand dollar, often informally referred to as the Kiwi.
There are almost 27 pairs that come out of the combination of the above 8 currencies. However, 18 out of the possible 27 pairs are most commonly traded, hence highly liquid and easy to trade. These pairs are:
USD/CAD
EUR/USD
USD/CHF
EUR/GBP
USD/JPY
AUD/CAD
GBP/USD
GBP/CHF
NZD/USD
GBP/JPY
AUD/USD
CHF/JPY
EUR/CAD
AUD/JPY
EUR/AUD
AUD/NZD
EUR/JPY
EUR/CHF
Understanding currency pairs and tradingEUR/USDHere, the Euro is the base currency and the Greenback is the counter Currency. If the Euro weakens, the pair will fall, and vice versa, other things being equal. On the other hand, if the US economy is expected to weaken, the US dollar is likely to fall, in which case one is advised to make a short trade on the US dollar. In such a case, the pair offers a good opportunity to trade long and short and at the same time, create a sort of hedge.
What Are The Basic Requirements To
The Basics of Forex Trading
In order to start trading in forex, one needs to open an account with a forex broker. Today, there are practically a zillion brokers and trading platforms available with various options and procedures. Typical questions for the novice trader are Who is the best broker for me? How can I open account with them? How do transactions take place? Essentially, a broker is a company or individual that mediates between buyers and sellers in return for which a brokerage is charged from the client.
Before choosing an account with a forex broker, investors would be well advised to do some research related to the broker's reputation, fees, leverage and features of the platform that will be provided. Bear in mind some of the most important aspects of picking a broker:
1. 24 Hour Service: Since the forex is a 24 hour market, it implies that 24 hour technical and trading support is a must! Don't get caught at the wrong end of the stick when a trade gets stuck and the broker is sleeping. Most Forex broking firms offer toll free numbers through which one can ask about their customer services.
2. Trading Platform: Online trading platform is the lifeline of forex trading. Traders can watch live quotes and trade from the comfort of their living room. Mostlym trading platforms are web application based. The specific features of a trading platform are critical. Some of the will offer basic capabilities while others will go a step further and offer some funky features such as Trade Simulation and Inside Viewer (easy-forex.com).
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3. Trading Pairs - Forex is a pretty global 'asset', which means that most of the time, forex brokers will allow trading in the standard currency pairs, such as USD/GBP or USD/EUR. However, it always makes sense to seek information from the broker, regarding how many and which currency pairs can be traded. The 8 major currencies- USD, AUD, GBP, NZD, CHF, JPY, EUR, CAD are provided by every broker, since the liquidity is rather high. Some brokers may offer some not so well known currencies including INR, Peso, RMB, etc.
4. Transaction cost - Transaction costs differ from broker to broker. Transaction cost is low when the number of pips is low, as the cost is calculated in points in percentages (pip). Traders need to remember the basic of cost and profit, including 'lower the transaction cost- higher the profit'.
5. Margin or Leverage - Leverage or margin is a sort of loan from the broker, which enables a trader to trade in much larger quantities than their original investment would allow. The forex market operates on margin money- a fraction of the total trade value is required to be maintained with the broker, in order to sustain a trade. The broker provides the leverage, which determines how much you can trade with, say with $100. For instance, if the leverage is 10X, one can trade upto a value of $1000. This is like a double edged sword, best used judiciously.
6. Lot Size - Lot size refers to standardized units of trading. Typcally, a lot size of 100,000 is 'standard', though it varies from broker to broker. A lot size of 10,000 is called a 'Mini' lot and that of 1000 is a 'micro' lot. Brokers will usually honor the standard lot size, but mini or micro may not always be available with all brokers. In addition, some brokers also provide the ability to decide your own lot size or fractional units.Finally, please remember that forex trading requires a strong and reliable internet connection in order to execute trades expeditiously at the intended rate.
In order to start trading in forex, one needs to open an account with a forex broker. Today, there are practically a zillion brokers and trading platforms available with various options and procedures. Typical questions for the novice trader are Who is the best broker for me? How can I open account with them? How do transactions take place? Essentially, a broker is a company or individual that mediates between buyers and sellers in return for which a brokerage is charged from the client.
Before choosing an account with a forex broker, investors would be well advised to do some research related to the broker's reputation, fees, leverage and features of the platform that will be provided. Bear in mind some of the most important aspects of picking a broker:
1. 24 Hour Service: Since the forex is a 24 hour market, it implies that 24 hour technical and trading support is a must! Don't get caught at the wrong end of the stick when a trade gets stuck and the broker is sleeping. Most Forex broking firms offer toll free numbers through which one can ask about their customer services.
2. Trading Platform: Online trading platform is the lifeline of forex trading. Traders can watch live quotes and trade from the comfort of their living room. Mostlym trading platforms are web application based. The specific features of a trading platform are critical. Some of the will offer basic capabilities while others will go a step further and offer some funky features such as Trade Simulation and Inside Viewer (easy-forex.com).
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3. Trading Pairs - Forex is a pretty global 'asset', which means that most of the time, forex brokers will allow trading in the standard currency pairs, such as USD/GBP or USD/EUR. However, it always makes sense to seek information from the broker, regarding how many and which currency pairs can be traded. The 8 major currencies- USD, AUD, GBP, NZD, CHF, JPY, EUR, CAD are provided by every broker, since the liquidity is rather high. Some brokers may offer some not so well known currencies including INR, Peso, RMB, etc.
4. Transaction cost - Transaction costs differ from broker to broker. Transaction cost is low when the number of pips is low, as the cost is calculated in points in percentages (pip). Traders need to remember the basic of cost and profit, including 'lower the transaction cost- higher the profit'.
5. Margin or Leverage - Leverage or margin is a sort of loan from the broker, which enables a trader to trade in much larger quantities than their original investment would allow. The forex market operates on margin money- a fraction of the total trade value is required to be maintained with the broker, in order to sustain a trade. The broker provides the leverage, which determines how much you can trade with, say with $100. For instance, if the leverage is 10X, one can trade upto a value of $1000. This is like a double edged sword, best used judiciously.
6. Lot Size - Lot size refers to standardized units of trading. Typcally, a lot size of 100,000 is 'standard', though it varies from broker to broker. A lot size of 10,000 is called a 'Mini' lot and that of 1000 is a 'micro' lot. Brokers will usually honor the standard lot size, but mini or micro may not always be available with all brokers. In addition, some brokers also provide the ability to decide your own lot size or fractional units.Finally, please remember that forex trading requires a strong and reliable internet connection in order to execute trades expeditiously at the intended rate.
Why should I do FOREX business?
Main Question raised in your mind might be: Why should you trade FOREX? There are lots of reasons why you should involve in FOREX trading. FOREX market is truly a global market where it opens 24 hours a day through out the whole week (weekends excluded). With the ease of Internet access, transaction in FOREX can be done in anytime regardless on your location. This gives you the convenience to work on any time, anywhere – which in turns gives you the freedom you cannot have in investing other kind of trading.
More over, trading in FOREX gives you an equal prospective in rising and falling market. As trades are always done in pair of currency pairs, FOREX traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency. Also, FOREX trading offers incredibly high leverage rates to the traders. By trading currency in margin up to 200 to 1, you can start off your FOREX trade with minimum capital and huge ROI.
More over, trading in FOREX gives you an equal prospective in rising and falling market. As trades are always done in pair of currency pairs, FOREX traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency. Also, FOREX trading offers incredibly high leverage rates to the traders. By trading currency in margin up to 200 to 1, you can start off your FOREX trade with minimum capital and huge ROI.
Major players in FOREX market
Although FOREX trading involves such a big volume of trades nowadays, it is not made available for the publics until year 1998. In the past, the FOREX market was not offered to small speculators or individual traders due to the large minimum business sizes and extremely strict financial requirements. At that time, only banks, big multi-national cooperation and major currency dealers were able to take advantage of the currency exchange market's extraordinary liquidity and strong trending nature of world's main currency exchange rates.
In late 90s, FOREX brokers are allowed to break huge sized inter-bank units into smaller units and offer these units to individual traders like you and me. As a fact in FOREX trading, FOREX is mainly traded in large international bank. According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades; followed by UBS in the second and Citi Group in third; taking 12.5% and 7.5% of the market. Other large financial cooperation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.
In late 90s, FOREX brokers are allowed to break huge sized inter-bank units into smaller units and offer these units to individual traders like you and me. As a fact in FOREX trading, FOREX is mainly traded in large international bank. According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades; followed by UBS in the second and Citi Group in third; taking 12.5% and 7.5% of the market. Other large financial cooperation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.
Major currency traded in FOREX market
There are seven major currencies, the US dollar (USD), Euro (EUR), Japanese yen (JPY) British pound (GBP), Swiss Franc (CHF) Canadian dollar (CAD) and Australian dollar (AUD). The US dollar is the most traded currency followed by the Euro and the Yen. The Euro is the relatively new currency of the European Union although some member states, including the UK, have not changed their currency. Also, if you live in a country using one of the major currencies, when you first start trading it makes sense to begin with that currency. Not only are you familiar and comfortable with the currency, but you are in a better position to judge its strength. The internet has a wealth of information on the financial climate of a country, but if you live there you have access to all newspaper content, as well being in the unique position of experiencing first hand changes at the consumer level.
Starting in FOREX trading
To start trading on FOREX, one must first learn how to read FOREX quotes. Foreign exchange quotes are always listed in pairs (e.g. USD/JPY 109.2): the first listed currency is known as the base currency with a constant value of 1 unit; while the currency listed in the second is known as counter. In our given example, USD/JPY 109.2 means a dollar of United States Dollar is equal to 109.2 Japanese Yen. In other words, the quote shows the relative value of one currency compare to the other. It means the value USD had been increased when USD/JPY quote goes up
However, a two-sided quote (e.g. EUR/USD 1.2435/1.2440) consisting of a 'bid' and ‘ask’ is often seen. The ‘bid’ price is the price at which you can sell the base currency; while the ‘ask’ price is where you can buy the base currency. The different of ‘bid & ask’ price is commonly known as ‘spread’. In the example of EUR/USD 1.2435/1.2440, this means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435. Currency brokers make their profit through these differences of ‘bid & ask’ price and this is how they manage to provide their services to individual investors without charging them commission fees.
If you are new to trading it makes sense to deal in the more popular currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask prices is likely to be narrower, making it easier to make a profit.
However, a two-sided quote (e.g. EUR/USD 1.2435/1.2440) consisting of a 'bid' and ‘ask’ is often seen. The ‘bid’ price is the price at which you can sell the base currency; while the ‘ask’ price is where you can buy the base currency. The different of ‘bid & ask’ price is commonly known as ‘spread’. In the example of EUR/USD 1.2435/1.2440, this means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435. Currency brokers make their profit through these differences of ‘bid & ask’ price and this is how they manage to provide their services to individual investors without charging them commission fees.
If you are new to trading it makes sense to deal in the more popular currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask prices is likely to be narrower, making it easier to make a profit.
What beginners need to know about Forex trading?
Being new to FOREX trading? Don’t worry, getting started in FOREX trading is easy and you can always test your skills first in a demo account before you go ‘live’ with real money.
To get started in FOREX trading, we have to get to know what FOREX is. FOREX trading involves buying and selling the different currencies of the world. Buying one currency and selling another at the same time make a FOREX deal.
FOREX market is the largest trading market in the world. It yields an average turnover of $1.9 trillion daily and the figure is nearly 30 times larger than the total volume of equity trades in United States.
To get started in FOREX trading, we have to get to know what FOREX is. FOREX trading involves buying and selling the different currencies of the world. Buying one currency and selling another at the same time make a FOREX deal.
FOREX market is the largest trading market in the world. It yields an average turnover of $1.9 trillion daily and the figure is nearly 30 times larger than the total volume of equity trades in United States.
Essential Elements of a Successful Trader
Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
How Sales and Earnings Growth is related to a Stock’s Performance
If you go back through the history of the stock market there is a recurring theme among those stocks which have had some of the strongest price appreciation and it’s related to their Sales and Earnings Growth. If you plot a chart of Sales and Earnings Growth versus a companies Stock Price there is a usually a strong relationship between the two.
Here is a recent example during the past year. USNA has been one of the strongest performing stocks during the past year and has been experiencing accelerating Sales and Earnings Growth over the past year. A table of USNA Sales and Earnings Growth is shown below.
Meanwhile if we take the table above and make a graphical plot of USNA’s Earnings Growth versus its Stock Price shows a very strong relationship. Notice how USNA’s stock price (blue line) began to rise significantly as its Earnings Growth (red line) started to accelerate beginning in the Spring of 2002 (point A) and has continued through the Spring of 2003 (point B). From March of 2002 until mid June of 2003 USNA has seen its stock price rise from $1.60 to over $50 a share for a return of over 3000%.
I first featured USNA as a Stock to Watch based on its accelerating Sales and Earnings Growth and Cup and Handle chart pattern in August of 2002 when it was trading around $7 a share. If you don’t believe it click here for the report. Notice how USNA formed a 2 1/2 year Cup followed by a 3 month Handle before breaking out in October of 2002.
As this example shows regardless of market conditions companies which have accelerating Sales and Earnings Growth have the potential to perform very well until their Sales and Earnings Growth begins to decelerate. If you don’t believe this go back and research some of the best performing stocks of all time and a majority of them will exhibit similar characteristics.
The key is to recognize those companies which are starting to establish a trend of accelerating Sales and Earnings Growth before everyone else does which takes a lot of time and research. This is what I do every week as I spend over 20 hours a week looking for companies that are starting to show signs of accelerating Sales and Earnings Growth. This is how I found USNA well before its stock price took off.
Here is a recent example during the past year. USNA has been one of the strongest performing stocks during the past year and has been experiencing accelerating Sales and Earnings Growth over the past year. A table of USNA Sales and Earnings Growth is shown below.
Meanwhile if we take the table above and make a graphical plot of USNA’s Earnings Growth versus its Stock Price shows a very strong relationship. Notice how USNA’s stock price (blue line) began to rise significantly as its Earnings Growth (red line) started to accelerate beginning in the Spring of 2002 (point A) and has continued through the Spring of 2003 (point B). From March of 2002 until mid June of 2003 USNA has seen its stock price rise from $1.60 to over $50 a share for a return of over 3000%.
I first featured USNA as a Stock to Watch based on its accelerating Sales and Earnings Growth and Cup and Handle chart pattern in August of 2002 when it was trading around $7 a share. If you don’t believe it click here for the report. Notice how USNA formed a 2 1/2 year Cup followed by a 3 month Handle before breaking out in October of 2002.
As this example shows regardless of market conditions companies which have accelerating Sales and Earnings Growth have the potential to perform very well until their Sales and Earnings Growth begins to decelerate. If you don’t believe this go back and research some of the best performing stocks of all time and a majority of them will exhibit similar characteristics.
The key is to recognize those companies which are starting to establish a trend of accelerating Sales and Earnings Growth before everyone else does which takes a lot of time and research. This is what I do every week as I spend over 20 hours a week looking for companies that are starting to show signs of accelerating Sales and Earnings Growth. This is how I found USNA well before its stock price took off.
Forex Trading Systems
You should build your own trading system
A trading system on the Forex market is a type of strategy that allows traders to trade with a set of rules. There are many free trading systems and strategies printed in trading articles, journals, books and on trading-related websites. I would have to say that if you are not inclined to learn how to develop your own trading methodology, then perhaps you should consider giving your money for someone else to invest. Give it to someone who is trading a system that he developed and tested himself because he is more likely to have the confidence and courage to follow his own trading system.
Why you need a forex trading system?
It’s easy to trade with a system.
A good system provides consistent result. What makes a good trading system?
It’s simple. Forget complicated systems with lots of rules - it’s a proven fact that simple systems work better - and are less likely to fail, in the brutal world of trading.
A trading system with profitable expectation.
It provides good ratio of reward/risk.
A system of comprehensive risk management including market exposure weightings, stop-loss provisions and capital commitment guidelines that preserve capital during trend-less or volatile periods. Once you learn how to develop trading systems and strategies, you can then be better equipped to test them as well. By this point you might even find that the system created by yourself is the best one for you, because it becomes the system more suited to your profit objectives while operating within your risk tolerance levels. It is likely that once you develops this level of competence, you will simply acquire other trading systems only to dissect them, grab the parts you likes and add them to your own system. To me, the irony is that for a trader to know which system to purchase, you must first learn how to create a system. And after knowing how to create a system, he will no longer have the need to buy one.
A trading system on the Forex market is a type of strategy that allows traders to trade with a set of rules. There are many free trading systems and strategies printed in trading articles, journals, books and on trading-related websites. I would have to say that if you are not inclined to learn how to develop your own trading methodology, then perhaps you should consider giving your money for someone else to invest. Give it to someone who is trading a system that he developed and tested himself because he is more likely to have the confidence and courage to follow his own trading system.
Why you need a forex trading system?
It’s easy to trade with a system.
A good system provides consistent result. What makes a good trading system?
It’s simple. Forget complicated systems with lots of rules - it’s a proven fact that simple systems work better - and are less likely to fail, in the brutal world of trading.
A trading system with profitable expectation.
It provides good ratio of reward/risk.
A system of comprehensive risk management including market exposure weightings, stop-loss provisions and capital commitment guidelines that preserve capital during trend-less or volatile periods. Once you learn how to develop trading systems and strategies, you can then be better equipped to test them as well. By this point you might even find that the system created by yourself is the best one for you, because it becomes the system more suited to your profit objectives while operating within your risk tolerance levels. It is likely that once you develops this level of competence, you will simply acquire other trading systems only to dissect them, grab the parts you likes and add them to your own system. To me, the irony is that for a trader to know which system to purchase, you must first learn how to create a system. And after knowing how to create a system, he will no longer have the need to buy one.
Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.
Essential Elements of a Successful Trader
Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you’re taking.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a ’hold on until it comes back’ strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you’re taking.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a ’hold on until it comes back’ strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
Why Spreads?
The rationale behind spread trading is one of the best-kept secrets of the insiders of the futures markets. While spreading is commonly done by the market "insiders," much effort is made to conceal this technique and all of its benefits from "outsiders," you and me. After all, why would the insiders want to give away their edge? By keeping us from knowing about spreading, they retain a distinct advantage.Spreading is one of the most conservative forms of trading. It is much safer than the trading of outright (naked) futures contracts. Let’s take a quick look at some of the benefits of using spreads:
Intramarket, and some Intermarket, spreads require considerably less margin, typically around 25% - 75% of the margin needed for outright futures positions.
Intramarket, and some Intermarket, spreads offer a far greater return on investment than is possible with outright futures positions. Why? Because you are posting less margin for the same amount of possible return.
Spreads, in general, trend more often than do outright futures.
Spreads often trend when outright futures are flat.
Spreads can be filtered by virtue of seasonality, backwardation, and carrying charge differentials, in addition to any other filters you might be using in your trading.
Spreads can be used to create partial futures positions. In fact, virtually anything that can be done with options on futures can be accomplished via spread trading.
Spreads allow you to take less risk than is available with outright futures positions. The amount of risk between two Intramarket futures positions is usually less than the risk in an outright futures position. The risk between owning the underlying and holding a futures contract involves the least risk of all. Spreads make it possible to hedge any position you might have in the market. Whether you are hedging between physical ownership and futures, or between two futures positions, the risk is lower than that of outright futures. In that sense, every spread is a hedge.
Spread order entry enables you to enter or exit a trade using an actual spread order, or by independently entering each side of the spread (legging in/out).
Spreads are one of the few ways to obtain decent fills by legging in/out during the market Closing.
Live data is not needed for spread trading, saving you $$ in exchange fees.
You will not be the victim of stop running when using Intramarket spreads.
Intramarket, and some Intermarket, spreads require considerably less margin, typically around 25% - 75% of the margin needed for outright futures positions.
Intramarket, and some Intermarket, spreads offer a far greater return on investment than is possible with outright futures positions. Why? Because you are posting less margin for the same amount of possible return.
Spreads, in general, trend more often than do outright futures.
Spreads often trend when outright futures are flat.
Spreads can be filtered by virtue of seasonality, backwardation, and carrying charge differentials, in addition to any other filters you might be using in your trading.
Spreads can be used to create partial futures positions. In fact, virtually anything that can be done with options on futures can be accomplished via spread trading.
Spreads allow you to take less risk than is available with outright futures positions. The amount of risk between two Intramarket futures positions is usually less than the risk in an outright futures position. The risk between owning the underlying and holding a futures contract involves the least risk of all. Spreads make it possible to hedge any position you might have in the market. Whether you are hedging between physical ownership and futures, or between two futures positions, the risk is lower than that of outright futures. In that sense, every spread is a hedge.
Spread order entry enables you to enter or exit a trade using an actual spread order, or by independently entering each side of the spread (legging in/out).
Spreads are one of the few ways to obtain decent fills by legging in/out during the market Closing.
Live data is not needed for spread trading, saving you $$ in exchange fees.
You will not be the victim of stop running when using Intramarket spreads.
Intramarket Spreads
Officially, Intramarket spreads are created only as calendar spreads. You are long and short futures in the same market, but in different months. An example of an Intramarket spread is that you are Long July Corn and simultaneously Short December Corn.
Intermarket Spreads
An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.
Inter-Exchange Spreads
A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.
Intermarket Spreads
An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.
Inter-Exchange Spreads
A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.
What Is a Spread
What Is a Spread?
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
long an underlying physical commodity, and short a futures contract. (Hedge)
long an underlying equity position, and short a futures contract. (Hedge)
long financial instruments, and short financial futures. (Hedge)
long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
Via an Intramarket spread.
Via an Intermarket spread.
Via an Inter-exchange spread.
By ownership of the underlying and offsetting with a futures contract.
A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. You can turn that around to state that a spread is the purchase of one or more futures contracts and the sale of one or more offsetting futures contracts. A spread is also created when a trader owns (is long) the physical vehicle and offsets by selling (going short) futures. Furthermore, a spread is defined as the purchase and sale of one or more offsetting futures contracts normally recognized as a spread by the fact that the two sides of the spread are actually related in some way. This explicitly excludes those exotic spreads put forth by some vendors, which are nothing more than computer generated coincidences which are not in any way related. Such exotic spreads as Long Bond futures and Short Bean Oil futures may show up as reliable computer generated spreads, but bean oil and bonds are not really related. Such spreads fall into the same category as believing the annual performance of the U.S. stock market is somehow related to the outcome of the Super Bowl sporting event. In any case, for tactical reasons in carrying out a particular strategy, you want to end up with:
simultaneously long futures of one kind in one month, and short futures of the same kind in another month. (Intramarket Calendar Spread)
simultaneously long futures of one kind, and short futures of another kind. (Intermarket Spread)
long futures at one exchange, and short a related futures at another exchange. (Inter-exchange Spread)
long an underlying physical commodity, and short a futures contract. (Hedge)
long an underlying equity position, and short a futures contract. (Hedge)
long financial instruments, and short financial futures. (Hedge)
long a single stock futures and short a sector index.
The primary ways in which this can be accomplished are:
Via an Intramarket spread.
Via an Intermarket spread.
Via an Inter-exchange spread.
By ownership of the underlying and offsetting with a futures contract.
Futures Spread Trading
How professional traders optimize profits
Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000).
The following example of a Soybean-Spread shows the advantages of futures spread trading:
Example: Long May Soybeans (SK3) and Short November Soybeans (SX3)
Four Advantages of Futures Spread Trading
Advantage 1: Easy to trade
Do you see how nicely this spread starts trending in mid February? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious. (If you are looking for a concept of how to identify a trend, we strongly recommend visiting http://www.tradingeducators.com/?source=Tradejuicetrading_philosophy.htm). Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers.
Advantage 2: Low Margin requirements
Many spreads have reduced margin requirements, which means that you can afford to put on more positions. While the margin on an outright futures position in corn is $540, a spread trade in corn requires only $135 — 25% as much. That’s a great advantage for traders with a small account. With a $10,000 trading account risking 8% of your account, you can enter 6 corn spreads, instead of only 1-2 outright corn futures trade. How’s that for leverage?
Advantage 3: Higher return on margin
Each point in the spread carries the same value ($50) as each point in the outright futures ($50). That means that on a 3 point favorable move in corn futures or a 3 point favorable move in the spread, you would earn $150. However, the difference in return on margin is extraordinary:Corn futures - $150/$540 = 27.8% returnCorn spread - $150/$135 = 111% returnAnd keep in mind that you can trade 6 times as many spread contracts as you can outright futures contracts. In our example you would achieve a 24 times higher return on you margin.
Advantage 4: Low time requirements
You don’t have to watch a spread all day long. You do not need real-time data. The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade if you do not want to watch or cannot watch your computer all day long (i.e. because you have a daytime job). And you can save all the money you would have had to spend for real-time data systems (up to $600 per month).So where is the catch?If futures spread trading is so fantastic, why does it seems that hardly anybody trades spreads? Well, it is not true that hardly anybody trades spreads: the professional traders do, every day. But either by accident or design, the whole truth of spread trading has been hidden from the public over the years.The purpose of this website is to inform you about futures spread trading. In the following we will answer the four frequently asked questions:
What is a spread?
Why trade spreads?
What can you expect when trading spreads?
Futures spread trading is probably the most profitable, yet safest way to trade futures. Almost every professional trader uses spreads to optimize his profits. Trading spreads offers many advantages which make it the perfect trading instrument, especially for beginners and traders with small accounts (less than $10,000).
The following example of a Soybean-Spread shows the advantages of futures spread trading:
Example: Long May Soybeans (SK3) and Short November Soybeans (SX3)
Four Advantages of Futures Spread Trading
Advantage 1: Easy to trade
Do you see how nicely this spread starts trending in mid February? Whether you are a beginner or an experienced trader, whether you use chart formations or indicators, the existence of a trend is obvious. (If you are looking for a concept of how to identify a trend, we strongly recommend visiting http://www.tradingeducators.com/?source=Tradejuicetrading_philosophy.htm). Spreads tend to trend much more dramatically than outright futures contracts. They trend without the interference and noise caused by computerized trading, scalpers, and market movers.
Advantage 2: Low Margin requirements
Many spreads have reduced margin requirements, which means that you can afford to put on more positions. While the margin on an outright futures position in corn is $540, a spread trade in corn requires only $135 — 25% as much. That’s a great advantage for traders with a small account. With a $10,000 trading account risking 8% of your account, you can enter 6 corn spreads, instead of only 1-2 outright corn futures trade. How’s that for leverage?
Advantage 3: Higher return on margin
Each point in the spread carries the same value ($50) as each point in the outright futures ($50). That means that on a 3 point favorable move in corn futures or a 3 point favorable move in the spread, you would earn $150. However, the difference in return on margin is extraordinary:Corn futures - $150/$540 = 27.8% returnCorn spread - $150/$135 = 111% returnAnd keep in mind that you can trade 6 times as many spread contracts as you can outright futures contracts. In our example you would achieve a 24 times higher return on you margin.
Advantage 4: Low time requirements
You don’t have to watch a spread all day long. You do not need real-time data. The most effective way to trade spreads is using end-of-day data. Therefore, spread trading is the best way to trade if you do not want to watch or cannot watch your computer all day long (i.e. because you have a daytime job). And you can save all the money you would have had to spend for real-time data systems (up to $600 per month).So where is the catch?If futures spread trading is so fantastic, why does it seems that hardly anybody trades spreads? Well, it is not true that hardly anybody trades spreads: the professional traders do, every day. But either by accident or design, the whole truth of spread trading has been hidden from the public over the years.The purpose of this website is to inform you about futures spread trading. In the following we will answer the four frequently asked questions:
What is a spread?
Why trade spreads?
What can you expect when trading spreads?
Tips on How to Have the Greatest Forex Training Possible
As a beginner, should a forex trader get in a Forex Study course?Definitely yes, not all beginner traders go to this process, they just get themselves familiar and just jump right in. In the end, the pain and the tears. You have probably heard that 5% of the Forex Traders get profits consistently.The root of most people's failures in the goldmine of the Forex Market is the lack of education. A Course or training could guarantee any success, nothing will but the trader himself. Constantly learning through a Forex Course, however, can put you on the right track to succeed.There are many programs available online, but there are some reminders you need before purchasing any of the Forex Courses. Because not all are for the trader in you.The very first thing you might want to look for in a Forex Course is the content of the material. Yes there are many courses that will say that they have great content, you will want to be looking for quality content. A great veteran in the trade who make content based on his experiences are great resources. Most of the courses out there are too focused on the very basic concepts, which will not make you profit consistently.These below are the least you want to find in a course or training program:-Forex trading basics- Without too much focus on this, it is sufficient to give you a good review on the basic concepts until you have a full grasp in it. -Failures and Mistakes- If from a great author/s, this should give you a good grasp on the ways that won't cut it in the Forex Trading industry. This should give you a great heads up so you would avoid history repeat itself.-Aspects of Trading-If you know how to properly apply fundamentals and technical aspects of trading, you are on your way to consistent profits.-Trading system growth-A system that suits you and grows as you learn is the key to consistent great results. Having this will avoid you from not following your system, making your account burst like a bubble. It should be easy to use.-Money and Risk management-Most important aspects in Trading. This will help you increase your money exponentially while limiting too much losses.-Trading psychology-Most traders neglect this, well, you are not most traders, learning the right mindset in Trading will keep you from making decisions based on your emotions. The course should help you develop habits that will be a great factor in your trading.The Course should also make your growth towards to being an elite trader.Trader SupportYou should be able to share your ideas, opinions and suggestions to your instructor and colleagues through Forums and One-on-One Consultation. Trader ConvenienceMaterials you use should work around your lifestyle, one of which is it should be available online. Trading the Forex Market is no walk in the park. A good trader invest time and money to a high quality online course that will bring you to the right track in earning profitably and consistently.
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