Forex Options Trading – How not to Lose All Your Money in Currency Trading?

On 11.09.09, In Currency Trading, By

currency trading
Timothy Stevens asked:


Losing in currency trading is not impossible and has a probable chance of happening. In any investment decision you make, there is the chance of losing and gaining money. Don’t make the mistake that all your choices will end up gaining you profits. The chance of losing money is likely to happen in currency trading. Prepare and protect yourself from the ups and downs of currency trading by employing a good money managing technique.

What are the odds you’ll win money in currency trading? No one exactly knows. There is no system in this world that will allow you to pick the right currency all the time. In currency trading, each currency is influence by different forces that are both measurable and immeasurable. No one can guarantee a 100% chance that you’ll profit for every choice you make. With the risk of losing looming around, money management will allow you to account for the probability you’ll lose money.

In currency trading, the amount of money you’ll lose is limited on the lots you purchased. The lots vary from broker to broker. If your lot size is $100, you can only lose $100. Money management in currency trading is how you use your lot. A proper management is dividing the lot and spreading over a period of time. For example, you only invest 10% of your lot until you gain 10 pips. There many money management theories in currency trading available. Find one that best fits your risk profile and needs. Preserving your capital is as important in gaining profits.



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Basic Fundamental Analysis

On 11.09.09, In Intro to Forex, By

The original title of this article was Fundamental vs. Technical analysis. This would have been a fallacy. Fundamental analysis is not in competition with technical analysis. They compliment each other. In order to be an effective trader on the Forex market a trader must consider both fundamental and technical principles.

Fundamental Analysis uses economic, political, and social circumstances. These forces affect the supply and demand.

There are 4 major forces that cause changes:

Unemployment
Increase=Lower prices
Decrease=Higher Prices

Gross Domestic Product (GDP)
Increase=Higher prices
Decrease=Lower Prices

Balance of Trade Deficit
Increase=Lower prices
Decrease=Higher Prices

Interest Rates
Increase=Higher Prices
Decrease=Lower Prices

Economists keep track of these forces using economic calendars. Economic calendars keep track of announcements and market moving events.

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Forex Vs. Stocks

On 11.09.09, In Intro to Forex, By

The Foreign Exchange Market

The Foreign Exchange Market is a currency trading market. It is open 24 hours a day, 5.5 days a week. This is possible because the market trades electronically.

There are 164 total currencies traded, but 8 major ones. These are the U.S. Dollar, Japanese Yen, Euro, British Pound, and Swiss Frank. The Australian Dollar, Canadian Dollar, and New Zealand Dollar are popular as well.

The leverage on the Forex market is much higher than the stock market. Some brokers offer upwards of 250:1. This gives the trader a greater chance to profit.

The probability of a major currency failing is very slim. A US dollar will fluctuate in value but never completely devalue the way a stock may.

The Stock Market

The stock market consists of stocks of publicly held corporations. It is open 6.5 hours a day Monday through Friday. Approximately 8000 different stocks are traded.

In order to trade on the stock market an investor must have a broker. This broker acts as n intermediary(middleman) and executes the trades. They usually charge fees on top of a commission to make the trade.

There is no capital requirement to trade stocks per se. A trader must be able to afford the stock and the commissions to purchase it. If a trader wants to open a margin account $2500 is the minimum deposit. A margin account uses money loaned by the bank for trading.

This can be risky because stocks can fail suddenly before a trader can act. Their trade volume may decline rapidly and stagnate the stock. Remember what is borrowed must be paid back.

There are government restrictions on stop orders and short selling.

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On 11.08.09, In Currency Trading, By
currency trading
James Theiss asked:


Online currency trading (also known as FOREX, for foreign exchange) has all the benefits that a trader could want. With the 24 hour, 6 days a week marketplace, you can trade before work, during work, or after work. Whenever you see fit. The day begins in New Zealand and follows the sun through Asia, into Europe, and then the US. Then it starts all over again.

The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the currency market whenever they want. With no commissions and no gaps, or lock limits, and no daily trading limit either. This market is bigger in daily volume than all of the other stock, bond, and futures markets of the world combined! And then some!

Leverage of 100 to 1 is considered normal when currency trading. Compare that to the 2 to 1 margin accounts at your stock brokerage. Plus, there’s no margin interest expense either. But you better have your risk management system in place because, remember, leverage cuts both ways.

You’ve heard the saying,the trend is your friend. Well guess what the best trending market is? That’s right, the FOREX market. Central banks and governments set their own monetary policy. Take the Fed for example. They don’t (usually) raise interest rates today and then next week lower them. And then raise them again. No, they tend to gradually, over time, raise them, month by month, until they feel they are correctly positioned. And then they lower them, month by month, or quarter by quarter, whichever. That gradual tightening and loosening over an extended period of time is what creates those wonderful trends.

When you are trading currencies online, remember to trade with the trend. And when the trend ends, get out. It’s that simple, just not that easy. Then start looking for the trend to reverse itself. You need to have no hang ups about being long or short when you trade currencies. At any given time, approximately a third of the currency pairs are are going up, a third are going down, and the other third are going sideways. So don’t be afraid to go short. If you are coming from the stock market, there are no short squeezes to worry about, no one uptick rule, or any other crazy rules. You just decide to buy or sell; that’s it.

When you trade currencies online, they are always bought and sold in pairs. An example of a currency pair is the popularly traded EUR/USD. This is the Euro vs. the U.S. Dollar. The currency on the left is called the base currency. The one on the right is the cross currency

If you buy the EUR/USD currency pair, you are buying euros, and at the same time, selling dollars. You would do this if you think the Euro is going to rise in value and/or you think the Dollar is going to fall in value.

If you sell the EUR/USD currency pair, you are selling euros, and at the same time, buying dollars. You would do this if you think the Euro is going to decline in value and/or you think the Dollar is going to rise in value.

Currency trading has so many benefits and advantages to it, it is no wonder why it is the fastest growing segment of the online trading community. The FOREX market offers superior potential to realize profits in any market condition or business cycle, making online currency trading an ideal diversification element in your total investment portfolio.



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Pips? And Lots?!

On 11.07.09, In Intro to Forex, By

Pips?

The most repeated word in Forex currency trading is pip. Pip stands for percentage in point. A pip is the smallest unit of currency.

Ex.

$0.1234

The pip is in the fourth decimal place on every currency except Japanese (¥)

¥0.12

Pippin’ is easy

Different currencies have different pip values.

Ex.

For the USD/JPY
90
For JPY the pip is .01
Pip Value/Exchange Rate
.01/90=.0001111

For EUR/USD
1.5
For EUR use .0001
Pip Value/Exchange Rate
.0001/1.5=.00066

When a trade is completed the profit/loss is displayed in pip value. The pip value may be displayed as EUR instead of USD. A conversion will need to be done.

Ex.
Referring back to the EUR/USD example:

EUR/USD=1.5
Pip Value= .00066
Pip Value times USD conversion
.00066*1.5=.000999 (Rounds to .0001)

And Lots?

Why does Forex use such small numbers?

On the Foreign Exchange Market currency is purchased in lots. A trader cannot use $1 to buy €1.5. A lot of €s is purchased. The typical lot is $100,000, some brokers offer as low as $10,000. A much larger profit is realized through these purchases.

Ex.

Calculating Forex profit.

EUR/USD=1.50 (€1=$1.5)
I have $100,000 I buy €66,666.
EUR/USD rises to 1.5020
This is an increase of 20 pips.
I sell my € to buy $
Pip Value
(.0001/1.502)*100,000=$15.02 per pip
Profit
15.02*20pips=$300.40
That’s only one trade!

 
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On 11.06.09, In Finance, By
currency trading
Jim Pretin asked:


The Foreign Exchange market (Forex) is truly the largest exchange in the world. The amount of dollars traded on the Forex market on a daily basis is in the trillions. Most of this currency trading takes place between between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. However, individual traders are starting to get in the mix, using internet discount brokers such as Etrade to participate in the currency exchange market.

There is no central exchange or meeting place for the Forex. All trading is done over computer networks between traders in different parts of the world. Also, unlike the stock market, the foreign exchange market is open 24 hours per day, because it is a global market. A trader in Hong Kong may be exchanging currency with a trader in Australia while an American trader is sleeping.

There are several different markets within the Forex exchange system. First, there is the spot market. The spot market deals with trades that are based on the current values of currencies. One person trades a certain amount of currency with another trader in exchange for an equivalent amount of a different foreign currency. Spot trades take two days for settlement.

The other two types of foreign exchange markets are the forward and futures markets. In the forward market, the buyer and seller agree on an exchange rate and a transaction date is set for a specific time in the future, at which point the trade is executed regardless of what the rates are at that time. On the futures market, futures contracts are bought and sold based upon a standard contract size and maturity date. Futures trades take place on public commodities markets.

A currency quote is listed differently from a stock quote. Stocks are quoted in terms of price per share. Currency exchange prices are listed as either a direct quote or an indirect quote. A direct quote uses the domestic currency as the base and the foreign currency as the quote. An indirect quote works the exact opposite way.

So, if you were to view a quote in an American newspaper that said USD/JPY = 75, that would be a direct quote and would mean that $1 of U.S. currency is equal to 75 Japanese yen. If that same quote appeared in that same American newspaper and was listed as JPY/USD = 0.013, that would be an example of an indirect quote.

As with stock prices, currency exchange prices have a bid and ask spread. The current bid is the amount of foreign currency that someone is willing to spend in order to buy $1 U.S. base currency. The ask is the amount of foreign currency that someone is demanding in order to be willing to sell $1 U.S. base currency.

The Forex markets are generally considered to be less volatile than then stock market because within the course of a trading day, it is highly unlikely for the value of a single currency to move all that much. With equities, it is not uncommon for a trader to buy a stock, and then a negative press release causes the stock to lose considerable value within a day or even a couple of hours. Sometimes, however, the Forex can be volatile. If there is a significant economic or political development with a certain country, the currency of that country can lose value quickly.

There is a higher degree of liquidity on the currency exchange then there is on the stock exchange because the currency exchange is open 24 hours per day and because the very nature of currency exchange is to bet on when certain currencies will go up or down; so, it is easy to sell your position in a certain currency even when the value of that money is going down. A plummeting stock is more difficult to unload, but not impossible.

If you want to begin currency tranding, try to set aside some money and open an account with an online broker. Start slowly, then as you get the hang of it, work your way up to larger trades and higher volume. However, do not gamble your nest egg on currency trading because inexperienced traders can lose everything they have rather quickly in spite of the relative safety of the Forex market.



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Currency Trading Systems – Tips On How To Succeed With Currency Trading Systems

On 11.06.09, In Currency Trading, By
currency trading
Abhishek Agarwal asked:


Currency exchange or foreign currency or an exchange system is basically a system that allows for you to exchange the currencies of various countries to get profits. Many people see it as one of the best ways to earn money.

In addition, this is one of the biggest markets we have, and it sees the exchange of billions of dollars every day. Also, the currency exchange doesn’t have a base. What this means is the market is always open, every hour of the day and every day of the week.

You must have seen the ads that say you can make a lot of profit by simply exchanging currency in the foreign exchange. It is a reality for many people. Up to a few years ago it was only the banks and large companies who could get into the market, but today thanks to trends such as the use of internet, even an individual can make money on foreign exchange.

Currencies are traded every single day. People who have a little bit of free time from their everyday jobs love to look at the Forex markets as an additional source of income. The whole thing may not be as puzzling as some imagine it to be. Try and learn the basics first, and you will soon have an additional income. There are people who see so much success here that they just quit their regular day jobs. This is a great way to get rich quick if you play your cards right.

Keep in mind first, a currency trading system gives you the opportunity to put your money into a foreign country. What this means is, you need to know about a company, and how you can make good returns from it.

Investing in systems currency swap is great way to trade currency, simply because anyone can work on it, from wherever they may be. This is thanks to a systems currency swap that lets you make investments as small as five dollars. Just imagine, you could be trading in the market with as little as five dollars to start with.

In some cases, you may have to sign a contract that will determine how long the money you have invested should remain with the company that you have invested in. So do take the time to read the fine print before you make a commitment. In most cases you won’t want your money getting stuck for long periods.

The best thing about these markets is that you do not have to be physically present in a country that you may want to invest in. This allows for greater trade opportunities than ever before. Finally, do make a background check on a company you wish to invest into.



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Which Currency Trading Platform?

On 11.06.09, In Intro to Forex, By Forex Protege

Currency trading platforms are an important link between the individual trader and the currency exchange market. There are two types of trading platforms:

Client based platforms are downloaded onto the currency trader’s computer, while web based platforms operate using javascript on the brokers web page. The advantage of the web based currency trading platform is it can be used on any computer with internet access. The disadvantage is it is usually slower than the client based software.

There is no cookie cutter currency platform right for everybody. The trading platform usually come with a broker. When picking a currency trading broker a trader should ask himself these questions:

Is this broker trustworthy?

The internet is full of Forex platform reviews with the authors complaining of unscrupulous brokers. They deposit money in their brokerage account to find that the links to withdraw the money are dead, the fax number to send a written request has been disconnected, and there is no working telephone number on the website.

The best way to avoid this is to check to see if the broker is registered with the Futures Commission Merchant and overseen by the Commodity Futures Trading Commission. This is very important.

How effective is their currency trading platform?

Try out the currency platform provided by the currency broker. Is it simple to use accurate, and the charts readable? A currency trading platform that does not update the prices fast and accurately is completely useless.

What are the costs of trading with this currency broker?

Some brokers may offer great incentives to new arrivals, IF they deposit $10000. Others may be geared toward the beginner trader.

The main cost of trading with a broker is the spread. The spread is how most currency trading brokers make their money.

Ex.

Forexbroker charges a spread of 98.95/99.00 on ¥.

The trader uses $100 to by ¥9895.

Then immediately sells ¥9895 back for $95

The trade cost $5.

Spreads are calculated in pips.

The final charge to consider when choosing a Forex broker is the rollover charge. These are the charges that occur when a trade is postponed to the next trading day. They are based on the overnight interest rate of the country’s currencies being traded.

Foreign Exchange trading costs are kept low because of the size of the market.

What is leverage and margin?

Margin is stock equity placed as collateral on a loan given by the currency trading broker. This provides leverage for the investor to increase the profits made during trading. Some brokers offer up to 250:1 margins ( Every $1=$250). Margin trading may be required because of the currency buying requirements of the forex market.

Using margin trading is a great way to make huge profits, however if failed is a great way to accrue huge debts. A broker has the right to sell a margin investment to prevent further losses. If the investment plummets the broker may sell it and prevent any chance of recouping the loss.

Demo trading, DO IT!

Do not lose all your money! Before depositing real money into any Forex account an aspiring trader should demo trade for 3-6 months and develop a successful strategy.

Demo trade for at least 3-6months

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What is Forex?

On 11.04.09, In Intro to Forex, By Forex Protege

The Foreign Exchange Market

The foreign exchange market (Forex) is used to convert currency from one country into the currency of another. It allows individuals and companies from different countries to easily sell products.

Every country has its own currency.

The common Forex Currencies are:
U.S. Dollar($)
Euro(€)
Australian Dollar(A$)
Swiss Frank(CHF)
Japanese Yen(¥)

If a business exports something to another country they use the Foreign Exchange Market to convert payment.

How does an individual profit in forex?

The currency prices on the Forex market fluctuate due local, global, and economic factors. This gives the individual forex trader the opportunity to make a profit using arbitrage. Arbitrage is the buying of a currency at a low price and selling it at a higher price.

Ex.
($)= US Dollars (¥)=Yen
$1=¥130

I use $10,000 to buy ¥1,300,000

The value of the ¥ rises therefore it takes less ¥ to buy dollars.

$1=¥100

I use my ¥1,300,000 to buy $13,000 and make a profit of $3,000.

How are Forex rates determined?

Foreign exchange rates are determined in two ways.

Long Term

Foreign exchange rates are determined by the supply and demand of the money supply.
A country’s money supply is regulated by the government and its central bank. When the government wants to increase the money supply, it tells the central bank to print more money or lower the interest rates.

Ex.

The U.S. Government increased the nation’s money supply when they bailed out the failing US Banks in October of 2008. This caused the supply of the $ to increase, therefore lowering the demand and decreasing the price.

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=airpxcdYO32M

A country’s money supply has little to do with short term Forex rate fluctuations.

Short-Term Investor Psychology

When investors act on expectations of the price of a currency it causes a bandwagon effect. This causes the price of the currency to fall or rise in the short term.

Ex.
A major hedge fund manage states the US Dollar is undervalued. The price of the US dollar rises regardless of the statements truth because the individuals act on this managers advice.

How do I predict Forex exchange rates?

There are two styles of analysis.

Fundamental Analysis

Fundamental Forex analysis uses the size of the money supply, interest rates, and inflation rates. It may also use a countries balance of payments (imports vs exports).

Technical Analysis

Technical analysis relies on analyzing past trends using price and volume data to predict future trends.

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Currency Trading Rates – How to Read Them

On 10.24.09, In Currency Trading, By
currency trading
Harold Hsu asked:


Foreign Exchange (or Forex) trading has grown in popularity in the last ten years. There are new traders entering the market every day, and the daily trading volume in this financial market is ever-increasing.

Unlike most other financial trading markets, currencies are not traded on their own, but rather in pairs. The trading of currency pairs have unfortunately confused many would-be traders and have discouraged them from learning more about currency trading.

What Is A Currency Pair?

Whenever we purchase a product, we pay money for it. This is also what happens in the stock and futures trading markets: we trade our money in exchange for a stock or for a futures contract. It’s not a difficult concept to grasp, right?

Now, in the currency market, things will get a little more complicated. You see this time, instead of trading money for goods you are trading money for money. So for example, if I wish to purchase 1 Euro, I would have to pay a certain amount of U.S. Dollars for it. If I wish to purchase 1 Pound, I also would have to pay a certain amount of U.S. Dollars for it.

For example, one stock of company A may cost US$20, so we have:

1 stock of ABC company = $20

In the same manner, one Euro may cost US$1.50:

1 Euro = 1.50 USD

This is known as a currency trading rate. For purposes of simplicity, this rate is often quoted as:

EUR/USD = 1.5000

This is essentially how most currency trading rates are expressed. The Euro is the Base Currency, as it is the currency that the U.S. Dollar is quoted against.

For the USD/JPY currency pair, the U.S. Dollar is the Base Currency. For the GBP/USD pair, the Base Currency is the Pound.

And that’s all there is to it. It’s easy to understand Currency trading rates when you know how, isn’t it?



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