Avoid Losing In The Forex Market

The Forex market and it’s huge leverage cuts two ways. With a large amount of leverage, you do not need a lot of money to make a lot of money. However, that can work against you should you trade without discipline. Always use profitable formations and make sure you practice your knowledge in paper trading (practice trading) before jumping into the forex markets.

It is recommended that you should start with at least $5,000 dollars, if not $10,000, but the fact is many do not have that type of money to invest initially.

If you start with trading capital of less than $5,000, you’ll have to prepare and analyze the market with much more scrutiny. Practice your trading techniques and understand every aspect of the forex market before you enter in with real money.

Another bad characteristic of new forex traders is that they tend to be very impatient. Remember, wait for specific trading formations to form before you place an order to get into the market. If there is no obvious reason to enter, than don’t. It’s better to miss an opportunity in the forex markets, than to lose because you chose the wrong opportunity.

The fact is, you will lose money. The determining factor is that when you lose, how much will you lose? If it’s minimal, than your winnings can out pace your losses. Use smart order placement and don’t chase the market if it starts to move away from your entry points. Use support and resistance levels to enter and exit markets.

Also try not to use common whole numbers to enter and exit your positions, because where the majority of people will always enter and exit their trades. For instance, if you want to buy or go long the market and you see resistance at 122.00 in the EUR/USD market. Instead of buying right at 122.00, buy it at 122.07 or 121.93. The same would be true as to where to exit.

Don’t get greedy. If you’ve made a fair amount of money, either exit the market, or use a tight trailing stop-loss order. Assume you were in at 122.07 and now the market is at 123.07. You’ve now made $1,000 per lot. Tighten your stop-loss as the market begins to accelerate. Markets that accelerate quickly, also decelerate just as quickly when market conditions change.

Again, let’s assume that you are long from 122.07 and the current market is up 100 points at 123.07. You should have a trailing stop-loss maybe 10 pips away from the current market price.




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Creating Wealth as a Forex Trader

Forex, or Foreign Exchange trading can be a very rewarding. In fact, it can be one of today's best wealth generating opportunities. Regular people like you and me are consistently making $500, $600 and more per day from the comfort of their home trading forex. Many do not know this, but the forex market is by far the largest market in the world. It is estimated that around $1.5 TRILLION is traded every single day. By far more then all the stock, bond and futures markets of all the world combined!

But what does a forex trader do? Simple, buy a currency at a low value and sell it at a higher value, and in the process profit from it! For example, buy Great British Pounds with US Dollars, wait for the Pound rate to go up and make money! This can be done several times a day if the forex trader is a day trader or several time a week or month if the trader is a forex swing trader.

Lets look at the exclusive benefits forex trading offers:

1. The forex trader can start trading with as low as $300. Yes, today most on-line brokers will allow you to open an account with such a low sum making forex trading accessible for virtually everyone.

2. The forex trader does not have to own the money he or she is using to trade currencies. Through a concept called leverage, the traders broker will allow him or her to buy up to 400 times the value of the traders account. For example, if the trader has US $100 in his brokerage account he can buy/trade $4,000! If he has $1,000 he can buy/trade $40,000. That is how traders actually make $500, $600, or $700 per day trading forex, using the brokers money!

3. Many currency pairs are very volatile. Volatility means that they move a lot during the day, from side to side. This allows the forex trader to capture several price swings that this volatility causes. In fact, there are currency pairs that offer up to six daily swing opportunities, each one potentially allowing the trader to capture impressive profits.

4. With the right system the forex trader can trade with just following simple rules. If A happens and B happens then do C. This is called mechanical trading. It requires absolutely no discretion, interpretation or thinking from the trader.

5. The forex market is a 24 hour market. Never stops. This means that as a forex trader you can chose exactly when to trade. Some people have day jobs and do not have the necessary time to trade during the day so they can trade at night. People who make their living as forex traders can chose to trade any time of the day or night. The point being, a 24 hour market allows the trader a lot of flexibility.

6. An incredible benefit of the forex industry is that today all forex brokers allow traders to open free demo accounts. This means that the trader can test his strategies without risking a single dollar! In fact, I always test my trading strategies before going live. I make sure they work before risking real money. I know of no other business opportunity that allows you to see if it works before you spend money!

7. Making a living as a forex trader allows you to be truly free! No office, no workers, no inventory, no marketing worries, no advertising, no selling. For me this is one of the greatest advantages of being a forex trader. No headaches!

In conclusion, the forex market provides a lot of opportunities that many markets and industries do not provide. Many people hear the term forex and get a bit scared, they are afraid of the unknown. Do not be, forex trading is something that people have been using to generate wealth for many years. The reason many people have not heard of this opportunity until recently is that until not long ago trading currencies was reserved to the big dogs (banks, institutions, companies etc). Today with the help of the internet anyone can take advantage of on-line currency trading that was once reserved to an exclusive group.




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Forex Online Trading Software

Almost every online Forex broker has a software package for their clients to make transactions and get information about market prices. Due to the relative maturity of online trading there is a consensus among Forex brokers about what clients need in terms of software tools. There are two main classes of Forex software – web based and client based.

All Forex trading software needs to provide up-to-the-second market information. The fast moving pace of the Forex demands real-time data delivery for making decisions about when to enter and exit the market. Forex dealers claim their software performs well with a minimum of delay, but in fact there can be a number of factors that could delay data transmission.

Internet connection speed and distance from the broker's servers are the two main factors that can slow down data transmission. Forex traders should have a reasonably modern computer and a high speed Internet connection to take full advantage of the Forex software offered by their broker. It may also pay to choose a broker in the same area as you live. Traders in Bangkok who deal with brokers in Ohio may experience delays – especially during volatile market conditions.

Web Based or Client Based?

Web based Forex trading software is on the broker's website – you don't have to install any software on your computer. Client based software requires you to download and install the software package used by your broker. Which is better? More and more brokers are offering web based client software for reasons of convenience, safety and reliability. Web based software allows you to log on to your account from any computer – you can make trades from any location that has an Internet connection. Client based software, on the other hand, restricts you to making trades from just one computer.

Besides the convenience, web based software offers greater security. Data is secured with high-strength encryption making it impossible for outside parties to access during transmission. Client based software is also secured during transmission but there are more possibilities for data loss from the trader's computer. Viruses and hackers may be able to access valuable financial data stored in a home or office computer.

Forex Trading Software Features
Forex software needs to access real-time quotes and offer a means to enter and exit the market. Even the most basic packages offer these functions. Current quotes can be seen for most currency pairs and the software allows you to buy or sell at market prices or enter and exit the market using stops or limits. Ideally, trading software should have integrated charting functions with a variety of viewing functions.

Basic Forex software packages should be offered free of charge, but many brokers also have more advanced packages available for a monthly fee. Some of the features you could expect to see in advanced software include the ability to trade directly from the chart and full analytical functions.

Forex Software Technology
The backbone of Forex trading software Technology is a series of data servers that allow you to connect to your broker's web site and make transactions. Servers operated by the Forex broker need to be reliable and secure for maintaining data integrity and assuring accurate transaction processing. Servers are subject to power outages and natural disasters, so to ensure maximum uptime, the broker should operate at least two sets of servers in separate locations. Brokers should also offer regular data backups to guarantee the integrity of their customer's financial data in case of server failure.




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Forex Trading Strategies

To be a successful Forex trader you need a Forex trading strategy. There is no one set strategy that is good for all traders; rather, each trader needs to develop his or her individual approach to the Forex. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many successful Forex traders use a combination of both to get a broad overview of the market and for plotting entry and exit points.

Forex Technical Analysis relies on one key concept: Prices move by trends. The common saying in Forex is 'The trend is your friend.' Market movements have identifiable patterns that have been studied over many years and a thorough understanding of these trends and how they can be read forms the basis of a good trading strategy.

There are many analytical tools available to understand market movements. The beginner Forex trader is well advised to study each one separately for getting a working knowledge of their concepts and application. Once one has been understood, keep on using it while studying others. Each tool tends to reinforce the others.

Support and resistance levels are used in many Forex trading strategies. 'Support' refers to the price level that is repeatedly seen as the bottom – when the price reaches this level it tends to rise. Resistance levels are upper prices that the currency rarely trades beyond. Support and resistance levels contain price movements for a period of time.

When currency prices break through support or resistance levels, the prices are expected to continue in that direction. For example, if the price rises above the previous resistance level, it is seen as bullish – the price should continue to rise.

To find support and resistance levels, price charts need to be analyzed for unbroken support and resistance levels. Charts can be analyzed in any time frame; however longer time frames establish more important support/resistance levels. Traders can use support/resistance levels to determine when to enter or exit a transaction.

Moving averages are another common tool in Forex trading strategies. The simple moving average (SMA) shows the average price in a given period of time over a specified period of time. Moving averages serve to eliminate short term price fluctuations giving a clearer picture of price movements. Forex traders can plot a SMA to determine when prices have a tendency to rise or fall. If prices cross above the SMA they have a tendency to keep on rising. Conversely, prices below the SMA have a tendency to continue their downward motion.

These are two examples of trading strategies that can be used individually or in combination. In practice, the Forex trader should have a repertoire of trading tools to examine market conditions and to support the findings of one study or another. If several indicators show that the market is moving in a particular direction the trader can act with more assurance than when relying on a single indicator.

Similarly, Fundamental analysis can be used to reinforce technical findings, or vice versa. Ideally, the Forex trader will take several indicators into account when plotting a trading strategy.

Every trading strategy should provide clear guidelines about when to enter a trade, what to expect in terms of market movement, when to exit a trade, and how much loss can be accepted in case the deal moves against the trader. Following these simple guidelines and learning about technical analysis can help you become a successful Forex trader.




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Forex Philosophy

Many beginning Forex traders are captivated by the allure of easy money. Forex websites offer 'risk-free' trading, 'high returns' 'low investment' – these claims have a grain of truth in them, but the reality of Forex is a bit more complex.

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

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

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

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

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

This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the Forex with strategies, and if you hope to succeed as a Forex trader you must play by the same rules.

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

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

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

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

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



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Trading Currencies on Margin

The key to Forex popularity is margin. Without margin, the Forex would be beyond the reach of the average investor. So, what exactly is margin and how does it work?

Margin accounts allow Forex traders to control large amounts of currency with a relatively small deposit. Establishing a margin account with a Forex broker enables you to borrow money from the broker to control currency lots which are usually worth $100,000. The amount of borrowing power your margin account gives you is the leverage. Leverage is usually expressed as a ratio – a leverage of 100:1 means you can control assets worth 100 times your deposit.

What this means in Forex is that with a 1% margin account you can control standard lots of $100,000 with a $1,000 deposit. Trading on margin increases both profits and losses, and the potential exists for the trader to lose more than his original deposit. With proper safeguards, however, loss can be limited, and usually brokers will terminate a transaction that extends beyond the margin deposit.

Benefits

As we mentioned above, trading on margin gives you more buying power and the potential for more profits (and losses). How does this work, exactly? A 1% margin account allows you to control a currency lot of $100,000 for $1,000. When dealing with $100,000 small changes in the price of the currency can result in large profits or losses.

Forex currencies are traded in much smaller units than cash. The American dollar, for example, is traded in units down to 4 decimal places. Instead of $1.32 Forex quotes are seen as $1.3256. The smallest unit in FOREX currencies is called the pip, and when you have a $100,000 each pip of your total lot is worth $10 (when trading American dollars).

If the price of American dollars changes from 1.3256 to 1.3356, that's a difference of 100 pips which represents a profit or loss of $1000. Without margin, if you had $1000 of currency, the price change from 1.3256 to 1.3356 represents a difference of $10. Significant to the tourist, perhaps, but not the investor.

So the benefit of margin is increased profit potential.

Risks

As there is increased profit potential, there is also increased loss potential. If you are not careful, your entire margin account could quickly be wiped out. If your margin account is 1% and the currency moves just one cent against you, you lose $1000.

Forex trading, however, has several methods to limit loss. Stop loss orders automatically close your position if the value of the currency crosses a pre-determined point. Stop loss orders allow you to limit your losses to a specified amount while still allowing potential profit taking.

An often overlooked risk is the possibility that your broker may close your position if your potential losses approach the balance of your margin account. You may be riding out a down trend with the expectations of a market reversal, but unless you replenish your margin account you may find your position has been closed. If this happens, you lose all of your margin.

Example 1:

You sell EUR/USD at 1.2144 (sell 100,000 euros and buy 121,440 US dollars) with the expectation that the euro will fall in price. You have a 1% margin account which means the required margin is $1,214.40. You have $1250 in your margin account, so to enter this position your margin account is left with $35.60.

You have not specified a stop loss order, and after you enter this position the euro suddenly rallies, gaining 0.0263 for a price of 1.2407. 100,000 euros are now worth US$124,070 and your 1% margin requirements have risen to $1,240.70. Depending on the policy of your broker, your position may be automatically closed or the extra funds in your margin account may be used to make up the difference. In any case, if the euro continues to gain value and you wish to ride it out (bad idea) you will have to add more funds to your margin account or risk losing everything.

Example 2:

You buy USD/CHF at 1.2623 with the expectation that the US dollar will gain against the Swiss franc. You buy a standard lot of 100,000 American dollars for 126,230 Swiss francs with a margin requirement of 1% or $1,000.

As expected, the US dollar rises to 1.2683 at which point you close your position. You sell 100,000 American dollars for 126,830 Swiss francs for a profit of 600 francs or US$473.08 (600 francs divided by the exchange rate of 1.2683).




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How to read Forex Quotes

Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).

Because of the immense volume of Forex, however, it is impossible for one force to control the market for any length of time. Market forces will prevail in the long run, making FOREX one of the most open and fair investment opportunities available.

Each world currency is given a three letter code which is used in Forex quotes. The most common currencies are USD (US dollars), EUR (European euros), GBP (United Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and CAD (Canadian dollars).

Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies. The first currency is the 'base' and the second is the 'quote' currency. In this example:

USD/EUR = 0.8419

...the currency pair is US dollars and European euros. The base currency (USD) is always at '1' and the quote currency shows how much it costs to buy one unit of the base currency. In this example, 1 US dollar costs 0.8419 euros.

Conversely...

EUR/USD = 1.1882

...tells us that it costs 1.1882 US dollars to buy 1 euro.

When the price of the quote currency goes up it indicates that the base currency is becoming stronger – one unit of the base currency will buy more of the quote currency. If the quote currency falls, however, the base currency is becoming weaker.

Forex quotes are seen in 'bid' and 'ask' prices. Bid is the price that buyers will pay for the base currency (while selling the quote currency), and ask is the price that sellers will sell the base currency (while buying the quote currency).

Symbol Bid Ask
USD/CAD 1.2392 1.2397

This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell one American dollar for 1.2392 Canadian dollars. The most commonly traded currencies pairs are the 'Majors' – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and USD/CAD.

We often see exchange rates listed in cross currency charts that list many different currencies and their values against each other. An example of such a chart is seen here:

US $ Ca $ Euro UK £
US $ 1.00000 1.24060 0.83935 0.56870
Ca $ 0.80606 1.00000 0.67657 0.45841
Euro 1.19140 1.47805 1.00000 0.67755
UK £ 1.75840 2.18147 1.47591 1.00000

In this chart, the currencies listed down the left side of the chart are the base currencies and the currencies at the top are the quote currencies. We can convert the chart above into currency pairs by following the row beside the base currency. Using US dollars as the base currency we get the following currency pairs:

USD/CAD = 1.24060
USD/EUR = 0.83935
USD/GBP = 0.56870

...which tells us that one US dollar is equal to the corresponding value of the quote currency. To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the US dollar column - CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US dollars).

There is no standard for cross-currency charts – some have the base currency on the top and some have it on the side. How to tell which is which? You need to know at least one pair of currencies and which one of the pair is more valuable.




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Forex versus Stocks

Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial ownership in the company.

When the company does well and makes a profit, the value of the stocks rise. Stock owners can sell their shares for a profit or hold on to the stock for even more gain in the future. Sometimes companies will issue dividends – part of the profits that are distributed to share holders.

Stocks are traded on stock exchanges. Most stocks are bought and sold through brokers who charge a commission or fee for this service. American stock exchanges include the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Most stocks are only listed on one exchange, although large companies may have listings on several exchanges.

Stocks were traditionally seen as long term investments. So called 'blue chip' stocks - those having proven value over many years - may form the backbone of an investment portfolio. Short term trading is a relatively new phenomenon made possible with the advent of Internet trading. Day traders attempt to take advantage of large daily fluctuations in the market by buying and selling many times in one trading period. It is relatively risky and any profits realized are reduced by broker commissions charged on each transaction.

Stocks may sometimes be bought on margin, meaning that the investor borrows money to buy the stocks. Margin rates are usually around 50% - the investor can borrow as much as half the value of the stock.

FOREX
The Foreign Exchange Market (FOREX) is quite different from the stock exchange. In contrast to the stock exchange, the Forex is primarily a short term market. Most traders enter and exit deals within a 24 hour period – sometimes within a few minutes. Many Forex trades can be made in one day without building up a large brokerage fee because FOREX trades are commission free. Brokers earn money by setting a spread – the difference between asking and selling prices.

The Forex is the largest financial market in the world. It is handles transactions worth $1.5 trillion every day. By comparison, all the American stock exchanges combined handle daily transactions worth about $100 billion. The huge volume of Forex means that it is one of the most liquid markets in the world. There is always a buyer and seller for any type of currency because the world economy relies on the movement of goods from country to country. The stock market is less liquid because participants may choose to hold their investments or move on to other markets.

The Forex is not located in any one location. Trading markets are located world-wide and because of difference in time-zones trades can be made 24 hours a day, 5 days a week. Trading begins in Sydney, Australia on Monday morning (Sunday afternoon New York time) and continues non-stop until Friday afternoon New York time.

Stock exchanges have more limited trading hours. While it is possible to trade on exchanges world-wide, each exchange is independent and operates for just 7 hours a day. There is no way to buy or sell a certain stock that is only traded on one stock exchange when that exchange is closed.

Other advantages of Forex? It is more predictable than stocks. It follows well established trends; it allows high leverage – typically 100:1 instead of 2:1 on the stock market; and it doesn't require a large investment – mini accounts as small as $250 can get you started in Forex.




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Fundamental Analysis pt II

Forex traders almost always rely on analysis to make plan their trading strategies. There are two basic types of Forex analysis – technical and fundamental. This article will look at fundamental analysis and how it is used in Forex trading.

Fundamental analysis refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.

Currency prices on the Forex are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.

Indicators
Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.

Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.

Interest Rates - can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.

International Trade
Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

Other indicators include the CPI – a measurement of the cost of living, and the PPI – a measurement of the cost of producing goods. The GDP measures the value of all goods and services within a country, while the M2 Money Supply measures the total amount of all currency.

There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so FOREX traders should be aware of them when preparing strategies. Up-to-date information is available on many websites and many FOREX brokers supply this information as part of their trading service.

Note: Not all Fundamental Announcements move the Market.

Banks are usually fundamental traders, when the report is released they aggressively start trading. If the announcement or report does not have a change in 'economic value" for the currency or forex market, the market will not break-out and will continue to move in the direction of the previous trend.

If an announcement from the previous trading session moved the market to a new value and a new announcement reflects this value, prices may not move at all.




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Forex versus Futures Market

Futures Market
The origins of today's futures market lies in the agriculture markets of the 19th century. At that time, farmers began selling contracts to deliver agricultural products at a later date. This was done to anticipate market needs and stabilize supply and demand during off seasons.

The current futures market includes much more than agricultural products. It is a worldwide market for all sorts of commodities including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds. A futures contract states what price will be paid for a product at a specified delivery date.

When the futures market is played by speculators, the actual goods are not important and there is no expectation of delivery. Rather, it is the futures contract itself that is traded as the value of that contract changes daily according the market value of the commodity.

In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date. For example: A farmer agrees to deliver 1000 bushels of wheat to a baker at a price of $5.00 a bushel. If the daily price of wheat futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.

At the end of the contract period, the contract is settled. If the price of wheat futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost the same amount. However, the baker now buys wheat on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of wheat. Similarly, the farmer must sell his wheat on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.

The baker, however, is still in effect buying the wheat at $5.00 a bushel, and if he hadn't entered into a futures contract he would have been able to buy wheat at $4.00 a bushel. He protected himself against rising prices but he loses if the market price drops.

Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise or by buying short (from the seller) if they expect prices to fall.

Forex Market
The foreign exchange market (FOREX) has several advantages over the futures market. Forex is a more liquid market – as the largest financial market in the world it dwarfs the futures market in daily exchanges. This means that stop orders can be executed more easily and with less slippage in the Forex.

The Forex is open 24 hours a day, 5 days a week. Most futures exchanges are open 7 hours a day. This makes Forex more liquid and allows Forex traders to take advantage of trading opportunities as they arise rather than waiting for the market to open.

Forex transactions are commission-free. Brokers earn money by setting a spread – the difference between what a currency can be bought at and what it can be sold at. In contrast, traders must pay a commission or brokerage fee for each futures transaction they enter into.

Because of the high volume of trading Forex transactions are almost instantly executed. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade – not necessarily the price of your transaction.

The Forex is less risky than the futures market because of built-in safeguards in the trading system. Debits in futures are always a possiblility because of market gap and slippage.




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How to Get Started In Forex Trading

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

Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.

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

Forex traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.

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

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

However – Forex beginner traders are advised get accustomed to Forex by doing paper trades for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools that are at provided by most Forex brokers.

Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new Forex investor is strongly advised to use these demo accounts at least until they are showing consistently steady profits.

Each broker has their own set of software tools to aid in making transactions, but there are a few tools that are common to all Forex brokers. Real time quotes, news feeds, technical analyses and charts, and profit and loss analyses are some of the features you should expect to see on most online brokers' web sites.

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

Trades are commission free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread' – the difference between bid and ask prices.




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Online Forex Trading

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Forex Market Analysis

There are two standard disciplines that are used for analysis in the forex markets.

It is said in trading, that the “trend is your friend” and that is true. For instance, if a trend in the EUR/USD market is moving higher, than only establish long positions. If however the market is trending lower, than only establish short positions.

How you determine if any particular market is trending lower or higher is by looking at your bar charts you receive when you establish a trading account with a forex market. If your bar chart shows prices moving higher, based on a particular time frame, than you know that market is trending higher. If those bar charts than show prices moving lower based on a particular time frame, than you know that the market is trending lower.

Those two types of analysis is:

1) Fundamental Analysis
2) Technical Analysis

Fundamental analysis is the study of the economics of supply and demand for any commodity, security or currency. Too much supply without the demand, will typically drive prices lower. Too much demand without the supply will typically drive prices higher.

Traders who trade by using fundamental analysis utilizes weather reports, Gross Domestic Product (GDP) reports, interest rates hikes or cuts by a country’s monetary committee like the federal reserve.

In the end, it is fundamentals which drive the market prices both higher or lower.

Technical analysis is the study of price action over a specific period of time, using price charts to gage trends to verify if markets are trending higher or lower.

The 3 main premises of technical analysis approach is that price history repeats itself over time, price action moves in trends and the markets always discount fundamental news ahead of time.

Here’s what these 3 premises means to the trader:

Price history repeats itself over time – both fundamental analysis and technical analysis overall believe that this is a fact. Gasoline prices reach a peak in prices during the summer months because this is when people normally travel for vacations. On a technical analysis basis, price of gasoline starts to trend higher in March and reaches a peak in July. During August prices decline, and then rise one more time right around September for the last U.S. holiday (Labor day) before school starts.

Although this is an example of a particular commodity and not a currency, the concept is the same. There are some instances that aren’t seasonal, but fundamental. Like monetary policy of a country. If the U.S. Federal Reserve cuts interests rates, this is usually bearish (trending lower) for the U.S. dollar.

Price action moves in trends – Sticking with are example in gasoline, the prices of gasoline is sold in U.S. dollars. As the dollar weakens, this could be bullish for gasoline prices because other currencies that are worth more than the U.S. dollar, can buy more gasoline, with less money. This can create trends. Going by Newton’s law of physics, a trend in motion is more likely to continue in that motion than reverse. Remember, it is best to trade with the trend as this trend has tremendous amount of momentum and strength in that particular direction.

The market discounts everything ahead of time – Fundamental reports are usually released on a specific dates. There are usually leaks of this information by other reports, analyst that follow these securities or there are other data which provide hints on what an actual report is going to be before it is even released. Because markets are priced in real time, the market traders bid up or sell down prices based on other preliminary reports before the main one is released.

The market than takes this information into account by either adding to the current price or subtracting from current price based on this assumption. At the time of release from the actual report, if the market assumed wrong, prices will immediately reverse and go the other way. If however the markets interpretation was right, but not as aggressive, the markets will then compensate and surge in that direction.

If the market was correct and wasn’t either overly aggressive or pessimistic, than the market will take it in stride and not move drastically either way. This will happen with all information that is scheduled to release.
Information that is unscheduled or that breaks out without the market having a chance to discount the information, such as terrorist attacks or an unexpected rate cuts or raise, the market will react appropriately either by surging higher or lower.



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Make Money Trading Forex

To make money trading forex, you need a forex trading strategy and forex trading education.

If you are new to forex trading and wants to know to how make money trading forex, be warned that forex trading is not a get rich overnight scheme. Sure, many people have become millionaires by trading forex but it wasn’t overnight or for that matter even in a couple of weeks.


It takes months and years of practice and education to hone your forex trading skills before you can make money trading forex.

With that said, you could cut short the time by doing it right the first time.

That’s means a sound forex trading strategy, forex trading education and lots of practice. Another thing, make sure you have money to lose because most likely, you will lose money when you first start trading forex.



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Forex Pips

What does pip mean in forex trading? You might come across with this kind of question especially if you are an apprentice trader and is still beginning to learn various facets of the currency exchange trade.

Essentially, pips are units of measurement that is use to gauge a trader’s gains and losses. A pip is equivalent to a ten-thousandth of currency pair unit; those traders who have 10 or 20 pips shifts can either mean cents or a thousand dollars.

This is so due to the fact that this will rely on the amount or capital you have invested on the trade.


Pips are cents and whether it’s a forex trade from other country all will depend on the type of currency a country has, so this can be US dollars in the United States, Korean Won or Japanese Yen.
In pips, traders are after for the differentiation in rates amid the two currencies of two countries. In Foreign Exchange what are more essential are currency pairs, therefore, there should always have the need to properly monitor two currencies and be able to determine their similarities in terms of relative value.

When you venture in Forex exchange you need to identify the amount you need to buy other country’s currencies. This means that you need to determine the amount in dollars to buy one Euro or Won or Yen.

This is basically how forex trade is yet; the most salient of all is to know how to measure how much you’ve gained and how much you’ve loss.


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Learn Forex Trading Online

Learn Forex Trading Online

To learn forex trading online, it is important to first understand how the forex market or FX market works. Here is a brief explanation of what is forex trading and forex trading online.

The forex trading market was first established in 1971. It was called the foreign exchange market back in those days and operates 24 hours a day, 5 days a week. The daily currency transactions in the FX market can exceed more than $1 trillion US dollars so there is a lot of money being traded each day.



There are a couple of major forex trading centres around the world. The 3 most famous are in New York, London and Frankfurt. However, forex trading can be conducted anywhere around the world as long as there is either a telephone or an internet connection.

Much like the stock market, there will be opportunities abound where you can profit handsomely by buying low and selling high currencies. For the FX market, the prices of currencies is often determined by political and economic conditions around the world as well as specific parts such as Asia-Pacific, Americas, Europe etc. The supply and demand of oil also play an increasing significant role in forex market.

To profit from currency trading, you will need to understand the technicalities of forex trading as well as a forex trading strategy. Forex trading tools are important as well but the most important asset any newcomer to forex trading should have is to develop their forex trading skills.

With time and effort and correct training, you will gain a better understanding of forex markets and know how to best use forex trading tools for technical analysis.

As an individual, you are not allowed to trade forex trading directly unless you are super rich. You will probably need to use the services of a forex broker or through brokerage houses. The minimum sum to open a forex account is pretty low, usually as little as $250.

If you want to learn forex trading online, I highly recommend these online forex trading courses. These have been proven to work and is the easiest way for you to start learning forex trading at your own pace.


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TIMING IN FOREX

What is M15 timeframe?

M15 stands for 15 minute time frame.
Other examples:
4h - 4 hour time frame, or you can also say - 4 hour chart.
1d - daily time frame, 1 day chart.
5m - 5 minute chart.

Forex for beginners


Hi, Im a bit confused about the openning time for london forex market. Is it at 5:00am or 8:00am ? And how about the timing of the platform of those Meta4 trader, are they GMT ? Are they all auto adjusted to day light saving ? ( what is the duration of day light saving ) Please enlighten me. Thank you.

London market opens at 8am GMT.
Different Forex brokers have different default timing settings for the Metatrader Platform offered. Those settings cannot be changed. You should ask your broker what timing their trading platform uses. All platforms are auto adjusted to daylight savings.
Here is additional information on the calendar and duration of daylight saving periods in the world.
http://www.timeanddate.com/worldclock/city.html?n=136



If I traded before daylight savings time fall 2007 and up to end of feb 2008 at 5:00 pm mountain time, which is 0:00 GMT time. Would I still trade the same time or do I need to adjust my strategy back 1 hour as we moved our clocks forward 1 hour? I noticed today that 0:00 is now at 6pm mountain time?

Yes, as we switch to daylight saving time and back you adjust your strategy time accordingly.



Please i need your help about the timing because am in Nigeria and we are an hour ahead of GMT (GMT+1).
Kindly help with the best time for me to calculate my pivots for both London and America market on 15 minutes chart.

Ok, let's use the time from 00:00 Eastern time to 00:00 next day Eastern time to calculate Pivot points.
Let's not just do it one time, but learn how to do it each time when we require to perform similar time matching tasks.

1. Go to http://www.forexmarkethours.com/
2. Choose your local time zone in the window application. Press "Go!". Note the time in the green box next to it.
3. Now choose "GMT - 5 Eastern Time (USD, Canada)" in the same application. Press "Go!". Note the time in the green box again.
4. Find the difference in hours.

Using the rules above, for you time zone currently we have 5 hours difference (its daylight saving time in US).

Therefore, since we want to Calculate pivots from 00:00 to 00:00 EST, in your local Nigeria time it will be from 5:00 am to 5:00 am EST.

Same way we find the difference for London hours. Because of daylight savings your Local time now is the same as in London. No additional calculations required.



During the 2 weeks period when daylight savings is activated in different countries across the globe, it does confuses traders as to what hours to use. We suggest monitoring the time with Eastern Time time zone (New York time). Some traders may find useful switching their PC local time to Eastern Time to monitor hours effectively.
Also http://www.forexmarkethours.com/ will always tell you what markets are currently open regarding your local time zone.


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Go live with a $200 trading fund, amd leverage 200:1

Take the highest leverage possible.
200:1 or higher.
Why?
Your margin requirement will be lower, allowing you to open several trading positions without looking back at the column with available margin and worrying about going out of funds and getting a margin call.

$200 is a mini investment, so there is virtually nothing to protect. Compare it to $200 000 investment: traders take lower leverage of 20:1 to protect their investment in case something goes terribly wrong. Large investors also have enough equity to open several trades and add more traders later. In your case, if you take 20:1 leverage, you'll be able to open 1 or 2 trading positions and that's all, your equity isn't large, so you need to leverage it to be be able to trade comfortably.


The only thing to keep in mind is to keep no ore than 3-4 positions open at one time. 1-2 max in the beginning is even better: you'll be able to control your trades better, learn how balance, equity, margin required and available columns in your account behave and what's most important, you won't be overusing your leveraged account, therefore no worries about getting a margin call.


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Leverage

When opting for a leverage, make sure you know what margin requirement is set for it. Different Forex brokers may have different margin requirements for the same 1:100 leverage.
It is important to understand the meaning of both terms before trading live.

Leverage - the ratio of investment to actual value. A leverage of 1:100 means a trader can buy a Forex contract of $1000 by paying $10.

Before allowing a new trade, the system checks that a trader has a minimum deposit required to open a new contract. If there is not enough funds (real funds including current floating losses and profits) to open a new contract, the platform won't allow any new trades, except for closing existing ones.

When a new trade is open it reflects in Used Margin column.
Used Margin - the deposit temporarily withdrawn from/blocked on the client account as collateral to cover any losses which may occur as a result of trading. When a trade is closed, it is returned back.

The rest is Available Margin.
Available Margin - limits the size of positions a trader can open and will affect when a trader is going to receive a margin call.

When your floating account balance (final balance after adding all floating profits and deducting all floating losses as per current minute) becomes equal to Used Margin due to recent losses, a Margin Call is received - brokers' trading platform begins to liquidate all (or few) running trading positions to ensure that you don't spend more than you have invested.

Also note, that majority of Forex brokers provide traders with huge demo accounts of $50 000, where noticing any significant influence of "leverage-margin" effect is difficult unless you set a goal to do so. Large demo account offers plenty of funds, which will keep all worries away for a long time; hopefully long enough for a trader to believe in his/her trading success and consider live Forex trading. Our advice is, if possible, look for a demo account of $1000-5000 or so, where you'll be able to feel and trace the working mechanism of leverage and margin.


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Forex beginners

Being a Forex beginner


We all were beginners one day...
This site is for everyone who decides to step on a path of Forex trading career.

An overwhelming amount of information about Forex can leave an average newbie quite discouraged: What to do first? Where to start? Will I ever be able to comprehend everything about Forex trading?
Those and many other questions will be answered here in our tutorials and lessons.


What currency pairs to trade in Forex?

Although there is lots of currency pairs offered to Forex traders, if you are a beginner it is easier to start with major currency pairs:

EUR/USD
GBP/USD
USD/JPY

There are several good reasons for that:

1. These currency crosses are widely traded, thus providing liquidity which is needed in order to benefit from price changes.
2. They have tight spreads, except may be for GBP/USD, which most of the time receives higher spread quotation from Forex brokers as it is more volatile (e.g. has wider price ranges than other pairs).


What time frame to trade in Forex?

What is the best time frame in Forex? What is the most profitable time frame in Forex?
Those and similar questions are rising day after day in minds of novice Forex traders.

Let’s drop out the philosophy and focus on facts.

We know that each time frame displays same data, but in different intervals.
The choice of time frames is wide.

Let’s take the most preferred Forex time frames: 1 day, 1 hour and 5 minute.
These time frames are also perfect for beginners to test their feel about the Forex market.

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