The Forex Nitty Gritty

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Archive for August, 2010

Is Trading Forex or Commodities Better?

Posted by TFNG Admin On August - 29 - 2010

There are a number of questions the trader needs to ask himself when planning to trade. Do I have the capital to risk in trading? Can I devote the time required to learn the mechanics of trading and to follow the market or markets in which I choose to trade. A basic question might be “is trading Forex or commodities better for me”? In answering the questioning is trading Forex or commodities better the trader will learn about market volume, liquidity, daily price fluctuations, margin requirements, and the like. The trader will have certain preferences and basic knowledge that might lend themselves better to trading a given set of commodities or a given currency pair. While the beginning trader is picking trading hardware, choosing an electronic trading platform, and choosing a broker through which to trade asking a question like “is trading Forex or commodities better?” will help focus his or her attention on the kind of details that lead to successful trading. When the foreign exchange markets are trading sideways and a commodity like wheat is going through the roof due to draught in Eurasia the beginning trader may believe that he has the answer to “is trading Forex or commodities better.” However, the question is best answered taking the long view.

A successful Forex trading system can make money in the largest market in the world. Trillions of dollars worth of currencies are traded on the foreign currency exchanges over time. This gives the trader access to a very liquid market in any of a number of major currency pairs. These pairs include any two of the euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, or the Swiss franc. Trading outside of the majors can put the trader in a market with less volume, less liquidity, and, often, less potential for profits. In trading the major pairs a trader commonly will be able to take advantage of small market changes throughout the trading day, buying and selling on cue from his trading software. The market moves will not be huge but with sufficient trading leverage there is the potential for good profits. There is always risk trading at a high level of leverage but many believe that the high liquidity of the Forex markets makes their software more statistically accurate so that they can better manage risk by adept trading. There are good and bad reasons to trade the Forex market but the high volume and liquidity are typically ranked as good reasons to trade currency pairs.

The commodity markets are well known to experience large price fluctuations. This is especially true of agricultural commodities where yearly demand can “eat up” supply. A current example is the severe drought in Eurasia which has sent wheat futures skyrocketing. Commodities trading always has the possibility of large price fluctuations based on new market news. This is attractive to many traders but always carries a level of risk that other traders wish to avoid. Thus, asking “is trading Forex or commodities better” might be rephrased. The trader might ask, “Is trading a highly liquid and profitable market better than trading a potentially volatile market?” In both cases the trader will need to devote a fair amount of time to learning to trade in either market. He or she will also need to devote time to trading. In either market it is entirely possible that if you sit out a day and don’t trade that you will miss a big, and potentially profitable, market move. Good Forex advice, like commodity advice, might be that you choose what fits your skills, inclinations, and allotted time and review your results.

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Trading Sideways

Posted by TFNG Admin On August - 16 - 2010

Commentators are saying that the Forex markets are trading sideways these days. That is to say there are no big up or down moves in any major currency pairs. It would seem that everyone is thinking Forex strategy and Forex news, waiting for markets to break. Part of this is the uncertainty brought on by the slowly resolving recession and not knowing who will really break out and how soon and how fast. It also has to do with the issue of managing the huge amounts of debt that governments have taken on to stimulate their economies while simultaneously worrying about political problems brought on by high unemployment. Forex and sovereign debt are still closely linked. As markets are still trading sideways good Forex advice would seem to be to follow the herd and not commit excessive capital until market direction becomes clearer.

As markets continue trading sideways China continues orchestrating Yuan revaluation. In prepared statements the State Administration of Foreign Exchange in China said it adopts “a go with the flow” attitude in the management of its Forex reserves. The statements continues to say that any buying and selling of US debt is and will be based upon taking advantage of market conditions and not based upon political messages. The agency states that US debt provides good security and low transaction costs and that it is the largest single debt market on the planet. None of this really tells the currency trader anything but is politically reassuring. Based upon the statement we can expect to see things trading sideways. Any market movement will come with China’s buying and selling of dollars and its demonstration of a willingness to see the value of the Yuan float upward.

One issue that could affect the issue of the Forex market trading sideways is the fact that the US congress will soon pass new regulations governing the financial industry. To the extent that these regulations restrict Forex trading they will remove huge players from the Forex markets. Much of the speculation about this issue has to do with financial losses that the big banks in the USA could take. For the Forex trader the issue is if less trading volume will lead to less liquidity. A less liquid market could be a more volatile market and trading sideways could become a thing of the past. Understanding the Forex markets could change if there are fewer players or if other players enter the Forex markets to take up the slack. Nevertheless, trading Forex is still a mixture of anticipation and reaction. Currencies trade higher on good economic news and when the news hits the market traders react differently based upon their perception of the news and when they are able to execute their trades. Thus technical trading will still work for those well versed in pattern analysis and diligent in execution.

Factors influencing the EUR/USD pair are still important, as an example, as the market is trading sideways. When something substantial happens the markets will move. As always success in Forex means a plan and a method. A little research and practice trading while the market is trading sideways may be in line.

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Disclaimer - Forex, futures, stock, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using this methodology or system or the information in this site will generate profits or ensure freedom from losses.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN OR MENTIONED.

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