The Forex Nitty Gritty

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Archive for September, 2010

What is the Forex Market?

Posted by TFNG Admin On September - 30 - 2010

What is the Forex market? There are a number of answers to this question. The Forex market is a worldwide market for trading currencies. Its major institutions are the London, New York, and Tokyo exchanges and the market is essentially open around the clock. What is the Forex market? It is a market set up to help convert one currency to another and thereby helps foreign investment and international trade. It is also a market where traders can speculate on the direction of currency values. Understanding the Forex markets requires that a trader be familiar with the economies as well as the monetary policies of both nation’s whose currency he trades.

In the Forex market a trader will trade one currency pair against another. For example a trader who trades the Euro versus the dollar will follow factors influencing the EUR/USD pair. A trader interested in trading the British Pound versus Yen will follow both Japanese and British economics and central bank policy. What is the Forex market for other currencies? The major currencies are the US dollar, Australian dollar, Canadian dollar, the Yen, the Pound, the Euro, and the Swiss franc. However, there are many other currencies traded. Because they are traded in much smaller volumes they are referred to as minor currencies.

Traders typically trade the major currencies because they trade in high volume and liquidity. These factors typically make trading software more successful in predicting market changes. Thus the trader enhances his chance of making a profit trading Forex by sticking with the major currencies. That is not to say that a trader cannot profit from trading minor currencies. That is certainly possible. However, the trading can be more volatile. Because Forex strategy and the Forex news are closely linked, trading a minor currency of a country whose news sources are not as accurate or up to date can be perilous. What is the Forex market to someone trading minor currency pairs? It can be a risky neighborhood albeit a potentially profitable one.

What is the Forex market to a multinational company? It can be a place for hedging investment risk. Depending upon which currency is used to contract an international transaction one or both parties in a contract may choose to buy or sell a currency in order to hedge the risk of shift in currency value before payments are due. Multinational corporations may find themselves commonly dealing with Forex trading and foreign currency risk in dealing throughout the world. Because the Forex market determines the relative values of currencies many international corporations have professional currency traders who help manage the currency exchange risk of their operations across the globe.

What is the Forex market to the practitioner of the carry trade? It is a place to find countries where funds can be borrowed at a low interest rate. These companies and individuals will borrow one currency and convert to another where interest rates are higher or investment prospects are higher. If successful the carry trade profits the trader who can move in and out of these currencies, loans, and bonds or other investments in a timely and efficient manner. In short the Forex market is many things to many people but all of its meanings hinge upon many traders buying and selling currency pairs and the sum of their actions determining the relative values of currencies around the world. Good Forex advice is that the trader learn what is profitable for him and trade within those bounds.

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How Can I Learn to Invest Safely in the Forex Market?

Posted by TFNG Admin On September - 11 - 2010

A common question these days from new comers to Forex is “how can I learn to invest safely in the Forex market.” This question often comes from those who lost substantial sums in the recent stock market crash and are looking for a means of recouping their losses. Normally the focus of new investors in Forex is the leverage offered by Forex trading and the excellent profits that Forex trading leverage can provide. However, those once bitten are twice shy and those who lost in derivatives in the market crash are wise to ask “how can I learn to invest safely in the Forex market. Investing safely is possible so long as the investor realizes that there is always market risk and that investing safely is doing the things that reduce risk while improving the chances of success. In the short and long run how to trade Forex successfully is with knowledge, discipline, and hard work. These are the answer to how can I invest safely in the Forex market?

There are no guarantees of success in today’s Forex market which is commonly trading sideways. Unfortunately there are ways to guarantee losses. For example, a trader who is in a currency pair that he does not understand and for which he has done no fundamental analysis is asking for trouble. Technical trading is largely based upon accurately reading and taking advantage of small market moves. However, the market may be moving in one direction and may briefly correct. Having a clear idea of where the fundamentals ought to take the market will help the trader decide whether or not to exit a position or to ride out the possibly brief correction. The trader can always exit a position and then reenter if the market turns around. The trouble is that every trade costs fees and commissions and if the market is turning around the trader will lose unless he re-enters his position very quickly on the turnaround. This gets into how many trades you make and the business of auditing your results.

There are traders who make money on many small trades each day and eat up a substantial portion of their earnings in fees and commissions. If one of these traders remembers to ask the question, how can I learn to invest safely in the Forex market, they will start to audit their trading results and learn to pick fewer trades with larger chances of success. The old adage is that you don’t lose if you don’t trade. So, how can I learn to invest safely in the Forex market? Research the currency pair you want to trade. Audit your trading results and aim for fewer, more profitable trades while avoiding what amounts to compulsive trading. This has to do with the psychology of trading. We usually talk about the twin demons of greed and fear that drive traders to bad trading decisions. The other “psychological” factor is a compulsiveness that can emerge at the trade station. To trade successfully the trader needs to treat trading as a business and execute trades that are planned and part of a Forex trading strategy. When considering Forex tips versus Forex strategy in Forex trading it is strategy that wins out. How can I learn to invest safely in the Forex market? Treat Forex trading as a business with attention to every detail. Forex trading can be very profitable for those to are diligent, knowledgeable, and work hard.

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How to Trade Forex

Posted by TFNG Admin On September - 5 - 2010

To learn how to trade Forex an individual will start with the basics of the Forex market, the mechanics of trading, the use of trading software, and the fundamentals of technical analysis. Classes online are useful as is having an online tutor. Developing a successful Forex trading system depends upon integrating all aspects of Forex trading. For this the trader needs to set himself to the task of learning one thing at a time and practicing trading in simulation to bring up his skill set. The trader will need to decide upon how much capital to commit to Forex trading and what sort of leverage to use. A large degree of leverage can be very profitable but can also result in losses. The beginning trader is probably better served by trading with less leverage until he establishes a successful trading record. How to trade Forex is to learn all of this and than apply that knowledge.

When the beginner is learning how to trade Forex there are a series of decisions to make, many of them involving money. When looking at online trading software there are many products and, commonly, a lot of hype about how good the software is and how much money it will make the trader. Traders need to be wary of Forex scams in that the trading software is just a tool. It many, or may not, be an efficient tool but software does not guaranteed results. Knowing how to use the software is what is important. If the trader can find a software package with a trial period it may be best as he or she will be able to try in on for size and buy another brand if the first does not perform as expected. When looking for foreign exchange software find the best among the rest by being a good comparison shopper. Remember that the criteria for trading software have to do with information transfer and ease of operation, not necessarily with results. Results are the trader’s job.

How to trade Forex includes learning to integrate Forex strategy and the Forex news. Knowing which currencies to trade and when to trade them is a major part of how to trade Forex. Having all of the technical skill in the world will do the trader no good if he or she is in the wrong currency pair when the action happens. Traders are typically best served by trading the major pairs as these offer higher volume and liquidity which typically makes Forex trading software more accurate. However, Forex trading the Euro versus the dollar, a trader may not see any appreciable action when the central bank of Japan intervenes in the currency markets by buying both Euros and dollars. It is by anticipation of where the shifts in relative value of currency pairs will occur that Forex traders have the possibility of making money. It is by successful execution of trades that the trader actually profits from Forex trading. How to trade Forex is to learn both. It is by discipline and application of knowledge learned that Forex profits are made.

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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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