The Forex market reflects the fact that the world economies will soon be on the mend. The Forex market and daily Forex currency trading anticipates the eventual relative values of currencies. Your Forex trading software anticipates the next Forex Market move based upon a database of past experience and sophisticated programming. Does having insight into where the Forex market will be next week, month, or year make any difference in daily Forex currency trading?

We can reasonably expect that some currencies will lose value over time and some will gain value as the world readjusts after the recession. Those who anticipate whose currency will drop in value and who will gain will come out winners in Forex currency trading. Forex trading software is basically technical trading in a box. It follows the patterns of the year, month, day, hour, minute, and second to give you a statistically based recommendation.

You believe that the US economic stimulus package was too big and that, over time, it will lead to inflation and a drop in the value of the US dollar in the Forex market. So, the question is this. In your Forex currency trading do you continually sell dollars for Yen, Euros, or the Pound Sterling? Not really.

Successful Forex currency trading is based upon the fact that the slide of the dollar or its ascent is not a smooth algebraic curve. The Forex market takes into consideration multiple events, trends, and possibilities and then does its Forex currency trading. The huge number of traders, each with a slightly different mindset, makes for a set of discontinuous market curves. It turns out that things like fractals out of so called Chaos Theory often do a better job of explaining what is going on than the algebra you learned in school. That is why you buy Forex trading software.

For your Forex trading software to work you need to practice and you need to be true to your Forex market trading plan. When the Forex market moves there is plenty of opportunity for profit for a practiced trader.

Forex market insight is still important because he or she who knows more has the opportunity to gain more in Forex currency trading. However, adequate Forex market insight has to do with knowing daily events as well as long-term trends and has to do with the Forex currency trading that is going on every day in many different currency pairs at once. This is where taking the time each day for a bit of homework and developing a reasonable Forex currency trading plan comes in.

Forex market insight will help with are some very practical Forex market considerations such as what market(s) to trade, and what hours and days to trade the Forex market and what hours and days to sit it out and watch. The great baseball pitch Satchel Page was asked why he so often stared at the batter a long time before throwing the pitch. Page joked that if he did not throw the ball the batter could not hit it! If you don’t know what is going on in the market, don’t panic and make things worse for yourself. Sit it out.

In trading the Forex market you have a Forex trading program and you have your own Forex trading strategy. Why do you need a Forex strategy if you already have a Forex trading program to trade the Forex market? The answer has to do with what your Forex strategy will be when the Forex trading program recommends a trade and the Forex market promptly goes the other way!

Computers can make very fast calculations based upon their programming and input. They can access their statistical programs and give you a recommendation that given past data input is predicted to be right 95% of the time. So, what if circumstances change at mid trade or what if your trade falls on the 5% side that is wrong? What is your Forex strategy then?

Forex traders debate whether a fundamental analysis or technical analysis is the way to go. That’s easy. They both are. You cannot think, analyze numbers, and do calculations as fast as today’s computers. However, programming a computer is like training a dog. It may do everything you want it to do to a point but it is still a dog.

You need to know the ins and outs of your trading station. You need to understand the technical analysis your Forex trading program does for you and how you can modify the parameters by which your Forex trading program makes suggestions. If you come out on the “5%” side you need to have a clear idea of what to do and how fast. If your fundamental analysis is good then your Forex strategy is to react according to what you know and what your computer doesn’t know.

A recurring situation is when the currency markets make a big shift. You get in part way through just as there is a correction. If you understand the Forex market fundamentals then you will ride out the correction and make a substantial profit or the day. If you jump ship based upon the advice of your Forex trading program and follow a bad Forex strategy then you will be substantially down for the day.

Your Forex trading program is a tool to trade the Forex market. Your Forex strategy can be thought of as a tool but since it is in reality in your head it is you. The more you know and the better prepared you are the more effectively you can execute your Forex strategy.

May we all have days when the Forex trading program is always right on the money and we never need to think much or worry. On the other hand trading the Forex market is a place where dreams come true without sound thinking and applied effort. Success requires a sound Forex strategy. The stronger your Forex trading strategy the better use you will be able to make of your Forex trading program. Knowing which currencies to trade, which Forex markets to trade and which days you could just as soon go to the beach is part of your Forex strategy. No trading, by the way, is sometimes the best Forex strategy when the Forex market’s moves baffle you. It is never a sin to put your Forex Trading Program in simulation mode and practice, observe, and reformulate your strategy.

10 REASONS TO START TRADING FOREX!

More and more well informed investor and entrepreneurs are diversifying their traditional investments like stocks, bonds & commodities with foreign currency because of the following reasons:

1) FOREX is the largest financial market in the world.

With a daily trading volume of over $1.5 trillion, the spot FOREX market can absorb trading sizes that dwarf the capacity of any other market. In fact, when compared with the $50 billion daily market for equities or the $30 billion futures market, it becomes quickly apparent this gives you, and millions of other FOREX traders, almost infinite trading liquidity and flexibility.

2) FOREX is a True 24-hour Market.

The FOREX Market never sleeps. Trading positions can be entered and exited at any moment around the globe, around the clock, 5.5 days a week. There is no waiting for an opening bell as in the case of trading stocks. It is a 24- hour, continuous electronic (ONLINE) currency exchange that never closes. This is very desirable for you if you want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.

3) There is Never a Bear Market in FOREX.

You can have access to a seamless exchange of currencies. Currencies trade in “pairs” (for example, US dollar vs. JPY (YEN) or US dollar vs. CHF (Swiss franc), one side of every currency pair (for example, USD/CHF) is constantly moving in relation to the other. Thus, when you buy a particular currency, you are actually simultaneously selling the other currency in that particular pair. As the market moves, one of the currencies will increase in value versus the other. Of course, it is up to you to choose the correct currency to be long ( you bought) or short( you sold).

4) High Leverage – Up to 400:1 Leverage

You are permitted to trade foreign currencies on a highly leveraged basis – up to 400 times your investment with some brokers.

Standard 100,000- US$ currency lots can be traded with as little as 0.25% margin, or $250.

Mini FX accounts are permitted to trade with just 0.25% margin, meaning, just $25 allows you to control a 10,000-unit currency position.

Futures traders, who are accustomed to margin requirements generally equal to 5-8% of the contract value, will immediately recognize that the FOREX market provides much greater leverage, and for stock traders, who must post at least 50% margin, there’s no comparison. If you’re looking for an efficient use of trading , trade the Forex Market.

5) Price Movements Might be Highly Predictable.

Currency prices in the FX market generally repeat themselves in relatively predictable cycles, creating trends. The strong trends that foreign currencies develop are a significant advantage for traders who use the “technical” methods and strategies.

Unlike stocks, currencies have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. As a technically-trained trader, you can easily identify new trends and breakouts, to enter and exit positions.

6) YOU don’t pay commissions or fees to trade FOREX.

When you trade FOREX, through some brokers you can do it totally FREE of commissions and fees , regardless of your account size.

Some brokers require a very low minimum amount to open a brokerage account, only US$ 200 and they do not charge commissions or fees to trade or to maintain an account, regardless of your account balance or trading volume.

7) YOU don’t have to pay trading fees or exchange fees.

There are none of the usual fees, which futures and equity traders are accustomed to pay:

NO exchange or clearing fees,
NO NFA or SEC fees.

Because currencies trade over-the-counter (OTC), via a global electronic network, in FOREX, what you see on your trading screen, is what you get, allowing you to make quick decisions on your trades without having to worry or account for fees that may affect your profit/loss or slippage.

In the equity and commodity markets, you must pay both a commission and exchange fees. The over-the-counter structure of the FX market eliminates exchange and clearing fees, which in turn lowers transaction costs.

HOW to Forex brokers make money if they don’t charge commissions?

Like all traded financial products, over-the-counter currency trading involves a bid/ask spread, which represents the prices at which your counterpart is willing to trade. Your broker will receive a part of this bid/ask spread.

Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading.

9) Market Transparency

Market transparency is highly desired in any trading environment. The greater the market transparency, the more efficient the market becomes. Unlike other markets where transparency is compromised (like in the many recent scandals), FOREX markets are highly transparent (i.e., analyzing countries, and having access to real-time research / news, is easier than analyzing companies).

Because of this transparency, as an FX trader, you will be able to apply risk management strategies in accordance to your fundamental and technical indicators.

10) Instantaneous Order Execution

The FX market offers the highest level of market transparency out of all the financial markets. Because of this, order execution and fill confirmation usually occur in just 1-2 seconds.

In Forex, order execution is all-electronic and because you’ll be trading via an Internet-based platform, instantaneous execution is routine.

There are no exchanges, no traditional open-outcry pits, no floor brokers, and consequently, no delays.

The 2% rule is a powerful tool in Forex trading. By adopting this rule you`re using a strategy that decreases the size of your losses during losing streaks, an important consideration.  There is, however one small caveat that you need to be aware of when using the 2% rule to calculate how many Forex shares you are going to buy. As you know, the number of shares you can purchase is determined by your maximum loss and the size of your stop. This means that by increasing your risk, you can also increase the dollar value of the position you open. By simply shrinking your stop size, that is by setting a tighter stop loss, you can increase the dollar value of the position you open.

To avoid a situation where you could end up with excessively large positions that may put your Forex trading float at risk, you can choose to introduce an extra rule. This rule would limit the dollar value of a position to be no more than a set percentage of your entire Forex trading float.

For example, you might decide that you`ll never open a position that has a dollar value of more than 25% of your entire Forex trading float. This rule would only be executed if, after calculating the formula that determines how many shares you buy, you find the dollar value of that position would greater than 25% of your float. If this happened, you would scale down the position to make sure it did not exceed that 25%.

The percentage that you decide upon will depend on the type of system you`re trading, the size of your float, and your personal tolerance for risk. Generally, smaller Forex trading floats might use 25%, and larger Forex trading floats might use as little as 10% or even 5%. There are no definitive numbers, and the percentage that you choose will depend on your personal circumstances.

Once this tendency is corrected for you will have all your money management rules in place, ready to control your risk in the Forex market. Now you need to take the next step. Test your system to find out which of the variables best suit you, remembering always that position sizing is the most significant part of any system design. It is the lynchpin of money management. Once you`ve tested your system, and fine-tuned your rules, you will be well on your way to becoming a successful Forex trader.

Todays current futures market is quite unlike the futures of the 19th century. Todays future market is a worldwide one that includes manufactured goods, financial currencies and treasury bonds, and agricultural products.

When you speculate on futures it is not the actual good that is speculated upon rather it is the contract for the goods that is traded as value. Every futures contract includes a buyer and a seller. The following is an example of a futures speculation: A farmer agrees to deliver 1000 bushels of corn to a baker at a price of $5.00 a bushel. If the daily price of corn 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.

Using the above as an example this is how the contract settlement would play out: If the price of corn futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost an equal amount. However, the baker can now purchase corn 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 corn. Also, the farmer must sell his corn 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.

Speculators profit by daily fluctuations in the futures market by choosing to buy from the seller (buying short) or from the buyer (buying long).

The FOREX market has advantages over the futures market. FOREX is the largest financial market in the world. It is a liquid market and stop orders can be executed more easily and with less slippage than in other markets. The FOREX market is open 5 days a week, 24 hours a day. Traders can take advantages of opportunities as they become available. FOREX transactions are usually instantly executed. FOREX transactions are commission free. Brokers earn money on the spread.

Some investors feel that due to built in safeguards that FOREX trading is safer than futures trading.

The Foreign Exchange Market – better known as FOREX – is a world-wide market for buying and selling currencies.

It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at ‘floating’ rates determined by supply and demand. The FOREX grew steadily throughout the 1970’s, but with the technological advances of the 80’s FOREX grew from trading levels of $70 billion a day to the current level of $1.5 trillion.

The FOREX is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange.

There is no centralized location of FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots.

Each lot is worth about $100,000 and is accessible to the individual investor through ‘leverage’ – loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

There are many advantages to trading in FOREX, including:

- Liquidity: Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.

- Accessibility: The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.

- Open Market: Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no ‘insider trading’ in FOREX.

- No commission Fees: Brokers earn money by setting a ’spread’ – the difference between what a currency can be bought at and what it can be sold at.

How does the foreign currency exchange market work?

Currencies are always traded in pairs – the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction.

At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.

As we all know, there are many important areas to be considered in the process of relocating. From the physical removal of household goods, to settling children into new schools, there seem to be an endless number of items to check off on a relocation ‘to-do’ list. Yet as a currency specialist we continually find that the all important purchase of the employees local currency is often overlooked.

Whether transferring a lump sum to purchase an over seas property, or simply forwarding a US Dollar salary abroad every month, we have experienced that general corporate practice is to stay somewhat removed from this aspect of an international assignment or permanent move. Simply allowing employees to blindly use their banks to make their own decision on how they are going to move their Dollars abroad, however, can be a costly mistake!

Volatility in the currency markets is an undeniable and unavoidable daily occurrence. With a daily turnover in excess of $1.5 billion and an uncountable number of factors playing into which way the market will move, it is impossible to forecast currencies with 100% accuracy. While large corporations employ market professionals to manage billions of dollars worth of currency risk, private individuals are often left at the whim of this massive market feeling uneducated and at risk.

So why should this be a concern?

If you imagine yourself in the shoes of an international employee, it is quite simple to see how the currency market and exchange rates directly affect your life: While your employer is, for example, a US based company; you will more than likely receive your salary in US Dollars (USD). This income may be deposited into your US account every month or possibly into an international account that has been set up in your new country. Either way, you will usually need to exchange your USD income into the local currency in order to buy groceries, pay bills and maintain a standard of living.

The process of using your bank can be frustrating and may also be expensive. Think of it this way; every month you will need to contact your bank in order to initiate the exchange from your USD account into your local account. You will more than likely speak with a different person every time you call and you will most definitely receive a different exchange rate every month. On top of all that your bank will charge you a wire transfer fee ranging from $15-$30 per transaction. While the cost of wiring these funds on a regular basis will certainly add up over time, the inherent risk you face not knowing what rate you will receive in the future is MUCH more concerning.

To illustrate let us assume that you were transferring USD$5,000 in wages to Canada on a monthly basis. In May of 2005, your USD$5,000 would have converted into roughly CAD$6,350 at a rate of 1.27. By February of 2006, that same USD$5,000 would have purchased you just CAD$5,700, a difference of CAD$650 every month. Assuming that you were using your bank, you would have also been receiving a wire transfer fee for each transaction totaling somewhere around $300-$400 in bank charges alone.

The solution is simple; if you want to protect against currency risk, receive better rates of exchange and avoid needless fees, don’t use your bank! Most private individuals in this situation do not realize there is alternative to their bank, but using a currency specialist like HIFX can in fact remove the stress and hassle of these such requirements all together. HIFX’s Private Client Services include the securing exchange rates for up to 24 months, the setting up of direct debits which will avoid all transfer and bank receipt charges, and a simple, friendly service that is designed to put clients at ease.

Whether your employees need to make regular transfers abroad or are moving larger sums of money for their international purchases, it is worth knowing that you can point them in the direction of a world renowned currency specialist which completely understands the relocation process.

Historically, the FX market was available most to major banks, multinational corporations and other participants who traded in large transaction sizes and volumes. Small-scale traders including individuals like you and I, had little access to this market for such a long time. Now with the advent of the Internet and technology, FX trading is becoming an increasingly popular investment alternative for the general public.

The benefits of trading the currency market:

It is open 24-hours and it closes only on the weekends;

It is very liquid and efficient;

It is very volatile;

It has very low transaction costs;

You can use a high level of leverage (borrowed money) with ease; and

You can profit from a bull or a bear market.

Continuous, 24-Hour Trading

The currency exchange is a 24-hour market. You may decide to trade after you come home from work. Regardless of what time-frame you want to trade at whatever time of the day, there would be enough buyers and sellers to take the other side of your trade. This feature of the market gives you enough flexibility to manage your trading around your daily routine.

Liquidity And Efficiency

When there are a lot of buyers and a lot of sellers, you can expect to buy or sell at a price that is very close to the last market price. The currency market is the most liquid market in the world. Trading volume in the currency markets can be between 50 and 100 times larger than the New York Stock Exchange (Source: Oanda.)

When you are trading stocks, you may have experienced events where one piece of news accelerates or decelerates the price of the underlying stock you may have bought into. Perhaps a director has been kicked out by the shareholders of a company or the company has just released a new product and big investors are buying the shares of a particular company. Share prices can be drastically affected by the actions or inactions of one or a few individuals. So if you are relying on television reports and newspapers to get your news, most of the opportunities or warnings will have come too late for you to take advantage by the time you get them.

The value of currencies on the other hand is affected by so many factors and so many participants that the likelihood of any one individual or group of individuals drastically affecting the value of a currency is minute. Because of its sheer size, the currency market is hard to manipulate. The ability for people to engage in ‘insider trading’ is virtually eliminated. As an average trader, you are less disadvantaged. You are likely to be playing on relatively equal ground along with all the other traders and investors whom you are competing against.

Note about price gaps:

For those people who have already traded other markets, you probably know about price ‘gaps’. ‘Gaps’ occur when prices ‘jump’ from one price level to another without having taken any incremental steps to get there. For example, you may be trading a share that closes at $10 at the end of today but due to some event that happens overnight; it opens tomorrow at $5 and continues to go downwards for the rest of the day.

Gaps bring about another degree of uncertainty that may meddle with a trader’s strategy. Probably one of the most worrying aspects of this is when a trader uses stop-losses. In this case, if a trader puts a stop-loss at $7 because he no longer wants to be in a trade if the share price hits $7, his trade will remain open overnight and the trader wakes up tomorrow with a loss bigger than he may have been prepared for.

After looking at a couple of forex charts, you will realize that there are little price ‘gaps’ or none at all, especially on the longer-term charts like the 3-hour, 4-hour or the daily charts.

Volatility

Trading opportunities exist when prices fluctuate. If you buy a share for $2 and it stays there, there is no opportunity to make a profit. The magnitude of level of this fluctuation and its frequency is referred to as volatility. As a trader, it is volatility that you profit from. Large volume transactions and high liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day-traders. The high volatility of the currency market indicates that a trader can potentially earn 5 times more money from currency trading than trading the most liquid shares.

Volatility is a measure of maximum return that a trader can generate with perfect foresight. Volatility for the most liquid stocks are between 60 to 100. Volatility for currency trading is 500. (Source: Oanda.)

In this respect, currencies make a better trading vehicle for day-traders than the equity markets.

Low Transaction Costs

A currency transaction typically incurs no commission or transaction fees. For a forex trader, the spread is the only cost he or she needs to cover in taking on a position. In addition, because of the currency market’s efficiency, there is little or no ‘slippage’ costs.

‘Slippage’ is the cost involved when traders enter the market at a price worse than the level they wanted to get into. For example, a trader wants to buy a share at $2.00 but by the time, the order gets executed, his gets to buy the shares at $2.50. That fifty cents difference is his slippage cost. Slippage cost affects large-volume traders a lot. When they buy large quantities of a commodity, it oversupplies the market with buy orders. This applies a pressure for the price to go up. By the time they get to buy all the quantities they wanted, the average price they got their commodities would be higher than the price they intended to get them for. Conversely, when they sell large quantities of a commodity, they oversupply the market with sell orders. This applies a pressure for the price to go down. By the time they finish selling all their commodities, their average selling price is less than what they initially intended to sell them for.

Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at small costs. As an approximate, you may only expect to have a spread of 0.03% of your position size. To give you an example, you can buy and sell 10,000 US Dollars and this will only incur a 3-point spread, equivalent to $3.

Leverage

There are not a lot of banks or people who would lend you money so that you can use it to trade shares. And if there are, it would be very hard for you to convince them to invest in you and in your idea that a certain share is going to go up or down. Therefore, most of the time, if you have a $10,000 account, you can only really afford to buy $10,000 worth of stocks.

In currency trading however, because you use ‘borrowed money’, you can trade $10,000 of a currency and you only need anywhere between fifty (For a margin lending ratio of 200:1) to two hundred dollars ( For a margin lending ratio of 50:1) in your trading account. This makes it possible for an average trader with a small trading account, under $10,000 to be able to profit sufficiently from the movements of the currency exchange rates. This concept is explained further in The Part-Time Currency Trader.

Profit From A Bull And Bear Market

When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade ‘downwards’. This is why the currency market has been occasionally referred to as the eternal bull market.