Forex Trading and Debt Pay Off

Forex trading if done profitably and in the right way can help you earn money, which can be used to make the payments on the consolidated debt. Thus, you will no more be required to take the tension of defaulting on the debt payments. However, in order to make money through forex, it is important for you to be aware of the tricks of forex trading. In order to trade foreign currencies in the right way, you will be required to:

1. Know basics of Forex trading – In order to succeed with Forex trading, it is required of you to know the basics with regards to Forex trading. It is also important for you to know the different exchange rates. Get proper education regarding forex trading system.
 
2. Know the way in which you should read Forex charts – It is important for you to know the ways in which you will be required to read the forex charts.
 
3. Practice with Forex demo account – Before starting off with a real account, it is better to practice Forex trading with the help of a demo account.
 
4. Register with forex broker – A good forex broker may be able to provide you great deal of information. So, it is better to enter into a contract with him so that he does the transactions on behalf of you.
 
5. Get advice from friends in the market – If you have any friends who had been trading foreign currencies and have been able to gain profits from the same, you can try to get some advice from the friends.
 
6. Follow forex market trends when new – It is better to follow the market trend when you are just starting to trade in the forex market. In order to start trading of your own, you will have to become a more skilled trader.
 
7. Avoid risking more than 2-3% of your trading account – It is better to avoid risking more than 2-3% of the total trading account you have.

Finally, it is important for you to spend at least some time with forex market in order to better your skills for this trade.

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Greece is a parliamentary democracy. It has many political parties with widely different views. For a party to govern it needs to get a majority of the vote. If it fails to do so the leading vote getter is asked to try to form a coalition with another party or two. This usually is a matter of picking a party or two with fairly close views on how to govern. Then the parties in the coalition pick a Prime Minister everyone gets a say in how things will be run. Unfortunately for Greece the major parties lost a lot of votes in the most recent election and parties on the far right and far left gained strength. To avoid a Greek debt default these parties need to agree to form a government that can go ahead with the agreed upon requirements of a EU sponsored bailout by the middle of June. If they do not, there will an election later in the month, too late deal with the issue. The next thirty billion or so (in dollars) installment is necessary to pay off bonds that are coming due. If they are not paid off the likely outcome will be a run on banks in Greece and the exit of Greece from the EU. Then, how many Drachmas to a dollar will be a valid question.

Besides wondering just how many Drachmas to a dollar, traders are driving the Euro down in expectation of an exit of Greece from the EU and the loss of loans made by the EU to Greece. The question of how many Drachmas to a dollar will be a side issue if Italy is next to default and the Euro goes into free fall. Underlying this drama is the question of whether the strict austerity measures chosen as a route to solvency are too strict. If these measures serve to choke off growth they will defeat their purpose. Voters in two countries have voted strongly for growth. If that is the way things go Greece could default, leave the EU, reestablish economic growth and the answer to how many Drachmas to a dollar might that the Drachmas is increasing in value. For the EU and the Euro the problem is that a Greek default will threaten other economies and require that the EU print more Euros in further enlarge its bailout fund. That will likely drive the Euro further down. That is part of why we post the question how many Drachmas to a dollar instead of to a Euro as the Euro will likely fall either way. Options on the falling Euro may well be the best choice in hedging risk as this situation plays itself out.

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The seemingly eternal Euro Zone debt crisis may offer the best example of Forex benefits of foreign stock trading. The recent elections in both Greece and France have shown that voters disagree with the austerity measures agreed upon to bail out Greece and other countries. The Greek debt write-off requirements have now resulted in a nearly sure defeat for the party and individuals instrumental for the Greek side of the deal. The strict austerity measures in place across Europe are likely to take the EU into a recession this year. Now, if the various parts of the bailout deals in place in Europe unravel the situation could be even worse. Many expect the EU to come apart. If this is so the Euro will fall and, probably, so will European stocks. However, remember that a major part of the problem for Europe, as well as the USA, is the value of the Euro (or dollar) against the Yuan, Yen, Taiwanese dollar and other Asian currencies. A falling Euro will make European products more competitive on world markets. A falling Euro Zone stock market will very likely result in a number of very fairly priced stocks. If this scenario holds an investor could wait for the Euro to fall and buy Euros with dollars. Then, buy cheap Euro Zone stocks with his Euros. Then, when the situation finally rectifies itself, sell the stocks for a profit in Euros and sell the now-more-valuable Euros for dollars. Think Forex benefits of foreign stock trading.

Other nations that are currently hurting in the slow recovery from the recession include the BRIC group, Brazil, Russia, India, and China. Chinese exports are down and there as real possibility of a Chinese real estate crash. India and Brazil have each seen a marked drop off in their rates of growth. Russia is still struggling with the bureaucratic mindset of Communism as it tries to leverage its natural resources to build currency reserves and revamp its technology and industry to compete with Europe, the USA, Japan, and China. The same argument made for Europe can fit here and reap Forex benefits of foreign stock trading. As always the trader needs to research his investments and trade currency at the most opportune times.

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The Yuan Has Cooled Off

As the Chinese economy grew the Yuan tended to rise in value. However, Chinese currency controls kept the Yuan at a lower price which served to keep Chinese goods competitively priced. As the economic pain worsened in North America, Europe, and elsewhere the pressure increased on China to let the Yuan float to a market level. Now, as the controls on the Yuan have been relaxed there is a risk of an economic hard landing in China. As such it is not impossible to imagine the Chinese Yuan falling in value if allowed to truly float versus the US dollar, Euro, Pound, and the rest. A harbinger of things to come is the Chinese stock market which has lost ten percent of its value in the last month and half of that in just a few days. If the Chinese stock market continues to head South and the long awaited Chinese real estate crash happens the economic hard landing in China could well drag down the Yuan with effects felt around the world.

Measures to Prevent an Economic Hard Landing in China

If things get tough China might take a page from the US Federal Reserve playbook. Buy bonds with printed money to lower interest rates to the minimum. This would stimulate industry and the Chinese economy. China might pursue more infrastructure projects and incur more national debt, eating away at its $3 Trillion in reserves. A substantially lower rate of interest on the Yuan could serve to reduce its price in the Forex market. In the meantime traders might just get used to the need to trade a declining Yuan instead of a rising and or manipulated Yuan. As always we are not suggesting that Forex traders trade the Chinese currency or that they ignore it. Rather we offer a view of a possible economic hard landing in China for those interested in pursuing the subject further in search of trading profits.

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Just Who Owns the Spratly Islands?

Disputes over sovereignty in the Spratly islands go back years to when the French governed Indochina as a colony and pre-communist China under Chang Kai Shek argued over a French presence in the islands. Today Taiwan and mainland China each claim all of the South China Sea. Malaysia, Brunei, Vietnam and the Philippines claim parts of the islands. Mainland China, Taiwan, Vietnam, and the Philippines all have small troop garrisons in the islands. Brunei does not have troops to back up its claim. Tensions have recently risen as a Philippine company has found a new and large gas deposit. The Philippines already take natural gas from the area and pipe it to the island of Luzon. The Forex response to oil and gas disputes in the South China Sea could manifest themselves in a number of ways, both in direction and foreign currency trading volume.

Forex Response to Oil and Gas Disputes in the South China Sea

How Forex markets respond to disputes in the region will largely depend upon just how hot the situation gets. Last year a Chinese military vessel attempted to ram a Philippine oil exploration vessel. The US military has increased its presence in the area. In fact, the Philippines and other nations have sought closer ties with the USA in response to the perceived threat from China. Who gets to use the estimated twenty trillion cubic feet of natural gas just discovered could make a difference as well. When China’s industrial machine recovers from the recession and starts building again the rights to the energy wealth of the South China Sea could support their economy and the Yuan. On the other hand, overt military conflict, especially involving the USA and China could wreak havoc on the Yuan and US dollar. Some analysts expect the rhetoric to cool down once the Chinese leadership changes this year and lower level functionaries no longer feel the need to posture and appear decisive or strong. Then concern about a Forex response to oil and gas disputes in the South China Sea might diminish as well. Then traders can go back to concerns about such things as the China current account surplus or deficit and not the actions of the People’s Liberation Army.

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How Is This Going to Work?

First of all, what Chinese authorities did was allow the Yuan to float one percent up or down in the Yuan – USD exchange rate during a trading day. The limit was half a percent. This float is up or down from a benchmark rate that the Central Bank of China sets every day. Although the Yuan is able to float throughout a larger range, the range is effectively set by daily Chinese monetary policy. If you wish to trade a declining Yuan based on reduced exports or a rising Yuan based on global recovery, remember that the range is still set by Chinese monetary policy and not the market. This can be a problem for long term traders. However, the new policy of looser Chinese currency controls provides traders with a wider range in which to trade and, hopefully, a little better chance of making profits.

What Are the Issues Regarding Looser Chinese Currency Controls?

The Yuan has appreciated by more than four percent a year for the last half decade. The Chinese government has been under increasing pressure from North America, Europe, and elsewhere to let it currency float, without restraints. The belief of many, outside of China, is that a free floating Yuan will become much more expensive making Chinese goods more expensive and goods from North America and Europe more competitive. However, China recently had its first trade deficit in more than a decade. There is the prospect of a Chinese real estate crash and less demand for Chinese goods due to recession in Europe. Thus it is not absolutely clear whether looser Chinese currency controls will result in a free floating Yuan that will simply continue to go up or if it may even level off or go down. As China loosens its currency controls it may be easier to see which direction the market really wants to take the Yuan. In the long run China would like to see the Yuan become one of the world’s reserve currencies. To get there they need to bite the bullet, engage more thoroughly with other trading nations, and let the Yuan find its own level.

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There is the matter of Forex trading and foreign currency risk and there is the matter of the cost of doing business. Long term investing requires that one keep track of how one’s investments are doing on at least a weekly basis. Trading stocks, options, futures, commodities, and currencies requires that one keep up to day on a daily basis. It is all too easy for a currency trader to get into trouble and start acting like a gambling addict, doubling down on his “bets.” Anyone who has fiduciary responsibility for someone else’s money needs to be aware of Forex price markups and up to the minute trading results. The individuals and pension funds who are suing a number of banks apparently allege that they were swindled. Advice the rest of us is to beware of Forex price markups just as the old Roman saying, “Let the buyer beware.” Sometimes the rush for profits gets too intense, and even the best of money managers forget to beware of Forex price markups and other costs of investing.

The banks in this case deny that they overcharged their clients. Some of this goes back to contractual agreements between the banks and their pension fund clients. Some goes back to marketing literature used by the bank/Forex trader to entice pension funds to become clients. The job of the pension fund manager in order to beware of Forex price markups is to demand to see every single cost involved in a Forex transaction. This includes the Forex rates quoted in the transaction. Were the rates quotes the real up to the second quotes at the time of the trade? Or, were the rates given to the pension fund rates from different times during the day? A bad situation to be in is when the market is trading sideways and your account is absorbing the commissions, fees, and other costs of repeated trading.

It is certainly common for a Forex trader to open a trade, see it go a little bad, and wait for it to correct itself later during the day. Second guessing the trader is really not fair. The fund manager does not need to be steeped in Forex technical strategies but he needs to pay attention to results. There are two issues for the fund manager. One is if the trader is really successful in making money for the fund. The other is if the pricing is fair. A sad fact is that when an investor is making money he too often forgets to check the cost of his investments, he too often overlooks hidden costs, and neglects to beware of Forex price markups.

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While there are literally hundreds of different ways to trade, one fundamental decision that every investor has to make is whether to trade in the short term or long term and what kind of charts to use. As a general rule, information is key to success but there can be a thing as too much detail. Relying on too many indicators can muddy the water and make it more difficult to identify a true trend until it is too late.

Most platforms that are used for forex traders have the capacity to offer multiple charting options including the ability to analyze different time frames, usually from around two minutes to more than 12 months. This allows traders to pick the time frame that suits their system, but it isn`t always obvious which is the most appropriate time frame to use.

As a general rule, having some medium and longer-term time frames is a good idea, just to give a general feel for the market. Even if you are trading in a relatively short-term position, it can be difficult to identify what is a regular fluctuation and what marks the beginning of a true trend change. A longer-term chart will help show what the boundaries are for fluctuations, which will help you set your stop losses more effectively.

Possibly the only exception to this rule is scalping where traders are looking to execute deals constantly and take small profits to build an overall gain. This market is only for very experienced traders and needs very specific indicators to be a success.

Using a longer term time frame can help to identify an overall trend of higher or lower, while switching back to your preferred trading slot (a shorter time frame) will then allow finding the right entry and exit positions.

It`s always a good idea to try trading different time frames to begin to find the one that suits your style the best and maximizes your chances of making a profit. Once you have done this, going up one slot to take a look at the bigger picture can make it easier to find the trend. This can also provide an advantage over competitors who may only choose to stick to their preferred timeslot for analysis.

However, it`s important to ensure you are familiar with the platform`s navigation, which will allow you to switch between time frames quickly as and when needed. It`s also essential not to include too many time frames as this can provide conflicting or confusing information that is difficult to unravel.

To be profitable in forex trading, it`s a good idea to step back from time to time to look at the wider picture. It`s very easy to get sucked into your trade and miss what`s going on elsewhere in the market. By using both short and long-term charts, you will be able to not only maximize your chances of making a gain but also keep on top of the latest movements and trends that are starting to develop.

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The prospect of reduced stimulus and a stronger dollar drove the greenback up. Looking ahead we need to see if the economic expansion continues. The US unemployment rate has fallen steadily for almost a year. The non-farm payroll report comes out shortly and if it is positive it will have proven the Fed member correct. Reduced stimulus and a stronger dollar may also have effects overseas. Much liquidity in the American economy tends to find its way into off shore investments. The prospect of less liquidity in the USA may have adverse effects on emerging economies. Forex traders saw this and it helped drive the dollar up and other currencies down. The combination of Euro Zone fiscal austerity and higher rates at bond auctions has also helped push the Euro downward.

A currency that could be hit especially hard with reduced stimulus and a stronger dollar is the Australian dollar. Reduced demand for commodities from China has hit the AUD hard. Australia has had two months in a row of trade deficits and may well drop interest rates to stimulate its own economy. Low rates as well as a continuing trade deficit could spell trouble for the Aussie dollar. The Australian dollar had risen over the last years to a position of greater value than the US dollar. But, in the last month it has lost five cents on the dollar to the greenback and fell almost a cent on the fed news of reduced stimulus and a stronger dollar.

As United States manufacturing expands the dollar strengthens. Unfortunately, if the dollar strengthens too much it will hurt exports and the US manufacturing sector. The question will be just how far the dollar will rise if the Euro Zone does not recover, the Yuan falls due to the collapse of a real estate bubble, or the world flocks to the dollar as a result of problems in Syria, Iran, or elsewhere in the Middle East. As Forex traders know, interest rates and monetary policy are not the only factors to govern the value of a currency. Reduced stimulus and a stronger dollar will mean little when there is political unrest or war. At such times traders move their assets to the safe havens represented by the Swiss franc, Yen, and US dollar.

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Mexico

The Mexican peso (MXN) is the 12th most traded in the world and the third most traded in the America’s after the US and Canadian dollars, both classified as major currencies. An exception for the Mexican Peso is that it can be traded against the New Zealand dollar as well, NZD MXN. Mexico had a growth rate of 3.8 percent in 2011. A strong advantage to picking the Mexican Peso as the best minor currency pair to trade is its relatively high trading volume, especially against the US dollar. Mexico’s proximity to the USA may also be helpful in looking at the fundamentals that drive Mexican currency exchange rates.

Brazil

Despite the strength the emerging Brazilian economy the real commonly trades only against the US Dollar, USD BRL. Brazil’s economy grew 2.7 percent in 2011. The long term direction for this currency will probably be up as Brazil emerges as the super power of Latin America. How fast the rise occurs will decide if this is the best minor currency to trade.

India

The Indian Rupee, INR, trades against all major currencies. The country had a 7.8 percent growth rate in 2011. The same argument used for Brazil works for India. The world’s largest democracy is growing rapidly which will likely drive the rupee upward as well. The openness of India’s society makes where to get important Forex news less of a problem than with countries such as Russia and China. The twin factors of transparency and growth may well make the Rupee the best minor currency pair to trade.

Russia

The Russian Ruble (RUB) trades against the US Dollar and the Euro, USDRUB and EURRUB. Russia’s economy grew by 4.3 percent in 2011. More effective development of its natural resources is Russia’s trump card and a vote for the Ruble as the best minor currency pair to trade.

China

China’s currency, the Yuan, does not float freely in an open market and the country is under repeated pressure from the European Union and the United States to let its currency rise to a market driven level. China’s economy grew by 9.2 percent in 2011. Although the China current account surplus is reduced such fundamentals may still have less to do with the value of the Yuan than decisions by the Chinese hierarchy. This may not be the best minor currency pair to trade unless you have a crystal ball that tells you what the Chinese hierarchy is about to do.

As usual we offer this discussion in order to stimulate thought and not as explicit advice. Do your own fundamental and technical analysis and never trade when you do not understand what the markets are doing.

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