FOREX TRADE: August 2009

Wednesday, August 5, 2009

Forex Glossary Terms

American-style option An option contract that may be exercised at any time before it expires.

Ask The quoted price at which a customer can buy a currency pair. Also referred to as the 'offer', 'ask price', or 'ask rate'.

Base Currency For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.

Bid The quoted price where a customer can sell a currency pair. Also known as the 'bid price' or 'bid rate'.

Bid/Ask Spread The point difference between the bid and ask (offer) price.

Call A call option gives the option buyer the right to purchase a particular currency pair at a stated exchange rate.

Counterparty The counterparty is the person who is on the other side of an OTC trade. For retail customers, the dealer will always be the counterparty.

Cross-rate The exchange rate between two currencies where neither of the currencies are the US dollar.

Currency pair The two currencies that make up a foreign exchange rate. For example, USD/YEN is a currency pair.

Dealer A firm in the business of acting as a counterparty to foreign currency transactions.

Euro The common currency adopted by eleven European nations (i.e., Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) on January 1, 1999.

European-style option An option contract that can be exercised only on or near its expiration date.

Expiration This is the last day on which an option may either be exercised or offset.

Forward transaction A true forward transaction is an agreement that expects actual delivery of and full payment for the currency to occur on a future date. This term may also be used to refer to transactions that the parties expect to offset at some time in the future, but these transactions are not true forward transactions and are governed by the federal Commodity Exchange Act.

Interbank market A loose network of currency transactions negotiated between financial institutions and other large companies.

Leverage The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as 'gearing'.

Margin See Security Deposit.

Offer See ask.

Open position Any transaction that has not been closed out by a corresponding opposite transaction.

Pip The smallest unit of trading in a foreign currency price.

Premium The price an option buyer pays for the option, not including commissions.

Put A put option gives the option buyer the right to sell a particular currency pair at a stated exchange rate.

Quote currency The second currency in a currency pair is referred to as the quote currency. For example, in a USD/JPY currency pair, the Japanese yen is the quote currency. Also referred to as the secondary currency or the counter currency.

Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.

Retail customer Any party to a forex trade who is not an eligible contract participant as defined under the Commodity Exchange Act. This includes individuals with assets of less than $10 million and most small businesses.

Security deposit The amount of money needed to open or maintain a position. Also known as 'margin'.

Settlement The actual delivery of currencies made on the maturity date of a trade.

Spot market A market of immediate delivery of and payment for the product, in this case, currency.

Spot transaction A true spot transaction is a transaction requiring prompt delivery of and full payment for the currency. In the interbank market, spot transactions are usually settled in two business days. This term may also be used to refer to transactions that the parties expect to offset or roll over within two business days, but these transactions are not true spot transactions and are governed by the federal Commodity Exchange Act.

Spread The point or pip difference between the ask and bid price of a currency pair.

Sterling Another term for British currency, the pound.

Strike price The exchange rate at which the buyer of a call has the right to purchase a specific currency pair or at which the buyer of a put has the right to sell a specific currency pair. Also known as the 'exercise price'.

Foreign Exchange

Forex is the abbreviation for foreign exchange, refers to the foreign currency or the foreign country currency expresses which can be use in the international settlement payment means and the property, mainly it includes the credit instrument, disbursement voucher, the negotiable securities and the foreign exchange cash and so on.

The International Monetary Fund defined Forex as the international creditor's rights which a country has, no matter this kind of creditor's rights are express by the foreign currency or expressed by the standard currency.

Exchange Rate
Exchange rate, also known as the exchange price, it refers by a country currency being express by another country currency, or it is also the price ratio between both countries currency, generally it is being expressed by using the price proportion of both countries. For instance: USD/JPY=105.40, is being expressed a US dollar equal to 105.40 Japanese Yen, US dollar is also known as the unit currency, the Japanese Yen is known as the price currency.

In the foreign exchange market, the exchange rate is demonstrated by five numerals, for example:

Euro/US dollar: EUR/USD 1.3325

US dollar/Japanese Yen: USD/JPY 104.95

Pound/US dollar: GBP/USD 1.9337

US dollar/Swiss Franc: USD/CHF 1.2303

The exchange rate smallest change unit is, namely a final one-figure number digital change, is called an exchange rate basic point (Pip), abbreviation exchange rate spot, for example:

Euro EUR 0.0001

Japanese Yen JPY 0.01

Pound GBP 0.0001

Swiss Franc CHF 0.0001

Foreign Exchange (Forex) Market

Presently, there are various kinds of financial market, it is divided into: Stock market, interest market (including bond, commercial bill and so on), gold market (including gold, platinum, silver), futures market (including grain, cotton and kapok, oil and so on), option market and foreign exchange market or forex market and so on.

The foreign exchange market is a place to trade foreign exchange currency, or it is also a place for the transaction of all foreign currency. The foreign exchange market therefore is existence, because of:

Trade and investment
Import and export business, people pays one kind of currency when doing business, but when earns another kind of currency when receive the commodity. This means that, when settling account, business people will pay and receive different currencies. Therefore, they must convert the currencies that they received into the currencies that they could buy commodities. With this similar, when buying a foreign property a company must use the concerned country's currency to make payment, therefore, it needs to convert the domestic currency is concerned country's currency.

Speculation
Currencies exchange rates could fluctuate according to the demand and supply between two currencies. A Forex trader buys up one kind of currency in an exchange rate, but up casts this currency in another more advantageous exchange rate, he may gain. Speculation has occupied most of the Forex market.

Hedging
Due to the fluctuation between two currencies, those companies who owns foreign asset (for example factory), when these companies convert these properties into cost country currencies, there consist of certain risks. When the value of a foreign asset which is estimated based on foreign currencies remained unchanged, if the exchange rate changes, when converting this property value according to the domestic currency, there could be profit and loss. The company may eliminate such hidden risk through hedging. This carries out a foreign currency trading, its transaction result just counterbalances the foreign currency property profit and loss which produces by the exchange rate change.

Forex Market Development
The history of the Forex market as an international capital speculation market is much shorter compared the stock, the gold, the stock, the interest market, but it is developing in an astonishing speed. Today, the foreign exchange market daily trading volume has amounted to 150 billion US dollars, it’s scale has gone far beyond the stock, the stock and other finance commodity markets, it has became the world's most biggest sole finance market and the also the speculation market. Since the birth of the foreign exchange market, the fluctuation of the exchange rate of the Forex market is becoming bigger. In September 1985, 1 US dollar exchanged 220 Japanese Yen, but in May 1986, 1 US dollar only could exchange 160 Japanese Yen, in 8 months, the Japanese Yen has revalued 27%. In recent years, the foreign exchange market wave amplitude has been bigger, on September 8, 1992, 1 pound exchanged 2.0100 US dollars, on November 10, 1 pound exchanged 1.5080 US dollars, in the short two months, the pound exchanged US dollar exchange rate to fall more than 5,000, depreciated 25%. Not only that, presently, everyday the fluctuation of the exchange rate of the Forex market enlarges unceasingly, within a day the rise and drop 2% to 3% is commonly seen. On September 16, 1992, the pound exchanged US dollar from 1.8755 to fall to 1.7850, the pound on first lowers 5%.

Due to the large fluctuation of the Forex market, it has created more opportunities for the investor, attracted more and more investors to join this ranks.

Famous Forex Quotes

“If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
People who buy headlines eventually end up selling newspapers.
If you do not know who you are, the market is an expensive place to find out.
Never give advice-the smart don't need it and the stupid don't heed it.
Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
When the ship starts to sink, don't pray-jump!
Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
Whatever you do, whether you bet with the herd or against, think it through independently first.
Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
Volume and open interest are as important to the technician as price.
The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
Every sunken ship has a chart.
Take a trading break. A break will give you a detached view of the market and a fresh look at yourself and the way you want to trade for the next several weeks.
Assimilate into your very bones a set of trading rules that works for you.
The final phase in a bull move is an accelerated runaway near the top. In this phase, the market always makes you believe that you have underestimated the potential bull market. The temptation to continue pyramiding your position is strong as profits have now swelled to the point that you believe your account can stand any setback. It is imperative at this juncture to take profits on your pyramids and reduce the position back to base levels. The base position is then liquidated when it becomes apparent that the move has ended.

TRADING ONLY WITH MOVING AVERAGE

At the moment I am rather busy. Moving to a new place and house. The house still needs a lot of work. As a result, I do not have time to update this blog. Trading is still going on but on a shorter timeframe. Result is consistent now. AudUsd is very kind at the moment with no sudden movement.

In the next few weeks I will show you how to trade using only MA. As usual what works for me may not work for you. This is because some of you may not be able to follow the rules of the game.

RULES OF THE GAME
1. Trade based on your capital and the time that you have. The bigger your capital the longer the TF. The more time you have the longer the TF. Vice versa.

2. Only trade at the direction pointed by the MA pairs. If the MA pairs is showing mixed direction, do not trade. The MA pairs must be pointing at the same direction.

3. If a trade suddenly change direction, do not hesitate to close it at a loss and turn the trade. This is the hardest part where most of you failed. Free your mind or become a loser all your life.

4. Keep in mind, there is no such thing as winning all the time. Just make sure you win a lot more than you lose. In the end your profit will grow along with your confident.

Simple system with simple rules. I like to keep it simple. No point of having the most complex system when simple system can have the same result. With this system you will be out of the market most of the time. This is because you will only be taking the big move and avoiding the small move and market noise.

Last advise. Do not anticipate. Forex is not a game of inteligence eventhough this system at full swing will show you possible turning point. I am having a possible turning point for audusd at 0.7200 but I will not take it coz there will be market swing before the actual turn. Why wast time waiting for the big move when you can actually see when its going to move.

In the mean time, good luck for all of you. I will be back once my pc is online again. At the moment I am posting this on a laptop. I dont like laptop, too small keypad, makes it hard to do speed typing.

A DIFFICULT MARKET CONDITION

It is not looking particularly well for GBPUSD. In the other hand, EURUSD and AUDUSD is looking good for a long term trade. I am taking the long position. It may take a very long time to profit but looking at the chart from a technical view, EURUSD and AUDUSD is in a good position for a long term trading.

I dont exactly know the entry point but I do know the direction. It is time to monitor the shorter time frame in order to find the best possible entry and to minimize stop loss.

It may take sometime but I dont care. I have been waiting for this moment almost 2 months. Look at the charts and see the formation of daily, 4 hour, 30 minute and 5 minute. You may see something that took me over 2 years to see.

Only time can tell if my calculation is correct. At the moment I am still waiting for the 5 minute chart to give and entry signal.

The Best Forex Market Hours

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How to Trade the Forex Market to Make Cash

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The Forex Trading Bid & Ask Prices and Spread

This page covers everything you need to know about the bid and ask prices in the online Forex trading market, From the definition of Forex bid & ask prices, to the use of the bid & ask spread.
A Forex Trading Bid price is the price at which the market is prepared to buy a specific currency pair in the Forex trading market. This is the price that the trader of Forex buys his base currency in. In the quote, the Forex bid price appears to the left of the currency quote. For example, If the EUR/USD pair is 1.2342/47, then the bid price is 1.2342. Meaning you can sell the EUR for 1.2342 USD.
A Forex asking price is the price at which the market is ready to sell a certain Forex Trading currency pair in the online Forex market. This is the price that the trader buys in. It appears to the right of the Forex quote. For example, in the same EUR/USD pair of 1.2342/47, the ask price us 1.2347. This means you can buy one EUR for 1.2347 USD.

Forex account activation and confirmation

Because we are dealing with real money accounts, you are required to verify your details and your email, through various needed steps. Before you sign the terms and conditions of the Forex trading account, make sure you understand what the site is offering. You should make sure you understand about the various conditions that include:
- The Forex site's hours of operation and the availability of live support.
- The bid/ask spread that the site offers for major currencies, in relation to what other sites offer.
- Make sure that proper leverage is available through the margin per trade.
- Find out about The minimum account size and lot size.
- Check that there are no small print or hidden commissions that the site's operators prefer you don’t know about.
- If you can, try out the Forex trading platform, as well as the charting and technical analysis options beforehand.
- Check the general contract and make sure you save it along with the requoting policy on your computer.

Selecting a Forex trading account type

Forex trading sites offer different account types. Make sure you find the right trading site, and then the job of selecting the account type will be easy.
One of the differences between Forex Trading account types is the size of the account. There are Forex trading accounts as well as mini accounts that vary in size, and can range between $25 to $10,000. The account size will determine which lot investments are available to you. Create the account according to the funds you want to invest with, and make sure you do not risk to much of them right from the start.
You should also make sure you choose a Forex trading spot account, rather that a futures account. This is the most popular account type, as most online traders want their trades to be done instantaneously.

How to Open a Forex Trading Account

After you learn about the advantages of the Forex market, you'll want to start trading right away. To understand the Forex trading platform you'll first need to learn how to open your online Forex trading account, wherein all of the currency transactions take place.
Opening an account consists of four basic steps:
- First, select your account type.
- Then, register and enter your deails on the website.
- Next, you have to activate and confirm your account.
- Finally, download the Forex trading platform and start trading with your account.

When to Trade?

The question quite often comes up about when are the best times to trade? Everyone has their own ideas on what they think is the best time to trade, and quite often it depends on what type of system you are using. If you run a system that looks for trends, the best time for you would be different for a system looking for breakouts.

Rather than get into all that however (again just google "best forex trading times" for plenty of info on that) let's look at the best times to trade based on your experience instead.

A beginner, I would think, would be someone new to the forex markets, someone who has yet to fully develop their trading system, or, if they have, find it hard to maintain the discipline to stick to it no matter what. Some things that might identify a beginner trade could be:
Unaware of stop losses
Unsure of trend identification
Looking at one timeframe only (probably the 5M or 15M)
Quick to jump into a trade, slow to get out
Hazy on when to exit a profitable trade
Please don't think I am talking down to anyone, as some of the above applies to us all at times but these are things that I see encapsulate beginnner traders.

With those points in mind, the safest trading time would be one where:
The chances of big losses are low
You have time to think you trades through
There are some defineable trends to help you out in getting on the right side of the trade
Sharp, quick movements in the opposite direction to your trade aren't common
The markets can move so quickly, and any trade placed without a stop loss, is open to a sharp reversal and a big loss. Head out for a cup of tea, come back and your +10 could now be -50 by the time the kettle has boiled.

So when is the best time to trade based on the above? Well lets look it another way, what are the times where the above points are not met. My opinion? The opening of the different markets! There are three major markets to look out for, the Asian market, the European market and the US market. The opening and closing of these markets are often the most volatile, with sharp movements up and down with no apparent order quite often seen and many a beginner trader crying foul over a sharp reversal on their trade they have just been watching for the last hour.

Look at the above chart, this is a 15M chart from late last week of the EUR/USD. I have highlighted two areas, which is the opening of the European and US markets. Notice, how just before the opening of the price was slowly trending in one direction, but then, as the respective markets opened a sharp reversal sprung up in the opposite direction, taking with it many peoples profits I am sure, and spoiling many a traders tea. You find this espectially on the opening of Europe.

The best times for quiet, trending activity tends to be in the middle third of the trading sessions, the middle of the Asian session is a less volatile time, but can be too quiet for some. Approaching the opening of the European sessions, activity tends to pick up, but remember, be careful come opening time. I prefer the mid European session, but rarely get to trade it due to the time differences here in Australia, the mid US session can also be good but usually I am so buggered by that time, my decision making is shocking.

So pick what you prefer, if you are in it for a fast buck and don't care about making it a possible career, then opening and closing times can be right up your ally, but if you want to test out a system you are developing, look at the mid session times that suit you. Remember though news releases and data can effect everything, so always keep an eye out on the news anytime you trade.

Remember, this is not necessarily the most profitable time to trade in terms of pip movement, but while you are picking things up, minimising the chance of your account being wiped out is always a good idea.

I hope this helps someone, you can get the current times in the different areas by using this great little forex clock here. For my fellow countryfolk in Australia, below are the opening and closing times in AEST (thanks to aaron on Marketiva for these):

[AUS open 8:00am close 4:00pm]
[JYP open 10:00am close 6:00pm]
[EUR open 4:00pm close 12:00am]
[GBP open 5:00pm close 1:00am]
[USD open 10:00pm close 6:00am]

Ill leave it with a quote I read somewhere:

"Ametuers open the markets, professionals close them"

When To Exit

Welcome to another article, this time on when to exit a trade. When beginner traders start looking for that magic "make me a bucket load of cash" trading system, quite often the last thing thought about is their exit strategy. Usually the first and most important thing on a traders mind is when to enter a market, forgetting that you actually make bugger all money if you can't execute and exit as precisely as you entered.

There are three main scenarios that a trader will find themselves thinking of their exit:
A trade has moved as expected and they are in profit
A trade has moved opposite to what they expected, and they are in loss
A trade is dancing around the neutral zone of their trade
At first glance, you would think the easiest scenario of the three to exit under is number 1, i.e. when you are in profit, after all you are "cashing in" so how hard can it be. In fact, in reality all three can be as hard as each other. The reason?, like most things with trading, it comes to emotion. Below I have added the underlying emotions that might stop you closing a trade under these three scenarios:
A trade has moved as expected and they are in profit (GREED)
A trade has moved opposite to what they expected, and they are in loss (OPTIMISM)
A trade and dancing around the neutral zone of the trade (FEAR)
Let's look at them one by one.

Cannot close a profitable trade (Greed)

Everyone fights greed every day in life, always "wanting" rather than sticking to what you actually "need". It is part of a materialistic modern day culture that most of us are subject to. Trading is no different, and it is usually greed that can turn a nice logical, well planned and profitable trade into a losing one. When this happens, a trader reacts two ways, one, they are distraught at themselves for letting it all get away, or two, they tell themselves "well I was right with my prediction, the market just had it in for me".

Think of this, you set up a trade, monitor the setup closely, wait for the exact time to enter a trade, calculate your stop loss, your order is hit and you are in the trade. The price action moves beautifully, moving quickly towards your scantily thought about target (if you set one), and the sense of delight sends your brain into overdrive, working out the profits, imagining the ferrari soon to be in the drive-way, wondering if 2000 pips has ever been done in one day. This is when you know you are in some trouble, this is when greed has started to set in, you remove your profit target thinking "let's see how long this goes", you don't move your stop loss, cause you don't even contemplate that it might reverse, and you "go for the ride".

A common saying is "cut your losses, and let your profits run" (or something like that ;)), and it is a very good theory that should be followed. However, how do you ride your profits, without risking a reversal that you will undoubtedly put down to "a correction that will soon move back my way".

Personally I look at it this way:

Move your stop loss to break even or better as soon as is logically possible without risking being whipsawed out, that will ensure you will not lose money on the trade, ease the stress, and bring peace to the world (ok maybe not that). I take the view of never let a winning trade turn into a losing one so at least lock in 1 pip if it makes you feel better.
If the move was stronger that you anticipated, and you had a 20 pip profit target. Remove your profit target, and move your stop loss to the profit target as soon as possible. What you effectively have done is close your trade (because your stop loss is at your original target) and you are letting your profits run at the same time, two for the price of one, bargain!
Continue to follow the trade with your stop loss, and remember, 20 pips was your target, be satisfied with whatever you can get after that, but don't take any less. You can use one of the many trailing stop techniques to do this or look at the parabolic SAR indicator.
Cannot close a losing trade (Optimism)

I was tempted to use the word "Dillusion" for this one but felt perhaps that is a little harsh, you know the deal, you enter a trade, you set a 25 pip stop loss, the trade moves the wrong way and you are -20 on the trade, you look at the chart again frantically, and optimistically think "Oh of course ... I should have set the stop loss beyond that resistance level from the year 1967, what was I thinking" and you change your stop loss, making it -35. The price continues to move in the wrong direction, and you either cop a -35 pip loss instead of -20, or you remove your stop loss all together and spend the next week driving everyone nuts asking "will the EUR/USD go up?" to every trader in the chat room.

... Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ...

What you do when you move a stop loss further away from entry, is completely change the ratio of the trade you entered. What was originally a 2:1 trade, i.e. your potential gain was twice as large as your potential loss, becomes a 1:1 trade, which is just asking for a margin call very quickly.

My advice on this? NEVER NEVER (I think that is pretty clear) move a stop loss further away from your entry, you can move it closer or break even if you wish, as this improves your risk/reward ratio, but never away. Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ... the only problem is, that while they waited the week out waiting for the price to turn around (sometimes it never does .. look at the USD/JPY at the moment) they have tied up the entire margin, meaning they are locked out of many many more potentially profitable trades. So while you might end the week at +10, in the meantime other trades cut their losses at -20, entered 15 more trades in the week, and finished +100 for the week and at the same time learnt a hell of a lot more.

You want to close a trade dancing around the neutral zone (Fear)

Part Time Currency Trader

As I've written before it is quite easy to become a currency trader. The harder part is being a currency trader that doesn't lose money. You see, according to the scuttlebutt on the forums, about 90% of new traders end up losing their money to the market.

Are you thinking about trying your hand?

I'm not here to talk you out of it. I myself am a part time currency trader. By day I work at my office job and by night I fight crime with a mask and cape. Wait, no, that's not right. By night I trade online when family duties allow me to squander a chunk of time.

Trading part time has it's challenges. You will see endless market movements that you did not participate in. You will miss opportunities to open or close a position even though your ideas about what would happen next were proven right. In fact, a very large part of trading well involves being able to deal with the psychological aspects of trading, whether part time or not.

If you read other posts in my blog, such as this one on trading philosophy, you'll see that I recommend working with very small trades. If you take larger trades, relative to your available capital, you'll find the emotional stress greatly magnified. It is very difficult to make good decisions as you watch your capital evaporate before your eyes.

Nothing will drive you from the market quicker than watching your capital shrink, panicking and saving what little you can, and then watching the market reverse leaving you without a stake. Or, perhaps worse, you do get back in after seeing a healthy rise, only to watch the market reverse yet again and wreak havoc on your capital once again.

It happens. I'm sure it happens a lot.

Did I mention that I'm not trying to talk you out of becoming a currency trader? It certainly isn't impossible to trade successfully but you really have to understand that there are many different ways to be unsuccessful. One very easy way to fail is to enter the market during a period in which it is easy to understand market behavior, think that trading is quite easy, and then have the market turn upside down and brutally fleece you.

Let's see. Yes, another painful lesson is developing the discipline to set stops and then have them tripped trivially, while the market does in fact go in the direction that you expected. Of course, this sets you up for the opposite, hanging on to a trade endlessly expecting to go as you expected, while it sucks up more and more capital.

My advice, do become a currency trader. Take your time. Learn with a practice account. Eventually, switch to a micro or nano account and trade with very small amounts of money. Continue to play with very small capitalizations until you have blown up your account once or twice -- this happens when you get a margin call and all your funds (except active margin) are forfeited.

Take the long view. There is always going to be another opportunity. No currency pair moves only up or only down. When trading part time you must either make accurate predictions or tread softly enough that the market can't move far enough to cause a margin call.

Anyway, to get into some information you can act on, if you are totally new to the game you'll want to know the following:

Most, if not all, companies that offer online foreign exchange trading provide free forex demo accounts. These practice accounts are the same as live accounts except of course that you don't trade real money.

A currency trading platform is simply a fancy name for what is usually branded currency trading software. This software will let you view charts for various currency pairs, add indicators and execute trades

Forex trading is global. You can trade starting on Monday moring in Asia until Friday night in New York. Trading is 24 hours a day during this period though each trading session will offer differing market volume and behavior.

If you are looking for a place to open your first forex demo account I'd suggest Oanda. To ensure that you don't think I'm compensated to say that I'll ask you to search Google to find them. They are a reputable company that allows you to trade with very small amounts -- which is great for starting out.

Forex Profits

Forex, FX and the Forex market are some common abbreviations for the Foreign Exchange market. Actually it is the largest financial market in the world, where money is sold and bought freely. In its present condition the Forex market was launched in the seventies, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from demand and supply. As far as the freedom from any external control and free competition are concerned, the Forex market is a perfect market.

With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more than three times the aggregate amount volume of the United States Equity and Treasury markets combined. The Forex market is an over-the-counter market where buyers and sellers conduct foreign exchange business using different means of communication.

Unlike other financial markets, the Forex market has no physical location or central exchange. Since the Forex market lacks a physical exchange, the market trades continuously on a 24-hour basis, moving from one time zone to the next, across each of the world's major financial centers every day. Trillions of dollars of foreign exchange activity takes place every day. From 1997 to the end of 2000, daily forex trading volume surged approximately from US$5 billion to US$1.5 trillion and more (according to various recent studies it has touched $1.7 trillion per day and dwarfs all other markets for trading in size and volume). It is really difficult, if not impossible; to determine an absolutely exact number because trading is not centralized on an exchange. But one thing is for sure that the Forex market continues to grow at a phenomenal rate.

Before the advent of Internet and ecommerce, only big corporations, multinational banks and wealthy individuals could trade currencies in the Forex market through the use of the proprietary trading systems of banks. These systems required as much as US$1 million to open an account. Thanks to advancements in online technology, today investors with only a few thousand dollars can have access to the Forex market 24 hours a day and around 5 ? days of a week.

The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers called forex brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets while traders increase or decrease value of an investment upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events so it is also considered to be a highly volatile and fragile market too. Conditions of the Forex market never remain the same they changes every second.

The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot Forex transactions, followed by 32% in currency swap transactions. Forward outright Forex transactions represent another 5% of this daily turnover, with options on 'interbank' Forex transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.

For traders, Forex trading provides an alternative to stock market trading. While there are thousands of stocks to choose from, there are only a few major currencies to trade (the Dollar, Yen, British Pound, Swiss Franc, and the Euro are the most popular). Forex trading also provides a lot more leverage than stock trading, and the minimum investment to get started is a lot lower. Add to that the ability to choose flexible trading hours (forex trading goes on 24 hours a day) and you have the reason why so many stock traders have flocked to day trade currencies.

Tips to Make Money Fast in Forex

This is all about making a fortune with Forex. Most traders just go with the flow and make average gains, with this article you will learn what makes some traders stand out and a lot richer than others!

We are going to assume that you know how to trade, and has quite an experience in trading.

With simple changes in your trade selection, money and risk management, and mindset, you can change that average gains into larger ones!

Fast money is in Forex, it is a lifestyle. here is it how its done.

Tip 1 . Embrace Changeability and Risk With a Smile

Forex systems have instability.

If you cannot manage and calculate your risk, then don't ever think about trading in Forex. Many traders back away from forex because of this ( why do you even traded in the first place?). But taking manageable risks has its rewards.

It's just simple, you know what your losing if ever it doesn't work out, yet what you gain is unpredictable but sure is high! That is what I call excitement, my friend.

To a well-educated Forex trader, this is something you shouldn't be afraid of, might as well embrace it.

Tip 2. Trade Less, gain more

Most traders think that if they don't trade, another door has closed, or miss some move. The tendency, they trade frequently. Most of the trades that come big come a few times in a year. Focus on the trades that make the really big gains. Be alert, and informed.

Tip 3. Diversify is a no-no

Most Investors accept the fact that diversification can make money fast - in reality it does exactly the opposite.

Tip 4. Money and Risk Management

This article has been concentrating on the Big gains, because this is your money, so every penny should be controlled, this is where money management kicks in.

Control your risks, but increase your chances of success:

- Give yourself staying power by buying options at or in the money, this prevents you from getting stopped out. Many traders lose not by the market direction, but because they were stopped out by a instable move, and options will give you staying power.

- Keep your stop in its original position - until the move is well in profit, before moving it up.

- Trading fast and selectively - have the courage to trade when you feel it is good. and enjoy the cash.

Tip 5. Compound growth has its benefits

The way to make money fast in forex, is to understand the power of compound growth. For example, if you target 50% a year in your trading, you can grow an initial $20,000 account, to over a million dollars, in under 10 years.

Break the norm, and gain more. Follow some of these tips and make your way into the big gains!

Tuesday, August 4, 2009

How to Choose a Forex Broker

With so many different choices out there, how does a Forex "newbie" pick a broker? Chances are most new traders have no idea on where to start - and that's okay! We're here to help! We have put together a simple three step process to help you find a broker that YOU think will best suit YOUR needs. You might be thinking now, "Three steps? That's it?" Yesssiirrrr!

In the first step, you will go through some of the main questions you need ask yourself when reviewing different brokers. Then you will take a look at different brokers and their available features. We have put together a comparison guide by taking some of the most frequently asked questions across the internet, and surveyed some of the most frequently asked about brokers out there, so that you don't have to.

With this guide, you can narrow your choices down and take the final step of talking with different brokers and demo trading on different platforms. Simple, right? Let's begin...

Step 1: Do your research

Before comparing brokers, do you know what to look for? No? Well, here are a few of the main questions you should ask yourself:

Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they're based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn't registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading "micro" lots. Not every broker has this feature.
Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
Does this broker over premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?

Step 2: Compare brokers

Let's not beat around the bush, now you need go to Broker Comparison Guide.

Step 3: Open demo accounts and ask questions.

Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don't be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.

Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.

Other Forex Trading Strategies

Finally as well as all of the trading systems and strategies listed on this page, I also have a few breakout strategies that I like to use when a good opportunity presents itself. I'm also constantly testing out new ideas and reviewing the various trading systems that I get sent regularly by product owners who want me to promote their product.

However for the most part it's my 4 hour trading strategy that I spend most time on because this is my core system which generates the most consistent and reliable profits. All of the other forex trading systems are used to boost my trading pot during the quieter periods of the week.

Forex Trading Strategies And Systems

I've been trading the forex markets for several years now so I've developed quite a few different systems in my time. However there are some that are more profitable than others, so let me share you with you some of my most profitable forex trading strategies.

4 Hour Trading Strategy

I created this trading strategy myself and have been using it for several years now. This one system has generated more profits that any other system I have ever used, and yet it's surprisingly simple.

I simply look at the daily trend for a particular currency pair (usually the GBP/USD, EUR/USD or USD/JPY pair) using a very simple but effective technical indicator, then I wait for two EMAs (exponential moving averages) to cross over in the same direction on the 4 hour chart.

I will then enter a position (usually after a slight pull-back) and will employ a two-part exit strategy to maximise my profits. One half of the position will be closed out early for a safe profit, and the other half will be left to run for as long as possible in order to capture those really big price moves.

As I say, this particular forex trading strategy is highly effective, as regular readers of my blog will know because I share my trading results every week in my 'Weekly Trading Updates'.

Anyway if you would like to read all about my 4 hour trading method, you can access it (for free) by filling in the short form to the right and subscribing to my newsletter.

The only problem with trading this strategy is that there will always be quiet periods and particular days where you know you are not going to get any set-ups on any of the major currency pairs. Therefore at times like these I will often employ some of the other trading methods that I keep in reserve

Secrets in Forex Trading

More than 100 million people in the world are looking for profitable investment. We love talking investment because this is the energyless but high profit gain business. Forex Trading is the world's largest financial market with an estimated daily average turnover between $1.5 trillion to $2.5 trillion that we cannot doubt. If we want to make profit from this investment, there are some related knowledges that we definitely need to know.

Use Future data to justify market trend.
Pivot Program shows entry & exit signals.
Familiar Chart Patterns and Trend lines.
how big dogs are doing?
euro vs USD Tricks.
Be Smart to Filter Various Currency pairs.
Confident to Control Up and Down Trendy.
Avoid Pitfalls of Dumb money.
Intelligent stop loss strategies implementation.
AIME methodology
History is your tips.
Hedge currency Trades

Major Forex Indicators

Certain financial indicators have a history of moving the financial markets when the actual numbers don't match consensus. This article explain what some of the better financial indicators are and the ones traders should pay close attention to when trading the forex market.

APICS Survey - The APICS survey provides detailed information of the manufacturing sector. This survey is less well known than the ISM, but can also suggest trends in production. The diffusion index does not move in tandem with the ISM index each month, but sometimes the two do move in the same direction. Since manufacturing is a major sector of economy, investors can get a feel for the general economic backdrop for several investments. These surveys also play an important role in learning forex trading.

Business Inventories - The degree of inventories in relation to sales is an important signal of the near-term direction of production activity. Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. Growing inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the proportion of inventories to sales, investors can see whether production demands will expand or contract in the near future. The business inventory data provide a valuable forward-looking tool for traversing the economy and it is greatly used while making forex trading strategies.

Chain Stores Sales - It is monthly sales volumes from department, chain, discount and apparel stores. Sales are reported by the individual retailers. Chain store sales are an indicator of retail sales and consumer spending results. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you will have a pretty good grip on where the economy is headed. Sales are reported as a change from the same month a year ago. It is significant to know how strong sales actually were a year ago to make sense of this year's sales. In addition, sales are normally reported for "comparable stores" in case of company mergers.

Construction Spending - Data are available in nominal and real (inflation-adjusted) dollars. Because of their forex trading strategies, businesses only put money into construction of new factories or offices when they are sure that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home. That's why construction spending is a good indicator of the economy's momentum.

Consumer Confidence - It is study of consumer attitudes concerning both the present position as well as expectations regarding economic conditions conducted by The Conference Board. The level of consumer confidence is directly related to the intensity of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might act in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the way of the economy. Changes in consumer confidence and retail sales don't move in tandem month by month.

Consumer Price Index (CPI) - It is measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the inflation rate. The CPI is the most followed indicator of inflation in the United States, some forex training institutes also keeps record of it for training purpose. Inflation is a general increase in the cost of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets. By tracking the trends in inflation, whether high or low, ascending or descending, investors can anticipate how different types of investments will perform.

Current account - It is a measure of the country's international trade balance in goods, services and unilateral transfers. The level of the current account, as well as the trends in exports and imports, are followed as indicators of trends in foreign trade. U.S. trade with foreign countries hold significant clues to economic trends here and abroad. According to forex training experts this data can directly affect all the financial markets, and particularly the foreign exchange value of the dollar.

Tips for your success in Forex trading

1. Implement a trading plan.

“If you fail to plan, you plan to fail”. A trading plan is especially crucial in Forex trading to stay ‘in-control’ against the emotional stress in speculative situation.

Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized operation has to be predetermined and strictly followed.

2. Trade within your means

If you cannot afford to lose, you cannot afford to win. Losing is a not a must but it is the natural in any trading market. Trading should be always done using excess money in your savings.

Before you start to trade in Forex, we suggest you to put aside some of your income to set up your own investment funds and trade only using that funds.

3. Avoid emotion trading

If you do not have a trading plan, make one. If you have a trading plan, follows it strictly! Never ever attempt to hold your weakened position and hope the market will turn back in your favor direction. You might end up losing all your capital if you keep holding. Move on, stay within your trading plan, and admit your mistakes if things do not turn as you want.

4. Ride on a win and cut your losses

Forex trader should always ride till the market turns around whenever a profit is show; while during losing, never hesitate to admit your mistakes and exit the market. It is human nature to stay long on loses and satisfy with small profits – this is why as we mentioned earlier that a strictly followed trading plan is a must-have.

5. Love the trends

Trends are your friends. Although currency values fluctuate but from the big picture it normally goes in a steady direction. If you are not sure on certain moves, the long term trend is always your primary reference. In long run, trading with the trends improves your odds in the Forex market.

6. Stop looking for leading indicators

There aren't any in the Forex market. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be giving the secret away.

7. Avoid trading in a thin market

Trade on popular currency pairs and avoid thin market. The lack of public participation will cause difficulties in liquidate your positions. If you are beginners, we suggest the big five: USD/EUR, USD/JPY, USD/GBD, USD/CHF, and EUR/JPY.

8. Avoid trading in too many markets

Do not confuse yourself by overtrading in too many markets especially if you are a beginner. Go for the major currency pairs and drill down your studies in it.

9. Implement a proper trading system

There is hundreds of trading systems available on line. Pick one that you are most comfortable with and stick with it. Stay organized in your trades and fully utilized stop-loss or limit functions in your trades.

10. Keep learning

The best investment is always the investment on your brain. Without a doubt, Forex trading needs much more than just a few guidelines or tips to be successful. Experience, knowledge, capital, fortitude, and even some help of luck are all crucial in one’s success in the FX market. if you lose in a trade, do not lose the experience in it. Learn from your mistakes and regain your position in the next trade.

Technical analysis in Forex trading

What is Technical Analysis?

Technical Analysis is an effort to forecast price movements by analyzing market data such as historical price trends, volumes, open interest, etc. Technical analysis is conducted based on the principal of 'history repeats itself', it does not result in absolute predictions about the future.

Instead, indicators generated by technical analysis will help investors anticipate what is "likely" to happen to prices over time.

Ever heard of Japanese candle stick? Fibonacci numbers? Relative Strength Index? Moving averages? Pivot points? Elliot Wave? These are some of the charting method that FX traders like to use during trades.

Limitations on Technical Tradings

Technical analysis looks secure with proven tracks in the past times, however, trading Forex purely based on Technical Indicators would be extremely unsafe as we all knew thatt 'future does not equal to the past'.

A lot of unexpected variables are not considered in Technical Analysis: change of country leaders, change of government, natural disasters, change of bank policies, investor’s mood, war, or even terrorism attacks migh affect the currency value dramatically. These incidents are most likely not happening in the past thus Technical Analysis is not effective enough to predict the price movement.

Major Currencies Traded in Forex Market

The most traded currency in Forex market (the major seven) are United States dollar, Eurozone Euro , Japanese Yen , British Pound Sterling, Swiss Franc, Australian dollar , and Canadian Dollars.

Forex market is much USD-centered, where United States currency is involved in more than 80% of the trades. Major traded pairs in FX market are EUR/USD, which yields 28% from total trades. USD/JPY and GBP/USD come second and third, with take up 17% and 14% from the global forex trading respectively.

United States Dollar (USD)

The U.S. dollar uses the decimal system, consisting of 100 (equal) cents (symbol ¢).

In another division, there are 1,000 mills or ten dimes to a dollar; additionally, the term eagle was used in the Coinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins. In the second half of the 19th century there were occasional discussions of creating a $50 gold coin, which was referred to as a "Half Union," thus implying a denomination of 1 Union = $100.

However, only cents are in everyday use as divisions of the dollar; "dime" is used solely as the name of the coin with the value of 10¢, while "eagle" and "mill" are largely unknown to the general public, though mills are sometimes used in matters of tax levies and gasoline prices.

When currently issued in circulating form, denominations equal to or less than a dollar are emitted as U.S. coins while denominations equal to or greater than a dollar are emitted as Federal Reserve notes (with the exception of gold, silver and platinum coins valued up to $100 as legal tender, but worth far more as bullion). (Both one-dollar coins and notes are produced today, although the note form is significantly more common.)

In the past, paper money was occasionally issued in denominations less than a dollar (fractional currency) and gold coins were issued for circulation up to the value of 20 dollars.

Pound Sterling (GBP)

The pound (symbol: £; ISO code: GBP), divided into 100 pence, is the official currency of the United Kingdom and the Crown dependencies.

The slang term "quid" is commonly used in place of "pound(s)". The official full name pound sterling (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have the same name.

The currency name — but not the names of its units — is sometimes abbreviated to just "sterling", particularly in the wholesale financial markets; so "payment accepted in sterling", but never "that costs five sterling". The abbreviations "ster." or "stg." are sometimes used. The term British pound is commonly used in less formal contexts, although it is not an official name of the currency.

The pound was originally the value of one pound Tower weight of sterling silver (hence "pound sterling"). The currency sign is the pound sign, originally ₤ with two cross-bars, then later more commonly £ with a single cross-bar. The pound sign derives from the black-letter "L", from the abbreviation LSD – librae, solidi, denarii – used for the pounds, shillings and pence of the original duodecimal currency system. Libra was the basic Roman unit of weight, which in turn derived from the Latin word for scales or balance.

The ISO 4217 currency code is GBP (Great Britain pound). Occasionally the abbreviation UKP is seen, but this is incorrect. The Crown dependencies use their own (non-ISO) codes. Stocks are often traded in pence, so traders may refer to Pence sterling, GBX (sometimes GBp), when listing stock prices.

Euro (EUR)

The euro (currency sign: €; banking code: EUR) is the official currency of the Eurozone (also known as the Euro Area), which consists of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain, and will extend to include Cyprus and Malta from 1 January 2008.

It is the single currency for more than 317 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects more than 480 million people worldwide.

With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro surpasses the U.S. dollar in terms of combined value of cash in circulation.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves. Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria.

Several small European states (The Vatican, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro, and Kosovo have adopted the euro unilaterally.

Japanese Yen (JPY)

The yen or en is the currency of Japan. It is also widely used as a reserve currency after the United States dollar, the euro and the pound sterling. The ISO 4217 codes for the yen are JPY and 392. The Latinised symbol is ¥ while in Japanese it is also written with the kanji 円.

While not a usage specific to currency, large quantities of yen are often counted in multiples of 10,000 in the same way as values in the United States are often quoted or rounded off to hundreds or thousands.

The yen was introduced by the Meiji government in 1870 as a system resembling those in Europe. The yen replaced the complex monetary system of the Edo period, based The New Currency Act of 1871 stipulated the adoption of the decimal accounting system of yen, sen, and rin, with the coins being round and cast as in the West.

The yen was legally defined as 0.78 troy ounces (24.26 g) of pure silver, or 1.5 grams of pure gold. The same amount of silver is worth about 1181 modern yen while the same amount of gold is worth about 3572 yen. The Act also moved Japan onto the gold standard. (The sen and the rin were eventually taken out of circulation at the end of 1953.)

Knowing the Currency Symbol

When starting in Forex trading, it would be wise to start trading with the major seven. It is also recommended to start with your own country currency if you are living in one of the major seven country as you are in a better position to judge the value of the currency.

You should be aware that currencies are normally stated in a three-alphabate symbol in FX market.

For the major seven, currency symbol are as below:

Currency	Symbol	Nickname
Australian Dollar	AUD	Aussie
Canadian Dollar	CAD	Loonie
Euro	EUR	Fiber
Japanese Yen	JPY	Yen
British Pound	GBP	Cable
Swiss Franc	CHF	Swissy
United States Dollars	USD	Buck

Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

About Contracts For Difference

We divide our products into two main classifications - CFD (Contracts For Difference) and Foreign Exchange Margin Trading. The products are almost identical from a trading perspective but there are some regulatory differences.

A CFD is an agreement between a Client and a Broker to exchange the difference between the opening and closing value of a trade. A CFD allows investors to receive many of the benefits of actually trading the underlying instrument (for example dividends in a share based CFD) without owning it. A CFD is simply a derivative product and not the actual underlying product.

CFDs are margin traded products. Thus, clients only deposit a fraction of the overall value to trade the full contract value of the product allowing you to make a much larger potential investment. Just like physical shares your profit or loss is determined by the difference between the price you buy at and the price you sell at. Margin levels required by AGM Trader will vary between CFD products.

Understanding Forex Quotes

Reading Forex quotes is easy although it looks a bit confusing at the beginning.

Quoting Foreign Currency

Currencies are always quoted in pairs. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter of the currency into which the price of one unit of XXX currency is expressed.

The first currency in the quotes act as the 'base currency'.

For example USD/JPY, EUR/GBP, and GBP/AUD, in such cases, USD, Euro Dollar, and Britain Pound are acting as the base currency. Base currency in a Forex quote will always has a value of 1. USD/JPY indicates how much Japanese Yens you can buy with 1 United States Dollar; similarly EUR/GBP indicates the exchange rate of Great Britain Pound with 1 Euro Dollar.

FX Quoting: Bid/Ask and Spread

There are sometimes that you can only see one price but often currency exchange price are display in pairs with 'bid price and ask price'.

For example EUR/USD 1.2385/1.2390, 1.2385 is known as the bidding price, while 1.2390 is the asking price. Bidding price is the price that you sell the base currency (EUR in our case here); asking price is the price that you buy the base currency. The different of the bidding and the asking price is called 'spread'.

You might notice that bidding price is always lower than the asking price. Ever wonder why? The different of the bid-ask price (socall 'spread') is how currency brokers make profits without charging commissions to their clients (sell high and buy low in the same time.)

What's a pip?

A pip is the smallest value in a Forex quote. Take our example earlier on EUR/USD. If the exchange rate goes from 1.2385 to 1.2386; that's one pip. In mathematical definition, a pip means the last decimal place of a quotation.

Note that as each currency has its own value, the value of a pip is different from one another. Say USD/JPY rate at 120.75, a pip would be 0.01 (the second decimal place); while for EUR/USD 1.2385, a pip would be 0.0001 (the fourth decimal place).

Example of Forex Quotes

Confused about the quotes? Don't worry too much about it, you'll get used to them as soon as you move on and start your trades.

For the beginners, here are some quick examples. Try not look at the answer and determine the value of bid price, ask price, spread value, and the pip value.

EUR/USD 1.2385/1.2390

Base currency= Eur
Bid price= 1.2385; Ask price= 1.2390
When selling Euros, 1 Euro = USD$1.2385; when buying Euros, USD$1.2390 = 1 Euro.
Spread = | 1.2385 - 1.2390 | = 0.0005
Pip value= 0.0001

EUR/JPY 127.95/128.00

Base currency= Eur
Bid price= 127.95; Ask price= 128.00
When selling Euros, 1 Euro = JPY127.95; when buying Euros, JPY128.00 = 1 Euro.
Spread = | 127.95 - 128.00 | = 0.05
Pip value= 0.01

GBP/USD 1.7400/10

Base currency= GBP
Bid price= 1.7400; Ask price= 1.7410
When selling Pound, 1 Pound = USD$1.7400; when buying Pound, USD$1.7410 = 1 Pound.
Spread = | 1.7400 - 1.7410 | = 0.001
Pip value= 0.0001

USD/JPY 119.8

Base currency= USD
No bid-ask price is displayed, spread value not available.
Pip value= 0.1

Getting used to the quotes now? Well, don't feel down if you're still slow... you'll be picking up on reading them as you move along.

Advantages in Forex trading

Equal Prospective in Rising or Falling Market Trend

There is no structural bias to the market and there are no restrictions on short selling in FX market. Trading in Forex gives you an equal prospective in rising and falling market.

As trades are always done in pair of currency pairs, Forex traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency.

Trade Forex 24 hours a day

Forex market never sleeps. In Forex trading, you do not need to wait the market to open, you can always response to world latest movement and news immediately.

Every Sunday 5.00pm in New York, Forex market starts its week from Sydney, followed by Tokyo, Singapore, Hong Kong, London, and New York. In Forex tradng, you can always response to the market trend a lot faster than in any other trading market.

Also, with the flexibility of Forex market trading time, you can work on your trade in Forex during your free time. This means you can start small and work as part time trader before going full time on FX trading.

High Leverage Margin

Forex brokers offer trade margin of 50, 100, 150, or even 200 to 1 of trade margin.

Forex traders often find themselves controlling a huge sum of money with little cash outlay on the table. For example, a $1,000 in a 150:1 Forex account will gives you the purchase power of $150,000 in the currency market.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the Forex market.

This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.