Understanding Forex Trading; An Alternative to Stocks

Forex is the 'Foreign Exchange' marketplace for trading currencies internationally. Hence, the name. The Forex market is in fact, the largest financial network in the world accounting for daily average turnover in the trillions of dollars. Forex trading takes place through major banks, market makers, and brokerage houses around the world, and is open 24/7, five days a week. It's also a rapidly expanding market, as traders migrate over to Forex Trading and away from stocks.

In its simplest form, trading forex involves two currencies traded simultaneously, called a 'pair'. As an this example, the EUR/USD pair, trade the Euro against the US Dollar. A buyer of the pair therefore would be buying the Euro and selling the US Dollar. Forex pairs are described in the following format: XXX/YYY. The first currency in the pair; XXX, is referred to as the 'base' currency. The second symbol in the pair, YYY is the 'counter' currency. Prices will always be expressed in terms of the counter currency.

Expanding on this example, if the current price of the EUR/USD pair is shown as 1.3667, this means that 1 Euro (the base currency) equals $ 1.3667 US Dollars. Most major pairs are priced to 4 decimals, or 1/100th of one percent. The exception is the Japanese Yen pair, which trades only to 2 decimals. That's because there are typically over 100 Yen to the dollar. For instance, let's say the US Dollar is the base currency, in the USD/JPY pair where prices here are expressed in Japanese Yen. If the current price is 108.02, that means the base currency, the US Dollar, equals 108.02 Japanese Yen.

Prices in Forex are expressed in something called 'pips'. A pip is simply the minimum increment that a currency pair price can change. All that means is if the EUR/USD price changes from 1.3790 to 1.3791, the price is said to have gone up by 1 pip. Quotes on Forex pairs are on a bid-ask basis. The bid; price the market is willing to pay a seller at a point in time for a specific currency pair, the ask; the price that the market is willing to sell to a buyer in the same manner. The difference between the bid and the ask is called the bid/ask spread just like in stocks.

These Forex prices are always listed as Bid price first, Ask price second. For example, a typical EUR/USD quote could be 1.3784 Bid // 1.3787 Ask in which case the quote price would have a spread of 3 pips. The spread is how market makers are compensated, as opposed to 'commissions' paid for trading stocks or options. The spread will often vary depending on a number of factors such as: Current market conditions, specific brokers/market makers, and currency pairs being traded, just to name a few. In the EUR/USD example above, price quotes would be expressed simply as 1.3784/1.3787 or 1.3784/87.

Finally, we know that Forex trades in 'Lots' similar in a way to stocks. These lots can be delineated as types of lots including: standard, mini and micro. Standard lots trade 100,000 units of a currency pair while Mini lots trade 10,000 units and the micro lots trade 1,000 units. To illustrate this consider for example, a standard lot purchase, if the EUR/USD quote was 1.3784/1.3787, then buying this pair would mean buying 100,000 Euro dollars and selling short 137,870 US Dollars.

The Difference Forex and Futures

1. A Forex trader could trade more transaction compared to the futures market (the trading volume could be a times larger), and the risk will be strictly under control. The trading volume of the Forex market is 46 times larger compared to the futures market, moreover Forex traders could make more profit from the Forex market due to the larger trading volume (the transaction volume is a few times larger), the REFCO Switzerland rich transaction platform allowed transaction between 1-100 times to be carry on, moreover a Forex trader could decide his or her own transaction amount, for example: Your account has $30,000, the basic transaction unit is each $1,000 (which transaction amount in $1.00, million), namely, so the proportion of the margin of each transaction unit is 100:1.

2. The risk of the Forex trader is under control, such margin call will not happen compared to futures, through the Forex trading system, your risk will receive the strict limit, even if your margin if lower then the deposit required, the Forex trading system will automatically settle your position, this means even if a Forex trader suffered losses, moreover if the market is suffering from a disaster fluctuation, your loss could not surpass your account amount. In order to understand the advantages, please apply for the demo account to carry on the complete zero risk.

3. A Forex trader will receive a large limitation of liquidation and a relatively fair market because the trading volume of the Forex market is large and it is also the largest liquidation market in the world. At present the trading volume in the Forex market is 140 billion Dollars, such big market will completely digest your transaction cash.

4. A Forex trader may do 24 hours transactions and other markets are different, the Forex market is a 24 hour linkages market, it starts from every Sunday before dawn Australian Sydney market, substandard collect the transaction center Singapore, Tokyo, London, Frankfurt to New York continuously to open, such linkage market enable you to do 24 hours transactions, also provide flexibility for Forex trader to do transaction.

Forex Home Business

The more you understand about any subject, the more interesting it becomes. As you read this article you’ll find that the subject of forex home business is certainly no exception.

When running a forex home business, a person quickly gains knowledge of how the business world works. Whether it be selling crafts, doing a home delivery business, or selling real-estate, after investing a lot of time and effort into a home or small business, a person quickly becomes aware of the few basic business truths that govern business.

One of those truths is that you have to have time and money to start a small business or any business for that matter. More often than not, the people that have the time dont have the money to invest in a home-based business and the people that have the money dont have the time. With Forex home business, it is quite possible to generate an income with a small time investment per day, after studying FOREX for a few months, and a very small investment as little as $50 in some cases.

The second truth, and these are probably quite obvious to most people, is that in order to make money a business has to have some sort of product to sell or perform some type of service. In the FOREX world, nothing is being sold and no service is being performed, but rather money is being exchanged. You are making a profit based on the actual exchange value of one currency against another currency. This eliminates the need for employees, such as customer service personnel and human resource people if your company were to become that big.

Is everything making sense so far? If not, I’m sure that with just a little more reading, all the facts will fall into place.

Also, because of the huge size of the FOREX market, trading nearly $1.5 trillion dollars a day, such things as social events, bad publicity, and changes in political climate will have no effect on your business. In fact, after studying FOREX, you will be able to see how these things will actually benefit your FOREX home business.

The third and last classical business truth is that most people are prevented from starting a home-based business because they dont feel good enough about themselves. They dont feel like theyre educated enough. I read stories all of the time about people that feel passionate about something or they just pick something that they are relatively good at or have done before and start a business. They just take a chance. If you want to do it, step out. Take that first step. Dont drop any huge sums of money, of course, but do a little research, make a small investment and start your adventure down to the road to FOREX trading.

You dont need a doctorite degree to get involved with FOREX trading, but after a couple of months of good study, its quite possible to generate a significant source of cash from FOREX trading. Forex traders study the political and economic trends in the economically important countries, including USA, Japan, England or the European Union, and make an assessment of the present or future purchase values of these currencies in comparison with each other. Again, the process of sale and purchase is like any other market activity, except that the time period varies. Blindly trade. Forex home business is not about gambling. Consider a situation where you think that the price of a given commodity, say, silver, gold, or wheat, will increase in the near future.

You can’t predict when knowing something extra about forex home business will come in handy. If you learned anything new about forex home business in this article, you should file the article where you can find it again.

Forex Trade TIPS & TRICKS

Always keep your trading systems simple. Too much information at one time on your trading screen could confuse and delay your decision to trade.

Broker - A lot of Forex brokers are in business only to make money from yours. Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker.

Sample the Environment - It is important to remember that many registered and online trading agents have fictitious platforms which mirror the real-time, live platform clients register and trade on. It is not only advisable, but it is also actively encouraged to initially open a 'dummy' account where fictitious Forex trades can be undertaken that closely reflect what real trades may be like when they are eventually undertaken. Such platforms are designed to give those that are new to Forex a feel and an idea what real trades on live markets will be like when the decision is made to begin trading.

Buy low, Sell high - Forex trading does not involve the physical purchase of the currencies, but rather involves contracts for amount and exchange rate of currency pairs. The potential for profit comes from the fluctuations in the currency exchange market. Regular daily fluctuations in the value of one currency against another give a clear advantage over conventional stock market equities and instruments.

Manage Losing Positions - Trades will sometimes inevitably on occasion go against you. It is important to accept them as an inherent part of trading. Cut your losses and move on having learned from any mistakes made. Always remember however that you will not be able to trade without losing some positions. It is important to manage these well.

Patience - Do not over-trade your account. Good money management practice is important and will help with profitability. This will go a long way in helping you develop a strategy which fits with your personal trading capital. Operate a trailing stop loss policy say 15 to 20 pips behind the trade. Minimize your good trades as long as you are confident.

Flexible Mindset - Don't set yourself false targets and expectations. Experts will tell you trading is not an exact science and setting oneself unattainable targets will only lead to frustration and feeling of failure when these targets are not met. Always maintain an open mind. The market is a constantly changing environment tunes your mindset to understand this.

And lastly but definitely not least, it is most important for all market participants to remember that unique experiences and past performances do not guarantee future results. Trading results can vary in any combination of circumstances. If you do not have extra capital that you can afford to lose, you should not trade in the foreign exchange market.

Invest wisely and take advantage of the resources and technology available to you in the market.

Dollar-Euro Currency Exchange

This article provides an overview of the factors affecting the leading currency pair: Euro-dollar exchange, commonly expressed as EUR/USD.

The euro to dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.

Factors affecting exchange ratesFour factors are identified as fundamental determinants of the real euro to dollar exchange rate:

* The international real interest rate differential

* Relative prices in the traded and non-traded goods sectors

* The real oil price

* The relative fiscal position

The nominal bilateral dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of euro to US dollar bilateral trade links, trade with the UK is, to some extent, more important for the Euro zone than is trade with the US. The dollar and the euro have a strong predisposition to run together in the very short run, but sometimes there can be significant discrepancies. The very strong appreciation of the dollar against the euro in 2003 is one example of these discrepancies.

In the long run, the correlation between the bilateral dollar to euro exchange rate, and different measures of the effective exchange rate of Euroland, has been rather high, especially if one looks at the effective real exchange rate. As inflation is at very similar levels in the US and the Euro area, there is no need to adjust the dollar to euro rate for inflation differentials, but because the Euro zone also trades intensively with countries that have relatively high inflation rates (e.g. some countries in Central and Eastern Europe, Turkey, etc.), it is more important to downplay nominal exchange rate measures by looking at relative price and cost developments.

The fall of the dollarThe steady and orderly decline of the dollar from early 2002 to early 2004 against the euro, Australian dollar, Canadian dollar and a few other currencies (i.e., its trade-weighted average, which is what counts for purposes of trade adjustment), while significant, has still only amounted to about 10 percent.

There are two reasons why concerns about a free fall of the dollar should not be worth consideration. The first is that the US external deficit will stay high only if US growth remains vigorous. But if the US continues to grow strongly, it will also retain a strong attraction for foreign capital, which should support the dollar. The second reason is that the attempts by the monetary authorities in Asia to keep their currencies weak will probably not work.

The basic theories underlying the dollar to euro exchange rate:Law of One Price: In competitive markets free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.

Interest rate effects:

If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established.

The dual forces of supply and demand determine euro vs. dollar exchange rates. Various factors affect these two forces, which in turn affect the exchange rates:

The business environment:

Positive indications (in terms of government policy, competitive advantages, market size, etc.) increase the demand for the currency, as more and more enterprises want to invest there.
Stock market: The major stock indices also have a correlation with the currency rates.

Political factors: All exchange rates are susceptible to political instability and anticipations about the new government. For example, political or financial instability in Russia is also a flag for the euro to US dollar exchange because of the substantial amount of German investments directed to Russia.

Economic data:

Economic data such as labor reports (payrolls, unemployment rate and average hourly earnings), consumer price indices (CPI), producer price indices (PPI), gross domestic product (GDP), international trade, productivity, industrial production, consumer confidence etc., also affect fluctuations in currency exchange rates.

Confidence in a currency is the greatest determinant of the real euro-dollar exchange rate. Decisions are made based on expected future developments that may affect the currency. A EUR/USD exchange can operate under one of four main types of exchange rate systems:

Fully fixed exchange ratesIn a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.

Semi-fixed exchange ratesCurrency can move inside permitted ranges of fluctuation. The exchange rate is the dominant target of economic policy-making, interest rates are set to meet the target and the exchange rate is given a specific target.

Free floatingThe value of the currency is determined solely by market supply and demand forces in the foreign exchange market. Trade flows and capital flows are the main factors affecting the exchange rate. A floating exchange rate system: Monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments. For example, the Bank of England does not actively intervene in the currency markets to achieve a desired exchange rate level. With floating exchange rates, changes in market demand and supply cause a currency to change in value. Pure free floating exchange rates are rare - most governments at one time or another seek to "manage" the value of their currency through changes in interest rates and other controls.

Managed floating exchange ratesGovernments normally engage in managed floating if not part of a fixed exchange rate system.

The advantages of fixed exchange rates are the disadvantages of floating rates:Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - although this depends on whether the dealers in the foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

Advantages of floating exchange ratesFluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it gives the government/monetary authorities flexibility in determining interest rates.

History of Forex Market

An overview into the historical evolution of the foreign exchange market

This article will follow the historical roots of the international currency trading from the days of the gold exchange, through the Bretton Woods Agreement, to its current setting.

The Gold exchange period and the Bretton Woods Agreement.

Prior to Bretton Woods, the gold exchange standard -- paramount between 1876 and World War I -- ruled over the international economic system. Under the gold exchange, currencies experienced a new era of stability because they were supported by the price of gold.

However, the gold exchange standard had a weakness of boom-bust patterns. As a country's economy strengthened, its imports would increase until the country ran down its gold reserves, which were required to support its currency. As a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities would hit bottom, appearing attractive to other nations, who would rush in and amid a buying frenzy inject the economy with gold until it increased its money supply, driving down interest rates and restoring wealth into the economy. Such boom-bust patterns abounded throughout the gold standard until World War I temporarily discontinued trade flows and the free movement of gold.

The Bretton Woods Agreement, established in 1944, fixed national currencies against the dollar, and set the dollar at a rate of USD 35 per ounce of gold. The agreement was aimed at establishing international monetary steadiness by preventing money from taking flight across countries, and to curb speculation in the international currency market. Participating countries agreed to try to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold as needed. As a result, the dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the USA. Countries were prohibited from devaluing their currency to benefit their foreign trade and were only allowed to devalue their currency by less than 10%. The great volume of international Forex trade led to massive movements of capital, which were generated by post-war construction during the 1950s, and this movement destabilized the foreign exchange rates established in Bretton Woods.

The year 1971 heralded the abandonment of the Bretton Woods in that the US dollar would no longer be exchangeable into gold. By 1973, the forces of supply and demand controlled major industrialized nations' currencies, which now floated more freely across nations. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s, and new financial instruments, market deregulation and trade liberalization emerged.

The onset of computers and technology in the 1980s accelerated the pace of extending the market continuum for cross-border capital movements through Asian, European and American time zones. Transactions in foreign exchange increased intensively from nearly billion a day in the 1980s, to more than $1.9 trillion a day two decades later.

How to Trade Forex Part Time?

All traders live by the dream of trading Forex Full-Time for living, however most if not all start trading Part-Time first. Here are my tips on how you can achieve your dream:

When I first started trading I faced a lot of challenges, such as what indicators to use, which broker, what strategy etc. Eventually I found answers to all those questions nevertheless the biggest challenge was how to manage trading around my Full-Time day job. In this article I would like to share my experience as how it all worked out for me.

Trade more, or Trade Less:As any new trader I was faced with dilemma of how often to trade or look for trades everyday . From my experience so far I believe that trading more often is better when you first start. It helps in learning the use of trading platform, understanding market rhythm and getting used to other aspects of live trading. To gain such experience I started off with 1 hr and 5 minute systems, trading several times every day after work. Though sometimes hard to concentrate after an exhausting day at work, my strong motivation overcame any such impediments.

I carried on with this kind of trading for good 3-4 months. However I soon realized that this form of trading won’t help in long run. Constantly watching 5 minute chart is not only tiresome but boring at times. I knew that I need to do better and look for a system that is based on daily or weekly timeframes.Best of Both Worlds:My recommendation to any new trader is to develop two strategies of different timeframes. One for longer timeframe such as Daily and other for shorter timeframe such as 30 minutes or 5 minutes. Now here is the most important point, only trade the best setup from both strategies. Every strategy has both high and low probable trades. If you only practice to take high probable trades then you have more chances of succeeding. New traders struggles here, they want to trade more often and when the trade fails they look for more ways or indicators to overcome those losing trades. This creates a ever going process of changing and modifying the system which would work just fine on its own.

Also when trading shorter timeframe strategy find out the time of the day when it works best. Trade only during those hours. This way you can minimize time you need to sit in front of pc and maximize mental concentration.

I hope these tips were helpful. I would love to hear from people who are trading Part-time on how they manage trading around their day job.

Popular pairs in Forex

Without a doubt the EUR/USD and GBP/USD, as currency pairs, receive a great deal of attention by online Forex traders. Each provides tradable patterns almost every day. Why some traders prefer trading one of these pairs versus the other is almost a matter of personal preference. Both pairs will reflect global sentiment regarding the dollar. As a result, it is usually the case that they will share the same trend patterns. If world reaction to economic news is positive for the US economy, as a general rule, both the Euro and the GBP will tend to weaken. The chart below, for example, shows how the EUR/USD and the GBP have moved on the 1 hour pattern. Notice how similar the patterns are. The hour charts below show that both pairs provided a similar reaction to the Nov 4th economic release of the non-farm payroll report.Clearly, it is hard to develop an argument of which pair is better to trade. But there is more that the online Forex trader can do with these pairs. online Forex traders can generate totally new trading opportunities by dropping the US dollar component of the pair and, thereby, creating a Cross-pair known as the EUR/GBP Before we take a look at the EUR/GBP chart, let's try to understand what makes this pair a good source of trades, particularly, in the coming year.The best way to understanding this Cross-pair is to realize that it generates a picture of the battle between two different economies- the EU vs. the British economy. The EU countries experience different levels of economic growth and expectations of growth than that of Great Britain.

A Detailed Overview of Forex Market

Introduction The following facts and figures relate to the foreign exchange market. Most of the information comes from the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2004, and published in March 2005. 52 central banks and monetary authorities participated in the survey, collecting information from approximately 1200 market participants. Structure Decentralised, over-the-counter market, also known as the 'interbank' market Main participants: Central Banks, commercial and investment banks, hedge funds, pension funds, corporations & private speculators The free-floating currency system began in 1973, and was officially mandated in 1978 Online trading began in the mid to late 1990's Trading Hours 24 hour market Sunday 5pm EST through Friday 4pm EST. Rollover at 5pm EST Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America Size Largest market in the world $1.9 trillion average daily turnover, equivalent to: More than 10 times the average daily turnover of global equity markets 1 40 times the average daily turnover of the NYSE 2 $300 a day for every man, woman, and child on earth An annual turnover more than 10 times world GDP 3 The spot market accounts for about one-third of daily turnover 1. About $167 billion - World Federation of Exchanges aggregate 2004 2. About $46 billion - NYSE 2004 3. About $36 trillion - World Bank 2003 Major Markets The US & UK account for more than 50% of turnover Major markets: London, New York, Tokyo Trading activity is heaviest when major markets overlap Nearly two-thirds of NY activity occurs in the morning hours while European markets are open 4 Concentration in the Banking Industry 16 banks account for 75% of turnover in the U.K. 11 banks account for 75% of turnover in the U.S. 11 banks account for 75% of turnover in Japan Note: The reference here is to individual banking offices rather than banking organisations. Source: BIS Triennial Survey 2004 Trading An estimated 95% of transactions are speculative More than 40% of trades last less than two days About 80% of trades last less than one week Brokers research: 90% of traders lose money, 5% break even, 5% make money Technical Analysis Commonly used technical indicators: Moving averages RSI Fibonacci retracements Stochastics MACD Momentum Bollinger bands Pivot point Elliott Wave Currencies The US dollar is involved in approximately 90% of all foreign exchange transactions, equivalent to over $1.5 trillion a day Currency Codes USD = US Dollar EUR = Euro JPY = Japanese Yen GBP = British Pound CHF = Swiss Franc CAD = Canadian Dollar AUD = Australian Dollar NZD = New Zealand Dollar Average Daily Turnover by Currency N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%. Source: BIS Triennial Survey 2004 Currency Pairs Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF Dollar bloc: USD/CAD, AUD/USD, NZD/USD Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Forex News

EurUsd below 1.3025, is finding support on former trend lines. A rebound above 1.3025 would argue for a return towards 1.3120. Further downside pressure is expected later on (below 1.2970, in direction of 1.2855).

GbpUsd is challenging a break of 1.4275, finding support (1.4135 this morning). A closing price below 1.4275 would argue for further downside pressure. The currency pair is seen choppy, between 1.4135 and 1.4360.

UsdJpy within a narrow range is finding support on 90.10. Below that level, a return towards 89.65 might be seen (the bullish break point is at 90.75).

UsdChf is seen doing a pullback towards 1.1285 (former bullish break level), encountering strong resistance between 1.1390 and 1.1440 (ascending resistance line).

Full Article at: http://www.ac-markets.com/forex-news/daily-forex-news.aspx

Iran to punish firms trading with Israel

TEHRAN: Iran's government has endorsed a bill that will sanction foreign companies doing business with Israel, in the face of Israel's deadly assault on Gaza, an Iran newspaper reported on Monday.

The sanctions will apply to multinationals which have branches in Iran and which "invest in the occupied lands (of Palestine) or help the Zionist regime," the government-run paper said. The draft bill adopted on Sunday will now be put before parliament, which is expected to pass it overwhelmingly.

The report gave no details of the nature of the envisaged sanctions. Iranian President Mahmoud Ahmadinejad on Sunday called on Muslim countries to unite to bring about an end to Israel's "genocide" against the people of Gaza.

The Iranian foreign ministry called for "any measure to stop the blockade, invasion and violence" in Gaza. "In all areas, including economic, the parliament and the government are seriously following it up and are identifying Zionist companies," foreign ministry spokesman Hassan Ghashgavi told reporters when asked about the sanctions and if they apply to companies such as Swiss group Nestle.

Nestle has been the target of protests by Islamists since the Gaza onslaught began, some Iranian websites said. It is among a small number of foreign companies which have factories in Iran, which notably also includes French automaker Renault.

Full article at: http://www.forexpk.com/internal_exclusives.asp?file=international_desks_Iran_to_punish_firms.asp

Forex Trading TIPS & Tricks

Forex markets are very unpredictable. However, the major reason why money is lost relates to trading on emotion.This is a routine occurrence that happens every time a trader hesitates to make a move.

Its displayed when someone stays locked in a trade too long instead of raking money off the table. Both instances result in traders giving away potential profits to the markets.

Emotions weigh heavy on your decision making process - anxiety, shame, hope, anger, pride - you’re likely to experience them all. One of the most damaging of all is revenge. You were involved in a long trade only to suffer a huge loss that set you back tremendously. Now you’re out for vengeance, anxious to claim it on the Forex market that took your money. While it’s a part of human nature, this type of mentality can keep you out of the market for good.

Completely taming your emotions may be difficult, but you can manage them to a point where they are not interfering with important decision making. Becoming a successful trader takes discipline and the ability to replace your fears with a calm confidence. Some of the pros have termed this skill as “Emotional Intelligence”.