How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements

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.

Euro Market

The rapid development of the Eurodollar market, where US dollars are deposited in banks outside the US, was a major mechanism for speeding up Forex trading. Likewise, Euro markets are those where assets are deposited outside the currency of origin.

The Eurodollar market first came into being in the 1950s when the Soviet Union's oil revenue -- all in US dollars -- was being deposited outside the US in fear of being frozen by US regulators. This resulted in a vast offshore pool of dollars outside the control of US authorities. The US government therefore imposed laws to restrict dollar lending to foreigners. Euro markets then became particularly attractive because they had fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing short-term loans and financing imports and exports.

London was and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market.

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.

Forex - Historical Inauguration Fails to Ease the Markets Negative Tone

Market optimism which was anticipated from the transition of power at yesterdays historical Inauguration failed to translate into market gains. Equity markets plunged in the US, led by losses in the financial sector, sending risk appetite lower again, as the S&P closed down over 5% (the biggest drop on inauguration day in history). President Obama didn’t provide any real details of importance in his speech. He stated that the US was at war with a ‘badly weakened economy’. He noted that the economic crisis was the consequence of ‘greed and irresponsibility on the part of some’, and promised to keep a ‘watchful eye’ to ensure that markets do not spin out of control. He also added that people in charge of managing Americas money ‘will be held to account’. 

Yesterday the Bank of Canada cut its policy rate by 50bp to 1.00% as expected. The BoC's accompanying statement was moderately hawkish with the key policy portion being " the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent target (inflation target) over the medium term...," which the market viewed as a signal that the BoC would not commit to further easing and this gave the CAD a momentary support before risk aversion trade began weighing on the rally. 

Read more at: http://www.ac-markets.com/forex-news/daily-forex-news.aspx

Characteristics of Forex Market

st, It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".

But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.

2nd, Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.

Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.

This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.

3rd, Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.

In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.

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

US Open: Sterling Price Action Once Again Takes Center Stage

With the exception of Sterling, the story in the overnight session was one of relative stability and consolidation following yesterday’s flight to safety price action.

US Open – With the exception of Sterling, the story in the overnight session was one of relative stability and consolidation following yesterday’s flight to safety price action. An article in today’s London Times entitled "Mervyn King paves way to start BoE print presses" set the tone for the initial GBP weakness with the currency also weighed down by yet another wave of selling in the local equity markets on more uncertainty over the outlook for the UK banking sector. Various names on the offer overnight included some corporate and real money accounts. In Euroland, ECB President Trichet has been on the wires this morning talking more about the outlook and challenges for the ECB and Eurozone economy. Trichet has addressed any concerns over the talk of a potential Euro breakup saying that these rumors are unfounded. The more balanced outlook and approach out from the ECB over the past several months in the face of the current global turmoil continues to be a great benefit to the Euro against Sterling with the cross once again mounting impressive gains over the past few days, looking to retest the recent life-time highs by 0.9800.USD/JPY action has been quiet thus far today with the market trading by 90.00 as a reported $7B option barrier is set to roll off today at the New York cut. Stable equity futures and unchanged commodity prices have helped to keep the antipodeans flat overnight with Aussie trading a fraction lower on the day, while Kiwi is slightly better bid primarily on the back of the better than expected overnight retail sales data coming in flat versus a -1.2% consensus. USD/CAD has given back some of its gains following yesterday’s as expected Bank of Canada decision to cut rates by 50bps to 1.00%. However, with a plethora of option expiries set to roll off here as well, the market isn’t expected to move all that much until the New York cut. There is not a lot ofevent risk on the table today with Canadian wholesale sales (1.5% expected) due up at 13:30 GMT followed by US NAHB housing data (9 expected) later in the day at 18:00 GMT.

Read More at: www.dailyfx.com

Forex News

With US markets closed for the Martin Luther King holiday, focus moved to European stocks and all the action was in the banking sector which continues to hemorrhage. With RBS announcement yesterday, the market awaits details of the UK government’s proposal to insure banks’ toxic assets, but with increasing fears of nationalisation, risk sentiment has not been spared. The sharp drop in European bank shares yesterday signaled that the banking crisis is far from over and has the potential to disrupt the euro zone, whose economies get significantly less support from their governments when compared to the US and UK.

S&P downgraded Spain to AA+ raising fears of further downgrades in European sovereign ratings and the European Commission published updated forecasts for 2009 which included forecasts for a 1.9% contraction in the economy in 2009 and a feeble 0.4% growth in 2010 recognizing that the recovery in unlikely to be V shaped. JC Trichet spoke during European time saying that the outlook for the EZ economy is "substantially worse" than the ECB predicted a month ago. Oil finished down following the cease fire in Gaza and the signing of 10 year gas supply deal between Russia and Ukraine.

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