How to trade is the most important factor that needs to be understood by once a perception of the external factors of trading has been made. The real job for a trader is to know his own mind. Working according to the external elements is a comparatively easy job, as they generally are quiet objective, accurate, reliable, and structured. But same cannot be said about the trader's mind, which is firm at one minute, and soft in the other.
While trading and being a part of the ongoing fluctuations in the market, an investor undergoes an enormous range of thoughts and emotions. While some might turn out to be good like feeling lucky, or victorious, the others might turn out to be bad like fear of failure or anxiety. But going through all this turmoil, it is highly exceptional to come across a trader who constantly sticks by his initial trading plan.
When it comes to trading Forex, or any business for that matter, sentiments or emotions are the biggest hitch. This is because all these emotions tend to make a trader go weak when it comes to maintaining discipline and balance and adhering to the predefined trading plan. What needs to be understood here is that discipline, control or restraint is far more important while trading Forex than the real currency traders are here to trade. This is because any kind of capital can only be sustained by anyone with correct management techniques and discipline.
A trader in this Forex trading business has a lot of value to the market. When a trader trades equipped with a thoroughly studied trading background and past trends and comprehensible goal study, he has the ability to build on a superb trading system. This said, no guarantee can be taken of any trading system or approach, as it can rise to success in 1 second and go down into losses in the other.
And what’s more, the basic reason for this downfall is that a trader while going by his predefined trading plan must have at some point tried to mix it with his gut feelings or emotions. One thing should always be made clear that emotions have absolutely no place in trading. These emotions generally come into play when a trader either encounters a large loss or a huge win. Emotions in such cases then tend to cause a trader to act in a different way, making him act illogically and foolishly at times just to go ahead and mess up his planned strategy and play the large moves by his gut feelings. Emotion causes the trader to apply his trading system in patches, with emotions taking over now and then.
Using simple trading strategies can get you to make big wins in the market, provided you stick to them through out. Professional or experienced traders always trade using conventional, carefully planned money management strategies which would enable them to trade with complete stability.
When it comes to large financial firms and institutions, complete stability is never an issue with them, as they have not one, but many human resources and assets at their side.
But when we talk about an individual investor, we can easily divide them into three different groups. The ones who trade with inconsistency,
The investors who trade with manual constancy
And the traders who trade with programmed reliability.
While a new trader would always hop from one trading strategy to another, an experienced trader will work smoothly with constant restraint and discipline making it the basis of his trading actions which will help him increase his level of refinement.
When exactly should I trade, must be one of the many questions in a novice trader’s mind. And yes, it is an important question, especially when you know that Forex is a 24 hours market, open for 5.5 days a week.
What needs to be understood is the fact that although its true that the Forex market is open 24 hours a day, but it does not at all mean that the market action the same always. Majority of traders and investors do not stop to give this fact a thought for even a moment. They do not even consider the impact this fact can have on their trades.
Being in this volatile market, you as a trader should always give yourself a fair chance to play. Just because a market is open 24 hours does not mean that all those 24 hours, it is moving in your favor. There will be hours minutes or even moments when the market can move against you. Trading during those circumstances is never advisable. Trade only when you are sure that the market is most expected to go with you. For example, the markets are known to go in slumber during the days when London and New York are closed.
This is exactly where technical indicators are useful. But for checking their authenticity of these technical indicators, the best way is the trading volume. It is believed that these indicators turn out to be more accurate when the trading volume is high.
But since there are no trading volume records obtainable in the Forex markets, it is advisable to make use of trading ranges, which is the next good option. Trading range can be defined as the difference established between the high and low price limit for a specific currency pair over a specified time period like one trading day.
With this approximate data in hand, an investor can now more precisely and cautiously calculate when is the right time for him to trade.
If the trading range is high, entering the market would be a safe bet at that hour rather than the time, when the trading range is tight or low. Let’s take the example of a trade in EURUSD, which has an average trading range of 25 pips at 10 AM EST against the EURUSD which has an average trading range of 7 pips at 10 PM EST.
Now entering the market during the morning session of trade will give you a little more space for a safe trade in case it does tend to fluctuate a little high or low, as compared to the evening trading session, in which you would as it is be trading on margins only.
That is the reason why technical indicators are given so much importance as they are mostly useful in predicting accurately, the movements of the market. More often than not, the beginners in this trading business tend to ignore the importance of "when to trade" in the market. The professional, expert and refined trader always appropriately times his entry in the market in order to reap the maximum benefits and make the most profitable deals. Limiting losses by analytically monitoring the market gives a trader a more prospective outlook.
When we talk about what to trade for in Forex, the first thing that comes into our minds is the Currency. But there are a few other elements too which make up for a complete trading plan such as the currency pair also known as the trading medium, the market actions that generate the market entry and exit points, and the overall attitude towards trade management.
Forex is a trading market which gives its traders, returns in the form of the comparative value price of one currency exchanged by the other. Always dealt in currency a pair, Forex has its major currency pairs like namely Euro/US Dollar or (EUR/USD) and US Dollar/Japanese Yen or (USD/JPY).
With this simultaneous buying and selling of exchange an investor hopes to make winnings on positive exchange rate oscillations. There is a constant fluctuating going on, down as well as up, within seconds with the exchange rates. This is where the whole art of trading lies, in flawlessly predicting the movement of the variation between the two currencies.
Creating a comprehensive trading plan and correctly comprehending and including all its major elements into it are a must for an unbeaten trading approach.
All of these elements combine together to form a strong trading management approach. A trading deal with a currency with tight spread alongside using mid or long intervals as entry signals as well as a low leverage always has an enhanced probability for being a hit. On the other hand, a trading deal with a currency with loose spread alongside using short interval as entry signals as well as high leverage positions will almost certainly serve as a big fall down.
And finally, the currency pair, the entry and exit signals, and the trade management method should all merge well simultaneously and be present without disagreements and overlapping. Beginners or new traders create grave errors at times, by trying hard to fuse collectively all the methods or strategies they have heard about or gained knowledge about from miscellaneous sources. What should be done instead is to put in your own effort and analytically construct, analyze, and set up a complete trading plan which perfectly matches your trading approach.
The refined, professional and experienced investor always goes in for this extra bit of hard work, just to function with a harmonizing trading plan which will help him produce steady winning opportunities.
Where to trade Forex from, or with whose help, is an extremely important question serving as the basis of a successful or an unsuccessful trading deal in the future. Choosing the right dealer or broker or brokerage firm makes all the difference.
When you are planning to choose a broker for yourself, always keep in mind the services he can provide you with and more importantly, under which terms and conditions? They can make you fill up many forms and a lot of paperwork also goes into it all. Every broker will have some exclusive features and services to offer you too. Always take a closer look at what you are agreeing to and understand and grade all their offered services.
Every dealer has his strength and weakness. What needs to be learnt is how to compare these strengths and weakness and see what suits our needs the best. Always choose a broker who is ready to move along with you and the Forex trading plans, methods and strategies that you have planned on. Also, comparing and taking knowledge about various brokers will arm you as a trader with all the information that you need before selecting a dealer who best matches your trading approach.
With the question remaining which dealer to choose, there can be various answers as traders will have varied answers to this one. The new and beginner traders are most likely to trust and select the brokers who approach them with the finest marketing techniques, high promises and greater benefits schemes.
Trick to get information about the dealer or broker is not by asking or believing him only, but by learning as much as you can about him and his past records by visiting his site, registering for a demo, and inquiring about him through some references or past clientele.
It is not always true that a dealer spending so much money making attractive advertisements is the best to trade with too. Also, when trading with a broker or a brokerage firm for the first time, always go in for a short term or a mid term trading duration. Keep the long term trading planning with them only when you have tried and tested any of them successfully.
In Forex market, every trader will find for themselves an optimal broker. Therefore, do not lose patience and go in for a dealer which approaches you first. Rather go in for a dealer who will work in your interest to provide you with optimized returns on your investment by harmonizing his trading technique with yours or vice versa.
Before taking up any job, course or even a habit, what is important is to understand why exactly do you want to take it up? There always has to a reason for things to be done by you. When it comes to Forex market, investors have recently started rushing in, as more and more traders have now started earning their living through trading foreign exchange. All these investors trade Forex for many reasons, the main one being the superior returns which they are likely to get back. Apart from this, there are also many other factors which create an exclusive investment atmosphere for the traders in Forex, such as:
Accessibility Liquidity Commission free Leverage
Accessibility
Being a 24 hour market, there is always some investor, someplace in the world whom you can trade with as so many such traders are dynamically trading foreign currencies somewhere in the world or another. This also enables these traders to respond to any latest news of the market, without delay.
Providing a 24 hour trading opportunity, you can trade anytime from Sunday 5:00 pm (ET) to Friday 4:30 pm. This gives traders a chance to trade according to their convenience, like going to bed or spending time with their family, or going by their own schedule.
Liquidity
Forex as a market contains high levels of liquidity, leading to an even higher degree of transparency in the big sized transactions and lots of money changing hands. Being the largest financial market in the world, Forex changes more than $2 trillion hands every day. Being such a large and liquid market helps Forex attract enormous players, some retail and some large scale.
Commission free
With “free of commission” trading, many dealers believe is a perceived benefit of Forex. Forex trading lets its investors keep 100% of their trading profits. Although this does not change the high degree of business deal costs being paid to the dealers via the bid-ask spread, this free of cost trading makes Forex an even more lucrative business opportunity for the traders as well as the dealers.
Leverage
Forex market offers higher leverage and with its lower margin requirements it enables the Forex traders to trade with much bigger sum of currency as compared to their initial deposit. Leverage mostly also depends on the type of Forex broker an investor has chosen for trading.
Think about it this way, where would you find a trading market so partial to an investor, at least apparently. But to make the most of these factors, it is equally important for you to be aware of their shortcomings as well.
Surely all these factors like liquidity, leverage, convenience, and transaction costs can be used as money making tools, but so can they be used for losing all your funds. Yes, of course anything if misused or over used can result in harmful ways. Everything benefits to a limit, with a skill and method to use it with balance. And this is what makes a difference between a beginner trader who might use these tools in all the wrong ways to destroy his wealth, and the refined investor who will have the experience and expertise to use them all to create wealth.
Although Forex as a market offers its successful traders with some of the big bonuses as rewards, it is also an equally tough market to crack, and doing well here takes more than just a knack for betting. Therefore, with the will of trading, the skill is also required, and who would help you get acquire this skill better than the previously successful traders. Their proven techniques and methods can be of great help to all the new traders who are yet to develop their own strategies for trading.
Every player in the Forex markets works his trading in his own way, with his own study, intuitions, and outlook. Any player on entering the market creates a force which is always relative to the outlook another trader. This force between the trader buyer and trader seller always plays a role in creating price changes, sometimes drastic and sometimes light, and also significant movements.
Every trader carries a different perspective, with a dissimilar mind-set, singular target, varied investment possibility, and market force. And even more, what mainly marks a distinction among these market traders are the various other elements of the Forex trading market, such as:
*Appropriate level of discipline *Wise money management techniques *Profound research abilities *Achievable profit objectives *Sharp quantitative abilities
All these elements combine together to give a trader a certain level of sophistication. In the market, there always are extremely superior and superior banks, financing firms and companies and traders. Here, all the banks, financial firms and companies, and investment corporations have an external governance of sticking to the rules, regulations and restrictions. Whereas an individual trader can only be restricted by his pocket as he has the smallest amount of external control or restriction that might keep him from taking wrong decisions.
When we talk about restrictions, one is the external control while the other is the internal restrictions. Internal restrictions can be imposed on themselves by only those traders which believe in maintaining self-discipline. While the others who cannot control their gut feelings or intuitions and want to “trade till they win it all” even after losing the entire sum of money which they had initially planned to trade with, can never reach that level of sophistication required to stay in position in the market.
Sophisticated traders are those which can successfully impose this discipline on themselves and are aware of the right time to start trading and stop it to quit too. A sophisticated trader always makes use of the tools and strategies to follow those highly skilled and professional previous market participants to extract profits and constructive returns from the market.
It will not be wrong if we say that Forex traders lead their lives, living on the edge. You never know what’s going to happen the next moment. In this currency world of speculations, instincts, calculations and uncertainties, the market experiences one moment of total harmony, and the next one of absolute commotion. Amidst such high degrees of speculation and large amount of money at stake, can we precisely foretell the trend this market is going to follow each time? And furthermore, can we bet high capital on it?
For all this, we first need to be clear with the basics. The basics which tell us exactly what causes the market to move in the direction it does? What makes it follow the trend it does? Why are different traders trading with same currency using different strategies? Answers to all these questions can be a little tricky especially knowing that every trader senses different set of indications and warnings each time the market moves.
Every trader has his personal instinct behind his decision of buying or selling a currency, keeping in mind the atmosphere in the market. But there is still something that every sensible Forex trader does, Analysis! Before investing a sum of money in the market, any sensible trader would want to analyze the market, get full knowledge of the situation and be equipped to forecast what movement the market might take in the future. And to do this analysis, a trader must keep in mind the six important stages of analysis in Forex trading, which are:
Who tells us about the people involved with Forex who form the market and bring about action in it.
Why is about comprehending the outlook of the Forex market and the openings or prospects which it provides to its traders.
Where tell us to match our goals with the goals a genuine and professional dealer.
When tells us about the right time when our trades can bring us maximum efficiency.
What is all about choosing a trading medium or currency pair on the basis of your budget and investment principle.
How is about choose a trading toolkit which will help us advance our trading skills and techniques.
Every trader requires building up a fanatical sense of the Forex market and what’s happening in it and around them. Not every move of the currency market can be predicted though, but we can definitely try developing an understanding of the situation and the environment of the market.
What all the above mentioned six stages do is help us in creating more advantageous trading options. With the systematic and balanced use of these stages, we can easily create and execute a complete trading plan, the one that covers all the major trading aspects and angles.
It is important to understand who actually trades Forex? Also needed to be known are the participants, and the reasons for their success and failure. This will help us make use of the points which lead to successful results and avoid the ones which led to a loss.
To know why to trade Forex at the first place is the very reason why we should be interested in trading with it. Only if we know the advantages and disadvantages of this market will we be able to make up our minds for or against trading Forex.
It is also important to know from where we should trade. Always choose the right trading platform or broker who can professionally allow your trading style to mingle with its approach.
For deciding upon what to trade for, we should always choose a currency pair and money management method which will boost your returns.
Deciding on when you should trade is also an important aspect to be kept in mind before you start to trade. Always advisable is to trade when the situation you are in, is most liable to generate the best circumstances for you to execute your trading methods and techniques.
Choosing on how to trade should always be done keeping in mind the usage of those methods that make best use of your skills and also help you follow the previously well-known successful traders of the market.
Why is it important to keep a track of the economic developments of a country whose currency you are planning to buy?
Every currency represents a country in the Forex market. And therefore, the economic status of each country or nation is valued into its exchange. But with so many currencies in the market to trade for, it can get a little challenging to keep a track of every countries economic growth and development.
This is the reason why Economic Indicators are used by the traders to assess the strength of an economy they are interested in. A trader should always remain vigilant and informed about when these indicators are due for release in the market. It is also equally important to be updated on all the news releases which are to be released and can make an impact on the market. What makes some economic indicators more important than the others?
Every economic indicator has the power to influence the Forex market, it’s just the degree of influence that ranges from low to medium to high. Which ever indicator is carrying the news capturing most of market's attention gets more significance than the other ones.
News carrying high GDP data of a certain country or information about high employment rate in another is bound to make greater news than others, as these factors are directly effecting, rather boosting the economy of those countries.
Does difference between the consensus and actual results cause price movement?
It is not correct to just keep yourself updated as a trader with the latest of economic, political and geographical news. What is even more important is to know what effect has the current news caused in the market and why?
One of the ways to find this out is by also keeping a tab of the expectations of the fellow traders in the market, from the different economic indicators and the news they were supposed to carry according to the.
A study of whether or not a news flash is matching the market expectations is a highly significant aspect, as each market forecaster is expecting different news from each indicator, news in their favour.
Therefore, apart from knowing the current news update, what needs to be kept in mind is the consensus number which is met successfully. A huge variation between the consensus and actual results can be a valid source for price movement.
Should technical investors also focus on news releases?
Keeping in mind a case of any monetary market, whenever a market is being dominated by the fundamental factors such as economic data, Technical analysis are generally not in use. This is because of the reason that most of market traders become sensitive to these economic and political developments.
Also, with so many speculations arising in the market, more and more importance is given to such developments as well as the essential news releases like increase in a certain country’s export figures, which have the power to spike up volume as well as volatility in the market.
Economic indicators can be anything, from the bits and pieces of financial and economic news, to the data published by different agencies on the statistics of government or private sector.
This data is regularly made public to help the common man keep track of the latest developments in the nation’s financial sector. Most benefited from these economic indicators are the market observers who are constantly keeping an eye on the overall economy and its effect on the market. This is the main reason why such indicators are consistently tracked by nearly everyone related to the financial markets in some way or another.
Also, this is the rationale behind the economic indicators containing great potential for creating levels and moving currency prices along with the whole markets, as so many people are expected to respond to the same data together.
Major Indicators
Industrial Production
It is a measure of the variation in the manufacturing of the country’s industrial units and mines in addition to a measure of their business capability and their capacity utilization, which is the number of used accessible resources amongst the various industrial units and utilities.
Producer Price Index
The Producer Price Index or PPI calculates the price variations in the industrialized sector. It determines the average variations in selling prices received by home manufacturers in the industrializing, mining, farming, and electric service business or trade for their production. The PPIs mainly used for fiscal study are those for refined goods, intermediary goods, and unfinished goods.
Hard Goods Orders
Durable or Hard Goods Orders calculates any new orders which have been placed with the home producers for instant and potential delivery of durable goods.
Retail Sales
The retail sales report measures the entire revenue of retail houses from section on behalf of all range, class and type of industries in retail business all through the nation. Retail sales contain both hard and soft commodities sold, and services and excise taxes accompanying the trade of commodities, not including the sales taxes.
The Gross Domestic Product
Gross Domestic Product or (GDP) measures the total of all the merchandise and services created either by home or overseas companies, showing the speed at which a nation’s wealth and market is rising or falling.
(GDP) is regarded as the most extensive indicator of monetary productivity and development of a nation.
Housing Starts
The Housing Starts report calculates the quantity of housing units which are being initiated into construction every month, where the initiation process is predefined as the start of an excavation for the groundwork of any residential structure.
To make full use of these economic indicators in the Forex market and trading world, you should always be aware as to when each economic indicator is due to be out in the markets. Keep track of all the release dates through a calendar or keeping in touch with the agencies which will be releasing these statistics or snippets for the public.
Also, keeping a record or a watchful eye on the release dates of these economic indicators will help you build a stronger decision whether to go forward or drop the position you were planning to go with by predicting the market movements based on gut feelings.
The FX, Forex or foreign exchange, is all vis-à-vis money. Foreign currency from all around the world is available to be bought or sold here. Any individual Forex trader or big and powerful business firms can buy or sell currency freely, on this currency exchange platform.
When dealing in foreign currency exchange, there is an ongoing cycle of buying and selling in the market. A trader can buy one foreign currency and then sell it on a higher selling price, just to buy another foreign currency, while making profit in between.
The only way to make money in Forex trading market to avoid as much emotional involvement as you can. While making investment or trading related decisions, always plan out a cautiously thought out strategy that takes the recent market tends and history patterns into consideration while making a deal.
With Financial markets, being intuitive or going with your instincts does not help much. Forex being an extremely unpredictable trading market where, at times, emotions tend to cost more than a wrong strategy. Emotions can dominate your trading sensibilities and decisions, making you go ahead with a deal purely based on your gut instincts.
What needs to be understood is the fact that trading industry is hard core strategy driven business. Market trends, rises and falls, do not go by a trader’s instinct, but can be influenced by past patterns and trends. It happens a lot during the time when a deal is about to be finalized, that the investor goes through a moment of intuitive spurs and would want to change the trading decision at the last moment. This should be avoided at any cost.
Whatever you are seeing in the market at the moment your deal is being finalized, do not change your pre planned decision at the last minute. So by the strategy you had planned in advance. That’s the only way to deal successfully with Forex trading, to be systematic in your approach, analytical with your decisions and insistent with your stand.
Be firm in your decisions. If you correctly analyze the trends of the Forex market, you can easily come to know that although the trading patterns are by and large predictable, there is a lot of sinking and floating happening within those trends. Currency prices rise and fall immediately. There is seldom any trend which has a smooth rise or fall of currency prices.
These are the situations when intuitions can kill your deal, landing you into major loss at times too. For instance, when you find out that the currency you’re holding is taking sinking southwards suddenly, you might get tempted to sell it off in loss, pack your bags and leave. Similarly, if you see that the currency you are holding is going on a rise, you try to buy more of it, just to increase your profits. Now these are the situations where emotional actions can kill your deal and thus, your trading future.
These are the times when you should hold on for a moment and study what exactly is happening and bank on greatly on your trading system. Your pre planned strategies and tactics will tell you precisely when to trade, to reap highest profits.
Almost all the Forex professionals or pros will advise the new traders and investors to build up their own trading system. This planned trading system will tell you exactly what to buy, when to buy, when to deal and what to deal for. Developing a trading system based on technical and fundamental analysis can be of benefit to its trader. Studying the past as well as present market trends can be immensely effective in getting some knowledge about what’s the future trend going to be.
There may come times, when your trading system and your instincts may become opposites, and you might get caught in the dilemma not knowing which to follow. This is the time when you should follow your trading system, as it is not just a mere emotional spur of the moment, but a suitably studied, pre planned strategy for a market based on trends and patterns.
To make your trading system even more efficient, you should clearly recognize the entry and exit point of your trading. Also kept in mind should be the extenuating factors for these points, and systematic strategy to exit properly. You should always set up a stop-loss order and a take-profit order in your deal. Clearly defining these exit points will help you, either by increasing your profits, or by decreasing your losses.
Like every other finance and money business, Forex is also exposed to the same or even greater amount of scam and fraud risks from mediators like brokers and dealers. There are some authorities who regulate and manage the currency exchange as well as the futures trading in the United States, such as National Futures Association and The United States Commodity Futures Trading Commission.
These regulating authorities take actions against the companies or individual brokers who are allegedly involved in dishonest or deceitful selling of foreign currency and futures. Any of the Off-exchange trading activity related to Forex or futures, which is not regulated by any known financial authority can be unlawful and may turn out to be a fraud or scam.
Off late, many individual and retail traders have observed greater numbers of investment openings and opportunities. While the complexity and success of Forex market is increasing rapidly, also growing are the fraud and scam risks wherein, there are chances of investors coming along some Forex broker's or dealer's whose dealings and strategies are sometimes not truthful and fair.
Many of these Forex scams or frauds are promoted in the form of lucrative schemes and promotional offers on newspapers, television and the Internet. New traders or individual investors easily fall prey to all these schemes, and mostly end up losing all their hard earned money.
There are a lot of scam artists and swindlers a trader will across while trading at the Forex market. What needs to be done is beware of these frauds and take care not to get carried away by false promises and claims. Some of the common fraudulent ways are listed below:
Companies that promises of No Financial Risks
Always stay away from the companies or brokers who claim to offer its clients with currency trading strategies which proffer very little or no financial risk to its traders. Any financial market whatsoever, be it Stock Exchange, Foreign Exchange or Futures, can only be profitable because it carries along with it, a very high risk of loss for any and every trader equally.
Only good money management techniques can help the traders from suffering losses. Be it an individual trader, retail investor or a big financial firm, profit and losses can occur to anyone in the market. Since the market is continuously changing and volatile, we cannot say that there is anything such as a risk-less Forex market. Is your broker firm regulated?
Before you decide to partner with a broker firm and give them your money, make sure you know what you are doing. And also make sure you your broker or broker company well. Always inspect the individual or firm you are going to start dealing with for your financial matters.
Always check whether the broker or the firm you are dealing with is registered with the United States Commodity Futures Trading Commission or the National Futures Association.
There are many firms which falsely claim that to be registered and regulated by the CFTC or the NFA. This helps them easily gain potential investors and their trust.
But instead of blindly believing the dealer or broker, it is always advisable to cross-check with the broker’s regulatory firm about the broker’s listing status and background. Also important is to carefully read and comprehend the contract terms and conditions put forth to you by your dealer or broker.
False guarantees of Larger Returns and Profits
In this ever changing and rapidly growing financial market, you might come across a lot of firms or dealers guaranteeing large returns or profits in Forex trading. These are sheer schemes and tactics to attract potential investors and giving them false hopes that whatever they invest will be returned to them safely along with added money profit.
These are false claims and promises as no company, no matter how big and professional can promise making profit every day, with every investor. With such an unpredictable market like Forex, it is not possible to assure profits or losses to anyone.
Other than the above mentioned most common fraudulent ways, some other ways with which many traders have been cheated. It is always better to keep them in mind and stay away from them, like openings and offers which Sound Too Good.
Also, be cautious while Transferring Cash over the Net. Always make sure to check the Company's Performance and past Record and especially never deal with the firms or brokers who hesitate to give you their background.
Foreign Exchange, Forex or FX is one of the world’s largest financial markets dealing in real-time exchange of currencies of different countries. This currency exchange market has a greater volume of buyers and sellers, than in any other financial market of the world.
With major trading centers at Sydney, London, Frankfurt, Tokyo and New York, Forex is the only financial market, which is open 24 hours a day, 5.5 days a week, across the globe.
One of the most popular speculation markets, Forex is a market well known for its huge volume, superior liquidity, as well as the steady trading prospects. Also attractive is high levels of Leverage, one of the unique features offered by the Forex market.
Advantages of Forex trading High leverage
Starting from a minimum of 100:1, Forex markets offer its traders with huge amounts of leverage which means that fat profits can be produced by investing small amounts of deposits.
No commission
If dealing with a financial market on daily basis, the regular investors or traders are the ones who are really benefited by the “free of commission” trading. The currency trading market lets its traders keep a whole 100% of their trading profits.
Superior liquidity
With most of the currency transactions comprising of 7 main currency pairs, the huge volume and the global trading aspect helps these currencies exhibit price stability, little slippage, narrow spreads and high levels of liquidity.
Profitability
Being an over the counter market, the trading done at Forex can be known as “over the counter” trading, wherein, a trader always buys one currency and sells of the other one in real time. There is no organizational prejudice in the market and every investor has the equal prospects for profit in it.
24 hours trading
Forex currency trading market offers its traders with a 24 hour trading opening, wherein, a Forex investor can trade ant any time of the day, whatever suits him/her, as the market is open for trading 24 hours a day, from Sunday 5:00 pm (ET) to Friday 4:30 pm.
This gives the Forex traders a choice to opt for timing for the trade according to their convenience.
Disadvantages of Forex trading High Leverage
While high leverage serves as an advantage to attract traders to the market, it can at times also act as a disadvantage for them. With such high levels of leverage available to traders in the Forex market, comes an equally high level of danger.
This can be true for the high stake positions which carry along with them, too much risk, leading to margin calls. This is where efficient money management comes into play for playing safe.
24 hours market
Although it is convenient for the trader to trade whenever it is suitable to him, it can be a rather tough job too. This is because, at times, it is not possible for an individual trader to keep track of the Forex market, 24 hours a day.
This is where a broker comes into the picture. Retail or individual investors should try taking help from a professional broker rather than doing all the dealings himself straight with the huge market.
The broker will be an experienced professional who will act as an equal in your transactions, keeping you informed and updated about minute to minute details and fluctuations, and even guide you about the conditions, when to and when not to trade in the market.
Like every other financial market, Forex market also has its share of advantages and disadvantages. But keeping in mind the two can surely help a trader become more vigilant and aware of what to expect while trading Forex.
Compared to Equities or Futures, it can be easily said that the Forex market has several advantages and benefits. And Forex being a 24-hour market gives Currency trading the biggest advantage ever. With no external control and a market open to all, Forex is the perfect currency trading platform to invest in. with the power in the hands of the currency traders, to choose any time of day to trade, whenever they want to, Forex trading basically puts the traders or investors in charge of how they want to trade and how much as well.
This is also because of the fact that Forex currency trading requires a very less amount of starting investment, which can easily enable a trader to open an account and start trading, unlike the cases in Stock Exchange and Futures market, where in, a fair amount of capital is required to start trading. This facilitates trading for individuals or small traders, who can easily start trading small in the Forex market.
Being a round the clock market, Forex day trading enables the investor to select any time to trade, whatever is more suitable to him/her. Allowing trading for 5 and a half days a week, 24 hours a day, provides Forex traders with incomparable freedom leaving the decision for currency trading in their hands, whenever they want to, and not when the market allows them.
The Forex market is known as the Day Trading market because of the reason that basically, it trails the sun going around the world, and shifting from one main economic or banking center to another, starting from the United States to Australia, to New Zealand to the Far East, and towards Europe and then, again back to the United States.
With Forex, all through a trading day, the currency trading volume on the whole is established by two factors, one being which markets are open, and second being the time when every one of these Forex markets partly overlap one another.
The currency price at Forex day trading market, changes every second. One second a currency is up, the other second the other beats it to go high. Currency trading volume at Forex market remains high throughout, but it hits the highest point when the U.S, London and European markets are open, all at the same time, which only happens between the time periods of 1 p.m. to 4 p.m. by the GMT (Greenwich Mean Time).
As compared to the high volume of the U.S market, the level of the Pacific border markets, Japan and Hong Kong for instance, is quite low, but this still provides a Forex investor the opportunity to study and explore the vastly traded markets and currencies of the Pacific Region. With more than $2 trillions of money being traded every day, Forex market is indisputably the biggest fiscal or financial market in the whole world. Here, the investors need to focus only on a few major currencies, rather than hundreds of equity or stocks. Forex market also is known for its fair costs and thin spreads. Furthermore, Forex market has high levels of liquidity as compared to any other financial market and this is what makes Currency trading market the biggest economic market in the whole world. This liquidity largely comes from the banks which provide liberal cash flow to individual investors, companies and trade houses. And since the Forex market is a 24 hour market, the currency exchange trading experiences superior liquidity around the clock, as compared to the stock market, which contains a limited time period for high liquidity.
The instant trading through various means of communication such as phone and internet makes Forex day trading an instant trading business alongside making it a global trading platform.
With such high levels of liquidity, round the clock trading and steady trading prospects, Forex currency exchange market is undoubtedly one of the most profitable and potential business sectors. Another basic benefit offered by the Forex market is that it is a no-commission market. With this free of commission trading, an investor gets to keep whole of the profit that he has earned through a day’s trading at the market. Keeping 100% of the profit is indeed a great deal for any trader today!
Taking advice from proficiently experienced Forex brokers will get you standard features like 100:1 leverage and regulated FCM status along with commission-free trading, to make your trading experience more professional.
The Foreign Exchange market has its own terminology which is normally used by all Forex brokers, investors and traders. Here is a brief list of the frequently used Forex terms and their meanings. Also besides terms, we provide you beneficial Hints For Forex Trading as well.
Ask Price/ Offer Price The ask and offer price is the price at which the market is ready to trade a specific currency. This is the price where, an investor can purchase the base currency. When seeing a quote, it is located on the right side. For example, in the quote EUR/USD 1.4547/52, the ask price is 1.4552.
Base currency The currency listed first in a Currency Pair is known as the Base currency.
Bids A Bid is the price at which the investor is willing to purchase a currency.
Bid/Ask Spread Simply stating, Bid/Ask spread is the variation between the bid and offer price. It can also be defined as the degree of difference in pips, amid the buying price and the selling price of a currency pair.
Broker A person or an organization acting as an agent, putting together buyers and sellers for a commission or fee, can be defined as a Broker. They are the ones who work on behalf of their investors.
Counter Currency The currency listed second in a Currency Pair is known as the Counter currency.
Currency symbols EUR - Euro AUD - Australian Dollar CAD - Canadian Dollar CHF - Swiss Franc JPY - Japanese Yen GBP - British Pound
Day Trading Day trading refers to the buying and selling of positions within a single day’s trade.
Foreign Exchange Also known as Forex or FX, it is the process of buying of one currency in exchange of other currency in an over-the-counter market.
Leverage Leverage is the ratio of the deposited amount to the amount that can be traded. Find out Importance of Forex Leverage
Limit order Limit orders let the Forex investors stop further trading and leave the market at preset profit objectives. It is an order which restricts the greatest price to be paid or the lowest price to be received.
Liquidity Liquidity can be defined as the capacity of a market to allow fat transaction with negligible impact on the price stability.
Margin Margin is the minimum amount required to be deposited before an investor starts trading. This can also be known as the initial amount with which the Forex trading account can be opened.
Pip / Point When dealing in terms of quotes, prices are expressed in terms of Pips. Pips can be defined as “percentage in points” and are mostly the fourth decimal point i.e. 1/100th of 1%. A pip can also be defined as the smallest value at which an exchange of currency can take place.
Stop Loss Order Stop/loss commands allow the investors to set an exit point for a loss. By limiting your losses to a pre set position, Stop/loss orders help investors control their risk conditions. 'Stop-loss' can lower an investor's exposure to risk by a large proportion.
Forex, where the commodity to be traded is currency, and not stocks and shares, is a trading market which gives its investors, returns in the form of the relative value of one currency exchanged against another. Forex trading is therefore, always dealt in currency pairs with the major currency pairs being Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY), to name a few.
And it is with concurrent buying and selling of currencies that the trader hopes to make a profit on favorable exchange rate fluctuations. Exchange rates are always fluctuating, going down as well as up, within seconds and the whole art of trading lies in perfectly foreseeing the trend of the variation between two currencies.
But, how do you make money in such a competitive and incessant Trade market?
Well, here is an example to illustrate how… Supposing the current bid/ask price for EUR/USD is going by the rate of 1.5027/30, giving you the option to buy 1 euro with 1.5030 US dollars or sell 1 euro for 1.5027 US dollars. Now, if you feel that the Euro is underrated against the US dollar, you would opt on buying Euros, selling your dollars at the same time. So you buy 100,000 euros by paying 150,300 dollars. You can then start analyzing the market, waiting for the exchange rates to rise. One can also opt in for Spot Forex Trading due to its benefits
As predicted, the rates begin to rise and then you decide a favorable rate at which you plan to sell your Euros to get a hefty profit. Supposing the Euro rises to 1.5090/93. Now, to realize your profits, you sell 100,000 euros at the current rate of 1.5090, and receive $150,900. You bought 100k Euros at 1.5030, paying $150,300. You sold 100k Euros at 1.5090, receiving $150900. That's a difference of $600 or in other words, you successfully earned a profit of $600.
Change and fluctuation, in any trading market is quiet frequent and rapid, especially in the Forex market, where these recurrent changes are also influenced by various other world events and factors like oil prices, interest rates and economic conditions. But with all these rapid fluctuations going on, the main aim of any Forex investor still remains on making profit. Every trader is predicting and waiting for the value of the currencies to change in his favor. You can also learn more about the Positions in forex.
Today, the foreign-exchange (forex) market is the largest financial market in the world, with more than 200 trillion yen in market trading volume per day.
In 1998, Japan’s Foreign Exchange and Foreign Trade Control Law was amended to enable ordinary investors in Japan too to take part in forex trading. Over just a few years since then, the forex market in Japan has grown to nearly surpass 80 billion yen in size.
Long ago, forex trading was a typical example of what people considered questionable financial transactions.
In fact, there were frequent cases of problems as the market was crowded with shady brokers during periods under uncertain legal and regulatory systems.
However, today forex trading is the financial instrument attracting the most attention as one in which not just ordinary investors but even homemakers and students may trade easily and at any time, as the legal system has been improved and dishonest brokers have been weeded out of the market, and with the spread of online trading.
This site introduces overseas investors to forex brokers in Japan and provides eight tips to enable beginning forex investors to succeed, including techniques for forex trading in Japan.
Eight tips for forex trading in Japan
“M” is a financial planner who operates Japan’s largest forex e-mail newsletter and Web discussion board.
M’s remarks are said to be a bible to investors.
In addition, M is well-versed on and active in a wide range of investments, including not just forex but also investments in Japanese and foreign equity markets, government-bond futures, and commodity futures.
These eight tips from M for successful forex trading, available exclusively on this site, cover information such as common pitfalls for beginning investors and the realities of forex brokers.
Tip 1: The realities of forex brokers
The truth about no-fee forex brokers
I believe there are two types of forex brokers: those with high fees and those with low fees. In many cases, it is the clients of brokers with high fees who get the most returns on their investments.
Actually, lowering fees increases the profit a forex broker earns.
This is because setting fees to zero leads to an increase in the number of trades clients make.
A forex broker earns more if its clients make more trades.
As an example, this is just like how McDonald’s sales increase if it cuts the price of a hamburger by one-half.
The result is something like a low-margin, high-turnover approach.
To the user, it seems like reducing fees to zero would reduce the cost of trading. However, in fact that is not the case.
In many cases, elimination of fees leads to an increase in the number of trades, resulting in losses.
In today’s market, the more trades an investor makes the less likely he or she is to profit.
Why is this the case?
It is because investors tend to take irresponsible positions if they are not charged any fees.
In choosing a forex broker, the most important factor may be the dependability of its trust security system.
The falsehood behind trust security systems
A trust security system refers to keeping the money entrusted to a forex broker by its clients separate from the broker’s own funds.
However, in actuality there are many brokers that do not separate clients’ funds from their own.
Numerous brokers think of the funds entrusted by their clients as their own money.
First of all, the most important thing is to ensure that money entrusted to the broker is separated from its own funds.
Clients’ assets need fully to be stored separately from the broker’s assets, in accounts at trust banks.
While a broker that claims to offer a trust security system is required to handle clients’ funds thoroughly as described above, this does not mean that in actuality all funds entrusted with the broker are deposited in a trust bank.
If even 10% of funds entrusted by clients is covered by the trust security system, the broker may claim to provide a trust security system.
Most important is whether the firm is an honest one.
An honest broker manages its clients’ funds separately from its own, so that even if it was not placed in a trust security system the client can be sure his or her money can be returned.
Actually, charts can vary slightly between different forex brokers.
A close look at another broker’s charts might show lines that are a bit longer.
For example, some forex brokers may make the stop-loss system more likely to take effect by manipulating charts.
It’s a good idea to use more than one forex broker
When a beginning investor opens his or her first account, it is best to do so not just with one broker but with three or so.
This is because, for example, it is common that a forex broker’s chart might not move.
You might be able to spot such a case by looking at another forex broker’s chart.
You also can trade with one broker while looking at the chart of another.
For example, if you have a long position with one broker but want to take a short position in response to a rapid drop in exchange rates, and are unable to do so because the broker’s system does not move quickly enough, you can take a short position with another broker.
I think in most cases it is a good idea to open accounts with three or so forex brokers.
The broker needs to provide careful customer service!
When making trades, in cases such as when things do not go as planned or you are not sure how to conduct a special type of transaction, the only way to figure out the problem may be with a telephone call.
The broker should provide careful instructions such as which button to press when you make a call.
In the end, starting with a forex broker who provides attentive and detailed instructions is recommended.
Once you get used to the markets you will understand how they work, and then you can trade with other forex brokers as well.
Many beginners conduct transactions without understanding the volume at which they are buying and trading.
I once heard a beginning investor claim that he was making a killing by trading at a 100:1 margin on his one million yen in funds, but he was just experiencing positive returns by chance. His returns could turn negative before he knew it.
Cutting losses is the greatest benefit of forex trading
While some investors do not cut their losses, doing so definitely is recommendedA stop-loss system is the greatest benefit of forex trading.
In the case of other investments such as equities, when the price of a stock such as Livedoor collapses, even if an investor wants to liquidate his or her holdings sometimes he or she may be unable to do so for 14 days or so.
Transactions such as credit transactions may all result in losses.
Forex trading is highly recommended because investors can cut their losses whenever they want.
Never set definite goals for returns
While investors often try to set goals based on success theory, trying to meet fixed goals, such as earning a certain amount per month or trying as hard as one can to increase earnings in a month in which they seem low, can lead one to grow more enthusiastic about trading without even noticing it, possibly leading to increased leverage and to holding an unsustainable position.
An investor must not get too enthusiastic.
Setting definite goals for returns can lead to failure in the market.
Sometimes it is good to take a step back from the market
In some cases, when an investment is not generating returns, it is simply because the price itself is not sustainable.
The opposite is true as well: sometimes an investment generates returns without the investor doing anything.
Sometimes it is good to take a step back from the market.
If an investor is doing poorly in the market, it may be a result of the decisions the investor has made, or it could be because the market itself is performing poorly.
In either of these cases, it is a good idea to step back from the market.
It is important to take a break and cool one’s head.
How much funds does a businessperson need to start forex trading?
Although there is no clear and definite amount required, if you want to invest in a single transaction in an amount of 1 million yen you would use leverage of about 10:1 if you started with about 100,000 yen.
Even with a hedge fund, leverage is about 2:1 or 3:1.
A professional dealer at a bank conducts transactions with leverage of 1:1.
At leverage of 10:1, risk is 10 times the amount invested. At this rate, funds could disappear quickly.
This is because even professionals do not always make money on their investments.
Controlling leverage is very important.
Reasons why professionals might not make money on forex investments
Professional dealers do not make money on investments because they buy and sell only over the short term.
Also, professionals can never step back from the market and take a break.
Since they need to conduct transactions at all times, they tend to not have positions in the market when it is good to do so and to have positions when they should not.
They need to have positions in the market even on days when they definitely are unable to understand the market.
As an example, let’s say that the market is attractive only for about two months during the year.
If a professional decided to trade only during those two months and take a break the rest of the year, he or she would quickly be out of a job.
In contrast, nonprofessionals step back from the market when they don’t want to trade.
This is why nonprofessionals are likely to outperform the professionals.
When should you step back from the market?
- Take a break when the charts do not move the way you thought they would
- Take a break when you have suffered continuous losses
- Basically, take a break when you do not want to enter the market
In the end, there are times when the market moves in straightforward ways and times when is difficult to understand what the market is doing. Trading in the latter case can have serious consequences.
In many cases, the forex market is fairly easy to read, and you can guess what the consequences will be for any action. However, it is important to step back from the market when it does not move as expected.
The Australian dollar is recommended, because it tends to move in the most straightforward way.
While people often think that a currency that shows major movements has better returns, in reality a currency that moves in a straightforward manner is the most profitable.
When the market is slow it shows little movement, and when the market is rising it rises.
Charts for the Australian dollar seem to move in a straightforward manner as forecast.
The New Zealand dollar, on the other hand, can undergo sudden and surprising moves.
Since the market for the New Zealand dollar is small, a slight disturbance can result in considerable movement.
Technical indicators are not helpful
I almost never use technical indicators, and I basically avoid using the chart analysis method as well.
There is a limit to the usefulness of charts because they use past data to analyze the future.
If they were always right, then everybody would get rich in the market.
While in fact chart analysis probably is important to some degree, it also often can be deceiving.
I think an investor can start trading after he or she learns to analyze sentiment, fundamentals, and charts together.
I don't think it is a good idea for an investor to use only charts, only fundamentals, or only sentiment.
It is better to combine all three of these together.
Forex trading in times of war, earthquakes, terrorism, or similar incidents is a form of risk management
When war breaks out in the Middle East, the dollar first falls and then rises in value.
In the event of a major earthquake in Japan, such as the Great Kanto Earthquake of 1923, the value of the yen will decrease.
As another means of risk management, it is important to have multiple means of communication such as cable modems and fiber-optic lines as well as personal computers, so that you still will be able to conduct transactions in the event of a disaster.
Also, you should have generators available.
In addition, while forex brokers probably have plans and systems in place for responding to a disaster, this may be difficult at some brokers, such as smaller ones.
While in the past it would not have been a good idea for amateurs to get involved in forex trading, today forex trading is recommended to amateur investors because it has become easier to understand.
Ordinarily, the key to investing is choosing investments that will make money for the investor.
If equities have good returns, investors should choose the stock markets.
If foreign exchange has good returns, they should choose forex markets.
If real estate has good returns, they should choose to invest in real estate.
The investments that are in season undergo constant change.
What will happen to forex markets in the future?
How should investors respond to markets undergoing severe price fluctuations?
Today, a rising market that would have lasted one or two years in the past may last only about two weeks.
I think in some ways a market can be considered attractive if it does not tumble.
By reducing leverage and buying when the yen is rising, what in the past had taken one year now can now be done in one week.
Another method is to change the subject of investment
If in the end Japan were to become fiscally insolvent or to suffer a similar fate, such as severe inflation even though not technically insolvent, continued fiscal deficits would lead to a breakdown at some point.
Until now the day of reckoning has been postponed, but the longer it is postponed the greater the fall.
If such an outcome were to come to the surface, resulting in disorder in the markets, the yen would bottom out.
I think the Australian dollar could rise to about 200 yen.
At that point investors should sell.
At the moment they sell, investors should buy investments such as equities or real estate that have become more attractive.
I think this is the best performing type of investment.
While investors buying and selling over the short term also can take part in forex transactions, it would be a good idea to buy leading international equities that had bottomed out, such as stock in Canon or Toyota.
Since the times will change, it is a good idea to invest only in the most attractive markets.
Basically, I do not conduct selling.
Ordinarily, one would think that selling and buying together would be doubly attractive. However, in fact that is not the case.
When buying, if investors do not focus on buying they cannot do it well.
It is difficult to switch one’s way of thinking between buying and selling modes.
Since selling cannot be conducted without paying for a swap, it is not particularly useful.
However, one might want to think of selling in cases such as when the market falls dramatically.
In the future, there might be an even greater drop in August.
In future forex trading, leverage of 1:1 to 2.5:1 will be enough
In the past, it was said that leverage should not exceed 5:1. However, today 2.5:1 should be considered the maximum.
Since future price fluctuations are likely to be even greater, leverage of 1:1 may even be a good idea.
While high prices are being pushed up, isn’t it likely that the bottom would drop lower as well?
Investors should use lower levels of leverage when price fluctuations are more severe.
How to take part in forex trading with good timing, by buying at the bottom
One method of investing is to concentrate solely on buying at the bottom.
Under this method, one ordinarily adopts a wait-and-see attitude without trading and then buys at the bottom when the market seems desperate or falling markets make the front page of the news.
I think properly speaking this is the most attractive method of buying.
While I think many amateur investors are making money using this method, in recent forex markets it has come to be thought that foreign exchange is suited to short-term buying and selling. For this reason, the number of investors adopting this method has decreased.
While the same is true for equities, I don’t think equity markets have reached the bottom of their second dip yet.
I think stocks could easily fall below 8000 yen.
I believe they will fall to about one-half their current level.
But I don’t think this will happen right away.
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