Forex Tutorial

Introduction to Currency Trading

Contributors include:

The foreign exchange market (forex or FX for short) is one of the most exciting, fast-paced markets around. Until recently, forex trading in the currency market had been the domain of large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals. The emergence of the internet has changed all of this, and now it is possible for average investors to buy and sell currencies easily with the click of a mouse through online brokerage accounts.

Daily currency fluctuations are usually very small. Most currency pairs move less than one cent per day, representing a less than 1% change in the value of the currency. This makes foreign exchange one of the least volatile financial markets around. Therefore, many currency speculators rely on the availability of enormous leverage to increase the value of potential movements. In the retail forex market, leverage can be as much as 250:1. Higher leverage can be extremely risky, but because of round-the-clock trading and deep liquidity, foreign exchange brokers have been able to make high leverage an industry standard in order to make the movements meaningful for currency traders.

Extreme liquidity and the availability of high leverage have helped to spur the market’s rapid growth and made it the ideal place for many traders. Positions can be opened and closed within minutes or can be held for months. Currency prices are based on objective considerations of supply and demand and cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks, to move prices at will.

The forex market provides plenty of opportunity for investors. However, in order to be successful, a currency trader has to understand the basics behind currency movements.

The goal of this forex tutorial is to provide a foundation for investors or traders who are new to the foreign currency markets. We’ll cover the basics of exchange rates, the market’s history and the key concepts you need to understand in order to be able to participate in this market. We’ll also venture into how to start trading foreign currencies and the different types of strategies that can be employed.


Source:  investopedia.com

Top 10 Forex Trading Rules

Introduction

Why Trade in Currencies?

There are 10 major reasons why the currency market is a great place to trade:

1. You can trade to any style – strategies can be built on five-minute charts, hourly charts ,daily charts or even weekly charts.
2. There is a massive amount of information – charts, real-time news, top level research – all available for free.
3. All key information is public and disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot sizes can be customized, meaning that you can trade with as little as $500 dollars at nearly the same execution costs as accounts that trade $500 million.
6. Customizable leverage allows you to be as conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is cleanly accounted for in the P&L.
8. You can trade 24 hours a day with ample liquidity ($20 million up)
9. There is no discrimination between going short or long (no uptick rule).
10. You can’t lose more capital than you put in (automatic margin call)

Fair Warning

This tutorial is designed to help you develop a logical, intelligent approach to currency trading base on 10 key rules. The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. That is why we show you failures as well as successes – so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each idea that we present.

The 10 Rules

1. Never Let a Winner Turn Into a Loser
2. Logic Wins, Impulse Kills
3. Never Risk More Than 2% per Trade
4. Trigger Fundamentally, Enter and Exit Technically
5. Always Pair Strong With Weak
6. Being Right but Being Early Simply Means That You Are Wrong
7. Know the Difference Between Scaling In and Adding to a Loser
8. What is Mathematically Optimal Is Psychologically Impossible
9. Risk Can Be Predetermined, but Reward Is Unpredictable
10. No Excuses, Ever

Trading is an art rather than a science. Therefore, no rule in trading is ever absolute (except the one about always using stops!) Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you grounded – and out of harm’s way.


Source: investopedia.com

Introduction
Why Trade in Currencies?

There are 10 major reasons why the currency market is a great place to trade:

1. You can trade to any style – strategies can be built on five-minute charts, hourly charts ,daily charts or even weekly charts.
2. There is a massive amount of information – charts, real-time news, top level research – all available for free.
3. All key information is public and disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot sizes can be customized, meaning that you can trade with as little as $500 dollars at nearly the same execution costs as accounts that trade $500 million.
6. Customizable leverage allows you to be as conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is cleanly accounted for in the P&L.
8. You can trade 24 hours a day with ample liquidity ($20 million up)
9. There is no discrimination between going short or long (no uptick rule).
10. You can’t lose more capital than you put in (automatic margin call)
Fair Warning

This tutorial is designed to help you develop a logical, intelligent approach to currency trading base on 10 key rules. The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. That is why we show you failures as well as successes – so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each idea that we present.
The 10 Rules

1. Never Let a Winner Turn Into a Loser
2. Logic Wins, Impulse Kills
3. Never Risk More Than 2% per Trade
4. Trigger Fundamentally, Enter and Exit Technically
5. Always Pair Strong With Weak
6. Being Right but Being Early Simply Means That You Are Wrong
7. Know the Difference Between Scaling In and Adding to a Loser
8. What is Mathematically Optimal Is Psychologically Impossible
9. Risk Can Be Predetermined, but Reward Is Unpredictable
10. No Excuses, Ever

Trading is an art rather than a science. Therefore, no rule in trading is ever absolute (except the one about always using stops!) Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you grounded – and out of harm’s way.


Source: investopedia.com

Forex Currencies

Forex Currencies: Introduction

By Brian Perry

The currency markets are the largest and most actively traded financial markets in the world with a daily trading volume of more than $3 trillion (Triennial Central Bank Survey 2007). The majority of this trading is concentrated in the world’s major financial centers such as London, New York and Tokyo. Large institutional investors such as banks, multinational corporations, hedge funds and central banks constitute the majority of the market activity. To kn owledgeably compete in this overwhelmingly institutional marketplace, individual investors need to assimilate as much information as possible. This tutorial provides an overview of basic foreign currency (forex/FX) trading strategies, the markets for those strategies, and an examination of some of the most popular currencies traded.

Each transaction in the currency market involves two different trades: the sale of one currency and the purchase of another. The two currencies involved in the trade are known as a pair. While it is possible to swap virtually any currency for another, the majority of trading occurs among a handful of popular currency pairs.

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The chart shows the most heavily traded currencies and their market share. Total market share adds up to 200% because each transaction involves two currencies (ECB: BIS Triennial Survey 2004).

As the world’s reserve currency, the U.S. dollar is the most actively traded currency, and pairs involving the dollar make up the majority of transactions. Therefore, this tutorial examines the trading relationships between the U.S. dollar and several of its chief counterparts, including the euro, the Japanese yen, the British pound, and the Swiss franc. The tutorial also examines other popular trading pairs involving the U.S. dollar and the commodity currencies – those of Canada, Australia, and New Zealand.

Although the average trader will likely participate only in trades involving the U.S. dollar, this tutorial includes a discussion of cross rate pairs – pairs of significant international currencies that are not the U.S. dollar. Additionally, because emerging markets form an important part of the global financial system, this tutorial also examines the unique challenges facing individuals interested in trading emerging market currencies.(For more information, read The Foreign Exchange Interbank Market.)

Before the discussion of popular trading pairs, a brief analysis describes some of the instruments, concepts and strategies that should be familiar to investors trading in the currency markets.


Source:  investopedia.com

Investopedia Forex Outlook For April 2012

Investopedia Forex Outlook For April 2012 – Macro Highlights

The market has become cautiously optimistic in March, with bullish U.S. employment figures and a Greek debt deal improving the situation in Europe. Meanwhile, the MSCI global shares index is up around 10% since the beginning of the year and remains more than 20% off of its lows reached during the fourth quarter of last year. SEE: Forex Outlook For March 2012

Still, there are many risks that threaten to derail the global economic recovery, including continued turmoil in Greece, higher oil prices due to the situation in Iran, and any signs of a more severe slowdown in China. The global economy is expected to be slower this year than it was in 2011, amid less-than-spectacular emerging markets and troubles in Europe.

Macroeconomic Highlights

  •     U.S. Recovery Picks Up Steam – February was the third consecutive month of U.S. job growth over 200,000. Retail sales and consumer spending were also on the rise that month. But signs of trouble started emerging in March data, where consumer confidence fell unexpectedly as higher gasoline prices put pressure on consumers. (For related reading, see Consumer Spending As A Market Indicator.)
  •     Europe Shows Signs of Hope – The situation in the European Union (E.U.) was temporarily defused after Greece reached a restructuring agreement with bond holders that opened the doors to more bailout funds. But economists remain skeptical that the country can reach its austerity targets, given failures in the past, while additional bailout funds are likely to be required, and other countries remain in danger.
  •     Signs of Strength in Japan – Japan’s economy showed signs of strength this month, after reporting a disappointing fourth quarter gross domestic product (GDP) last month. The bullish signals led the Bank of Japan (BOJ) to avoid any additional stimulus measures for the time being, but interest rates are to be kept at near zero. The move has helped the Japanese yen recover some ground after a spectacular fall.
  •     Britain Faces Headwinds – Britain’s economy continues to struggle with a so-called “productivity puzzle,” in that its workers are failing to become more efficient during the downturn, unlike the U.S. and other countries. But Britain’s austerity efforts led to a large surplus last quarter, boosting hopes that it would opt for more economic stimulus packages that could jumpstart its economy. (For related reading, see Austerity: When The Government Tightens Its Belt.)
  •     Switzerland Recovers Alongside Europe – The Swiss economy has shown signs of recovery amid improvements in the Eurozone. Traders had been using the currency as a safe-haven investment throughout the Eurozone crisis. While the Swiss franc remains overvalued, according to the government, the Swiss National Bank (SNB) is expected to leave interest rates near zero and maintain its current monetary policy.


Source:  investopedia.com

Investopedia’s July 2012 Forex Outlook

Investopedia’s July 2012 Forex Outlook: Macroeconomic Highlights

As we move enter July, the global economy continues to struggle amid a lackluster U.S. recovery and ongoing indecision and banking problems in the eurozone. Asia has also started to feel the slowdown after posting several years of strong growth rates, which could pose further problems for the financial markets, taking away a key source of global growth.

Macroeconomic Highlights

U.S. Slows, Extends Operation Twist
The U.S. economy appears to be slowing by many accounts. On June 20, the U.S. Federal Reserve lowered its outlook for the year to 2.4% from its 2.9% projection earlier this year. Unemployment isn’t expected to improve much either, with the jobless rate expected to fall no lower than 8% by the end of the year, according to the same report by the central bank.

Many U.S. economic indicators have also confirmed this slowdown. The U.S. manufacturing sector grew at its slowest pace in 11 months in June, while new unemployment claims fell only marginally in recent weeks. Meanwhile, existing home sales fell 1.5% to a 4.55 million annual rate in May, according to the National Association of Realtors.

As a result, the Federal Reserve opted to extend its bond-buying program known as “Operation Twist” until the end of the year in response to this slowdown. Under the program, the central bank will continue purchasing U.S. Treasury Bonds. But while the news came as a surprise, the effects were short-lived, and the stock market reversed within hours of the announcement.

Euro Worries Persist, Calls on Germany

Spain’s bailout may have averted a near-term crisis, but the lack of a cohesive rescue plan means worries still persist. Bond yields for troubled countries like Spain and Italy remain near unsustainable levels, despite a brief reprieve. Meanwhile, Moody’s recently downgraded 15 of the world’s largest banks, adding to concern in the financial markets.

The most popular solution to these woes are so-called Eurobonds that would be jointly guaranteed by all members of the monetary union. Former British PM Tony Blair perhaps said it best: “The only thing that will save the single currency now is in a sense a sort of grand plan in which Germany is prepared to commit its economy fully to the single currency.”

Unfortunately, Germany remains very resistant to the idea. German Chancellor Angela Merkel has shown no signs of budging on Eurobonds or bank guarantees amid pressure from newly elected French President Francois Hollande. Merkel instead insists that euro states must agree to much deeper fiscal integration before such financial pledges are made.

Asian Growth Continues to Stumble
Asia may be the world’s growth driver, but those rates appear to be slowing. Chinese manufacturing activity weakened to a seven-month low in June, according to an HSBC survey, indicating deterioration in business conditions at factories. Meanwhile, there are also some concerns that government data may be overly optimistic.

A notable exception is Japan’s economy, which is expected to continue seeing a modest recovery driven by strong consumer spending and rebuilding efforts. Recently, the government also upgraded its outlook on capital spending for the first time in three months, citing a pick-up in corporate profits and support from the reconstruction.

Britain’s Signs of Recovery After Double-Dip
Britain has taken a unique approach to combatting its economic decline. Unlike the U.S. and eurozone, the region has instead opted to impose austerity measures and hike taxes. While it recently slipped into a double-dip recession, the country’s leaders insisted this was primarily due to higher commodity prices, a weak banking sector, and the eurozone crisis.

Despite the slowdown, there are also some signs of a turnaround after new lending and infrastructure initiatives were implemented. Retail sales increased in May after a weak showing in April, with the Office for National Statistics showing a 1.4% gain in May. These figures were above economist forecasts of a 1.2% increase for the same period.


Source:  investopedia.com

Investopedia’s September 2012 Forex Outlook

Introduction

The global markets largely stayed the course in August, but uncertainty in the eurozone remains a top concern for the financial markets. In the U.S., unemployment continues to hamper a stronger recovery, but growth appears to remain on track. In Europe, sovereign bond yields have improved, but the region still faces greater uncertainty than ever before.

Forex traders will be primarily watching the situation in Europe and the recovery in the U.S. for any signs of improvement, as well as possible quantitative easing or other programs being implemented in Britain and Japan, where growth is ebbing.


Source:  investopedia.com