Forex Trading

So what is is Forex trading you may ask? Forex is the exchange you can buy and sell currencies. For example, you might buy British pounds (by exchanging them to the dollars you had), then, after pounds / dollar ratio goes up, you sell pounds and buy dollars again. At the end of this operation you are going to have more dollars, then you had at the beginning.

The Forex market has much higher liquidity, then the stock market, as much more money is being exchanged. Forex is spread between banks all over the planet and as a result it means 24 hour trading.

Unlike stocks, Forex trades are performed with high leverage, usually it is 100. It means that by investing $1000 you can control $100,000, and increase potential profits accordingly. Some brokers provide also so called mini-Forex, where the size of minimum deposit equals $100. It makes possible for individuals to enter this market easily.

The name convention. In Forex, the name of a "symbol" is composed of two parts — one for first currency, and another for the second currency. For example, the symbol usdjpy stands for US dollars (usd) to Japanese yen (jpy).

As with stocks, you can apply tools of the technical analysis to Forex charts. Trader's indexes can be optimized for Forex "symbols", allowing you to find winning strategy.

Example Forex transaction

Assume you have a trading account of $25,000 and you are trading with a 1% margin requirement. The current quote for EUR/USD is 1.3225/28 and you place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to rise against the dollar. At the same time you place a stop-loss order at 1.3178 representing a maximum loss of 2% of your account equity if the trade goes against you, 50 pips below your order price, and a limit order at 1.3378, 150 pips above your order price. For this trade, you are risking 50 pips to gain 150 pips, giving you a risk/reward ratio of 1 part risk to 3 parts reward. This means that you only need to be right one third of the time to remain profitable.

The notional value of this trade is $132,280 (100,000 * 1.3228). Your required margin deposit is 1% of the total, which is equal to $1322.80 ($132,280 * 0.01).

As you expected, the Euro strengthens against the dollar and your limit order is reached at 1.3378. The position is closed. Your total profit for this trade is $1500, each pip being worth $10.

by Richard Goldie

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My Experiences Of Trading Forex And Stocks Using Long Term Charts

To some extent trading the forex markets using long term charts (such as the daily and weekly charts) is a lot easier than trading the short term charts (such as the 1 and 5 minute charts). Indeed that's why my core trading system, ie my main 4 hour trading system (see right for more details), is based on the 4 hour and daily charts.

However when you are comparing long term forex trading to long term share trading, there is only one winner for me - share trading.

There is one thing you have in your favour when trading good quality stocks, and that's the fact that the share price should continue heading higher as long as the company is growing it's earnings every year (and ideally it's dividends as well).

So all you have to do is find those stocks that have shown consistent earnings growth over many years (and are likely to continue growing in future years) and buy the actual stocks or open long positions when the opportunities arise, ie when they are oversold on a technical basis or massively undervalued on a fundamental basis.

In other words whenever the share price falls with the wider market, you should view this an opportunity to scale into long positions, safe in the knowledge that you are trading a solid long term growth company and the long term trend should prevail at some stage.

When you are trading forex pairs on the other hand, you can't really get a firm idea of the underlying long term trend. For example no-one knows if the GBP/USD or EUR/USD pairs will continue heading higher or lower in the coming years.

So in effect you are trading blind to some extent. There are rare occasions when the fundamentals can give you a better idea of any possible long term trends, but unless you are a skilled economist who is prepared to look at lots of economic data from various countries, it is very hard to do.

In most cases all you have to go on are technical indicators, whereas you have technical indicators and financial forecasts and predictions to help you when trading stocks.

Finally with share trading you can afford to take a long term view if you buy the actual stock, and not panic too much if the price moves against you initially. You can sell your position or take a loss whenever you want, however with forex trading it is not so easy to take a long term view because your position may well be leveraged. Therefore you may be forced to close out positions if the price moves against you and you start to incur big losses.

Saying all that, I still believe there are decent profits to be made from long term forex trading, and I certainly don't want to put anyone off because technical analysis works really well on these long term charts. The indicators themselves are more reliable and things like fibonacci levels and lines of support and resistance take on greater significance.

However I just think long term share trading is slightly easier to make consistent profits if you only trade high quality growth stocks because you already know the long term trend. Therefore you can trade in and out of positions accordingly.

Ultimately it is up to you to decide what style of trading is best for you, and what type of instrument you want to trade. If you are like a lot of traders, you probably won't want to trade any long term charts whatsoever. However I just thought I would write this article comparing long term forex trading to long term share trading because some people prefer this more relaxed style of trading.

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Weekly Trading Update - 07-11 November 2011

There were no trades for me again this week, and I've actually decided to stop trading forex for the time being. My 4 hour trading system just doesn't generate as many trades as it used to, and with the markets drifting aimlessly with all the uncertainty that's around right now, I think it's best to just sit on the sidelines.

Even if market conditions do change and we start to see a lot more volatility, it will be only last for a few weeks anyway because we have the Christmas and New Year holidays just around the corner, and the markets are always very quiet and impossible to trade at that time of the year.

Anyway I shall still be trading stocks, as this is what I love doing more than anything else, and I have this website and a few others to keep me busy, but there probably won't be any more Weekly Trading Updates for a while.

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IG Index Reduces Spreads On Forex Pairs

IG Index have brought good news to a lot of forex traders this week with the announcement that they are cutting spreads on many different currency pairs once more. They were already really competitive, but now you will be hard pushed to find a spread betting firm or forex broker that offers tighter spreads.

For example the dealing spreads for the EUR/USD and USD/JPY pairs start at 0.8 pips, whilst the spread for the GBP/USD and EUR/GBP pairs start at 1 pip. This is a big improvement because I've used IG Index to trade these pairs with a spread of 2 or 3 pips in the past.

The only downside is that these low spreads are not fixed at this level all the time. For example I've just spent the last minute watching the GBP/USD spread, and although the spread often stays at 1 pip with every tick, it sometimes goes up to 2.5 pips.

Overall, though, it is still a very welcome announcement because I use IG Index quite a lot, and I know quite a few people who read this blog use them as well.

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How To Predict 5 Day Trends (With Updated Performance Results)

A while ago I posted a link to a video that Bill Poulos created which revealed how his trade alert software was able to detect (and profit from) 5 day trends for the major currency pairs. Well he has recently updated this video and demonstrated how his Forex Profit Accelerator software has performed since then.

As you may know, the markets have been very difficult to trade in recent months, but this trade alert software seems to have performed very well trading the end of day charts, as you can see in this new video.

The overall profits were $32,000, and you can see how he did this by clicking here and watching the free video.

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Forex Avenue: The Road to Riches

In my continuing quest to provide visitors of my site with a large amount of options to chose from when considering working from home I have done some research on Forex trading. I first learned of Forex trading while pursuing my MBA program. For those of you who have never heard of this, Forex trading is the exchange of foreign currency.

I know I would have never even know this was an option for making money had I not found out in class. Most of the really big corporations have departments of people that do this for a living because it can be very lucrative if done correctly. The best news I have learned about this process of exchanging currencies is that many of the websites that you can sign up with to do this offer free trial accounts to help you learn before you invest your money into trying it. You won't make any money in the trial accounts if you do well, it is just pretend money essentially but with the real market conditions. If you do well in the trial account you will know if this is something you want to try on your own.

Benefits to Forex trading are that is can be done 24/7 whereas the stock market is a business hours only exchange. It is 24/7 because it is done with countries around the world so clearly there are countries that are awake and working while we sleep. Another benefit is you are in control of the trading on your account. You do not need to hire a licensed broker to make your trades and charge you fees. Along those same lines, anyone who does any investing most likely knows that some funds require you to own then for a certain period of time or pay early withdrawal fees. You do not need to concern yourself with this either. One last benefit that I would like to point out is the fact that Forex is not really subject to the same kinds of swings in the market that stocks are subject to. Of course if you always buy and sell the same currencies then there will be market swings. But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.

There are many resources available to someone interested in becoming involved in this type of training. The Federal Reserve Bank's website is just one example of the information available — http://www.ny.frb.org/markets/foreignex.html. Here is another article that you will find helpful in starting out in this field. http://www.forex.com/pdf/pro2.pdf . I have also included one of the sites that does offer a free lesson.

While there are many benefits to this type of training, as I mentioned above, there are certainly risks involved as well. There are risks with exchange rates, central banks in foreign countries, and risks involving interest rates and credit. Forex is quickly becoming a popular way to help diversify your investment portfolio. If you are good with understanding investing concepts and enjoy doing it this may be the home business opportunity for you. Just do your research and try to find one of the sites offering the free trial account to practice with and you are well on your way down the Road to Riches.

by Scott Bianchi

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Why Trade the FOREX?

My purpose for writing this article is to demonstrate to you the advantages of trading on the Forex market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote "If It Doesn't Go Up, Don't Buy It". He said "Everyone who invests is a trader, only the time period is different." It is a lesson that I took seriously after taking a beating in the stock market in 2000.

So now, let's compare features of currency trading to those of stock and commodity trading.

Liquidity — The Forex market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.

Trading Times — The Forex market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.

Leverage — Depending on your Forex account size, your leverage may be 100:1, although there are Forex brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the Forex market, its leverage is inherently riskier. Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.

Trading costs — Transaction costs in the Forex market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.

Minimum investment — You can open a Forex trading account for as little as $300.00. It took $5,000 for me to open my futures trading account.

Focus — 85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely.

Trade execution — In the Forex market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.

While all of these features make trading the Forex market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky.

by Susan Walker

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