Global Forex Trading

There are many kinds of trading in the market exchange, but these days the most favorite one is the Global Forex Trading. Its daily volume even reaches $2 trillion dollars. It becomes popular since the speculator George Soros of the Quantum Hedge Fund was able to get over $1 billion dollars profits in couples of days by shorting the British pound in 1992. A fantastic number, isn’t it? But, what is it that makes more and more people interested in it? Well, the lures of Global Forex trading lie on these reasons:

First attraction will be the market’s hour. The Global Forex trading markets are almost always open, 24 hours a day and 5 days in a week non-stop. It is possible because the currencies fluctuate all day and night that any trader can do any trading without being limited by market hours. This is something that other equities might fall behind. They can be effective only during the market hours when the stock exchanges are open. Furthermore, the advance online Forex brokerages that allow people to trade comfortably from their homes or offices will be another excellent charm.

Secondly, the immense leverage will be the most charm for most traders. In the Global Forex trading, a trader can obtain 20 times, 50 times, or even 100 times from his original capital. It is unlike in stock trading where the leverage can only be twice as much as the original capital. To give you a better understanding, here’s the number illustration:

You open an account in an online Forex brokerage worth $10,000 dollars. In Forex market, trading is realized in lots where 1 Lot = 100,000. With an immense leverage, you may control $500,000 positions or worth as 10 lots. And if your positions moved favorably, let’s say giving you 5% gain, you already have $25,000 dollars in your pocket.

While in stock trading, you can either trade with the available funds or you can open a margin account and trade with double leverage only. So,when you have $10,000 dollars account, you can control only $20,000 dollars worth of equity positions.

Hopefully, this illustration can give you a better understanding on how the immense leverage in Global Forex trading can lure a lot of players into the game. However, you also need to know that although the immense leverage may give you benefit, it’s possible to wipe out your fund as well.

Somehow, the most important reason will be the large sums of money that can be made in the Forex markets. These are the reasons more and more people interested to jump in the market, including those who are full time traders and those who make it as merely a hobby.

If you decided to play in the Forex trading, you need to learn about Forex analysis first. This analysis involves two very important aspects, fundamental and technical. Dan Ho is an expert on technical analysis who does the trading too. You can get his book, or newsletter to help you start of with Forex trading. Or An online Forex course which is highly recommended for those who want to start this business can be a good option to consider.

However, you should never forget that global Forex trading is a highly speculative business where you can get a fantastic profit, or you can lose all of your funds as well. There is no guarantee here. Even having the best newsletter analysis service or Forex trading course are also not a guarantee for you profits nor able to prevent you against any losses.

What’s best needed here is having strong control over your impulses and emotions besides any methodological and technical tools. You also need to be disciplined and is alert to any fault in order to get your success in a global forex trading market.

Forex Online Trading

Foreign Exchange market is commonly known as Forex market that has been established since 1970s. It is successfully recognized as the leader of liquid financial market these days. The transactions compared to the New York Stock Exchange reaches hundreds times bigger. The market is basically selling and buying money freely. It involves buying one currency and selling another.The main currencies in Forex will be US dollars competes with British Pound sterling, Japanese yen, Swiss franc, and Euro. The currencies here are symbolized in three letters, for example USD, GBP, JPY, CHF . The first two letter are indicating the name of the country, and the last letter is indicating the name of the currency. The trading of these currency pairs are constantly going because it’s done in all around the world. The value of each currency is pretty much determined by the demand in the market, not by the exchange as in the futures and stock markets. So it can be rising or failing. This is when the trader can take any position in the market, and if the market moved favorably from their position, they may gain profit. Forex trading also allows an immense leverage so that a trader can take position even up to 100 times of their actual capital. The trading can either be done in short period of time within the same day, or in an extended duration or overnight period.

Forex trading market is unique because it requests a quite simple qualification for the traders to invest and also the market is done worldwide, so it’s not based in any particular place. It is where a free competition runs in the market without having any external control. The market is considered objective too because the prices can’t be manipulatively changed unless one has tens of billions dollars to operate.

However, you must be aware that Forex trading is a high risk high return business. Although you can get a great amount of money, you can also lose a great amount of money as well. The way of investing is not complicated and it is a solid investment where you can gain a good profit if you do it right. So, before jumping in the field, learning Forex , both technical and fundamental analysis, are an obligation steps. Finally, does Forex suit you? Are you ready with all it needs

Forex Capital Market

These days a Foreign exchange market or is commonly known as a forex market trading has been growing so fast that it becomes the leader of financial market in the world. To the traders, Forex market is something familiar in which they know how all the systems in it work. But, to most people, they don’t have a very deep understanding of what is the Forex market? So, this article will try to explore and show you the basic important things about forex market trading.

The activity of foreign exchange to pay for a business has been commonly done. If you are travelling abroad, you will of course need to exchange your money with the currency of the country you are going to. Or a traveler’s check can be another solution when you need to pay for a transaction abroad. When you are doing all these, you already engaged in foreign exchange, but it is NOT the kinds of activity happened in the Forex market. In the Forex market, the traders are trading foreign exchange in which the main purpose is 100% to make a profit from certain currency being traded for another currency.

Forex market trading is done all over the world 24 hours a day and 5 days a week by dealers at major banks or forex brokerage companies. Before the development of online trading, the market is dominated by banks, major currency dealers and large speculators. But now, thanks to the internet, small traders are also able to take part in the Forex market. The larger sized inter-bank units are broken down into small units by Foreign exchange market brokers so that it is affordable for individual traders to buy or sell the units. This way, the brokers give the opportunity for any traders to take position in the market at the same rates and price movements as the big players who once dominated the market. The traders can also have an overnight position without waiting for the opening market because the market itself runs 24 hours a day. Trading in Forex market moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S., so that the currency trading is not centered on an exchange. This is where the difference from the futures and stock markets lied down.

Unlike the stock market, the price movements on the forex market trading are relatively very smooth. It is because the market is 24 hours-open non stop in which the trade can be continuously executed so that there is no gaps occurred. Even on September 11, 2001, the forex market was still open. The danger in which an investor is not able to enter and exit positions whenever they want is eliminated because the Forex market’s daily turnover reaches a fantastic number around $1.2 trillion.

Forex Advantages

But one of the main advantages of the FOREX market is margin. In this market, a trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.

Just like futures and stock speculation, a FOREX trader has the ability to control a large amount of currency by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value if you are trading stocks. The margin requirements for FOREX are about 1%. For example, the margin required to trade foreign exchange is $1000 for every $100,000. This can be a very profitable way to trade, but it's important to fully understand the risks that are involved.

When you trade in futures, you have to pay exchange and brokerage fees. FOREX is commission free, a much better scenario. Currency trading occurs on a worldwide inter-bank market that lets buyers be matched with sellers in an instant. But even though you do not have to pay a commission charge to a broker to be matched up with a buyer or seller, the spread is usually larger than it is when you are trading futures. And the spread is where the brokerage makes their money.

For example, if you are trading a Japanese Yen/US Dollar pair, a FOREX trade would have about a 3 point spread (worth $30). Trading a JY futures trade would likely have a spread of only 1 point (worth $10), but you would also be charged the broker's commission on top of that. This price could be as low as $10 for self-directed online trading, or as high as $50 for full-service trading. However, this is generally all-inclusive pricing. It’s a good idea to compare both online FOREX and your specific futures commission charges to see which commission is the greater one.

This may seem complicated, and frankly, it is a bit. The FOREX market is a technical market, but if you are willing to take the time to understand its workings and apply good trading discipline, you will realize substantial profits.

Currency Pairs

There are five major currency pairs that are trades on the FOREX market, and they account for about 85% of all daily transactions. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, US dollar against Swiss franc, and US dollar against Canadian dollar. They appear on the market in this form: EUR/USD, USD/JPY, GBP/USD, USD/CHF, and USD/CAD.

The key to understanding FOREX quotes is to remember that the currency listed first is the base currency and that the value of the base currency is always 1. So, a quote of EUR / USD 1.35 means that one 1 Euro is equal to 1.35 U.S. dollars. If the number increases, the value of the Euro is increasing while the U.S. dollar is decreasing, and if the number decreases then the Euro is weakening and the U.S. dollar is gaining strength.

The US dollar is normally considered the 'base' currency for quotes in the FOREX market, though there are exceptions, such as the GBP/US, where the British pound is the base currency. This also occurs with the Euro, and with the Australian Dollar. Of course, there are other currencies on the market than the major five. You may come across them being called cross currency pairs. These are simply currency pairs that do not involve the U.S. dollar. For example, EUR / JPY at 128.55 means 1 Euro is equal to 128.55 Japanese yen.

Bids, Asks, and Spreads

Once you are comfortable with the concept of currency pairs, you are ready to consider the composition of a FOREX quote. These quotes are generally two-sided. The two sides of the quote are the bid and ask, which is can also be called the bid and offer. The bid is the price a seller is offering for a currency, the ask is the price a seller is willing to take for the currency. The difference between these two numbers is called a spread. Spreads are quoted in pips, which are the smallest unit of difference between the two currencies in the quote. If the quote between GBP/USD at a given moment is 1.5354/6, the bid is 1.5354 and the ask is 1.5356, which makes the spread equal 2 pips, the difference between the 4 and the 6. If the quote is 1.53545/6, then the spread is going to equal 1.5 pips.

The spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The end result of this is that you will pay more when you buy and get less when you sell, making it more difficult to realize a profit. Brokers generally don’t earn the full spread, especially when they hedge client positions. The spread helps to compensate the brokerage for the risk it assumes from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).

Spreads affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn’t.

The tighter the spread is the better things are going to be for you. But tight spreads are only meaningful when they are paired up with good execution. A good example of when this is not happening is when your screen shows a tight spread, but your trade is filled a few pips in the wrong direction, or is mysteriously rejected. Then it’s time to reconsider your broker.

Finding a Broker

It’s not always easy to know what to look for in a broker in any market, much less a market as complex as the FOREX. But, if you want to trade in FOREX you need a broker. While it might be tempting to simply ask the brokers what they can do for you, you can’t always depend on them to give you a straight answer. Here are a few things to consider when choosing your broker.

You will want a broker that has low spreads. Since FOREX brokers don't charge a commission, this difference is how they make money. Low spreads will save you money.

Along with this, you should be looking for a broker attached to a reputable institution.

Unlike equity brokers, FOREX brokers are usually attached to large banks or lending institutions. The broker should also be registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC).

Once you’ve narrowed your choices down to brokers that won’t cost you too much, and that are reputable, consider the trading tools that they are offering you. FOREX brokers have many different trading platforms for their clients, just like brokers in other markets. These often show real-time charts, technical analysis tools, real-time news and data, and may even offer support for the various trading systems.

Before you commit to any one broker, request free trials of their tools. Brokers generally provide technical as well as fundamental commentaries, economic calendars, and other research to help you make good trades. Shop around until you find a broker who will give you what you need to succeed.

The next item that you will need to evaluate carefully is the number of leverage options your potential broker has. Leverage is a necessity in FOREX trading because the price deviations in the currencies are set at fractions of a cent. Leverage is expressed as a ratio between the total capital that is available to be traded and your actual capital. For example, when you have a ratio of 100:1, your broker will lend you $100 for every $1 of actual capital you have. Many brokerage firms will offer you as much as 250:1. If you have low levels of capital you will need a brokerage with high levels of leverage to make reasonable profits.

If capital is not a problem, any broker that has a wide variety of leverage options would be a good choice for you. A variety of options will let you vary the amount of risk you choose to take. For example, less leverage (and therefore less risk) may be preferable if you are dealing with highly volatile (exotic) currency pairs.

Along with different levels of leverage, look for brokers that offer different types of accounts. Many brokers will offer you two or more types. The smallest account is known as a mini account and it requires you to trade with a minimum of around $300. The mini account also generally offers a high amount of leverage.

The standard account allows you to trade at a variety of different leverages, but it requires minimum initial capital of $2,000. And finally, there are premium accounts, which often require significant amounts of capital. They also generally have different levels of leverage available to the traders who use them, and often offer additional tools and services. You will need to make sure that the broker you choose has the right leverage, tools, and services for the amount of capital that you are able to work with.

Brokers to Avoid

A broker that meets all of these needs should be a good broker for you, but you still need to be certain that they are honest. Dishonest brokers can be prone to prematurely buying or selling near preset points (commonly referred to as sniping and hunting) or may indulge in other habits that will cost you money.

Obviously, no broker admits to doing things like these, but there are ways to know if they have. The best ways to find out more about your potential broker is to talk to fellow traders. There is no actual list or organization that reports dishonest activity, but a visit to online discussion forums, or a simple conversation will often reveal who is an honest broker.

You should also watch to see if a broker has strict margin rules. Since you are trading with borrowed money, your broker has a say in how much risk you are able to take. You agree to this when you sign a margin agreement for your account. This means your broker can buy or sell at his discretion, to cover the brokerage firm’s interests, which could have repercussions for you.

Say you have a margin account, and your position takes a headlong nosedive before it begins to rebound to all-time highs. Even if you have enough cash to cover it, some brokers will liquidate your position on a margin call at that low point. This action on their part can cost you dearly. You can only find out whether the firm is prone to this kind of activity by talking to other traders.

When this occurs repeatedly, it means that your broker is showing tight spreads but is effectively delivering wider spreads. Rejected trades, delayed execution, slipping, and stop hunting are strategies that some brokers use to get rid of the promise of tight spreads.

Spreads should always be considered in conjunction with depth of book. Oddly enough, when it comes to economies of scale, FOREX doesn't even act like most other markets. On the inter-bank market, for example; the larger the ticket size, the larger the spread is. So when you see a 1-pip spread on an ECN platform, you have to wonder if that spread is valid for a $2M, $5M or $10M trade, which it probably isn’t. In many cases, the tight spread that is offered applies only to a capped trade sizes that don’t work for most of the common trading strategies.

Spread policies change a great deal from broker to broker, and the policies are often difficult to understand. This makes comparing brokers difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you can end up paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.

Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if the quality of execution is good.

Some brokers have base the spreads they offer their clients on the type of account the client has. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Other brokers offer the same spreads to everyone.

It is often difficult to get information on a company’s spread policy or its order book depth. Because of this, many traders get caught up in the promises they hear, often take a broker's words at face value. This can be dangerous. The only real way to find out what a company’s policy really is, is to try out various brokers or talk to those who have.

Margin Wisely

Any broker you consider will likely have a minimum account size, also known as account margin or initial margin available to traders. Once you have deposited your money into the account you will be able to begin trading. The broker will also stipulate how much equity they require per position, or lot, traded. Always make sure that you know how your margin account is going to work.

Read the margin agreement between you and your clearing firm carefully. Remember, a margin account is basically a loan. The margin agreement will describe how the interest on that loan is calculated, how you are responsible for repaying the loan, and how the securities you purchase serve as collateral for the loan. Carefully review the agreement to determine what notice, if any, your firm must give you before selling your securities to collect the money you have borrowed. Talk to your account representative if you have any questions.

Trading currencies on margin greatly increases your buying power. If you have $5,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $500,000 worth of currency – because you only have to post 1% of the purchase price as collateral. This is particularly useful in the FOREX market, where traders work with small price changes to realize profits. But the FOREX market is a volatile market, and positions can quickly move against a trader. This is when the high margin rates can create spectacular losses.

If the market moves against you, the positions that you have in your account could be partially or completely liquidated if the available margin in your account falls below your maintenance level. Always remember that your broker may not berequired to make a margin call, and even if your agreement states that they do, they may not wait for you to respond to the call. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit risk. With care, margin can be a powerful and lucrative tool. Used wisely, as part of a carefully thought out approach to trading, it makes the FOREX market work for small traders.

Strategy and Analysis

All successful traders have a carefully thought out system that they follow to make profitable trades. This system is generally based on a strategy that allows them to find good trades. And the strategy is based on some form of market analysis. Successful traders need some way to interpret and even predict some of the movements of the market.

There are two basic approaches to analysing market movements, in both equity markets and the FOREX market. These are technical analysis and fundamental analysis. However, technical analysis is much more likely to be used by traders. Still, it’s good to have an understanding of both types of analysis, so that you can decide which type would work best for your system.

Trading Tools

Whether you choose to use fundamental analysis, or technical analysis, you will need a way to access and interpret information about the market. The Internet is filled with websites that offer you unique insight into the FOREX market, and it’s often difficult to know which ones to consider. Here is a roundup of some the more useful tools available. Of course, these offerings are always changing, so nothing is guaranteed until you try a program and find that it gives you the information you require.

The first program we’ll consider is the Advanz Auto4X Trading Platform. This is an automatic execution tool that will help you keep track of multiple trades, and automates your trading processes by taking Trade Station strategy signals, incorporating your trading strategy, and sending the results to Capital’s trading platform. Advanz Auto4X can handle a variety of trading strategies on various time frames. It can also handle any of the FOREX crosses that are made available for trading.

However, the majority of tools available to the individual trader are analytical tools, not automatic execution tools. Here are a selection of some that I have found useful.