Forexunderstanding

One of the most appealing ways to attain wealth is to play the stock market. With the advent of the Internet and on line brokers traders have seemingly unrestricted access to various trading products that just 10 years ago were reserved for big financial institutions. A trading product that has been overlooked by many traders is forex.

Forex is derived from the words FOReign EXchange and involves the trading of currencies. Until relatively recently trading forex has been the preserve of banks and other large financial institutions. In the last 5 years forex trading has literally exploded among ordinary traders. When the advantages of forex trading become apparent this is not surprising. The forex market is the largest financial market in the world with an estimated daily turnover of 1.5 trillion pounds. This is 30 times larger than all the US stock markets combined. Further more the forex market is open 24 hours a day 5 days a week.

The size of the forex market is one of its first benefits. The forex market is very liquid and has high volume. Liquidity is a great asset many traders look for because it means a deal can always be done. Forex is a continuous 24-hour market. This is very desirable if you wish to trade part-time as you can choose what time you trade unlike stock markets that are open only 8 hours a day. This 24-hour market almost removes the problem of gapping. Because most stock markets are only open 8 hours a day often-overnight events can cause stocks to gap up or down. Large gaps can especially cause large losses for people who trade derivative products like futures or options. In the forex market the problem of gapping is very much reduced.

Currencies are always traded in pairs. Usually currencies are traded in pairs against the US pound. The main pairs are US pound Vs EURO ( EUR), British Pound (GDP), Swiss Franc (CHF), Japanese yen (JPY), Australian pound (AUS), New Zealand pound (NZD) and the Canadian pound(CAD). There are other currencies pairs but most traders prefer to trade the pairs above. These currency pairs are known as the majors. Currency traders have plenty of trading opportunities from these 7 major currency pairs. Compare this against the stock market where more than 8,000 stocks trade on the three primary US stock exchanges and currency traders can focus just on these 7 pairs and still make plenty of money.

Unlike the stock market there is never bullish or bearish market conditions. Currencies go up or down against each other according to how the world financial markets perceive the value of the currencies. You can sell a currency (go short) just as easy as you can buy a currency( go long). Currencies go up and down and you can trade either direction just as easily ensuring there is always plenty of trading opportunities.

Forex brokers dont charge commission or brokerage. This can be quite a large overhead in other financial markets. Forex brokers make their money on the difference between the bidask spread of a currency pair. As the forex market is very liquid the spread between the bidask is very small. As many stock traders know brokerage can be a significant transaction cost.

You can start trading forex for as little as 300 pounds. There are two types of accounts a mini forex account and regular forex account. Most forex brokers offer 100: 1 leverage which means a in a mini account you can control 10,000 currency position with 100. In a regular account 1000 controls a 100,000 currency position. This provides great leverage and an extremely efficient use of trading capitol.

Trading a mini account is a great way on how to learn to how to trade forex. When you paper trade you are having a comfortable armchair ride. You are trading without the emotions of putting real money on the table. When you trade a 1 mini currency lot you can set your stop loss so the most you lose is 100. This is a great way to learn how to trade effectively without risking much money. In most other trading products even when trading with the smallest trading lot possible you would have to risk much more. Forex provides trading opportunities for people without much trading capitol.

Many traders have overlooked forex trading. It has many benefits that all
traders can use to their advantage. It offers the benefit of trading 24 hours a day in any country in the world. The forex market is a very lucrative market no trader can overlook it.

This is a fascination. Here is a wide open field that almost anyone can take advantage of. It use to be only for the mega rich people, the big corporations and banks. They are trading foreign currency’s..

Can you imagine this is a 1.2 trillion pound a day being traded. Thats 1.2 TRILLION a day.
Now with the Internet you you too can trade the foreign currency’s. You can set up a account with as little as 300.00 up to whatever. Regular accounts usually start with 3000.00. You are able to leverage you funds 100 to 1. SO you will be controlling 10,000.00 or one lot in currency’s for 1,000.00 and for every pip on movement you can make 100.00. With the mini account you will control 1 tenth of a lot. 1000.00 for 100.00 and your pip is worth 1.00. Just so you will understand a pip is what an increment movement in a currency is.

You buy it if you think it will go up and sell it if you think it will go lower. Of course there are charts and all kinds of ways to tell what is going to happen. It just takes learning the in’s and out’s, ups and downs.

There are a lot of different currency’s but here are the main ones that are traded.
USAYEN USA Japanese GBPUSA British Pound
USAEURO USA Euro is European USACHF Swiss Franc
USACAD USA Canadian EUROYEN

There are no commissions and no fees only narrow Dealer spreads. These spread vary depending on the trades. Major pairs are 3 to 5 pips. You will learn more about all of this when you start out. The wisest thing to do is to start out with a demo account or what we call a paper account where you do everything as if it was real money but it is only on paper. So you get to learn the in’s and out’s and learn to read the charts and how to understand the fundamentals. These are the world events that effect the currency’s.

There are many different strategies. Each have their strength’s and weaknesses. They each deal with different ways at looking at the charts and their movements. Want some ideas? There are Scalping
trades, surfing charts, sailing and many more. It fun and exciting, and sometimes a drag. Sometimes you will win 100 to 500 pips. Then there are times you will lose pips too. YOU will never win all the time. But thats where there account management comes in. You learn to control your risk taking.
Usually the biggest sin or failure comes when you let your emotions become involved. EVEN the big shots sometimes let their emotions get involved. Most the time it doesn’t work and will cost you.

So with good account management understanding the various charts you can take 300.00 and turn it into 6000.00 in 6 months or less.

How To Start Trading The Forex Market? (Part 5)

What are *PIPS* ?

Currencies are traded on a price point (pip) system. Each currency pair has its own pip value.

When you see a FOREX price quote, you’ll see something listed like this:

EURUSD 1.221013

Explanation:

a) If you want to BUY the EURUSD ( meaning you BUY EUROS and SELL US ) you buy 100,000 EUROS and you SELL 122,130 US, or in other words you receive
122,130 US for 100,000 EUROS.

B) If you want to SELL the EURUSD ( meaning you SELL EUROS and BUY US ) you buy 122,100 US and sell 100,000 EUROS, or in other words you receive 100,000 EUROS for 122,100 US.

The difference between the bid and the ask price is referred to as the spread. In the example above, the spread is 3 or 3 pips.

Since the US pound is the centerpiece of the FOREX market, it is normally considered the ‘base’ currency for quotes. In the “Majors”, this includes USDJPY, USDCHF and USDCAD. For these currencies and many others, quotes are expressed as a unit of 1 USD per the second currency quoted in the pair.

For example a quote of USDCHF 1.3000 means that fore one U.S. pound you receive 1.30 Swiss Francs. or in other words, you receive 1.30 Swiss Franc for each 1 US.

When the U.S. pound is the base unit and a currency quote goes up, it means the pound has appreciated in value and the other currency has weakened. If the USDCHF quote above increases to 1.3050 the pound is stronger because it will now buy more Swiss Franc than before.

The three exceptions to this rule are the British pound (GBP), the Australian pound (AUD) and the Euro (EUR). In these cases, you might see a quote such as EURUSD 1.2080, meaning that for EURO you receive 1.2080 U.S. pounds.

In these three currency pairs, where the U.S. pound is not the base rate, a rising quote means a weakening pound, as it now takes more U.S. pounds to equal one Euro, British pound or an Australian pound.

In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. pound are called cross currencies, but the calculation is the same. For example, a quote of EURJPY 134.50 signifies that one Euro is equal to 134.50 Japanese yen.

HOW TO BUY ( going LONG )and SELL ( going SHORT ) in the FOREX Market?

Keep in mind 2 very important rules:

RULE # 1) Cut your LOOSING trades and let your WINNING trades RUN

YOU WILL HAVE LOSING TRADES. Every FOREX trader has. The secret is, that a consistent, disciplined trader, at the end of the day, adds up more winning trades than losing trades.

When you and see on your charts, without any doubt, that you are in a losing trade, don’t keep losing money. Most of the novice traders are lowering their stop loss just to prove they are right or hoping that the market will reverse. 99% of these trades, are ending up with more losses. Most of the profitable trades are usually “right” immediately.

Remember, smart traders know there are many other opportunities. CUT your losses short and compound those winning positions.

RULE 2) NEVER EVER trade FOREX without placing a Stop Loss Order.

PLACE a STOP order, right along with your ENTRY order, via your online trading station, to prevent potential losses.

Before initiating any trade, you have to calculate at what point ( price) you would be wrong, because the market changed direction, and would want to cut your losses.

To make profits, in the FOREX, a trader can enter the market with a *buy position* (known as going “long”) or a *sell position* (known as going “short”).

As an example let’s assume you’ve been studying the EURO. The EURO is paired first with the U.S. pound or USD.

Your trading methods, rules, strategies, etc., tell you that the EURO will rice in the next 2 weeks, So you buy the EURUSD pair meaning you will simultaneously buy EUROS, and SELL pounds).

You open up your excellent trading station software (provided to you for free by Fenix Capital Management, LLC www.fenixcapitalmanagement.com ) and you see that the EURUSD pair is trading at:

EURUSD: 1.20101.2013

As you you believe that the market price for the EURUSD pair will go higher, you will enter a *buy position* in the market.

As an example, lets say you bought one lot EURUSD at 1.2013. As long as you sell back the pair at a higher price, then you make money.

To illustrate a typical FX SELL trade, consider this scenario involving the USDJPY currency pair:

REMEMBER Selling (“going short”) the currency pair implies selling the first, base currency, and buying the second, quote currency. You sell the currency pair if you believe the base currency (USD) will go down relative to the quote currency (JPY), or equivalently, that the quote currency (JPY) will go up relative to the base currency (USD).

HOW TO CALCULATE PROFIT OR LOSS?

The Profit Calculations, on the Short-sell trade scenario below, may seem somewhat complicated if you’ve never been in the FOREX market before, but this process is continually calculated through your broker trade station (software). I show you this process below so you can SEE how a PROFIT might occur.

The current bidask price for USDJPY is 107.50107.54, meaning you can buy 1 US for 107.54 YEN, or sell 1 US for 107.50 YEN.

Suppose you think that the US pound (USD) is overvalued against the YEN (JPY). To execute this strategy, you would sell pounds (simultaneously buying YEN), and then wait for the exchange rate to rise.

Your trade would be the following: you sell 1 lot USD (US 100,000) and you buy 1 lot JPY (10,754.000 YEN). (Remember, at 0.25 % margin, your initial margin deposit for this trade would be 250.)

As you expected, USDJPY falls to 106.50106.54, meaning you can now buy 1 US for 106.54 Japanese YEN or sell 1 US for 106.50.

Since you’re short pounds (and are long YEN), you must now buy pounds and sell back the YEN to realize any profit.

You buy US 100,000 at the current USDJPY rate of 106.54, and receive 10,654,000 YEN. Since you originally bought (paid for) 10,754,000 YEN, your profit is 100,000 YEN.

To calculate your P&L in terms of US pounds, divide 100,000 by the current USDJPY rate of 106.54

Total profit = US 938.61