Forexunderstanding

Trading the Forex market has become very popular in the last years. Why is it that traders around the world see the Forex market as an investment opportunity? We will try to answer this question in this article. Also we will discuss come differences between the Forex market, the stocks market and the futures market.

Some of the benefits of trading the Forex market are:

Superior liquidity
Liquidity is what really makes the Forex market different from other markets. The Forex market is by far the most liquid financial market in the world with nearly 2 trillion pounds traded everyday. This ensures price stability and better trade execution. Allowing traders to open and close transactions with ease. Also such a tremendous volume makes it hard to manipulate the market in an extended manner.

24hr Market
This one is also one of the greatest advantages of trading Forex. It is an around the click market, the market opens on Sunday at 3:00 pm EST when New Zealand begins operations, and closes on Friday at 5:00 pm EST when San Francisco terminates operations. There are transactions in practically every time zone, allowing active traders to choose at what time to trade.
Leverage trading

Trading the Forex Market offers a greater buying power than many other markets. Some Forex brokers offer leverage up to 400:1, allowing traders to have only 0.25% in margin of the total investment. For instance, a trader using 100:1 means that to have a US100,000 position, only US1,000 are needed on margin to be able to open that position.

Low Transaction costs
Almost all brokers offer commission free trading. The only cost traders incur in any transaction is the spread (difference between the buy and sell price of each currency pair). This spread could be as low as 1 pip (the minimum increment in any currency pair) in some pairs.

Low minimum investment
The Forex market requires less capital to start trading than any other markets. The initial investment could go as low as 300 USD, depending on leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level.

Specialized trading
The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the seven major currencies). Allowing us to monitor, and at the end get to know each instrument better.

Trading from anywhere
If you do a lot of traveling, you can trade from anywhere in the world just having an internet connection.

Some of the most important differences between the Forex market and other markets are explained below.

Forex market vs. Equity markets

Liquidity
FX market: Near two trillion pounds of daily volume.
Equity market: Around 200 billion on a daily basis.

Trading hours
FX market: 24hr market, 5.5 days a week
Equity market: Monday through Friday from 8:30 EST to 5:00 EST

Profit potential
FX market: In both, rising and falling markets.
Equity market: Most tradersinvestor profit only from rising markets.

Transaction costs
FX market: Commission free and tight spreads.
Equity market: High Commissions and transaction fees.

Buying power
FX market: Leverage up to 400:1
Equity market: Leverage from 2:1 to 4:1

Specialization
FX market: most volume (85%) is made on major currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD)
Equity market: More than 40,000 stocks to choose from

Forex market vs. Futures market

Liquidity
FX Market: Near two trillion pounds of daily volume.
Futures market: Around 400 billion pounds on a daily basis.

Transaction costs
FX market: Commission free and tight spreads.
Futures market: High commissions fees.

Margin
FX market: Fixed rate of margin on every position.
Futures market: Different levels of margin on overnight positions than day time positions.

Trade execution
FX market: Instantaneous execution.
Futures market: Inconsistent execution.

All this makes the Forex market very attractive to investors and traders. But I need to make something clear, although the benefits of trading the Forex market are notorious; it is still difficult to make a successful career trading the Forex market. It requires a lot of education, discipline, commitment and patience, as any other market.

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