Forex Signal Providers, Who Really Need Them?

Forex Signal provider is a professional trader who is dedicated to monitoring the market closely and is able to read the price action and can predict its future move. Based on this prediction, he can confidently generates entry signals and send it to his subscribers.

He apply his technical analysis experience in analyzing the price action on the charts to determine the proper entry price, stop loss price and the take profit price, in order to generate a winning trade with high probability.

What a signal provider do for you?

Most of forex signal providers works mostly on EUR/USD currency pair, this is may because it's the pair which constitutes about 40% of the entire forex market movement alone. Also this pair has the less spread among the other currency pairs, so it's very suitable for scalpers and short term traders (intraday traders).

When a Forex signal provider generates an entry signal and send it to his subscribers, he only send the prices' numbers for entry/stop loss/take profit values. He does not tell any information about his analytical methods which led to these values. So, His service does not add any experience to his subscribers at all, the subscriber trader only have the option to open a trading position based upon this signal or not.

That means that the trader should at least has a reasonable level of experience about technical analysis in order to have the ability to evaluate the provided entry signals himself and take the proper decision, so he uses the provided signal just as complementary information which assist his trading decision.

The common mistake which many novice traders fall in is blindly following the provided entry forex signal without even trying to evaluate it themselves. This make them can't take his responsibility for his trading decision, thus when the trade become a loser he blame the signal provider.

However, the signal provider services are very suitable for those traders who work part time, and do not have the advantage of monitoring the market all the day in order to generate their own signals. In such a case, they utilizes these services just as a timing for entering the market, these signals providers give them the exact time to enter and exit the market without the need to send a lot of time waiting these times in front of the screen.

Final note:
As a trader, you should not relay completely on signal provider service. When you generate your own signals, you combine several trading indicators like trend lines, moving average, stochastic, in order to get a high probable trade signal. Meanwhile, providers might choose to employ just one indicator in order to generate their signals, which may not be 100% accurate. This justifies why you should compare and contrast signals between one another and for the movement of the currency price.

8 FOREX TRADING MISTAKES THAT COULD RESULT TO MARGIN CALL

1 IGNORANT OF NEWS EVENTS
Most ignorant technical traders often have there trading account badly damaged if not wiped out during news event releases. I therefore recommend that you get familiar with economic calendars even if you do not like trading them.

2 OVER TRADING.
Most ignorant traders often over trade in any of the following ways: opening more positions than they should, not knowing when they have exceeded there trading limits. I recommend trading only one position at a time as a beginner.


3 NO TRADING SYSTEM
One of the worst things that can happen to a trader is to chase after pips or dollars without a proven system. To succeed in trading you need a proven and tested decent trading system.

4 NO TRADING PLAN
A plan gives you the road map to your destination. When you have no plan, you will surely not know when you miss the way.

5 NOT KNOWING WHERE TO PLACE STOP LOSS ORDER And have high probability for profits
It is one thing to place stop loss orders, it is another thing to know where to place them in order to avoid being stopped out before price resumes in your analyzed irend and entry direction.

6 NOT KNOWING HOW TO MONITOR MARGIN ACCOUNT.
If you do not know when your account is running into margin call, certainly you will not know when to cut your losses..

7 NOT KNOWING HOW TO IDENTIFY A TREND AND RIDE WITH IT.
You trading system should be able to identify new market trends and , trend corrections and trend reversal.

8 ALLOWING MAXIMUM DRAW DOWN ON AN ACCOUNT
When your account is drawn down by say 50% in one trade, you should know that it will not take you a profit of 50% to return to your previous balance. It will rather take you 100% profit in your remaining balance before the account was drawn down.
The above 8 mistakes put together can result in a margin cal

Intro To Forex Options

Forex options trading can be a great alternative to trading in the spot fx market. It is often used to head physical currency positions. We have created a comprehensive guide to forex options in addition to the basic information listed below.

Types of Forex Options

1. Traditional American Option: It can be used at any point until the expiration date
2. Traditional European Option: It can only be used at the point of expiration
3. Forex Spot Option: SPOT options are very similar to traditional options. The main difference is that the forex trader will first give a scenario (UER/USD will break 1.4000 in 2 weeks). The trader pays a premium, and then receives cash if his scenario occurs. SPOT trading also converts the option to cash automatically if your trade is successful.

Determining an Options Price

An option premium is determined by several factors including:

1. Time Value: In general, the longer the time period of the option, the higher the price you have to pay as time value shows the uncertainty of market movements
2. Interest Rate Differential: A change in the interest rates has an impact on the relationship between the strike price and the current market value.
3. Volatility: High volatility increases the probability that the market price will hit the strike price in a certain timeframe. Usually, the more volatile the currency, the higher the premium will be.

For more details about forex options, please visit our comprehensive guide. And remember, trading currency options offers a great alternative to or addition to trading currency in the spot market

Techniques for Advanced Forex Trading

Forex is a potential platform for earning substantial profit. In fact it is one of the largest trading markets of the world. Featuring an average daily trade of US$ 2 trillion and above, this market is best known for its high scale trading volume and intense liquidity. Adding to this, today with the advancement of technology it can be done from anywhere of the world. Backed up by world-wide web, you can easily trade in the forex market at the comfort of your own home. However, it is important to understand that fx trading is based hugely on speculation. You must be smart enough to guess exactly when the rate of a certain currency pair will rise and go down, and then buy or sell based on that. Indeed it is said that if you learn to study the speculation of this market, you will have a better chance of getting profit.

Today, it is more advanced and turned into an active investment arena, where only a factual understanding of the intricacies and complexities can make your capital grow every day. Moreover, like any other business, it also involves some amount of risks. There is no shot fx trading technique for success in the currency trading market, but there are some well-known techniques that can assist you formulate a good advanced foreign exchange trading strategy. Here are few essential techniques that can help you cut your losses and increases profits:

Forex Scalping: It is a latest technique of trading where profits are taken after relatively small moves in the forex market. It is a technique where trading is done over small time frames, and smaller profits are taken more frequently. As the position exposed to the market is shorter, it automatically reduces the risk of adverse market events causing the price to go against the trade. It is a different approach to most other forex strategies, but still requires you to analyze the market to ensure that the set up for a trade is present. This type of trading greatly appeals to day traders and those who look to reduce the risk involved in trading currencies.

Forex Hedging: It is a technique that helps in reducing some of the risk involved in holding an open forex position. It decreases the risk by taking both sides of a trade at once. If your broker allows it, a simple way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.

It is important to understand that much of the risk involved in holding any forex position is market risk; i.e. if the market falls sharply, your losses may escalate dramatically. So if you have an open Forex position with fine projection but you think the currency pair may reverse against you, it is advised to hedge your position.

Forex Position Trading: Forex position trading approach is yet another trouble-free technique to boost your position size without increasing your risk. This trading tactic is very effective with mini lots. The major highlight with this technique is that - with forex position trading your exposure to the market is less and so therefore is no need to monitor the market continuously. Moreover, you may even earn profit with negligible loss that can further boost your trading confidence. For Example- you might make a short trade on EUR/USD at 1.40. If the pair is ultimately trending lower, but happens to retrace up, and you take another short at say 1.42, your average position would be 1.41. Once the EUR/USD drops back below 1.41, you will be back in overall profit.

Today forex trading is all about watching your options when you make a trade. Aside from using effective risk management and extreme vigilance, advanced trading can be an alternate way to make profits and control losses. Nevertheless, these above mentioned advanced trading techniques are more about using the market behavior to your advantage. Utilizing these advanced techniques can give you the edge from other average trader.

The Foreign Exchange Market Differs From The Stock Market

The alien interchange market is likewise known as the FX market, and the forex market. Syndication that takes place amongst two regions with dissimilar currencies is the basis for the fx market and the background of the Syndication in this market. The forex market is over thirty years old, traditionalistic in the early 1970's. The forex market is one that is not grounded on any one business or laying out money in any one business, but the retail and retail of currencies.

The divergence amongst the stock market and the forex market is the tremendous retail that occurs on the forex market. There is millions and millions that are traded daily on the forex market, almost two trillion dollars is traded daily. There is is much higher than the cash traded on the daily stock market of any country. The forex market is one that involves governments, banks, financial foundations and those similar types of foundations from other countries. The

What is traded, purchased and sold on the forex market is a thing that can easily be liquidated, meaning it can be turned back to cash fast, or often times it is really going to be cash. From one currency to another, the accessibility of cash in the forex market is a thing that can take place fast for any investor from any country.

The divergence amongst the stock market and the forex market is that the forex market is worldwide, worldwide. The stock market is a thing that takes place only within a country. The stock market is grounded on businesses and products that are within a country, and the forex market takes that a step farther to include any country.

The stock market has set business hours. In general, this is going to follow the business day, and will be closed on banking holidays and weekends. The forex market is one that is open in general twenty four hours a day because the tremendous number of countries that have part in forex retail, buying and retail are located in galore dissimilar times zones. As one market is opening, another countries market is closing. This is the continual method of how the forex market retail occurs.

The stock market in any country is going to be grounded on only that countries currency, say as an illustration the Japanese yen, and the Japanese stock market, or the United States stock market and the dollar. However, in the forex market, you're involved with galore types of countries, and galore currencies. You will find references to a variety of currencies, and this is a big divergence amongst the stock market and the forex market.

What is a forex broker?

Have you ever felt intrigued by the many advertisements on high leverage and great profit potential involved in currency trading? The golden gate of the kingdom of money, we are told, is reached by the road of forex. Are forex brokers highway robbers infesting that road, or honest dealers making our journey easier? We'll discuss the brokerage business in this article.

A forex broker is the mediator between the retail and wholesale forex markets The wholesale market is comprised of banks and similar large institutions, and the retail market, of course, includes individual traders who are seeking to acquire speculative gains. Forex brokers are not traders themselves, but occasionally they will have their own staff trading the market on their behalf.

Forex brokers allow retail traders to interact with the markets, and are compensated for their services through the bid-ask spread which is the difference between the price a trader must accept to sell (bid), and the price he must pay to buy(ask) a currency. Since forex traders suffer losses often, brokers make the utmost effort to protect themselves. First, they net out the positions of their clients with entries on the opposite side. Since the vast majority of forex traders lose money, by entering the opposite order they usually make profits. And they also protect themselves by activating margin calls in case that a trader's account value falls below a threshold level (margin requirement).

At the inception of the forex brokerage business, retail trading was largely unregulated as authorities did not possess the expertise and background for effective oversight. Today, however, numerous regulatory bodies which include the CFTC in the U.S., the BaFin in Germany, and the FSA in the U.K. ensure a healthy, legal and competitive environment by maintaining strict regulation of the business. As such, one of the most important considerations for a beginning forex trader is guaranteeing that the broker is regulated by the relevant national authority.

In general, today's laws and regulations do not protect forex traders in the same way that stock traders are protected. Accounts opened with online stock brokers are usually protected against broker insolvency by up to $100000, and yet there is no equivalent protection for forex traders. UK-based brokers are required to segregate client assets from the firm's own capital, and so, creditors cannot press claims against forex traders if an FSA regulated broker goes bankrupt.

Forex trading is a great, profitable career for the committed individual. And a carefully scrutinized, patiently selected broker can be an excellent partner for a successful forex trader. Ultimately, finding the right broker is not just about screening forex broker lists, but improving our own discipline, and analytical skills in determining what we want from trading. Set your goals right, and you can reach them in due time. Vacillate in defining your aims, and success will likewise hesitate to come your path.

Make Money with Currency Trading

For those unfamiliar with the term, Forex (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.

Forex is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

Another somewhat unique characteristic of the Forex money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.

How Forex Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in Forex investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Investment Strategies: Technical Analysis and Fundamental Analysis

The two fundamental strategies in investing in Forex are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.

A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.

Make Money with Currency Trading on Forex

Forex investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on Forex means that potential profits are enormous relative to initial capital investments. Another benefit of Forex is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in Forex short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.

Forex Trading Platform

As the name says, the Forex trading platform is a place where you can sell and buy the forex. This can also be called the forex-trading station. All forex trading financial companies, banks, traders and brokers will provide their own trading hub. These currency trading or forex trading hubs use sophisticated software's, which have, can perform various kinds of analysis such as technical and fundamental analysis. They also generate data, which is both numeric, and well as statistical base such as graphs, pies, regression data etc.

In most cases the trading stations or the platforms have real time streaming ticker line. This ticker line is being constantly updated and gives the buy / sell currency rate of major currencies in pairs. Forex dealers or traders also maintain fixed spreads on major currencies across the world, which are constant irrespective of the changing financial markets. Most of the trading stations will provide the following

Real time streaming of the major currencies in pairs.

Pricing which is competitive

Fixed spreads in 3-5 pips

Certainty of price for the currencies in buy and sell position

Another factor in the forex trade is that the more creditworthiness an institution or a forex trader is, the better access they have to market information and competitive pricing. This is then reflected also in the trading sessions that the subscribers and the investors utilize. They would have better access to interbank prices and therefore the cost of the execution for the trade in currencies would be better. The currency trade software's provide the following in most cases

Real time streaming currency pair rates. One can click the suitable boxes provided to confirm the sale or the purchase of the desired currencies.

They allow the linkage to currency margin account, which means that you can have more purchasing power with less of investment.

Immediate confirmation of the sale / purchase of the currencies. Of course the cost would be debited to your account. This is done almost simultaneously and in real time.

These currency trade software will also show you the real time profit / losses that you have made in the currency transactions.

Investors must make sure that when they subscribe to these currency trade software's, they read the terms and conditions as many trades may be subject to regulations and the agreement that may be drawn between the client and the websites / currency trade companies.

There are options provided whereby one can also limit or stop the open orders. These can also be cancelled or modified at a later stage in these forex trades. Reports on all forex and currency transactions can also be generated. These reports can be in the form of monthly / weekly reports. One can print these records or download them for later. There are many combinations and permutations, which are possible. Depending upon forex trading packages that each forex trader or financial company may provide, the forex trading stations may differ in features provided.

How To Choose A FOREX Broker

Most investors who trade Forex stocks use a broker. A broker is an individual or a company, who buys and sells stocks according to the investor's wishes. Brokers earn money by collecting commissions or fees for their services.

You should check that a broker is registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud or abusive trade practices. A Forex broker also needs to be associated with a financial institution, such as a bank in order to provide funds for margin trading. Picking the right Forex broker for you will take some work on your part. There are brokers who charge a flat fee and some that charge commission. It may be a good idea to talk with friends and business associates about their brokers. You may get some good leads, and you're certain to hear who to stay away from. There is nothing like word of mouth advertising.

If you are thinking of investing online, you could choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions could be key in how they will respond to their customers needs. If you don't get a speedy reply and a satisfactory answer to your question you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre sales service might be better than after sales service.

Before you choose an online broker get a copy of their online demo account. What features are included? Is the software reliable? Does it offer automatic trading? Are there extra software features that cost more?

Before setting up an account with a Forex broker you will need to do further investigation. How quickly will these brokers execute your buy/sell orders? What is their policy on slippage? What are the transaction fees? What is the spread, fixed or variable? What are the margin requirements and how are they calculated? Does the margin change with currency traded? Is it the same for mini accounts and standard accounts?

Don't forget to ask about minimum account balances and interest payments on account balances. Make sure that your funds will be insured.

Finding Reliable Forex Signals

You guys know how hard it's to find a reliable forex signals and most of the forex signals services are very expensive ranging from $199 to $500 per month. And worse of all, there's no guarantee of this.

To find a good service, you must make sure that you get their free trial before you really subscribe to the service. 1 to 2 weeks is good enought to prove that whether they are reliable or not.

You want to find a forex signals service just because you don't have time or you don't have a good skills in trading forex. I understand your felling and that's why I've created a blog for people who want to get the free forex signals.

But I have day job as well. I don't post forex signals every day but if you can catch some, you got your money into the bank! :)

By that, I wish you to have a good trading in forex world!

Trading Currency Through Online Forex Brokers

Access to foreign exchange (forex), the most extensive market on the planet, is generally through an intermediary known as a forex broker. Similar to a stock broker, these agents can also provide advice on forex trading strategies. This advice to clients often extends to technical analysis and research approaches designed to improve client forex trading performance.

Financial institutions are generally the most influential in the forex market through high-volume, large-value forex currency transactions. Historically, banks enjoyed monopolistic access to the forex markets, but through the Internet, any forex speculator can also enjoy 24 hour access to the market via a forex broker.

Secure web connections today allow many forex traders to work from home, where ready access to news and other technical advice informs decisions on what forex positions to take. Similar moves are being made by stock brokers, who are also moving out of banks and other traditional institutions.

Your needs in the market will influence your choice of forex broker. Online forex brokerage firms, known as houses, provide those new to the forex market with detailed research, advice and simulators to learn how to use their forex trading tools. The experienced online forex trader is catered to by other broking houses, with in-depth advice, but less focus on forex trading instruction based on the assumption that you are familiar with the forex market. To make an informed choice, it is advisable to trial several differing online forex broking houses and their trading tools to find the best fit for your needs.

Avoiding Forex-Related Frauds and Scams

A lot of people have been 'burnt' from scam operations on the Internet. Their sites may look so perfectly legitimate that you doubt whether they would have gone through all that trouble building a trading platform just to steal your money. Beware.

The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.

I started out with an Australian broker. Currently I am using an American one. I have not tried UK-based brokers but the British financial industry is one of the best. Companies that are based in countries such as Japan , Germany and France are probably just as good too, if their website speaks your language.

Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.

Take note that there are some fake regulatory bodies being thrown around in cyber-space as well. Take a look at how long they have been operating for. Try and search out any reviews or comments made about them. See if you can find forums where traders have discussions about their brokers.

Below is a list of things to keep in mind to help you avoid being a victim of a scam:

Stay Away From Opportunities That Sound Too Good To Be True

There are people who may have just acquired a large amount of money just and recently are the same and are shopping around for safe investment vehicles. These may include retirees who have access to their retirement funds. It is understandable why retirees would be drawn to 'high-return, low-risk investments'. This is also what makes them very vulnerable. If you identify yourself to be one of these people, be careful. A lot of deceitful characters are after your money. Furthermore, only allocate a tiny amount of your money to trading until you can start growing it. Not all people can trade successfully, so it is a venture you should take on haphazardly. It is your life savings at risk.

Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large Profits

Any form of trading is hard. Trading currencies is no different. Be wary of statements that make it sound easy. Statements like:

"Whether the market moves up or down, in the currency market you will make a profit";

"Make $1000 per week, every week";

"We are out-performing 90% of domestic investments";

"You'll make returns of 70% a year";

"Here is a no-risk strategy".

If they could make such returns, why would they even bother letting you know about it.

Be Wary Of Companies Who Downplay Investment Risks

Hold your wallet tight and zip up your purse when companies say that written risk disclosure agreements are routine formalities imposed by the government. Watch out for statements like:

"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day";

" We promise to recover any losses you have ".

Be Wary Of Companies That Claim To Trade In The 'Interbank Market'

Do not believe it when some people say that they have access to the 'Interbank market' or that they can give you access to trade in that market because that's where bargain prices can be obtained. This is not true. The 'interbank market' is not a place, it is not a physical building. It is simply a loose network of currency transactions that are negotiated between big financial institutions and other large companies.

Ethnic Minorities Are Often Targeted

Ethnic newspapers and television 'infomercials' are sometimes used to attract Russian, Chinese and Indian minorities. Sometimes these ads offer so-called 'job opportunities for account executives to trade foreign currencies', whereby the recruited 'account executive' is expected to use his own money to trade currencies and would often times be encouraged to recruit members like their friends and family to do the same.

Seek Out The Company's Background

Check any information you receive to be sure that the company is who they claim to be. If at all possible, try and get the background of the people operating the company. Do not rely solely on oral statements and promises made by the company's employees.

If You Are In Doubt, It Is Not Worth Risking Your Money

If after trying to solicit information and at the end of it all, you are still in doubt about the credentials of a particular company, my suggestion is to start looking elsewhere.

You may find further information by contacting government 'watchdogs' because they keep up to date with trends and reports regarding scams and other fraudulent activities. Please check the resource section of this site for the information of organizations that regulate the securities industry, sorted by country. There is also a list of brokers that you may want to look at.

U.S. Update: Optimism swings

What happened in Asia

Dollar and Yen continued losing ground as optimism about the global economy has helped to boost risk appetite early in the day, also supported by Nikkei that gained 1.9% closing above 10.300 points, highest level of the year.

Also, sentiment received an additional boost from the news that an auction of 7-year Treasury notes had attracted strong support from overseas central banks, unlike auctions for 2- and 5-year notes earlier in the week.

EUR/USD break above 1.4100, reaching 1.4155, 50% retracement of the last down leg 1.4300/1.4000 while GBP/USD also regain bullish steam and well sit above 1.6500, reached key 1.6550 zone. Japanese Yen corrections against greenback held above 95.20, ahead of U.S. GDP later in the day.

What happened in Europe

News in Europe early Friday, show European consumer prices fell by the most in 13 years in July after prices in the euro region dropped 0.6% from a year earlier, exceeding the 0.4% decrease forecast by economists, while euro zone rose to a 10-year high of 9.4% in June, though the level was less than expected. Coming from a revised to the downside 9.3%, the number was the highest since June 1999.

Optimism fade after the publication of the U.S. GDP advance for the 2Q, showing that despite economy contracted at a slower-than-expected pace in the second quarter, revision for the Q1 print a -6.4% the biggest decline since a matching fall in the first quarter of 1982 from a previously reported 5.5% drop. U.S. GDP has fallen for four straight quarters.
What to expect

Euro fell on the news, reaching 1.4100 while Gbp breached temporally 1.6500 on falling U.S. futures, pre America opening, thus the movement was short lived. Stocks struggle to regain the upside at the opening, and Chicago PMI gave the impulse needed: the business barometer increased to 43.4 from 39.9 the prior month, thus we need to remain that readings below 50 signal a contraction, and as long as we remain under that level, there’s not much to cheer about.

Dollar fell against European rivals with Euro quoting above 1.4160 level and Gbp again regaining 1.6500. Stocks remain positive, yet Japanese Yen continues appreciating after failing to break above yesterday’s 95.88 against greenback, reaching an intraday low of 95.10.
Eur/Usd outlook

Taking a look at daily charts, pair remains clearly trapped in past two months rage, thus the bias seems to have turned slightly bullish, after recent marginal break of the 1.4100 didn’t hold. Early to say, and hard to break, weekly close above 1.4220 area will be bullish supportive for next week. Strong positive sentiment in stocks still is not enough to push euro up, and as longer the 1.4300/35 area caps the upside, the less chances we have of an upside run. On the other hand, weekly close under mentioned 1.4100, also not seen while mean another retest of the 1.4100 zone. Pair remains stuck in range, and seems conditions could extend this August. Any attempt to the downside, should remain capped by the ascending trend line around 1.3960 to keep the range valid. That is the key point to the downside, as break under such level will probably precede another midterm bearish leg

CURRENCIES: Dollar Takes Back Lost Ground After New Lows

The dollar retook some lost ground against most major counterparts after touching new lows in Asian trading Monday.

One dollar was buying 94.68 yen, down from 94.80 yen in late North American trading on Friday.

The British pound was buying $1.6715 after earlier rising as high as $1.6780, its highest level in nine months.

The dollar index (DXY), which tracks the U.S. unit against a trade-weighted basket of six major currencies, was at 78.351, up from 78.329 late Friday. Earlier Monday, it fell to a 2009 low around 78.05.

The euro was changing hands at $1.4240, down from $1.4257 late Friday.

British Pound’s Risk Correlations May Not Weather the BoE’s Rate Decision

There was little contribution from the UK docket today; yet the British pound would end the week at the most critical level against its US counterpart. Looking ahead to next week though, the situation will be reversed. The domestic calendar will be overflowing and its piece de resistance will be a central bank announcement that holds the greatest potential for making a significant impact on price action. Like the ECB and RBA announcements, the MPC is not expected to change its benchmark rate. On the other hand, there is a very good chance that the group could alter its stance on policy and/or its outlook for the economy. The chief concern from the statement that follows the holding of the overnight lending rate at 0.50 percent is any possible changes to the bond purchasing program. The BoE is already working to purchase 125 billion pounds worth of debt; but the government has allowed for 150 billion. If they in fact increased it to this limit, it may be construed as prudent after the extended recession in last week’s GDP numbers. Holding back, on the other hand, may be seen as reckless and hurt its correlation to risk

US Dollar Teetering on the Edge of the Abyss after a Better GDP Release?

It was an extremely dangerous way to end the week. The US dollar has held very close to general support for some time now; but the ante was upped when steady selling pressure pushed the single currency to its lowest close on a trade-weighted basis since September 30th. We can see the same level of intensity among the individual majors. EURUSD is just below its June highs of 1.4340 while GBPUSD managed to close at a nine-month high well above range resistance at 1.6600. Despite this tremendous pressure and the relative records, this is not a definitive bearish break for the greenback. When liquidity returns early Monday morning in the Asian session, speculators will immediately go back to work on trying to jump start the next major trend. For those that have dollar exposure or are waiting for the dollar to make its move, it will be an open not to be missed.

How did we come to this point? When did the dollar’s feeble attempts to rebound from its lows give way? The currency fell 1.2 percent through Friday’s session - the largest decline and absolute move since June 23rd - following the release of what at first glance seemed to be a better-than-expected outcome for the advance reading of second quarter growth. The Bloomberg consensus was projecting a tempered 1.5 percent pace of annualized contraction following what was initially a multi-decade, 5.5 percent plunge. Given this benchmark, the 1.0 percent decline that crossed the wires seemed to be a big step closer to realizing expectations for the inevitable return of positive growth. However, just below the surface, the cracks were clearly visible. The peak of the recession marked by the previous quarter was distended to a 6.4 percent malaise that matched the worst the world’s largest economy had seen since 1980. What is far more disconcerting (but not yet fully appreciated) is that the foundation for this recovery is unstable. Of all the major categories of economic activity, only government spending was rising. Personal consumption dropped 1.2 percent, exports 7 percent and private investment 20.4 percent. Fiscal stimulus is already reaching its limits and the cries to reign in aid and work down the deficit are growing louder. Without consumer spending (which accounts for approximately 70 percent of activity), the economy will not easily be able to recover on its own power. Expect to see the terms ‘L’ and ‘W’-shaped recession used more often.

The long-term outlook is highly uncertain and certainly bearish; but come next week, market participants may not immediately be concerned with underlying trends. With the dollar backed up to a technical wall, speculators will look to either force a break or offer a modest relief rebound first thing. The longer the currency holds to its technical floor, the more violent the eventual market shift could ultimately be. There is plenty of event risk on the docket; but its influence on the critical decision of breakout or reversal is likely low. ISM manufacturing and service sector surveys, consumer credit, personal spending and income are all notable indicators; but the NFPs once again holds the greatest clout. There are many indicators that hint at stabilization and eventual recovery; but none are as truly influential and accurate as the monthly payrolls report.

Alpari (UK) launches automated Forex investment revolution

Alpari (UK), one of the world’s fastest growing online foreign exchange (Forex) trading providers, announces Systematic, a fully automated web-based portfolio-trading platform. Systematic is especially designed for investors looking for an introduction to the international Forex market, offering them complete freedom to trade cost-effectively without substantial trading experience.

Trading Forex with confidence
Investors can use Systematic to choose from 20 predefined and time-tested portfolios and get started right away. Systematic will then implement the chosen strategies on behalf of the investor, eliminating the often damaging emotional impact associated with manual trading. To help investors make more informed and responsible decisions, Alpari (UK) offers account holders unrestricted, free access to online tutorials through its Alpari Academy educational resource.

More experienced Forex investors can also choose from up to 150 time-tested strategies to create and customise their own portfolio. All strategies in Systematic were developed by seasoned Forex traders, and their performance can be traced back to up to twelve months.

Two platforms through one account
In addition and, as an exclusive benefit, Systematic is fully integrated with existing Alpari (UK) client accounts: clients can switch between fully-automated trading through Systematic and manual trading through MetaTrader 4, all through the same account.

Easy access to the largest financial market in the world
The ability to trade currency across global markets 24-hours a day makes Systematic an innovative Forex-trading solution, allowing investors to take advantage of market opportunities without the need to constantly monitor the market.

Today, Forex is the largest financial market in the world, with the equivalent of over USD3.98 trillion (source: BIS) changing hands daily, compared with traded volume on the stock markets of only USD500 billion.

GBP/USD:Pound hits fresh 2009 high at 1.6779

GBP/USD has reached a fresh 200.9 high at 1.6779 on early Asian session, following Friday's rally from 1.6470, although the pair has pulled down to trade in a range from 1.6700 to 1.6755. Initial resistance level lies at 1.6775 year high, and above here, next resistances are 1.6925 and 1.7000 psychological resistance.

Euro could be the primary Benefactor of Dollar Selling,but Take the Account of the ECB

If the dollar is destined to plunge next week; many of its counterparts will no doubt rally. But, in the event of a genuine trend change, where will the capital flow? The British pound is suffering its suffering economic and financial troubles that rival the United States and Australia is heavily dependent on exports. Positive growth projections, rates that have stabilized at a level that is at a significant premium to many of its counterparts and policy officials attempting to work down deficits (not to mention liquidity) make the euro the primary alternative to the world’s reserve currency. However, outside of the dollar’s influence, the currency will have its own fundamental drivers to worry about. Setting aside retail sales, industrial production and other secondary releases; the top event risk is Thursday’s ECB rate decision. President Trichet and his fellow policy makers aren’t expected to change the benchmark from its 1.00 percent perch; but their statement and his commentary in the Q&A session to follow can get the speculative wheels turning. Any dovish or hawkish leanings or changes to the covered bond purchase plan would be notable.

Forex Weekly Trading Forecast

US Dollar: Is This the Turn Markets Have Been Waiting For?
Euro: How Strong is the Economic Recovery?
Japanese Yen Conflicted as Risk Trends Mix With Key GDP Report
British Pound Still Reeling from QE News, UK CPI May Weigh Further
Swiss Franc Reversal Nearing As Range Bound Price Action Continues
Canadian Dollar Under Pressure as Sentiment Sours, Intervention Mulled
Australian Dollar May Strengthen as RBA Sees Scope For Higher Rates
New Zealand Dollar May Have Set 2009 High on S&P Turnaround

The Benefits of Trading The Forex Market

Historically, the FX market was available most to major banks, multinational corporations and other participants who traded in large transaction sizes and volumes. Small-scale traders including individuals like you and I, had little access to this market for such a long time. Now with the advent of the Internet and technology, FX trading is becoming an increasingly popular investment alternative for the general public.

The benefits of trading the currency market:

It is open 24-hours and it closes only on the weekends;

It is very liquid and efficient;

It is very volatile;

It has very low transaction costs;

You can use a high level of leverage (borrowed money) with ease; and

You can profit from a bull or a bear market.

Continuous, 24-Hour Trading

The currency exchange is a 24-hour market. You may decide to trade after you come home from work. Regardless of what time-frame you want to trade at whatever time of the day, there would be enough buyers and sellers to take the other side of your trade. This feature of the market gives you enough flexibility to manage your trading around your daily routine.

Liquidity And Efficiency

When there are a lot of buyers and a lot of sellers, you can expect to buy or sell at a price that is very close to the last market price. The currency market is the most liquid market in the world. Trading volume in the currency markets can be between 50 and 100 times larger than the New York Stock Exchange (Source: Oanda.)

When you are trading stocks, you may have experienced events where one piece of news accelerates or decelerates the price of the underlying stock you may have bought into. Perhaps a director has been kicked out by the shareholders of a company or the company has just released a new product and big investors are buying the shares of a particular company. Share prices can be drastically affected by the actions or inactions of one or a few individuals. So if you are relying on television reports and newspapers to get your news, most of the opportunities or warnings will have come too late for you to take advantage by the time you get them.

The value of currencies on the other hand is affected by so many factors and so many participants that the likelihood of any one individual or group of individuals drastically affecting the value of a currency is minute. Because of its sheer size, the currency market is hard to manipulate. The ability for people to engage in 'insider trading' is virtually eliminated. As an average trader, you are less disadvantaged. You are likely to be playing on relatively equal ground along with all the other traders and investors whom you are competing against.

Note about price gaps:

For those people who have already traded other markets, you probably know about price 'gaps'. 'Gaps' occur when prices 'jump' from one price level to another without having taken any incremental steps to get there. For example, you may be trading a share that closes at $10 at the end of today but due to some event that happens overnight; it opens tomorrow at $5 and continues to go downwards for the rest of the day.

Gaps bring about another degree of uncertainty that may meddle with a trader's strategy. Probably one of the most worrying aspects of this is when a trader uses stop-losses. In this case, if a trader puts a stop-loss at $7 because he no longer wants to be in a trade if the share price hits $7, his trade will remain open overnight and the trader wakes up tomorrow with a loss bigger than he may have been prepared for.

After looking at a couple of forex charts, you will realize that there are little price 'gaps' or none at all, especially on the longer-term charts like the 3-hour, 4-hour or the daily charts.

Volatility

Trading opportunities exist when prices fluctuate. If you buy a share for $2 and it stays there, there is no opportunity to make a profit. The magnitude of level of this fluctuation and its frequency is referred to as volatility. As a trader, it is volatility that you profit from. Large volume transactions and high liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day-traders. The high volatility of the currency market indicates that a trader can potentially earn 5 times more money from currency trading than trading the most liquid shares.

Volatility is a measure of maximum return that a trader can generate with perfect foresight. Volatility for the most liquid stocks are between 60 to 100. Volatility for currency trading is 500. (Source: Oanda.)

In this respect, currencies make a better trading vehicle for day-traders than the equity markets.

Low Transaction Costs

A currency transaction typically incurs no commission or transaction fees. For a forex trader, the spread is the only cost he or she needs to cover in taking on a position. In addition, because of the currency market's efficiency, there is little or no 'slippage' costs.

'Slippage' is the cost involved when traders enter the market at a price worse than the level they wanted to get into. For example, a trader wants to buy a share at $2.00 but by the time, the order gets executed, his gets to buy the shares at $2.50. That fifty cents difference is his slippage cost. Slippage cost affects large-volume traders a lot. When they buy large quantities of a commodity, it oversupplies the market with buy orders. This applies a pressure for the price to go up. By the time they get to buy all the quantities they wanted, the average price they got their commodities would be higher than the price they intended to get them for. Conversely, when they sell large quantities of a commodity, they oversupply the market with sell orders. This applies a pressure for the price to go down. By the time they finish selling all their commodities, their average selling price is less than what they initially intended to sell them for.

Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at small costs. As an approximate, you may only expect to have a spread of 0.03% of your position size. To give you an example, you can buy and sell 10,000 US Dollars and this will only incur a 3-point spread, equivalent to $3.

Leverage

There are not a lot of banks or people who would lend you money so that you can use it to trade shares. And if there are, it would be very hard for you to convince them to invest in you and in your idea that a certain share is going to go up or down. Therefore, most of the time, if you have a $10,000 account, you can only really afford to buy $10,000 worth of stocks.

In currency trading however, because you use 'borrowed money', you can trade $10,000 of a currency and you only need anywhere between fifty (For a margin lending ratio of 200:1) to two hundred dollars ( For a margin lending ratio of 50:1) in your trading account. This makes it possible for an average trader with a small trading account, under $10,000 to be able to profit sufficiently from the movements of the currency exchange rates. This concept is explained further in The Part-Time Currency Trader.

Profit From A Bull And Bear Market

When you are trading shares, you can only profit when the price of a stock goes up. When you suspect that it is about to go down or that it is just going to be moving sideways, then the only thing you can do is sell your shares and stand aside. One of the frustrations of trading shares is that an individual cannot profit when prices are going down. In the currency market, it is easy for you to trade a currency downward so that you can profit when you think it is going to lose value. This is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it difficult to trade 'downwards'. This is why the currency market has been occasionally referred to as the eternal bull market.

Advantages of the Forex Market

What are the advantages of the Forex Market over other types of investments?

When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.

The Forex market is also very liquid. When trading Forex you have full control of your capital.

Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control

Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.

The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.

What is Forex?

FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.

In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.

Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.

Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.

This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).

Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.

Determination of Foreign Exchange Rates

Exchange rates respond directly to all sorts of events, both tangible and psychological—

* Business cycles;
* Balance of payment statistics;
* Political developments;
* New tax laws;
* Stock market news;
* Inflationary expectations;
* International investment patterns;
* And government and central bank policies among others.

At the heart of this complex market are the same forces of demand and supply that determine the prices of goods and services in any free market. If at any given rate, the demand for a currency is greater than its supply, its price will rise. If supply exceeds demand, the price will fall.

The supply of a nation’s currency is influenced by that nation’s monetary authority, (usually its central bank), consistent with the amount of spending taking place in the economy. Government and central banks closely monitor economic activity to keep money supply at a level appropriate to achieve their economic goals.


Monetary authorities must decide whether economic conditions call for a larger or smaller increase in the money supply.

Sources for currency demand on the FX market:

* The currency of a growing economy with relative price stability and a wide variety of competitive goods and services will be more in demand than that of a country in political turmoil, with high inflation and few marketable exports.
* Money will flow to wherever it can get the highest return with the least risk. If a nation’s financial instruments, such as stocks and bonds, offer relatively high rates of return at relatively low risk, foreigners will demand its currency to invest in them.
* FX traders speculate within the market about how different events will move the exchange rates. For example:
o News of political instability in other countries drives up demand for U.S. dollars as investors are looking for a "safe haven" for their money.
o A country’s interest rates rise and its currency appreciates as foreign investors seek higher returns than they can get in their own countries.
o Developing nations undertaking successful economic reforms may experience currency appreciation as foreign investors seek new opportunities.

Source:newyorkfed

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

Forex trading examples

Example 1

An investor has a margin deposit with Saxo Bank of USD 100,000.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.

The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.

Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.

Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.

Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.

Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.

As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.

This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.
Example 2:

The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).

The dealer quotes 112.05-10. The investor sells EUR at 112.05.

Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.

He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.

Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.

The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.

This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.
Example 3

The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:

He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.

Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.

After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.

Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.

Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.

The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

Forex Trading Basics

The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.

There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.

Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.

In the following article, we would like to introduce you to some of the basic concepts of foreign exchange trading. If you would like any further information, we suggest that you sign up for a FREE Membership on this website, where you will be able to exchange views with other Forex traders and get answers to any questions you might have.

Margin Trading

Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.

In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions.

Base Currency and Variable Currency

When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.

The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.

Dealing Spread, but No Commissions

When trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.

The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.

This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USDEUR presents price swings of 150-200 points.

Spot and forward trading

When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.

Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.

Interest Rate Differentials

Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.

Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.
Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!

Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.

Stop-loss discipline

As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.

Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.

But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.

For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.