Exchange Currency

3 Currency Trading Tips To Help You Make Money

There is a lot of money to be made in foreign exchange trading. Here are currency trading tips to help you maximize your profits.

1. Use weekly charts as well as daily charts

Checking back over the week’s price movements for your chosen currency pair will give you a better perspective on both short and long term trends in the market. It is easy to become blinkered in spot forex trading especially if your method concentrates on day trading. Weekly charts allow you to take a step back.

Sometimes the new perspective that you gain in this way will help you see what went right or wrong with your trading and why. This can help you to refine your systems to make them more profitable. However, do not make changes in a good system every time something goes wrong. There is a need for balance here.

2. Do not trade too much

It is tempting to jump into the market and open a trade whenever you think you spot an opportunity, when really you should have held back. It is often true that the fewer trades you make, the more money you will make. This seems counterintuitive because we tend to think that we need to make a lot of trades to build up big profits. But opening a trade at the wrong moment leads to losses, so in fact the opposite is often true.

You need to be comfortable with risk in order to engage in forex trading. Most traders even enjoy the risk. So it can be difficult to hold back from something that looks like a big opportunity. Remember this is investment, not gambling. You must choose your trades carefully. Taking chances in the hope of making a big killing is likely to lead to your account balance taking a hammering.

If you have a profitable forex trading system that does not often offer the opportunity to trade so it is not making you much money, do not be tempted to widen the criteria so that it lets you trade more often. This will almost certainly turn your profitable system into an unprofitable one.

Instead there are two things you can do. First you can increase the amount of each trade. This increases your risk and is probably not a good idea unless you are very sure of your system. Second you can try to find a different system that is equally profitable that you can operate alongside the first. This is the better option for most people but make sure that you test your new system thoroughly before adopting it.

3. Set realistic targets

When you are thinking about how much money you hope to make with currency trading, it is important to be realistic and accept that sometimes you will lose. You should only be trading with money that you can afford to lose and do not expect to double your money over and over in a short time.

Unfortunately many advertisements lead you to have very high expectations. You may see an ad that suggests you can double your money in 7 days, for example. This does not mean you are certain to double your money, and it definitely does not mean that you can do it every 7 days with no setbacks. Doubling your money in a short time is possible but doing it over and over without losses is not realistic. Expect to take at least one step back for every two steps forward and have reasonable targets by comparing with what you might make if you invested in stocks or bonds.

Before starting forex trading for real, be sure you are armed with sound strategies that you have tested for yourself. Weigh up all of your options and remember that you are entering a risky business. Keep these currency trading tips in mind and give yourself the best chance of succeeding as a forex trader.

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Wednesday, November 24th, 2010 Introduction, Strategy No Comments

What Is A Forex Pip?

When you start to look around forex websites online, you will soon see references to the forex pip. Your gains and losses will be measured in pips. Something else that is measured in pips is the spread, the difference between the bid and ask prices which is the main cost of forex trading and how the brokers make their money. So it is clearly very important to understand what is a forex pip.

The word is an acronym standing for percentage in point (or sometimes, price interest point). It is the smallest increment of changes in values. It allows us to measure a rise or fall in currency values in percentage terms instead of in dollars and cents.

Why do we need to talk in pips? The reason for this is simple. In the foreign exchange market there is no world currency in which to express values. The US dollar may be the most commonly traded currency but it is not involved in all trades. If you are trading cross rates, i.e. two other currencies such as EUR/GBP or any other combination that does not involve USD, it would not make any sense at all to express your gains and losses in terms of US dollars. Instead, we need something that is a small percentage of the value of whatever currencies we are dealing with.

This means that the monetary value of a pip varies according to the currency.

Most currencies are quoted to four decimal points. For example you might see the bid price for EUR/USD quoted at 1.3642 and ask price 1.3644. The difference (the spread) is 0.0002 or 2 pips. Here a pip is 0.01% of a lot.

So if the lot size was $100,000, one pip would be worth $10. For a lot size of $10,000, one pip would be $1.

That is the value of pips when the US dollar is the quote currency, i.e. XXX/USD. But when the quote currency is different, one pip is usually 10 units of that currency (e.g. 10 euros or 10 pounds). Or if your lot size is 10,000 units, one pip is 1 unit (1 euro or 1 pound).

The exception is the Japanese yen which has a much lower unit value than most currencies (you get a lot of yen to the dollar). Because of this, the yen is only quoted to the second decimal point. You might see a price USD/JPY 110.15. In this case one pip is 0.01 or 1% but in yen, not dollars. So the pip value is JPY 1000 which at that price would be worth US $11.015.

These differences can be confusing when you are just starting out. So it is better for beginners to trade consistently with just one currency pair.

If you are trading one pair regularly every day you will soon get used to how much a pip means in terms of your actual gains and losses in your account. You will know how much one pip is worth in dollars or in your own currency.

But when you are trading several different currency pairs, you have to deal with pips of different value. If you get confused, you could be taking greater risks than you planned or closing trades with less profit than you thought. It is much easier to deal with only one pair at first until you have a sound understanding of trading practices and forex pip values.

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Thursday, June 18th, 2009 Glossary, Introduction No Comments

What Is Forex Currency Trading In The Fx Market

What is currency trading? It is something that sounds quite simple and many people speak about it as if the meaning is obvious, but not everybody knows what it really is and how it works.

Currency trading is also known as forex trading. Forex (sometimes written FX) is short for foreign exchange.

You probably know that the value of each country’s currency goes up and down according to how well the country is doing compared with others. So for example, the value of the Canadian dollar against the US dollar will be higher or lower depending on reports of the Canadian and US economies. The same thing happens with all other currencies.

Currency values are constantly changing, so a trader can easily deal in them to make a profit. He or she can buy when a currency is worth less and sell when it is worth more, just as a stock trader would do.

The difference is that where stocks have only one value, their value on the stock exchange, a currency has different values compared with each of the other currencies. So for example the Canadian dollar might rise in relation to the US dollar but at the same time it could fall in relation to the Japanese Yen, if the Yen rose even higher.

Principles Of Currency Trading

Most forex market trading is margin trading. This means that instead of buying the whole value of the currency, you can invest in only a percentage. This allows a small deposit to control larger amounts. The principle of it is that a currency is very unlikely to change in value by more than a certain percentage of its value.

To simplify trading, currencies are traded in what is called pips, or price interest point system. These are the units of trading. They give a standard for comparison as the currency values change relative to each other. So you will hear traders talk of a currency gaining or falling by a certain number of pips, rather than talking in dollar terms.

How To Make A Profit With Currency Trading

In order to make a profit with currency trading, you need to have some idea of the likely movements of currencies. This knowledge can be gained by analyzing the markets or by applying a system that experienced traders have figured out from their own analysis.

If you are a beginner it is probably better to be receiving your information and analysis from somebody with more experience at first. You can pick up a lot of different systems online and watch how each one does, or you can work with an automated system. These are known as expert advisers or forex robots, and they will make the trades for you when the time is right according to the settings that you have programmed.

If you use an automated forex system you do not need to know what is currency trading in so much detail, although as with all things, the more you know the more success you are likely to have.

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Sunday, May 17th, 2009 Introduction No Comments