Friday Afternoon

Foreign Exchange Market: Simple Glossary

The foreign exchange market has many factors that make it unique. It has been described as the closest to pure competition that can exist, even though the international banks attempt to control and manipulate it. But what makes it so special, and why might you consider that you are more likely to be able to make money on the forex market than other forms of investment trading such as stock trading?

Trading Volume

The amount of money traded on the forex market daily is immense. The average daily turnover across the world is almost $4 trillion, according to a survey by the Bank For International Settlements in December 2007. The biggest trading center is London, followed by New York and Tokyo. However, the US dollar is the most traded currency.

Liquidity

The liquidity of a commodity is its ease of conversion to cash without impacting the value. Money is already money, so it is more liquid than any other asset. This means it is very easy to trade.

A Global Market

Forex is not traded in one place but all over the world. This means that, while of course it is affected by national events in the biggest financial powers, the effects are balanced out. Currencies do not have absolute value: a currency’s value can only be measured in comparison with another currency. So if one currency falls in value, another will rise.

Compare this with the stock exchange where it is possible for the value of every company’s stock to drop at the same time. All you can do in a major stock market crash is to withdraw your investment. But in forex, you can switch from the falling currency to the rising currency and still make money.

A 24 Hour Market

Currencies can be traded in different parts of the world 24 hours a day, five days a week. The foreign exchange market opens at 22.00 hours UTC Sunday in Sydney, Australia, where it is Monday morning, and closes at 22.00 hours UTC Friday in New York, where it is Friday afternoon. So whatever time of day or night you like to trade, you will have the opportunity, unless your only free time is on weekends.

Leverage

Leverage is where a small amount of something can be used to control a larger amount. In forex trading, leverage is related to the practice of trading on margin. You invest a small amount in your brokerage account and your broker lends you the rest, so that you do not have to put up the whole value of your position.

Forex trading offers more leverage than stock or futures trading. You may be able to control up to 200 times your account balance, depending on the broker. Higher leverage gives you the chance of bigger profits, but of course, there is also the risk of bigger losses. You will not necessarily want to take the maximum leverage on the foreign exchange market, especially in the beginning.

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Monday, June 8th, 2009 Glossary No Comments

How To Find A Forex Trading Broker

One essential that you must have when beginning currency exchange trading is an account with a forex trading broker. The broker is your link into the markets and will cover you to trade margins.

But how do you go about selecting a good one? Here are 5 points to take into account when you are shopping around for forex brokerage accounts.

1. Reliability

This operates on several levels. Firstly, of course, you want a broker that you can trust, who will not suddenly disappear from the internet along with all of your money. The forex market is broadly speaking unregulated, so there are a huge number of brokers and some are more trustworthy than others.

Your first step is to check that the broker is regulated. In the USA this means that you want a broker who is registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Look for a forex broker with a clean record in any complaints logged against them on the NFA site. Other countries have their own regulatory bodies.

Then you need to think about whether the broker’s platform is reliable. This is their software that you will connect with whenever you want to trade. If it is often offline, it is likely to cause problems for you. You could miss out on either opening or closing a trade at the best time. Check forex trading forums for feedback from users on this point, although be careful not to be swayed either way by a single individual who may have his own reasons for being strongly for or against a particular broker.

2. Services

The forex markets are open 24 hours from Sunday night to Friday afternoon EST. Check that your broker’s trading platform is available all of this time (most are) and that they offer 24 hour customer support on trading days too.

Check that they cover at least the seven major currencies USD, AUD, CAD, GBP, EUR, CHF, JPY. Again most will, but it is worth being sure.

A broker should offer you charts, technical analysis, and instant execution of your orders at the displayed price.

3. Costs

Forex brokers do not charge commission but make their money from the spread, which is the difference between the buy and sell prices on any currency pair. Spread can be anything from 1 pip or less, up to about 3 pips, depending on the broker and the pair.

The size of the slice taken by the spread can make the difference between profit and loss in your trading account in the long term so look closely at this. If you know which pairs you are likely to trade most often, the spread on those pairs will be more important to you than others. At the same time, do not be drawn in by a special offer that may not last long once you have committed your funds.

You also need to consider how much is the minimum that you can invest. Most new traders are best advised to start small, so look for a broker who will let you open an account with $250 or less.

4. Margins

Margin requirements can vary a great deal from broker to broker. A lower margin requirement means higher leverage, and higher leverage gives you greater profits or losses on the same fund size. So low margins seem great when you are doing well, but losses will be bigger if things go badly.

5. Lot size

Lot size can vary from one broker to another. Generally 100,000 units of currency is a standard lot, 10,000 is a mini lot, and 1,000 is a micro lot. Some brokers offer fractional lots which give you more power to set your own lot size. This could be a bonus or just an added complication.

There are other considerations including the interest paid on your margin account, rollover charges and other policies. However, these are the main points that you should be looking out for when choosing a forex trading broker.

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Saturday, May 23rd, 2009 Brokers No Comments

FX Trading Software – Does it make a difference?

FX trading software programs include the automated systems or robots that help you to trade online from the comfort of your own home. They are very popular but are they necessary? What do they really do?

Many people are unwilling to trust their trading decisions to a computer program, especially at first. It is true that it is wise to be cautious in the beginning, because there is always the chance that you will misunderstand something. But you can almost always use the software in demo mode until you are familiar with all of its settings and features.

The main point to remember is that you are controlling the program, not the other way around. You tell it what to do by setting it up in a way that follows your preferred system.

An automated forex trading system can do many things that you cannot. For example, it can trade 24 hours a day. As the currency markets are international and operate in almost every time zone, they are never closed for business from Monday morning in Australia to Friday afternoon in New York. FX trading software can exploit these very long hours and watch the markets all day and all night, never missing a possible trade.

If you join a retail forex trading company online, you will almost certainly be offered software so that you can operate your account from your own computer. This takes the pressure off the company’s website. You can use this type of software to check the currency values and operate your account. This is different than a robot, because you are making the trading decisions and simply using the software to put them into effect.

Automated forex robots, by contrast, are not linked in to one particular broker or company. They run on a trading platform and offer historical market analysis and trend data as well as real time currency values. This data can be extremely valuable for identifying patterns. You can look back to see how currency values fluctuated around the time of certain major events such as an epidemic or an election. Even something like an international sports event can affect national confidence and so cause a change in currency values.

As you become more skilled in interpreting the market trends, you will use all of this data to help improve the success of your trades. Of course there is no guarantee that the currency markets will always behave as they did in the past but any expert will tell you that you cannot ignore the historical data. To put it simply, getting information like this from your FX trading software can help you to make more money from your forex trading.

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Sunday, May 17th, 2009 fx trading software No Comments