Monday Morning

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

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