forex

India's FOREX reserves hit new highs

2008-01-24T10:12:00.001-08:00

India's forex reserves set a new record. At $140 Billion, the reserves are now the 6th largest in the world. The record is due mostly to foreign capital inflows, which also continue to set records. Foreigners are pouring money into Indian stocks and bonds, in search of the typically high returns that emerging markets offer. Not only have share prices reached new highs, but so has the value of the Indian Rupee.

India derives much of its economic growth from growth in the export sector. Thus, the Reserve Bank of India has been working overtime to 'sterilize' the exchange rate, and prevents India's exports from becoming too expensive. This sterilization typically assumes the form of buying bonds from the public, which increases India's money supply. However, this increase in the money supply can spur inflation, and India cannot afford this. Nonetheless, India will likely continue to sterilize for as long as it can, taking cues on exchange rate manipulation from its neighbor to the North. Reuters reports:

They say signs China is still reluctant to allow its tightly pegged currency to strengthen had hardened the resolve of countries like India to keep their currencies under check.

Indian Rupee, Israeli Shekel, and US Dollar forex review

2008-01-24T09:50:00.000-08:00

Indian Rupee, Israeli Shekel, US Dollar and any currency news needed for possible rank forex docs. Currency reviews for acid dropping alien forex traders in the us dollar and the rupee??

While there does seem to be some evidence that the RBI may have ventured back into the forex market last week to prevent further rupee strength, it is clear that it can no longer return to the blind dollar buying of the past few years.

The inflationary spurt and the continuing fear that prices may once again get out of control, particularly given global price trends, will keep the RBI deterred.

Thus, it would seem that only a substantive turnaround in the dollar's fortunes globally and/or a serious bout of emerging market risk aversion could see the rupee weaken, and indeed, prevent further rupee strength.

So, what is the likelihood of either or both of these happening?

First of all, relative to its history, the dollar remains quite weak - the dollar index is at 82.31, just a bit above its all-time low of 78.33 (set in 1993) - which would prima facie suggest that it should be turning around soon.

However, there are certain structural factors that could keep the dollar under continued pressure. For instance, the US is no longer the lead engine of world growth. Its pole position in incremental growth, which it has held since 1989, has finally been usurped by - you guessed it - China In fact, the BRIC countries contribution to incremental world growth will probably exceed that of the US from here on out.

This confirms that the period of global unipolarity - with the US not only the strongest country militarily but also the buyer of last resort - is over. This, in turn, suggests that the pressure on Asian (and other) exporters to support the dollar will continue to lessen, which will prompt an increasing diversification of reserve assets out of dollars.

There is already some anecdotal evidence of oil invoicing in euros and of several emerging market central banks diversifying their reserves holdings out of dollars. Indeed, this trend, which has been in place since at least 2001, has probably been responsible for a lot of the dollar's recent weakness.

The IMF has reported that the share of US dollars in total world allocated reserves (of about $1.6 trillion) has fallen from 72 per cent in 2001 to 64 per cent more recently. Over the next decades, we will likely see the creation of a three-cornered stool supporting world growth, reflected in the dollar, the euro and a basket of Asian currencies (including the yen, the yuan and, in time, the rupee), each taking a significant share of the world's reserve capital.

This would suggest that the long-term average holding of US dollar assets should not be much more than 40-45 per cent, which, if true, would point to continued structural weakness still ahead for the dollar.

Of course, during this long march downwards, there will doubtless be short-term cyclical forces that will interrupt the trend - that is the nature of markets. For instance, perceptions of likely interest rate changes could shift in the near future.

Currently, the market expects US rates to fall sometime later this year, while European and Japanese rates are expected to stay on hold or rise a bit. But markets are always looking ahead and it may well be moving its focus to where the non-US interest rate cycles peak and differentials again move in favour of the dollar.

Indeed, the dollar's recent mini-firmness may be linked to this changing perception. When this force does play itself out, we could see the dollar surprise on the upside, which, in turn, could provide some respite from the strong rupee.

Another more dramatic force that could affect the rupee is the possibility that the wild ride in global asset markets comes to a plunging end at some time in the future. The kind of price hysteria seen in a wide array of both standard and alternative asset markets has several analysts worrying that markets may be approaching a top.

Perhaps an old market aphorism: "sell in May and go away" may come into play this year. On the other hand, of course, these same analysts have been worrying about the market hysteria for years now, and it could well be a few more years before the asset bubbles finally burst - recall that the tech bubble burst more than three years after Greenspan raised his "irrational exuberance" concern; interestingly, Greenspan was talking about his concerns on China recently.

In any event, whiff [when/if] this cycle cracks, there could be a sharp increase in emerging market risk aversion, which could push the rupee lower, and perhaps, much lower.

The big problem, of course, is summed up in the word "whiff" in the last paragraph - no one knows the answer to that.

About all we do know is that rupee volatility is going to remain high. If the RBI improves its market management, we would be spared the sudden shocking shifts in volatility we have had to live with recently, but there will be times when the definitive up trend in the rupee breaks and it turns weak for long periods. Conversely, there will be periods of surprising rupee strength.

To live in this "real" world, companies need to develop a strong risk-focused MIS, which enables them to judge when to simply eliminate risk (by buying forwards or options), when to ride a winning position, and when to enter into structured products, which provide both some protection and some opportunity participation.Rupee to US Dollar Forex Currency Exchange Rates. Gold rates rupee to dollar

Forex Trading Information: Beware of Frauds

2008-01-24T09:38:00.000-08:00

You may have been solicited to trade “foreign exchange contracts” or “forex”. For new traders this forex trading information is critical in starting off your trading career on a clean slate. Frauds are infiltrating the forex trading grounds and it is critical to your success to be aware of the frauds that abound the markets. Be aware of these frauds being perpetrated in the financial markets to safeguard your forex trading. So when you consider and shop around for a forex broker be sure that this forex trading information serves you well.

There has been a boom in the financial industry in the last few years and the numbers and complexities of financial investment opportunities are growing exponentially. And along with this explosive growth, so are the scams associated with the forex currency trading. But also be aware that along the lines of the forex trading information that you come across that many forex trading firms are also legitimate - it is those companies that are defrauding traders that you should be cautious about.

As a budding trader you are vulnerable to the fact that these companies attract customers through the normal routes of communication: advertisements in the paper, radio or internet. The advertisements will almost always tout forex trading information results claiming high return, low risk investment opportunities in the forex trading arena. Of course as anything, you should be always aware and skeptical if anyone offers you high profits with minimal risks. There is no such thing in any market. High returns and high risk always go hand in hand. Be wary, if the firms promote their services as such.

When you are shopping for a forex broker be sure that you follow up and request and research forex trading information about the company: Are they registered with your government’s regulatory body? Are they certified and registered to be a securities dealer or broker? Thye may also be a subsidiary of a bank or an insurance firm - always ask before you sign the dotted line.

After checking if the company is registered and certified to act as your broker and dealer in foreign currency exchange you should be wary of the following warning signs of fraud. As you delve into your forex trading information research as well as researching your other investment opportunities always be wary of those that sound too good to be true. There is no such thing as a free lunch. Avoid companies that claim to guarantee profits as in many cases those claims of massive profits are untrue and only serve to attract the greedy. Also any promise or guarantee with little or no financial risk would truly raise a few eyebrows of some professional traders. There is always risk in every trade - most of the time it is up to the trader to limit that risk, risk reduction rarely is the job of the broker (although they do provide risk reduction vehicles that traders can use).

As you can see simply signing up to a service and trading is not an easy path. You must research your forex trading information regarding your chosen provider before actually beginning to trade. You must also understand what margin trading encompasses; it loosely means that with a small deposit you can control far larger amounts of money. You must fully understand the concept and be prepared for any losses that may occur. Also be wary of companies that claim you can or should trade the ‘interbank market’. The term refers to a loose network of currency transactions negotiated between financial institutions and large companies.

If you’re still reading that means you are really dedicated in your forex trading information research. Which also means that you don’t take this issue lightly and you are VERY serious in succeeding in your forex trading. That’s good! You are being very thorough. So we shall keep running down the list of stuff you should check before signing up to the forex provider. Be cautious of sending or transferring cash on the internet or mail. Take not of where the company is located and their accreditations. Be warned that once the fiund transfer has occurred it is very difficult or impossible to recover your invested funds. Be especially cautious with companies who don’t disclose information about themselves as well as their background. There is no reason for legitimate forex dealers to hide behind smoke and mirrors.

So remember, when a forex dealing company advertises their services or solicits their services to you always be wary of high pressure tactics asking you to join up and participate in their services. Be skeptical about offshore companies vying for your business and avoid companies guaranteeing any returns or no risk. Researching forex trading information takes a lot of dedication, but with a little due diligence and patience, you will surely succeed. Good Luck!

Why Forex Is A Better Investment Idea Than Stocks or Commodities

2008-01-24T09:36:00.000-08:00

Forex, the Foreign Exchange Market, is a worldwide market for buying and selling foreign currencies. The major currencies that are traded include the U.S. Dollar (USD), Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), Japanese Yen (JPY), and the Swiss Franc (CHF). The purpose of this article is not to go into the details of how Forex works, but to compare the benefits of trading in the Forex market versus trading the Equity (American stocks) or Futures markets (Commodities).

The Forex market is the largest market in the world with over 2 trillion dollars traded every day. This compares to the 200 billion dollars traded daily in the Equity and Futures market each. Because of this, the Forex market benefits from fairer prices, price stability, and better trade execution.

Forex has the advantage of being open 24 hours a day. The Forex market opens on Sunday afternoon and remains open until it closes on Friday afternoon. The Equity and Futures markets are only open Monday through Friday 8:30 a.m. to 5:00 p.m. Eastern Standard Time. This gives Forex traders the opportunity to trade around their personal schedule. Also, liquidity in the Equity and Futures markets are reduced after regular trading hours.

When trading Forex, you will not incur the commissions or transaction fees that exist in the Equity and Futures markets. You pay a spread on the currency pair you are trading and costs are very low, especially when compared to the other markets.

Investment leverage in the Forex market can be as high as a 200:1 margin. In the Equity and Futures markets your average margin is 4:1. This means that you can control $10,000 worth of currency with only a 50-dollar margin.

In the Equity and Futures markets, investors are expected to fund several thousand dollars to open a trading account. In the Forex market, you can open a mini account for only 300 dollars and begin trading.

In the Equity market, short selling is very risky and comes with limitations. In the Forex market, you are able to buy long or sell short any currency pair with no limitations or difference in risk.

As an investor in the Forex market, you are able to concentrate on only a few major currencies. There are seven major currencies yielding four major currency pairs that most Forex investors concentrate on. Whereas in the Equity market, investors have over 40,000 stocks to choose from when contemplating where to invest their money.

There are many factors to consider when deciding on which market you want to spend your time and money. The Forex market provides many benefits over the other major investment markets that will allow you, the investor, to make larger profits, take less risk, and spend more time with your personal life and less time investing.

Forex vs. Equities

2008-01-24T09:29:00.000-08:00

Forex market offers several advantages over Equity trading, such as:

24 hours open market
The biggest advantage of the Forex market over the Equity trading is that of a 24 hours open market. Active 5 days a week, Forex market gives its traders what Equity trading does not. Equity trading is restricted to regular business hours, making Forex, the only incessantly moving trading platform.
Being a 24 hour trading market, there is always some investors, somewhere in the world who are dynamically trading foreign currencies. This also enables these investors to react to any breaking news of the market, immediately.

Higher trading volume
Also, the trading volume in the Equity trading or the major stock exchanges is often 100 times lesser than foreign exchange market. Furthermore, majority traders are willing to buy and sell currencies because of the need of various countries, which want to continue to trade goods with each other.

No commission and transaction fees
Forex serves as a more cost-efficient trade as compared to Equity trading, especially in terms of both commissions and transaction fees. Most of the sites dealing with Forex trading do not charge its investors or traders with any commissions or fees, while offering them, access to all the significant market information required for trading purposes. But in case of Equity trading, commissions range from $5 to $100 or more per trade in case of full service brokers.

Price stability through superior liquidity
The trading volume of the Forex market being 100 times more than the New York Stock Exchange, there are always dealers willing to buy or sell currencies here. The superior liquidity of the major currencies also helps ensure price stability in the Forex market. But this cannot be the case with the Equity trading which has a lower trade volume. This can therefore put the investors of the stock market to liquidity risk, resulting in larger price movements.

Higher leverage
Forex market offers higher leverage as compared to all the major stock exchange trade markets. While the commonly available leverage from the online Forex dealers is 100:1, the leverage offered by the Equity brokers is as low as 2:1 margin. Such high leverage enables the Forex traders to trade much larger sum of currency than they have deposited. Also that depends on the types of Forex brokers one considers for trading.

Profit Potential
Forex market enables its investors to trade on the upward as well as the downward trends of the market, giving them the facility to buy and sell currencies. This serves as another major advantage of Forex market over Equity trading. This is because in the equity market, it is more difficult to trade during downward trend of the market, due to some market policies. There are a certain risk aspects as well,

Forex vs. Futures

2008-01-24T09:27:00.000-08:00

Being the largest financial market in the world, Foreign Exchange market deals in the business of trading of the world's various currencies, with more than $1.5 trillion changing hands every day. Futures, on the other hand, deals in contracts to buy or sell a foreign currency on a specific date in the future, the price for which is set today.

In other words, futures are the same as forward exchange deals, which are tailor made to the customer requirements and needs for the amount of funds and due date of deal.

There are plenty benefits of Forex over currency futures trading, especially with the difference between the two regarding their target audience, transactions fees and liquidity, as given below:

24-Hour Market
Currency market is a 24-hour market, unlike most of the futures exchanges, allowing its traders to react to the immediate news happenings by trading immediately. This facility cannot be availed with the futures market which only operates during business hours and not for 24 hours a day.

Superior liquidity
Forex markets hold unmatched liquidity as compared to currency futures. Especially with $1.5 trillion changing hands daily, Forex is the largest and most liquid market in the world. It can absorb a large trading volume and the transaction sizes are huge too, in comparison to any other market. Futures market, on the other hand, is a $30 billion market per day which provides only limited liquidity with a lesser trading volume.

Forex uses simple and easy price quotes
While the currency futures trading and price quotes have added complications of time factor and interest rates between various currencies, the Forex markets require no such adjustments of future calculations and consideration for the interest rate of future deals.

Forex trading is commission free
Futures trading contracts get along with them, trading costs, exchange fees and clearance fees which eat up most of the trader's profits. But this is not the case with Forex trading because here, the trader deals directly with the market through online exchange, thus saving the brokerage fees. Although, there is always an initiating cost to any trading being done, which is revealed in the bid/ask spread, present in all types of trading, be it Forex, Futures or Equities.

High execution quality and speed
It is only with Forex trading that a trader can experience high execution quality and speed because of its high trading ratio as compared to any other market. The reason why futures market does not offer rapid execution or price is due to the lesser volume of trading and liquidity and definitely due to uncertainty during normal market conditions, as the trading prices on market orders is far from certain.

Carry Conditions Worsen As Equity Markets Print Worst Drop In Years

2008-01-22T03:58:00.000-08:00

Since the broad sell off in risk-related assets back in July and August of last year, caution has dominated the market’s taste for risk. The change in sentiment has increased the danger of holding carry trades which rely on low volatility and steady infusions of capital into the financial markets to prevent dramatic fluctuations in the spot rates of currency pairs that lead to capital losses. Now at the start of a new trading week, it is hard to refute the pervasiveness of risk aversion.

In equities, panic selling steeped the world’s benchmark indexes into remarkable declines. Starting in Asia, the Nikkei fell 3.9 percent as Friday’s late sell off in US markets produced an echo in eastern markets. However, as European markets came online, it was clear that Monday’s jump in volatility would be more intense than a mere sympathy move. The region’s financial centers all marked dramatic losses: the FTSE 100 fell 5.5 percent; the French CAC 40 tumbled 6.8 percent; and the German DAX Index plummeted 7.2 percent. For the carry trade, this has meant severe losses for the yen crosses, and indeed large declines for all pairs that have carry-related interest. With today’s jump in volatility, the carry trade has established a 10.6 percent draw down – the worst since May of 2006, and nearly a record.

And, while a low seems to have been set for the carry trade with the Asian and European markets’ close, a new record may be just around the corner. In Monday’s global selloff there was a notable absence from the US. The Martin Luther King holiday has delayed the American market’s reaction to the worst equity selloff since September of 2002. However, it was clear from price action in the futures markets that tomorrow’s open would see the US market playing catch up to the sharp losses. In holiday trading, the active Dow Index futures contract dove 514 points or 4.25 percent. With fears of an imminent US recession, worsening credit markets and a potentially volatile FOMC rate decision next week weighing on investors; it looks as if conditions for the carry trade will only worsen before they get any better.

Despite the recent injections of liquidity by the world’s most important central banks, the global financial system remains vulnerable and the outlook for carry trade is still very bearish. Last week, the DailyFX Dynamic Carry Trade Portfolio was down by 854pips. The most unprofitable trade was the position we held in the New Zealand dollar with 411 pips gain in capital losses offset by $39 on interest payments accumulated along the last 5 days. Looking ahead, the Federal Reserve is expected to cut the Fed Funds rate by 50 bps when the FOMC holds its next meeting in January 30, 2008. According to futures trading on the Fed Funds rate, traders are fully pricing a 50 bps rate cut and as much as 46 percent probability of a 75 bps rate cut to 3.75 percent. The rate cut is likely trigger a major recovery in the U.S. stock market and help all classes of risky assets, including carry trades.

Forex reserves drop for seventh time in year

2008-01-22T03:53:00.000-08:00

Foreign exchange reserves dropped for the seventh time this calendar year as the US dollar showed some signs of revival against major currencies overseas.

Weakening inflows due to the beginning of the Christmas holiday season also led to a drop in reserves.

Data released by the Reserve Bank of India (RBI) on Friday showed that forex reserves dropped by $599 million to $272.95 billion in the week-ended December 14

Dealers attributed the drop to the thinning foreign fund inflows and change in the valuations of currencies in the reserves.

"There are two things. First is that FII flows have turned negative. The other is that currencies like the euro and the pound that have depreciated against the dollar have pulled the value of reserves down," said a dealer at a European bank.

FIIs have pulled out more than Rs 4,000 crore from Indian stock markets this week, making inflows turn negative for the second month in succession and for only the third time this year.

The drop is interesting not only because it's only the seventh one in 2007, but also because the year has been a phenomenal one in forex reserves addition, with as much as $97.43 billion or 56 per cent added to reserves.

The reserves have risen largely as India has recorded huge inflows this year, forcing the RBI to intervene heavily in the forex market to curb the rupee, which has risen 12 per cent this year.

However, forex-watchers are not too worried about the slower inflows as foreign investors are still queuing up for a pie of the India growth story.

"Though FII flows have turned negative, we are still getting inflows through qualified institutional placements (QIP) everyday. These reserves don't signify anything but the rupee may drop in the short term if the dollar continues to again abroad," said a dealer with a US bank.

The dollar has gained against major peers abroad on hope that the US Federal Reserve will not cut rates from here as the latest data from the US shows that inflationary pressures remain.

The US Fed has cut its benchmark target funds rate three times since September to make money cheaper as top international banks struggle to overcome the global credit crunch.

It has also cut its discount rate four times in 2007 to bail out US banks from a self-created crisis

China's forex reserve tops $1.53 trillion

2008-01-22T03:51:00.000-08:00

China's foreign exchange reserve had reached 1.53 trillion U.S. dollars by the end of 2007, up 43.3 percent from 2006, the People's Bank of China announced Friday.

A total of 461.9 billion U.S. dollars was added to the country's forex reserve in 2007, said the central bank.

In December alone, the forex reserve rose by 31.3 billion U.S. dollars.

China's forex reserve maintained a sharp growth in 2007, reaching 1.2 trillion U.S. dollars by the end of March, 1.33 trillion U.S. dollars by the end of June, and 1.43 trillion U.S. dollars by the end of September.

China's soaring trade surplus is the major factor contributing to the forex reserve boom.

Data newly released by the General Administration of Customs show that China's trade surplus surged to a record 262.2 billion U.S. dollars in 2007, representing a 47.7 percent growth over a year earlier.

The huge forex reserve is considered the main reason for excess liquidity in China, as the central bank has to spend quantities of basic money to purchase foreign exchange, thus aggravating the problem of surplus fluidity.

By the end of 2007, the M2 -- a broad measure of money supply, which indicates the monetary demand of the whole country and possible inflation -- grew by 16.72 percent from a year ago to 40.34 trillion yuan.

The growth rate is 0.22 percentage points lower than that by the end of 2006, but still higher than the target growth of 16 percent set by the central bank at the beginning of 2007.

A total amount of 330.3 billion yuan was poured into the market in 2007, 26.2 billion yuan more than 2006.

On the other hand, continuous growth of the forex reserve has in fact increased the pressure on appreciation of the Chinese currency, which in turn has exerted greater pressure on value preservation of China's forex reserve.

The value of the Chinese RMB against the U.S. dollar has appreciated by more than six percent in 2007. The central parity rate of the RMB was 7.2672 to the U.S dollar Friday.

In a move to make better use of the country's huge forex reserve, China established the China Investment Corporate Ltd. (CIC), the country's state forex investment company, in 2007.

The state-owned investment company will invest in overseas financial markets.

The registered capital of 200 billion U.S. dollars of the CIC all comes from the forex reserve of the country, which have been poured into the company so far.

According to data released by the central bank, RMB loans increased by 3.63 trillion yuan in 2007, 1.14 times of the growth in 2006.

Tightening credit growth has become a major target of the government's macro-control policies in 2007.

Against a series of monetary tightening measures including interest rate hike and deposit reserve requirement ratio rise, growth of RMB loans began to slow down in the last two months of 2007.

China's central bank raised the deposit reserve requirement ratio ten times and the benchmark interest rate six times in 2007.

According to the central bank, RMB loans increased by 48.5 billion yuan in December alone, 172 billion yuan less than the same month of 2006.

Data showed that household savings, savings mainly from Chinese residents, rose by 1.13 trillion yuan in 2007, only 54 percent of the increase of 2006.

China's booming mainland A-share market is the major factor distracting people from saving.

The RMB deposit balance was 38.94 trillion yuan at the end of 2007, up 16.07 from a year earlier, said the central bank.

Forex Charts

2008-01-20T10:51:00.000-08:00

The forex charts that you’ll be using for your trading, depending on the forex system that you’re using, may be either line charts, OHLC charts, and probably most commonly, Japanese candlestick charts.

Remember that any currency pair is always quoted in the same order. For example, the USDCHF is always quoted as the USDCHF, with the USD being the base currency and CHF being the terms currency, and not the other way around.

So on a chart of the USDCHF, when you see on a chart that the current 1 minute candle is fluctuating around 1.3127, this means that 1 USD is equivalent to around 1.3127 Swiss Francs:

Note that more than one time frame may be used in combination when trading a forex system. For example, you many need to use a 4 hour chart, a 1 hour chart and a 5 minute chart. Many systems will use multiple time frames to confirm a trend as a part of the set up for a trade.

Let’s have a further look now on how to read forex charts...

How to Read Forex Charts

Especially if you’re new to forex trading, you’ll need to know some more detail about reading forex charts.

Now we've seen an uptrending chart of CHF already, so let's have a look at a downtrending chart of GBP as our example now:

Note these 5 points about how to read these typical forex charts:

Realise that if you go long (that is, buy) the currency pair, that the trade will go in your direction if the chart goes up, that is the base currency is strengthening against the terms currency.

On the other hand, if you short (that is, sell) the currency pair, then you’ll want the currency price to go fall, that is, for the chart to trend down, for the trade to go in your direction.

Have a look at the time frame displayed. In this example, it is a 5 minute chart of the USDCHF. Some of your trading systems will look at a few times frames, not just one. For example, you may need to look at the daily, 4 hour, 1 hour, 5 minute or even 1 minute charts. So make sure that the chart you’re looking at has the right time frame.

Realise that for most forex charts that you’ll read, that it is the BID price that is plotted on a OHLC or candlestick chart, rather than the ask price. Take this into account when placing buy orders based on looking at the prices on the chart, because when you buy, you buy at the ask (offer), not the bid.

So when you buy at market, you’re actually buying at the offer which is the chart price plus the spread.

Also keep this in mind when you’re placing stop orders as well, because most platforms will ask whether you want to place stop orders as “stop if bid”, or “stop if offered”. If you place a “stop if bid” order at “x” price, then you’ll get out when the chart price reaches that “x” price, but if this is a “stop if bid” buy order (as a stop loss for a long position), rather than a stop sell order, then the price you actually get out at will be that price plus the spread. Your trading system will have rules for how to place stop orders, that is whether to place buy stop orders as “if bid” or “if offered”.

For example, let’s say that you’re in a short position, and your stop loss is hit when the chart price reaches 1.7260, so you place a “stop if bid” buy order, as your stop loss order. The price you’ll buy at is going to be 1.7260 plus the spread of say 4 pips, which will be 1.7264. This is because when the bid price is 1.7260, the offer price is 1.7264.

On the other hand, if you place a “stop if offered” buy order at 1.7264, then you’ll get out of the trade when the offer is 1.7264. Note that when this occurs, that the price on the chart will be 1.7264 minus the spread, which comes to 1.7260. Just follow whatever convention and routine your system uses. But you should have this concept clear now.

Realise that the times on the bottom of the chart will be displayed in the time zone that the forex charting software is set to. Some are set to Greenwich Mean Time (GMT), while others are set to New York time, or other time zones as well.

What this means is that if there’s a major economic announcement that you want to trade, or exit a trade beforehand, that you’ll have to convert the time of the announcement, which may be in GMT for example, to both your time and the chart time, so you know when the announcement is actually going to happen.

Fifthly, check to see if the times on the bottom of the chart correspond to when the candle opens, or when the candle closes. On the above charts, the times corresponding to the candles are the times that the candles closed, at GMT time. Different charts are different in this regard, so see if you can find out. This is especially important if you’re trading systems which rely on the precise price action in relation to major economic announcements.

Forex Trading Signals

2008-01-20T10:49:00.000-08:00

Forex trading signals is a way of trading where you get instructions to buy or sell currency pairs at specific times. Plus you get signals to tell you when to exit these positions.

This is an increasingly used method of trading as the internet increases its reach, and as more good forex trading systems are developed.

It has meant that you don’t have to spend time looking through charts each day, by yourself. And you don’t have to spend the upfront time to learn the rules of a system either.

Is it a legitimate way of trading?

Some purists would say that you must learn a system inside out yourself. No other way about it. But receiving forex trading signals or alerts is now a maturing area of forex trading because the providers of forex alerts are becoming increasingly transparent, in that you can analyse the historical results of their systems, and do your due diligence before deciding to trade with them.

There have been signal providers in the past, and even some today, who provide more of a "forecast" service where forex entry signals are given, but with no further instructions after that. For some this could be fine, but then you do have to make up your own system after that point, to decide how to set profit stops or trailing stops for those positions.

But now, various companies now provide forex entry and exit signals that are specific and complete.

When looking at forex signal providers, you should check out:

1. Their historical returns, usually shown as pips per month, or dollars per month based on a certain float.

2. Their drawdown figures to see that they are acceptable to you.

3. Their fee structure, and whether their fees have been taken in to account in these figures.

4. Also, getting more information to make sure that the returns they show are a) real and legitimate, and b) is based on a realistic float is an important part of your due diligence.

5. The times that the trades are taken and if they suit you.

6. The money management rules that are suitable for their systems.

7. At what point the historical returns were based on backtesting or were based on actual real time trading results.

You will of course have to pay for the forex alert services. For automated systems, there may be additional fees for this as well. So check the details of this out before you commit.

Forex Trader Alert Services: Checking Them Out

Here are some of the top selling forex signal providers to check out. They all have historical results documented, and broken down:

1. Pro Signal
2. All Forex Signals
3. FX Universal
4. i Forex

Therefore the advantages of trading with forex signals are:

1. You don’t have to spend time learning the rules of a trading system. This cuts out a lot of lag time from wanting to actually trading a proven system.

2. No need to spend time on a day basis going through every step of the system rules, which can take considerable time.

3. Will reduce human error, for example, if the trader analyses the market incorrectly, or interprets the system rules incorrectly, when trying to trade by himself or herself. This would improve the performance of the system.

4. You will need to still place the trades, but trading will take significantly less time, so that you can spend your time doing something else.

5. You can choose amongst systems which show their historical monthly returns, and hence choose a system which has higher returns, lower drawdown, and is more consistent. This is sometimes not possible when before deciding to buy an ebook or a course.

There are always going to be some traders that enjoy placing the trades and observing the trade as it progresses. For these people, forex signals may be suitable, and is the tool to have.

When trading a forex system with signals, monitor the results, and if the system behaves within the expected behavior of the system ,and proves to you that it is as profitable as you’d expected, then it’s a success. When you have proven this, then you can develop more trust in the system, be more familiar with the personality of the system, and will more comfortably continue trading that profitable system.

Some traders would trade a demo account with the forex signals first, before live trading.

The History of FOREX Trading

2008-01-20T10:48:00.001-08:00

The origin of FOREX trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon.

In those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World war, most Central banks supported their currencies with convertibility to gold. However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in FOREX market activity. From 1931 until 1973, the FOREX market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the FOREX markets during these times was little.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002. London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The FOREX exchange market initially worked under the central banks and the governmental institutions but later on it accommodated the various institutions, at present it also includes the dot com booms and the world wide web. The size of the FOREX market now dwarfs any other investment market. The foreign exchange market is the largest financial market in the world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It is estimated that more than USD 1,200 Billion are traded every day. It can be said easily that FOREX market is a lucrative opportunity for the modern day savvy investor.

Forex Expert Advisor Information

2008-01-20T10:42:00.000-08:00

What is an Expert Advisor ?

A Forex Expert Advisor (a.k.a. Forex Trading Robot, EA, MT-4 EA, Automated Forex Trading Software) is a mechanical trading system written in the MQL-4 programming language and designed to automate trading activities on the MetaTrader 4 platform. Expert Advisors can be programmed to alert you of a trading opportunity and can also trade your account automatically managing all aspects of trading operations from sending orders directly to your broker’s server to automatically adjusting stop loss, trailing stops and take profit levels.

Expert Advisors for MetaTrader 4 are all unique and different in the rules they follow to enter and exit the market. Expert Advisors eliminate emotional trading decisions that cripple novice trading accounts. Forex Expert Advisors allow investors to exercise a very strict trading system without falling outside pre-programmed parameters and it is this rock solid consistency one of the features that make these programs so attractive to serious investors. Am Expert Advisors can also eliminate the emotional trading decisions that usually cripple novice Forex trading accounts. Forex Expert Advisors exercise unmatched discipline when trading and can be designed to evaluate more parameters at the same time than any human could keep an eye on at once.

All of the technical indicators that are available in the MT-4 platform can be brought to bear in the logic used by an Expert Advisor in almost any way that one can think of thanks to the MQL-4 programming language. All types of moving averages (simple, exponential, etc.), RSI, CCI, etc. You can also create your own custom indicator and call upon it from an Expert Advisor.

There are many different types of MT-4 Expert Advisors depending on their intended application. Some are designed specifically to trade news events and remain out of the market all other times while other MT-4 Expert Advisors are meant to remain active 24x7. Experienced traders who have their own fine tuned manual trading systems sometimes hire MQL-4 programmers to automate their systems thereby creating custom MT-4 Expert Advisors. All expert advisors have the same goal and that is to automate trading operations and generate a profit while doing so.

Expert Advisors make use of technical indicators in order to assess market conditions and make trading decisions. In order for the Expert Advisor to work, it must be attached to an individual chart on the MetaTrader 4 Forex trading platform. An MT-4 Expert Advisor can take into consideration dozens of different factors in an instant in order to decide what to do next. This ability to consider such a broad range of price influencing factors coupled with the discipline of a mechanical trading system devoid of emotion leads to a very successful trading combination.

Throughout the pages of this web site you will find more detailed information about Forex Expert Advisors. If you have a question about Forex Expert Advisors for the MetaTrader 4 platform and you don’t see it here please send us an email and we will try our best to respond as soon as possible.

How does a Forex Expert Advisor work ?

The program works by calculating the different indicators that it was designed to use and take actions when the market conditions meet the correct criteria as described in the source code of the Expert Advisor.

Fore Example. A simple expert advisor may say something like this:

"If the 9 and 20 day moving averages cross with the 9 day MA above the 20 MA and the RSI is higher than 50 then open a long position (buy)"

That is just an example. You can assign countless conditions for entering and exiting the market as well as managing trades for trailing stops and multiple take profit levels.

An MT-4 Expert Advisor is usually divided into three parts: A startup or ‘init’ function, a main function and a ‘deinit’ or cleanup function. The Expert Advisor will run through its startup function once upon startup and will run through its ‘deinit’ or clean-up function once at the end. In the mean time, the MT-4 Expert Advisor program runs through a cycle of its main function over and over with every incoming tick while it is attached to a chart and active. Once running, the Expert Advisor will not start another cycle for a new tick if it is still in the middle of processing the previous one.

Here is a simple outline of what a simple expert advisor could be programmed to do.

(This would be the 'main' part of the EA and takes place every time a tick comes in.)

1- Check my account. Is there enough equity to open a trade? if so, continue. If not, end.

2- Are there any open trades right now?

2a- If there are, do they need to be closed or do they need their trailing stop adjusted? (do so if needed and exit.)

2b- If there are no open trades, are the market conditions right to open one? (do so if needed and exit. )

3- End.

How to use an Expert Advisor

In order to make use of an Expert Advisor you have to install it on MetaTrader and then attach it to the appropriate chart on MetaTrader 4. This is fairly simple as will be described below. If there are any instructions included with your Expert Advisor you should read them in their entirety.

#1- First, you have to put the Expert Advisor in a place where MetaTrader 4 will be able to use it. In most installations of MetaTrader 4 that place is C:\Program Files\MetaTrader 4\experts The actual Expert Advisor is a file without an icon that ends with .EX4

#2- Now that the Expert Advisor is in the correct location within your computer, re-start MetaTrader 4.

#3- When MetaTrader 4 starts up again you will now see the new Expert Advisor on the left navigation menu.

Learn to Make your own Expert Advisors

In order to make your own expert advisor you have to learn the MQL-4 programming language. If you already know C programming then MQL-4 will be very easy as they are quite similar. If you do not know either language, it would be prudent to take a course in C programming. Then, once you understand the structure of C language, MQL-4 will be a snap. If you are not a programmer, do not let this stop you from learning to make your own Expert Advisors.

The following web site has all the official documentation on the MQL-4 programming language.

The Different Types of Expert Advisors

There are various different types of Expert Advisors for the MetaTrader 4 platform. Here we will discuss some of the more common types. This is by no means a comprehensive list. There can be other types of Expert Advisors based on the creativity of the programmers who make them.

News Expert Advisor - This is a type of hedging EA. The News EA is designed to take advantage of news events and the large price shifts that can occur during financial news releases.

Breakout Expert Advisor - Designed to open a trade when the price breaks through predefined support and resistance levels.

Hedge Expert Advisor - This is any EA that plays two separate and opposing positions and minimizes the loss on one while facilitating maximum profit on the good trade.

Scalper Expert Advisor - This is the type of EA that will get your account canceled or at least heavily restricted by a broker. It aims to secure small profits as soon as they are available.

What is MQL-4 ?

MQL-4 is short for Meta Quotes Language version 4. This is the programming language created by MetaQuotes Software Corp. (http://www.metaquotes.net) that automates the MetaTrader client terminal.

The following web site has all the official documentation on the MQL-4 programming language.

*What is MetaTrader 4 ?

MetaTrader 4 is a free trading platform developed by MetaQuotes Software Corp. (http://www.metaquotes.net) and supported by many different Forex brokers all over the world. MetaTrader 4 easy to learn and very user friendly.

One of the unique qualities of MetaTrader 4 is the ability to automate trading activities through the use of an Expert Advisor.

Can I run more than one Expert Advisor on the same account/client terminal ?

Yes. You can run multiple instances of an Expert Advisor on the same MetaTrader 4 client terminal. As long as all of the Expert Advisors that you are running in the same client terminal have been designed to get along with each other on the same terminal. (not all Expert Advisors can get along on the same terminal) Mainly because they will try to manage each other’s open trades. Programmers get around this by using magic numbers in the market entrance part of the source code of the Expert Advisor.

There are also platform limitations. Only one Expert Advisor can communicate with the trading server at any one time. If multiple Expert Advisors are active on the same terminal and more than one try to communicate with the trading server you will get "Trade context busy" errors in the logs when this happens if you have too many Expert Advisors on one client terminal.

ForexRealm

2008-01-20T10:36:00.000-08:00

A forex fundamental analysis is made up of strategic assessments in which a particular currency is traded on the basis of various criteria with the exception of the price action. To these criteria belong current economic conditions in the state that this currency represents and a great deal of other elements essential for the subject. Macroeconomic indicators, such as economic growth rates, inflation, interest rates, level of unemployment and other issues – all that is relevant for a good forex fundamental analysis.

There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know a little bit of both. It's important to get a birds-eye view of the currency markets and learn how news affects prices. This is why you must follow and understand the daily Forex news and market analysis of the professional currency analysts - that is forex analytics.

Trading forex works remarkably easy. Everything you need to realize your forex trading practice can be found in broker firm. In the forex trading market, currencies are always priced and traded in pairs. You simultaneously buy one currency and sell another, but you can determine which pair of currencies you wish to trade with forex.

We put forex professional forex articles of our readers to this part. They wrote interesting, useful and high-professional materials using their experience and being real forex traders or other forex market participants. There are articles about forex trading practice, fundamental and technical analysis.

There are the bank holidays of the USA, Japan and United Kingdom on the 2006 and 2007. Each holiday has their own recommended early close date and time. There is the information about currencies codes. The main descriptions of each currency are their Alphabetic code, Numeric code, Symbol and Subdivision.

Forex for beginners: forex history from The Bretton Woods Accord to Free-floating currencies and fixed exchange rates, forex psychology with trading psychology's rules, trading examples, forex glossary from A to Z, forex FAQ's and many other.

Forex Trading Styles

2008-01-20T10:35:00.002-08:00

There are two main Forex trading styles that are used by a majority of Forex traders:

Technical Trading
Fundamental Trading

Each of these has its differences, so let’s look into them in some more detail.

Technical Forex trading is primarily based on one of two tools. Charting tools are, as the name suggests, charts of past currency movements. As with any chart, you can add in trend lines to help smooth out the minor fluctuations and allow you to see the bigger picture. Of course, charting is a lot more complicated than mere trend lines but there are software programs out there that will help with your chart analysis. Once you get deeper into charts, the other main technical Forex trading method is the use of Quantitative Trading Models. These use math to analyze the markets and identify opportunites for trading. Technical trading uses past data to endeavor to predict future movements in the market.

Fundamental Forex trading involves the analysis of things such as key economic data. This includes reports from governments, current event news coverage and any other data that the fundamental analyst considers useful. Fundamentalists consider that currency movements are mainly affected by economic and political conditions and events. Whilst central banks have been known to get involved in the currency markets, this has become less common in recent years. Fundamentalist Forex trading looks at interest rates, inflation figures, balance of trade figures, Gross Domestic Product, retail price indexes, producer price indexes amongst other factors.

You need to decide which of these two trading styles fits best with your own personal style as well as the amount of time you have available for analysis and any help that you can get from computer programs.

How To Choose A Forex Trading System

2008-01-20T10:35:00.001-08:00

Choosing a Forex trading system should be a careful decision for you. Choose the wrong system and you’ll be out of pocket for both the cost of the system and the cost of the trades that went wrong when you follow the trading system you’ve just bought.

Make sure that you check out the various reviews and forums that are available online.

If you’re relying on a review, make sure that it comes from a site that you can trust. If the design of the site looks cheap and unprofessional and is littered with flashing adverts then it’s worth pressing the Back button fast!

Forums are probably a better bet as you’ll get lots of different opinions from the regular people who post. The better forums may even have a section devoted to systems, with a number of user reviews of each one.

Take the time to seek out this kind of advice. It will cost you time but almost certainly save you money.

All About Forex – What You Need To Know

2008-01-20T10:26:00.000-08:00

In order to succeed successfully in forex trading you need to know what the purpose of trading forex is. Forex trading as you know is the trading of online currency and the key to success is to buy low and sell high just as with any other market. You task as a forex trader is to try to determine the trend of the particular currency you are looking to either buy or sell and to utilise the forex trading strategies to ensure that a profit is made.

Now that you know the purpose of forex trading the next step in knowing all about forex is to understand the codes, definitions and numbers used when trading. All currencies used in forex trading are assigned a three letter code. An example of this is the US dollar which is USD or the Euro EUR. Online currency trading is done in combinations that are known as a cross and these are represented by 6 letter words with the more expensive currency coming first. An example of this is GBPUSD which will show you how many US Dollar you will need to pay for one British pound. These rates are shown as five digit numbers for example GPBUSD = 1.6262 which means that 1 British pound is worth 1.6262 US dollars. When the rate changes the change will be displayed in bold, eg GPBUSD = 1.6264 which will mean that the rate has moved by 2 points. Knowing this is the key to successful forex trading and your key to profit.

When you enter the forex trading market you will enter as a buyer or a seller of a particular currency. If you are a seller you price is known as the ASK price and the buyers price is known as the BID. You can only buy currency from a seller with an asking price the same as the BID price.

These are the main beginner’s points to note when it comes to forex trading and knowing what the purpose of trading forex is and knowing all about forex before you enter into the market can make a big difference when it comes to your profits.

Get Started Investing in Forex: 37 Tutorials, Tools & Resources

2008-01-17T11:57:00.000-08:00

Get Started Investing in Forex: 37 Tutorials, Tools & Resources

Even if you're an active trader in stocks, you may not be prepared to invest in forex, or the foreign exchange market. Forex trades 24 hours a day from 5:00 p.m. ET on Sunday until 4:00 p.m. ET Friday, so you won't hear those opening or closing bells. And, there's no central market like the New York Stock Exchange or Nasdaq. Instead, trade is conducted between participants through electronic communication networks (ECNs) and phone networks in various markets around the world. So, when you hear that the US dollar closed at a certain rate, it simply means that was the rate at market close in New York. But currency continues to be traded around the world long after New York's close.

But, like securities, traders can go long or short and they can make a profit or lose money. As with stocks, it's best to conduct some research into how the forex market works before you begin to trade. After you understand how the forex market works, you can begin to build a trading strategy.

The following list contains 37 tutorials, tools, and resources that will help you get started with investments in forex. If you've traded on any stock exchange in the past, some of these tools might feel or appear familiar, but they may have a new twist. The resources listed below were chosen for their clarity and simplicity as well as for their reputation.

Getting Started

The following information is for the forex beginner, but even intermediate-level forex traders might pick up a tip or two from these sites:

Baby Pips: A pip is the smallest unit of price for any foreign currency, so "baby pips" is a bit redundant. But you won't find any redunancy on this site. Skip the news on the front page for now and go straight to the School of Pipsology that holds a complete course for beginners. If you walk through all the lessons contained on this site, you'll have a solid basic forex education under your belt.
Forex Glossary: Although the previous tutorial might help you to understand some forex terms, this glossary is a great tool to have on hand for future reference. You'll see some familiar terms here, like "selling short" and "limit order," and you'll learn that they mean the same as they do when you use them for trading securities. But, you'll also find new terms like "big figure" and "two-way price," terms that will set you apart as a forex trader.
Investopedia: This online financial encyclopedia contains an extensive 10-part article on forex investing, from an introduction to a recap that covers everything from benefits and risks to technical analysis. If you can't get enough of Investopedia's information, head to their Forex index, where you can find a list of articles and an opportunity to download their free e-Book entitled, "High Probability Trading Setups for the Currency Market."
National Futures Association(NFA): Now that you have a basic understanding about forex markets, visit the NFA to learn how to build a sound forex strategy. The NFA is "the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets," which basically means that this organization regulates any market that depends upon future cash flows. The "investor information" section contains materials about how to find a broker and basic lessons in forex trading. Plus, they publish forex warnings, news, and they offer a place for investor disputes and complaints.
Commodities Futures Trading Commission(CFTC): The CFTC operates along the same lines as the SEC (Securities and Exchange Commission), except this government organization focuses on protecting market users and the public from fraud in the futures and option markets. So keep this site handy to stay on top of any forex scams through their Consumer Advisory on Forex Fraud. You can learn quickly what to avoid in your learning curve through a detailed forex advisory that offers information about other resources as well.
Martket Traders Insitute (MTI): You don't need to spend a lot of money to train in forex markets. Even MTI offers free resources such as videos and lesson plans that will help you get off the ground. If you like what you hear and see, you can invest in materials for the advanced trader down the road.

Learn about Currency

If you're going to trade something, you better know what it is you're trading. These currency sites will help you get up to speed on foreign currency exchange and markets.

Exchange Rate: Skip the top link box, as those links will take you to FXCM (Forex Capital Markets — see #13 and #33). Instead, try out the "hot" and "currency info" links that provide information about everything you'd want to know about worldwide currencies for 170 countries. Includes calculators, fun facts, serious facts, and more.
Oanda: With a free registration you can access customizable currency tools, including calculators and foreign exchange data. If you don't register you can still access currency exchange tools that are great items for instant information, especially for travelers, let alone forex investors. The Traveler's Cheat Sheet is indispensable for money-conscious globetrotters.
GoCurrency: This site offers a powerful and accurate currency converter, but don't stop there. Learn about currencies by country, currency forecasts, and gather insights on foreign investments.
The Euro: Confused about the Euro? Over 13 European Union countries now use the Euro, and this Web site, brought to you by the European Commission, will teach you everything you want to know about this currency. But the Euro represents just one currency among hundreds. Which leads me to my next point...
List of Currencies: This is an extensive list provided by Wikipedia that covers everything from ancient coinage to the current Yen. As with most Wikipedia lists, you might run across a link or two that doesn't contain information. But, you can use that information to search elsewhere if needed.

Get the News

Once you've learned the basics, the next best thing you can do before you begin to trade is to read up on forex information via traditional financial news sites and blogs. Use the tutorials listed above during this process so that you can grasp the language and learn the strategies involved in any reporting. Take advantage of forums or chats offered by these resources to ask questions:

Action Forex: This site offers an easy-to-read layout that includes news, insights, fundamentals reports, calculators, and tons of other forex resources.
Daily FX: An easy-on-the-eyes news source that offers a calendar, charts, and a forum. Sponsored by FXCM, this site offers a free weekly trading lesson and free quarterly outlook reports. You must be an FXCM client to access the market commentary, but the other "free" news offers a great resource for learning and for staying on top of forex news.
Forex Reader: The Forex Reader is a popular blog that offers updates on financial headlines relegated by currency. It also serves as a resource for individuals seeking a Houston trucking accident attorney along with other legal and financial information.
Forex News: Like most of the sites listed here, Forex News offers more than news. Check out their forums, their technical news, and their educational and research materials while you're there. Register for free to take full advantage of the site's resources, including a chat feature.
FXStreet: Global Forex Trading (GFX) sponsors this forex news site. Use the forums, chats, strategies, techniques, and trading tools to get a feel for forex. Additionally, several bloggers share their insights, including Wayne McDonell's FX Boot Camp Training Videos (visit his FX Bootcamp site).
Profiting with Forex Blog: You might discover that this newsworthy blog is part of the network, "Profiting with Forex." The blog is interesting, but the backend reports, podcasts, and commentary at the "Profiting" site might appeal to you more.
The Forex Project: Lessons learned first-hand from a forex trader. This site has an unbelievably long list of topics, along with news about the blogger's personal trading experiences, calculators, charts, news, and a perspective on forex psychology.

Participate in Forums

Speaking of forums, here are a few specific resources where you can tap into information from around the world that may help to answer your questions about forex trading and markets. Be aware that individuals who want to sell their ideas visit these forums, just like any other forums. But, you'll find a wealth of valid information here as well.

MoneyTec: With over 33,000 members, this traders' forum offers a format to discuss trading ideas, share, learn, and build new trading techniques and strategies.
Global View Forums: Another free forum that's been around since 1996. This one focuses solely on forex. You must register to participate.
Forex Factory Forum: You'll find a Forex Beginner Q&A section as well as topics that focus on specific strategies and techniques. Free to register.

Learn Strategies

You'll discover that some forex traders use Fibonacci (Fib) methods, and that others rely on current financial news to divine futures. There are as many strategies as personalities in the forex market, but — like the stock market — they rely either on fundamental or technical analysis. The following contains a mix of the two:

Fibonacci Lesson: Don't know much 'bout arithmetic, Fibonacci numbers, or the Golden Section? This tutorial, offered by Dr Ron Knott from the Mathematics Department of the University of Surrey, UK will provide results. Simple to use, easy to understand, and filled with illustrations to help you learn why some numbers are so important to nature. Interstingly, these numbers are also of vast interest to many forex investors.
Fibonacci Forex Indicators: Forex Planet will begin to show you how to apply Fibs to forex in this easy-to-understand lesson. But, the lesson is short, so you might try the next resource as well:
Mini-Lesson on Fibonnaci: This lesson also applies to forex, and it offers a short tutorial on applications along with a downloadable Fib calculator.
Intro to Japanese Candlestick Charting: Altavest provides a short and succinct introduction to Japanese candlestick charting, another method that forex traders use to graph charts.
Candlestick Patterns: If you like the Japanese candlestick methodology, this site will thrill you. Extensive patterns are illustrated graphically from basic to single patterns and reversal to continuation formations. This entire site offers some great information on techniques and strategies beyond the candlestick information, so take some time to look around while you're here. Basically, this site has it all as far as technical analysis goes.
Fundamentals of Forex: Forex TV brings you the lowdown on what type of news would affect forex from a fundamental standpoint. You can use the information on this list to conduct further research, but I'll bring a few of those topics to you now...
Consumer Price Index (CPI): The US Department of Labor offers a ton of information just on this page alone through their links. But, the CPI is often influenced by many other factors. If you're a fundamentalist, you might want to tag this next link for further research as well...
Bureau of Economic Analysis (BEA): Don't play around with someone else's opinions. Get the straight stuff from the US Department of Commerce like the pros. Everyone from the White House staff to US Trade Commission employees to trade policy officials who want to negotiate international trade agreements uses the measurements contained on the BEA Web site. Why should you be left out of this information resource?

Use Charts

Charts offer visual validation for technical strategies, but they also reflect fundamental behaviors in the market. Even if you're a seasoned securities trader, you might want to learn more about the psychology behind forex trading. If you can read all sorts of charts inside and out, you'll have the forex advantage.

The Law of Charts: Joe Ross offers advice for traders across the board, but the information contained in his "Law of Charts" offer speaks to forex as well as any other trading strategy. He identifies chart patterns that result from human behaviors and points to entry and exit targets on those charts. You can take advantage of Ross's other tools as well, including the forum.
Forex Charting 101: A brief and basic overview of forex charts from Pip Trader. You'll discover that the charts are very similar to those that you might use for securities trading. But, some of the charts may seem more complicated if you're not a seasoned trader.
Free Forex Charts: There's no reason for me to push you into using a specific chart. Instead, I'll point you to a short list of free forex charts that you can use for practice. When you're ready to begin trading, take a look at their lists of premium and system trading charts for professional use. The lists contain ratings and reviews, visuals, features, and tips and tricks for individual charts.
FXCM: Although I don't advocate specific brokers in this article, when you visit brokerage sites make sure that you take advantage of any free information offered by those businesses. In this instance, Forex Capital Markets offers tons of information about forex trading, and you can sign up for a risk-free 30-day practice account to get your feet wet. Forex.com and several other brokerage sites also offer this free account service. Be aware that when you sign up for these services that you'll be added to a mailing list. You can opt out of these lists, but read any other pertinent information to make sure that you're not obligated to purchase anything from any brokerage that you use for services such as this one.

Other tools

The tools listed below are "sidebars" to all the information listed above. I'll cut you loose on the last two sites, as they contain just about every site you'd might want to access for more forex information:

Live Forex Rates: You might recognize the GFT logo behind the rates, but don't let that distract you from the constantly changing figures. If you're addicted to live feeds, you'll be mesmerized by the constantly changing currency rates on this chart.
A Free Book about Forex: This book is truly free, as you don't need to register to access the PDF file. A forex trader offers information about all the mistakes he made as he learned how to develop his own forex strategy. Short and easy to read, this little book will bring some insights into how to avoid some pitfalls in the forex markets.
Top 100 Forex Sites: Although these sites are rated by popularity and, therefore, subject to rating scams, you can learn much from the sites that are listed simply from the variety of information that's offered here. Many sites are brokerage firms, but as I mentioned previously you can find free information on many of these sites such as news, calculators, techniques, and more.
Earn Forex: A link exchange/directory for other forex sites. Unlike the "Top 100" site listed previously, Earn Forex doesn't rate their links. But, you will also find much different information here than at the previous site. Additionally, the links are sorted by categories, which makes it easier to find what you need. In addition, you'll find other tools here like calculators, articles, and a forex FAQ and glossary.

There are many other sites that I could list for your forex training, but my next suggestion is to head to your local library and read some books about forex trading. If you find an author or two who are to your liking, begin to study their techniques and strategies both through their books and on the Internet. If you share your information and questions on forums, you might find a mentor who will help you learn how to strategize and to use charts and fundamentals to your advantage as well.

Forex trading isn't learned overnight; so don't feel inadequate if you can't grasp the fine points immediately. You can't lose by learning more about how world economies work. The information that you gather in your search for forex training will make you a better trader no matter which markets you prefer to use

Investing Stock Online

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Investing Stock Online

Forex Market Visit

"Stop hunting" - a simple FOREX strategy

Today FOREX world is built around large leverage and constant use of margin, in equities, standard margin is set at 2:1, in options, the leverage increases to 10:1, in the futures market, the leverage factor is increased to 20:1, but in the FOREX market the leverage sets the highest bar by increasing to 100:1 ratio and can climb up to 200:1 meaning that you can invest $100 for a $20,000 value control! An experienced trader would limit his leverage to no more than 10:1.

Alongside leverage usage, or as in many FOREX rookies' cases using too much leverage, comes the opportunity for either extremely profitable or extraordinarily dangerous and huge loses. You can double your account overnight or lose it all in a matter of hours if you make use of the full margin at your disposal. Considering that fact, most FOREX traders use "stops" order / "stop-loss" - they simply do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged, and here you can step in and take advantage of this knowledge.

Stop order in a nutshell is a form of insurance or security measure that is given to buy or sell when a currencies' price surpasses a particular point. Using stop loss is critical for long-term survival. By setting a predetermined entry or exit price, investors usually use this system to minimize their loses when off for the business day or any other situation in which they are unable to monitor their portfolio for an extended period.

The main FOREX strategy which takes advantage of this knowledge is "Stop Hunting" , which attempts to force some foreign currency exchange investors out of their positions by driving the price of a currency pair to a level where many investors have chosen to set their stop-loss orders (aka "weak longs"), by understanding that the human mind naturally seeks order, most stops are clustered around round numbers ending in "00" (i.e. if the EUR/USD pair was trading at 1.1380 and rising in value, most stops would reside within one or two points of the 1.1400 price point rather than, say, 1.1417). Absorbing that fact alone is priceless knowledge (the price of a currency pair can experience sharp moves when many stop losses are triggered); professional traders place their stops at less crowded and more unusual locations. The possibility of profit from these unique dynamics of the foreign currency market is huge and proven.

Probably you had seen this chart on your FOREX trading software and wondered what all those lines and measures mean.

Mia Milis is an independent trader and provides financial advice regarding foreign exchange to several institutions as well as private individuals. Being an Internet enthusiast, she has taken up to provide advice through her brilliant articles, and in recent years has also founded theforexblogger.com in order to provide a platform online traders worldwide could share experiences through.

FOREX charts: Moving Average Convergence-Divergence (MACD)

Probably you had seen this chart on your FOREX trading software and wondered what all those lines and measures mean. MACD is a chart that shows the average of the differences between two moving averages. On the charts you can see two lines on an open scale against the zero line, a fast one and a slow one. Those lines tells you the difference between the original two moving averages, and the moving average of the difference. On the chart each one of the two lines will be defined by a different color, or alternatively one line would be solid and the other one dotted. Frequently used settings are 12 and 26 period exponential moving averages with 9 period exponential moving averages as the signal line.

On the chart you'll see only two lines even though there are three moving averages mentioned. If the faster line crosses above the slower line then it is recommended that you buy, and vice versa. Another indicator this chart offers for FOREX users is that as long as both the lines are above the zero the more overbought the currency becomes, and as long as both lines are underneath the zero is the more oversold it would become. It may also lead to a stronger signal if the signal line crosses down when it is overbought and crosses up when it is oversold.

In case that the MACD is making new lows and the price of the security is not making new lows there is a divergence. Also, if the MACD has made a high and starts heading down yet price continues growing, it is clearly a bearish divergence and by using this information you can predict a change in the direction. MACD is commonly used as an indicator for divergence.

For conclusion MACD in a common tool FOREX traders and investors use for analysis and for forecasting the market's behavior. Using it wisely it can help you generate a nice profit.

Forex Trade: Main Drawbacks of a Forex Trader

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Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? Although there is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.

The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.

The search for the Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.

Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn’t that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.

Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.

Not Using Money Management.
Most traders forget about this important aspect of trading. They think they shouldn’t be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.

Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant “the crowd.” In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.

Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That’s right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.

These are some of the most important barriers every trader faces when trying to trade successfully.

Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.

Forex Broker Guide

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Introduction

The following is a list of questions you may like to ask yourself, your broker and other traders about a particular firm you have in mind. You can use this checklist to narrow down your selection of forex companies to fit your requirements.

1. Word of Mouth

What do other traders say about the broker?
What is their customer service/dealing desk like?

2. Safety of Funds

Is the broker regulated?
What regulatory organisation are they registered with and what protections does this afford you?
Are client funds insured against fraud at the firm?
Are client funds insured against bankruptcy of the firm?

3. Execution

What business model do they operate? i.e. Market Maker, ECN or NDD?
How fast is their order execution?
Are orders manually or automatically executed?
What is the maximum trade size before you are put on manual execution?
Are all clients trades offset?

4. Spread

How tight is the spread?
Is it fixed or variable?
Is it larger for mini accounts?

5. Slippage

How much slippage can be expected in normal and fast moving markets?

6. Margin

What is the margin requirement? e.g. 0.25% (max 400:1 leverage), 0.5% (max 200:1 leverage), 1% (max 100:1 leverage), 2% (max 50:1 leverage), etc.
Does it change for different currency pairs or days of the week?
Is it the same for standard and mini accounts?

7. Commissions

Do they charge commissions? (Most market makers commissions are built into the spread, whereas ECN's charge a small fee)

8. Rollover Policy

Is there a minimum margin requirement in order to earn rollover interest?
What other requirements or conditions are there for earning rollover interest?

9. Trading Platform

How reliable is it during fast moving markets and news announcements?
How many different currency pairs can you trade?
Do they offer an Application Programming Interface (API) for automated trading systems?
Does it offer any other special features? (e.g. One click dealing, trading from the chart, trailing stops, mobile trading etc.)

10. Trading Account

What is the minimum account opening balance?
What is the minimum trade size?
Can you adjust the standard lot size traded?
Can you earn interest on unused equity in your account?

Why Trade Forex

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Take control of your own finances.Beat the returns from mutual funds, hedge funds or managed funds.

Start-up costs are low when compared with day trading stocks or futures.

Forex is the world’s largest market. No one can corner the market.

With a trading volume of around $1.9 trillion dollars a day, no single entity can control the market for an extended period of time.

You can make money when the market is going up or down.

Forex markets trade 24hours a day. There is no waiting for the opening bell.

Technical analysis works very well and the market trends well.

Forex offers up to 100:1 leverage but it is wise avoid very high leverage if you can afford it. Stocks offer 1:1 or 2:1.Futures offers 15:1 leverage

The forex market is the most liquid in the world. Traders can almost always open or close a position at a fair price.

You can make big money working only a few hours a day or week on your computer.

You can trade from anywhere in the world where there is an internet connection.

You can gain experience without risking your own money by using a free demo account.

When trading stocks, there are over 40,000 stocks to choose from. In forex, you can choose one or two currency pairs and focus your analysis.

Forex Tips

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Tip 1. Gamblers go to casino. All unproved, spontaneous actions in Forex trading — are a part of pure gambling.
Any attempt to trade without analysis and studying the market is equal to a game. Game is fun except when you are losing real money...

Tip 2. Never invest money into a real Forex account until you practice on a Forex Demo account!
Allow at least 2 month for demo trading. Consider this: 90% of beginners fail to succeed in the real money market only because of lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.
A good demo account to start practicing with could be, for example, FXGame from Oanda.

Tip 3. Go with the trend!
Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won't "kill" a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.

Tip 4. Always take a look at the time frame bigger than the one you've chosen to trade in.
It gives the bigger picture of market price movements and so helps to clearly define the trend. For example, when trading in 15 minute time frame, take a look at 1 hour chart; trading hourly would require obtaining a picture of daily, weekly price movements.

If a trend is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Always make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying big trends, what's happening in the market here and now (during 5-10 minute time frame) should be of only importance to a Forex scalper.

Tip 5. Never risk more than 2-3% of the total trading account.
One important difference between a successful and an unsuccessful trader is that the first is able to survive under unfavorable conditions on the market, while an unsuccessful trader will blow up his account after 5-10 unprofitable trades in the row.

Even with the same trading system 2 traders can get opposite results in the long run. The difference will be again in money management approach. To introduce you to money management, let's get one fact: losing 50% of total account requires making 100% return from the rest of money just to restore the original balance.

Tip 6. Put emotions down. Trade calm.
Don't try to revenge after losing the trade. Don't be greedy by adding lots of positions when winning.
Overreaction blocks clear thinking and as a result will cost you money. Overtrading can shake your money management and dramatically increase trading risks.

Tip 7. Choose the time frame that is right for you.
Choosing wise means that you are comfortable and have time enough to analyze the market, place and close orders etc. Some people can't wait for hours for the price to make a move, they like action and therefore prefer smaller time frames. On the contrary, for others 10-15 minutes is a hustle to be able to make the right decision.

Foreign exchange market

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The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion.Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and are subject to forex scams

Market participants

nlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips only for major currencies like the Euro). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Balance of trade

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The balance of trade (or net exports, sometimes symbolized as NX) is the difference between the monetary value of exports and imports in an economy over a certain period of time. A positive balance of trade is known as a trade surplus and consists of exporting more than is imported; a negative balance of trade is known as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance; especially in the United Kingdom the terms visible and invisible balance are used.

Definition

The balance of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.

The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stocks, nor does it factor the concept of importing goods to produce for the domestic market).

Measuring the balance of payments can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by a few percent; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely to be good.

Factors that can affect the balance of trade figures include:

Prices of goods manufactured at home (influenced by the responsiveness of supply)
Exchange rates
Trade agreements or barriers
Other tax, tariff and trade measures
Business cycle at home or abroad.

The balance of trade is likely to differ across the business cycle. In export led growth (such as oil and early industrial goods), the balance of trade will improve during an economic expansion. However, with domestic demand led growth (as in the United States and Australia) the trade balance will worsen at the same stage in the business cycle.

Foreign currency mortgage

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foreign currency mortgage is a mortgage which is repayable in a currency other than the currency of the country in which the borrower is a resident. Foreign currency mortgages can be used to finance both personal mortgages and corporate mortgages.

The interest rate charged on a Foreign currency mortgage is based on the interest rates applicable to the currency in which the mortgage is denominated and not the interest rates applicable to the borrowers own domestic currency. Therefore, a Foreign currency mortgage should only be considered when the interest rate on the foreign currency is significantly lower than the borrower can obtain on a mortgage taken out in his or her domestic currency.

Borrowers should bear in mind that ultimately they have a liability to repay the mortgage in another currency and currency exchange rates constantly change. This means that if the borrowers domestic currency was to strengthen against the currency in which the mortgage is denominated, then it would cost the borrower less in domestic currency to fully repay the mortgage. Therefore, in effect, the borrower makes a capital saving.

Conversely, if the exchange rate of borrower’s domestic currency were to weaken against the currency in which the mortgage is denominated, then it would cost the borrower more in their domestic currency to repay the mortgage. Therefore, the borrower makes a capital loss.

When the value of the mortgage is large, it may be possible to reduce or limit the risk in the exchange exposure by hedging

Managed currency mortgages can help to reduce risk exposure. A borrower can allow a specialist currency manager to manage their loan on their behalf (through a limited power of attorney), where the currency manager will switch the borrower's debt in and out of foreign currencies as they change in value against the base currency. A successful currency manager will move the borrower's debt into a currency which subsequently falls in value against the base currency. The manager can then switch the loan back into the base currency (or another weakening currency) at a better exchange rate, thereby reducing the value of the loan. A further benefit of this product is that the currency manager will try to select currencies with a lower interest rate than the base currency, and the borrower therefore can make substantial interest savings.

There are risks associated with these types of mortgages and the borrower must be prepared to accept an (often limited) increase in the value of their debt if there are adverse movements in the currency markets.

A successful currency manager may be able to use the currency markets to pay off a borrower's loan (through a combination of debt reduction and interest rate savings) within the normal lifetime of the loan, while the borrower pays on an interest only basis.

Currency pair

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A currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labelled quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.

For example the quotation EUR/USD 1.2500 means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar weaker. On the other hand if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.

Majors

Majors are the most liquid and widely traded currency pairs in the world. Trades involving majors make up about 90% of total Forex trading.

The Majors are:

EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.

GBP/USD is the only currency pair with its own name. It is known as "Cable", which has its origins from the days when a cable under the Atlantic synchronized the GBP/USD rate between the London and New York markets. But there are also lots of abbreviations for other currency pairs such as:
AUD/USD ... "Aussie"
EUR/USD ... "Euro"
GBP/JPY ... "Geppy"
GBP/USD ... "Cable"
NZD/USD ... "Kiwi"
USD/CAD ... "Loonie"
USD/CHF ... "Swissy"
USD/JPY ... "Gopher"
USD/CAD ... "Beaver"

Cross Rates

Cross rate is a currency pair that does not include USD, such as GBP/JPY. Pairs that involve the EUR are called euro crosses, such as EUR/GBP. All other currency pairs (those that don't involve USD or EUR) are generally referred to as cross rates.

Pips

A pip is the smallest number in a quotation of a currency. For example if the quotation of EUR/USD is 1.2025, a pip is represented by EUR 0.0001. EUR/GBP has half pips, in that it is quoted to a fifth decimal place which can only be 0 or 5. This is because one pip in EUR/GBP is equal to four pips in its predecessor, GBP/DEM, and one pip in EUR/GBP would be too large an increment.

In order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size, leverage used, and of course the actual rate of the pair for which you want to calculate the pip value. For example in case of US Dollar

Foreign exchange reserves

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Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official reserves or international reserves. These are assets of the central bank held in different reserve currencies, such as the dollar, euro and yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.

Changes in reserves

The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a fixed exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized^[clarify]) to maintain the targeted exchange rate within the prescribed limits.

Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements.

To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services).

Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves.

In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data.

Costs and benefits

Large reserves enhance a government's ability to amanipulate exchange rates -- but they carry an opportunity cost. The "quasi-fiscal costs" of holding reserves are the gap between the low-yield assets that asset managers typically hold, and the average cost of government debt in the country. In addition, governments can suffer losses from management of reserves - all of which is ultimately fiscal. Even in absence of a currency crisis, there can be a fiscal cost. China, for example, holds huge U.S. dollar-denominated assets, but the greenback has been weakening

Forex swap

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A forex swap (or FX swap) is an over-the-counter short term interest rate derivative instrument. In emerging money markets, forex swaps are usually the first derivative instrument to be traded, ahead of forward rate agreements.

Structure

A forex swap consists of two legs:

a spot foreign exchange transaction, and
a forward foreign exchange transaction.

These two legs are executed simultaneously for the same quantity, and therefore offset each other.

Uses

Forex swaps are used for hedging currency positions and for speculation.

Hedging

Investors use forex swaps to hedge their existing forex exposures by swapping temporary surplus funds in one currency into another currency for better use of liquidity. Doing so protects against adverse movements in the forex rate, but favourable moves are renounced.

Speculation

Investors use forex swaps to speculate on changes in the interest rate differentials between two currencies.

The relationship between spot and forward is as follows:

where:

F = forward
S = spot
r_T = interest rate of the term currency
r_B = interest rate of the base currency
T = tenor (calculated according to the appropriate day count convention)

The forward points or swap points are quoted as the difference between forward and spot, F - S, and is expressed as the following:

where r_T and r_B are small. Thus, the absolute value of the swap points increases when the interest rate differential gets larger, and vice versa.

Related instruments

A forex swap should not be confused with a currency swap, which is a much rarer, long term transaction, governed by a slightly different set of rules.

Retail forex

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retail forex (retail currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times. It's commonly thought that about 90% of all retail FX traders lose money.

Currency Pairs

Currency prices can only fluctuate relative to another currency, so they are traded in pairs. Take two of the most common currency pairs, the EUR/USD (the price for euros in US dollars) and the GBP/USD (the price for the British pound in US dollars).

High Leverage

The idea of margin (leverage) and floating loss is another important trading concept and is perhaps best understood using an example. Most retail Forex market makers permit 100:1 leverage, but also, crucially, require you to have a certain amount of money in your account to protect against a critical loss point. For example, if a $100,000 position is held in Eur/USD on 100:1 leverage, the trader has to put up $1,000 to control the position. However, in the event of a declining value of your positions, Forex market makers, mindful of the fast nature of forex price swings and the amplifying effect of leverage, typically do not allow their traders to go negative and make up the difference at a later date. In order to make sure the trader does not lose more money than is held in the account, forex market makers typically employ automatic systems to close out positions when clients run out of margin (the amount of money in their account not tied to a position). If the trader has $2,000 in his account, and he is buying a $100,000 lot of EUR/USD, he has $1,000 of his $2,000 tied up in margin, with $1,000 left to allow his position to fluctuate downward without being closed out.

Typically a trader's trading platform will show him three important numbers associated with his account: his balance, his equity, and his margin remaining. If trader X has two positions: $100,000 long (buy) in EUR/USD, and $100,000 short (sell) in GBP/USD, and he has $10,000 in his account, his positions would look as follows: Because of the 100:1 leverage, it took him $1,000 to control each position. This means that he has used up $2,000 in his margin, out of a $10,000 account, and thus he has $8,000 of margin still available. With this margin, he can either take more positions or keep the margin relatively high to allow his current positions to be maintained in the event of downturns. If the client chooses to open a new position of $100,000, this will again take another $1,000 of his margin, leaving $7,000. He will have used up $3,000 in margin among the three positions. The other way margin will decrease is if the positions he currently has open lose money. If his 3 positions of $100,000 decrease by $5,000 in value (which is fairly common), he now has, of his original $7,000 in margin, only $2,000 left.

If you have a $10,000 account and only open one $100,000 position, this has committed only $1,000 of your money plus you must maintain $1,000 in margin. While this leaves $9,000 free in your account, it is possible to lose almost all of it if the speculation loses money.

Forex scam

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A forex scam is any trading scheme used to defraud individual traders by convincing them that they can expect to gain an unreasonably high profit by trading in the foreign exchange market. "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal. This market would be a zero-sum game were it not for the fact that there are brokerage commissions, which technically make forex a "negative-sum" game. "The market has long been plagued by swindlers preying on the gullible," according to the New York Times .

These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits, improperly managed "managed accounts", false advertising, Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.

An official of the National Futures Association was quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"

The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market makers.

Why retail speculators shouldn't be able to beat the market

The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attentions full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.

Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of Gambler's Ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.

The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade must be "resettled" each day, each time costing the full bid/ask spread.

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.'