Beginner’s Guide To Fx

Fx, foreign exchange, forex and


currency exchange are all names for the market for trading


currencies.

On the currency


exchange, trading is used to speculate on


the strength of one currency against


another, so currencies are always traded in pairs if you


believe the first named currency will fall against the second one, you sell, if you


believe the first named currency will rise against the second, you buy.

As an example, if you believed the Australian dollar would


rise against the US dollar, you


would buy, or go 'long'. It is quoted at 1.6756 / 1.6759 and you buy one contract at 1.6759.







 For each unit of 0.0001


( or 'pip ) the Australian dollar rises against the US dollar, your profits increase, and for each 'pip' ( or 0.0001 unit ) the Australian


dollar falls contrary to the USD, your profits fall. In an AUD100,000 contract, you have got an exposure of USD10 for every pip


movement, figured out by multiplying the pip unit by


the value of the contract ( USD0.0001 x AUD100,000 = USD10 ). So if the


AUD goes up to 1.6759, you make USD30.

 When your account is open it will be altered daily to reflect the overnite


effect of the difference in rates between the Australian and


US dollars Together with a rate of


interest of your CFD broker for holding a long position.




 So a few days later AUD


/ USD is trading at 1.6877 / 1.6878 and you decide to


close your position, selling your contract and taking your profit. The biggest


difference between the closing position of 1.6844 and the opening position of


1.6859 is 0.0121, so yourreturn is USD1,210 ( USD0.0121 x AUD100,000


= USD1,210 ).

Why trade fx

• The forex market is the world's most traded market, with a daily
  
  
  trading volume of USD3.98 trillion as of April 2010, according to the
  
  
  Bank for International Settlements. This comprises USD1.49 trillion in spot transactions, USD475
  
  
  bn. in outright forwards, 1.765 trillion in foreign exchange swaps, USD43 bln in currency swaps
  
  
  and USD207 bn. in options and other products.
•  The liquidity of the
  
  
  currency markets, which means the bid-offer
  
  
  spreads are small contrasted to other asset
  
  
  groups, particularly in the case of major
  
  
  currency pairs , such as like the Australian, US and
  
  
  Canadian dollar, and the British pound, yen, euro and Swiss
  
  
  franc.
•  Due to
  
  
  the higher levels of liquidity, you
  
  
  can use high gearing having the ability to trade USD100,000 unit currency lots for as
  
  
  low as a 0.5% deposit, or USD 500.
•  Foreign
  
  
  exchange trading is commission free.
•  As the forex is a Twenty four hour
  
  
  market, trading positions that may be opened then shut at all hours, and internet trading means
  
  
  your orders are executed straight away.
•  It's possible
  
  
  to turn a profit at any time in time as currencies
  
  
  are traded in pairs, one will be moving versus the other.
• Though
  
  
  price movements can be
  
  
  volatile, they usually follow
  
  
  predictable patterns, which can sometimes be an advantage
  
  
  for traders who've got a clear system.

Remember that CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks concerned.     

The Reasons Why Most Financial Forex Traders Fail

Why


don’t more online fx traders succeed?

If you look for


information about successful fx


traders online, they typically say that upwards of Ninety percent of fx traders fail.


Though this might not be correct, the truth is that many of fx traders fail to


make a consistent profits from forex trading. Following


are the most significant reasons why they fail.

Expecting quick money

Many brokers across a


variety of markets publicise how


straightforward it is to start


trading, which causes new fx traders to think that trading


is asimple way to quickly make a considerable


amount of money. Yes, it is easy to trade with online trading platforms accessible from your smart phone handset, it's simple to open up and shut trades with a single click.

It is also not


difficult to make money everyone can


profit from a little luck and make a


successful fx trade without understanding how the


market functions. However, it is much more difficult make money regularly, and


it can be just as easy to lose money as it is to turn a


profit if you aren't equipped.

Not having a forex trading plan

Your trading plan


should cover both your goals, and what you'll do when


unexpected events occur.

What would you like to get out of trading? If it is something you


want to try once just to have a go, then go


ahead. But if you want to make


consistent profits in your trading then you have got to


have a plan that covers what you want to achieve,


whether or not that is an additional


$1,000 spending money in the bank a month, or a


nest egg for your children's


education. Knowing what you want to


earn from your trading also helps you plan what to put


aside , as well as what to reinvest.

Also, what will you


do when things go wrong? The market may turn against


you, or a power blackout could


prevent you from closing a fx trade. If you know how to


react to these things in advance then you will be less likely to


desperately bet away your capital attempting to quickly win your money back.

Not having a trading


method

If you don't


use a trading program then you will not know what works and what does not because you will be constantly changing your methods.


Being consistent is the best way to find out whether a trading


program works and, if it does, being consistent will


end in consistent profits.

Your trading


program should address your indicators for


entering, adding to and closing positions, the


percentage of your capital you are able


to risk, how to set orders for


when the market opens, and the tools you may use to


educate yourself about the market ( like charts, market


updates, business news, and so on ).

Once you have a system in effect keep notes of your


trades to monitor your success and change your


method.

Not handling trading risk

Most forex


traders just focus on possible profits, ignoring


possible risks . Even the best trading systems aren't right


100 pc of the time, meaning


that even the best forex traders will make losses.

So how much should


you risk? A common guideline is never risking


more than 2 percent of your capital per fx


trade. If you only risk 2 percent per trade, 5 straight


losses only equate to 10% of your capital gone,


and it is far easier to make back 10% of


your capital than it is to make back 50% or even


90%.

Other


favored forms of risk handling, made


easy with the advent of


online trading software, are stop and limit orders. Stop losses


order your fx trade to close if the market moves against you


to a certain amount. So if you have invested in


share CFDs and you place a stop loss at $0.50 below the share price when you


opened the trade, even if the shares lost $1 or $2 in


value your fx trade would be


automatically closed when the shares lost


$0.50, reducing your possible losses.

Trailing stops are


another kind of stop order, but they follow the market if it moves


in your favor. So if you set a $0.50 trailing stop on your


share CFDs, your opening stop would be $0.50 below the


value of the shares. If the shares went up by $1, your trailing stop


would also rise by that amount, staying $0.50 below the current share


price, so sealing in your profits in case the


price falls suddenly.

Limit orders work


like stop losses instead of reducing your


losses, they work to guard your profits. A stop loss closes an fx


trade when the market moves against you to a certain


extent. A limit closes a trade when the market moves in your


favor to a degree. So if you


invested in share CFDs that were worth $1.50, you could


place a limit order at $3. This would cause your trade to close


immediately when the shares rose to $3, meaning


that you would have taken your profits before a possible price


drop.

Not being disciplined

Of the reasons why forex traders fail, discipline is the most


important. Discipline is needed to make


regular trading profits. It takes discipline to


form a method, discipline to follow that


method, discipline to keep recent


with market movements, discipline to trade frequently, and


discipline to conserve your profits and to recover


from your losses.

Discipline is also


needed in circumstances where you shouldn't act


, such as pushing out your stop-losses when the market


turns against you, and then putting more money into a


poor fx trade in hopes that things


will turn around.

Unfortunately, the


human mind appears naturally inclined to break trading rules -


don't! If you have realistic expectations, put a trading plan and


method in effect manage your risk,


protect your profits and remain disciplined, you are on the


right path to being a successful trader.     



Remember that CFDs and forex are leveraged products and can result in losses that exceed your first deposit. CFD trading may not be appropriate for everybody, so please make sure you understand the risks concerned.     

Forex exit techniques

Many


instructional articles on forex trading debate when to trade currency


exchange, which currency pairs to choose and how much to trade, but few debate when to close


a trade. Closing a trade at the right point will both


maximise your profits and decrease your


risk.

Following are some


secrets for closing your trades :







Number 1 Currency


exchange closing strategy


– stop losses

A stop loss is when


you set an automated closing level on your currency


exchange trade in case the market moves against you,


and can be a brilliant way of handling your


risk if you are trading part time.

Let's imagine you went short on the EUR / USD at 1.4988 with a stop loss at 30


pips – this implies your stop is set at 1.5018, so if the


euro rises to that level against the US dollar, your trade


will be automatically closed, cutting your losses.

An advantage of


setting a stop loss is that you know how much


money you are risking as soon as you open a trade. When choosing the level


of your stop loss, be absolutely sure to leave enough room for market


fluctuations, as you would hate for your trade to close before the


market turned in your favor.

Number 2 Currency


exchange closing strategy


– trailing stops

Like stop-losses, a


trailing stop is also when you set an automated closing


level on your fx trade. But a trailing stop


automatically follows the market when it moves in your


favor.

If we continue with the previous example, you sold the EUR / USD at


1.4988 in the expectation that the price would go down and


you would make a profit on the difference in price. Instead of having a stop loss at 30 pips, you could set a


trailing stop at 30 pips. This would make your opening stop 1.5018,


and if the euro sank to 1.4856, your stop would drop to 1.4886. By


this stage, your stop is now below the opening cost of the trade,


implying even if the


cost of the euro rose and caused this stop, you


would still finish the trade with a decent profit.

Trailing stops allow


you to manage risk while enjoying unlimited profits.







Number 3 Currency


exchange closing


strategy – profit targets

You can


choose to exit a currency exchange


position when you reach a certain profit target. One of the advantages of this is that you can claim your profits as


fast as they are hit, instead of risking


missing a price fluctuation because your internet connection is slow.




The other advantage


of setting profit targets is that they can be set


automatically, taking the emotion out of trading.


This eliminates the chance of keeping a position


open to see how much more money you can make, and then


having the market turn.







Number 4 Forex exit technique


– break even targets

Like profit targets,


break even targets are targets to stop you from making a loss on your


original investment. This is typically


achieved using trailing stops, where a stop is moved to your entry price, or


slightly outside your entry price.

Number 5 Forex exit


technique – timed exits

A timed exit is


selecting when you would like a trade to shut


at the time of opening a position. This may be timed with


private restrictions ,eg


work or private commitments, or it might be timed with


industrial and political stories ,eg a budget or rate of interest


statement.

You may also


time your forex trades to shut


at the end of the US or European trading sessions.







Technique


specific exits

The exits


you opt to implement will rely upon


your system they could involve one or two of the


previously mentioned techniques, or


some private targets. This suggests that the


mixture of exit techniques is infinite,


so find a technique that will help you


reduce risk and save your profits, monitor its success, and


tweak it as you become a more seasoned trader.     










Remember that CFDs and forex are geared products and may result in losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks involved.     

The factors impactingforex

Of the factors that


may affect forex rates, the most


serious include economic factors,


commodity prices and the terms of trade, interest rate differentials,


political factors and capital flows.

The influence of economic


factors on foreign exchange







Economic


circumstances can have a significant impact on long-term foreign exchange rate movements, and


the most significant factors are relative inflation rates, and the


balance of payment trends.

 Relative inflation rates

The purchasing power


parity (PPP) exchange-rate calculation asserts that


international exchange rates should adjust to


equalise the price of a basket of products in a


common currency. So, a basket of products and


services in France ( including items


like food, property, utilities, entertainment, etc. ) should cost the same as a basket of the same services


and goods in the US, or Australia, or


Singapore, once the value of each basket has been converted to a common


currency.

 However, if one


nations inflation is higher than another, sooner or later that nations exports


will be more expensive than similar products in the second


country. If we say the 1st country is the US, and the


second is Singapore, this would make it


desirable for the US to import more from Singapore,


as Singapore's products will be less expensive.


Accordingly, as products manufactured in


the States are getting more


expensive due to inflation, the US will export less and will run a


rising trade deficit with Singapore.

This could only be corrected by a depreciation in


the foreign-exchange rate.

Therefore if


the price of a basket of products and


services in Singapore rose by 3%


over the passage of time and the price


of the same basket rose by 15% in the US, the US


dollar should depreciate by 10.4% to fix the relative


inflation rates: (115 – 103)/120 x 100 = 10.4%

That having


been said, there are a number of problems with


the PPP measurement :

• Different nations don't use the same
  
  
  baskets of products
• The range and quality of these products
  
  
  can change
• Trade barriers, like transport costs and trade
  
  
  restrictions, break the link between
  
  
  the prices of products in different nations
• Nations don't comply to a uniform
  
  
  price level though food prices may be higher
  
  
  in one country, that country might also have lower house prices
• At its most elementary, PPP doesn't take into account relative
  
  
  revenues, and also must be
  
  
  altered for GDP

And, so far as


it's affect on the foreign exchange market is


concerned, currency is traded for reasons aside


from the exchange of services and


goods. Nonetheless PPP foreign-exchange rates can be helpful when


official rates re manipulated by governments, as it


is likely the most pragmatic foundation for


commercial comparison when a country appears artificially


strong.

 Balance of payment trends

When foreign-exchange


rates were fixed (1944-1973), nations with persistent payment


deficits might devalue their currencies to encourage exports and


discourage imports.

In the


existing floating foreign exchange market,


the belief that currencies of countries in


debt with payment issues will deflate, while the


currencies of countries with trade surpluses will inflate,


has been carried forward.

The currencies of


countries with persistent trade deficiencies will


usually be pushed down as there are far more sellers of the


currency ( importers paying for goods in


foreign currencies ) than buyers of the currency ( exporters


who have to convert foreign invoices into local


currency ).








The impact of commodity


costs and the terms of trade

Commodity


costs can have a serious impact on


the foreign exchange rate movements of


commodity currencies (the currency of a land that relies heavily


on the exportation of commodities for


income), such as the AUD, CAD and NZD.

Quite


simply, when the demand for commodities goes up, so do their


costs, and so does the GDP of a major commodities exporter. So,


the value of the commodity producer’s currency also rises.







The terms of trade is a proportion comparing export


and import costs if a country's export costs rise


by a greater rate than its import costs, that


country's terms of trade have favorably improved. If a


country's terms of trade improve, the demand for exports


causes a rise in the currency's value.

The impact of interest rate


differentials on foreign exchange

Differentials in


interest rates are have one of the biggest impacts on


short term movements in foreign-exchange


rates. Higher interest rate currencies have a tendency to


appreciate against lower interest rate currencies, as


investment in securities carrying a higher


interest rate will result in greater returns


that investment in securities with a lower


interest rate. As it's important to buy the


pertinent currency before getting a


security, the demand for this currency pushes the foreign


exchange rate up.

However, this only works if


all other factors between the countries are


equal. If an economic


degradation is expected to


undermine a currency, the interest rate differentials would have


to be exceedingly giant to nullify


the acknowledged exchange rate risk.

This is why central banks may tighten financial policy to forestall downward pressure on currencies.







The


impact of politics on foreign exchange







Political factors may affect the foreign exchange rate in the


short term, as foreign investors withdraw money from a


country in periods of political doubt.


This means election campaigns can be turbulent times in


the foreign exchange market, as one party may be


campaigning for financially irresponsible policies, or policies that


are disagreeable to investors.

Government


interference into the market can also have an effect on foreign exchange rates.

The impact of capital flows on foreign


exchange

The flow of capital


into a country can have a major influence on a currency


rates, particularly if all the other factors are


relatively stable. When investor sentiment favors a


certain economy or industry, capital flows into that economy,


boosting the currency.







To


conclude







Although one can


explain forex rate movements in relation to the economy, politics, rates, etc., it is


simpler to evaluate this retrospectively than it is to prediction


currency exchange rates, as these


factors might be pointing in different directions. The forex trading of both


beginner and experienced traders can gain benefit from reading market analyses written by


forex brokers, who


might be more experienced at interpreting movements


presently taking place in the market.









Remember that CFDs and forex are geared products and may lead to losses that surpass your initial deposit. CFD trading might not be suitable for everyone, so please make sure that you understand completely the risks involved.

How to select a foreign exchange trading platform|Questions to ask before selecting a foreign exchange trading platform}

It can be


intimidating to pick a forex trading platform when you


start trading - here are some features


that any good foreign exchange trading


platform should have :

 Security

Does the foreign exchange broker offer information about the security measures of its platform? Your trading and


personal data should be encoded, so that


your cash and identity are secure, whether you are paying and


being paid through PayPal or online bank transfers.

The foreign exchange broker should also offer


guidance on how to


increase your online security I'd be particularly


suspicious of one that did not because they may be


making themselves liable if there are any issues.

Also, are there


backup systems where your information can be stored in case of an IT problem?

Reliability

When are you able


to use the foreign exchange trading platform? As


forex is a Twenty four


hour a day market, 5.5 days every week, look for something you can use at any


point. Even when the market is closed, you want to be able to


place orders to open when the market does.

The trading system should


also be efficient if it is slow then the prices at which you are trading


might be outdated. A good forex trading platform should update several times a


second.

One-click trading

If a forex trading platform is unreliable, slow or


susceptible to interruption, a trader  can miss a quick opportunity. A


platform that offers one-click trading will permit you to sell or buy forex contract with one click, which means


there's no need to deal a ticket, and you won't


miss the price you would like.

Trading style compatibility

Does the trading platform suit your trading style?

Is it simple to understand, or is it able to


only be understood by a Wall St retiree? Look for a platform


where it's not hard to search for your market, and,


if you'd like to trade more than forex, look for one that also permits you to trade


on shares, options and indices.

Where are you trading


from? If you utilize a Mac, can you use the


platform on it? Likewise, can the programme be referenced utilizing different browsers and different


smart-phone handsets.

Essentially, does it do what you want? A good forex trading platform


should be customizable to suit your trading


technique does it permit automated trading, and does


it permit you to micromanage every trade. The trading platform should be able to warn you of good trading opportunities , alongside accepting complicated orders, including the


various stops and profits the forex broker offers, so you can simply


reduce your risk while


increasing your profits.

 Charts

Does the


forex trading platform have a separate charting


platform, and how straightforward is it to navigate? And, if you'd like to trade from your iPhone or Blackberry, can you access these from your handset? And, can


you trade straight from the charts, or is it necessary to deal a ticket?

Depending on your level of expertise, you


might want a charting package with a pattern recognition tool that can monitor the markets on your behalf, and could even


tell you when the chart patterns are indicating trading


opportunities.

And, if you'd like to trade forex


throughout the day, it's crucial the charts are updated in realtime.

Market Analysis

Does your forex broker offer market analyses, and is this


available using their trading system or is it necessary to visit their website?

A good


forex trading platform should include


market research tools, including news feeds, in-house research and


third-party research. As information is power, you need


to be able to access as much information as


practical and to have access to it without


crawling the web for the information you want.

 Any trading that


offers market research should also have


historical information available, so you


can see the way in which the foreign


exchange was influenced when a similar event


occurred.

Price

Is the platform free?


Many online foreign exchange trading platforms offered by


reputable brokers are free, and your only costs will be if you make


a loss.

If foreign


exchange trading software isn't free, or if there's a


nominal charge, learn what the extra


benefits are. And, if it isn't free, is there a


refund guarantee if you aren't satisfied


with the software?

 Price, part two

Does the trading platform offer the same pip spreads as the


broker has advertised, or is it necessary to telephone to


get the top deal?

A pip is a 0.0001


unit of currency, and the pip spread is the difference between


the purchase and sell price of your


currencies so if the AUD / Dollars is quoted at 1.0578 / 1.0579, the


sell price is 1.0578 and the buy price is 1.0579. For any spread, the price of the currency wants to make up the difference of


the spread before it's possible to turn a


profit. So, in the example, if you purchase at 1.0579, it is only necessary for the AUD to rise 2 pips from 1.0578 to


1.0560 for you to make a profit. If there's a 3 pip spread,


the currency would need to move by 4 pips before you


turned a profit.

Client


support

Is your foreign exchange broker just keen on getting


you an account, or will they provide ongoing support for


clients using the dealing system?

You might be


able to email and / or telephone your broker with questions


starting from placing trades to the button on your trading platform that isn't doing what


you want.

Trial account

Regardless


of how many questions you ask a customer support, it's hard to


learn how well a foreign exchange trading


platform will suit you without having the ability to try it, so


get online and see which corporations have demo accounts


available. The trial account should have all the


functionality of the full account, or close to it.     










Improve your knowledge of the currency markets and how to place a fx trade with extensive education tools - open a free demo account to start trading forex today. Remember CFDs and forex are geared products and may result in losses that surpass your first deposit. CFD trading might not be suitable for everyone, so please make sure you understand the risks.