Foreign Exchange (or Forex) trading has grown in popularity in the last ten years. There are new traders entering the market every day, and the daily trading volume in this financial market is ever-increasing.
Unlike most other financial trading markets, currencies are not traded on their own, but rather in pairs. The trading of currency pairs have unfortunately confused many would-be traders and have discouraged them from learning more about currency trading.
What Is A Currency Pair?
Whenever we purchase a product, we pay money for it. This is also what happens in the stock and futures trading markets: we trade our money in exchange for a stock or for a futures contract. It’s not a difficult concept to grasp, right?
Now, in the currency market, things will get a little more complicated. You see this time, instead of trading money for goods you are trading money for money. So for example, if I wish to purchase 1 Euro, I would have to pay a certain amount of U.S. Dollars for it. If I wish to purchase 1 Pound, I also would have to pay a certain amount of U.S. Dollars for it.
For example, one stock of company A may cost US$20, so we have:
1 stock of ABC company = $20
In the same manner, one Euro may cost US$1.50:
1 Euro = 1.50 USD
This is known as a currency trading rate. For purposes of simplicity, this rate is often quoted as:
EUR/USD = 1.5000
This is essentially how most currency trading rates are expressed. The Euro is the Base Currency, as it is the currency that the U.S. Dollar is quoted against.
For the USD/JPY currency pair, the U.S. Dollar is the Base Currency. For the GBP/USD pair, the Base Currency is the Pound.
And that’s all there is to it. It’s easy to understand Currency trading rates when you know how, isn’t it?
Thursday, October 16, 2008
Online Currency Trading and the FOREX Market
Online currency trading takes on more than just a speculators or investors role in today's complex markets. If you are running a multi-company trading business, or even if you are 'just' a property investor, moving currencies around different exchanges at the right time can add quite a considerable amount to your bottom line.
As most property transactions are in many hundreds of thousands of dollars, a few points alteration on the exchange rate of the day could actually make or break the profitably of a deal.
However, many people regularly invest on the Foreign Exchange markets as a pure investment. Well, I say many, but actually FOREX is the largest market in the World, but it doesn't have an actual home.
There are a number of workshops available that are ideal if you're new to the Forex market and have some experience trading stocks or other products. Whether you're looking to diversify your portfolio, learn a new skill, or supplement your income, you'll find out if the Forex market is right for you. Have a look at forex.com for more information.
Online currency trading is all done through the Foreign Exchange or FOREX. It is the largest market in the world with about $1.9 trillion going into different hands everyday. Unlike all other financial markets on the planet, FOREX doesn't actually have an actual physical location.
That is because it is all done on the Internet and through banks with individuals trading their local currency for another. Or, if they have come back from a different country, then they might be changing from that currency into their home currency. Because FOREX is all based on the Internet, you can use online currency trading services to work within the market 24 hours a day.
But to be able to use the FOREX service, you have to sign yourself up to one of the many companies that offer these trading accounts to customers. You can open an account with any one of the hundreds of companies available; and then immediately begin trading currencies.
You will not want to use this service if you only exchange currency once a year, as you can do that at your local bank. Although this choice of account is available, large corporations mostly use online currency trading and they are the ones that will use this service the most.
However, in many cases, there are agencies available that you can sign up with ,that for a low percentage return will actually take care of all this for you.
For the really serious investor, there is a lot of money to be made, and often a lot of money held on risk. There is so much information that is now readily available, that with laptops and a wireless connection, anybody can trade basically anywhere in the world.
Also, on these online currency trading websites, you will get up to minute exchange rates from all over the world, so you will know the exact amount that you will get from your money. This also enables you to know the best time to use the online currency trading services. When the rates are just right for you, then that is when you can exchange your money.
However, it is important to note that some currency trading companies will need two days advance notice before you withdraw your money, so it is always wise to plan ahead if your goal is to make money with FOREX trading then use that money to pay bills or to pay for living expenses.
Have a look, you may well find that this is an interesting, and potentially, a very profitable new area of investing for you to look at.
Currency Trading Systems
If you want to trade currencies then you need a currency trading system that will get the odds in your favour and here we will show the basics that make a successful one. Anyone can build one and incorporate it in their Forex trading strategy and it's easy to do - Let's look at the basics.
1. Identifying the Opportunity
The best way to identify an opportunity is to use support and resistance and good old trend lines. We won't explain support and resistance here - but if you are not familiar with it look it up on the net - Here we want you to keep in mind one key point:
When you trade be selective and only trade valid support and resistance.
What do we mean by valid?
- The more tests the better
- The more time frames involved the better
- The longer the duration between the time frame the better
The above are just general guidelines - you can use 2 tests but 3 tests or more, are better and look for resistance or support that is considered important by the market.
You then need to decide after spotting the opportunity on your forex charts when to trade.
2. Executing the Trading Signal
Never simply buy into support or sell into resistance with your currency trading system.
This wont work, as your predicting what may happen and as you can't predict the future ( despite what many guru's will tell you), you are simply hoping or guessing and the market will kill you.
You need confirmation.
If you don't know what momentum indicators are look them up - you need them and there an essential part of your forex education.
You only need a couple to confirm the move - more is not better as you need a simple system - more complicated ones have more elements to break.
The way to use them is to watch for a level to hold and when momentum shifts away from the level then you trade.
Don't just look for support or resistance to hold though - incorporate breakout methodology. It's a fact that most trends start form new market highs NOT Market lows. So, if prices breakout supported by momentum buy them!
Most traders can't do this they want to get back in on a pullback that never comes - don't make this mistake trade the breakouts like the pros do.
Finally be very selective and only trade the best set ups - in forex trading you don't get paid for how often you trade you get paid for being RIGHT.
Trade sparingly and only trade the big high odds trades.
3. Stops and Profits
Stops are easy and behind support and resistance. Place them as soon as your currency trading system gives a signal.
If you are long term trend following, keep your stop well back and give the market room to breathe, so you don't get stopped out by random volatility.
You are going to miss the turn but as you can't predict that anyway, that's fine.
Catch 50 - 60% of the big trends and you will become very rich.
Swing trading is another matter.
You're looking for smaller moves and they can disappear quickly, so use a profit target and take your profit early!
Don't worry about perfection of what you might have made - concentrate on making money - no one is perfect but that won't stop you enjoying currency trading success.
4. Managing Your Money
Forex trading is risky, that's why the rewards are so high. Many traders however try and restrict risk so much they create it.
They trade to often have stops to close and move them too quickly and end up losing.
Confront risk cheerfully!
Forget all the common wisdom about risking 2% per trade- if you're trading a $10,000 account that's 200! If you don't risk much you wont win.
If you have a high odds trade risk 20% and have the courage of your conviction.
If you take calculated risks at the right time you can enjoy currency trading success.
FINALLY REMEMBER THIS!
So there you have it the above is a simple system - support resistance and a few confirming indicators and the best systems are.
Keep in mind that forex trading is as much to do with mindset as method and you need to maintain discipline.
Simple currency trading systems are easier to understand, apply and have confidence in which leads to the discipline to follow your currency trading system to long term currency trading success.
1. Identifying the Opportunity
The best way to identify an opportunity is to use support and resistance and good old trend lines. We won't explain support and resistance here - but if you are not familiar with it look it up on the net - Here we want you to keep in mind one key point:
When you trade be selective and only trade valid support and resistance.
What do we mean by valid?
- The more tests the better
- The more time frames involved the better
- The longer the duration between the time frame the better
The above are just general guidelines - you can use 2 tests but 3 tests or more, are better and look for resistance or support that is considered important by the market.
You then need to decide after spotting the opportunity on your forex charts when to trade.
2. Executing the Trading Signal
Never simply buy into support or sell into resistance with your currency trading system.
This wont work, as your predicting what may happen and as you can't predict the future ( despite what many guru's will tell you), you are simply hoping or guessing and the market will kill you.
You need confirmation.
If you don't know what momentum indicators are look them up - you need them and there an essential part of your forex education.
You only need a couple to confirm the move - more is not better as you need a simple system - more complicated ones have more elements to break.
The way to use them is to watch for a level to hold and when momentum shifts away from the level then you trade.
Don't just look for support or resistance to hold though - incorporate breakout methodology. It's a fact that most trends start form new market highs NOT Market lows. So, if prices breakout supported by momentum buy them!
Most traders can't do this they want to get back in on a pullback that never comes - don't make this mistake trade the breakouts like the pros do.
Finally be very selective and only trade the best set ups - in forex trading you don't get paid for how often you trade you get paid for being RIGHT.
Trade sparingly and only trade the big high odds trades.
3. Stops and Profits
Stops are easy and behind support and resistance. Place them as soon as your currency trading system gives a signal.
If you are long term trend following, keep your stop well back and give the market room to breathe, so you don't get stopped out by random volatility.
You are going to miss the turn but as you can't predict that anyway, that's fine.
Catch 50 - 60% of the big trends and you will become very rich.
Swing trading is another matter.
You're looking for smaller moves and they can disappear quickly, so use a profit target and take your profit early!
Don't worry about perfection of what you might have made - concentrate on making money - no one is perfect but that won't stop you enjoying currency trading success.
4. Managing Your Money
Forex trading is risky, that's why the rewards are so high. Many traders however try and restrict risk so much they create it.
They trade to often have stops to close and move them too quickly and end up losing.
Confront risk cheerfully!
Forget all the common wisdom about risking 2% per trade- if you're trading a $10,000 account that's 200! If you don't risk much you wont win.
If you have a high odds trade risk 20% and have the courage of your conviction.
If you take calculated risks at the right time you can enjoy currency trading success.
FINALLY REMEMBER THIS!
So there you have it the above is a simple system - support resistance and a few confirming indicators and the best systems are.
Keep in mind that forex trading is as much to do with mindset as method and you need to maintain discipline.
Simple currency trading systems are easier to understand, apply and have confidence in which leads to the discipline to follow your currency trading system to long term currency trading success.
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