A Guide To Foreign Currency
Trading
Foreign Currency Trading
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While foreign currency trading offers its rewards, especially when you
are able to trade in major currencies like the US dollars and Euro,
caution against advertisements and brokers that offer instant riches
must be observed.
There is move to regulate foreign currency traders. Unfortunately, not
all in the industry are registered. Not entirely illegal, many
unregistered brokers populate the financial markets. Extra
precaution is suggested for individuals and companies when they deal
with forex brokers.
The United States has passed a federal law, the Commodity Futures
Modernization Act of 2000 that gives authority to the commission to
investigate suspicions of frauds in the transactions.
Frauds in Forex trading have telltale signs and you must be aware of
these. Be wary of schemes that offer quick riches. An
experienced Forex brokers will tell you currency trading is not a risk
free business and only those with real analytical methods can succeed
in the field. And, even when projections seem sound, there is no way of
telling exactly how strong a currency will hold out against many
factors. So watch out for those who promise large profits no matter the
economic condition is.
Most brokers ask for margin investments. If you are not fully aware of
how this works, do not venture into it. You may be losing s more than
you earn in the long run. Beware also of the “interbank
market” service that brokers may offer. In reality, only
large banks, corporations and investment institutions have access to
this loose network of currency traders.
To be sure about the credibility of the brokers you are getting, study
their profiles and company background seriously and extensively. Stick
with a shortlist of firms that are registered with the regulatory
commission on commodity futures.
Trading money in the global markets can be great way to make more of
it, it can also be a lesson in how to lose money quickly. More than $1
trillion is traded every day on the foreign currency exchange (Forex),
and yet no centralized headquarters or formal regulatory body exists
for this form of trade. Foreign currency exchange is regulated through
a patchwork of international agreements between countries, most of
which have some type of regulatory agency that controls what goes on
within their respective borders. Thus, the foreign currency exchange
actually is a worldwide network of traders who are connected by
telephone and computer screens.
Although more international policing of money trading has occurred in
recent years, authorities have had some successes exposing scams and
frauds that victimize traders, especially newer ones. So if you want to
try this wild world of trading, you need to be wary and not depend
entirely on experts. Sure, experts can help you in explaining the
working of foreign exchange markets and how the language of the Forex
and its risks are unique, but you need a lot more training before you
even consider entering this extremely risky trading arena.
If you have ever traveled outside the United States, you have probably
traded in a foreign currency. Every time you travel outside your home
country, you have to exchange your country’s currency for the
currency used in the country you are visiting. If you are a US citizen
shopping in England and you see a sweater that you want for 100 pounds
(the pound is the name of the basic unit of currency in Great Britain),
you would need to know the exchange rate. And that’s the way
foreign currency exchange is used by the average shopper, but foreign
currency traders trade much larger sums of money thousands of times a
day.
Making money in the forex market is not an easy task by any
means. However, given a bit of education and knowledge of the
market, it can become quite easy to profit in the forex
market. Most traders end up learning that it’s the
simply systems that create the wealth. Over analyzing and
over thinking can sometimes affect your trading methods and strategy.
The trading method I am going to explain here is probably going to
upset you a little and will most likely go against everything you have
ever been taught about forex. However, you have to remember
that this is my personal strategy and its how I make money.
It may not work for the next person, but it has shown me a way to make
a substantial amount of money in the forex market.
Through your forex training you might have heard traders tell you to
always trade with a stop-loss. If you don’t know
what a stop-loss is, it’s simply an order telling the broker
when you would like to cut your losses. I don’t
trade with a stop-loss period. How is this so? How
can I make money without using a stop-loss? I tend to believe
that the big players in the forex market like to drive this market in
certain directions to take out other traders stop-loss
positions. In order for the banks to make money, they have to
take other traders monies, therefore taking out stop-loss orders in the
market. I don’t allow the banks to do this to me
personally.
Secondly, on each trade look to make only a few pips. In some cases
this is known as scalping the market. On each trade I am only
looking to get 3 to maybe 6 pips or as I like to say, get in and get
out.
Your next question might be, “how do I know when to enter and
exit the market?” I use a set of indicators combine
with a detailed analysis of trend lines and channels. The
indicators tell me when to get in and get out and the trend lines give
me the overall direction of the market for the next month to few years.
Having a good idea of where the market is heading over the course of a
few years gives me a good idea whether I am in buy mode or sell mode on
a daily basis.
How is it possible to survive without using a stop-loss? Very
simply put, do not risk large amounts on each trade. I only
risk one tenth of my account balance per trade. For example,
I only trade $1 lots on a $10,000 account. What this enables
me to do is use no stop-loss. If the market moves 200 points
no problem. By the time the market moves 200 points,
I’ve already made 100 other trades in profit all for 3 to 6
pips each. If the market continues to get away from me, I continue
trading each day gaining which eventually compensates for the few
losers and eventually overrides them. When the market comes
back in my favor, those losing trades are making profit every step of
the way.
These days everyone is talking about a new profitable activity called
Forex trading and the great opportunity this activity represents for
people willing to brake free from the corporate world and start working
from home or any where else without losing their current lifestyle and
even improving it.
Most experienced traders consider that the best and most
profitable of the capital markets is the Forex market. For many years
Forex trading was the sole domain of major banks, large financial
institutions and countries central banks; for example the U.S. Federal
Reserve Bank. But these days, thanks to the internet the market has
been opened to everyone willing to learn the best techniques in forex
trading and with the intention of making substantial profits as the
institutions mentioned above that annually and consistently make pretty
high profits from trading in the Foreign Exchange market.
You have many advantages when trading the forex markets, for example;
you don't have to worry about fees you may have to pay to your broker;
there are also none of the usual fees to which futures and equity
traders are accustomed to pay always; no exchange or clearing fees, no
NFA or SEC fees.
The forex market has five major currencies: US Dollar, Japanese Yen,
British Pound, Euro and the Swiss Franc. It is due to their great
popularity in world's commerce transactions and its high activity that
these five currencies account for over 70% of North American trading.
Of course there are other tradable currencies; they include
the Canadian, Australian and New Zealand Dollars. These minor
currencies account for 4% - 7% of the total market volume. Together,
all this five majors and minors currencies constitute the
backbone of the Forex market.
The concept of “Buying” in Forex refers to the
acquisition of a particular currency pair to open a trade and
“Selling short” refers to the selling of a
particular currency to open a trade, i.e, just the opposite. When you
Buy, you are expecting the price of the currency pair to increase with
time, i.e., you buy cheap to sell high; which is easy to understand. In
the case of Selling short, it looks a bit more complicated. Here the
way to make money is to initially sell a currency pair that you think
will lose value in a given period of time and then, once it happened,
you will buy it back at the new price but now you can sell it at the
previous greater price the currency had when you opened the trade, so
you earn the difference in prices. It may seem kind of tricky when you
are starting, but once you are in front of your trading station it will
look much simpler.
Several companies offer automated forex broker services. In
the following articles, you'll find brief reviews of each.
What forex brokers offer automated services?
GFT Forex is an automated forex broker, whose DealBook FX 2 software
offers the investor both a demo and a live forex trading tool in the
currency market. This forex trading software offers the investor direct
access to some of the tightest spreads, through a stable, standalone
forex trading platform, 24 hours a day.
The DealBook FX 2 software shows live, dealable prices, real time data,
free real time world and financial news, forex charts, more than 65
technical indicators, and the ability to build the investor’s
own indicators.
GCI Financial Ltd., another automated forex broker, provides trading
software that tracks real time prices in 20 major currencies, live
charts, and real time profit and loss account tracking. The software is
offered as a demo also. Market orders are confirmed within seconds at
prices clicked on or accepted by the client.
The FX3K is an online automated dealing and trading platform used by
automated forex brokers. The FX3K online trading environment includes
real time quotes, charting, technical analysis tools, and news. FX3K
integrates the client, dealer, back office and system administrator
functions. Product features include high speed execution of client
orders and the ability to monitor real time margin availability, net
exposure and profit and loss on all open positions. FX3K has chat
options to allow trader-dealer conversations.
The COESfx Level 1 Trading Platform is used by automated forex broker
as an Electronic Currency Network for the execution of best prices for
buyers and sellers of foreign exchange. It offers traders live and
executable prices, thereby making each participant a market maker.
Traders gain access to "best bid/best offer” quotes directly
from price providers and other traders. COESfx pricing is derived from
a number of partners in the network such as banks, Futures Commission
Merchants (FCM’s), Introducing Brokers (IB’s), fund
managers and other traders on its Electronic Currency Network.
