Forex trading is derived from a combination of two words, foreign and exchange. More simply put it is the trading of foreign currencies and is often referred to as the FX market. If you are searching for excitement and profits this could be the market to trade.
Forex trading has become extremely popular the world over and has people from all different countries and backgrounds trading like only the professional traders could do just a short time ago. Until recently Forex trading was performed mostly by major banks and large institutional traders. The technological advancements that have occurred of late have transformed Forex into the playground of average traders like you and me.
It's easy to find an online FX trading system, platform or software that can make it easy and fun to trade the market. Simply browse the web and you will be inundated with many exciting offers and promotions. There are many firms that sell or even give away free training software, charts or other useful tools for your future in Forex trading.
Foreign currency trading is done in pairs or combinations. For example, trading the Dollar versus Yen, the Euro vs. the Dollar or the British Pound against the dollar. The most popular currencies that are used for trading and investment purposes are the United States Dollar (USD), Japanese Yen, British Pound, Euro and Swiss Franc. The make up the major portion of all currency trading.
When you come across these currencies in the market you will see them written as a pair: USD/JPY (U S Dollar and Japanese Yen), EUR/USD (Euro and U S Dollar), USD/CHF (U S Dollar and Swiss Franc) and GBP/USD (British Pound and U S Dollar).
The vast majority of all day trades of foreign currency involve these five major currencies. Your goal as a trader is to pick out which currency will appreciate against another. If you can find or develop a system that will allow you to choose the correct direction a currency will be taking it is possible to make good profits in the FX market.
Most trades on the FX market are done by Forex brokers and dealers at major banking institutions across the globe. And since it is a world wide market that makes it a 24 hour a day market. The brokers or dealers work in different shifts so that major institutional traders can perform their trades 24 hours a day around the clock.
However, don't be alarmed. You do not have to be awake all day and all night to trade the market. It is a simple matter of placing stop orders with brokers to buy or sell at pre-determined price levels even while you are sleeping. If your pre-specified price points are met the order will go through as planned. If your price points are not met the orders will not be placed or carried out. This is the key to stopping potentially big losses. You'd hate to be asleep when the market turned against you without a way to get out. Having specified price levels can save you a lot of stress in the market place. With stop orders you don't have to constantly follow your currencies every second of the day. You can place your orders and then go about your normal daily routine.
The FX is unlike stock exchanges in that stock exchanges can be very volatile. The FX market is ordinarily a great deal smoother and doesn't gyrate up and down as quickly or rapidly. The market is actually very easy to trade and is very liquid, meaning you can get your money in or out at any time. Placing an order can be done in a matter of seconds. If you have the temperament for this type of activity it can be a very worthwhile endeavor.
Thursday, June 18, 2009
FOREX-Swiss franc drops as traders say BIS bought euros
The euro jumped against the Swiss franc on Thursday amid speculation the Bank for International Settlements was acting on behalf of the Swiss National Bank to defend the 1.50 level.
Several traders in the United States and London said they saw bids from the BIS in the currency market for the euro and offers to sell the Swiss franc. The BIS and SNB both declined to comment though. [ID:nWEA7372].
The euro jumped to 1.5126 francs on electronic trading platform EBS from 1.5008. It was last at 1.5119 francs.
"It looks like the BIS have been in ... it's probably fair to say it's SNB-related," a London-based trader said.
Another trader said he saw a bid from a big Swiss bank at 1.5035 and was also aware of a BIS bid on the euro.
The Swiss franc's move came after the SNB held interest rates at a record low on Thursday, keeping its target rate for three-month Swiss franc LIBOR at 0.00-0.75 percent with an aim to lower it to 0.25 percent. [ID:nLG607451]
SNB Governor Jean-Pierre Roth said he would continue to stop an irrational rise in the Swiss franc, but analysts said he did not confirm the SNB had acted beyond initial intervention after its last policy meeting on March 12 when the euro jumped to nearly 1.5350 francs from around 1.4750 francs.
Analysts said some traders were testing the resolve of the SNB on intervention, and the market was figuring out how low the euro/Swiss franc pair had to fall before the central bank would enter the market.
Another analyst at a U.S. currency firm said he noted a distinct change in tone from the SNB's press conference on Thursday. "I think the 'easy trade' of buying EUR/CHF on the 1.50 handle has now run its course."
While this analyst would not suggest selling EUR/CHF, he strongly suggests exiting longs on the currency strength or at least tightening stops significantly.
Markets were constantly on the alert for SNB action after the bank in March stunned the global foreign exchange market and bought euros and dollars versus the Swiss franc. Before that, the SNB had last physically intervened in August 1995.
The Swiss National Bank became the first central bank in the industrialized world to sell its currency as part of its fight against deflation.
The bank's selling of the Swiss franc is part of a series of measures to avert deflation now that its rates have hit rock bottom.
Several traders in the United States and London said they saw bids from the BIS in the currency market for the euro and offers to sell the Swiss franc. The BIS and SNB both declined to comment though. [ID:nWEA7372].
The euro jumped to 1.5126 francs on electronic trading platform EBS
"It looks like the BIS have been in ... it's probably fair to say it's SNB-related," a London-based trader said.
Another trader said he saw a bid from a big Swiss bank at 1.5035 and was also aware of a BIS bid on the euro.
The Swiss franc's move came after the SNB held interest rates at a record low on Thursday, keeping its target rate for three-month Swiss franc LIBOR at 0.00-0.75 percent with an aim to lower it to 0.25 percent. [ID:nLG607451]
SNB Governor Jean-Pierre Roth said he would continue to stop an irrational rise in the Swiss franc, but analysts said he did not confirm the SNB had acted beyond initial intervention after its last policy meeting on March 12 when the euro jumped to nearly 1.5350 francs from around 1.4750 francs.
Analysts said some traders were testing the resolve of the SNB on intervention, and the market was figuring out how low the euro/Swiss franc pair had to fall before the central bank would enter the market.
Another analyst at a U.S. currency firm said he noted a distinct change in tone from the SNB's press conference on Thursday. "I think the 'easy trade' of buying EUR/CHF on the 1.50 handle has now run its course."
While this analyst would not suggest selling EUR/CHF, he strongly suggests exiting longs on the currency strength or at least tightening stops significantly.
Markets were constantly on the alert for SNB action after the bank in March stunned the global foreign exchange market and bought euros and dollars versus the Swiss franc. Before that, the SNB had last physically intervened in August 1995.
The Swiss National Bank became the first central bank in the industrialized world to sell its currency as part of its fight against deflation.
The bank's selling of the Swiss franc is part of a series of measures to avert deflation now that its rates have hit rock bottom.
Wednesday, June 17, 2009
What is Forex (Foreign Exchange)?
Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange (off-exchange). It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.
Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Today, importers and exporters, international portfolio managers, multinational corporations, speculators, day traders, long-term holders and hedge funds all use the FOREX market to pay for goods and services, transact in financial assets or to reduce the risk of currency movements by hedging their exposure in other markets.
The Perfect Forex Trading System
Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.
Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.
There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as "the MA crossover made the price go up," but it happened the other way around, the MA crossover signal occurred because the price went up. Where I'm trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.
Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn't want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.
Don't get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.
So
how to create a perfect Forex trading system?
First, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.
Secondly, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.
Third, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.
Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.
There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as "the MA crossover made the price go up," but it happened the other way around, the MA crossover signal occurred because the price went up. Where I'm trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.
Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn't want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.
Don't get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.
So
how to create a perfect Forex trading system?
First, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.
Secondly, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.
Third, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.
Friday, June 12, 2009
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