http://wwwforex-trading.com How to trade foreign currencies Mon, 23 Nov 2009 19:29:26 +0000 http://wordpress.org/?v=2.8 en hourly 1 http://wwwforex-trading.com/2009/11/21/making-sense-of-forex-quotes-and-pips/ http://wwwforex-trading.com/2009/11/21/making-sense-of-forex-quotes-and-pips/#comments Sat, 21 Nov 2009 06:50:39 +0000 admin http://wwwforex-trading.com/2009/11/21/making-sense-of-forex-quotes-and-pips/ Forex quotes are always listed in pairs, these quotes reflect the exchange rates of the currencies. These pairs look like this: GBP/USD = 1.9714. The currency listed first is known as the base currency (being the base of the trade), the second is called the counter, or quote currency.

All well and good, but what do these numbers mean? The value of the pair is a ratio of one unit of the base currency to it’s equivalent in the quote currency. Supposing that you expect the value of the base to rise against the quote, buy the base currency and sell the quote currency, and vice versa. As an illustration, say that the value of the Euro (EUR) is expected to rise against that of the US Dollar (USD). In this case, buying Euros and selling US Dollars at the same time is what you would normally do. This is called going long.

Further, take the Forex quote CHF/USD = 0.8944 as an example. Say that the Swiss Franc (CHF) is expected to fall as compared to the US Dollar (USD). You would sell US Dollars and buy Swiss Francs – this would be going short.

Now, in an actual Forex trading situation, the exchange quotes will be listed at two slightly differing prices, for instance: EUR/USD = 1.7420/1.7425. The left quote is the Bid price, the right is the Asking price. The difference between these is call a Bid/Ask spread, or just Spread for short. The Bid price is the price you can sell your currency for, while the Ask price is the price at which you can purchase the currency.

This spread means that if you were to buy a great deal of currency, then sell it before there had been any change in the relative values of the two currencies, you would lose money on the trade, but the dealer would make money from the trade. A Forex dealer makes their money from the Ask/Bid Spread. They are in a good position, as they stand to make money whether or not you do well with your trade.

Forex quotes are typically quoted to four decimal places – for example:

USD/EUR = 0.6793

EUR/GBP = 0.7468

GBP/CHF = 2.2041

CHF/AUD = 1.0095

The exception to this rule, at least among the major currencies, is the Japanese Yen (JPY) . If the Yen is being quoted, then the Forex quotes are just to two decimal places, as in these examples:

USD/JPY = 109.32

EUR/JPY = 160.95

This is due to the value of the Japanese Yen being only about one hundredth of the value of one U.S. dollar.

A change of 1 in the last decimal place in a quote is named a Pip. this is the smallest amount by which the relative values of two currencies will change. Normally, a Forex brokers commission (the Ask/Bid Spread) will be somewhere between 2 and 5 Pips.

A movement of 20 to 50 Pips is a typical shift in the value of a quoted pair on any given day of Forex trading. The market can sometimes experience greater volatility though, with much larger movements being seen. In November 2007, there were some bigger shifts in the relative values of the US Dollar (USD) and the UK Pound (GBP), when the change in relative value of the two currencies was as much as 200 Pips on some days.

Usually, the daily changes in the Forex market are very small – so trading with very large amounts of money is the way to go if you are to make a sizable profit.

Let’s say that the Euro (EUR) is expected to rise against the U.S. Dollar (USD). Based on this, you buy 100 Euros at a quote of EUR/USD = 1.4720/1.4725. A hundred Euros would cost you $147.25. If the Euro rises fifty Pips against the dollar the quote is now EUR/USD = 1.4770/1.4775.

Then say you sell your hundred Euros and buy U.S. Dollars. Your Euros would then fetch $147.70, or a profit of only $.045. Not much – even had you purchased a thousand Euros, you would still only have $4.50 to show for a day’s trading. This is why Forex trading is generally done with much larger amounts of money.





By: Ian Armstrong ]]> http://wwwforex-trading.com/2009/11/21/making-sense-of-forex-quotes-and-pips/feed/ 0 http://wwwforex-trading.com/2009/11/20/how-many-kinds-of-main-strategies-are-there-in-forex-trading/ http://wwwforex-trading.com/2009/11/20/how-many-kinds-of-main-strategies-are-there-in-forex-trading/#comments Fri, 20 Nov 2009 16:30:10 +0000 admin http://wwwforex-trading.com/2009/11/20/how-many-kinds-of-main-strategies-are-there-in-forex-trading/ There may be dozens of strategies in Forex trading. Let’s just talk about the roots.

Nature Of Market:

Every thing in the universe has its NATURE. So is Forex market. So is every currencies pair in this market. For example, GBP/JPY always moves faster, and its wave range is longer than other pairs, such as a hundred pips during a day or even a hour. EUR/GBP generally waves narrowly several pips only within a day. For American, EUR/USD and GBP/USD like to sleep in day and dance at night. AUD/USD and NZD/USD look like twin, they commonly act in the same style, if one of they goes north, another one does not like to go south. But EUR/USD and USD/CHF are doomed to be enemy, while one of them flies up like a hydrogen balloon, the counterpart mostly will drop like a lead ball. And so on, so on.

Once we find this kind of “Nature of Market”, we can develop and figure out some strategies for particular currencies pairs, just follow their nature, predict their moving direction and range. Then we will get our own trading strategy and system.

Fundamental Trading:

In Forex market, many professional analysts like to use a kind of method to predict the future. It is so-called “Fundamental Analysis”. Based on this method, they develop many kinds of strategies to trade Forex. These are strategies of forecasting the future price movements of currencies based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the foreign currencies.

If you like to try Fundamental Trading, you need learn and understand a lot of finance knowledge. Actually, not only finance knowledge, you need to be interested at many things of this world, including politics, economy, geography, culture, diplomacy, even military affairs. And you need to study the core underlying elements that influence the economy of a particular entity. For example, when the USA’s GDP or employment report is strong, you begin to get a fairly clear picture: the general health of America’s economy is good. So the US dollar should be stronger than other currencies. But how far can the US dollar go? Fundamental Trading may not answer this question very accurately. You may need to come up with other precise tools as to how best to translate this information into entry and exit points for a particular trading strategy.

Hedge:

In finance, a hedge is an investment that is taken out specifically to reduce the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.

In FOREX, there are two kinds of similar “hedging” strategies:

1, Buy and Sell the same currencies pair, same lots, same timing. Then let it go. While one of those orders goes north, the counterpart will go south. After the winner takes profit, we can wait for the loser turning around. In a yo-yo market, this method works well.

For example, buy 2 lots GBP/USD at 2.0003, at the same time sell 2 lots GBP/USD at 1.9997. While the rate rises up to 2.0053, we close the buy order and take profit 50 pips. Now, the sell order will draw down around 50 pips. Let’s wait for the rate falling down, it will fall down usually, especially in yo-yo market environment. If the rate drops down to 2.0037, close the sell order, the sell order will lose 40 pips. Does it hurt? No. Don’t forget the 50 pips we have taken at the buy order. Totally, we can get 50-40=10 pips. Furthermore, if the rate keeps falling, let’s say down to 2.0027, we can take 50-30=20 pips, etc.

Some people would doubt it… doesn’t this “strategy” sound like hedging flat for nothing, just paying double spread? Why bother? Well, they are right, because we forgot mentioning the key point: timing of closing orders. When to close the winning order to set a foundation and when to close the losing order to lock the profit, there are some tricks inside. Experienced traders use technical analysis skills to decide this vital timing. Believe it or not, those experienced traders say that this method helps them screening false signals out.

This kind of “Yo-Yo Hedge” can work at any currencies pair.

2, Buy (or sell) unequal lots of special currencies pairs and buy unequal quantities of another kinds of currencies pairs which usually move in the opposite direction. This seems a “Semi-Hedge” trading strategy. It is created based on “Correlation” between some particular currencies pairs. So it is not suitable for every currencies pair.

Actually, this kind of hedge has another feature: earning SWAP! You earn interest daily on the held position which can yield up to 50% per year of your full account balance.

There are several pairs can do it. Such as EUR/USD Vs. USD /CHF, GBP/USD Vs. USD/CHF, AUD/USD Vs. NZD/USD, EUR/JPY Vs. CHF/JPY, GBP/JPY Vs. CHF/JPY.

Let’s take the EUR/USD and the CHF/USD pairs.

These pairs are historically negatively correlative 93-98% of the time. That is when one pair goes up the other goes down, and vice versa, up to 98% of the time. In a high leverage account (as high as 400:1 or 500:1), you could earn 50% SWAP interest in a year. How? Let’s say you have $5,000 in your account and a 10% risk margin set. If the net interest we receive is 1.25% annually, this 1.25% interest will be enlarged to 50% per annum, by the 400:1 leverage.

And, this return does not include the buy low/sell high profits.

But, if the base of this kind of hedge collapses, it means the “Correlation” does not exist any more, for example the “Correlation” drops under 50% or lower, there will be a disaster.

Arbitrage:

Some people call “Arbitrage” as a risk free strategy. But other people call it as a trick which looks like the cat pawing chestnuts from a fire. But in theory, its risk is minimum in deed. We introduce three types of arbitrage strategies here:

1, Triangle Arbitrage: Searching for two highly fast-moving pairs (like EUR/USD and USD/JPY), the price of a not-so-fast moving pair like EURJPY should always be derived by multiplying (or dividing, etc) the fast-moving pairs. So for example, if EUR/USD is 1.4871 and USD/JPY is 108.24, the logical price of EUR/JPY should be 1.2 x 120 = 160.96. But at the same time, the real EUR/JPY rate is 160.90. The slower moving pair lags behind the logical price, then profit opportunity comes.

In practice currencies are quoted with a bid ask spread, so a trader should be careful that he is actually buying at the quoted ask price, and selling at the quoted bid price. Other transaction costs, such as commissions, might also invalidate the apparent free lunch.

More pairs:

AUD/CAD CAD/JPY AUD/JPY

AUD/CAD GBP/CAD GBP/AUD

AUD/CAD USD/CAD AUD/USD

AUD/CHF CHF/JPY AUD/JPY

AUD/CHF GBP/CHF GBP/AUD

AUD/CHF USD/CHF AUD/USD

AUD/JPY EUR/JPY EUR/AUD

AUD/JPY GBP/JPY GBP/AUD

AUD/JPY USD/JPY AUD/USD

AUD/USD GBP/USD GBP/AUD

AUD/USD USD/CAD AUD/CAD

AUD/USD USD/CHF AUD/CHF

AUD/USD USD/JPY AUD/JPY

CAD/JPY EUR/JPY EUR/CAD

CAD/JPY GBP/JPY GBP/CAD

CAD/JPY USD/JPY USD/CAD

CHF/JPY EUR/JPY EUR/CHF

CHF/JPY GBP/JPY GBP/CHF

EUR/AUD AUD/CHF EUR/CHF

EUR/AUD AUD/JPY EUR/JPY

EUR/AUD AUD/USD EUR/USD

EUR/AUD GBP/AUD EUR/GBP

EUR/CAD AUD/CAD EUR/AUD

EUR/CAD GBP/CAD EUR/CAD

EUR/CAD USD/CAD EUR/USD

EUR/CHF AUD/CHF EUR/AUD

EUR/CHF GBP/CHF EUR/GBP

EUR/CHF USD/CHF EUR/USD

EUR/GBP GBP/AUD EUR/AUD

EUR/GBP GBP/CAD EUR/CAD

EUR/GBP GBP/CHF EUR/CHF

EUR/GBP GBP/JPY EUR/JPY

EUR/GBP GBP/USD EUR/USD

EUR/JPY GBP/JPY EUR/GBP

EUR/JPY USD/JPY EUR/USD

EUR/USD GBP/USD EUR/GBP

EUR/USD USD/JPY EUR/JPY

GBP/JPY USD/JPY GBP/USD

2, Hedging Arbitrage:

This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of roll over interest rates (SWAP) between two brokers.

One broker which pays or charges roll over interest at end of day, and the other should not charge or pay this kind of roll over SWAP interest. The main idea about this type of Hedge Arbitrage is to open a position of currency (Fore example, the highest SWAP GBP/JPY) at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency with the broker that does not charge interest for carrying the trade. This way you will gain the interest or SWAP that is credited to your account, risk-free.

3, Netting Arbitrage:

The main idea behind the strategy is, using differences between cross rates (such as EUR/USD, GBP/USD, and EUR/GBP) at different markets.

For example, suppose you had opened the following positions:

buy 1 lot EUR/USD at 1.4867;

sell 1 lot EUR/GBP at 0.7600;

and sell 0.76 lot GBP/USD at 1.9586.

The netting/clearing gives the following results:

Long EUR from the first pair and short EUR from the second pair gives zero exposure in EUR.

Long position in GBP from the second pair and short position from the third pair gives zero exposure in GBP.

Short position from the first pair ($148,670.00) in USD and long position from the third pair ($195,860.00*0.76) in USD gives you $183.60 profit without open positions and exposures.

Simple? Not really for small traders, may be for those “big brothers” only. Because it is really hard to play spread, slippage, stop loss hunting or so on games against brokers.

Carry Trading:

Carry trading is a well known trading strategy which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. Then this investor can make profit from the difference of these two interest rates.

JPY is currently considered to be the most popular currency to use as the low interest yielding currency in the carry trade, because its interest rate is the lowest of the world almost at 0. And GBP is currently considered to be the high yielding currency. So are NZD and AUD.

When we buy these currencies pairs: GBP/JPY, AUD/JPY, GBP/CHF, USD/JPY, or EUR/CHF;

Or sell: EUR/AUD, EUR/GBP, AUD/NZD;

Both actions can yield positive SWAP roll over interest. If combining with some kinds of hedge trading, we can make as high as 100% profit annually and keep the risk low.

The big risk in a carry trading is the uncertainty of exchange rates. Also, these transactions are generally done with a high leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

Martingale:

Originally, martingale referred to a class of betting strategies popular in 18th century France. In Forex trading, the strategy let the trader double his/her order lots after every loss, so that the first win would recover all previous losses plus win a profit equal to the original investment. In the example below, you bought 1 lot EUR/USD at 1.4650. Unfortunately, the rate drops. You play it in martingale way, “double down”, buy two lots, you need the EUR/USD to rally from 1.4630 to 1.4640 to break even. As the price moves lower and you add four lots, you only need it to rally to 1.4625 instead of 1.4640 to break even. The more lots you add, the lower your average entry price. Even though you may lose 100 pips on the first lot of the EUR/USD if the price hits 1.4550, you only need the currencies pair to rally to 1.4569 to break even on your entire holdings. Once the rate goes up one more pip, you will win a lot.

EUR/USD Lots Average or Breakeven Price

1.4650 1 1.4650

1.4630 2 1.4640

1.4610 4 1.4625

1.4590 8 1.4605

1.4570 16 1.4588

1.4550 32 1.4569

The Martingale strategy needs a very strict money management and you must understand that in the beginning money will be coming slowly, but if you lose the patience and raise risk level up to much, you may not hang on to the end to see the turn-around.

Anti-Martingale:

The anti-martingale strategy is the opposite of the better known martingale approach. This approach instead increases order lots after wins, while reducing them after a loss. Using an anti-martingale risk management scheme will increase profits during time periods when a trading approach is working well, while automatically decreasing exposure during portions of the cycle where trading is unprofitable. This is believed to decrease the risk of ruin for trading.

Grid:

Basically the trader sets a series of entry limit orders X pips from the current price, for example 15 pips. Some experienced traders like to use the Fibonacci Series Numbers (0, 1, 1, 2, 3, 5, 8, 13, …) or Golden Section Numbers to make this grid. Once price hits the level the limit order is executed. Then every 15 pips there is another order at limit price executed. And so on. In a yo-yo market, while the price moves up or down, there always be some limit orders executed. Once the order is taken profit, and the price moves to its original level again, a new limit order shall be executed again, then repeat the same process. Just open orders and take profits in a set of “grid”. It is simple and easy, but hard to deal with when and how to close all orders, especially the Stop Loss. Some experts say we do not need stop loss, but will you take the chance to hold your all positions till “Margin Call?”

Day trading:

This refers to the practice of buying and selling currencies pairs such that all positions will usually be closed within the same Forex the trading day. The day trading idea comes from stock market. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time. Under the rules of NYSE and NASD, customers who are deemed “pattern day traders” must have at least $25,000 in their accounts and can only trade in margin accounts.

But in Forex market, every one can be a day trader to do day trading. Actually, more than day trading, they can do “scalping”.

Scalping:

Scalping is a trading style where small price gaps created by the bid-ask spreads are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. It means trying to get a few points (1~3 pips only, no greed, no long term) off the market every time. This strategy is based on a fact: approximately 70 to 80% of the time, the market is in a consolidation pattern. What this means is that for the majority of time the market is not making significant moves. For example, after the USA market is closed and before the Europe market is open, the Forex market tends to range in a consolidation channel for hours at a time before making another significant move in one direction. This kind of market behavior pattern is ideal for Forex scalping. Every time you enter the market, wait 10 or 20 minutes, once you have several pips gain then cash it and go.

Scalping has some features:

1, Lower exposure, lower risks. Scalpers are only exposed in a relatively short period.

2, Smaller moves, easier to obtain. The normal wave of the market will give you several pips easily.

3, Large volume, adding profits up. Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits. Scalping is not suitable for small-capital traders.

But be careful, not every broker welcomes this kind of scalping strategy. If you scalp it too quick and thin, let’s say you just hit 1 pip every 2 or 3 minutes then run, and repeat it again and again within a day, every day, you must feel high, eh? But the broker may be not happy and bans you. You will be kicked out because of your successful scalping!

Break-Out:

Using the Bollinger Bands indicator on a chart, we will find every Forex currencies pair is waving in a “band”, or a channel. By finding major support and resistance levels with technical analysis, a Break-Out strategy trader will buy this pair at the lower level of support (bottom of the band/channel) and sell them near resistance (top of the band/channel). Till now there is not a Break-Out yet.

Once the price breaks the upper range line with larger-than-average volume, or the opposite: the price breaks the lower range line with larger-than-average volume, the chance is coming. The idea of this strategy is that when a currencies pair breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. So buy it at the price breaks the upper range line and continue to hold it until the rate has risen a distance comparable to the height of the range. If it goes down instead, stop losses as it penetrates the upper range line. Or, sell it at the price breaks the lower range line, and continue to hold it until the rate has fallen a distance comparable to the height of the range. If it goes up instead, stop losses as it penetrates the lower range line.

Pivot:

Besides Support and Resistance levels, many foreign exchange traders like to use another indicator to analyze and predict currency pairs’ price changes, it is so-called: the Pivot Point. To calculate and analyze pivot is a subset of technical analysis, with this bench mark, traders can locate the rotation point of the trend, and this is very helpful for deciding when and where to buy or sell.

Classical Pivot Point, Support and Resistance Formulas are as follows:

Look at any one chart, the pivot is an average of the previous bar’s high, low, and closing prices. In the following formula, “H” represents the previous bar’s high, “L” represents the previous bar’s low, and “C” represents the previous bar’s closing price.

Current Bar’s Pivot Point (P)=Previous Bar’s (H+L+C)/3

First level of support and resistance can be calculated as follows:

First Resistance Level (R1)=(2*P)-L

First Support Level (S1)=(2*P)-H

Likewise, the second level of support and resistance:

Second Resistance Level (R2)=P+(R1-S1)

Second Support Level (S2)=P-(R1-S1)

Since many currency pairs tend to fluctuate between Support and Resistance levels, and these levels are calculated based on Pivot points, so when a trend or breakout trader knows where the pivot point is, it will enable him/her to find out key levels that need to be broken for a move to qualify as a breakout.

News Trading:

The system is developed based on economic news events from around the world. Nearly half of those announcements have moved the market significantly. Before a big news is coming, we can buy and sell some currencies pairs at the same time, same lots, set stop loss prices for them. After the news is released, especially for the big one, both sides of buy order and sell order will jump significantly. No matter which order is a winner, just let it go. And the loser will hit the Stop Loss, just let it be. The winner’s gain minus the loser’s loss, it is your news trading profit. For example, Non-Farm Payrolls/Employment Report – The NFP is the most influential news release of every month. It’s announced on the first Friday of the month at 8:30am EST for the prior month. We can put a buy order and a sell order at market prices for GBP/USD, at 8:29 am EST. Don’t forget, set 30 pips Stop Loss level for them. Wait 2 minutes only, the news is announced, it is a big one! Then the sell order jumps over 100 pips, and the buy order drops like a brick. The brick hits the Stop Loss and the pain is over. Totally, your gain could be 100-30=70 pips. Quick and easy, cool enough?

Trend Following:

It is so simple, just follow the trend. Buy it is the most difficult strategy because no one can tell you 100% for sure what is the right TREND. Go to look at a weekly chat of USD/CAD, if you had shorted this pair in September 2001 and held it till September 2007, you know what the trend means.

The most famous trend analysis tool seems the Wave Principle. In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. Elliott isolated five such patterns, or “waves,” that recur in market price data.

Another trend analysis guru should be W. D. Gann. In 1908, Gann discovered what he called the “market time factor”, which made him one of the pioneers of technical analysis. To test his new strategy, he opened one account with $300 and one with $150. It turned out to be wildly successful: Gann was able to make $25,000 profit with his $300 account in only three months; meanwhile, he made $12,000 profit with his $150 account in only 30 days! After his results were verified, he became famous on Wall Street as one of the best forecasters of all time.

Back to the chat of USD/CAD, now, please tell me, how to follow the trend? Will USD/CAD continue the trend which is going south further to 0.6000, or, another trend going north reversely back to 1.6000?





By: Victor Mars ]]> http://wwwforex-trading.com/2009/11/20/how-many-kinds-of-main-strategies-are-there-in-forex-trading/feed/ 0 http://wwwforex-trading.com/2009/10/23/what-is-the-value-of-pip/ http://wwwforex-trading.com/2009/10/23/what-is-the-value-of-pip/#comments Sat, 24 Oct 2009 03:42:10 +0000 admin http://wwwforex-trading.com/2009/10/23/what-is-the-value-of-pip/ It depends on which currency pairs you trade, but for most pairs 1 pip equalises there about $ 1 in a mini account, and $ 10 in a standard? What is margin (power)? The margin allows you to order a total contract value greater with just a small deposit.The power gives the trader the ability to make nice profits, and keeps both the venture capital to a minimum. For example, the power supply of forex brokers 400 to 1, and it means that a margin deposit of $ 100 dollars would allow a trader to buy or sell $ 40,000 worth of currencies.



What is a Stop-Loss?

A stop-loss is a type of order by which an open position is automatically liquidated at a retail price that you set. This is used to minimize exposure to losses if the market moves against your position. How exactly do you generate your signals? Our signals are generated by an evolving cyclical model that uses highly complex algorithms generated by advanced software. The computer model looks at the behavior of large groups of people over a given time and applies to financial markets. What currency will sail you trade yourself?

We currently produce daily signals for 18 currency pairs:

USD / CHF,

USD / JPY,

USD / CAD,

NZD / USD,

EUR / CHF,

EUR / JPY,

GBP / CHF,

EUR / AUD,

XAU / USD,

GPB / USD,

EUR / USD,

AUD / USD,

CHF / JPY,

EUR / GBP,

GBP / JPY,

EUR / CAD,

AUD / JPY,

XAG / USD.

We always use stop-loss to protect our positions in case the market would move against us. We tell you in advance how many pips you should place your stop-loss for each pair / signal. This system is 100% mechanical it? Yes. All that is required on your end is to be available at this time when we give to run your business. There is no need to evaluate or make subjective decisions of where / when writing & exit businesses. We give you the exact entry & exit times and a lot of stop-loss for each currency pair. That the best trade so it is your signal? Our system has been developed to minimize the time necessary to be successful on the forex market.

There is no need to rest in front of your computer monitor your business. It is important that you follow the instructions carefully when entering a trade and exit when the trade. Our model is based on time prediction pivot on the market. That is why we don ‘t offer any data of price levels. Sign in to members simply sectionnent each evening to see the signals issued for the next day. Make sure you can be around at that time for specific open / close your shops. Is it that I can select the pairs that I trade or I have to trade all? You are welcome to select the pairs that you want to trade, but we recommend sticking with these pairs and trade every signal that comes to them for at least 1-2 months. This will help balance your trade account and ensure that you don’t blow missed out on profitable businesses for pairs you trade.

My Favorite Automated Trading Robot is Fap Turbo





By: Anil Kumar Raju Addipalli ]]> http://wwwforex-trading.com/2009/10/23/what-is-the-value-of-pip/feed/ 0 http://wwwforex-trading.com/2009/10/12/foreign-exchange-market-forex-introduction/ http://wwwforex-trading.com/2009/10/12/foreign-exchange-market-forex-introduction/#comments Mon, 12 Oct 2009 20:35:17 +0000 admin http://wwwforex-trading.com/2009/10/12/foreign-exchange-market-forex-introduction/ The FOREX or Foreign Exchange Market is the market where we are dealing with currency parities.

Example: EURO against the dollar, or more commonly known as EUR / USD. It is therefore beside the value of one euro in dollars.

In our example, the EURO is the base currency, the dollar is the currency that generates your more or less value for your trades. In short, you buy or sell the EUR / USD, you win or lose dollars. At the closing of the position, more or less this value is then converted to base currency of your account at the market.

Parities Forex evolve as new economies of the two currencies involved in the parity. For the EUR / USD will therefore monitor all the economic news of the euro area, as well as those of the United States. Each new economic prévisionnée, a new and better than its forecast generally increase its currency. So if a new sort EURO, EUR / USD and appreciate good news sort USD, EUR / USD will depreciate.

However, keep in mind that a good new EURO can devalue the EUR / USD, where the news was widely anticipated (most often at the rate of change of central banks), or again that new USD grows stronger dollar on the rise, because even better.

The FOREX is a market that lends itself well to technical analysis. Indeed, when no new leaves, the market will most likely his last (which is why the FOREX market is also called trend), often forming very beautiful figures Chartists. The figure found on the FOREX is the channel (bullish or bearish), since it is mostly in trend, with corrections.

The FOREX market is ultra fluid. The daily volume now exceeds 2,000 billion dollars. There is therefore no problem of return (especially since your broker is your return guarantee). This volume ammené exchange is to increase day by day, since today, it is very easy to handle on the FOREX, through brokers and internet trading platform. The more so that all brokers offer their clients to leverage the deal.

The FOREX market is not a really volatile. The average daily volatility of parity is around 1.5%. The FOREX is made volatile by the leverage effect. Indeed, if we take the example of an individual investing 10,000 euros with leverage of up to 500, it can be processed on the FOREX for 5000000 EURO. Such a position on the EUR / USD for example generate variations on balance more or less 500 USD per pip. So with a level of EUR / USD at 1.4000, a simple change of 28 pips in the wrong direction, he would lose everything he has on his account. (conversely, in 28 pips, it doubles its capital …)

The Best Forex Automated Trading Robot is Fap Turbo





By: Anil Kumar Raju Addipalli ]]> http://wwwforex-trading.com/2009/10/12/foreign-exchange-market-forex-introduction/feed/ 0 http://wwwforex-trading.com/2009/09/28/forex-currency-trading-explained-fx-trading/ http://wwwforex-trading.com/2009/09/28/forex-currency-trading-explained-fx-trading/#comments Mon, 28 Sep 2009 22:47:06 +0000 admin http://wwwforex-trading.com/2009/09/28/forex-currency-trading-explained-fx-trading/ FOREX MARKET HOURSAt 7:00 pm Sunday, New York time, trading begins as markets open in Tokyo, Japan. Next, Singapore and Hong Kong open at 9:00 pm EST, followed by the European markets in Frankfurt (2:00 am), and then London (3:00 am). By 4:00 am, the European markets are in full swing, and Asia has concluded their trading day. The U.S. markets open first in New York around 8:00 am Monday, as Europe winds down. Australia will take over around 5:00 pm, and by 7:00 pm Tokyo is ready to re-open.All times are quoted in Eastern Standard Time (New York).FX or Forex, currency trading is the trading of one currency against another. In terms of trading volume, the currency exchange market is the world’s largest market, with daily trading volumes in excess of $1.5 trillion US dollars. This is orders of magnitude larger than the bond or stock markets. The New York Stock Exchange, for example, has a daily trading volume of approximately $50 billion. Currencies are traded for hedging and speculative purposes. Various market participants such as individuals, corporations, and institutions trade forex for one or both reasons. Corporate treasurers, private individuals and investors have currency exposures during the the regular course of business. The FXTrade Platform is an ideal platform to hedge any such exposure. An investor, who has bought a European stock and expects the EUR exchange rate to decline, can hedge his currency exposure by selling the EUR against the USD. Currency markets are ideally suited for speculative trading. The foreign exchange market has a daily volume in excess of 1.5 trillion USD, which is 50 times the size of the transaction volume of all the equity markets taken together. This makes the foreign exchange market, by far, the most liquid and efficient financial market of the world. Thanks to its efficiency, there is little or no slippage of market price for the execution of even large buy and sell orders. Traders are able to take advantage of intra-day volatility thanks to the low spreads and enter positions for short time periods, such as minutes and hours. Unlike equity trading, where restrictions limit a trader’s ability to profit from a market down turn, there are no such constraints on currency trading. Currency traders can take advantage of both up and down trends thus increasing their profit potential.The most commonly traded currencies are: USD, EUR, JPY, GBP, CHF, CAD and AUD.The most commonly traded currency pair is EUR/USD.Forex Symbol Guide Symbol Currency Pair Trading Terminology GBP/USD British Pound / US Dollar “Cable” EUR/USD Euro / US Dollar “Euro” USD/JPY US Dollar / Japanese Yen “Dollar Yen” USD/CHF US Dollar / Swiss Franc “Dollar Swiss”, or “Swissy” USD/CAD US Dollar / Canadian Dollar “Dollar Canada” AUD/USD Australian Dollar / US Dollar “Aussie Dollar” EUR/GBP Euro / British Pound “Euro Sterling” EUR/JPY Euro / Japanese Yen “Euro Yen” EUR/CHF Euro / Swiss Franc “Euro Swiss” GBP/CHF British Pound / Swiss Franc “Sterling Swiss” GBP/JPY British Pound / Japanese Yen “Sterling Yen” CHF/JPY Swiss Franc / Japanese Yen “Swiss Yen” NZD/USD New Zealand Dollar / US Dollar “New Zealand Dollar” or “Kiwi” USD/ZAR US Dollar / South African Rand “Dollar Zar” or “South African Rand” GLD/USD Spot Gold “Gold” SLV/USD Spot Silver “Silver” CURRENCY PAIRSAll currencies are assigned an International Standards Organization (ISO) code abbreviation. In currency trading, these codes are often used to express which specific currencies make up a currency pair. For example, USD/JPY refers to two currencies: the US Dollar and the Japanese Yen. SPOT FOREX Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EUR/USD. That is, sell Euros and buy US dollars. The following is guide for quoting conventions: What does it mean to be “long” or “short” a currency?Being long means buying a currency. Being short means selling a currency. If a trader goes long USD/JPY, he or she buys US Dollars and sells Japanese Yen. Buying a currency is synonymous with taking a long position in that currency. A trader takes a long position in a currency if he or she believes it will appreciate in value.If a trader goes short USD/JPY, he or she sells US Dollars and buys Japanese Yen. Selling a currency is synonymous with shorting that currency. A trader would short a currency if he or she believes it will depreciate in value.CURRENCY TRADING: BUYING AND SELLING CURRENCIESAll Forex trades result in the buying of one currency and the selling of another (currency trading), simultaneously. Buying (”going long”) the currency pair implies buying the first, base currency and selling an equivalent amount of the second, quote currency (to pay for the base currency). It is not necessary to own the quote currency prior to selling, as it is sold short. A trader buys a currency pair if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling (”going short”) the currency pair implies selling the first, base currency, and buying the second, quote currency. A trader sells a currency pair if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency. An open trade or position is one in which a trader has either bought or sold one currency pair and has not sold or bought back an adequate amount of that currency pair to effectively close the trade. When a trader has an open trade or position, he/she stands to profit or lose from fluctuations in the price of that currency pair.Forex is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes form minor currency market movements. Some banks generate 60% of their profits from trading currency aggressively.Trading volume has been growing at a rate of 25% per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency market is one of the world fastest growing industries. What used to require days to accomplish in Europe or Asia now oly takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a computer key.Foreign exchange is the backbone of all international capital transactions. Compared to the slim profit margins rendered in other areas of commercial banking, huge profits are generally produced in a matter of minutes from minor currency options market movements. Some banks generate up to 60% of their profits from trading currency aggressively. Transactions in foreign currencies take place when one country’s currency is purchased (exchanged) with another country’s currency. The price agreed upon or negotiated for the currency purchased is referred to as the foreign exchange rate. Major commercial banks in the money market centers throughout the world are responsible for the majority of foreign currencies bought and sold. Trading volume has been growing at a rate of 25% per year since the mid-1980s and therefore it is not difficult to accept the notion that the currency options is the world’s fastest growing industry. What used to require days to accomplish in Europe or Asia now only takes a few minutes. Needless to say, technology has changed everything and millions of Dollars are moved from one currency into another every second of every day by major banks through computers and for the average investor, with the touch of a phone.FOREX BASICS – What’s a PIP A “pip” is the smallest increment in any currency pair. In EUR/USD, a movement from .8951 to .8952 is one pip, so a pip is .0001. In USD/JPY, a movement from 130.45 to 130.46 is one pip, so a pip is .01. CALCULATING THE WORTH OF A PIP How much in dollars is this movement worth, for example, per 10,000 Euros in EUR/USD? How much is one pip worth per 10,000 Dollars in USD/JPY? We will refer to the size, in this case 10,000 units of the base currency, as the “Notional Amount”. The formula for calculating a pip value is therefore: (one pip, with proper decimal placement / currency exchange rate) x (Notional Amount) Using USD/JPY as an example, this yields: (.01/130.46) x USD 10,000 = $0.77 or 77 cents per pip Using EUR/USD as an example, we have: (.0001/.8942) x EUR 10,000 = EUR 1.1183 But we want the pip value in USD, so we then must multiply EUR 1.1183 x (EUR/USD exchange rate): EUR 1.1183 x .8942 = $1.00 This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EUR/USD or GBP/USD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or “tick”) values in currency futures, where the currency is quoted first, are always fixed. Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency: USD/JPY: 1 pip = $.77 (i.e. a change from 130.45 to 130.46 is worth about $.77 per $10,000) EUR/USD: 1 pip = $1.00 (.8941 to .8942 is worth $1.00 per 10,000 Euros) GBP/USD: 1 pip = $1.00 (1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds) USD/CHF: 1 pip = $.59 (1.6855 to 1.6866 is worth $.59 per $10,000)SpreadThe spread is the difference between the price that you can sell currency at ( Bid) and the price you can buy currency at ( Ask). The spread on majors is usually 3 pips under normal market conditions. Market HoursThe spot Forex market is unique to any other market in the world; trading 24-hours a day. Somewhere around the world a financial center is open for business and banks and other institutions exchange currencies every hour of the day and night, only stopping briefly on the weekend. Foreign exchange markets follow the sun around the world, giving traders the flexibility of determining their trading day and the ability to take advantage of global economic events.FOREX or The Foreign exchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The most commonly traded currencies are referred to as “Majors”; over 85% of daily transactions on Forex trading involve the Majors. These seven currencies are the US Currency (Dollar, USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency. Prior to this and in particular during World War II, exchange rate remained more stable. Forex trading in simplest terms is the buying of one currency and the selling of another. Forex trading, also referred to, as “FX” is open to corporations, small businesses, commercial banks, investment funds and private individuals, it is the largest financial market in the world averaging a daily turnover of over $1 trillion dollars, making it a diverse and exciting market. It is a 24-hour market enabling it to accommodate constant changing world currency exchange rates . According to New York time, trading begins at 2.15pm on Sunday in Sydney and Singapore and progresses through to Tokyo at 7pm, London at 2am and reaches New York at 8am. This leaves investors free to respond to global political, economic and social events when they take place, day or night. Unlike trading on the stock market, the forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.





By: Larry Schade ]]> http://wwwforex-trading.com/2009/09/28/forex-currency-trading-explained-fx-trading/feed/ 0 http://wwwforex-trading.com/2009/09/11/investing-in-foreign-exchangeforex/ http://wwwforex-trading.com/2009/09/11/investing-in-foreign-exchangeforex/#comments Fri, 11 Sep 2009 23:46:44 +0000 admin http://wwwforex-trading.com/2009/09/11/investing-in-foreign-exchangeforex/ Currency market or Forex (Foreign exchange) is the market where you can buy and sell currencies in real time in order to benefit from changes in currency exchange rates. Unlike other financial markets where you buy an asset in the hope that it appreciates on the Forex you are buying one currency against another currency in the hope that the first shall be compared to the second but you can also sell one currency against another currency in the hope that it will depreciate relative to the second.

On the Forex, we have said, you buy or sell one currency against another currency. Indeed, the value of a currency can not be assessed in relation to that of another currency and that is why you invest in a currency pair and not a single currency.

For example:You want to invest on the dollar because you think it is currently very low against the euro and should be strengthened in the long term. You will then take a position for sale on the EUR / USD (Euro / Dollar). In this case, you sell the euro against the dollar, well you invest in a reduction of the euro against the dollar which is the same that a rising dollar against the euro.

The Forex market is easily accessible although still little known to French investors. Long regarded as a market reserved for the most wealthy traders and professionals, it democratizes past several years especially with the arrival of broadband Internet and free trading platforms latest generation. Individuals now have a secure and efficient access to the currency market. Similar to small rooms market both in quality and performance information, the platform monitors market developments in real time and to place orders directly from home. Many professional tools such as charts, studies, technical indicators, chat, information en continu … are also available.

Along with the quality of investment tools, the interest of the foreign exchange market, also known as Forex, is also mainly in the characteristics of its own: a very low initial investment with the possibility of opening a mini account.The absence of committees generally weigh on profits made, the continuous opening 24H/24 brings a lot of flexibility and transparency to the market but also highly leveraged proposed to take positions whose value is much greater than your account, for those willing to take a risk in proportion.

Forex Best Automated Trading see www.forexfapturbo.blogspot.com





By: Anil Kumar Raju Addipalli ]]> http://wwwforex-trading.com/2009/09/11/investing-in-foreign-exchangeforex/feed/ 0 http://wwwforex-trading.com/2009/09/09/forex-buy-and-sell-indicator/ http://wwwforex-trading.com/2009/09/09/forex-buy-and-sell-indicator/#comments Wed, 09 Sep 2009 18:18:09 +0000 admin http://wwwforex-trading.com/2009/09/09/forex-buy-and-sell-indicator/  



A free forex buy and sell indicator takes the guesswork out of forex trading. It makes sure you are trading based on solid facts and not just on a whim. It will also ensure you are backed with historical data on trends regarding the currencies you are trading in.

There are many sites where you can check out free forex buy and sell indicators. These sites offer customers software which can help predict whether it is wise to sell or to hold on to the currencies you are trading in. Some sites which offer buy and sell indicators are business4profitsystems and swingcurrency. You might want to try out a few sites and find out which one is best suited to your requirements.

Apart from the free indicators, there are a host of other sites which allow you to download such applications for a fee. Such paid sites might give you superior quality and better features, which a free one cannot offer. Applications like Forex AutoPilot – also called FAPS – are fast gaining popularity among users. This is an automated software which trades at anytime provided you leave your computer on. the software requires you to feed in the basic ranges in which you would like to trade and rest assured the software will take care of the rest. This might sound a little dicey to those of you who would like to be in total control of your forex trading. The Forex Autopilot has an in -built free forex buy and sell indicator. But this comes only in its demo version.

Another well received software for forex buy and sell indication is Doubling stocks. This software also helps you make cardinal decisions in the forex market regarding when to buy, sell or exit a trade. This is not an automated software, so you will need to do the trading yourself on the basis of what the software tells you. This would be reassuring for those of you who need to have complete control over what you are trading. This software application also comes with a free demo package. The demo software is definitely very rich and detailed. It would be a boon for those who are entering the forex trading business and provide valuable support for those who have experience in the forex markets.

Apart from these two there are many other sites which sell forex buy and sell indicators for a price. What you need to keep in mind when you purchase this software is the sensitivity of the software to daily fluctuations in the market.

While online equities and futures trading have enjoyed exponential growth and widespread notoriety over the past few years, online foreign exchange trading is only now gaining popularity among seasoned active traders, commodity trading advisors (CTAs), and other professional money managers.

Until recently, large international banks dominated the foreign exchange market, only allowing access via telephone trading to a select few such as Fortune 1000 companies, large funds, high-net worth individuals, and so on. But now, the tide has turned and finally there are established online trading firms that provide individual investors with direct access to the largest, most liquid financial market in the world.

In this market you may buy or sell currencies. The objective is to earn a profit from your position. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are virtually identical to those found in other markets, so the transition for many traders is often seamless.

Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the “basis” for the buy or the sell.

For example, if you BUY EUR/USD you have bought euros (simultaneously sold dollars). You would do so in expectation that the euro will appreciate (go up) relative to the US dollar.

EUR/USD

In this example euro is the base currency and thus the “basis” for the buy/sell. If you believe that the US economy will continue to weaken and this will hurt the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will appreciate versus the US dollar.

 

 

If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold euros in the expectation that they will depreciate versus the US dollar.

GBP/USD

In this example the GBP is the base currency and thus the “basis” for the buy/sell. By doing so you have bought pounds in the expectation that they will appreciate versus the US dollar.

If you believe the British are going to adopt the euro and this will weaken pounds as they devalue their currency in anticipation of the merge, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.

USD/JPY

In this example the US dollar is the base currency and thus the “basis” for the buy/sell. If you think that the Japanese government is going to weaken the yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will appreciate versus the Japanese yen.

If you believe that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back to Japan, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.

USD/CHF

In this example the CHF is the base currency and thus the “basis” for the buy/sell. If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.





By: tunde ]]> http://wwwforex-trading.com/2009/09/09/forex-buy-and-sell-indicator/feed/ 0 http://wwwforex-trading.com/2009/08/26/currency-trading-tutorial-forex-for-beginners/ http://wwwforex-trading.com/2009/08/26/currency-trading-tutorial-forex-for-beginners/#comments Wed, 26 Aug 2009 20:39:29 +0000 admin http://wwwforex-trading.com/2009/08/26/currency-trading-tutorial-forex-for-beginners/ What Is A Currency Pair?

A currency pair refers to the two currencies that are involved in a foreign exchange trade. For example, if you want to buy the Japanese Yen using U.S. Dollars, you would look at the quoted price for the USD/JPY currency pair (USD = U.S. Dollar; JPY = Japanese Yen).

Basically, the currency pair you should be looking at depends on the currencies you wish to trade in.

What Is A Base Currency?

A base currency is the currency that is first mentioned in a currency pair. In the USD/JPY currency pair for example, the base currency is the USD. In the EUR/USD currency pair (EUR = Euros), the base currency is EUR.

The base currency is the currency with which the quoted price refers to. For example, the quote USD/JPY 110.00 means that one unit of the base currency (i.e. USD) is worth 110.00 JPY.

To clarify, here’s another example: EUR/USD 1.4600.

This means that 1 unit of EUR is worth 1.4600 units of USD. To buy 1 EUR, you’ll need to trade in 1.4600 USD (i.e. sell 1.4600 USD).

What Are Bid And Ask Prices?

The base currency is traded at 2 different prices at any one time, depending on whether you want to buy or sell it. For example, if you want to sell the USD/JPY currency pair (i.e. sell the USD and buy JPY), you’ll receive 110.00 JPY. However, if you want to buy the USD/JPY pair, you may need to pay 110.03 JPY.

Notice how the buying price is higher than the selling price. This difference between the buy and sell price is known as the ‘spread’. If you first buy a currency pair and then immediately sell it, you’ll incur a loss equal to the spread.

The spread is what you pay to your broker as transaction fees.





By: Harold Hsu ]]> http://wwwforex-trading.com/2009/08/26/currency-trading-tutorial-forex-for-beginners/feed/ 0 http://wwwforex-trading.com/2009/07/29/margin-in-forex-trading/ http://wwwforex-trading.com/2009/07/29/margin-in-forex-trading/#comments Wed, 29 Jul 2009 06:32:52 +0000 admin http://wwwforex-trading.com/2009/07/29/margin-in-forex-trading/ What is Margin?

Margin is the amount of equity that must be maintained in a trading account to keep a position open. It acts as a good faith deposit by the trader to ensure against trading losses. A margin account allows customers to open positions with higher value than the amount of funds they have deposited in their account.

Trading a margin account is also described as trading on a leveraged basis. Most online forex firms offer up to 200 times leverage on a mini contract account. The mini contract size is usually 10,000 currency unit, 1/200th of 10,000 equals to 50 currency unit, meaning only 0.5% margin is required for open positions. Compare to future contracts, which require 10% margin for most contracts, and equities require 50% margin to the average investor and 10% margin to the professional equity traders, foreign exchange market offers the highest leverage among the other trading instruments.

The equity in excess of the margin requirement in a trading account acts as a cushion for the trader. If the trader loses on a position to the point that equity is below the minimum margin requirement, meaning the cushion has completely worn out, then a margin call will result. Generally, in online forex trading, the trader must deposit more funds before the margin call or the position will be closed. Since no calls are issued before the liquidation, the margin call is better known as ‘margin out’ in this case. The account will be margined out, meaning all the positions will be closed, once the equity falls below the margin requirement.

Example:

Account A

Account Equity: 500USD

Contract Size: 10,000

Currency: EUR/USD

Spread: 3 pips

Margin Requirement: 50USD

Leverage: 1,000:50 = 200:1

Pips to margin out (1 lot): 447

Consider Account A, the margin requirement for 1 lot of position is 50USD. The free usable margin is Account Equity – (Margin Requirement + Spread) = 500 – (50 + 3) = 447. The account will be margined out if EUR/USD moves 447 pips against the position.

Why Margin Requirement Matters?

Leverage is a double-edged sword. With proper usage, it can enhance customers’ funds to generate quick returns and increase the potential return of an investment. However, without proper risk management, it can lead to quick and large losses. Consider the following example:

Account:A

Account Equity:500USD

Contract Size:10,000

Currency:EUR/USD

Spread:3 pips

Margin Requirement:50USD

Leverage:1,000:50 = 200:1

Pips to margin out (1 lot):447

Max no. of lots at one time:9

Pips to margin out (max lots):3

Account:B

Account Equity:500USD

Contract Size:10,000

Currency:EUR/USD

Spread:3 pips

Margin Requirement:200USD

Leverage:1,000:200 = 50:1

Pips to margin out (1 lot):297

Max no. of lots at one time:2

Pips to margin out (max lots):47

The initial conditions of the accounts are the same, except for account A, the margin requirement per lot is 50USD and account B is 200USD.

Free usable margin = Account Equity – (Margin Requirement + Spread)no. of lots

Maximum number of lots open at one time = Account Equity / (margin requirement + spread)

In account A, for 1 lot of position, the free usable margin is 500 – (50+3) = 447, which means the account will be margined out if EUR/USD moves 447 pips against the position. The max number of lots open at one time = (500/(50+3)) = 9 lots, with 500 – (50+3)9 = 23USD free usable margin left for 9 lots. Once EUR/USD moves 23/9 = 3 pips against the positions, there would be not enough usable margin and account A will be margined out.

In account B, the free usable margin for 1 lot is 500 – (200+3) = 297, which means the account will be margined out if EUR/USD moves 297 pips against the position. The max number of lots open at one time = (500/(200+3)) =2 lots, with 500 – (200+3)*2 = 94USD free usable margin for 2 lots. If EUR/USD moves 94/2 = 47 pips against the positions, account B would be margined out.

With 1 lot of open position, account A has 447USD usable margin as cushion before being margined out, while account B only as 297USD. However, with more usable margin, account A has higher probability of being over traded. As shown in the above example, the more open positions, the easier is the account to get margin out.

Most forex trading firms offer customizable leverage; traders can choose the leverage ratio they feel most comfortable with. Customers should be aware of how to guard against over trading an account and managing overall risk.





By: Actionforex.com ]]> http://wwwforex-trading.com/2009/07/29/margin-in-forex-trading/feed/ 0 http://wwwforex-trading.com/2009/07/09/forex-options-trading-how-to-read-forex-price-quotes-part-2-of-3/ http://wwwforex-trading.com/2009/07/09/forex-options-trading-how-to-read-forex-price-quotes-part-2-of-3/#comments Thu, 09 Jul 2009 21:01:28 +0000 admin http://wwwforex-trading.com/2009/07/09/forex-options-trading-how-to-read-forex-price-quotes-part-2-of-3/ To read a forex price quote consisting of two different currencies you have to note that the first currency is known as the base currency while the second currency is called the quote currency. Another point of note is that the first currency value is always 1 (one).

To further illustrate, the price quote or exchange rate tells us how much of the quote currency we must pay to obtain one unit of the base currency. Likewise. The price quote or exchange rate tells us how much we will receive in the quote currency by selling one unit of the base currency.

For example, if you wanted to buy the EUR/USD a price quote of EUR/USD of 1.3550 means that 1 EURO dollar (EUR) is equal to 1.3550 US dollars (USD). This means that to buy 1 EURO dollar (EUR), you would have to pay 1.3550 US dollars (USD).

In the above case, if the currency pair’s prices rises (i.e. the EUR/USD price goes up) it would mean that the EURO dollar (EUR) has appreciated against the US dollar (USD) which has weakened. If the EUR/USD has now risen to 1.3850 from 1.3550 it will mean that the EURO dollar is stronger now compared to the US dollar (USD) as 1 EURO dollar can buy more US dollars (USD) than before.

Likewise if the EUR/USD has now dropped to 1.3350 from 1.3550 it will mean that the EURO dollar has become weaker relative to the US dollars as 1 EURO dollar now can only purchase lesser US dollars

To be continue… on Forex Options Trading – How To Read FOREX Price Quotes (Part 3 of 3)





By: Timothy Stevens ]]> http://wwwforex-trading.com/2009/07/09/forex-options-trading-how-to-read-forex-price-quotes-part-2-of-3/feed/ 0