♂ Guide With Forex (Foreign Exchange)
Forex trading generates about $1.5 trillian a day in volume, making it the largest and most liquid market in the world. Compare that to futures ($437 billion) and stocks ($191 billion) and you will see that forex liquidity towers over any other market. Liquidity has its advantages, the primary one being no manipulation of the market. Thin stock and futures markets can easily be pushed up or down by specialists, market makers, commercials and locals. It takes real buy/selling by banks and institutions to move the forex market. Any attempted manipulation of the forex market usually becomes and exercise of futility.
What is Forex Trading?
The Forex Market is a 24-hour international market where banks, hedge funds, international corporations, and individuals from all over the world are active participants. The sheer scope of market participation and volume of activity insures around-the-clock activity making this an ideal market for trading at all times.Currencies have the tendency to trend heavily and rarely spend much time in tight trading ranges. These two characteristics are central for short to medium term trading. On a daily basis, traders can easily identify new trends and breakouts providing multiple opportunities to exit and enter positions.The Foreign Exchange market allows positions to be leveraged up to 200:1, providing tremendous upside potential. This means with $1000 margin deposit you can place a $200,000 position in the market. Foreign Exchange provides much better leverage then the futures market, which requires a 2%-5% margin and the equities market, which requires at least 50% initial margin. A 1% movement in the FX market can triple the value of your entire investment. Leverage is a double-edged sword, and without proper risk management, the market can move against you and cause the lost of initial investment.In the Foreign Exchange market there are no restrictions on short selling, which means that a trader can take advantage of an upward or downward market. Traders can buy or sell a currency with equal ease.
Two Ways to Trade
There are two basic approaches to analyzing currency markets, fundamental analysis and technical analysis. The fundamental analyst concentrates on the underlying causes of price movements, while the technical analyst studies the price movements themselves.
Technical Analysis
Technical analysis focuses on the study of price movements. Historical currency data is used to forecast the direction of future prices. The premise of technical analysis is that all current market information is already reflected in the price of that currency; therefore, studying price action is all that is required to make informed trading decisions. The primary tools of the technical analyst are charts. Charts are used to identify trends and patterns in order to find buying and selling opportunities. The most basic concept of technical analysis is that markets have a tendency to trend, or either increasing or decreasing. Being able to identify trends in their earliest stage of development is the key to technical analysis.
Fundamental Analysis
Fundamental analysis focuses on the economic, social and political forces that drive supply and demand. Fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. However, there is no single set of beliefs that guide fundamental analysis. There are several theories as to how currencies should be valued.Fundamentals Every Trader Should KnowCurrency prices reflect the balance of supply and demand for currencies. Two primary factors affecting the supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals and some of the data is more important than others. The ones that are looked at more closely are those related to interest rates and international trade.
Interest Rates
If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency markets. Traditionally, if a country raises its interest rates, the currency of that country will strengthen in relation to other countries as investors shift assets there to gain a higher return on the interest rate. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI and GDP. Generally the timing of interest rate moves is known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.
International Trade
The trade balance shows the net difference over a period of time between a nation’s exports and imports. When a country imports more than it exports the trade balance will show a deficit, which is generally considered unfavorable. For example, if U.S dollars are sold for other domestic national currencies (to pay for imports), the flow of dollars outside the country will depreciate the value of the currency. Similarly if trade figures show an increase in exports, dollars will flow into the United States and appreciate the value of the currency. From the standpoint of a national economy, a deficit in and of itself is not necessarily a bad thing; If the deficit is greater than market expectations then it will trigger a negative price movement.
What are SOME of the Risks Involved?
Margined Currency Trading is one of the riskiest forms of investment available in the financial markets and is only suitable for sophisticated individuals and institutions. An account with RefcoFX permits you to trade foreign currencies on a highly leveraged basis (up to approximately 200 times your account equity). An initial deposit of $1,000 will enable the account holder to take a maximum position with $200,000 market value. The funds in an account trading at maximum leverage can be completely lost, if the position(s) held in the account has a 1/2 percent swing in value.
Theoretically, an account could lose more than the equity it contains, if the account is trading at maximum leverage and positions held in the account swing more than 1/2 percent in value. Given the possibility of losing one's entire investment, speculation in the foreign exchange market should only be conducted with risk capital funds that if lost will not significantly affect one's personal or institution's financial well-being.
What is Forex Trading?
The Forex Market is a 24-hour international market where banks, hedge funds, international corporations, and individuals from all over the world are active participants. The sheer scope of market participation and volume of activity insures around-the-clock activity making this an ideal market for trading at all times.Currencies have the tendency to trend heavily and rarely spend much time in tight trading ranges. These two characteristics are central for short to medium term trading. On a daily basis, traders can easily identify new trends and breakouts providing multiple opportunities to exit and enter positions.The Foreign Exchange market allows positions to be leveraged up to 200:1, providing tremendous upside potential. This means with $1000 margin deposit you can place a $200,000 position in the market. Foreign Exchange provides much better leverage then the futures market, which requires a 2%-5% margin and the equities market, which requires at least 50% initial margin. A 1% movement in the FX market can triple the value of your entire investment. Leverage is a double-edged sword, and without proper risk management, the market can move against you and cause the lost of initial investment.In the Foreign Exchange market there are no restrictions on short selling, which means that a trader can take advantage of an upward or downward market. Traders can buy or sell a currency with equal ease.
Two Ways to Trade
There are two basic approaches to analyzing currency markets, fundamental analysis and technical analysis. The fundamental analyst concentrates on the underlying causes of price movements, while the technical analyst studies the price movements themselves.
Technical Analysis
Technical analysis focuses on the study of price movements. Historical currency data is used to forecast the direction of future prices. The premise of technical analysis is that all current market information is already reflected in the price of that currency; therefore, studying price action is all that is required to make informed trading decisions. The primary tools of the technical analyst are charts. Charts are used to identify trends and patterns in order to find buying and selling opportunities. The most basic concept of technical analysis is that markets have a tendency to trend, or either increasing or decreasing. Being able to identify trends in their earliest stage of development is the key to technical analysis.
Fundamental Analysis
Fundamental analysis focuses on the economic, social and political forces that drive supply and demand. Fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. However, there is no single set of beliefs that guide fundamental analysis. There are several theories as to how currencies should be valued.Fundamentals Every Trader Should KnowCurrency prices reflect the balance of supply and demand for currencies. Two primary factors affecting the supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals and some of the data is more important than others. The ones that are looked at more closely are those related to interest rates and international trade.
Interest Rates
If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency markets. Traditionally, if a country raises its interest rates, the currency of that country will strengthen in relation to other countries as investors shift assets there to gain a higher return on the interest rate. Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI and GDP. Generally the timing of interest rate moves is known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.
International Trade
The trade balance shows the net difference over a period of time between a nation’s exports and imports. When a country imports more than it exports the trade balance will show a deficit, which is generally considered unfavorable. For example, if U.S dollars are sold for other domestic national currencies (to pay for imports), the flow of dollars outside the country will depreciate the value of the currency. Similarly if trade figures show an increase in exports, dollars will flow into the United States and appreciate the value of the currency. From the standpoint of a national economy, a deficit in and of itself is not necessarily a bad thing; If the deficit is greater than market expectations then it will trigger a negative price movement.
What are SOME of the Risks Involved?
Margined Currency Trading is one of the riskiest forms of investment available in the financial markets and is only suitable for sophisticated individuals and institutions. An account with RefcoFX permits you to trade foreign currencies on a highly leveraged basis (up to approximately 200 times your account equity). An initial deposit of $1,000 will enable the account holder to take a maximum position with $200,000 market value. The funds in an account trading at maximum leverage can be completely lost, if the position(s) held in the account has a 1/2 percent swing in value.
Theoretically, an account could lose more than the equity it contains, if the account is trading at maximum leverage and positions held in the account swing more than 1/2 percent in value. Given the possibility of losing one's entire investment, speculation in the foreign exchange market should only be conducted with risk capital funds that if lost will not significantly affect one's personal or institution's financial well-being.
posted by yuyuaaron at 12:21 AM
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