FOREX TRADING FOR BEGINNERS

Forex Indicators for Better Trading Accuracy

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Forex Indicators for Better Trading Accuracy

Profitable Trades in Forex

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Profitable Trades in Forex

Adjudicature The Right Forex Trading Software

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Adjudicature The Right Forex Trading Software

4X Trading Software at Its Best: 4X Trading Was Never Thence Easy - 4X Software You Extremity Have

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4X Trading Software at Its Best: 4X Trading Was Never Thence Easy - 4X Software You Extremity Have

Increasing Popularity of Forex Trading

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Increasing Popularity of Forex Trading

Overview of trading Forex online

noreply@blogger.com (Mitul R. Desai) — Tue, 10 Nov 2009 23:01:00 +0530

How a Forex system operates in real time
Online foreign exchange trading occurs in real time. Exchange rates are constantly changing, in intervals of seconds. Quotes are accurate for the time they are displayed only.   At any moment, a different rate may be quoted. When a trader locks in a rate and executes a transaction, that transaction is immediately processed; the trade has been executed.

Up-to-date exchange rates
As rates change so rapidly, any Forex software must display the most up-to-
date   rates.   To   accomplish   this,   the   Forex   software   is   continuously communicating with a remote server that provides the most current exchange rates. The rates quoted, unlike traditional bank exchange rates, are actual tradable rates. A trader may choose to “lock in” to a rate (called the “freeze rate”) only as long as it is displayed.

Trading online on Forex platforms
The internet revolution caused a major change in the way Forex trading is conducted throughout the world.
Until the advent of the internet-Forex age at the end of the 1990’s, Forex trading was conducted via phone orders (or fax, or in-person), posted to brokers or banks. Most of the trading could be executed only during business hours.   The same was true for most activities related to Forex, such as making the deposits necessary for trading, not to mention profit taking. The internet has radically altered the Forex market, enabling around the clock trading and conveniences such as the use of credit cards for fund deposits.

Forex on the internet: basic steps
In general, the individual Forex trader is required to fulfill two steps prior to trading:
•   Register at the trading platform
•   Deposit funds to facilitate trading

Requirements vary with each trading platform, but these steps bear further discussion:

Registering
Registration is done online by the individual trader. There are various forms
used in the industry. Some are quite simple, where others are longer and
more time-consuming. In part, this can be attributed to governmental or
other authorities’ requirements, though some Forex platforms require more
information than is actually needed. Some even require a face-to-face
meeting, or to obtain hard copies of required documents such as a passport,
or driver’s license.
The key requirements for registration are the trader’s full name, telephone,
e-mail address, residence, and sometimes also the trader’s yearly income or
capital (equity) and an ID number (passport / driver’s license / SSN / etc.).
Typically, the Forex platform is not required to run a thorough check, but rely
on the registrant to be truthful. Nevertheless, each Forex platform conducts
certain routines, in order to check and verify the authenticity of the details
provided.
Registrants are required to declare that funds used for trading are not in
question, and are not the result of any criminal act or money laundering
activity.   This is mandatory as part of a global anti-money laundering effort.

Depositing funds
New registrants must deposit funds to facilitate trading. However, the majority of the Forex platforms today require that, in addition to funds used for actual trading, an additional amount be deposited.     Often called “maintenance margin” or “activity collateral”, its purpose is for the platform to have an additional guarantee. Some of the platforms that require an additional deposit do pay interest on the collateral, which is “frozen” under the trader’s name.
The Easy-Forex™ Trading Platform does NOT require any additional guarantee,
and allows trading with 100% of the amount deposited. Easy-Forex™ is able to

provide these advantages because it assures “guaranteed rates and StopLoss”. That means that there will never be any additional requirement for funds as a result of a “gap” that causes you to surpass the Stop-Loss.   See “20 issues you must consider” (Chapter 9) for more.

Trading online
The trading platform operates 24 hours a day just as the global Forex market runs around the clock.
However, many online Forex market makers require the download and installation of software specific to their own trading platform. Consequently, accessibility is limited to those terminals that have the software.   Since Forex trading is borderless, and may be performed at any given time, it is obviously advantageous to have access to trading from as many locations as possible. The Easy-Forex™ Trading Platform is a fully web-based system, which means trading can be conducted from any computer connected to the internet. Traders are only required to log-in, ensure they have available funds to trade, or make new deposits, and commence trading.

The Trading Platform: real-time software
The main feature of any Forex trading platform is real time access to exchange rates, to deal and order making, to deposits and withdrawals, and to monitoring the status of positions and one’s account.
The Easy-Forex™ Trading Platform system uses web services to continuously fetch the most current exchange rates. The most recent data displays without the need for a page refresh. This includes account status screens such as “My Position”, which updates continually to reflect changes in rates and other real time elements.

Transaction processing and storage
As soon as a transaction is executed, the relevant data is processed securely and sent to the data server where it is stored. A backup is created on a different server farm, to ensure data integrity and continuity. All of this happens in real time, with no human intervention.

Trading via brokers and dealing rooms (by phone)
Performing Forex trading via Dealing Room dealers (over the phone) requires knowledge about the way dealing rooms work, and the terminologies used in the course of trading.
At start, the client should specify whether he/she is interested in obtaining a QUOTE (in order to make a deal) or just an INDICATION.   In the case of an indication, the price given does not bind the dealer, but rather provides information about market conditions.
When asking for QUOTE, the trader must specify the currency pair and the
deal amount    (volume). For example:    “Need a quote for EUR/USD in
EUR100,000”.
It is wise to withhold from the dealer the intended direction of the deal, specifying the pair only. Accordingly, the dealer then provides a quote comprising two prices, buy and sell (“both sides quote”). The quote binds the dealer for the very second it is given. If the trader does not immediately ask for execution, then the price is no longer in force. The dealer would then tell the customer “risk”, or “change”, meaning - the price quoted is no longer in force.   In such case, the trader should ask for a new price.
On the other hand, in order to make a deal, the trader must proclaim “buy” or “sell”, together with the currency (or the price).
An example:
•   The trader asks for a quote for EUR/USD.
•   The dealer says “1.2010/15”.
•   If the trader wants to buy EUR, he/she says “buy" (or "buy EURO”, or
    “15”.
•   If the trader wants to sell EUR, he/she says “sell" (or "sell EURO”, or
    “10”.
The moment the trader says “buy” (or “sell”) he/she is bound to the deal, regardless of the market situation.

What is the global Forex market?

noreply@blogger.com (Mitul R. Desai) — Tue, 10 Nov 2009 22:54:00 +0530

Today, the Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are continually and simultaneously bought and sold across local and global markets.   The value of traders' investments increases or decreases based on currency movements. Foreign exchange market conditions can change at any time in response to real-time events.
The main attractions of short-term currency trading to private investors are:
    • 24-hour trading, 5 days a week with nonstop access (24/7) to global
    Forex dealers.
•    An enormous liquid market, making it easy to trade most currencies.
•    Volatile markets offering profit opportunities.
•    Standard instruments for controlling risk exposure.
•    The ability to profit in rising as well as falling markets.
•    Leveraged trading with low margin requirements.
•    Many options for zero commission trading.

A brief history of the Forex market
The following is an overview into the historical evolution of the foreign exchange market and the roots of the international currency trading, from the days of the gold exchange, through the Bretton-Woods Agreement, to its current manifestation.

The Gold exchange period and the Bretton-Woods Agreement
The Bretton-Woods Agreement, established in 1944, fixed national currencies against the US dollar, and set the dollar at a rate of USD 35 per ounce of gold. In 1967, a Chicago bank refused to make a loan in pound sterling to a college professor by the name of Milton Friedman, because he had intended to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement.
Bretton-Woods was aimed at establishing international monetary stability by
preventing money from taking flight across countries, thus curbing speculation
in foreign currencies. Between 1876 and World War I, the gold exchange
standard had ruled over the international economic system. Under the gold

standard, currencies experienced an era of stability because they were supported by the price of gold.
However, the gold standard had a weakness in that it tended to create boom-
bust economies. As an economy strengthened, it would import a great deal,
running down the gold reserves required to support its currency. As a result,
the money supply would diminish, interest rates would escalate and economic
activity would slow to the point of recession. Ultimately, prices of
commodities would hit rock bottom, thus appearing attractive to other
nations, who would then sprint into a buying frenzy.   In turn, this would inject
the economy with gold until it increased its money supply, thus driving down
interest rates and restoring wealth. Such boom-bust patterns were common
throughout the era of the gold standard, until World War I temporarily
discontinued trade flows and the free movement of gold.
The Bretton-Woods Agreement was founded after World War II, in order to
stabilize and regulate the international Forex market. Participating countries
agreed to try to maintain the value of their currency within a narrow margin
against the dollar and an equivalent rate of gold. The dollar gained a premium
position as a reference currency, reflecting the shift in global economic
dominance from Europe to the USA. Countries were prohibited from devaluing
their currencies to benefit export markets, and were only allowed to devalue
their currencies by less than 10%. Post-war construction during the 1950s,
however, required great volumes of Forex trading as masses of capital were
needed.   This had a destabilizing effect on the exchange rates established in
Bretton-Woods.
In     1971, the agreement was scrapped when the US dollar ceased to be
exchangeable for gold. By 1973, the forces of supply and demand were in
control of the currencies of major industrialized nations, and currency now moved more freely across borders. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s.   New financial instruments, market deregulation and trade liberalization emerged, further stoking growth of Forex markets.
The explosion of computer technology that began in the 1980s accelerated the pace by extending the market continuum for cross-border capital movements through Asian, European and American time zones. Transactions in foreign exchange increased rapidly from nearly $70 billion a day in the 1980s, to more than $2 trillion a day two decades later.

The explosion of the euro market
The rapid development of the Eurodollar market, which can be defined as US dollars deposited in banks outside the US, was a major mechanism for speeding up Forex trading. Similarly, Euro markets are those where currencies are deposited outside their country of origin. The Eurodollar market came into being in the 1950s as a result of the Soviet Union depositing US dollars earned from oil revenue outside the US, in fear of having these assets frozen by US regulators. This gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government reacted by imposing laws to restrict dollar lending to foreigners. Euro markets were particularly attractive because they had far fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing shortterm loans and financing imports and exports.
London was and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market, when British banks began lending dollars as an alternative to pounds in order to maintain their leading position   in   global   finance.   London's   convenient   geographical   location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market.

Euro-Dollar currency exchange
The euro to US dollar exchange rate is the price at which the world demand
for US dollars equals the world supply of euros. Regardless of geographical
origin, a rise in the world demand for euros leads to an appreciation of the
euro.
Factors affecting the Euro to US dollar exchange rate
Four factors are identified as fundamental determinants of the real euro to US dollar exchange rate:
•    The international real interest rate differential between the Federal
    Reserve and European Central Bank
•    Relative prices in the traded and non-traded goods sectors
•    The real oil price
•    The relative fiscal position of the US and Euro zone
The nominal bilateral US dollar to euro exchange is the exchange rate that
attracts the most attention. Notwithstanding the comparative importance of

bilateral trade links with the US, trade with the UK is, to some extent, more important for the euro.
The following chart illustrates the EUR/USD exchange rate over time, from
the inauguration of the euro, until mid 2006. Note that each line (the
EUR/USD, USD/EUR) is a     “mirror” image of the other, since both are
reciprocal to one another. This chart is illustrates the steady (general) decline
of the USD (in terms of euro) from the beginning of 2002 until the end of
2004.

In the long run, the correlation between the bilateral US dollar to euro
exchange rate, and different measures of the effective exchange rate of
Euroland, has been rather high, especially when one looks at the effective
real exchange rate. As inflation is at very similar levels in the US and the Euro
area, there is no need to adjust the US dollar to euro rate for inflation
differentials.   However, because the Euro zone also trades intensively with
countries that have relatively high inflation rates (e.g. some countries in
Central and Eastern Europe, Turkey, etc.), it is more important to downplay nominal exchange rate measures by looking at relative price and cost developments.

The fall of the US dollar
The steady and orderly decline of the US dollar from early 2002 to early 2004
against the euro, Australian dollar, Canadian dollar and a few other currencies
(i.e. its trade-weighted average, which is what counts for purposes of trade
adjustment), while significant, has still only amounted to about 20 percent.
There are two reasons why concerns about a free fall of the US dollar may not be worth considering. Firstly, the US external deficit will stay high only if US growth remains vigorous, and if the US continues to grow strongly, it will also retain a strong attraction for foreign capital which, in turn, should support the US dollar. Secondly, attempts by the monetary authorities in Asia to keep their currencies weak will probably not work in the long run.

The basic theories underlying the US dollar to euro exchange rate
Law of One Price: In competitive markets, free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.
Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established.

The dual forces of supply and demand
These two reciprocal forces determine euro vs. US dollar exchange rates.
Various factors affect these two forces, which in turn affect the exchange
rates:
The business environment: Positive indications     (in terms of government
policy, competitive advantages, market size, etc.) increase the demand for
the currency, as more and more enterprises want to invest in its place of
origin.
Stock market: The major stock indices also have a correlation with the currency rates, providing a daily read of the mood of the business environment.

Political factors: All exchange rates are susceptible to political instability and anticipation about new governments. For example, political instability in Russia is also a flag for the euro to US dollar exchange, because of the substantial amount of German investment in Russia.
Economic data: Economic data such as labor reports (payrolls, unemployment
rate and average hourly earnings), consumer price indices (CPI), producer
price indices (PPI), gross domestic product (GDP), international trade,
productivity, industrial production, consumer confidence etc., also affect currency exchange rates.
Confidence in a currency is the greatest determinant of the real euro to US dollar exchange rate. Decisions are made based on expected future developments that may affect the currency.

Types of exchange rate systems
An exchange can operate under one of four main types of exchange rate systems:
Fully fixed exchange rates
In a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.
Semi-fixed exchange rates
Currency can move within a permitted range, but the exchange rate is the dominant target of economic policy-making.   Interest rates are set to meet the target exchange rate.
Free floating
The value of the currency is determined solely by supply and demand in the foreign exchange market. Consequently, trade flows and capital flows are the main factors affecting the exchange rate.
The definition of a floating exchange rate system is a monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments.    The Bank of England, for example, does not actively intervene in the currency markets to achieve a desired exchange rate level.
With floating exchange rates, changes in market supply and demand cause a
currency to change in value. Pure free floating exchange rates are rare - most

governments at one time or another seek to “manage” the value of their currency through changes in interest rates and other means of controls.
Managed floating exchange rates
Most governments engage in managed floating systems, if not part of a fixed exchange rate system.

The advantages of fixed exchange rates
Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - though this depends on whether dealers in foreign exchange markets regard a given fixed exchange rate as appropriate and credible.
The advantages of floating exchange rates
Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it allows the government/monetary authority flexibility in determining interest rates as they do not need to be used to influence the exchange rate.

Who are the participants in today’s Forex market?
In general, there are two main groups in the Forex marketplace:
Hedgers account for less than 5% of the market, but are the key reason futures and other such financial instruments exist.    The group using these hedging tools is primarily businesses and other organizations participating in international trade.    Their goal is to diminish or neutralize the impact of currency fluctuations.
Speculators account for more than 95% of the market.
This group includes private individuals and corporations, public entities,
banks, etc. They participate in the Forex market in order to create profit,
taking advantage of the fluctuations of interest rates and exchange rates.

The activity of this group is responsible for the high liquidity of the Forex market. They conduct their trading by using leveraged investing, making it a financially efficient source for earning.

Market making
Since most Forex deals are made by (individual and organizational) traders, in conjunction with market makers, it’s important to understand the role of the market maker in the Forex industry.

Questions and answers about 'market making'

What is a market maker?
A market maker is the counterpart to the client. The Market Maker does not operate as an intermediary or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, and hedging via liquidity providers (banks) and its equity capital, at its discretion.

Who are the market makers in the Forex industry?
Banks, for example, or trading platforms (such as Easy-Forex™), who buy and
sell   financial   instruments “make   the   market”.   That   is   contrary   to
intermediaries, which represent clients, basing their income on commission.

Do market makers go against a client's position?
By definition, a market maker is the counterpart to all its clients' positions, and always offers a two-sided quote (two rates: BUY and SELL). Therefore, there is nothing personal between the market maker and the customer. Generally, market makers regard all of the positions of their clients as a whole. They offset between clients' opposite positions, and hedge their net exposure according to their risk management policies and the guidelines of regulatory authorities.

Do market makers and clients have a conflict of interest?
Market makers are not intermediaries, portfolio managers, or advisors, who
represent customers (while earning commission).   Instead, they buy and sell
currencies to the customer, in this case the trader. By definition, the market
maker always provides a two-sided quote (the sell and the buy price), and
thus is indifferent in regards to the intention of the trader.   Banks do that, as
do merchants in the markets, who both buy from, and sell to, their

customers. The relationship between the trader     (the customer) and the
market maker (the bank; the trading platform; Easy-Forex™; etc.) is simply based on the fundamental market forces of supply and demand.

Can a market maker influence market prices against a client’s position?
Definitely not, because the Forex market is the nearest thing to a “perfect
market” (as defined by economic theory) in which no single participant is
powerful enough to push prices in a specific direction. This is the biggest
market in the world today, with daily volumes reaching 3 trillion dollars.   No
market maker is in a position to effectively manipulate the market.

What is the main source of earnings for Forex market makers?
The major source of earnings for market makers is the spread between the bid and the ask prices. Easy-Forex™ Trading Platform, for instance, maintains neutrality regarding the direction of any or all deals made by its traders; it earns its income from the spread.

How do market makers manage their exposure?
The way most market makers hedge their exposure is to hedge in bulk. They aggregate all client positions and pass some, or all, of their net risk to their liquidity providers. Easy-Forex™, for example, hedges its exposure in this fashion,   in   accordance   with   its   risk   management   policy   and   legal requirements.

What is Forex trading? What is a Forex deal?

noreply@blogger.com (Mitul R. Desai) — Tue, 10 Nov 2009 22:48:00 +0530

The investor's goal in Forex trading is to profit from foreign currency movements.

More than 95% of all Forex trading performed today is for speculative purposes
(e.g. to profit from currency movements). The rest belongs to hedging
(managing business exposures to various currencies) and other activities.

Forex trades (trading onboard internet platforms) are non-delivery trades:
currencies are not physically traded, but rather there are currency contracts
which are agreed upon and performed. Both parties to such contracts (the
trader and the trading platform) undertake to fulfill their obligations: one
side undertakes to sell the amount specified, and the other undertakes to buy
it. As mentioned, over 95% of the market activity is for speculative purposes,
so there is no intention on either side to actually perform the contract (the
physical delivery of the currencies). Thus, the contract ends by offsetting it
against an opposite position, resulting in the profit and loss of the parties
involved.

Components of a Forex deal
A Forex deal is a contract agreed upon between the trader and the marketmaker (i.e. the Trading Platform). The contract is comprised of the following components:
•   The currency pairs (which currency to buy; which currency to sell)
•   The principal amount (or "face", or "nominal": the amount of currency
    involved in the deal)
•   The rate (the agreed exchange rate between the two currencies).
Time frame is also a factor in some deals, but this chapter focuses on DayTrading (similar to “Spot” or “Current Time” trading), in which deals have a lifespan of no more than a single full day.   Thus, time frame does not play into the equation.   Note, however, that deals can be renewed (“rolled-over”) to the next day for a limited period of time.
The Forex deal, in this context, is therefore an obligation to buy and sell a specified amount of a particular pair of currencies at a pre-determined exchange rate.
Forex trading is always done in currency pairs. For example, imagine that the
exchange rate of EUR/USD (euros to US dollars) on a certain day is 1.1999
(this number is also referred to as a “spot rate”, or just “rate”, for short). If
an investor had bought 1,000 euros on that date, he would have paid 1,199.00 US dollars. If one year later, the Forex rate was 1.2222, the value of the euro has increased in relation to the US dollar. The investor could now sell the 1,000 euros in order to receive 1222.00 US dollars. The investor would then have USD 23.00 more than when he started a year earlier.
However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a “risk-free” investment. Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i.e. the US government is not likely to go bankrupt, or be unable or unwilling to pay its debts.
Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back that currency in order to lock in the profit. An open trade (also called an “open position”) is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal.
It is estimated that around 95% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.

Exchange rate
Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of currencies are traded against the US dollar (USD), which is traded more than any other currency. The four currencies traded most frequently after the US dollar are the euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). These five currencies make up the majority of the market and are called the major currencies or “the Majors”. Some sources also include the Australian dollar (AUD) within the group of major currencies.
The first currency in the exchange pair is referred to as the base currency. The second currency is the counter currency or quote currency. The counter or quote currency is thus the numerator in the ratio, and the base currency is the denominator.
The exchange rate tells a buyer how much of the counter or quote currency
must be paid to obtain one unit of the base currency. The exchange rate also
tells a seller how much is received in the counter or quote currency when selling one unit of the base currency. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of euros that 1.2083 USD must be paid to obtain 1 euro.

Spreads
It is the difference between BUY and SELL, or BID and ASK. In other words,
this is the difference between the market maker's "selling" price (to its
clients) and the price the market maker "buys" it from its clients.
If an investor buys a currency and immediately sells it (and thus there is no
change in the rate of exchange), the investor will lose money. The reason for
this is “the spread”.   At any given moment, the amount that will be received
in the counter currency when selling a unit of base currency will be lower
than the amount of counter currency which is required to purchase a unit of
base currency.    For instance, the EUR/USD bid/ask currency rates at your
bank may be 1.2015/1.3015, representing a spread of 1,000 pips (percentage
in points; one pip = 0.0001).   Such a rate is much higher than the bid/ask
currency rates that online Forex investors commonly encounter, such as
1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade.

Prices, Quotes and Indications
The price of a currency (in terms of the counter currency), is called “Quote”. There are two kinds of quotes in the Forex market:

Direct Quote: the price for 1 US dollar in terms of the other currency, e.g. -
Japanese Yen, Canadian dollar, etc.
Indirect Quote: the price of 1 unit of a currency in terms of US dollars, e.g. -
British pound, euro.
The market maker provides the investor with a quote.   The quote is the price the market maker will honor when the deal is executed.   This is unlike an “indication” by the market maker, which informs the trader about the market price level, but is not the final rate for a deal.
Cross rates - any quote which is not against the US dollar is called “cross”. For example, GBP/JPY is a cross rate, since it is calculated via the US dollar. Here is how the GBP/JPY rate is calculated:

GBP/USD = 1.7464;
USD/JPY = 112.29;
Therefore:   GBP/JPY = 112.29 x 1.7464 = 196.10.

Margin
Banks and/or online trading providers need collateral to ensure that the investor can pay in the event of a loss. The collateral is called the “margin” and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future.
Margin enables private investors to trade in markets that have high minimum units of trading, by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but similarly enhances the rate of loss, beyond that taken without leveraging.

Maintenance Margin
Most trading platforms require a “maintenance margin” be deposited by the trader parallel to the margins deposited for actual trades. The main reason for this is to ensure the necessary amount is available in the event of a “gap” or “slippage” in rates. Maintenance margins are also used to cover administrative costs.
When a trader sets a Stop-Loss rate, most market makers cannot guarantee that the stop-loss will actually be used. For example, if the market for a particular counter currency had a vertical fall from 1.1850 to 1.1900 between the close and opening of the market, and the trader had a stop-loss of 1.1875, at which rate would the deal be closed? No matter how the rate slippage is accounted for, the trader would probably be required to add-up on his initial margin to finalize the automatically closed transaction. The funds from the maintenance margin might be used for this purpose.

Leverage
Leveraged financing is a common practice in Forex trading, and allows traders to use credit, such as a trade purchased on margin, to maximize returns. Collateral for the loan/leverage in the margined account is provided by the initial deposit.   This can create the opportunity to control USD 100,000 for as little as USD 1,000.
There are five ways private investors can trade in Forex, directly or indirectly:
•    The spot market
•    Forwards and futures
•    Options
•    Contracts for difference
•    Spread betting
Please note that this book focuses on the most common way of trading in the Forex market, “Day-Trading” (related to “Spot”). Please refer to the glossary for explanations of each of the five ways investors can trade in Forex.

A spot transaction
A spot transaction is a straightforward exchange of one currency for another.
The spot rate is the current market price, which is also called the “benchmark
price”. Spot transactions do not require immediate settlement, or payment
“on the spot”. The settlement date, or “value date” is the second business
day after the “deal date” (or “trade date”) on which the transaction is agreed
by the trader and market maker. The two-day period provides time to confirm
the agreement and to arrange the clearing and necessary debiting and
crediting of bank accounts in various international locations.

Risks
Although Forex trading can lead to very profitable results, there are substantial risks involved: exchange rate risks, interest rate risks, credit risks and event risks.
Approximately 80% of all currency transactions last a period of seven days or
less, with more than 40% lasting fewer than two days. Given the extremely

short lifespan of the typical trade, technical indicators heavily influence entry, exit and order placement decisions.

Forex? What is it, anyway?

noreply@blogger.com (Mitul R. Desai) — Tue, 10 Nov 2009 22:42:00 +0530

The market
The currency trading (foreign exchange, Forex, FX) market is the biggest and
fastest growing market on earth. Its daily turnover is more than 2.5 trillion
dollars. The participants in this market are central and commercial banks,
corporations, institutional investors, hedge funds, and private individuals like
you.

What happens in the market?
Markets are places where goods are traded, and the same goes with Forex. In Forex markets, the “goods” are the currencies of various countries (as well as gold and silver). For example, you might buy euro with US dollars, or you might sell Japanese Yen for Canadian dollars. It’s as basic as trading one currency for another.
Of course, you don’t have to purchase or sell actual, physical currency: you trade and work with your own base currency, and deal with any currency pair you wish to.

“Leverage” is the Forex advantage
The ratio of investment to actual value is called “leverage”. Using a $1,000 to buy a Forex contract with a $100,000 value is “leveraging” at a 1:100 ratio. The $1,000 is all you invest and all you risk, but the gains you can make may be many times greater.

How does one profit in the Forex market?
Obviously, buy low and sell high! The profit potential comes from the fluctuations (changes) in the currency exchange market. Unlike the stock market, where share are purchased, Forex trading does not require physical purchase of the currencies, but rather involves contracts for amount and exchange rate of currency pairs.
The advantageous thing about the Forex market is that regular daily
fluctuations - in the regular currency exchange markets, often around 1% - are
multiplied by 100! (Easy-Forex™ generally offers trading ratios from 1:50 to
1:200).

How risky is Forex trading?
You cannot lose more than your initial investment (also called your “margin”).
The profit you may make is unlimited, but you can never lose more than the
margin. You are strongly advised to never risk more than you can afford to
lose.
How do I start trading?
If you wish to trade using the Easy-Forex™ Trading Platform, or any other, you must first register and then deposit the amount you wish to have in your margin account to invest. Registering is easy with Easy-Forex™ and it accepts payment via most major credit cards, PayPal, Western Union. Once your deposit has been received, you are ready to start trading.

How do I monitor my Forex trading?
Online, anywhere, anytime. You have full control to monitor your trading status, check scenarios, change some terms in your Forex deals, close deals, or withdraw profits.

Introduction: how to use this book

noreply@blogger.com (Mitul R. Desai) — Tue, 10 Nov 2009 22:40:00 +0530

This book has been developed to help the Forex beginner, though experienced and professional traders may find it a handy reference.

Beginners and novice traders are likely to benefit from reading the entire
text, starting with Chapter 1, which provides a basic overview of what
currency trading is, and how to get started.

The chapters are set out in a logical flow, but do not need to be read in order
to make sense, as each works as a discrete unit unto itself.   You may prefer to
focus first on those chapters that you feel will complement your particular
knowledge base best.   Chapter 11 is a glossary of terms (listed alphabetically)
used in the Forex business, that will prove helpful as you read this book, and
may serve as a valuable reference as you become an experienced currency
trader.

With the help of this guide, you will soon be ready to start trading Forex - in fact, with the assistance of the online Easy-Forex™ team, you can start today. We wish you success in your trading, and hope you find this book interesting, helpful and enjoyable.
Before you start, please remember:

•   Forex trading (OTC Trading) involves substantial risk of loss, and
    may not be suitable for everyone. Before deciding to undertake such
    transactions, a user should carefully evaluate whether his/her financial
    situation is appropriate for such transactions. Read more in the "RISK
    WARNING" section on Easy-Forex site / Risk Disclaimer.
•   Always ask your Forex dealer (the TRADING PLATFORM you wish to
    trade with) the questions we prepared for you in this book (chapter 9).
    Selecting the appropriate Forex TRADING PLATFORM is essential for
    success in handling your trading and monitoring your activity, as well as
    maximizing profits, while minimizing losses and costs.