Forex For Living

What is Forex Trading ?

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is the largest financial market in the world. The forex market includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.

The average daily trade in the global forex markets currently exceeds US$ 3 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks

An Uncentralized Market àThere is no central processing market for the foreign exchange. Instead, the market is made up only of interbanks. These interbanks are responsible for competing foreign-exchange trades and transactions from one currency to another.

Because the market exists solely between banks, there is no centralized place for each exchange, nor is there a common market. Instead, transactions take place between two individual banks, not between a bank, market, then another bank. This makes the foreign-exchange market a over-the-counter (OTC) marketplace.

It wasn’t until the advancement of online trading that average people could access the foreign-exchange market.

What is traded in Forex Trading ?

The answer is Currency. Currencies are always traded in pairs, such as EUR/USD, GBP/USD, etc. Why ? Because when you trade forex, you are exchanging 1 currency to another currency simultaneously (buying 1 currency and selling the other at the same instance). You will gain from differences of traded currency price rates.

When is the time to trade forex ?

The foreign exchange market is the only market in the world that is open 24/7. Investors are able to place trades every single day of the week, however, most pairs will move very little on the weekends as very few investors stick around to trade.

When Various Markets Open

When one market closes, another one opens, allowing traders to trade the market 24/7. Below is a list of the various open and closing times for the Tokyo, London, and New York forex markets.

The Best Times to Trade Forex

The best times to trade the foreign exchange market is when the most traders are trading. As such, investors should look to trade when more than one major market is open. As you can see in the chart above, the Tokyo and London markets overlap for 1 hour each day, and the London and New York markets overlap for 4 hours each day. This is when the most currency is traded, as more than one location is actively buying and selling different currency pairs.

Different Times, Different Currencies

Though anyone can trade any currency regardless of their country of origin, some currencies are more often traded during certain periods of the day. During the London trading session, the US Dollar (USD), the Great British Pound (GBP), and the Euro (EUR) are the most actively traded currencies. During the Tokyo session, the Japanese Yen (JPY) grows in volume. If your broker offers sliding spreads, those that change depending on volume, your best bet is to place trades during these market times in order to pay the lowest price in spreads and maintain the highest amount of market movements.

What are commonly traded currency pairs (Majors) in forex trading ?

There are many countries in world; so results different currency pairs. Among all of them, these are the popular in currency trading:

EUR/USD, USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, USD/CAD, NZD/USD, EUR/GBP, EUR/JPY, GBP/JPY, CHF/JPY, GBP/CHF, EUR/AUD, EUR/CAD, AUD/CAD, AUD/JPY, CAD/JPY, NZD/JPY, GBP/AUD, AUD/NZD

Five Major Currencies are:

U.S dollar - The United States dollar is the world's main currency an universal measure to evaluate any other currency traded on Forex.

Euro- Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the U.S. dollar, the euro has a strong international presence stemming from members of the European Monetary Union.

Japanese Yen- The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock.

British Pound - Until the end of World War II, the pound was the currency of reference. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies.After the introduction of the euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the euro zone.

Swiss Franc - Swiss franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small, the Swiss franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.

To have a well focusing, you have to concentrate on less than 5 currency pairs( preferred the U.S. cross-currency pairs.)

Some traders see forex as a business, and some see it as a fortune. And even some traders think forex is an art. But anyway, its highly recommended to use pivot system in your trading plan or else you are trading blind.

What are the benefits of forex trading

• Take control of your own finances. Beat the returns from mutual funds, hedge funds or managed funds.
• Start-up costs are low when compared with day trading stocks or futures.
• Forex is the world’s largest market. No one can corner the market.
• With a trading volume of around $1.9 trillion dollars a day, no single entity can control the market for an extended period of time.
• You can make money when the market is going up or down.
• Forex markets trade 24 hours a day. There is no waiting for the opening bell.
• Technical analysis works very well and the market trends well.
• Forex offers up to 100:1 leverage but it is wise to avoid very high leverage if you can afford it. Stocks offer 1:1 or 2:1.Futures offers 15:1 leverage
• The Forex market is the most liquid in the world. Traders can almost always open or close a position at a fair price.
• You can trade from anywhere in the world where there is an internet connection.
• You can gain experience without risking your own money by using a free demo account.
• When trading stocks, there are over 40,000 stocks to choose from. In forex, you can choose a few currency pairs and focus on them.

What Factors affecting forex trading?

Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. Supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.

Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several . These elements generally fall into three categories:

Economic factors

These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

1. Flights to quality: Unsettling international events can lead to a "flight to quality" with investors seeking a "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.
2. Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.
3. "Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
4. Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect - the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
5. Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form patterns that may be recognized and utilized by traders for the purpose of entering and exiting the market, leading to short-term fluctuations in price. Many traders study price charts in order to identify such patterns.

What is the Differents Between Fundamental Vs Technical Analysis ?

Basically, supply and demand determine the value of currencies. To forecast the currency trend, totally there are two methodologies, which are fundamental and technical analysis. Different traders may interested in different method.

What are 10 Things You Should Beware of During Currency Trading?

• Watch out of those who guarantee large profits.
• Stay away from those who promise no financial free
• Beware of those everything sounds very easy.
• Don’t trade on Margin unless you have been trained
• Please take cautious to online/phony transferring cash in online trading
• Make sure its really interbank market
• Job offer as Account Executive might lead you to use your money for currency trading
• Need to ensure the company background
• Avoid those company who won't let you know their background
• Don’t fully trust any agency or broker, put some effort to understand currency trading by yourself.

What are Economic Fundamental Aspect ?

Share market is very corporate dependant, we need to understand the corporate strategy, what is current corporate trend, who is managing the company? Is the company reliable? Is the annual report reflect true situation?

On the other hand, Forex market is economic dependant among countries. Unlike the financial, political and crisis factors, economic factors occur in a steady stream. Therefore, its very import to keep an eye on the economic announcement in order to make the enter and exit decision on your position.

Some economic aspects:

How about trading with brokers?

Foreign exchange brokers, unlike others financial brokers, do not take commission from customer; they only work for banks. Their roles are to bring together buyers and sellers in the market, to optimize the price they show to their customers and quickly, accurately, and authentically executing the traders' orders.

The majority of the foreign exchange brokers execute business via phone using an open box system there is a microphone with the broker that let him communication on the direct phone lines to the speaker boxes in the banks. By using this way, all banks can hear all the deals which are being executed. Due to the open box system, a trader is also able to hear all prices quoted; whether the bid was hit or the offer taken; and the following price. What the trader will not be able to hear is the amounts of particular bids and offers and the names of the banks showing the prices. Prices are unidentified. Sometimes brokers charge a commission that is paid equally by the buyer and the seller. The fees are negotiated on an individual basis by the bank and the brokerage firm. Brokers show their customers the prices made by other customers either two-way ( bid and offer ) prices or one way ( bid or offer ) prices from his or her customers. Traders show different prices because they "read" the market in a different way; they have different opportunity and different interests. A broker who has more than one price on one or both parties will automatically optimize the price.That means, the broker will always show the highest bid and the lowest offer. Therefore, the market has right of entry to an optimal spread possible. Fundamental and technical analyses are used for predicting the future direction of the currency. A trader might analyze the market by hitting a bid for a small amount to see if there is any response. Another advantage is that brokers might provide a broader selection of banks to their clients. Some European and Asian banks have overnight desks for 24 hours optimization dealing with counterparts in American banks, adding to the liquidity of the market.

Direct dealing.

Direct dealing is based on trading reciprocity. A market maker—the bank making or quoting a price — look forward to the bank that is calling to respond to making a price when called upon. Direct dealing provides more trading judgment, as compared to dealing in the brokers' market. Direct dealing used to be conducted mostly on the phone. Phone dealing was error-prone and slow which were difficult to prove and even more difficult to settle. Direct dealing was perpetually changed in the mid-1980s, by the introduction of dealing systems. Dealing systems are on-line workstations that link the contributing banks over the world on 1 on 1 basis. The performance of dealing systems is characterized by speed, reliability, and safety. The software is rather reliable in working on large exchange rates and the standard value dates. In addition, it is very accurate and fast in contacting with other parties, switching among conversations, and accessing the database. The trader is in continuous visual contact with the information exchanged through video conferencing. Video conferencing between both sides is much better than pure conversation. Most banks use a group of brokers and direct dealing systems. All approaches reach the same banks, but not the same parties, because corporations, for example, cannot deal in the brokers' market. While developing reciprocal relationship between traders and brokers, traders select their trading medium based on price quality, not on personal feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to brokers.

Matching systems.

Contrasting dealing systems, on which trading is not unknown and is conducted on a 1 on 1 basis, matching systems are unknown and individual traders deal against the rest of the market, similar to dealing in the brokers' market. Nevertheless, not like the brokers' market, there are no individuals to bring the prices to the market, and liquidity may be limited at times. Matching systems are for smaller amounts.. In addition, credit lines are automatically managed by the systems. Traders input the total credit line for each counterparty. When the credit line has been reached, the system automatically disallows dealing with the particular party by displaying credit restrictions, or displays the only price for traders who have open lines of credit. As long as the credit line is restored the system allows the bank to deal again.

What is spread ?

Spread is one of brokers profit. In our example from the previous article, we actually alluded to a few things. The first, is that there were a few costs in our example trade of 1 lot of GBP/USD. The hidden cost is the “spread” or the commission the broker earns for completing our trade.

How Forex Spreads Work

Unlike stocks or other tradeable securities, there is no set commission rate. With stocks, you may be accustomed to paying $6.95 to complete an online trade. In forex, we don’t pay commissions, instead the cost to trade is built into the forex bid and ask prices.

Bid and Ask

The bid and ask prices can be confusing, but we’ll make as much sense of the two prices as we can. The bid price is the price you would get when selling the pair. The ask price, is the price the market is asking for the pair. For instance, the pair GBP/USD may offer a bid price of 1.6101 and an ask price of 1.6104. If you bought the pair at 1.6104, you would immediately be able to sell the pair, at a loss, for 1.6101. Your net profit/loss would be negative 3 pips.

Why the Difference?

The difference between the bid and ask price is the illusive spread mentioned above. This spread is for the broker, for completing our trades. By selling to traders at one price, and buying from traders at another price, the broker is able to make money by completing our trades. A spread of 3 pips would create a profit of $30 for the broker, for each lot traded. This may seem to be horribly expensive, $30 a trade vs $6-7 for stocks, however the spread in forex is actually less than in the stock market.

Stock spreads vs. Forex Spreads

Spreads occur naturally in the stock market as well as in the foreign exchange market. The difference is that the forex market is not a centralized market like the stock markets. When you go to buy stock, there is a spread in the bid/ask price which is profit for the marketmaker, or the person who sits on an exchange and completes orders. In forex, the spread goes to the broker, who is a market maker in that they pair two orders to complete a trade.

All in all, spreads on the stock market are much, much higher than on the foreign exchange. The spread on the foreign exchange market adds up to roughly .03% of a trade. In the stock market, the spread is often 20 times greater, or about .6% of the cost of the trade PLUS the commission to complete the trade. All in all, the costs of trading the foreign exchange market are much cheaper than the stock market.