27‏/04‏/2009

Forex Tools: The Trendy and Judicious way of Forex Trading

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Forex trading system of the world performs trade of about $2 trillion each day.
The enormity of the gigantic financial capacity of the forex trade can be truly grasped if you compare this mammoth amount to the $25 billion that New York Stock Exchange trader's trade per day.
The quintessential qualities of a forex trader are discipline and endeavor.
If you are diligent and logical in studying the forex market trends then it wouldn't take you much time to hit the jackpot in Forex trade.
However, if you cannot manually manage to analyze all the currency trends yourself then you might take the help of a automatic signal service or a forex trading software which would send you alerts and signals about buying and selling currency after elaborate research and analysis.
If you use one of the automated Forex tools available in the market then you would be able to evaluate the trends of exchange rates and forex market conditions within a few minutes with the help of the data provided by your FX software.
As a result you will be able to close your forex deal in less than an hour.
Thus an automated forex tool would ensure that you are making optimum use of your trading time.
The global forex trading market is only merely remarkable because of the huge volume of monetary transactions that happens through it but it is also a commendable phenomenon due to its geographical dispersion.
With the help of automated FX software you can trade in various local as well as international forex markets within different time zones without personally monitoring those various markets day in and day out.
However, before you decide to buy particular FX software, you need to put in a little effort to search for a forex tool which is easy to use and is ideal for beginners.
Glean information about that particular forex tool which you plan to buy and thoroughly read the testimonials for that particular forex trading software before you purchase it.
If you really want to test the accuracy of your Forex trading robot then you must try to find forex trading software which has the ability to paper trade too.

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Why "Follow-Through" Is Imperative For Your Market Position

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Endurance is counted as a high merit in great accomplishments, especially inforex market.

Great men frequently advise to be consistent in big changes of market tendencies and "Follow Through" in breakthroughs.

If you have made a price change one day and you get success out of it then you should continue your endeavors in the same route in coming days and this trading movement is called the "Follow Through".

But this kind of breakthrough is not that much simple. Market does not accept big changes frequently.

It goes back over those trends present previously in the trade and at the end of the day when all is going to end, forex prices repeat the same trend seen some days before.

Nobody is a faultless and ideal merchant.

All the brokers and traders constantly discover a lot about the trading and aim not to repeat their past mistakes and blunders.

I can give you many instances about my learning and it all happens when you don't show patience and consistency.

When you don't wait and take a great step thinking it would be a huge success, but it is not all what we think.

I was planning about the corn market and had a keen eye on it for a long time.

I was waiting and hanging around for the market to show a big change in a persistent downside trend of the prices and counteract it.

One day there appeared a little upside move in the corn price but was not near to counteract it. I was out of my workplace for coming days and was unable to meet my broker or the info about the rates.

I made a call to my dealer and ordered corn for a buy-stop at a price which was much higher than the downside trend.

It did so because I thought if it worked, it would be a very tough change in the price to counteract the constant downside trend and it will indicate an uphill breakthrough in the every day price bar map.

That day I had some jinx and blip in my mind which was disapproving my decision and asking me to take time and "follow through" the price tendency to make the price break sure.

Next morning the corn's price inclination was high enough to strike my end and made me "in" the market.

But it was not for a long time.

Corn rates again overturned and threw my corn prices out soon.

The perception after observation is always true.

But this mistake taught me the significance of patience and consistency to give the market enough time to indicate follow through movement to make a prospective trading arrangement sure.

But a dealer also has some risk of absence and getting advantage of a big price change if he keeps on waiting.

But it is more sensible to be cautious and wait for the market to verify the follow through movements in the coming days.Sometimes market shows a relaxing session in the price movement and then verifies the great changes in the coming days.

But mostly the follow through movement is going to come in the next session if expected.

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the forex market

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Over the last three decades the foreign exchange market has become the world's largest financial market, with over US$3.2 trillion traded daily.
Forex is part of the bank-to-bank currency market known as the 24-hour Interbank market. The Interbank market literally follows the sun around the world, moving from major banking centers of the United States to Australia, New Zealand to the Far East, to Europe then back to the United States.
Until recently, the forex market wasn't for the average trader or individual speculator.
With the large minimum transaction sizes and often-stringent financial requirements, banks, hedge funds, major currency dealers and the occasional high net-worth individual speculator were the principal participants.
These large traders were able to take advantage of the many benefits offered by the forex market vs.
other markets, including fantastic liquidity and the strong trending nature of the world's primary currency exchange rates.
Select the forex market, select the time, and start trading.
The massive liquidity of forex, combined with a true 24-hour forex market that's traded 5.5 days a week, offers you exceptional independence and forex currency trading when you want to, not when the market wants you to.
The forex market literally follows the sun around the world, moving from major banking and financial centers of the United States to Australia and New Zealand to the Far East, to Europe and finally back to the United States.During each trading day, overall foreign currency trading volume is determined by what markets are open and the times each of these markets overlap one another. With each passing second, minute and hour, forex currency trading volume remains high, but peaks highest when the British, European and U.S.
markets are open at the same time - from 1 p.m. GMT to 4 p.m. GMT.
The volume of the Pacific Rim markets, such as Japan and Hong Kong, subsides compared to the crest of the U.S. market, but still offer the forex trader the ability to analyze the highly traded Pacific Rim currency.
The modern foreign exchange market (fx or forex) began to develop in 1973.
However, money has been around in one form or another since the time of Pharaohs.
The Babylonians are credited with the first use of paper bills and receipts, but Middle Eastern moneychangers were the first currency traders to exchange coins from one culture to another. During the middle ages, the need for another form of currency besides coins emerged as the method of choice. These paper bills represented transferable third-party payments of funds, making foreign currency exchange trading much easier for merchants and traders and causing these regional economies to flourish.From the infantile stages of forex during the Middle Ages to WWI, the forex markets were relatively stable and without much speculative activity. After WWI, the forex markets became very volatile and speculative activity increased tenfold. Speculation in the forex market was not looked on as favorable by most institutions and the public in general. The Great Depression and the removal of the gold standard in 1931 created a serious lull in forex market activity. From 1931 until 1973, the forex market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the forex markets during these times was little, if any.Historically, the majority of the general public has viewed the securities markets as an investment vehicle. In the last ten years securities have taken on a more speculative nature. This was perhaps due to the downfall of the overall stock market as many security issues experienced extreme volatility because of the irrational exuberance displayed in the marketplace. The implied return associated with an investment was no longer true. (If indeed it ever was.) Many traders engaged in the daytrader rush of the late 90's only to realize that, from a leverage standpoint, it took quite a bit of capital to day trade, and the return while potentially higher than long-term investing was not exponential. After the onset of the daytrader rush, many traders moved into the futures stock index markets where they found they could leverage their capital greater and not have their capital tied up when it could be earning interest or making money somewhere else. Like the futures markets, spot currency trading is an excellent vehicle for pattern daytraders who desire to leverage their current capital to trade*. Spot currency or forex trading provides more options, greater volatility and stronger trends than currently available in stock futures indexes. Former securities daytraders have an excellent home in spot foreign exchange (forex).

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The EUR/GBP Pair - An Easy Pair To Trade?

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The EUR/GBP pair is often overlooked by many forex traders because it isn't the most volatile of currency pairs. Indeed it has one of the smallest daily ranges out of all the major currency pairs - usually around 80-100 points.
However I think if you are new to forex trading and want to experiment with an intraday system, then the EUR/GBP is an excellent pair to trade. The reason why is because of the very fact that it moves so slowly. You can take your time entering and exiting your positions, even if you trade the shorter time frames such as the 5 minute charts, for instance.
Another reason why it's a good pair to trade is because it conforms extremely well to technical analysis. You only have to plot the RSI (14) on the 5 minute chart, along with Murrey Math lines, to see how well it bounces off of the overbought and oversold levels, so it's ideal for scalping say 10-15 points, particularly in the evening/overnight session when the pair is largely range-bound.
Finally, the EUR/GBP generally has very tight spreads, so overall if you are just starting out and wish to trade a relatively slow-moving, but predictable currency pair, then the EUR/GBP is an ideal choice. Once you become more experienced you can always move on to the EUR/USD or GBP/USD pairs, for instance, which are far more volatile and have greater daily ranges.

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Weekly Trading Update - April 13-17 2009

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Well I have very little to report this week because I didn't trade a single position using my main 4 hour trading method. There were two good set-ups on the GBP/USD and EUR/USD pairs but both of these upwards EMA crossovers occurred on Easter Monday when I was still on holiday.
I was tempted to go against the daily trend and take a short position on the GBP/USD yesterday morning once it failed to stay above 1.50 and the EMAs had crossed downwards again, but I decided not to in the end.
Anyway there should hopefully be some decent trading opportunities next week as I'm expecting the EUR/USD to bounce back upwards at some point, and I think the GBP/USD may be gearing up for another assault on the 1.50 level now that it's fallen back somewhat. I certainly hope so because this week has been incredibly boring.

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EUR/USD Falls Below 1.30 - How Much Further Could It Fall?

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The EUR/USD closed below 1.30 yesterday and currently trades at 1.2988 at the time of writing. It peaked at around 1.3740 last month but failed to break through the 200 day EMA and has since fallen sharply. So how much further could it potentially fall?
Well there's no doubt that this pair is now in a firm downward trend. The Supertrend indicator is currently red (indicating a bearish trend) on the weekly, monthly and quarterly charts, and furthermore as you can see from the chart below, it has just turned red on the daily chart as well.
You can also see that the EMA (5) (blue) and EMA (20) (green) are both crossing below the EMA (50) (red) so this is another sign that there could be further downside to come.
I've read a few analyst reports recently that all predict significant falls in the EUR/USD pair based on fundamental analysis, but technical analysis would also seem to back this up as well.
Of course we may all be completely wrong and it could bounce back above 1.30 but my own view is that the EUR/USD is likely to fall to around the 1.25-1.26 level in the near future, and possibly even test it's recent low which is around 1.2457.

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Weekly Trading Update - April 20-24

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Well it's been a reasonably profitable week this week, although the prediction that I made about the EUR/USD a few days ago has turned out to be completely wrong, and I actually traded this one as well which I don't normally do.
I traded two positions overall. There was the GBP/USD trade that I mentioned in my last blog post which was based on the outcome of Alistair Darling's budget on Wednesday and there was the losing EUR/USD trade.
The GBP/USD trade yielded around 130 points but unfortunately the EUR/USD trade cost me just over 70 points. I went short at 1.2979 and the price did fall below 1.29 at one point but it failed to hit my initial price target of 1.28 and actually went on to take out my stop loss at 1.3050. I still think this pair will fall below 1.30 again but overall this was a fairly bad trade.
My main 4 hour trading strategy annoyingly didn't produce any real trading opportunities this week. There was an upwards EMA crossover on the GBP/USD pair but I didn't really like the look of this one because I'm dubious about how much higher this pair can actually go.
I'm hoping there will be some better trading opportunities next week.
If you would like details of my 4 hour trading strategy, you can access it by filling in the short form above and subscribing to my newsletter.

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Taking Profits

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So much time is spent on entering a trade. Today I want to focus on some exit strategies. This is not a full Fibonacci course, so if you don't understand the basics I suggest that you visit my website for help with those aspects.
Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you're sitting on the sidelines while the market continues well beyond your exit.
In this lesson I'll show you how to bank those profits before they turn against you.
First look at this FOREX chart (JPY hourly chart).
Let's imagine that you were clever (or lucky) enough to enter long near point "A". You're feeling pretty good when price reaches "B". So good that you don't want to exit, because the up-thrust just before "B" give the impression that this market wants to go further.
Before you know it, the market reverses and heads towards "C". Right at "C" you get scared and bail out with a little profit. Not much profit compared to exiting at point "D" or even at "F".
You exit near "C", and feel relieved until you see the market heading (thrusting) up to point "D". You stop kicking yourself long enough to enter when it breaks above "B", just a little before the high at "D".
Soon after your entry near "D", the market retraces to "E", and on the way breaks below the high of "B". Breaking below the high of "B" feels scary because you're thinking this chart could be back at "A" in a flash. So you exit at "E" licking your wounds with a loss in this trade.
You start to notice more frustration now, when you enter somewhere between "E" and "F". You're feeling good near "F", but then the chart dives to "G" and you're stunned! This is a losing day for your account, and it's beginning to hurt.
By this time you feel like the whole market is watching your trades, and they're doing exactly the opposite of what you are doing. You start thinking that they wait for you to enter before they slam you and empty your account..
You have wasted your emotional capital, you don't want to trade any more. You don't have the stomach to consider shorting the rally after "G" to take profits at "H".
There must be a better way!
Banking those profits.
You should seriously consider using profit targets to improve your trading performance. There are several ways to do this, my preference is to use Fibonacci techniques.
On the following chart, I have added a Fibonacci expansion using points "A, B, C". This provides us with three profit targets. They are at 116.52, 116.93, and 117.59, see the blue arrows.

If I add another Fibonacci expansion using points "C, D, E", then two more profit targets are added, at 116.87 and at 117.22 . I have not added those studies to the chart, in order to keep things simple for now. You will notice the 116.87 target is quite close to the profit target at 116.93 in the above paragraph. And the 117.22 target is remarkably close to the swing high at 117.32 which is between E and F. We'll ignore those for simplicity, just remember that Fibonacci is excellent at predicting probable turning points.
The trick with Fibonacci is that the market sometimes blows right through a profit target. So what do you do then? Simple - you stay in the trade! But sometimes the market reverses shortly after a profit target.
Sometimes the market respects a certain Fibonacci level, sometimes not. Some Fibonacci levels are "stronger" than others. Advanced Fibonacci techniques are able to help determine which have more validity, but that is beyond the scope of this lesson. What mechanism could you use to exit the trade?
One practical method of timing a trade is to use an oscillator. Another is to use a moving average. When an oscillator shows a decline of momentum, or when price crosses a moving average, you could exit the trade. Let's explore the "oscillator" option in the following chart

. In that chart, I have removed the Fibonacci studies (less clutter), leaving the blue arrows for profit targets. At the bottom I have added the default Stochastic per E*Signal charting software. I have added a red vertical line whenever the Stochastic "fast" blue line crosses the "slow" red line just after price rises above the Fibonacci target. If you exited when price reached those vertical red lines, you'd be a happy trader!
Already you can see the potential of using profit targets with an exit trigger.
You may want to research the following:


Possibly exiting a partial position at each profit target.
Consider entering long again on the dips, when the chart begins to rally again.
Consider using multiple time-frames, perhaps Fibonacci studies on the hourly chart, and exit triggers on 5 minute charts.

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Forex Money Management

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Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money - despite the seeming contradiction of the premise. What's the difference? What is the most important factor separating the seasoned traders from the amateurs? The answer is money management.
Like dieting and working out, money management is something that most traders pay lip service to, but few practice in real life. The reason is simple: just like eating healthy and staying fit, money management can seem like a burdensome, unpleasant activity. It forces traders to constantly monitor their positions and to take necessary losses, and few people like to do that. However, as Figure 1 proves, loss-taking is crucial to long-term trading success.

Amount of Equity Lost
25%
50%
75%
90%
Amount of Return Necessary to Restore to Original Equity Value
33%
100%
400%
1000%
Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.
Note that a trader would have to earn 100% on his or her capital - a feat accomplished by less than 1% of traders worldwide - just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task!
The Big One
Although most traders are familiar with the figures above, they are inevitably ignored. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. Typically, the runaway loss is a result of sloppy money management, with no hard stops and lots of average downs into the longs and average ups into the shorts. Above all, the runaway loss is due simply to a loss of discipline.
Most traders begin their trading career, whether consciously or subconsciously, visualizin "The Big One"
- the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1-billion profit in a single day? But the cold hard truth for most retail traders is that, instead of experiencing the "Big Win", most traders fall victim to just one "Big Loss" that can knock them out of the game forever.
Learning Tough Lessons
Traders can avoid this fate by controlling their risks through stop losses. In Jack Schwager's famous book "Market Wizards" (1989), day trader and trend follower Larry Hite offers this practical advice: "Never risk more than 1% of total equity on any trade. By only risking 1%, I am indifferent to any individual trade." This is a very good approach. A trader can be wrong 20 times in a row and still have 80% of his or her equity left.
The reality is that very few traders have the discipline to practice this method consistently. Not unlike a child who learns not to touch a hot stove only after being burned once or twice, most traders can only absorb the lessons of risk discipline through the harsh experience of monetary loss. This is the most important reason why traders should use only their speculative capital when first entering the forex market. When novices ask how much money they should begin trading with, one seasoned trader says: "Choose a number that will not materially impact your life if you were to lose it completely. Now subdivide that number by five because your first few attempts at trading will most likely end up in blow out." This too is very sage advice, and it is well worth following for anyone considering trading FX.
Money Management Styles
Generally speaking, there are two ways to practice successful money management. A trader can take many frequent small stops and try to harvest profits from the few large winning trades, or a trader can choose to go for many small squirrel-like gains and take infrequent but large stops in the hope the many small profits will outweigh the few large losses. The first method generates many minor instances of psychological pain, but it produces a few major moments of ecstasy. On the other hand, the second strategy offers many minor instances of joy, but at the expense of experiencing a few very nasty psychological hits. With this wide-stop approach, it is not unusual to lose a week or even a month's worth of profits in one or two trades. (For further reading, see Introduction To Types Of Trading: Swing Trades.)
To a large extent, the method you choose depends on your personality; it is part of the process of discovery for each trader. One of the great benefits of the FX market is that it can accommodate both styles equally, without any additional cost to the retail trader. Since FX is a spread-based market, the cost of each transaction is the same, regardless of the size of any given trader's position.
For example, in EUR/USD, most traders would encounter a 3 pip spread equal to the cost of 3/100th of 1% of the underlying position. This cost will be uniform, in percentage terms, whether the trader wants to deal in 100-unit lots or one million-unit lots of the currency. For example, if the trader wanted to use 10,000-unit lots, the spread would amount to $3, but for the same trade using only 100-unit lots, the spread would be a mere $0.03. Contrast that with the stock market where, for example, a commission on 100 shares or 1,000 shares of a $20 stock may be fixed at $40, making the effective cost of transaction 2% in the case of 100 shares, but only 0.2% in the case of 1,000 shares. This type of variability makes it very hard for smaller traders in the equity market to scale into positions, as commissions heavily skew costs against them. However, FX traders have the benefit of uniform pricing and can practice any style of money management they choose without concern about variable transaction costs.
Four Types of Stops
Once you are ready to trade with a serious approach to money management and the proper amount of capital is allocated to your account, there are
four types of stops
you may consider.
1. Equity Stop
This is the simplest of all stops. The trader risks only a predetermined amount of his or her account on a single trade. A common metric is to risk 2% of the account on any given trade. On a hypothetical $10,000 trading account, a trader could risk $200, or about 200 points, on one mini lot (10,000 units) of EUR/USD, or only 20 points on a standard 100,000-unit lot. Aggressive traders may consider using 5% equity stops, but note that this amount is generally considered to be the upper limit of prudent money management because 10 consecutive wrong trades would draw down the account by 50%.
One strong criticism of the equity stop is that it places an arbitrary exit point on a trader's position. The trade is liquidated not as a result of a logical response to the price action of the marketplace, but rather to satisfy the trader's internal risk controls.
2. Chart Stop
Technical analysis can generate thousands of possible stops, driven by the price action of the charts or by various technical indicator signals. Technically oriented traders like to combine these exit points with standard equity stop rules to formulate charts stops. A classic example of a chart stop is the swing high/low point. In Figure 2 a trader with our hypothetical $10,000 account using the chart stop could sell one mini lot risking 150 points, or about 1.5% of the account.
Figure 2

3. Volatility StopA
more sophisticated version of the chart stop uses volatility instead of price action to set risk parameters. The idea is that in a high volatility environment, when prices traverse wide ranges, the trader needs to adapt to the present conditions and allow the position more room for risk to avoid being stopped out by intra-market noise. The opposite holds true for a low volatility environment, in which risk parameters would need to be compressed.
One easy way to measure volatility is through the use of Bollinger bands, which employ standard deviation to measure variance in price. Figures 3 and 4 show a high volatility and a low volatility stop with Bollinger bands. In Figure 3 the volatility stop also allows the trader to use a scale-in approach to achieve a better "blended" price and a faster breakeven point. Note that the total risk exposure of the position should not exceed 2% of the account; therefore, it is critical that the trader use smaller lots to properly size his or her cumulative risk in the trade.
Figure 3
Figure 4
4. Margin StopThis is perhaps the most unorthodox of all money management strategies, but it can be an effective method in FX, if used judiciously. Unlike exchange-based markets, FX markets operate 24 hours a day. Therefore, FX dealers can liquidate their customer positions almost as soon as they trigger a margin call. For this reason, FX customers are rarely in danger of generating a negative balance in their account, since computers automatically close out all positions.
This money management strategy requires the trader to subdivide his or her capital into 10 equal parts. In our original $10,000 example, the trader would open the account with an FX dealer but only wire $1,000 instead of $10,000, leaving the other $9,000 in his or her bank account. Most FX dealers offer 100:1 leverage, so a $1,000 deposit would allow the trader to control one standard 100,000-unit lot. However, even a 1 point move against the trader would trigger a margin call (since $1,000 is the minimum that the dealer requires). So, depending on the trader's risk tolerance, he or she may choose to trade a 50,000-unit lot position, which allows him or her room for almost 100 points (on a 50,000 lot the dealer requires $500 margin, so $1,000 – 100-point loss* 50,000 lot = $500). Regardless of how much leverage the trader assumed, this controlled parsing of his or her speculative capital would prevent the trader from blowing up his or her account in just one trade and would allow him or her to take many swings at a potentially profitable set-up without the worry or care of setting manual stops. For those traders who like to practice the "have a bunch, bet a bunch" style, this approach may be quite interesting.


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The Foreign Exchange Market

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The Foreign Exchange Market goes by many names—Currency Exchange, Foreign Exchange, Forex, FX—but no matter the term, it is simply the trading of one currency against another. Currencies are traded in the form of currency pairs with pricing based on exchange rates and spreads established by participants in the forex market.
History
The FX market is an inter-bank or inter-dealer network first established in 1971 when many of the world’s major currencies moved towards floating exchange rates. It is considered an over-the-counter (OTC) market, meaning that transactions are not conducted on an exchange like some equity stock markets such as the New York Stock Exchange (NYSE) or the Chicago Options Board Exchange (CBOE) where options and futures are traded. OTC trades exist as agreements made between two parties that agree to trade via telephone or electronic network.
As FX trading has evolved, several locations have emerged as market leaders. Currently, London, England contributes the greatest share of transactions with over 32% of the total trades. Other trading centers—listed in order of volume— are New York, Tokyo, Zurich, Frankfurt, Hong Kong, Paris, and Sydney.
Because these trading centers cover most of the major time zones, FX trading is a true 24-hour market that operates five days a week. For example, as a trader in New York, you have access to the FX market starting Sunday evening when the market opens in Sydney for the start of the trading week. Trading centers around the globe then come online until New York closes at 4:30 PM EST. Of course, by this time, Sydney will have reopened for the next trading day so you can continue to trade around the clock until the New York close on Friday.
Why Do We Need to Exchange Currencies?
Individuals and organizations exchange currencies whenever they require foreign goods or services. A trading market has developed around these needs, and hedging practices refined.
Historically, the forex trading market centered around central banks, commercial financial institutions, and multinational corporations. However, with the advent of web-based trading applications such as OANDA’s FXTrade, small retail traders and even individuals now participate directly in the forex market on equal footing with these large institutions.
Forex Market Size
The FX market has become the world’s largest financial market, and it is not uncommon to see over $3 trillion US traded each day. By contrast, the NYSE— the world’s largest equity market with daily trading volumes in the $60 to $80 billion dollar range—is positively dwarfed when compared to the FX market. Even when combining the US bond and equity markets, total daily volumes still do not come close to the values traded on the currency market.
The Most Commonly Traded Currencies
The sheer volume of trading completed every day in the FX market makes it by far the most liquid and most efficient market available. Because of the magnitude of the volumes traded, it is virtually impossible for individuals or companies to influence the exchange rate of the more commonly-traded currencies through any form of open market operations. No single individual has the resources required to manipulate pricing through targeted buying or selling on the market.
There are many currencies which you can trade and OANDA currently supports more than thirty currency pairs. The vast majority of trades however consist of pairs involving just these seven currencies (based on 2008figures):

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Who Uses Forex?

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Consumers and Travelers
Consumers typically come into contact with currency exchange when they travel or purchase items from foreign vendors.
Travelers must go to a bank or currency exchange bureau to convert one currency (typically, their "home currency") into another (i.e., the currency of the country they intend to travel to) so they can pay for goods and services in the foreign country. Travellers need to be aware of exchange rates to ensure they receive a fair deal. OANDA.com provides various conversion tools to help them.
Consumers may purchase goods in a foreign country or via the Internet with their credit card, in which case they will find that the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement.
Although each consumer currency exchange is a relatively small transaction, the aggregate of all such transactions is significant.

Businesses
Businesses typically need to convert currencies when they conduct business outside their home country. For example, if they export goods to another country and receive payment in the currency of that foreign country, then the payment must typically be converted back to the home currency. Similarly, if they have to import goods or services, then businesses will often have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency.
Large companies convert huge amounts of currency; for example, a company such as General Electric (GE) converts tens of billions of dollars each year. The timing of when they convert can have a large affect on their balance sheet and "bottom line, and many businesses use hedging strategies to ensure they do not incur losses over time due to currency market volatility.

Investors and Speculators
Investors and speculators require currency exchange whenever they trade in any foreign investment, be it equities, bonds, bank deposits, or real estate. For example, when a Swedish investor buys shares in Sun Microsystems on the NASDAQ, she will have to pay for the shares in U.S. Dollars and likely have to convert Swedish Krona to U.S. Dollars. Similarly, a Japanese real estate investor who sells a New York property may want to convert the proceeds of the sale in U.S. Dollars to Japanese Yen.
Investors and speculators also trade currencies directly in order to benefit from movements in the currency exchange markets. For example, if an American investor believes that the Japanese economy is strengthening and as a result expects the Japanese Yen to appreciate in value (i.e., go up relative to other currencies), then she may want to buy Japanese Yen and take what is referred to as a long position. Similarly, if an American investor believes that the Euro will go down over time, then she may want to sell Euro to take a short position. Interestingly, investors and speculators can profit equally from currencies becoming stronger (by taking a long position) or from currencies becoming weaker (by taking a short position).
Speculators are often day traders, trying to take advantage of market movements in very short time periods; buying a currency and then selling it again within hours or even minutes. They are attracted to currency trading for numerous reasons, including (i) the size and daily volatility of the market, which provides some individuals with an unparalleled level of excitement, (ii) the almost perfect liquidity of the currency exchange market, (iii) the fact that the currency exchange market is "open" 24 hours a day, and (vi) the fact that currencies can be traded with no brokerage charges.

Commercial and Investment Banks
Commercial and investment banks trade currencies as a service for their commercial banking, deposit and lending customers. These institutions also generally participate in the currency market for hedging and proprietary trading purposes.

Governments and Central Banks
Governments and central banks trade currencies to improve trading conditions or to intervene in an attempt to adjust economic or financial imbalances. Although they do not trade for speculative reasons—they are non-profit organizations—they often tend to be profitable, since they generally trade on a long-term basis.

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Forex Broker Guide

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1. Word of Mouth
What do other traders say about the broker?
What is their customer service like?
2. Customer Protection
Is the broker regulated?
What regulatory organisation are they registered with and what protections does it afford you?
Are client funds insured against fraud?
Are client funds insured against bankruptcy?
3. Execution
What business model do they operate? i.e. Are they a Market Maker[?], ECN[?] or no-dealing desk broker[?]?
How fast is their order execution?
Are orders manually or automatically executed? [?]
What is the maximum trade size before you have to request a quote?
Are all clients trades offset?
4. Spread [?]
How tight is the spread?
Is it fixed or variable?
5. Slippage [?]
How much slippage can be expected in normal and fast moving markets?
6. Margin [?]
What is the margin requirement? e.g. 0.25% margin = max 400:1 leverage [?]), 0.5% margin = max 200:1 leverage, 1% margin = max 100:1 leverage, 2% margin = max 50:1 leverage, etc.
Does the margin requirement change for different currency pairs or days of the week?
At what point will the broker issue a margin call?
Is it the same for standard and mini accounts? [?]
7. Commissions
Do they charge commissions? (Most market makers' commissions are built into the spread)
8. Rollover Policy [?]
Is there a minimum margin requirement in order to earn rollover interest?
What are the swap rates like for going long or short in a particular currency pair?
Are there any other conditions for earning rollover interest?
9. Trading Platform
How intuitive and functional is it to use?
Are there many disconnections during trading hours?
How reliable is it during fast moving markets and news announcements?
How many different currency pairs can you trade?
Do they offer an Application Programming Interface (API) to allow you to automate your trading system?
Does it offer any other special features? (e.g. One click dealing, trading from the chart, trailing stops, mobile trading etc.)
10. Trading Account
What is the minimum balance required to open an account?
What is the minimum trade size?
Can you adjust the standard lot size traded? [?]
Can you earn interest on the unused margin balance in your account?

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Essential Elements of a Successful Trader

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Courage Under Stressful Conditions When the Outcome is Uncertain
Courage Under Stressful Conditions When the Outcome is Uncertain
All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.
You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.
However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.
Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.
Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.
The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.
For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.
The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).
So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.
Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?
If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.
Patience to Gain Knowledge through Study and Focus
Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.
To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

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