Forex Trading

FOREX or Foreign Exchange market is the world largest financial market, where currency of one country is exchanged with another country through currency exchange rate system. Trader’s purpose is to get the profit as the result of foreign currencies purchase and sale. From latest assessment, Forex trading daily constitution is approximately average from 1.5 trillion to 2.5 trillion.

The free-floating of currencies being in the market turnover are determined by the supply and demand. The currency rate is actually run through telecommunication all over the network of banks 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Importance of human society event in the sphere of economy strongly influences the currency market. Traders gain the profit from the fluctuations in accordance with an agreed principle “buy cheaper- sell higher” or “sell higher-buy cheaper”. Forex is a continuously changing number financial system which exclusively create high trade turnover to all individual and corporative traders with an ensured liquidity of traded currencies. Due to the high potential profitability, therefore the higher risk should be essentially considered. Traders can only be the successful forex investors by going through proper training including an understanding of forex structure and types, the common techniques of analysis, the factors influencing currencies and potential risks, high confident prediction of the market movements with the trading tools and data. There are lots of simulation trading software on web, you can simply choose anyone of them for self training. This will help you to be in a better scenario. Most of the trading providers have the toll free phone number, so just call them up! Ask them question! Learn from them! Some of them may take initiative to consult you, so do write down the question from time to time.
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.

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The Guidelines

Common Guidelines
Plan your trade and trade your plan: You must have a trading plan to succeed. A trading plan should consist of a position, why you enter, stop loss point, profit taking level, plus a sound money management strategy. A good plan will remove all the emotions from your trades.
The trend is your friend: Do not buck the trend.

When the market is bullish, go long. On the reverse, if the market is bearish, you short. Never go against the trend.
Focus on capital preservation: This is the most important step that you must take when you deal with your trading capital. You main goal is to preserve the capital. Do not trade more than 10% of your deposit in a single trade. For example, if your total deposit is $10,000, every trade should limit to $1000. If you don't do this, you'll be out of the market very soon.
Know when to cut loss: If a trade goes against you, sell it and let go. Do not hold on to a bad trade hoping that the price will go up. Most likely, you end up losing more money. Before you enter a trade, decide your stop loss price, a price where you must sell when the trade turns sour. It depends on your risk profile as of how much you should set for the stop loss.
Take profit when the trade is good: Before entering a trade, decide how much profit you are willing to take. When a trade turns out to be good, take the profit. You can take profit all at one go, or take profit in stages. When you've recovered your trading cost, you have nothing to lose. Sit tight and watch the profit run.
Be emotionless: Two biggest emotions in trading: greed and fear. Do not let greed and fear influence your trade. Trading is a mechanical process and it's not for the emotional ones. As Dr. Alexander Elder said in his book "Trading For A Living", if you sit in front of a successful trader and observe how he trades, you might not be able to tell whether he is making or losing money. That's how emotionally stable a successful trader is.
Do not trade based on a tip from a friend or broker: Trade only when you have done your own research and analysis. Be an informed trader.
Keep a trading journal: When you buy a currency or stock, write down the reasons why you buy, and your feelings at that time. You do the same when you sell. Analyze and write down the mistakes you've made, as well as things that you've done right. By referring to your trading journal, you learn from your past mistakes. Improve on your mistakes, keep learning and keep improving.
When in doubt, stay out: When you have doubt and not sure where the market or stock is going, stay on the sideline. Sometimes, doing nothing is the best thing to do.
Do not overtrade: Ideally you should have 3-5 positions at a time. No more than that. If you have too many positions, you tend to be out of control and make emotional decisions when there is a change in market. Do not trade for the sake of trading.

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Open position in forex

When you want to open a position you need to place an "entry" order. If and when the entry order executes, the position becomes "open" and starts its life on the market. At one point in time, you will place an "exit" order to "close" the position. A position can be "long" (entry order is to buy and exit order is to sell an instrument) or "short" (entry order is to sell and exit order is to buy an instrument).

At the point when you place your entry order, you need to define price level at which you want to buy or sell certain instrument. You also need to specify type of the order and quantity of the instrument you want to trade. There are 3 order types:
Market Order
Placing a market order means that you will buy at your broker's current "ask" (or "offer") price, or sell at your broker's current "bid" price, whatever that price currently is. For example, suppose you are buying EUR/USD. The current market, as quoted by your broker is 1.2934 / 1.2938. This means that your broker is willing to buy EUR/USD from you at 1.2934, and sell it to you at 1.2938.
Stop Order
Initiating a trade with a stop order means that you will only open a position if the market moves in the direction you are anticipating. For example, if USD/JPY is currently 108.72 and you believe it will move higher, you could place a stop order to buy at 108.82. This means that the order will only be executed if the market moves up to 108.82. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 108.82 will never have been reached). The disadvantage is that 108.82 is clearly a less attractive rate at which to buy than 108.72. Opening a position with a stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
Limit Order
A limit order is an order to buy below the current price, or sell above the current price. For example, if EUR/USD is trading at 1.2952 / 56 and you believe the market will rise, you could place a limit order to buy at 1.2945. If executed, this will give you a long position in EUR/USD at 1.2945, which is 11 pips better than if you had just bought EUR/USD with a market order. The disadvantage of the limit order is that if EUR/USD moves straight up from 1.2952 / 56, your limit at 1.2945 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EUR/USD was correct. Opening a position with a limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
For both entry and exits orders you can specify price levels at which you want them to be executed. You have to specify entry levels when you place you entry order, while most brokers would allow you to specify exit levels at any time.

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High rate of Failure

The high rate of failure for a new trader can be related to the six major obstacles that a trader faces, which are summarised as follows -
• Poor Skills
• Lack of adequate capital
• Setting unrealistic targets and goals
• Lack of Patience
• Lack of discipline
• High risk aversion.

If we look at the list, it becomes apparent that the failure is as a result of trading without having in place a proper Trading System and a Trading Plan– One that includes mind training, quality Forex education and strategies and sound money management rules.
So what are the Characteristics of a Successful Trader? All we have to do is to reframe the liabilities listed above;
• Adequate trading knowledge and understanding. You should seek services of good quality mentors and a trading coach.
• Adequate capitalisation – Don’t be fooled that you can earn thousands every week from a starting capital of $500
• Realistic Goals – don’t expect 100% profit each month, it simply is not possible.
• Have patience – don’t trade if you don’t have to. You should wait for a set-up according to your trading plan and system.
• Have Discipline to follow your rules
• Understanding and Managing Risk
And lastly the most important is having a Trading System and a Trading Plan. Virtually 90% of Traders that I have coached have never had one!
If you look at the advice from the world’s most successful people or traders today, you will notice that they follow the guidelines as identified above.
“Give me a stock clerk with a goal and I’ll give you a man who will make history. Give me a man with no goals and I’ll give you a stock clerk” – J.C. Penny
“ If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us.” – Jim Rohn

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General Information

1. General Information
The following Forex FAQ section contains general information about foreign exchange markets.
1.1. What is Foreign Exchange?
Foreign exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro / Dollar or Dollar / Yen. With a daily average turnover of approximately $1.4 trillion, the foreign exchange market, also known as the "Forex" or "FX" market, is the largest financial market in the world.
1.2. Where is the central location of the forex market?
Unlike the stock and futures markets, forex trading is not centralized on an exchange. Due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network, the forex market is considered an "Over the Counter" (OTC) or "Interbank" market.

1.3. Who are the participants in the forex market?
The reason that the forex market is referred to as an interbank market is due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.
1.4. When is the forex market open for trading?
Forex is a true 24-hour market and trading begins each day in Sydney, and then moves around the globe as the business day begins in each financial center - first to Tokyo, then London, and finally New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social, and political events at the time they occur - day or night.
1.5. What are the most commonly traded currencies in the forex markets?
The most frequently traded or "liquid" currencies are those of countries with stable governments, respected central banks, and low inflation. Nowadays, over 85% of all daily transactions involve trading of the major currencies, which include the U.S. Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar.
1.6. Is forex trading capital intensive?
Most forex brokers require a minimum deposit of just $3,000 for opening a regular forex trading account, and only $1,000 for opening a mini account. Forex brokers enable currency trading to be conducted on a highly leveraged basis. You are able to select the degree of leverage or gearing that you wish to employ in trading. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great.
2. Trading Fundamentals
The following Forex FAQ section contains fundamentals about trading on foreign exchange markets.
2.1. What is Margin?
Margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows you to hold a position much larger than your actual account value. Most forex brokers' online trading platforms perform automatic pre-trade checks for margin availability, and will only execute the trade if you have sufficient margin funds in your account. These systems also calculate the funds needed for current positions and displays this information to you in real time. In the event that funds in your account fall below margin requirements, some or all of your open positions will be closed. This prevents your account from ever falling below the available equity even in a highly volatile, fast moving market.
2.2. What does it mean have a "long" or "short" position?
A long position is simply one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every forex position requires an investor to go long in one currency and short the other.
2.3. What is the difference between an "intraday" and "overnight position"?
Intraday positions are all positions opened and closed before 17:00 Eastern Time (the end of the international trading day). Overnight positions are positions that are held through 17:00 Eastern Time.
2.4. How are currency prices determined?
Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, inflation and political stability. Sometimes governments actually participate in the forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the forex market makes it impossible for any one entity to "drive" the market for any length of time.
2.5. How does the Margin Call work?
If the equity balance in your account falls below the margin requirement, a margin call will be generated. In the event that an account exceeds its maximum allowable leverage, some or all open positions will be liquidated immediately.
3. Strategies and Techniques
The following Forex FAQ section contains information on different forex strategies and techniques.
3.1. How do I manage risk?
The limit order and the stop loss order are the most common risk management tools in forex trading. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the forex market ensures that limit order and stop loss orders can be easily executed.
3.2. What kind of trading strategy should I use?
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumors. The most dramatic price movements, however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectation of an event that drives the market rather than the event itself.
3.3. How long are positions maintained?
As a general rule, a position is kept open until one of the following occurs: 1) realization of sufficient profits from a position; 2) the specified stop-loss is triggered; 3) another position that has a better potential appears and you need these funds. -Jim rohn

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