Day trading - no, it's not something that Bill Murray wished he had in Groundhog Day. It's a style of trading on the foreign currency exchange market in which a trader completes all his trades within a single day. In other words, he may make a few dozen - or more - trades in a day with the objective of buying and selling quickly and making a profit from the fluctuations in a currency exchange rate over the course of the day.
Sound complicated? Depending on the method or system that you use to pick your trades it can be. The idea behind day trading is that currency exchange rates are subject to fluctuations over the course of the day - they go up and down depending on who's buying, who's selling and what rumors are floating around. In fact, day trading in the foreign currency market is probably the single segment of any type of stocks, currency or futures trading market most affected by rumors and real-time, real-world happenings. A savvy trader who is quick on his feet can roll up the profits by paying attention to what the current news is doing to the currency exchange rates.
The currency market, commonly referred to as the forex (short for Foreign Exchange), is the most liquid market in the world. The latest statistics say that daily trading on forex is in excess of $1.3 trillion U.S. dollars. That makes forex the world's largest, most efficient market. A major part of the reason for the liquidity and volume of trade is the practice of day trading. The difference between day trading and other types of trading is in how long you hold your stocks (or in this case, your currency). In day trading, you hold nothing beyond the close of the day's market. Think of it as a game in which the object is to keep trading cards back and forth, increasing the value of your cards - but have no cards in your hand at the end of the day.
Of course, since the currency market is a 24 hour market, there really IS no market closing - so the rules change slightly. The currency market is open from Sunday afternoon to Friday afternoon, with trading going on all the time, so you can pick your times to trade rather than being locked into the Stock Exchange timetable.
How You Make Money in Day Trading People will tell you that the difference between a day trader and an investor is the length of time that each holds onto their stocks. That's a superficial difference. The real difference is in the mindset of short-term vs. long-term and liquidity. An investor buys something that he believes will steadily increase in value, and holds onto it for the long haul. A day trader rides the minute fluctuations in the currency market minute by minute the way a surfer rides a wave. Because you're trading in lots of 100,000, a tiny fluctuation can mean a big profit - or a huge loss.
Limiting Loss in Day Trading One of the hardest concepts for new traders to grasp is that of limiting loss. Let's say you make a trade for a currency that is heading down because you believe that it's near its support point - the point where it will rebound and start heading back up. Instead, it breaks the point and keeps heading down - you're losing money instead of making it. You have two choices - hold onto it because you KNOW it will start heading back up soon, or get rid of it and limit the amount of money you're going to lose. In day trading, the name of the game is limiting your losses and maximizing your wins - decide ahead of time just how much you'll allow each trade to lose before you sell it, and then STICK TO YOUR LIMIT. By the same token, decide how much profit you want to make, set a sell order for when the currency reaches that point - and sell when it hits the mark.
Know what you're doing. Day trading on the forex is like any other business. The people who make money are the ones who take the time to learn the market and understand the ins and outs of the trades that they make. Those who jump in feet first without learning the terms, rules and trends of the forex market are priming themselves to lose - and lose big. Remember, there's no such thing as high profit potential without equivalent risk. Before you jump in, take a course in trading, or read read read all that you can.
About the Author
More of Joseph Plazo's killer articles: Art of Unstoppable Wealth Building, Sneaky Negotiation Techniques, and finding Jobs in the Philippines
Monday, June 25, 2007
Major and Minor Currencies
The major currencies most frequently traded are the following currencies (USD, EUR, JPY, GBP, CHF, CAD, NZD and AUD) . The other currencies are referred to as minor currencies.Most beginners to forex trading will choose to concentrate on the major curriencies as there are more movement and liquidity.
Saturday, June 23, 2007
The Seven Most Traded Currencies in FOREX
Currencies are traded in dollar amounts called “lots”. One lot is equal to $1,000, which controls $100,000 in currency. This is what is known as the "margin". You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage”.
Currencies are always traded in pairs in the FOREX. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair. In this example ABC is the symbol for one countries currency and DEF is the symbol for another countries currency.
Here are some of the common symbols used in the Forex:
USD - The US Dollar, EUR - The currency of the European Union "EURO", GBP - The British Pound, JPN - The Japanese Yen, CHF - The Swiss Franc, AUD - The Australian Dollar, CAD - The Canadian Dollar
There are symbols for other currencies as well, but these are the most commonly traded ones.
A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.
Some of the common PAIRS are:
EUR/USD Euro / US Dollar"Euro"
USD/JPY US Dollar / Japanese Yen"Dollar Yen"
GBP/USD British Pound / US Dollar"Cable"
USD/CAD US Dollar / Canadian Dollar"Dollar Canada"
AUD/USD Australian Dollar/US Dollar"Aussie Dollar"
USD/CHF US Dollar / Swiss Franc"Swissy"
EUR/JPY Euro / Japanese Yen"Euro Yen"
The listed currency pairs above look like a fraction. The numerator (top of the fraction or "left" of the / however you want to SEE it) is called the base currency. The denominator (bottom of the fraction or "right" of the /however you want to SEE it) is called the counter currency. When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD.
So if you buy or sell a currency PAIR, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.
If this seems confusing then you're in luck. You can always get by with just thinking of the entire pair as one item. Then you are just buying or selling that one item. Thinking like this will still enable you to place trades. You only need to be aware of the base/counter concept for Fundamental Analysis issues.
So why is it important to know about the base/counter currency? The base/counter currency concept illustrates what is actually taking place in a Forex transaction. Some of you reading this, know that short-selling was restricted in the stock market *(Short-selling is where you sell a stock/currency/option/commodity first and then try to buy it back at a lower price later). But in the FOREX you are always buying one currency (base) and selling another (counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is essentially the same. This allows you to short-sell with no restrictions.
You want to be able to short-sell with no restrictions so you can make money when the market drops as well as when it rises. The problem with traditional stock market trading is that the market has to go up for you to make money. With FOREX trading you can make money in all directions.
http://www.1-forex.com/
5 Risks The Novice Forex Trader Needs To Be Aware Of
Forex trading, just like most other forms of trading, carries risks and the novice Forex trader needs to be aware of these before dipping a toe into the foreign exchange pond. Here we will consider the 5 most common risks of foreign currency trading.
1. Forex scams. In recent years the industry has done a great deal to put its house in order and today Forex scams are certainly far less common than they used to be. They do however still exist. It is fairly easy to open a Forex trading account, especially online, and a Forex scam in its simplest form is a case of a crook setting up a website posing as a broker, inviting you to open an account and deposit money into it and then disappearing without trace.
To ensure that you do not get caught out check out any broker carefully before opening an account. Choose a broker who is associated with a major financial institution (for example, a bank or insurance company) and who is also registered as a broker. In the United States brokers will be registered with the Commodities Futures Trading Commission (CFTC) or will be a member of the National Futures Association (NFA).
2. Exchange Rates. One of the attractions of the foreign exchange market is that it can be extremely volatile with currencies moving significantly against each other in very short periods of time giving rise to fast and substantial gains. The other side of this coin however is that the market can also produce substantial and rapid losses.
Fortunately there are tools available to the trader to limit this risk, such as stop loss orders, and novice traders need to familiarize themselves with these tools and to ensure that they make full use of them whenever they enter a trade.
3. Credit Risk. Because there are two parties (a seller and a buyer) involved in every transaction there is a possibility that one party will fail to honor his or her commitment once a deal is closed. This usually happens where a bank or financial institution declares insolvency.
You can reduce any credit risk considerably by trading only on regulated exchanges which require members to be monitored to ensure their credit worthiness.
4. Interest Rates. When trading any pair of currencies traders need to watch for discrepancies between the underlying interest rates in the two countries in question, as any discrepancy can result in a difference between the profit predicted and that which is actually received.
5. Country Risk. Occasionally a government will intervene in the foreign currency exchange markets to limit the flow of its country’s currency. It is unlikely that this will happen in the case of a major world currency but could occur in the case of minor and less frequently traded currencies.
These of course are just some of the risks involved in Forex trading and novice traders will need to familiarize themselves with the others as they go along. However, a good understanding of the 5 risks detailed here is essential before you enter the trading arena.
LearningForexTradingOnline.com provides information on everything from finding a foreign currency exchange rate to the Forex mini account and is the perfect place to learn Forex currency trading online.
By Donald Saunders
1. Forex scams. In recent years the industry has done a great deal to put its house in order and today Forex scams are certainly far less common than they used to be. They do however still exist. It is fairly easy to open a Forex trading account, especially online, and a Forex scam in its simplest form is a case of a crook setting up a website posing as a broker, inviting you to open an account and deposit money into it and then disappearing without trace.
To ensure that you do not get caught out check out any broker carefully before opening an account. Choose a broker who is associated with a major financial institution (for example, a bank or insurance company) and who is also registered as a broker. In the United States brokers will be registered with the Commodities Futures Trading Commission (CFTC) or will be a member of the National Futures Association (NFA).
2. Exchange Rates. One of the attractions of the foreign exchange market is that it can be extremely volatile with currencies moving significantly against each other in very short periods of time giving rise to fast and substantial gains. The other side of this coin however is that the market can also produce substantial and rapid losses.
Fortunately there are tools available to the trader to limit this risk, such as stop loss orders, and novice traders need to familiarize themselves with these tools and to ensure that they make full use of them whenever they enter a trade.
3. Credit Risk. Because there are two parties (a seller and a buyer) involved in every transaction there is a possibility that one party will fail to honor his or her commitment once a deal is closed. This usually happens where a bank or financial institution declares insolvency.
You can reduce any credit risk considerably by trading only on regulated exchanges which require members to be monitored to ensure their credit worthiness.
4. Interest Rates. When trading any pair of currencies traders need to watch for discrepancies between the underlying interest rates in the two countries in question, as any discrepancy can result in a difference between the profit predicted and that which is actually received.
5. Country Risk. Occasionally a government will intervene in the foreign currency exchange markets to limit the flow of its country’s currency. It is unlikely that this will happen in the case of a major world currency but could occur in the case of minor and less frequently traded currencies.
These of course are just some of the risks involved in Forex trading and novice traders will need to familiarize themselves with the others as they go along. However, a good understanding of the 5 risks detailed here is essential before you enter the trading arena.
LearningForexTradingOnline.com provides information on everything from finding a foreign currency exchange rate to the Forex mini account and is the perfect place to learn Forex currency trading online.
By Donald Saunders
Why Forex Trading?
Forex, or foreign exchange, trading is the buying of one nation’s currency by selling another’s. Forex trading didn’t exist much before the early 1970s, because that’s when currencies were no longer required to “measure up” to gold (“the gold standard”). In the 1980s forex trading became well-established as the Internet grew. London is known as the forex trading city of the world, largely because of its centralized location. In the United States, Chicago has the big forex market.
There are five major currencies in the forex market: US Dollar, Japanese Yen, British Pound, Euro and the Swiss Franc. Together, these make up over 70% of forex trades. For the last 10 years the forex market’s biggest even was the introduction of the Euro. Today the fantastic growth of two Asian countries, China and India, is the major happening.
Forex trading has gained popularity in recent years. For one thing, it has become the largest financial market in the world - turning over about $2.2 trillion each day. It is about ten times the size of the next largest financial market, the New York Stock Exchange. For another, it is also the fastest developing market in the world. This is somewhat due to globalization. Each country is losing control over their own currency’s exchange rates. This contributes to the overall liquidity of currency in global financial markets. And last, but not least, it’s easy to make a profit at - or at least limit - losses. Unlike other futures investments, you can’t lose more than you’ve put in.
Forex trades are not done through a centralized exchange, but rather are over-the-counter trades using broker-dealer relationships. This requires high-speed communications networks and trading systems to relay the financial market information as well as individual trades in real time. This is why common use of the Internet had to occur before smaller investors could be direct players themselves.
The foreign exchange currency market used to be available only to the largest of players, like banks and investment firms and they still make the greatest percentage of trades; around 80 percent. It is estimated that banks deposit about 30% of their money in the forex market and make 45% on it.
Recently, though, forex trading has evolved into a system that welcomes small investors as well as large. Most trades are done online today. Anyone with an Internet connection can invest in the forex market in real time. Most online accounts have great flexibility and filter options, allowing you to set up exit (or entrance) points based on price. When that point is reached, a sale will be executed on your behalf automatically. You needn’t be glued to the screen watching for your price.
Opening a forex trading account requires filling out a simple form and presenting your I.D. Once you have your online access, you usually also have access to tools provided by your broker. You can also buy separate tools such as signals, used to foretell a particular currency price change. Usually there is no commission paid on individual trades.
One of the great things about forex trading is that you can do it from home with your computer and Internet access and the tools provided by your online broker. You don’t NEED anything else. You could even become a professional forex trader and still never leave your computer room at home. But a friendly word of caution – just because you’ve had a few good trades over a couple months doesn’t mean you’re ready to go pro! That takes lots of education and experience.
By Michael Russell
Your Independent guide to Forex Trading
There are five major currencies in the forex market: US Dollar, Japanese Yen, British Pound, Euro and the Swiss Franc. Together, these make up over 70% of forex trades. For the last 10 years the forex market’s biggest even was the introduction of the Euro. Today the fantastic growth of two Asian countries, China and India, is the major happening.
Forex trading has gained popularity in recent years. For one thing, it has become the largest financial market in the world - turning over about $2.2 trillion each day. It is about ten times the size of the next largest financial market, the New York Stock Exchange. For another, it is also the fastest developing market in the world. This is somewhat due to globalization. Each country is losing control over their own currency’s exchange rates. This contributes to the overall liquidity of currency in global financial markets. And last, but not least, it’s easy to make a profit at - or at least limit - losses. Unlike other futures investments, you can’t lose more than you’ve put in.
Forex trades are not done through a centralized exchange, but rather are over-the-counter trades using broker-dealer relationships. This requires high-speed communications networks and trading systems to relay the financial market information as well as individual trades in real time. This is why common use of the Internet had to occur before smaller investors could be direct players themselves.
The foreign exchange currency market used to be available only to the largest of players, like banks and investment firms and they still make the greatest percentage of trades; around 80 percent. It is estimated that banks deposit about 30% of their money in the forex market and make 45% on it.
Recently, though, forex trading has evolved into a system that welcomes small investors as well as large. Most trades are done online today. Anyone with an Internet connection can invest in the forex market in real time. Most online accounts have great flexibility and filter options, allowing you to set up exit (or entrance) points based on price. When that point is reached, a sale will be executed on your behalf automatically. You needn’t be glued to the screen watching for your price.
Opening a forex trading account requires filling out a simple form and presenting your I.D. Once you have your online access, you usually also have access to tools provided by your broker. You can also buy separate tools such as signals, used to foretell a particular currency price change. Usually there is no commission paid on individual trades.
One of the great things about forex trading is that you can do it from home with your computer and Internet access and the tools provided by your online broker. You don’t NEED anything else. You could even become a professional forex trader and still never leave your computer room at home. But a friendly word of caution – just because you’ve had a few good trades over a couple months doesn’t mean you’re ready to go pro! That takes lots of education and experience.
By Michael Russell
Your Independent guide to Forex Trading
Subscribe to:
Posts (Atom)