Thursday, July 23, 2009
Finally, the Euro is something of a wildcard. On the one hand, the EU economy is stagnating, and the ECB has hinted that rate cuts are a possibility. On the other hand, the Euro theoretically stands to inherit a significant amount of risk-averse capital, especially from foreign investors looking for a stable alternative to the Dollar. Accordingly, the Market Oracle forecasts a short-term decline in the value of the Euro but a long-term appreciation.
Forex transactions are carried out by Forex brokerage companies, also known as major banks dealers. Forex market is worldwide and your European colleagues may make a transaction with Japanese traders when it's time for you to sleep in the North America. There are 3 shifts for the major institutions to work in due to 24-hours a day activity of the Forex market. It's possible to ask for overnight execution for take-profit and stop-loss orders of the client.
Prices in the Forex market fluctuate without any dramatic changes unlike stock market where considerable gaps are likely to be seen. There isn't any problems entering and exit the market due to its daily turnover of about $1.2 trillion. Forex market can not ever be forced to stop. The transactions were carried out even in 2001, on September, 11th.
The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and speculators exchange one currency to another. The largest foreign exchange activity retains the spot exchange (i.e.., immediate) between five major currencies: US Dollar, British Pound, Japanese Yen, Eurodollar and the Swiss Franc. It is also the largest financial market in the world. In comparison, the US stock market may trade $10 billion in one day, whereas the Forex market will trade up to $2 trillion in one single day. The Forex market is an opened 24 hours a day market where the primary market for currencies is the 24-hour Interbank market. This market follows the sun around the world, moving from the major banking centres of the United States to Australia and New Zealand to the Far East, to Europe and finally back to the Unites States.
Until now, professional traders from major international commercial and investment banks have dominated the FX market. Other market participants range from large multinational corporations, global money managers, registered dealers, international money brokers, and futures and options traders, to private speculators.
There are three main reasons to participate in the FX market. One is to facilitate an actual transaction, whereby international corporations convert profits made in foreign currencies into their domestic currency. Corporate treasurers and money managers also enter the FX market in order to hedge against unwanted exposure to future price movements in the currency market. The third and more popular reason is speculation for profit. In fact, today it is estimated that less than 5% of all trading on the FX market is actually facilitating a true commercial transaction.The FX market is considered an Over The Counter (OTC) or ‘Interbank’ market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and 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.
Options on stocks and Exchange Traded Funds (ETF's) were discussed in detail in my November 8, 2007 post. The main difference between options on stocks and options on futures is that a futures option gives you the right to buy or sell one futures contract at a set price at a set future date, instead of 100 shares of an underlying stock. Other than that difference, the underlying concept is basically the same. A speculator looking for the maximum leverage would purchase a futures contract on a given commodity, and would consequently assume the risk of greater losses than his or her initial investment if their margined position moved against them far enough before they closed it out. A speculator looking for high leverage, but also looking to avoid margin calls, would instead purchase options on a futures contract.
Let's look specifically at some examples for each method. As of this writing, with gold trading at $787 per troy ounce, a speculator with $10,000 could choose to control two full size 100 troy ounce gold futures contracts (leaving a $1,900 cash cushion), or 10 e-mini 33.2 troy ounce gold futures contracts (leaving a $2,300 cash cushion). The speculator could also choose to buy two call options that would give him or her the right to purchase two full size 100 troy ounce gold futures contracts at a price of $800 per troy ounce on November 20, 2008 (leaving a $180 cash balance). If the price of gold moved from $787 to $887 per troy ounce sometime in that period and the speculator decided to take profits at that point, the respective profits would be $20,000 for the two full size contract choice, $33,200 for the 10 e-mini contract choice, and $12,700 for the two call options.
The $12,700 profit on the call options represents a gain of just under 160%, but was achieved without having to worry about margin calls or getting stopped out of the position at a loss. True to the concept of greater risk taking opening up the possibility of greater gains, the margined futures contract positions were up 247% and 431%, respectively, but if at any time following the opening of the position the price of gold had gone down by just $4 to $783, the futures contract holders would have received margin calls asking them to deposit more money, at which point most futures traders would have closed out their positions. There is also the ongoing mental stress associated with holding heavily margined positions to consider.
Options on futures should only be considered by a speculator who has a very firm view of the future direction of a particular commodities market, as options can expire worthless if they are not rolled over. So the obvious question at this point in time is whether or not gold is certain to move significantly higher in the next few years. Since nothing is certain in this world except for death and taxes, a better question is what it would take for gold NOT to move significantly higher. The only scenario that derails the ongoing gold bull market is one in which: (1) the Fed embarks on an aggresive campaign to raise interest rates to protect the dollar, thereby throwing millions more homeowners out on the street than are headed out on the street already; and (2) the politicians in Washington embark on an aggressive campaign to cut federal spending on defense, Social Security, Medicare, etc. enough to generate huge annual budget surpluses for at least the next generation. Each speculator or investor will have to make up their own mind as to whether or not they see the above scenario coming to fruition anytime soon.
Recently, good news was made public for traders about a new tool that can help with online investing. A company by the name of My Forex Edge, LLC, which develops and distributes various forex software programs and foreign exchange trading techniques, unveiled its new Forex Position Allotment Calculator. This tool gives investors a foreign exchange trading platform that helps avoid over leveraging and does away with the fear and greed that comes with online forex trading.
The Forex Position Allotment Calculator uses a special "set it and forget it" feature, which lets forex traders set the buy and sell prices, the stop price and limits without forcing the investor to constantly manage trades. Foreign exchange daytime traders, position traders, and swing traders are currently making use of the new Forex Position Allotment Calculator. According to Milan Stevanovich, the director of My Forex Edge, LLC, mentions that these traders have boosted forex currency trading profits by twenty five percent.
With this new forex software, traders no longer have to handwrite and enter in risk percentages, which means that there is less potential for error. Stevanovich also mentions that, "using the Forex Position Allotment Calculator could save you ten times the amount of an error."
He also claims that the new calculator has a smaller price tag than other forex trading computer programs, costing traders only 97 dollars for the complete software kit.
General predictions are saying that the United States economy will create roughly one hundred thousand new jobs, but many researchers have been improving their predictions upon seeing the major employment components from this week's Institute of Supply Management surveys.
As a result, the U.S. dollar experienced a slight increase overnight, but other currencies have remained the same during early London trade, with all eyes being stuck on the recent activity of U.S. currency.
A trader from TradIndex.com, Mic Mills, mentioned that, "Everything is on hold until non-farm payrolls."
Mills also mentioned that the Forex market is one step ahead in terms of virtually pricing as a result of further interest rate drops from the Federal Reserve, allowing the U.S. dollar to boost in the event of more concrete information.
Even though the basics for the U.S. dollar are not too strong, it is generally viewed as oversold and now will be corrected after recently shooting to an all time low when put next to the euro.
1. Spreads - make sure the company is giving tight spreads. A spread is the difference between the buying price and selling price at a certain time, and the lower it is, the easier it is for you to profit.
2. Supported currencies - all forex brokers support "the majors" - the currencies with the highest trading volume: the US Dollar (USD), the Euro (EUR), the British Pound (GBP), the Japanese Yen (JPY), and the Swiss Franc (CHF). Most brokers also support additional currencies, even exotic ones (such as Polish Zloty, PLN, and Israeli Shekel, ILS). However, when trading currencies other than the majors, it's important to check the spreads, since they are often much higher than the spreads on the majors.
3. Required invetment - some brokers, such as easy forex allow you to open an account with as little as $25. It is NOT recommended to start with such small capital, but if you do not have much to invest in a forex account, see what is the minimum deposit before opening an account.
4. Technical support - all forex traders, beginners and experts, run into trouble. It's very important to check whether a forex broker offers a good technical support, especially if you are a beginner.
Friday, July 17, 2009
The Swiss franc and the Japanese yen…were the great beneficiaries during the Crash of ‘87, the Debt Crisis of 1998 and again during the current credit crisis, enjoying sweeping and massive upward moves.
The credit cycle will progress with or without central bankers. If their rhetoric convinces investors of the Fed’s probity, it’s all to the good. But market forces are far stronger, and they’re what should be watched.
In his testimony yesterday, Ben Bernanke, stated that “dollar Intervention should be done rarely” but that it “may be justified in disorderly times.”[In addition,] Treasury Secretary Paulson said last month that he would never rule out currency intervention as a potential policy tool.
To explain further, the premiums built into options contracts serve as a proxy for demand for those particular currencies. When premiums on call contracts, which give the holder the right to buy a particular currency at a fixed price, are unusually high, it signals a "risk reversal;" the currency may be overbought. To offer a practical example, call premiums on EUR/USD contracts are approaching a one-year high, which has led some analyst to speculate that a Dollar rally is just around the corner. MarketWatch reports:
"Whenever risk reversals hit critical levels, it indicates that everyone who wants to be long euros are already long and as a result, sentiment has hit an extreme." The last time euro/dollar risk reversals were that high….a U.S. dollar "relief rally" followed.
A Dow Jones Newswires survey last week of 23 analysts forecast the dollar wouldbegin to recover on longer-term basis.
"It would take a rare set of circumstances to get the U.S. right now to intervene," said David Gilmore, a managing partner in Foreign Exchange Analytics in Essex, Conn.
The local dollar rose to its highest since 2000 against the New Zealand currency before an inflation report tomorrow that may support the case for the Reserve Bank of Australia keeping interest rates at a 12-year high.
Canadians will get a better idea of the central bank’s thinking when it releases its monetary policy update and governor Mark Carney opens himself up to public questioning at a news conference later on its rate-setting decision…
[He] recommends…hedging your bets in you think the dollar will continue to weaken…[through] specialized mutual funds or exchange-traded funds that move inversely to the dollar. He holds the Pro Funds Falling U.S. Dollar Fund
Continue to monitor this situation, paying particular attention to whether the bigger investment banks are still lending to customers. Any shutdown in the system would be extremely bearish for the Dollar across the board.
Once the Olympics are out of the way, the vigil on inflation may have to resume. But unless China gets flooded by speculative flows, a one-shot revaluation will remain off the table.
Exporters in Germany, Europe’s biggest economy, are grappling with the euro’s 15 percent appreciation against the dollar and an 18 percent gain against the pound in the past year. That’s eroding competitiveness just as a U.S.-led global slowdown and record oil prices cool the world economy.
Analysts said geopolitics could soon take a back seat again once macroeconomic newsflow picks up after a lack of first tier economic releases from U.S. or euro zone.
"Currency movements tend to be noisy but over the long term they are just reflective of the economy and not the driver of economic performance."
[One analyst] is…a long-term bear on the British pound and believes any rallies in the currency represent an opportunity to enter short at a better price. Selling the pound against the dollar with a 10-12 month time frame may present one of the best opportunities in the currency markets today.
Others…think liquidity problems and inflation concerns are two separate issues. [One analyst] believes that the Fed is still on track to raise rates inSeptember.
Two-year yields in all three markets have been on a wild ride in June, driven up by tough inflation rhetoric from central banks, then down again by renewed worries about the credit crisis and the state of financial markets
Analysts said that the rising risk of a sudden and crippling depreciationcomes as the cracks in Vietnam’s vaunted “economic miracle” have grown toolarge to ignore.
To make this idea more concrete, let’s look at how the credit crisis has impacted forex markets. In general, it has favored major currencies, such as the Dollar and the Euro, although sometimes one more than the other. This is to be expected since the capital markets of the US and the EU are the most stable and in times of uncertainty, investors seek out stability. Likewise, the Japanese Yen has fared well. Despite a continuation of its easy money policy, investors have unwound their Yen carry trade positions, ever-fearful that a spike in volatility could cost them dearly. On the other end of the equation are emerging market currencies and beneficiaries of the carry trade, which have faltered as investors pare their exposure to risk. The underlying narrative is the same; only now, investors are willing to accept lower returns in exchange for proportionately lower risk.
Friday, July 10, 2009
Even if today is your first day looking at the Forex market and you're trying to decide whether or not to get involved, I am certain you've seen dozens of ads for automated trading robots.
Forex trading robots as claimed by their creators and marketers, can monitor the Forex market for fluctuations and act automatically to these changes making trades which make their owners lots of money. Many of these companies claim that their robots can make you money automatically even while you sleep or are on vacation.
What makes these automated robots tick? Exactly how is it they know when to buy, when to sell, or just as important, when to simply do nothing? In a nutshell, Forex robots are designed to monitor fluctuations in currency price and then when certain market conditions are met, they automatically, in many cases, make trades. These "market conditions" are set by the robots owner (you or me) based on several factors including aversion to risk or lack thereof.
Moving forward in the process, once a position has been purchased and established, the robot will then sell that position in an attempt to make it's owner as much profit as possible. The selling point, particularly to newer traders is that the robot can be set up to trade on its own and make a profit with very little downside risk.
Can these robots really make money on auto-pilot as advertised?
My quick answer is no. There are so many factors that drive fluctuations in currency prices that even the most intricate Forex robots can't realistically be expected to make the correct decisions concerning profitability 100% of the time.
Having said that, Forex robots can be and are a very valuable trading tool. They can make turning a profit in the Forex market far easier and can make your learning curve a lot shorter. In my opinion and in my experience, a newer trader will find that achieving profitability is far easier with a robot's guidance than if they try to trade without it. These auto-bots should be monitored and have to be set up correctly to ensure that they make profitable decisions the majority of the time. Follow the instructions carefully and read as much as possible regarding set-up parameters before beginning live trading with real money.
Traders should use Forex robots as tools to simplify their decision making but it is the trader who ultimately should make the decision. Forex robots can be very powerful tools when used in this manner. It is usually when beginner traders take the mindset that they can automatically start making you money without any monitoring or safe guards that problems can arise.
A new trader should research their purchase before buying any tool. As with any product in virtually any market, there are some products that are scams and others which are legitimate and work as advertised, so do your homework.
Whatever Forex trading tool you decide to purchase and use, please keep in mind that it is not the tool but how you use it that will determine your profitability.
Currency Trading in the Forex market is one of the hottest topics online today.
Currency Forex Online Trading product reviews and consumer feedback is a great resource for comparing Forex trading platforms and automated robotic software. Compare features and pricing and read actual consumer reviews. Make an informed buying decision.
In recent years, there are many people are involved in forex trading. Do you know what forex trading is ? Have you ever saw trading on the stock mar
Following are 10 of the more prevalent mistakes I believe traders make in futures trading. This list is in no particular order of importance.
1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn."
2. Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading success boils down to proper money management and not gunning for those highly risky "home-run" type trades that involve too much trading capital at one time.
3. Expectations that are too high, too soon. Beginning futures traders that expect to quit their "day job" and make a good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor--and trading futures is no different. Futures trading is not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be.
4. Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading.
5. Lack of "patience" and "discipline." While these two virtues are over-worked and very often mentioned when determining what unsuccessful traders lack, not many will argue with their merits. Indeed. Don't trade just for the sake of trading or just because you haven't traded for a while. Let those very good trading "set-ups" come to you, and then act upon them in a prudent way. The market will do what the market wants to do--and nobody can force the market's hand.
6. Trading against the trend--or trying to pick tops and bottoms in markets. It's human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that's not at all a proven means of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake.
7. Letting losing positions ride too long. Most successful traders will not sit on a losing position very long at all. They'll set a tight protective stop, and if it's hit they'll take their losses (usually minimal) and then move on to the next potential trading set up. Traders who sit on a losing trade, "hoping" that the market will soon turn around in their favor, are usually doomed.
8. "Over-trading." Trading too many markets at one time is a mistake--especially if you are racking up losses. If trading losses are piling up, it's time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets. It takes keen focus and concentration to be a successful futures trader. Having "too many irons in the fire" at one time is a mistake.
9. Failure to accept complete responsibility for your own actions. When you have a losing trade or are in a losing streak, don't blame your broker or someone else. You are the one who is responsible for your own success or failure in trading. You make the trading decisions. If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny.
10. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different perspective. It is prudent to examine longer-term charts, for that bigger-picture perspective, when contemplating a trade.
Point and figure charting is one of the oldest methods around. It's definitely a "lost art" among traders. Point and figure charts offer crystal clear buy and sell signals, price targets, exit points, and risk management. It's a system that the forex trading world has yet to embrace.
Even up to this day, there's no one talking about, thinking about or even trading point and figure charting in forex...until now.
When you order the FxPnF System, you'll gain a whole new understanding of how the forex market works and, most importantly, how you can make a killing trading currencies.
A few of the many benefits include:
You will learn how to clearly identify trends and entry signals.
You will know when and where to take huge profits.
You will learn how to set tight stops.
You get access to proprietary indicators.
You get a custom MetaTrader 4 point and figure charting program.
You will become a highly profitable forex trader, I guarantee it!
First of all you need to recognize that your brain is the best possible weapon that you have on your disposal. Always ready and free of charge. All of those fancy TA tools and trading software are just that – YOUR tools. They don't work on their own. You need to understand how and when to use them. And what is more important – when NOT to use them.
What does "Street Smart Forex" trading system cover?
Street Smart Forex is a lethal combination of trading techniques that are easy to implement and at the same time brutally effective
It includes both day trading and swing trading strategies
It is developed as a result of years of trading experience
Can be tested without risking any trading capital
Strategies are explained in great detail with lots of real life examples, no question is left unanswered
There is no fluff, it doesn't talk about history of forex market etc...
Protects trading capital to the extent that the probability of losing is almost non-existent
It can be applied from any country and at any time of the day
Applies to all major currency pairs
You can start trading with as little as $500 and you don't need any extra products to implement the system
System is explained in a step by step fashion
identify if you are in a sideways market
If not in the sideways market identify the long term trend
Enter the market on the signal that is in tune with the long term trend
Calculate the signal strength based on my proprietary formula
Extract as much profit as possible based on my recursive trailing stop formula
You will also learn how to obtain the most reliable real time quotes and charting software
How to use the info from the previous trading day to your advantage
How to prepare for the trading day
How to use volatility to your advantage, which entry signals NOT to take, using power of leverage