Currency Exchange Glossary
Ask Costs are shown on the right side of a quote e. The spread represents the broker’s fee, and varies from broker to broker. Most Currency exchange brokers are associated with huge money establishments and earn money by setting a spread between bid and ask costs. Everytime division on the chart is displayed as a candlestick a green or red vertical bar with extensions above and below the candlestick body. Currency Pair 2 currencies concerned in a Foreign exchange exchange e. Commercial Indicator A statistics report issued by states or educational establishments indicating commercial conditions inside a country. Forex trading website.
In comparison, the US Treasury Bond market averages $300 bln a day and Yankee stock exchanges exchange about $100 bill a day. There’s no centralized situation of Foreign exchange major trading centers are found in the Big Apple, Tokyo, London, HK, Singapore, Paris, and Frankfurt, and all trading is by phone or over the Net. Companies use the market to buy and sell products in other nations, but the majority of the activity on the Currency exchange is from currency traders who use it to make profits from tiny movements in the market. Though there are numerous giant players in Foreign exchange , it is accessible to the tiny financier thanks to recent changes in the laws. Formerly , there had been a minimum exchange size and traders were needed to meet stern money necessities. A standard margin for currency trading is 100:1 you can trade currency worth one hundred times the quantity of your deposit.
Major Currency The EU Buck, German mark, Swiss franc, English pound, and the Japanese yen are the major currencies. Pips or Points the littlest unit a currency can be traded in. Quote Currency the second currency in a currency pair. The price of rollover is calculated using swap points based mostly on IR differentials. Volatility A probabilistic measure indicating the inclination of sharp changes in price inside a time period.
The 4 Key Players
When trades are conducted in the equity market, they are normally conducted with institutional investors (e.g. mutual funds) or other individual investors. The Forex market operates differently in that there are additional players who trade for reasons that are different from that of the equity market. So for the purposes of educating the newcomers to the Forex market, the following is about the four key players in this arena.
Tags: The 4 Key PlayersTop 10 Currencies Traded
When people hear of currencies changing, they are often confused. When they hear of the dollar gaining or losing on other types of currency, that do not realize that the currency is actually being bought, sold, and traded. The forex market, also known as the foreign exchange market, is a way for companies, banks, and individuals to trade currencies to try to gain on their initial investments. The forex market is different and unique; the three markets (US, Europe, Asia) have at least one running at all times during the weekdays; this makes this a 24 hour a week-day market, working constantly on the week days to make sure currencies can be traded. All currencies have the opportunity to be traded, but there are obviously major players that are traded the most on the forex market. There are 10 players on the market that find themselves a part of a majority of the trades that happen on the forex market.
Tags: Currencies Traded5 Simple Ones to Increase your Profits
The forex tips below are all easy to do and all will help you achieve one aim increasing your overall profitability. So here are 5 forex tips for greater profits.
Tags: Increase your ProfitsTrailing Stop Loss
Deciding when to exit a trade is probably even more important than finding an appropriate entry point. Emotions can influence in a negative way your decision to exit a trade because sometimes instead of exiting a trade for a small loss you start changing your stop loss orders to let the trade run hoping price will revert and get you to break even or maybe even in profit zone.
Sometimes you may get lucky and turn a losing trade into a profitable trade but this is the worst thing that could happen to you because you will develope a “skill” that in the end will be devastating for your balance.
On the other hand you may exit your profitable trades to soon fearing that your pips will vanish.
This is where Trailing Stop comes into picture. Many forex traders are using trailing stops to exit their trades because if used correctly can improove your overall forex performance. A trailling stop is a stop loss order in which the stop loss is placed at a fixed number of pips bellow the market price so the stop loss changes with the price. Take for example a long trade. If the price rises the stop loss rises accordingly but if the price is falling the stop loss doesn’t move.
The advantage of this technique is that you are putting a limit on your losses without limiting your gains. Be carefull when you choose your forex broker because not all forex platforms allow automated trailing stop losses. Of course you can allways trail your stop loss manually according to a rule you set but this is not very productive and requires monitoring your charts for long periods of time if you are an intraday trader.
Position traders or long term forex traders usually trail their stop loss manually. One trader for example can adjust his stop loss on a long trade below last 3 days low. This can keep you in a trade for a long time and get you the most of that move.
Parabolic SAR(Stop and Reverse) is a great indicator to trail your stop loss. Developed by J. Welles Wilder this indicator works best in trending markets.
How to place your stop loss and profit target correctly?
Stop loss
I have decided to start my forex tips lessons with this topic because capital preservation is the most important aspect of forex trading and you can’t preserve your capital unless you know how to set your stop loss correctly.
Placing your stop losses incorectly will lead either to exiting a trade prematurely and missing a good oportunity or exiting too late and suffering big losses.
Did it ever happened to you to enter a trade and the market going against you, hitting your stop loss only to discover shortly afterwards that the market reverted and went in the direction you initially anticipated? You don’t have to answer this question, if you traded the forex market for at least a month, you’ve surely experienced this frustrating situation.
So what do you do when you get trades like these? The vast majority of beginners in forex trading, immediately assume that their stop losses are too tight so they start using larger stop losses to “let the trade breathe”.
Is this the answer? Absolutely NOT! Than where is the mistake? The mistake lies in the aproach many newbies are using when placing their stop loss.
Unexperienced forex traders are entering trades using predetermined stop losses and profit targets (like 30 pips SL and 60 pips PT or 20/40) that have nothing to do with the reality of the market.
First you should never trade on impuls. All your trades must be well planned in advance. You enter the market only when your plan generates a trading signal and at that moment you should know exactly where to place your stop loss and profit target.
Your stop loss should be placed where the market tells you. Take a look at the charts and search for areas of support/resistance, draw trendlines, use fibonacci retracements and pivot points. You should place your stop loss in a point of inflection, If that level is breached it means you were wrong on the direction of the market and your trade is no longer valid.
Of course this is no holy grail, you will still have loosing trades but placing your stop loss correctly will definitely improove your trading results.
Profit target
Same story goes for determining profit targets. Analyze your charts! Is it a range trading market or is it a trending market? In a range trading market if you are short you should place your target profit near support (a few pips before). If you’re in a trending market use leading indicators like fibonacci extension theory and pivot points theory.
Fibonacci extensions
Fibonacci extensions are used to predict where the market will go after a retracement assuming it continues in its original direction. The dipper the market retraces the smaller the extension will be.
The theory says that a 38.2% retracement predicts 161.8% and beyond extension, a 50% retracemnts predicts 138.2% to 161.8% extension, a 61.8% retracement predicts 121.4% to 138.2% extension and finally a 78.6% retracement predicts 100% to 121.4% extension. If all these make your head spin the example bellow will clarify everything.
Calculation of pivot points
PP =(HIGH + LOW + CLOSE)/3
S1 =(2*PP) – HIGH
S2 = PP – RANGE
S3 = S2 – RANGE
R1 = (2*PP) – LOW
R2 = PP + RANGE
R3 = R2 + RANGE
M-lines (midpoints between support and resistance pivots)
M4 is the middle of R2 and R1
M3 is the middle of PP and R1
M2 is the middle of PP and S1
M1 is the middle of S2 and S1
Pivot points can also be used to predict an extension after a rejection near a pivot level.
S1 rejection points to R1 extension
M1 points to M3
M2 points to M4
Find a confluence between these 2 theories and there’s you’re profit target.
I’ve learned all about these target extension theories from Wayne McDonell. You can visit his website here. I also recommend you his book “The FX Bootcamp Guide to Strategic and Tactical Forex Trading” – best forex book i’ve ever read.
The advantages of forex trading
Foreign exchange market (shortly forex) is a certain place for trading different currencies. As it is one of the most liquid financial markets available to an average investor it offers a possibility of earning huge profits daily! And it is reasonable due to forex market apparent turnover of 3 trillion dollars a day. One might think that the list of its advantages ends here but one could not be more wrong.
As stated above forex market is tremendously liquid. It means that one can buy and sell currencies more easily and with lesser slippage contrary to stock markets, for instant. Speaking of which, forex market is much larger than the world bonds, stock, and futures markets combined together and for that reason currency prices in the forex market are relatively objective because they are based on current supply and demand and cannot be easily manipulated by greater traders like central banks.
Forex trading can be profitable in every market aspect. For example, if the market is in the upward trend, investor naturally takes long positions (buy) but there is a gain in the market fall as well if investor takes short positions (sell). In other words, constant profits are possible even if the market is in a downward trend.
In the forex market one can trade 24 hours a day! As there is no central marketplace (all trades are electronically conducted over the internet), currencies are traded throughout the time zones in the major financial centers, such as Tokyo, London, and New York. For instant, when Tokyo finishes its trading day, forex trading begins after a short time in London and after London in New York. And this trading cycle takes place for five days in a week.
Another advantage of the forex market is that there is no size limitation for trading. One can decide by him/herself how large amounts they wish to trade with. Moreover, some brokers let people trade with even $1! And that is exceptionally good opportunity for making the first steps in forex trading.
Despite the great advantages of forex one must be careful when trading currencies. It is absolutely vital to learn trading on the forex market due to its riskiness. Even though there is a saying that the safest way to trade is not to trade at all, it is not completely true if one wants to earn money with trading. Mainly there are two major ways of learning forex. The first one is to read different handbooks and get the vital knowledge from there and the second option is trading itself. It is possible to open demo accounts with virtual money and through it start trading and learning! The last option is considered as the most effective one because people tend to learn better from their own mistakes.
To sum it up, forex is risky but at the same time it has great advantages over any financial market. It is important to realize the need of learning the forex market and when it’s done all doors are opened for profitable trading.
Why Are Fibonacci Indicators So Useful?
Foreign exchange traders can gain advantages from using these proportions when trading. While some professionals dismiss it as yet another exaggerated term, others think that there’s credence to this concept.
The theory of Fibonacci should be applied only in certain examples.
This occurs particularly when support levels of damaged kind coincide with retracement levels of the Fibonacci trend. One of the central driving factors behind the Fibonacci foreign exchange trading methodology is that when the market swings towards the same trail, the trend relates to each other after the breakout phase. Methods like the Fibonacci one are explained in detail in Currency exchange coaching programs. Many pros have used such secrets to create price targets set in the future. Yet the Fibonacci remains one of the most respected and tested ones today. While it cant guarantee it to the last cent, the closeness it gets is unbelievable. New Currency exchange traders should feel inspired to seek help grasping the fundamentals and some good practice using Fibonacci levels as well as secondary indicators.
Overdosing on Opinions
What’s the one thing that’s free, found in ready abundance, doesn’t need to be mined or manufactured, and is happily lent and offered?
An opinion.
Opinions are omnipresent for traders. You can check out CNBC and Fox Business. You can read the Investor’s Business Daily or check out the Wall Street Journal.
Then there’s blogs… I write that hypocritically.
Being connected to so much information and opinion is a good thing, right? It’s part of the whole Singularity where everything will be composed of information, right?
It can be a good thing. It can be bad, too.
The inundation of opinion, tips, statistics, and information can overwhelm a trader and cause negative returns. One of the obvious manifestations is what I call “the supermarket cart” trader.
Ever see a shopping cart in a big box store, like Walmart or Target? (Hell, look at mine sometime.) It’s kind of funny. The shopper will have bread, milk, a flat screen TV, greeting cards, and, while maybe not the kitchen sink, they might have the kitchen faucet thrown in.
The portfolio of a trader who follows every opinion out there will soon create a shopping cart of assets, reflecting every trend. They’ll have a few positions in the dollar, a couple shares of GE, a short position in corn futures… The list goes on.
They jump on every trend that’s touted on CNBC, or was profiled on the Wall Street Journal.
Avoiding this opinion overdose isn’t easy. You could restrict your information diet, but you may miss important ideas and solid tips.
You could also focus on one asset and become an expert on when to trade it. But that limits you and keeps you from diversifying your portfolio.
Another idea is to use technology to help pick and trade, at least a portion of your portfolio.
Unlike the talking heads on TV, computers aren’t forced to be entertaining. You can set some parameters on what trends you pick–and which ones you dump.
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Where is the forex market?
The forex market does not exist anywhere in the world physically. Hearing the word, ‘market’, you may imagine the physical places like a vegetable market, fish market or a stoke exchange. The forex market is based on the OTC unlike the exchange traded products based on price-centralization. In this OTC market, the forex authorized banks play a roll to intermediate remittance occurring in the international trades and the capital flows on the cross border basis. Such banks trade forex with some counterparties with support by some forex brokers, otherwise, they sometimes trade directly to another party using a certain dealing machine. The trading room, which environment is specialized for trading, has much kind of equipments, direct phones, electric devices and some others to help. We call this virtual network as the .
The forex market is the biggest one in the world. There are many forex players in the main capital city, London, New York, Tokyo, Hong Kong, Singapore, Frankfurt and Zurich. Each market takes over the role of main play zone from others accordingly as time has passed. Thus, the forex market is said gthe market never sleeps.” Most major banks set up 24 hours trading system in their own way. According to BIS survey, issued in April 2001, the average volume of forex trading per a day amounts to US$619 billion. No one doubts that this market is the biggest in the world.
