Thursday, July 20, 2006

Popular forex pairs

As far as popular Forex pairs are concerned it is really difficult to determine the exact pairs because of changing nature of the economy, but still there are many pairs that are relatively strong as compared to other currencies. The most “liquid” currencies in the market are those of countries with low inflation, stable governments, and respected central banks. Nearly 85% of daily transactions involve the major currencies, including the U.S. Dollar, Japanese Yen, the European Union Euro, British Pound, Swiss Franc, and the Canadian and Australian Dollars. In other words, EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD are amongst the most popular pairs to trade around the world.

When dealing in the pairs, you should know what exactly “short” and “long” positions refer to. In simplest terms, short positions are taken when a trader sells currency in anticipation of a downturn in price. So, how that helps? Making this move allows the investor to benefit from a decline. Similarly, long positions are taken when a trader buys a currency at a low price in anticipation of selling it later for more. Making these moves allows the investor to benefit from changing market prices. So, you shouldn’t forget that since currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other. That is the real crux of the story. That is the point where whole juice of this concept lies.

So, I have explained in the above-mentioned paragraphs regarding the most popular pairs in forex and why they are the most preferred pairs. One of the most important factors is that the full range of economic and political conditions impact currency pricing. It is generally held that interest rates, inflation rates and political stability are top among important factors.

Thursday, July 13, 2006

Trading in the Forex Market

When trading in the forex market, it’s best to develop a pattern of recognition in order to become a successful trader. The markets often display a specific pattern that repeats over time across assorted time scales. Experienced traders can develop an expertise by acquiring the information around the patterns and then discovering how to recognize these patterns for what they are.

We can try and use an analogy of a person who works in a garage. He learnt all his life how to determine what’s wrong with your car. By conducting a set of tests, he is able to find the problem with the car (either radiator or alternator etc.). P practice, of course, makes perfect, so the more cars he’ll check - the better he’d know what are the appropriate tests that can help him identify the problem.

The best way to gain a forex trading expertise is through pattern recognition and the large literature on technical analysis. Many of the technical analysis books look like the books that are carried around by medical students (or any other long and hard study course). They attempt to combine market symptoms into identifiable patterns that are aimed to help the trader diagnose the market. Some of these patterns may be chart patterns, while others may be based on identifying cycles and configurations, and so on. Like the medical student turned doctor, each technical analyst must cultivate a level of expertise by recognizing the various markets and by learning how to identify the patterns.

Recognizing the clues, is the key to help you become a better trader. The forex market gives, you just have to learn how to read the signs and take.

Tuesday, July 11, 2006

The key for forex succession

Forex has this aura of profits and money-making, but it is far from the truth. Actually, a trader must learn a lot and have a good trading system, in-order to make big in the market.

Through studies and research, a trader faces the task of making decisions to put this knowledge and system into practice. Then, how many traders can honestly say they can commit their ranch when the trade is suggested by their own system (given that trading is just a chance game) and let the profit run for weeks and months when their system tells them, and how many can manage to cut the loss as a routine process when the situation arise.

It all sounds so easy when saying it but so difficult when doing it has a huge affect over real money in the market. Even me, a veteran trader, still do not sleep well when I am running position because even if the profits are running into a few hundred dollars and the system is telling you to carry on, there is no guarantee that the profit will turn into a yard or two in a month time, and it may even turn into a loss in a day or two when something unexpected happens.

The real pain in forex trading is not knowing what will happen in the future and in fear of losing. So at the end of the day, assuming one has decent trading system and market knowledge and decent info, it is ultimately how disciplined and how well that trader can take the pain of making right decisions at the right time that decides the outcome of the trades. Hence I call trading a mind game.

When I interview prospective young forex traders, I always look for disciplined and strong-willed person as my first priority as long as one has decent education, but strangely in many cases, it is some kind of genius or half-genius with lots of brains with no disciplines who turn up for an interview thinking only bright people can make good traders.

Thursday, July 06, 2006

Who Trades In the FOREX market?

The FOREX market is comprised of more than 5,000 institutions such as international banks, central government banks (like the US Federal Reserve), commercial companies and brokers for all types of foreign currency. The market has no exact and central location (like stock exchange markets) in which the trading takes place, but there are several major trading centers which are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt.

All trading in this market is done by telephone or Internet. Currencies don’t literally change hands - it’s mainly numbers on the screen. It usually works with various businesses buying or selling their products, services or goods in other countries and the payment for that is done with foreign currency that needs to be changed, so that different countries can have business relations, though there are a lot of the FOREX activity produced from currency traders who use it to generate profits from small movements in the market.

Even though there are many big and powerful players in the market, recent changes in the market regulations made it possible for the small investor to be part of the market. In the past, there was a minimum transaction volume and traders were required to meet strict financial requirements.

The Internet FOREX trading has brought the option of trading smaller lots (about $100,000 is about the worth of a lot), which can be available for every investor through 'leverage' (which are loans extended for trading). Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

Monday, June 26, 2006

What is Forex (or Currency Exchange)?

Currency exchange is the trading of one currency against another. It is commonly referred to as foreign exchange or Forex (FX).

The Need for Currency Exchange

Most people stumble upon currency exchange when they travel. They go to a bank or currency exchange bureau to convert one currency (mostly their "home currency") into another (their destination’s currency) so they can pay for whatever they wish to do in their destination. Nowadays, a lot of people use the internet for purchasing abroad - in which case the credit card company pays the supplier in his currency, while charging the customer in his own currency. Although each such currency exchange is a relatively small transaction, the aggregate of all such transactions is significant.

Businesses often accept their payment for services or goods supplied to foreign countries in a foreign currency - which means they have to convert it to their home currency. Large companies convert huge amounts of currency each year; 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.

Investors and speculators use currency exchange whenever they trade in any foreign investment, whether it’s equities, bonds, bank deposits, or real estate. For example, when a Polish 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 Polish Zloti to U.S. Dollars. Similarly, an Israeli real estate investor who sells a New York property may well want to convert the proceeds of the sale in U.S. Dollars to Israeli currency.

Commercial and Investment Banks trade currencies as a service for their customers.

Governments and central banks trade currencies to improve trading conditions or to intervene in an attempt to adjust economic or financial imbalances.

And now, for the reason we gathered here today - investors and speculators also trade currencies directly in order to benefit from movements in the currency exchange markets. This is what I’m here to recommend on - the Forex market.