Forex Currency Trading Pairs – An Overview

25Aug08

If you look at the quotation structure of the Forex currency market, you will see something like USD/EUR or GBP/USD. These are the Forex currency pairs.

All Forex trades that involve buying of one currency and selling of another, are done in Forex currency pairs. For example, you buy Euros with US Dollars anticipating that the price of Euro will increase in value relative to the US Dollar. So, when the Euro rises relative to Dollar, you sell it and make profits.

The Forex currency pair is a single unit, an instrument that is bought or sold in the Forex market. Though there are many currency pairs available in a Forex trading system the most commonly traded Forex currency pairs are:

EUR/USD – Euro vs. U.S. Dollar
GBP/USD: British Pound vs. U.S. Dollar
USD/JPY: U.S. Dollar vs. Japanese YEN
USD/CHF: U.S. Dollar vs. Swiss franc

In Forex currency pairs, the value of one currency is determined by its comparison to another currency. When the Forex currency pairs are quoted, the first currency is referred to as the base currency and the second currency is called the counter or quote currency. The base currency is always equal to 1 monetary unit of exchange (e.g. 1 EUR, 1 GBP, 1 USD). The currency pair shows how much of the quote currency is needed to purchase one unit of the base currency.

The Forex currency pairs are usually traded and quoted with a ‘bid’ and ‘ask’ price. The ‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which he is willing to sell.

For example, if the USD/EUR currency pair is quoted as – USD/EUR = 1.5 and you purchase the pair, this means that for every 1.5 euros that you sell, you get US$1. If you sold the currency pair, you receive 1.5 euros for every US$1 you sell.

Base Currency

This is the first currency quoted in a Forex currency pair. It is also known as domestic currency or accounting currency and sometimes referred to as the primary currency of a Forex currency pair. For example, CAD/USD is a currency pair. Here the Canadian dollar is the base currency while the U.S. dollar is the quote currency. The price represents how much of the quote currency is needed to get one unit of the base currency.

Major base currencies:

Euro – EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
British Pound – GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD
US Dollar – USD/CAD, USD/JPY, USD/CHF

Quote Currency

This is the second currency quoted in a Forex currency pair. This is also referred to as the foreign currency, secondary currency or counter currency.

Major quote currencies:

U.S. dollar
British pound
Euro
Japanese yen
Swiss franc
Canadian dollar

The key to successful trading is selecting one or two pairs of currencies that you wish to trade in. Sure, once you are a seasoned expert you may wish to trade in more pairs but the beginner is advised to stick to just one or two for simplicity.

To know more visit http://www.articledashboard.com

Posted in Forex Trading

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Trading Forex Online – The Best Time To Trade

23Jul08

The one thing marks a forex market is its dynamic nature. Here fortunes change in seconds and minutes. If taken positively, this feature also allows a trader to enter the market many times in a single day and garner some profit for himself.

Timing is one thing that would actually determine your success in the forex market and that is why it is essential to find the best time to trade the forex market, the best time with regards to activity, volume of trade etc.

There are some salient features of forex market and until and unless these are understood one cannot find out the best time to trade the forex market.

Forex markets work 24 hours. It starts from Sunday 5 pm EST through Friday 4 pm EST and rollovers at 5 pm EST. Forex trading starts from New Zealand and then is followed by Australia, Asia, the Middle East, Europe and America. The most prominent forex market is undoubtedly the US and the UK. They account for more than half of the total market transactions.

If it comes to major forex markets, London, New York and Tokyo would win hands down. Around 75% of market activities in the New York markets are witnessed in the morning hours while the European markets are still open. And if you want to know when the forex trading is the heaviest, well look for the time when the major markets overlap.

One thing must be evident from this discussion. There is never a cease down in the forex market. When its day for you, its night for someone else. Markets close somewhere and simultaneously, markets open somewhere else. That is what offers traders this tremendous opportunity to make some serious money.

Forex market is characterized by high liquidity and high flexibility and as such traders get the freedom to make choices as per their wishes. They are not bound by the whims of the markets.

So, when you try to determine the best time to trade the forex market this information would prove very useful. Trades have almost always the same relative frequency and till the forex market remains open, the probability of finding a trade whenever you look is almost the same. This is all about volume of trade. It is determined by the number of markets that are open and the number of times each of these markets overlap with each other.

Keeping in mind the forex volume is extremely essential. It is generally seen that the volume of transactions remains high all through the day but when does it peak? The answer is when the Asian markets with Australia and New Zealand, the European markets and the US markets open simultaneously. And this is the best time to trade the forex market.

Let’s have a look of the timings of some of these markets.

New York Market : 8 am – 4 pm EST

London Market : 2 am – 12 noon EST

Great Britain Market : 3 am – 11 am EST

Tokyo Market : 8 pm – 4 am EST

Australian Market : 7 pm – 3 pm EST

Just have a look at the above schedule carefully. What do you see? Yes, there are tow times when two of the major markets overlap during the trading hours-between 2 am and 4 am EST (Asian/Europe) and between 8 am to 12 pm EST (European/N. American). This is the time you have to target to make profits, the best time to trade the forex markets.

To know more visit http://www.articledashboard.com

Posted in Forex Trading

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Currency Trading On A Margin

23Jul08

The overall sucess of the FOREX market is made possible today because of margin. Without this important principle, the average investor would not be able to participate in FOREX at all. So what is margin exactly?

1. Trading On A Margin

In order to trade on a margin, you must set up a margin account. With a relatively small deposit you can start trading large amounts of currency. Establishing a margin account with a FOREX broker enables you to borrow money from the broker to control currency lots that are usually worth $100,000. The amount of borrowing power your margin account gives you is the leverage. 100 – 1 means that with a single dollar you can control $100 worth of currency.

2. Increased Profits Also, Losses

As you might be able to extrapolate, you will be able to control $100,000 with just a $1,000 investment. Of course, you are borrowing money from the broker in order to do this, and any slip ups can end up costing you bigtime. The potential exists for the trader to lose more than his original deposit. Usually brokers will terminate a transaction that extends beyond the margin deposit.

3. The Benefits Of Margin Trading

With exponential buying power, your potential for more profits exists. FOREX currencies are traded in much smaller units than cash. The American dollar, for example, is traded in units down to 4 decimal places. Instead of $1.32 FOREX quotes are seen as $1.3256. The smallest unit in FOREX currencies is called the pip. Even a small change from 1.3256 to 1.3356 represents a difference of $100.

4. Wipeout!

You have to be extremely careful when working on a 1% margin account. A currency change in even a penny can lose your entire $1,000 investment, but if the opposite is true you can stand to make $10,000 dollars from one penny.

5. Limiting Your Losses

To limit your losses, you might want to set up a stop loss order. Stop loss orders automatically close your position if the value of the currency crosses a pre-determined point. One risk that is often overlooked is your broker closing your account on you. This can be potentially disasterous if the currency you invested in suddenly rises in price and you are unable to sell.

To know more visit http://www.articledashboard.com

Posted in Forex Trading |

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Forex Trading Success – Markets Move To This Equation Understand It Or Lose!

30Jun08

How do forex prices move and why? Sounds an easy enough question but most traders have no idea and that’s why 95% lose. Let’s look at the equation and why people who don’t understand its significance lose their equity.

A simple equation for market movement is:

Supply and Demand Fundamentals + Investor Perception = Price

Now that sounds nice and simple but as will all things simple its deceptive – lets look at the equation in more detail.

Prices move in line with the long term fundamentals – the facts are there for all to see but we are all human and we all see the facts in our own way not logically, but blurred by greed fear and opinions we hold.

So if you try and trade news stories you can’t as not only can you not work out how humans perceive the fundamentals, you also can’t act quick enough.

In today’s world of instant communications the facts are available in a split second and discounted in the price.

So forget the news and what it is telling you its stories and out of date.

Will Rogers once said “ I only believe what I read in the papers” he was joking but its surprising how many people trade a story off Reuters or Bloomberg, without even thinking about the fact its just a story by journalists.

If it was that easy a lot more traders would make money and they don’t!

It’s a fact that markets collapse when the fundamentals are at their most bullish and rally when their most bearish – this is investor psychology at work.

You therefore need to see both sides of the equation and that’s where forex charts can help. If you trade off forex charts you see the reality of price and only have to follow and act upon it.

Forex charts simply assume the fundamentals show up instantly in price action so you don’t need to guess their impact you can see it and it also tells you how humans perceive them to, so its quick a quick and simple method.

While traders make mistakes about news and trading it, they also don’t see the limitations of technical analysis and its strengths.

They assume that as human nature is constant, chart patterns can be predicted in advance – WRONG!

They can’t

If you try and predict with forex charts you will lose – on the other hand, if you get confirmation you will win.

What is confirmation?

This means watching charts and not predicting – but only following moves AFTER they have occurred.

Sure, you miss the start of the move but you can’t catch that anyway, so forget it.

If you get just get a major chunk of the move (say 70%) you will build huge gains over the longer term.

The forex markets are hard to trade but you can trade them and because it’s not easy the gains are huge.

If you use forex charts and simply follow and act on the confirmation of price changes – without the temptation to listen to opinions or jump the gun and predict, then the equation above can make you very rich.

It sounds simple and in essence it is, but you need to do your homework, to find the best technical tools and use them to trade when high odds trades present themselves to you with confidence and discipline.

If you do the above and you understand the equation you are well on your way to currency trading success.

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Investment management firms

09Jun08

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximization.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients’ currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Courtesy;

www.wikipedia.org

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It’s all in the numbers

09Jun08

Exchange rates form the basis of the modern currency trading marketplace. Due to the fact that this global industry has thousands of participants and lacks a centralized clearinghouse for quote information, exchange rates are constantly in flux, and no two sources will quote the exact same rate for a particular transaction. Even though the major foreign exchange centers of the world are separated by thousands of miles, huge oceans, numerous time zones and substantial language barriers, certain conventions have developed over the years which allow buyers and sellers to communicate deal terms quickly, accurately and efficiently. A thorough understanding of the different types of exchange rates is essential to becoming a successful participant in this dynamic market, and will help you develop an appreciation of the various tools that are available to aid in your decision making.

www.rate-exchange.org

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09Jun08

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