Forex

Forex stands for foreign exchange, something that has been revolutionized by the creation of the Internet.  Foreign exchange is not a new concept and has been around for many years, but now is much easier since forex trading is available online.

With more than triple the amount of the United States Treasury and Equity combined, the forex market is the largest in the world.  More nearly two trillion dollars changes hands daily across the world, but unlike other markets it has no central exchange, and it has no physical location.

Instead, the foreign exchange market works through a network of corporations, banks and individuals trading one currency for another.  Although some people are worried about the lack of physical exchange, it gives the foreign exchange market the ability to work 24 hours a day.

When forex first began, the only way that retail investers could gain access was through the banks that handled the large transactions of different currencies for investment and commercial purposes. Since 1971, when exchange rates were first allowed to float freely, there has been a rapid increase in trading volume.  Currently, the FOREX market is being used by international portfolio managers, speculators, day traders, importers and exporters, long-term holders and hedge funds to make transactions in financial assets and to pay for goods and services.

Forex trading is always spoken of in terms of two rates of currency.  Let's take an example.  Say the Japanese yen exchange to United States dollar rate was 2.507 to 1 one day and an investor went in and bought 1000 Japanese yen.  Their cost would be $2507 United States dollars.  Depending on whether the value of the yen rose or fell, the person who bought those yen would either gain or lose on their investment.

Although there are many factors which help to decide what the exchange rates for currency will be, one of the main determining factors is supply and demand.  The value of a currency due to supply and demand is not governed by any one factor but several different factors instead.

Economic factors

Whenever you are dealing with money, one of the biggest determining factors, of course, is going to do with economics.  These include the surpluses or deficits of the government's budget, balance of trends and trades, trends and levels in inflation, and economic health and growth.

Political Conditions

Any instability or upheavel in a nation is going to have a negative impact on a nation's currency.  On the other end of the spectrum, there could be a positive influence on currency rates if the country is doing well and the government of the country is looked upon favorably.

Market Psychology

The foreign exchange market can also be influenced by perceptions of traders and market psychology in many ways.  Some of these ways include long term trends, flights to qualify, 'buy the rumor, sell the fact', economic numbers, and considerations for technical trading.
Unlike with the stock market, there is very little or no insider information.  The fluctuations in the exchange rate of currency are caused by money changing hands and what people expect will happen in regards to money flows

Tricks & Tips

Foreign Exchange Trade is a vehicle to earn quick money, but this vehicle is the most susceptible to market-accidents. In a rush to pocket the profits, the loopholes in the trade are often ignored. Following are a few pointers which can help you to sail through the FOREX trade effectively and emerge a winner.

Trick 1: FOREX trades look relatively simple and low risk gambles as compared to the other types of trades.
Tip: There is more to FOREX trading than what meets the eye. You need to examine the market trends, the factors governing the currency exchange rates, analyze the various patterns such as the line charts, bar charts, candlestick charts to observe the price movements, determine the best time for getting the optimal results out of the trade.

Trick 2: FOREX trade can be carried out throughout the day, so there is no need to worry about the trade timing.

Tip: The time of the day when you place your trade is a crucial aspect for the survival of the trade. The trade, if placed in the passive hours of the markets cannot do much to benefit you. The optimum time for placing the trade order is during the overlapping working hours of the major FOREX markets like the London, New York, Sydney, Tokyo and the others. The trade volumes are at the peak during this time, leading to a steady activity in the currency markets and an appropriate time for you to place your trades.

Trick 3: FOREX trades are less risky as you can keep a track of the fluctuations in the current currency exchange rates and buy/sell your trade orders accordingly.

Tip: No trade is fool-proof and has its fair share of risks. You can keep a check on the exchange rates. However, there is nothing you can do to stop the declining market conditions from affecting the exchange rates at every instant. You can mitigate the risk by undertaking only those trades which have statistically proved to be following an upward trend. The Fibonacci analysis, which is a graphical interpretation of the trends v/s the countertrends will help you in taking the trade decisions based on the price move. You can ensure that your losses are minimized by issuing a stop-loss order wherein your capital is safeguarded against the unfavorable market trends.

Trick 4: One needs to go through all the reports, statistics, and analysis to make it big in the FOREX markets. There is no other practical approach to gain knowledge about FOREX trading beforehand.

Tip: You definitely need to have a good enough idea about these before you tap the markets, but with technology, things have become much simpler. These days, many online help tools are available to virtually simulate a FOREX platform. These include a demo account, software packages called FOREX robots which can assist you in studying the financial markets, strategizing and auto-open/auto exit , and also a currency analyzing program that monitors the currencies of various countries and provides you with an optimal solution as to which currency to deal with in order to gain maximum profits.

Trick 5: FOREX markets are best suitable for short-term gains.

Tip: This can be true if you are looking towards playing a safe game for fear of losing out on the capital that you invest. However, if you wish to earn a good return to your investment and a high profit/loss ratio, you need to be ready to digest losses for a long-term gain.

Trick 6: Once you have entered a FOREX trade, you don't have much control on the trade that you have placed.

Tip: While placing the trade order, you have multiple options to choose from such as the Market Order, Limit Order, Loop Order, Stop Order, IF DONE orders, OCO(One Cancels the Other) orders to limit the risk that your trade faces in case of a market crisis. Appropriate selection of the order simplifies the execution of the trade.

Trick 7: FOREX trade is a mind-game.

Tip: FOREX trade is sensitive to mind-games, but it needs to be backed by a strong strategy to find its way to a win.

Guidelines To Win Over A Forex Trade

FOREX trading perhaps seems to be the easiest way for corporates or retail investors to build on the capital in a hassle free way which simply needs to you book your currency trade with the online dealing systems and voila, you just sit back and enjoy the benefits! However, there is a thin line of separation between our understanding and the actual tricks of the trade. This thin line is that of the strategies which we fail to identify to make it a profitable trade all along.

Here are a few effective guidelines to obtain a fair deal in the Foreign Exchange markets:


FOREX trade is not for the weak-hearted. If you are planning to go for the currency trades, you need to brace yourself for incurring losses to get through to long-term gains.

1.Do not put your entire capital to stake at the first go. For your first trade, start with a small amount on a demo account where you have nothing to lose. You can proceed with gradually increasing the investment amount, once you get the feel of the financial markets.

2.Research on the various resources available to assist you in gaining a strong foothold in the FOREX markets. The many services range from simple information on the Web, FOREX trading simulation programs, currency monitoring software etc.

3.Seek an expert's advice whose expertise will guide you through the life cycle of the trade beginning with opening a position, to holding a stable position and finally closing the position at a fair deal.

4.Always trade with a stop-loss, so that you can be assured of the least risk in adverse market conditions.

5.Similar to placing up a stop-loss order, have a maximum profit level set up for you. You should ideally close your position once this profit level is reached. This way you can keep yourself away from the hazards of asking for more and landing up with less.

6.For trading with and against the trends, consider the Fibonacci analysis which demonstrates the current price movements. Simple measures that can be taken are, for trading with the trends, exercise trailing stops whereas for counter trend trading, you can rake in the profits that you gain.

7.Don't fall prey to the market dynamics. Do not be in a rush to buy when the prices seem to be moving in an upward trend and sell when the prices reach a high. Evaluate the risks/rewards ratio and take a call only after considerable examinations and cross-examinations.

8.Don't enter into a losing position by simply pitching your hopes on the miracles of the market fluctuations.

9.Almost no trade succeeds the first time. It goes through ups and downs with the changing economy. You should not withdraw if you face a few hitches initially. Ideally, your goal should be a stable, consistent trade.

10.Apply your money management skills to ensure a smooth trade. Forecasting the worst of the market scenarios, you should be armed with the best of your strategies to overcome its effects on your trade.

11.Lastly, let your mind rule over your heart .Do not make hasty decisions solely based on emotions rather than being practical.

Do's and Don'ts for Forex Trading

FOREX trade, although being the quickest profit-maker in the trading business, it comes with a price. Foreign Exchange trade is characterized by the dominant factors such as currency volatility, political crisis, fluctuations in the exchange rates, varying interest rates, discrepancies in the purchasing power and many more. An imbalance in any of them can lead to major losses for the traders.

To keep the dynamic market conditions from affecting your trade and for maximizing the profits, one needs to follow the golden rules. These rules will guide you through the DO's and DON'Ts for executing a successful FOREX trade.


Do's and Don'ts for Forex Trading.

To begin with, DO have a trade-plan ready when you are all set to trade in the market. You should have sound knowledge about the end-to-end Foreign Exchange Trade lifecycle. Being abreast of the current financial market scenario which deals with FOREX trades and studying its dynamics will ensure a smooth start to your trade. Do not make impulsive decisions.

DO invest your time to get a feel of how the actual FOREX trade happens before taking a leap into the market. There are a number of e-tools to assist you in receiving hands-on real-time experience of the entire trading cycle right from creating a dummy demo account for you, provide technical charts, analysis tools, presenting the exchange rates and bidding/asking rates that can influence your selling/buying decisions respectively, all the way to executing your foreign exchange trades. Do not be in a hurry to earn profits, take your time to learn the trick of the trade.

Although the FOREX markets are open to trading all 24 hours a day, you need to set your trade time at an hour when the markets are abuzz with action. You can count on the overlapping market hours i.e. when the different FOREX markets are open to trade to pocket the profits. A passive market may not generate the extra income for you. DO choose the time when the volume of trades in the financial market is at the peak and the currencies are active. Do not indulge in trades at the inactive market hours.

e.g. The New York Markets are open for trade from 8.00 am to 5.00pm

The London Markets are open for trade from 3.00 am to 12.00 noon.

So the best time for trading in these markets for EUR, USD currency pairs is in the overlapped time zone i.e. from 8.00 am to 12.00 noon.

DO take calculated risks and trade only when the currencies are gaining a strong foothold in the market. A thorough fundamental & technical analysis of the ongoing trade patterns with the help of the charts, trend reversal/continuation patterns, gaps will be of considerable use in gauging the market risk. DO not risk your present capital, if you are unsure of the market trends.

DO consider the gain/loss ratio while entering a currency trade.

DO have an understanding of the Fibonacci Analysis which can predict the market fluctuations and help you determine the best entry/exit times to conduct a trade.

Opt for trade on the positions only when the market is showing a steadily growing trend.

DO follow the patterns on the charts to guide you through a reliable trade. Do not enter into a currency trade if the bars in the charts are not well-formed and are unstable or dipping.

The market closure days, that is the weekends are sensitive days as speculations for the following day can go wrong. DO backup your speculations by a stop-loss order, which can ensure that your existing capital position is taken care of if the markets show an unfavorable trend.

Finally, to get the best output for your FOREX trade, understand the pitfalls, follow the statistics, analyze the risks, anticipate the best, but be prepared for the worst. Time your trade wisely and you will reap the benefits of a good trade in no time!

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