Forex

Forex trading has become extremely popular recently। Do you know what Forex Trading is? What is it exactly and how can you make money from trading currencies if you are not an expert trader? You will find the basic knowledge in this article।Forex Trading = Foreign ExchangeForex trading is also called "currency trading" or "FX," short for "foreign exchange।" While foreign exchange does not get as much attention as the stock market, options and commodities do, for example, it is nonetheless the biggest market in the world। The foreign exchange market also offers investors a huge opportunity for profit।When you trade on the foreign exchange, you do not trade stocks or bonds। You trade in currency। Basically, forex trading involves buying one currency and selling another। As exchange rates fluctuate, you make money or lose money।With forex trading, you don't invest in a single company or group of companies as you do with stocks or mutual funds, for example. Instead, you are investing in a particular national economy.

You are pinning hopes on one nation's economic health versus that of another.As an example, let us say that you are comparing the Japanese yen and the US dollar. Your research seems to tell you that the US dollar is undervalued and will soon rise in price; simultaneously, you expect the Japanese yen will lose some value. In that case, you would execute a trade to buy US dollars and sell Japanese yen. If you are correct, the exchange rate will go up and you will profit from your analysis.Even though this sounds easy, though, it is not.

In fact, currency prices can be very difficult to predict, because so many things can cause a change in exchange rates. You also have to remember that with currency trading, you trade in pairs.
Therefore, you buy one currency while you sell another. For example in Nigeria, many has stopped searching job vacancies in Nigeria and are making lots of money trading forex. Therefore, you won't just look at one nation's economy, but you will be comparing two.Of course, you do not have to limit yourself to just the US dollar and the Japanese yen, for example. There are many dozens of different currencies to choose from, with seven major ones. Therefore, if you are just starting out, I would recommend that you stick to the seven major currencies.

They are as follows:USD - US DollarEUR - the EuroGBP - British PoundJPY - Japanese YenCHF - Swiss FrancAUD - Australian DollarCAD - Canadian DollarIf you are a small investor, you will generally concentrate on trading these particular currency.

FUNDAMENYALS OF FOREX TRADING

If you want to be a smart trader, you have to be able to analyze the market correctly and predict what the price movement is going to be. This is true no matter what you are trading, whether it be stocks, commodities, bonds, currency or any other form of security.This type of analysis can be done in two different ways, with fundamental analysis or technical analysis.
With technical analysis, you study the prices.

Your goal is to analyze the history of the price movements in order to try to predict future prices.Fundamental analysis, the other hand, is the study of one nation's overall economic health. You might also think of this as "big picture" analysis.
This focus is on the idea that the health of a nation's economy will affect both the supply and demand for its currency. In turn, this will affect the price of the currency itself.As example, if the US economy's health is good and its economy is on the rise, one would expect that the value of US dollar will also rise and currency traders will want to invest heavily in it.

This type of "bullish" behavior becomes a self-filling prophecy so that the US dollar does, indeed, rise in value. Although it seems like a pretty simple concept, in fact, judging the "health" of a nation is not easy.
There are many factors to be considered. Therefore, two traders may look at the same figures and interpret the data in different ways.Fundamental analysts look at various economic indicators to see how strong the economy is. Some of these indicators they analyze include the interest rate, unemployment rate, gross domestic product (GDP), and consumer price index.Government and non-governmental agencies and bodies regularly release these types of reports; find schedules of upcoming releases for those you focus on and make note of them. Then, keep an eye on them and see what their effects are on currency prices for the country or countries you follow.
You should note, though, that the numbers contained in the report are not what have the greatest impact always.
Rather, it's the relation of the numbers in that report as compared to what had been forecasted previously.In other words, a hike in interest rates may not have a significant impact if forecasters indeed thought this was going to happen.
However, if they were expecting interest rates to remain steady and there actually was an increase, this may in fact have a large impact on currency prices.

There is a disadvantage to fundamental analysis, which is that it can be a little too broad-based. Although it's a wonderful tool to predict overall economic growth and price changes, it doesn't give enough details for investors to target specific exit or entry points. This is why technical analysis is as valuable as "big picture" analysis is. Technical analysis does give you that "fine point" analysis.

HOW TO SUCCEED AS A FOREX TRADER

Recently, I have received a lot of mails from so many Nigerians complaining that they have lost their money in the forex market. One of them said categorically that forex trading is scam.As much as I feel pity for those who lost their money in forex trading, I disagree with people who believe that forex trading is scam’ it is not.Mary tradesr lose because they have poor methods, however many have good methods but still lose.

The reason for this is they lack the correct mindset to success. Here we will take a look at how to succeed in the forex market by adopting the winning mindset.

1 PASSION AND DESIRE
If you really want to succeed in any thing in life including forex trading, them you must desire success. Forex trading requires effort and if you have the desire to succeed you will acknowledge this and put in the required effort to succeed and avoid mistake the rewards for your effort is indeed life changing.

2. WORK SMART NOT HARD
Making money from forex trading is largely dependent on trading right. If you work smark you can leain to trade in just a few weeks and in under on heir a day, you could be pilling up big consistent profits.

3. CONFIDENCE
Confidence is a vital ingredient needed in forex trading. you need confidence to stick to a particular trading strategy and succeed with it. Forex teachers only give you the tools you need to be successful but you need to learn to trade with them and have confidence in them yourself.

4. DISCIPLINE:
This is the key to success in forex trading, you must trade forex with discipline in order to generate maximum profits.

WHAT IS FOREX TRADING

FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.
As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market.
According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.

FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)
The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.
Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.
For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip click here.
Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.
In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).
In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain.
Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.A technical analysis is founded on three suppositions:
Movement of the market considers everything;
Movement of prices is purposeful;
History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.
A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.
Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate.
Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.
At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.
In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).The main merits of the FOREX market are:
The biggest number of participants and the largest volumes of transactions;
Superior liquidity and speed of the market: transactions are conducted within a few seconds according to online quotes;
The market works 24 hours a day, every working days;
A trader can open a position for any period of time he wants;
No fees, except for the difference between buying and selling prices;
An opportunity to get a bigger profit that the invested sum;
Qualified work in the FOREX market can become your main professional activity;
You can make deals any time you like.

SIMPLE TERMS ASSOCIATED WITH FOREX TRADING

Here are some of the most common terms used in FOREX trading.
ASK AND BID PRICES– Sometimes called the Offer Price, this is themarket price for traders to buy currencies. Ask Prices areshown on the right side of a quote – e.g. EUR/USD 1.1965 / 68 –means that one euro can be bought for 1.1968 UD dollars.Bar Chart – A type of chart used in Technical Analysis. Eachtime division on the chart is displayed as a vertical bar whichshow the following information – the top of the bar is the highprice, the bottom of the bar is the low price, the horizontalline on the left of the bar shows the opening price and thehorizontal line on the right of bar shows the closing price.Base Currency – is the first currency in a currency pair. Aquote shows how much the base currency is worth in the quote(second) currency. For example, in the quote - USD/JPY 112.13 –US dollars are the base currency, with 1 US dollar being worth112.13 Japanese yen.Bid Price – is the price a trader can sell currencies. The BidPrice is shown on the left side of a quote - e.g. EUR/USD1.1965 / 68 – means that one euro can be sold for 1.1965 UDdollars.Bid/Ask Spread – is the difference between the bid price andthe ask price in any currency quotation. The spread representsthe broker's fee, and varies from broker to broker.Broker – the intermediary between buyer and seller.

Most FOREXbrokers are associated with large financial institutions andearn money by setting a spread between bid and ask prices.Candlestick Chart - A type of chart used in Technical Analysis.Each time division on the chart is displayed as a candlestick –a red or green vertical bar with extensions above and below thecandlestick body. The top of the extension shows the highestprice for the chart division and the bottom of the extensionshows the lowest price. Red candlesticks indicate a lowerclosing price than opening price, and green candlesticksindicate the price is rising.Cross Currency – A currency pair that does not include USdollars – e.g. EUR/GBP.Currency Pair – Two currencies involved in a FOREX transaction– e.g.

EUR/USD.Economic Indicator – A statistical report issued by governmentsor academic institutions indicating economic conditions within acountry.First In First Out (FIFO) – refers to the order open orders areliquidated. The first orders to be liquidated are the first thatwere opened.Foreign Exchange (FOREX, FX) – Simultaneously buying onecurrency and selling another.Fundamental Analysis – Analysis of political and economicconditions that can affect currency prices.Leverage or Margin – The ratio of the value of a transaction tothe required deposit. A common margin for FOREX trading is 100:1– you can trade currency worth 100 times the amount of yourdeposit.Limit Order – An order to buy or sell when the price reaches aspecified level.Lot – The size of a FOREX transaction. Standard lots are worthabout 100,000 US dollars.Major Currency – The euro, German mark, Swiss franc, Britishpound, and the Japanese yen are the major currencies.Minor Currency – The Canadian dollar, the Australian dollar,and the New Zealand dollar are the minor currencies.One Cancels the Other (OCO) – Two orders placed simultaneouslywith instructions to cancel the second order on execution ofthe first.Open Position –

An active trade that has not been closed.Pips or Points – The smallest unit a currency can be traded in.Quote Currency – The second currency in a currency pair. In thecurrency pair USD/EUR the euro is the quote currency.Rollover – Extending the settlement time of spot deals to thecurrent delivery date. The cost of rollover is calculated usingswap points based on interest rate differentials.Technical Analysis – Analysis of historical market data topredict future movements in the market.Tick –
The minimum change in price.Transaction Cost – The cost of a FOREX transaction – typicallythe spread between bid and ask prices.Volatility – A statistical measure indicating the tendency ofsharp price movements within a period of time.Reply With Quote.

HISTORY OF FOREX TRADING

Many centuries ago, the value of goods were expressed in terms of other goods.
This sort of economics was based on the barter system between individuals. The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance.
This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.Before the first World war, most Central banks supported their currencies with convertibility to gold. Paper money could always be exchanged for gold. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.Near the end of WWII, The Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war.
The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.The last few decades have seen foreign exchange trading develop into the worlds largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.In Europe, the idea of fixed exchange rates had by no means died. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when built-up economic pressures forced devaluations of a number of weak European currencies. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002.Today, Europe has embraced the Euro in 12 participating countries.
The physical introduction of the Euro on January 1, 2002 saw the old countries currencies made obsolete on July 1, 2002.In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The size of the FOREX market now dwarfs any other investment market.It is estimated that more than USD 1,200 Billion are traded every day, that is the same amount as almost 40 times the daily USD volume on the American NASDAQ market.

HOW TO TRADE FOREX

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors.
It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply.
However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.
The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.
The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.
Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.