Posted by Admin on Aug 17, 2010 in Articles | 0 comments
Trading opportunities in the forex market deserve serious consideration as a diversification strategy for your portfolio.
While online equities and futures trading have enjoyed exponential growth and widespread notoriety over the past few years, online foreign exchange trading is only now gaining popularity among seasoned active traders, commodity trading advisors (CTAs), and other professional money managers.
Until recently, large international banks dominated the foreign exchange market, only allowing access via telephone trading to a select few such as Fortune 1000 companies, large funds, high-net worth individuals, and so on. But now, the tide has turned and finally there are established online trading firms that provide individual investors with direct access to the largest, most liquid financial market in the world.
In this market you may buy or sell currencies. The objective is to earn a profit from your position. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are virtually identical to those found in other markets, so the transition for many traders is often seamless.
Here are an example of how forex trading works. Say, a trader purchases 10,000 euros in the beginning of 2004 at the EUR/USD rate was .9600. In May of 2006 the trader exchanges his 10,000 euro back into US dollar at the market rate of 1.1800. In this example, the trader earned a gross profit of $2,200.
Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the ‘basis’ for the buy or the sell. For example, if you BUY EUR/USD you have bought euros (simultaneously sold dollars). You would do so in expectation that the euro will appreciate (go up) relative to the US dollar.
EUR/USD
In this example euro is the base currency and thus the ‘basis’ for the buy/sell. If you believe that the US economy will continue to weaken and this will hurt the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will appreciate versus the US dollar. If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold euros in the expectation that they will depreciate versus the US dollar.
GBP/USD
In this example the GBP is the base currency and thus the ‘basis’ for the buy/sell. By doing so you have bought pounds in the expectation that they will appreciate versus the US dollar. If you believe the British are going to adopt the euro and this will weaken pounds as they devalue their currency in anticipation of the merge, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/JPY
In this example the US dollar is the base currency and thus the ‘basis’ for the buy/sell. If you think that the Japanese government is going to weaken the yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will appreciate versus the Japanese yen. If you believe that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back to Japan, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
USD/CHF
In this example the CHF is the base currency and thus the ‘basis’ for the buy/sell. If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc. If you believe that due to instability in the Middle East and in U.S. financial markets the dollar will continue to weaken, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
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Posted by Admin on Aug 5, 2010 in Articles | 0 comments
There is a lot of information out there for Forex currency trading beginner. If you have decided that your ultimate goal is to become an expert foreign exchange trader, you should take a look at some must-have information. The first thing that should concern you is to find out what exactly FOREX is all about.
The Forex market is one of the biggest financial investment market in the world. Many think that the stock market is huge, but it can not quite measure up the size of the Forex market. Even if we add the futures market to the stock market, the Forex market would still have a bigger amount of money being traded every day.
The door of the Forex market was opened to highly wealthy people only in the past, and you would be asked to present millions of dollars before your entry. Thanks to the presence of online trading companies, average investors can also have their share in this exciting field today. That being said, you still need to be able to afford the risk of financial loss.
Forex trading involves people buying and selling different currencies of the world. To be exact, every time you trade, you buy one currency while selling another. This is because currency trading always involves pairs. Thus, quotes of currencies will come in one currency paired with another. The major players include the U.S. dollar and the Canadian dollar (USD/CAD), the Euro and the U.S. dollar (EUR/USD), the U.S. dollar and the yen (USD/JPY) and the Australian dollar and the U.S. dollar (AUD/USD).
There are many advantages to trading in the Forex market. The transactions are fast because everything is electronic. You also are assured that there are often people who would want to trade with you. This is simply because there are so many people who are trading everyday and every hour of the day. You can buy and sell at anytime whenever you want to.
Leverage is another attractive aspect of currency trading. With a nearly unbelievable ratio of 200:1, you leverage capacity is simply huge. With very minimal initial cash you can already manage a large amount of currency. This is probably the main reason why the market is quite attractive for those who want to increase their earnings impressively.
However, if you think you can get rich overnight in the Forex market, think it again. You can also lose in this game, and the loss can be just as huge as the profits if you take use of the leverage capacity. Those who do lose money are often those who act impulsively with the hopes of getting rich instantaneously. If you do not take the time to learn the inner wheels of Forex trading and the technical aspects of leveraging, then you could lose everything you have put into currency trading.
For any Forex currency trading beginner, the best way to dive into this game is to get well-prepared in terms of knowledge, practice, budget and psychology. If you are just an average player, you can pick an online company who offers virtual trading with imaginary currencies without any substantial cost or loss on your part. So, position yourself as a beginner and start by playing small, you can improve quite quickly and steadily.
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Posted by Admin on Jul 28, 2010 in Articles | 0 comments
For over a century now, Stocks have been heavily traded and known to the average US investor and non-investor alike. In essence, when you buy a stock you are purchasing a stake of ownership in the company. When buying a stock, you are doing so with the belief the value of that company’s stock will go up. There is a lot of information available to the public about company’s who’s stocks are available for purchase, so significant research can be done to determine the merits of these company’s stocks.
Since the Forex market became available to the public in the late 90’s, several advantages to trading currencies over stocks have been observed.
The first and most important advantage is the liquidity. Currently, approximately $3.2trillion flows through the currency market everyday. If you were to take the entire global stock market, along with all the commodities, derivatives, bond markets, etc. and put all the other global markets into one pool, it would still be smaller than the Forex market. Liquidity gives you several advantages when it comes to trading. One: you will likely get faster execution as there will be more of a market available at most prices quoted. Two: it is virtually impossible to corner or seriously manipulate the FX market or any particular currency you are trading. Three: when you are trading stocks, anyone who wants to buy a stock wants it to go up in value, whereas in FX, people may purchase a currency with no intention of profit. Some examples are multi-national corporations who have to exchange funds for business purposes, or central banks working to stabilize their economy. The bottom line is when it comes to participants, in the stock market, there has to be one winner and one loser, whereas this is not always the case in currencies.
The second critical advantage to trading currencies over stocks is that you can trade FX 24 hours a day 6 days a week from Sunday 5pm EST to Friday 4pm EST. This provides significantly more trading opportunities and also reduces the chance of overnight gaps which happen often while trading stocks due to information coming out which can affect that particular stock when you cannot trade it.
A third advantage is the leverage; prime stock accounts get maybe 2:1 leverage, with currencies you can get up to 400:1 which gives you more purchasing power.
A fourth advantage; with stocks your accounts can and often do go below their original value with you actually owing money to your broker. In contrast most FX trading companies have automatic algorithms built into their platforms to close out all positions if the equity value hits a zero balance, yielding more equity protection.
A fifth advantage; back to liquidity, which tends to make market prices smoother since there is more money to make the market, giving technical analysis much more potency.
A sixth advantage; it is much easier to manipulate a stock price since all orders flow through one central exchange whereby the ’specialists’ have many advantages that are unavailable to the average investor. Another challenge is that companies can easily manipulate their accounting or perform illegal activities which can falsely effect their perceived value. In contrast there are too many protocols in the FX market to do this.
A seventh advantage; companies can receive bad press and even fail and stock prices can drop extremely fast, much faster from a percentage perspective in comparison to currencies. If the company fails, your stock is worthless while with currencies, the chance of a G-8 country’s dollar or base currency becoming worthless is extremely unlikely. As we have seen in the recent market volatility and global credit crisis, companies that appeared to be stable (Bear Stearns, Lehman Brothers, Wachovia, etc.) have all failed. Countries within the G-8 are much more stable unions than individual companies.
While most of the money trading stocks is made by buying the stocks, currencies are traded both up and down and there is never an entire bear or bull market. This is because as one currency goes up, another must go down but they cannot all do this together.
This informational comparison should give the potential investor a clearer picture about the unique differences between the stock market and the currency market and the clear advantages the currency market holds.
Steve Patzkowski
CEO
White Knight Investments
http://WhiteKnightFXI.com
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