Introduction to the forex market

Many of us have been fascinated by the shiny, colorful world of currencies as children, and even those of us who have little interest in the forex market have engaged in some form of currency trading while traveling outside their homeland. And these days, one will easily find people discussing the advantages and weaknesses of the US dollar even in a casual gathering.

The forex market is the currency market: it’s where the value of each currency is determined versus every other currency in the world. If you exchange one US dollar for its equivalent value in Euros, you’re already a part of the forex market, and are creating the quotes you see reported on TV screens every day. There’s no difference between the actions of a tourist at an exchange bureau, and the transactions of banks in the international market, apart from size and maturity terms.

In today’s integrated and specialized economies it’s rare to find all the components of any product produced inside one country’s borders, and so, international trade is a major creator of global forex volume. Deepening financial interactions across the globe through partnerships, buyouts of firms and international loans, along with ever complex tools of investment have been increasing the size of the forex market in recent years. If global trade and finance were the body of world economy, the forex market would be the circulatory system; in other words, there doesn’t exist a deeper, more liquid market than that of currency trading. Almost every political or economical event of long-term significance is reflected in its workings, and understanding it results in a very good comprehension of finance and economics in general.

Participating in such a vast and significant mechanism can be a rewarding and exciting experience for the individual investor. But while this is true, success during your interactions with the giants will require more than a bit of diligence and patient study. The rewards can be immense: famous investors such as George Soros, Jim Rogers, large Wall Street firms such as Goldman Sachs, or banks like Citibank all make millions of dollars each year from trading in the forex market. In fact George Soros is notorious as being the man who broke the Bank of England: Through successful speculations, he was able to make 1 billion dollars in just about a week.

Learn Forex Trading With Our Comprehensive Forex Course

Welcome to our forex trading course. If you feel like you’re a penguin in the desert when reading about forex trading, don’t worry, our forex course is here to guide you and help you through your journey in the kingdom of money.

Don’t be embarrassed by your puzzlement at some of the new concepts and ideas that you will encounter in this market; just remember that nobody was born an expert. If you fear that the lucrative field of currency trading is only for the likes of old men like George Soros, or big beasts like J.P. Morgan, we ask that you reconsider your opinion. In this modern age of the Internet, freedom knows no limits! Well, at least the forex market is open to all who open a brokerage account and risk as little as 100 bucks to test their skills.

Our forex education aims to introduce the trader to the basics of how to trade forex. Nobody wants to have a brutal freshman experience as he takes his baby steps to a new activity. By enlightening the new trader as to what he shouldn’t do in the markets, we aim to minimize the birth pains of his budding career. The new trader can expect to find a no-nonsense discussion of the various pitfalls and dangers associated with currency trading in these pages, but he will also find a good deal of advice on what he should do: study, be patient, be humble, and don’t gamble.

Forex can be exciting, and rewarding intellectually. But it can do something else too: it can enrich you materially in a way that you hadn’t expected was possible.

Sound interesting? Read on then, here’s our first lesson.

Forex Trading Tips - Understanding Forex Spreads Part 1

Forex is always priced in pairs between two different types of currencies. When you make a trade, you have to buy one currency and sell another at the same time. If you want to exit the trade, you must buy/sell the opposite position. For example, when you think the price of the Euro is going to rise against the US Dollar. In order for you to enter a trade, you will have to buy Euros and sell US Dollars.

If you want to leave the trade, you will have to sell Euros and buy back US Dollars. You will be hoping that you were right in your guess and that the exchange rate for EU/USD has actually risen, which means that you will get more Euros back than when you bought them, which is how you will make a profit.

These days just about every forex broker is claiming to have the tightest spreads in the industry. But marketing does have the ability to be deceiving. The topic of spreads in the forex spot market is very complicated and often not easy to understand. However, nothing affects your trading profitability more.

First of all in order to understand the spread, you need to know what it is. A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) that is quoted in the pips. If the quote between EUR/USD at a given moment is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips.

The spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The consequence to this is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit

Brokers generally don’t earn the full spread, especially when they hedge client positions. The spread helps to compensate for the market maker for taking on risk from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).

Spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn’t profitable.

The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected.

When this occurs repeatedly, it means that your broker is showing tight spreads but is effectively delivering wider spreads. Rejected trades, delayed execution, slipping, and stop-hunting are strategies that some brokers use to get rid of the promise of tight spreads.

Forex Trading Tips - Understanding Forex Spreads Part 2

Spreads should always be considered in conjunction with depth of book. Oddly enough, when it comes to economies of scale, forex doesn't even act like most other markets. On the inter-bank market, for example; the larger the ticket size, the larger the spread is. So when you see a 1-pip spread on an ECN platform, you have to wonder if that spread valid for a $2M, $5M or $10M trade, which it probably isn’t. In many cases, the tight spread that is offered applies only to a capped trade sizes that are very inadequate for most of the common trading strategies.

Spread policies change a great deal from broker to broker, and the policies are often difficult to see through. This certainly makes comparing brokers much more difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you are paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.

Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if quality of execution is good.

Some brokers have different spreads for different clients based on their accounts. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some offer the same spreads to everyone.

Problems can come up when you are trying to learn about a company's spread policy because this information, along with information on trade execution and order-book depth is rather difficult to get. Because of this, many traders get caught up in all of the promises they hear, and take a broker's words at face value. This can be dangerous. The only real way to find out is to try out various brokers or talk to those who have.

Forex Trading System Software

With so many currencies, possible effects on those currencies, possibilities for collapse or enormous raises in value it becomes impossible to manually know your margins, hedge your losses or even know what move would prove to be the best. All of this is called learning to watch the trends. Thankfully there is software programs that will help you determine trends which will allow you to make intelligent choices.

Some indicators of Forex trading have shown that although nothing comes with a guarantee, some of these programs help to lower the risk and raise the winning in a Forex market. While these programs are based on the known historical raises and losses, they eliminate more possibility of error in calculation so as to know what is the best in the trends of the Forex market. Not only will the Forex trading system software help you to choose what are your options with more confidence, but can also help to predict where the “sell point” is to help you make less risk of selling to early before a large raise or holding when the bottom is collapsing.

It doesn’t matter how infallible we believe machines and programs can be, never put your complete faith in your software. Use it as an assistant, but make sure to watch all the possibilities and make your own decisions as well. Putting your Forex market software to use is one of the best things you can do, but do not let it become the do all, see all of what will happen with your money.

If you are planning to get into Forex trading, make sure you use only money that is not needed for other things and you are willing to risk as a loss. Take a Forex training course and purchase a highly recommended software to help you study the market trends. Then make sure you keep your fingers in all of the trading and decisions and make them yourself.

Mini Account Trading in the Forex Market

Forex Trading is the trading of different types of foreign currencies. It is a 24 hr. market in which many things change the direction of the market. It would be extremely hard for someone to figure out the market if they did not watch and follow the news and current events.

Learning all the things that affect the Forex market and the currencies change directions makes a big difference when trading. You need to know this to know what to keep your eyes open for on the news each day, and listening to other people talking will give you clues of what is going to happen so you can watch the market a little closer when needed. This alone will not make you an expert.

There are many trading strategies. You will need to pick out a trading strategy that you are most comfortable with and stick to it. When you learn something, then using it over and over and over again, will bring it to perfection. Once something works, why change it. Like the old saying “If it ain’t broke, don’t fix it”.

Trading courses and trading charts are a good help. Learn what the charts mean and how to follow the trading signals to the fullest. Trading signals may be the biggest help there is. They follow the past to predict the future. Studying them will help you get a feel of how the market runs under different situations.

Mini markets are Forex trading accounts also, only at a lesser risk level. It does not take as much to open a mini account. There are accounts that are 1/10th the size of a full account. The risk is not the same as with a full account. They are really great though for the beginner or for someone that does not have a lot of extra cash to put into trading in the Forex Market.

Simplicity is Key to Attaining Forex Trading Success

Some traders lose without ever attaining Forex trading success due to a lack of discipline. Although this is not the cause of the collapse of the investment, it is a small part of the trouble. It is imperative to remain focused and knowledgeable about the world’s current events and to know the trends, strategies and what margin you are willing to lose with any given investment.

Speculation is not a good bedfellow when choosing a Forex trading system. Speculation leads to recklessness and downfall when investing in a Forex market. A few may get lucky using speculation but those people also took the time to study to be able to follow a market trend. Without this knowledge you will be tempted to invest in a high yield turnover even when the market trend says that it is heading for a downfall.

There are those systems that praise the fact that they can choose market bottoms with correctness. This is not always the case. All things are fallible. Another fallacy is that there is the perfect market trend software. No such thing exists. To gain real success you will have to work smart and do your homework. Without the right tools and knowledge all successes in life are put into a high risk category.

The Forex trading system is to volatile for any one thing to be 100% accurate. Unless you are willing to risk your investment by allowing something else to determine your fate without your own knowledge, you must be able to follow all trends, events that could change the market and the charts and graphs that will help you by “suggesting not guaranteeing” Forex trading success. Market trend software is only meant to be used as a guide to help you make informed decisions.