As the forex market has grown, so have the available options for traders. Even rookie forex traders know about the major currencies. These are the US dollar, the Euro, the Japanese yen, the British pound, the Swiss franc and the dollars of Australia, Canada and New Zealand. Forex investors now have access to more currencies known as exotics. These include the Mexican Peso, Brazilian Real, Thai Baht and South African Rand. Now, it may sound intriguing and alluring to play the exotics, but be assured that the risks and the costs are higher. When you trade a major pair like the euro/US dollar (EUR/USD) you might have a bid/ask spread of just one or two pips simply because this is a highly liquid pair and one that thousands of investors trade every day. On the other hand, if you invest in a more exotic pair like the US dollar/Thai Baht, you may see a spread of five pips or more and that’s your cost to enter the trade. In addition, it’s harder to get off an exotic trade because the exotic currencies are far less liquid than their major counterparts. So proceed with caution if you’re considering investing in exotic currencies.

Seems simple doesn’t it? Yes, it does, but it’s surprising how many investors don’t follow this advice. This applies to trading asset class, but especially to forex where the use of leverage puts the investor who isn’t cautious at risk of losing more than his initial investment. So how do you keep your losses small? Regardless of what type of forex investor you are, assess your risk BEFORE you get into the trade. Decide how much you are willing to lose and if the trade goes against you, don’t let it go any further than your pre-determined loss threshold. Don’t turn a losing trade into a disastrous investment. On the flip side, we don’t want to cut a winning trade short or let it turn against us. The way to do this is by using protective stops. Once your profit goal is reached, set a protective stop at that price and let the trade ride. The worst thing that can happen is that the trade goes against you, but you’ve already locked in some profit. If the trade keeps going your way, move your stop order to lock in even more profits.

While many investment experts believe the market acts at random, that doesn’t mean you should pick currencies to invest in at random. Since the forex market is more volatile than stock or bond markets, we cannot hold forex investments for months or years as we might be able to do with stocks and fixed income. This makes investment selection critical. Are you going long on the Canadian dollar because oil prices are rising? That’s a sound investment thesis, but if you’re just buying a currency because you think it’s going to do what you want it to, you might be better off heading to a casino and gambling. When you buy stocks, you probably have a reason. Forex should be no different.

With all the advancements in technology, it is possible for investors to test their forex strategies on demo accounts without risking a penny. This is a wise move, especially for those new to forex investing. In conjunction with testing your strategy, there are plenty of free resources available for you to research how various currencies act during a variety of market conditions. Since these market conditions invariably repeat themselves over history, it is worth looking back to get a leg up on the future.

In order to make use of the inverted pyramid you will need to understand the macroeconomic factors that are a function of the top of the inverted pyramid. These include international issues that influence the global trading community. These types of issues may be gauged from news reports and news feeds with global coverage. News networks, such as CNN, provide up to date coverage of terrorism, oil prices and other such issues.

In order to account for the technical factors that apply to the pyramid, you will need to determine specifics and sediment in the particular market within which you are trading and also for any market that impacts the market within which you are trading. You must decide the type of technical indicators that will be used in your Forex trading strategy. Some traders rely upon randomness and chance while others engage more complicated mathematical computations to calculate weighted moving averages. You must be able to develop and visualize a picture of the market, which identifies events that are of importance to affect the market. You also need to develop a general feel about the market. News reports and specific market reports will assist you in developing a picture of the market and also indicate of the direction in which the market is headed.

You will need to determine which currency pairs are volatile in relation to the macroeconomic environment and market conditions that have been identified. You will need to have knowledge of the market in order to identify and differentiate market indicators from events that bear no real significance. Your analysis of acquired data should indicate whether price movements represent a trend or volatility in the currency trading system. You will then be able to use this analysis to narrow your options to trades that offer the most potential.

You must be able to set floors and ceilings in your technical analysis to establish trading levels and then use those levels in your Forex trading strategy. Technical patterns that indicate the direction of trades in specific currency pairs should be developed. Once you have narrowed down to a specific currency pair for trade, you will then need to reexamine its market sediment as it applies to the technical analysis. You will have to identify entry and exit points for your chosen trades.

Forex trading strategies vary depending on the individual requirements and his trading abilities. When a person planning to start trading, he/she should be looked into the factors such as his/her trading ability, initial investment, account size, risk tolerance, geographical limitations or advantages, and risk tolerance. Selecting currency pairs, the entrance and exit prices, the market situation, the profit goal (long-term or short-term), the chosen trading plat form, and your affiliated broker are also other important factors.

Leverage is a popular maximizing strategy, which lets you trade with more funds than in your. Forex trading brokers provide you the leverage ratio. Usually, it is 100:1 (for $1 in account, you can borrow $100 from your broker.)

Stop Loss Order is an accepted risk minimizing strategy. Here, the traders can limit his/her loss by stopping a trade at a preset price. Types of ‘stop loss orders’ vary according to the Forex broker.

Automated order entry is a trading strategy allowing you to enter into a system automatically at a preset price rate. This helps you enter the market at most favorable time. Forex futures and Forex options are other techniques to cover the loss and well as to cover the profit, as they enable you to buy or sell currencies at a fixed rate at a particular time in future.

This article is written for Orient Financial Brokers (OFB), licensed and regulated by Central Bank of the UAE since 1997, to conduct brokerage in Foreign Exchange, Commodities, etc.

What is the Exchange Rate of Currency Pair?

The rate at which currencies exchanged is known as Exchange Rate of Currency Pair. For eg. say the current exchange rate of Euro/US is 1.425 and if the same rises to 1.625 after one year and any one had invested $1425 to buy 1000 Euros, the person could make a profit of $200 after one year. So, when the exchange rate of currency pair increases, the invester can make money.

Long Term Trading is advisable

Most of the beginners missed to get more profit as they are unaware of small currency movements. If they follow long term trading, that will enable them to make good profit in Forex. In short term trading we can not make pretty good money as we can find only very little rise in exchange rate.

Fundamental Analysis in Forex

This is very useful to take crucial decisions in the business. It’s true that currency value of every country is subject to economical and political changes happening there. Any one who trades Forex should keenly watch such changes through variety of news sources as the changes may greatly affect the currency prices. New economic policies, trade balances and foreign investments are other factors which may strongly affect the currency value of any country. We can learn economical health of any country knowing Interest Rate and International Trade of the particular country. High Interest Rate makes many investors to sell their currencies as it may affect the economy of the country. If there is any trade deficit in the country, it means money leaving for buying foreign goods. The currency value will not be affected when trade deficit is greater than market expects. To get successful trading you also need to watch out GDP which measures the value of all goods produced in the country.

Technical Analysis in Forex

Relative Strength Index(RSI), Number Theory, Gaps, and Price Time Chart are some of the important parts of Technical analysis of Forex.

Relative Strength Index

RSI is the measure to find out whether the currency is overbought or oversold. It’s nothing but ratio between upmoves and downmoves. When RSI is above 70, the instrument is assumed to be overbought and whereas the RSI standing at 30 or below 30 would be the signal that the instrument may be oversold. RSI standing between 30 and 70 indicates the neutral trade. Generally traders want to buy the currencies when the value of currencies keeps rising and when the value comes down traders start to sell them as they fear about further down in the value of currencies. However, it is always advisable to buy a currency when it is hoped to get further rise in value.

Number Theory

Fibonacci number is the amazing sequence of numbers in which every number is the sum of before lying two numbers. (1, 1, 2, 3, 5, 8. 13, 21, 34, 55, 89…..). These are ones which are used to predict the turning points of trade in advance as we can avoid any loss in our trading. The ratio of any two numbers in the above sequence will come as 62% and the inverse of 62%( i.e.) 38% is defined as Fibonacci retracement. Golden mean 0.618 which is derived from these Fibonacci Numbers has interested matematicians from last many centuries.

Gaps

Gaps are spaces left in the bar when trade has not taken place. The Up Gap is formed when the lowest price on a trading is higher than previous day’s highest price. Similarly, the Down Gap is the result of highest price on a trading which is lower than lowest price of previous day trading.

Break Out

Indeed it is very important part of trading which involves a move where new High or Low made. Many investors want to make more money despiting the new High. But, it can not be always favorable for the newbies as there is also chance for reverse break out.

Future and Option Trading in Forex

Future Trading in Forex involves buying and selling a currency pair on a fixed date in the future for an agreed price. The date when our dealing closes called as delivery date. In this type of trading we can not assure our profits as there is necessary to expect both loss or profit in trading. It is obviously true that Future Trading is not advisable for the beginners.

In Option Trading we can buy or sell the currencies when the favorable time comes. We can decide against deal in this type of trading as we can avoid our huge loss of money. But one important thing here is as we need to follow premium deposit which makes this Option Trading possible. But, premium allows us to keep option only up to a certain date called maturity date. And Maturity Date is when our deal is settled. Most of the traders prefers this kind of trading as they can easily avoid risks.

How to select our Brokers?

In this Forex Trading we can find large number of brokers with different features from all over the world. But it is advisable to select regulated brokers who find it necessary to submit financial reports to the regulatory authorities. If any one of the regulated brokers failed to submit the financial reports, they would be fined immediately and terminated from the membership. All US based brokers are submitting their financial reports at National Futures Association and Swiis based ones are submitting their reports at Swiss Federal Department of Finance.

The Advanced Technology in Forex Trading

The advanced technology of today’s Internet world has permitted people from various parts of the world involve in the Forex Trading. Online Forex Software provided with current changes in the market and up-to-date news helps traders from any part of the world to trade confidently. Most popular technical indicators used by the traders are Pivot Points, MACD , Bollinger Bands from which they can know where to enter and exit the trading.

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Technological advances in computers and the Internet are responsible to create a market of online Forex trading opportunities. The Internet has provided for market knowledge to be disseminated to the global Internet community. This information was traditionally limited to banks and other financial institutions. With the advances in online, real-time and near real-time information flows, you have access to market information in line with the banks and financial institutions. Even during periods of market volatility, online platforms are able to provide a consistent flow of quotes. However, many online platforms are disguised as Forex trading platforms when they are really frauds.

Some of the fraudulent online platforms that you should be careful to avoid, particularly if you are a new or inexperienced trader are fraudulent brokers, bookmakers and bucket shops. Fraudulent broker practices may include offering outrageous bid/ask spreads and requiring unreasonable commissions. They may promise profits and never deliver them or claim to be trading your money when, in reality, they have used the money for personal interests. They may also provide you with phony accounting statements that indicate profits they never made or they may attempt to lure you with phony stories of successful business relationships using fake customer names. The onus is on you to invest time and resources in locating a reputable broker.

Bookmakers are platforms established to bet on currencies. While this type of betting is perfectly legitimate in some states, it is not to be confused with Forex trading systems. In many cases, bucket shops are fraudulent platforms designed to cheat you out of money. Though they will claim to engage Forex trading, they have no connection to Forex. Their fraudulent schemes usually involve convincing you to invest in currency futures and options rather than the spot trading market that is Forex. Since the methods of futures and options trading provide for a broker to contractually engage in transactions over a period time, this scheme allows the frauds to collect more of your investment dollars for a longer period of time. The spot Forex market, on the other hand, is designed to provide simplicity and allow investors to enter and exit the market at will. There is no contractual obligation or lengthy time constraints.

Most online platforms are designed to run with Windows and most web browsers. In general, an online platform provides access to an order entry process and should have a method of displaying currently held positions, charts of monitored currency pairs and some itemized form of account data. You should also seek a platform that offers some method of backup and communication in the case of loss of access to the Internet.