all4x

Participating in Forex Market

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Forex participants can vary a lot. Forex is very marketable from long term investors to large credit line users. But its constant minimal daily rise and fall magnetizes investors with various trading techniques. This makes Forex consistently exist as a very interesting currency market.

The Main Players in the Forex Market

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The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.

Consumers, including visitors of countries, tourists and immigrants, do need to exchange currencies when they travel so that they can buy local goods and services. These participants do not have the power to set prices. They just buy and sell according to the prevailing exchange rate. They make up a significant proportion of the volume being traded in the market.

Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.

Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.

Large commercial and investment banks are the 'price makers'. They are the ones who buy and sell currencies at the bid-and-offer exchange rates that they declare through their foreign exchange dealers.

Commercial banks deal with customers on one hand, and with the Interbank or other banks, on the other hand. They profit by utilizing the bid-and-offer spread. The bid price is the exchange rate that the buyer is willing to buy and the offer price is the exchange rate at which the seller is willing to sell. The difference is called the bid-offer spread. They also make profits from speculating about whether the exchange rate will rise or fall.

Central banks participate in the foreign exchange market in their effective duty as banks for their particular government. They trade currencies not for the intention of making profits but rather to facilitate government monetary policies and to help smoothen out the fluctuation of the value of their economy's currency.

The Main Players in the Forex Market

2007-11-09T01:37:00.002-08:00

The five broad categories of participants are: consumers, businesses, investors, speculators, commercial banks, investment banks and central banks.

Businesses that import and export goods and services need to exchange currencies to receive or make payments for goods they may have bought or services they may have rendered.

Investors and speculators require currencies to buy and sell investment instruments such as shares, bonds, bank deposits or real estate.

Online Forex Trading Advice

2007-11-09T01:37:00.001-08:00

Technological Advences

Forex has changed dramatically in the last 10 years due to technological advancements. With real-time streaming technology and faster computer systems, almost anything is available at the click of a button. I would like to go over a few of the benefits of online Forex trading. Consult with your broker to determine if trading online is right for you.

Try It Before You Buy

Before you spend any money on an online Forex trading program or subscription, ask about free trial offers. Many companies will allow potential customers to try out their software and tools before making an investment. This is a quick and easy way to begin trading immediately. Spend some time reading through the system tutorials and practice a few test trades. There will no doubt be a learning curve, and you want to make sure that you don't have a large investment riding on that curve. If you have a friend or family member that is in the online Forex trading market, find out what program or system they use. They may be willing to walk you through a trade and give you their opinion on the program. This is an excellent way to find out if a program is really worth it or not.

Practise Makes Perfect

One of the best ways to get a feel for the market or a particular program is to try it out. No one wants to experiment with their own money however; so many companies have come up with an innovative way to take all the risk out of trying a new program. It's called simulation trading and the premise is simple. The program is an exact copy of the broker or trading systems real-time trading program. The main difference is that they allow you to "play" the market just as you would if you were actually investing. You can do a simulation with a set amount of money, usually around 100,000$. You can practice setting bid and ask prices, and using their various analysis tools.

The benefits of such a system are two-fold. First, you get a feel for the program itself, so that you can determine if it is right for your needs and skill level. Second, you get to practice trading in the market. You can practice using the various tools and research available to you to make good trading decisions. Don't worry if you don't get it right away- since its play money, you don't lose anything!

The amount of time needed to understand the system will vary depending on your level of experience. Many programs offer similar functions, so if you are simply in the market for a different program you may be able to switch over quickly.

Benefits of Online Forex Trading

Real-time access- this is one of the great benefits of online Forex trading. Most brokers and trading companies offer their clients real-time quotes and data. This is very important when making decisions. Currencies are a very volatile market, and things can change at anytime. So having your thumb on the pulse of the market is very important to long term success.
24-hour availability- another great feature about online Forex trading. In today's hectic world many traders find it difficult to manage their portfolio during normal business hours. The internet allows traders the ability to access their portfolio virtually anywhere and anytime. This is great for part-time traders that have a full-time day job.
Speed of transactions- can't be beat! With a good computer and a high speed connection you can process a transaction within minutes. This is a far cry from having to call up your brokerage firm or worse yet make an office visit. This is perhaps the main reason that day trading has become as popular as it has!

In Summary

Brokerage firms have become very skilled in online Forex trading over the past 10 years, and can serve as your guide into the technological world. Be patient with yourself during the learning process, and keep your eye on the prize. The more research and preparation that you partake in before trading; the better your chances are for success. So keep an open mind, and explore all the benefits that online Forex trading has to offer.

Forex Trading Software

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If you are looking to get started trading the Forex, you will find that there are numerous software programs available (both web based and desktop based) for you to use in your trading. In fact, most brokers offer clients a software package for free or as part of their trading account. Usually the software that comes with your trading account is a very basic "bare bones" model. Sometimes, more features are available for a price. The software packages your broker provides can be an important consideration in choosing a broker. You may want to download and try some different packages using a demo account. This will give you a better idea of which software package you find most suitable to your unique style of trading.
Forex trading software comes in two basic flavors - desktop software, and web based software. Which one you choose to work with depends on your preference and other more technical factors. Obviously, the Forex market is very dynamic and you need to have the most reliable up to date connection to the data as possible. Your internet connection speed is a factor here, and if you can afford it, you really should be connecting via broadband. Your internet connection speed is just one of the factors you should consider when selecting forex trading software. The biggest consideration should be one of security
Generally speaking, web based forex software is more secure than a desktop based software package. Why is that? Well, with a desktop software, your information and data is stored on your hard drive thus making it vulnerable to numerous security issues.If your computer became infected by a virus, your personal data and the integrity of your trading system can become compromised. Likewise, in the event of hard drive failure, your important data can be lost. Then there is the threat of prying eyes accessing your trading systems.

Luckily, if you choose to go with a desktop based software for your forex trading, you can do some things to limit the risks. For starters, a dedicated computer just for trading the forex would be a wise investment. Due to the popularity of forex trading, there are computers made specifically with a forex traders needs in mind. Even if you cant afford a dedicated machine, you should still apply the following tips to your trading computer:

Password protect your trading software and personal data
Make regular backups of your trading data
Use a anti virus program and keep it up to date
Update your trading software regularly

If you choose to go with a web based trading software, allot of the security and maintenance issues are handled by the provider. Online based forex systems are hosted on secure servers, the same type of servers credit card processing is handled on. This gives you a great deal of protection, as your data is encrypted. Also, backups and mirrors of your account data are made by your software provider to protect you from data loss.

Aside from the security considerations, you may find that an online based trading software is simply more convenient. There is no software to download as the software runs in your regular web browser. This means that you always will have access to the latest versions and features. Also, if you travel you will certainly appreciate the ability to log in and trade from any computer with an internet connection.

As you can see, there are many options in forex trading software. You ultimately should choose to work with the software that you personally find easiest and most intuitive to use.

Forex Benefits Over Futures

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The origins of the modern futures market lies in the agriculture markets of the 19th century. Farmers started selling contracts to deliver agricultural products at a later date. This was done to anticipate market needs and stabilize supply and demand during off seasons. The current futures market has moved far beyond agricultural products. It is a worldwide market for all sorts of commodities, including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds.
When the futures market is played by speculators, the actual goods are not important because there is no expectation of delivery. Rather, it is the contract itself that is traded, the value of which changes constantly throughout the day as expectations change regarding the value of the commodity itself.

Win or Lose

In every futures contract there is a buyer and a seller. The seller takes the short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date.
Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise, or by buying short (from the seller) if they expect prices to fall. Futures accounts are settled every day.

At the end of the contract period, the contract itself is settled. The final contract buyer can now take delivery of his truckload of whatevers. Of course, he may opt to just start the process all over again by writing up a contract to deliver his whatevers on a certain date at a certain price.

Forex Benefits

The foreign exchange market (Forex) has several advantages over the futures market.

More Liquid: Forex is an extremely liquid market. As the largest financial market in the world it dwarfs the futures market in daily exchanges. This means that Forex stop orders can be executed more easily and with less slippage. The Forex is open 24 hours a day, 5 days a week. Most futures exchanges are open 7 hours a day. This makes Forex more liquid and allows Forex traders to take advantage of trading opportunities as they arise rather than waiting for the market to open.
Commission-Free: Forex transactions have no commissions. Brokers earn money by setting a spread -- the difference between what a currency can be bought at and what it can be sold at. In contrast, traders must pay a commission or brokerage fee for each futures transaction they enter into.
Instant Transactions: Because of the high volume of trading, Forex transactions are executed almost instantly. This minimizes slippage and increases price certainty. Brokers in the futures market often quote prices reflecting the last trade -- not necessarily the price of your transaction.
Safeguards: Final prices in futures are always a little uncertain because of market gap and slippage. The Forex is less risky because of built-in safeguards in the trading system.

Forex Glossary

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Accrual: The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals, over the period of each deal.
Actualize: The underlying assets or instruments which are traded in the cash market.
Adjustable Peg: An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Adjustment: Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.
Agent Bank: A bank acting for a foreign bank.; In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.
Aggregate Demand: Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and and firms in other countries for good and services.
Aggregate Risk: Total amount of exposure a bank has with a customer for both spot and forward contracts.
Aggregate Supply: Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.
Agio: Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.
Aggressor: A trader dealing on an existing price in the market.
Appreciation: A currency is said to 'appreciate' when it strengthens in price in response to market demand.; Describes a currency strengthening in response to market demand rather than by official action.
Arbitrage: Profiting from differences in the price of a single currency pair that is traded on more than one market.
Arbitrage Channel: The range of prices within which there will be no possibility to arbitrage between the cash and futures market.
Around: Used in quoting forward "premium/discount". "Five-five around" would mean five points on either side of the present spot value.
Ask Price: Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be bought for 1.1968 US dollars.
Asset: An item having commercial or exchange value.
Asset Location: Dividing instrument funds among markets to achieve diversification or maximum return.
At Best: An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.
At or Better: An order to deal at a specific rate or better.
Authorized Dealer: A financial institution or bank authorized to deal in foreign exchange.
Average Rate Option: A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".
Back Office: The office location, or department, where the processing of financial transactions takes place.
Balance of Trade: The value of a country's exports minus its imports.
Bank Notes: Paper issued by the central bank, redeemable as money and considered to be full legal tender.
Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.
Bar Chart: A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information - the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.
Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Bid Price: is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1923 / 68 - means that one euro can be sold for 1.1923 US dollars.
Bid/Ask Spread: is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.
Big Figure: The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bretton Woods: The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.
Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
Bull Market: A market which is on a consistent upward trend.
Bundesbank: Central Bank of Germany.
Buy On Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close). A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).
Central Bank: A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Commission: The fee that a broker may charge clients for dealing on their behalf.
Cross Currency: A currency pair that does not include US dollars - e.g. EUR/GBP.
Currency: Money issued by a government. Coins and paper money. It is a form of money used as a unit of exchange within a country.
Currency Pair: Two currencies involved in a Forex transaction - e.g. EUR/USD.
Currency Risk: The risk that shifts in foreign exchange rates may undermine the dollar or any other foreign currency value of overseas investments.
Day Trade: A trade opened and closed on the same trading day.
Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day.
Day Trader: A trader who buys and sells on the basis of small short-term price movements.
Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation: A fall in the value of a currency due to market forces.
Desk: Term referring to a group dealing with a specific currency or currencies.
Devalution: The act by a government to reduce the external value of its currency.
Direct Quotation: Quoting in fixed units of foreign currency against variable amounts of the domestic currency.
Discretionary Account: An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Economic Indicator: A statistical report issued by governments or academic institutions indicating economic conditions within a country.
Euro (EUR): The single currency of the European Economic and Monetary Union (EMU) introduced in January 1999. This is the amalgamation of the following currencies, after Jan. 1, 2002 these currencies will be considered legacy currencies. Germany Deutsche Marks, Italy Lira, Austria Schillings, France Franc, Belgium Francs, Netherlands (Dutch) Guilders, Finland Markka, Portugal Escudo, Greece Drachmas, Ireland Punt, Luxembourg Francs, Spanish Pesetas.
European Central Bank (ECU): The Central Bank for the new European Monetary Union.
Execution: The Process of completing an order or deal.
First In First Out (FIFO): refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.
Foreign Exchange (Forex, FX): Simultaneously buying one currency and selling another.
Fundamental Analysis: Analysis of political and economic conditions that can affect currency prices.
Leverage or Margin: The ratio of the value of a transaction to the required deposit. A common margin for Forex trading is 100:1 - you can trade currency worth 100 times the amount of your deposit.
Limit Order: An order to buy or sell when the price reaches a specified level.
Lot: The size of a Forex transaction. Standard lots are worth about 100,000 US dollars.
Major Currency: The euro, German mark, Swiss franc, British pound, 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.
Offer (Ask): The rate at which a dealer is willing to sell a currency.
Offsetting transaction: A trade with which serves to cancel or offset some or all of the market risk of an open position.
One Cancels the Other (OCO): Two orders placed simultaneously with instructions to cancel the second order on execution of the first.; A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Open Order: An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders.
Open Position: An active trade that has not been closed.; An active trade with corresponding unrealized Profit and Loss, which has not been offset by an equal and opposite deal.
Order: A customer's instructions to buy or sell currencies.
Over the Counter (OTC): Used to describe any transaction that is not conducted over an exchange.
Overnight Position: Trader's long or short position in a currency at the end of a trading day.
Pips or Points: The smallest unit a currency can be traded in.; The smallest unit of price for any foreign currency. Digits added to or subtracted from the fourth decimal place, i.e. 0.0001.
Political Risk: Exposure to changes in governmental policy which will have an adverse effect on an investor's position.
Price: The price at which the underlying currency can be bought or sold.
Price Transparency: The ability of all market participants to "see" or deal at the same price.; Describes quotes to which every market participant has equal access.
Principle Value: The original amount invested by the client.
Profit /Loss or "P/L" or Gain/Loss: The actual "realized" gain or loss resulting fromtrading activities on Closed Positions, plus the theoretical "unrealized" gain or loss on Open Positions that have been Mark-to-Market.
Quote Currency: The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.
Rally: A recovery in price after a period of decline.
Range: The difference between the highest and lowest price of a future recorded during a given trading session.
Rate: Price at which a currency can be purchased or sold against another currency.; The price of one currency in terms of another, typically used for dealing purposes.
Resistance: Price level at which technical analysts note persistent selling of a currency.; A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Revaluation: Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.; An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of "Devaluation".
Risk (Forex Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.; Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Rollover (Roll-Over): The process of extending the settlement value date on an open position forward to the next valid value date.
Settlement: The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.
Short Position: An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.
Spot Market: Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).; The current market price. Settlement of spot transactions usually occurs within two business days.
Spread: This point or pip difference between the bid and ask price of a currency pair.
Square: Purchase and sales are in balance and thus the dealer has no open position.
Squawk Box: A speaker connected to a phone often used in broker trading desks.
Squeeze: Action by a central bank to reduce supply in order to increase the price of money.; The difference between the bid and offer prices.
Stable Market: An active market which can absorb large sale or purchases of currency without major moves.
Standard: A term referring to certain normal amounts and maturities for dealing.
Sterilization: Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.
Sterling (The Pound - GBP): Another term for the British currency, "The Pound".
Stop: An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Stop Loss Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.; Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor's position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
Support Levels: A price at which a currency or the currency market will receive considerable buying pressure.; A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of "resistance".
Swap: A transaction which moves the maturity date of an open position to a future date.; The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.
Swap Price: A price as a differential between two dates of the swap.
Swiss: Market slang for Swiss Franc.
Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis: Analysis of historical market data to predict future movements in the market.
Technical Correction: An adjustment to price not based on market sentiment but technical factors such as volume and charting.
Thin Market: A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.
Thursday/Friday Dollars: A US foreign exchange technicality. If a foreign bank buys dollars on Tuesday for Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available.
Tick: The smallest possible change in a price, either up or down.
Today/Tomorrow: Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.
Tomorrow Next (Tom Next): Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.
Trade Date: The date on which a trade occurs.
Tradeable Amount: Smallest transaction size acceptable.
Transaction: The buying or selling of currencies resulting from the execution of an order.
Transaction Cost: The cost of a Forex transaction - typically the spread between bid and ask prices.
Transaction Date: The date on which a trade occurs.
Turnover: The total volume of all executed transactions in a given time period.
Two Tier Market: A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.
Two-Way Price: A quote in the foreign exchange market that indicates a bid and an offer.
Two-Way Quotation: When a dealer quotes both buying and selling rates for foreign exchange transactions.
Uncovered: Open position.
Under-Valuation: An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.
Unrealized Gain/Loss: The theoretical gain or loss on Open Positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains' Losses become Profits/Losses when position is closed.
Uptick: A new price quote at a price higher than the preceding quote.; A transaction executed at a price greater than the previous transaction.
Uptick Rule: In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime Rate: The interest rate at which US banks will lend to their prime corporate customers.
US Treasury: The United States Department of the Treasury is the government department responsible for issuing all Treasury bonds, notes, and bills.
Value Data: The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Value Date: The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Value Date is also known as "maturity" date.; For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day.
Value Spot: Normally settlement for two working days from today. See value date.
Variation Margin: Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.; Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Volatility (VOL): Statistical measure of the change in price of a financial currency pair over a given time period.; A statistical measure of a market's price movements over time.; A measure of the amount by which an asset price is expected to fluctuate over a given period.
Vostro Account: A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.
Wash Trade: A matched deal which produces neither a gain nor a loss.
Whipsaw: Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Withholding Tax: Income tax withheld from employees' wages and paid directly to the government by the employer.
Working Day: A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centre's are open for business (all relevant currency centers in the case of a cross are open).
Yard: A slang word used in the currency industry meaning "billion".
X: A Nasdaq stock symbol specifying that it is a mutual fund.
Z-Score: A statistical measure that quantifies the distance (measured in standard deviations) a data point is from the mean of a data set. In a more financial sense, Z-score is the output from a credit-strength test that gauges the likelihood of bankruptcy.

Trailing Stops

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A Trailing Stop is an active stop loss that keeps a set distance away from the current market price and updates according to the market. This is best used in a moving market that is going in the direction the trader wants and the trader wishes to guarantee the profits made. This can be best illustrated by an example.

Say a trader enters into a long 200,000 USD/CHF position at 1.2430 and set a stop order at 1.2380 with a trailing stop of 50 pips. The maximum the trader can lose is 50 pips as above, however the stop loss will automatically update itself as the market moves. For instance, if the market moves to 1.2450 then the stop loss would update itself to 1.2400, always keeping 50 pips from the maximum rate; the stop loss will keep updating itself until it triggers or the original trade is closed.

Orders – O.C.O's, I/D's and Trailing Stops

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As mentioned above there are many combinations of orders that are possible to you in the FX market and in the AvaTrader platform. Stop and Limit orders as described above are the basic orders available, all the rest are simply a combination of them or contingent orders.

O.C.O's

O.C.O's is short for "One Cancels the Other". This is used against an open position, and is done in the following way; the trader places a stop order and a limit order against an existing open position, the first one that hits closes the position (a loss if the stop order hits and a profit if the limit order hits) and when the trade is closed the remaining order is cancelled.

This can best be described by an example. Say the trader is short 250,000 AUD/USD at 0.7730 and he wishes to profit $1,250 USD but is only willing to risk losing $750 USD, then he would place the following orders. The trader would set a limit order 50 pips away from the execution price since 50 pips at $25 per pip is $1,250USD; therefore the limit order would be placed at 0.7680 at the same time the trader sets a stop order 30 pips from the executed open price since 30 pips at $25 per pip is $750US; therefore the stop order would be 0.7760. The orders would be placed O.C.O which means that one order can be hit or triggered to close the open position and when that occurs the remaining order is cancelled automatically.

I/D's

I/D's is short for "If Done". This is a spin on the O.C.O, where the O.C.O is placed on an existing trade, the I/D is placed on a trade that has not yet been exercised. This can best be shown by an example. Say the trader wishes to go short on the AUD/USD at 0.7770 in 250,000 AUD but the bid price is currently only 0.7730. Now as above the client wishes to profit $1,250 USD but is only willing to risk losing $750 USD; then he would place the following orders. The trader would set an original limit to sell the 250,000 AUD/USD at 0.7770 and place another limit that becomes active if the first limit hits (hence the term If Done).

The I/D order can also have a stop order attached as above, if the trader would like to set the same conditions as the O.C.O order above i.e. 50 pip profit and 30 pip loss then the full order would read as follows:

Sell 250,000 AUD/USD at 0.7770 I/D 0.7720 Limit and 0.7800 Stop.

Below we can see an actual I/D order with a combination O.C.O on the Orders worksheet where in Order number 205 the trader wishes to buy 20,000 EUR against the USD at 1.2680 if this occurs then there is a stop order against it at 1.2670 (a maximum loss of 10 pips) and an O.C.O limit of 1.2790 for a profit of 110 pips.

Orders - Stops and Limits

2007-11-09T01:28:00.001-08:00

As in other financial markets, one can enter the foreign exchange markets at the market or deal rate (this is often known as a Market Order) or at a future rate this is known as a Stop (often known as a Stop Loss) or Limit Order. However as opposed to other financial markets, placing orders in the FX market is much easier, gives far better results and has many more opportunities and variations on the order placed.

When you wish to enter into a trade at current market conditions one simply executes a buy or a sell market order. Often a trader may wish to either limit the loss of the position that he has open (in which case he is able to set a stop order) or he may wish to enter a trade but at a rate that is more attractive then the current market (in which case he can place a limit order).

As discussed above, a stop order can be placed on an existing open position to limit the possible loss on the open trade. For instance say if a trader is long 100,000 EUR/USD at 1.2820, he is obviously expecting that the EUR/USD rate will rise where he will be able to get out at a profit. However the trader may wish to limit the loss that he is willing to take on the trade. If the maximum loss the trader is willing to take is $1,000 and he knows that every pip is worth $10 in this case, calculated by 100,000 EUR*0.0001= $10, then he will want to set his stop order 100 pips from his execution price in this case 1.2720. At 1.2720 the client will lose $1,000 if it is not closed earlier and the AVA platform will execute the order if and when the Bid (since in this case the stop order is a sell order) reaches the stop rate of 1.2720.

Currency Pairs

2007-11-09T01:27:00.002-08:00

Currency Pairs: Each currency is recognized by a three letter code. For example EUR (is the EURO and refers to the European currency), USD (is the United States Dollar). The worlds leading currencies (often referred to as the majors) are the EUR, USD, JPY (Japanese Yen), GBP (the British Pound or Sterling), CHF (the Swiss franc), AUD (the Australian Dollar) and the CAD (the Canadian Dollar).

Currencies are traded in pairs and are displayed as such. There is always the three letter currency code a slash and another three letter currency code. The first currency displayed refers to the "base", "leading" or "primary currency"; the second currency refers to the "secondary currency".

For instance when looking at the EUR/USD the EUR is the leading currency and the USD is the secondary currency. The "currency pair" or "currency cross" is then followed by a number; this is typically a five digit number with a decimal point after the first, for instance 1.2660.

The number represents the ratio of one currency against the other, and can be read as "the amount of the secondary currency needed in order to have one unit of the major currency". In the example just given, EUR/USD 1.2660, one would require 1 Dollar and 26.6 cents to exchange for 1 Euro.

Bid and Ask or Buy and Sell

There are always two numbers given after the currency pair, the first always has a smaller numerical value then the second. This can once again be shown using the same example (EUR/USD 1.2660 1.2663). The first number is known as the "Bid" or "Sell" and the second number is known as the "Ask", the "Offer" or "Buy".

The smaller number or the Bid (Sell) (1.2660) represents that price where one can sell the major currency and buy the secondary currency; sell the EUR and buy the USD. The second price the Ask (BUY) (1.2663) represents the price where one can buy the major currency and sell the secondary; buy the EUR and sell the USD.

In the trading window below the trader is able to buy the EUR against the USD at 1.2847 or sell the EUR and buy the USD at 1.2844. The trader is also able to buy the USD against the JPY at 117.60 and sell the USD and buy the JPY at 117.57.

Calculating your P&L

As discussed above the foreign exchange rate represents the value of one unit in the major currency in the terms of a secondary currency. Since when opening a trade you exercise the trade in a set amount of the major currency and when closing the trade you do so in the same amount, the profit or loss generated by the round trip (open and close) trade will be in the secondary currency.

For example if a trader sells 100,000 EUR/USD at 1.2820 and then buys 100,000 EUR/USD at 1.2760, his net position in EUR is zero (100,000-100,000) however his USD is not. The USD position is calculated as follows 100,000*1.2820= $128,200 long and -100,000*1.2760= -$127,600 short. The profit or loss is always in the second currency. For simplicity's sake the P&L statements often show the P&L in USD terms. In this case the profit on the trade is $600.

As can be seen from the Open position window below in Ticket number 411 the trader has Bought 20,000 EUR against the USD at 1.2806 the current rate to close is 1.2844, therefore the trader has a current profit of 38 pips and 20000*0.0038= $76.

A Pip

We can see that in this case the trader made 60 points or pips. This is calculated as follows 1.2820-1.2760=0.0060; therefore 1 pip=0.0001 and on a 100,000 EUR/USD position 1 pip is worth $10. In a USD/JPY position where the market rate is 118.30 one pip is 0.01. We can therefore see that a pip is equal to the last decimal point shown on a rate. The value of 1 pip in USD/JPY for a 100,000 position can be calculated as follows: 100,000*0.01= 1,000 JPY, in USD terms this is equal to 1,000/118.30= $8.45 (rounded to the nearest cent).

Who Trades in the FX Market?

2007-11-09T01:27:00.001-08:00

Foreign exchange traders can be separated into two groups, hedgers and speculators.

Hedgers: Governments, companies (exporters and importers) and some investors have foreign exchange exposure. Adverse movements between their local or domestic currency and the foreign currency of the group they are either doing business with (for the exchange of goods and services) or investing in will affect their bottom line. This is the core of all foreign exchange trading; however it only makes up approximately 5% of the actual market.

Speculators: These groups which range from banks, funds, corporations and individuals – create artificial rate exposure in order to profit from the variations or movements in the price.

What is Forex?

2007-11-09T01:26:00.002-08:00

Whether or not you are aware of it, you already play a role in currency trading. The simple fact that you have money in your pocket makes you an investor in a nation's currency. By holding US Dollars, for example, you have elected not to hold the currencies of other nations. When a currency is traded, the transaction is carried out on the Foreign Exchange market (also referred to as the Forex or FX market). The Forex market is the largest financial market in the world, with over $1.5 trillion changing hands every day!

Unlike other financial markets that operate at a centralized location (i.e., the stock exchange), the worldwide Forex market does not have a central location. It is a global electronic network of banks, financial institutions and individual Forex traders, all involved in the buying and selling of national currencies. A major feature of the Forex market is that it operates 24 hours a day, corresponding to the opening and closing of financial centers in countries all across the world. At any time, in any location, there are buyers and sellers, making the Forex market the most liquid market in the world.

Traditionally, access to the Forex market has been made available only to banks and other large financial institutions. However, with advances in technology over the years along with the industry's high leverage options, the Forex market is now available to everybody, from banks to money managers to individual Forex traders.

This introduction to the foreign exchange market continues with a quick but detailed explanation of how forex treading works. The other sections that will be covered in this introduction are presented below if you want to skip ahead.

Basic Concepts

The term Foreign Exchange means the transferring of one currency into another simultaneously. Since currencies are traded in pairs, to profit from an exchange rate move you need to buy the currency that you expect will strengthen and sell the other. For example if you believed that the Euro (EUR) was going to appreciate against the dollar (USD) you would buy the EUR/USD; or in other words buy the EUR and sell the USD. Alternatively, if you believed that the EUR was going to depreciate against the USD then you would sell the EUR/USD; or sell the EUR and buy the USD.

As can be seen there is no need to wait for a bullish market to profit, for at any given moment, one currency will be strengthening against another. The FX market is therefore constantly producing opportunities to invest.

welcome to FX-teacher

2007-11-09T01:26:00.001-08:00

if you don't know what is forex

if u are beginner to forex world

if u want to know more about forex

if u want to get u firist step in forex

then u are in the right place simply read this page it might vhange tour life

why Fx-teacher

You will get some information about forex so you can get started and u will get all information resources.

This site gives u the following information :

what is forex ?

how to get started in forex world ?

which companies is the best ?

i will illustrate some treading programs

i will teach u some strategies

how to be professional in forex ?

finally i will give u some resources to improve u knowledge

Now all u have to do is to read the following step by step :

Chapter One : Your First Step

First Section : What Is Forex

Timed Exits

2007-02-05T22:58:00.002-08:00

In an effort to keep tightening up my trades to cut short losses and lock in profits quickly, I've been playing around with some timed exit strategies for the past week or so (in case you were wondering why it's been so quiet around here).

In my regular daily trading I already have a very basic timed exit in place - after 24 hours in a trade, I'll either close it out or roll it over to the next day. But this is more a side-effect of the price data I used to design my trading system - I get the data in 24 hour units, so by default that's my minimum trading period.

However, I've been trying more aggressive trade-timing strategies via FX Engines, and so far have managed to crank up the backtested performance of my best GBP/USD engine by almost 1000 pips. I did this by using the time-out feature in their engine design tool, specifying that the engine automatically close out a trade after a certain number of days. The underlying idea is that a trade is likely to be profitable within a certain time window, and after that the chances of success drop off dramatically. This was already quite evident in the backtested results before I added a timed exit: successful trades averaged about 2.5 days in length, while unsuccessful ones tended to drag out for close to a week. So I figured, if the longest trades are most likely to fail, why not start cutting them short and see what happens?

After testing out that theory with a variety of timed exits, it turned out that there was indeed an optimal time period for my GBP/USD engine, after which the most profitable strategy was to just close out the trade.

This same principle might apply to your own trading. To find out, you could try timing every trade and then see how long a successful trade lasts, on average, versus how long an unsuccessful one takes. You could also monitor trades that closed quickly to see if they might have been profitable if they'd continued for a longer period.

Based on the data you gather, you may begin to notice patterns: perhaps you let your trades run on too long, hoping they'll turn around, when you should really be closing them quickly according to a strict timetable. Or on the other hand, maybe you're closing a lot of trades too soon because of tight stop-losses, or impatiently taking small profits instead of waiting for big ones. Whatever the answer, you'll be on your way to discovering the most profitable timeframe for your style of trading. Hope you find it!

Whipsaws and Fake-outs

2007-02-05T22:58:00.001-08:00

Some of the most frustrating and costly market phenomena a trader is likely to see are whipsaws and fake-outs. Actually these are pretty much the same thing, with the difference that calling it a fake-out attributes a negative intention to the market, essentially accusing it of messing with your head. And a whipsaw or fake-out can indeed have a serious impact on your confidence in yourself and your trading system. If you spend your days looking for price break-outs and trends and instead you get a string of these nasty up-and-down spikes, you may wonder why you got into trading in the first place. The past couple weeks have been a vivid case-study in whipsaws and fake-outs, which is why they seemed like a good topic for today.

So what is a whipsaw/fake-out, exactly? It's a point in the market where the price moves dramatically up or down, and in the early stages may look identical to the start of a new trend. Then, instead of continuing the trend or leveling off, it'll suddenly dive back down (or up, in the case of a downward spike) to a price close to where it started. If you've watched forex charts for any length of time, they've almost certainly crossed your path. But if you're new to the currency markets, or aren't sure exactly how to spot one, here are a couple from the past week's EUR/USD market.

What causes them? Well, almost by definition they are points when there is insufficient momentum in a particular direction to sustain a trend. Because market sentiment is ambivalent, divided fairly evenly between longs and shorts, the price is able to continue its break-out and falls back to where it started. If you've placed your limit/take-profit orders at an optimistic price point in anticipation of a strong trend, you're likely to find the whipsaw comes nowhere near them and lands you back within a few pips of your entry price, and a few pips poorer thanks to spread costs.

The most dangerous whipsaws include price spikes in both directions, which after convincing you to place a trade in the direction of the first spike, then turn around and take out your stop-losses with the second spike.

If we broaden the definition a little bit, stop-hunting could be considered a type of whipsaw that's staged by a broker within their own trading platform with the specific goal of hitting their clients' stop-loss orders. If you see a whipsaw on your broker's charts but not on anyone else's, chances are you got stop-hunted.

That's not to say you can't make money on a garden-variety whipsaw or fake-out; I have no idea if it's possible during stop-hunting. If you're good at identifying markets in which they're likely to emerge (like the current one), you can adjust your trading strategy accordingly by placing your limit orders at levels closer to the entry price than you would in a trending market. You might also try combining these more modest limit orders with a tight trailing stop to help prevent all your profits evaporating when the price suddenly changes direction.

Or, if you're like me and find whipsaws and fake-outs too nervewracking, unpredictable, and costly to play with, you can work on filtering them out of your trading by avoiding market conditions when they occur. In my experience these tend to be in range-bound markets with low volatility and little notable economic news to fuel a true break-out. I'm sure someone out there is getting rich off these things, but it's definitely not me!

Fed News: Bernanke Bothered by Budget - Especially Medicare & Social Security

2007-02-05T22:57:00.003-08:00

Last week Fed chairman Ben Bernanke testified to Congress about the state of the US economy, and chose to focus on the potentially dramatic disruptions to America's finances that could result from the gigantic impending deficits in the Medicare and Social Security budgets. Here are the highlights (or lowlights, if you prefer) from his testimony:

"Official projections suggest that the unified budget deficit may stabilize or moderate further over the next few years. Unfortunately, we are experiencing what seems likely to be the calm before the storm. In particular, spending on entitlement programs will begin to climb quickly during the next decade."

"...the outcomes that appear most likely, in the absence of policy changes, involve rising budget deficits and increases in the amount of federal debt outstanding to unprecedented levels."

"Under these assumptions, the CBO [Congressional Budget Office] calculates that, by 2030, the federal budget deficit will approach 9 percent of GDP--more than four times greater as a share of GDP than the deficit in fiscal year 2006."

"A particularly worrisome aspect of this projection and similar ones is the implied evolution of the national debt and the associated interest payments to government bondholders. Minor details aside, the federal debt held by the public increases each year by the amount of that year's unified deficit. Consequently, scenarios that project large deficits also project rapid growth in the outstanding government debt. The higher levels of debt in turn imply increased expenditures on interest payments to bondholders, which exacerbate the deficit problem still further. Thus, a vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits."

"To some extent, strong economic growth can help to mitigate budgetary pressures, and all else being equal, fiscal policies that are supportive of growth would be beneficial. Unfortunately, economic growth alone is unlikely to solve the nation's impending fiscal problems. Economic growth leads to higher wages and profits and thus increases tax receipts, but higher wages also imply increased Social Security benefits, as those benefits are tied to wages. Higher incomes also tend to increase the demand for medical services so that, indirectly, higher incomes may also increase federal health expenditures."

"To the extent that federal budgetary policies inhibit capital formation and increase our net liabilities to foreigners, future generations of Americans will bear a growing burden of the debt and experience slower growth in per-capita incomes than would otherwise have been the case."

"Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run. Thus, members of the Congress who put special emphasis on keeping tax rates low must accept that low tax rates can be sustained only if outlays, including those on entitlements, are kept low as well. Likewise, members who favor a more expansive role of the government, including relatively more-generous benefits payments, must recognize the burden imposed by the additional taxes needed to pay for the higher spending, a burden that includes not only the resources transferred from the private sector but also any adverse economic incentives associated with higher tax rates."

"To summarize, because of demographic changes and rising medical costs, federal expenditures for entitlement programs are projected to rise sharply over the next few decades. Dealing with the resulting fiscal strains will pose difficult choices for the Congress, the Administration, and the American people. However, if early and meaningful action is not taken, the U.S. economy could be seriously weakened, with future generations bearing much of the cost. The decisions the Congress will face will not be easy or simple, but the benefits of placing the budget on a path that is both sustainable and meets the nation's long-run needs would be substantial."

Hmmm...do you see Congress and the Administration taking up this difficult task with discipline and expediency? If not, you're probably short the dollar right now.

The Kill Switch is Working

2007-02-05T22:57:00.001-08:00

I haven't been doing a lot of trading the last week or so, which given current market conditions turned out to be a very good thing. I recently added a new set of filters to my trading signals and they create very strict conditions for when I can enter certain trades - and for the past couple weeks they've been switched on most of the time. I just went back and looked at how my system would've performed without this new "kill switch" in effect and it wasn't pretty: in total it's saved me from over 150 pips in losses in a little more than a week.

How does it work? Well, part of the equation is the Bollinger Band filtering I wrote about recently. The rest of the equation involves some internal feedback that would only really make sense to me if I described it so I'll spare you the details.

Another question well worth asking is why my system would have performed so badly in the current conditions. If you've been watching the EUR/USD for the past several days you'll see why immediately: lots of very range-bound activity, with false breakouts and whipsaws that all seem to settle back into the same general price zone day after day. This is the type of market that would absolutely destroy my trading account if I let it - but with the new trade filters in place, that's less likely to happen. (I hope.)

FX Engines Account Types

2007-02-05T22:56:00.004-08:00

As I've mentioned before I'm an FX Engines user as well as an affiliate of theirs, and every so often I've written about a particular trading engine that works well for me, or a new trading feature they've rolled out. But in the past few weeks I've been getting feedback from readers of this blog about certain tools and features I recommend that don't seem to be available in their accounts.

For example, some account types don't allow you to create your own engines or trading signals, while mine does. On the other hand, while I can invent and test my own engines, I don't have access to their pre-built engines for trading the news. Since I wasn't sure exactly why this was, I checked in about it with FX Engines and got some helpful clarification from their representative Scott. Here's what he told me:

There are three account types available:

FX Trader: These are accounts designed to trade the news. This account has stock engines and signals, but no ability to create engines or signals.

FX Trader Plus: This is just like FX Trader but adds the ability to create exit signals and use them in trades.

FX Builder: This is the system building account option. You can create entry signals, exit signals, and engines. You can demo or live trade engines and back test them over 5 years of tic data. (This is the account I have.)

If you currently have an FX Trader account and want to try building your own engines, you can contact the support staff (like Scott) through the FX Engines interface and they'll be happy to switch it over for you. (And switch it back if you decide you liked your other account better.)

Scott also mentioned they'll be rolling out some new engine building features soon, which I'll be sure to post about when I have more details.

The Single Greatest Money Management and Risk Reduction Tool Ever Invented

2007-02-05T22:56:00.003-08:00

It's taken hundreds of hours of careful analysis, hard-won insights and intense, often painful first-hand experience to discover the single most important key to successful risk management and capital preservation in a trader's career. And unlike so many tools available out there, this one doesn't involve complicated algorithms, clever hedging, or stop-losses that don't always stop your losses. In fact, this Holy Grail of risk management can be summed up in just two words:

Don't trade.

By which I don't mean never trade - I just mean don't trade unless you have absolute confidence in your trade and are willing to let it run its course to success or failure.

Here are some examples of times you might want to use this cutting-edge trading tool:

You have no idea what the market is doing
You have no idea what your trading system is doing
You're faced with conflicting trading signals
You're faced with zero trading signals
You disagree with your trading signals
You're panicking in the midst of a nasty drawdown and liable to do something desperate
You've just opened a trading account, added a couple moving averages to your charts (using the default settings, of course) and are planning to make as many trades as possible today, sleep or no sleep
The phrase "I'll trade my way out of this" keeps crossing your mind

I'm not saying it'll be easy. When faced by the most difficult market conditions, sometimes the most difficult thing to do is sit on your hands, watching patiently from the sidelines.

Best of all, for a short time only, I'm offering this remarkable trading tool* to you free of charge. Now the only question is, do you have the courage not to trade?

*May not in fact be the greatest risk management tool ever invented, as if anyone could even know that in the first place. But it's a damn good one.

The Trillion Dollar Bet - Lessons from Long Term Capital Management

2007-02-05T22:56:00.001-08:00

A while back the PBS series "Nova" did an excellent show called "The Trillion Dollar Bet" on the rise and fall of Long-Term Capital Management (LTCM), a hedge fund founded by Nobel Laureates Myron Scholes and Robert Merton. LTCM placed massive leveraged trades in derivatives (hence the show's title) and then collapsed in truly spectacular fashion in 1998 following economic turmoil in Asia and Russia, and for a brief period threatened to take much of Wall Street with it. You can read the entire transcript online, and it's well worth a look - a fascinating window into how things can go wrong for even the most rigorously calculated and tested financial models.

At the heart of LTCM's implosion, like that of Amaranth Capital, were common problems that every trader should be aware of: the potential for unexpected drawdowns in turbulent market conditions; the fallibility of trading rules and signals that depend on past market behavior and unquestioned assumptions about future behavior; and taking on too much risk through extreme leveraging.

A number of scholars, experienced traders and fund managers appear in the show, and their observations are some of the most valuable insights I took away from it. Here are a few highlights:

Leo Melamed: "You can't ignore an error. Once you realize that you've made an error, the best thing is to get out of that error and start again fresh, and that's what a good trader does."

"That's an old market rule: the market will test you and do what you don't expect it to do."

Stan Jonas: "It was as though the world was behaving exactly the way it had been writ on the blackboard...And then slowly and totally unexpectedly, a change in the market dynamics began to become apparent."

"When do you admit that you're wrong, start all over again, or when do you hang on and assume that the markets will turn around in your way? That's the biggest decision we all have to make."

Roger Lowenstein: "Although their models told them that they shouldn't expect to lose more than 50 million or so on any given day, they began to lose 100 million and more, day after day after day till finally there was one day, four days after Russia defaulted, when they dropped half a billion dollars, 500 million in a single day."

Alan Greenspan: "How much dependence should be placed on financial modeling which for all its sophistication can get too far ahead of human judgment?"

Peter Fisher: "If a random bolt of lightning hits you when you're standing in the middle of the field, that feels like a random event. But if your business is to stand in random fields during lightning storms, then you should anticipate, perhaps a little more robustly, the risks you're taking on."

Bollinger Band Trade Filtering

2007-02-05T22:55:00.001-08:00

In the spirit of my New Year's resolution to put my trading system on a diet, I've been exploring ways to more aggressively filter out unnecessary trades, boost my trading odds, lower spread costs, and generally fine-tune my system to optimize its performance.

One filtering method I've found that shows a lot of promise involves Bollinger Bands, but not in the way they're usually used. Until now I used Bollingers to identify points where the price was likely to begin a reversal from a (relatively) overbought or oversold position (in forex, all things are relative). But for my current trade filtering project, I'm using them to identify periods of low volatility, when the EUR/USD pair is trading within a narrower range.

The measurement I'm using to determine these periods is the distance between the upper and lower Bollinger Band. When the bands are further apart, the market tends to be in a more volatile, wider-ranging phase. My forex strategy works best in these types of periods (as do most trading systems, I suspect). When the bands are close together, volatility is lower and my system tends to accumulate losses and trading costs.

So what I've done is have my trades switched off when the Bollinger Bands are too close together; the optimal distance between them is something I've determined through a lot of backtesting. What I've found is that my trading odds and performance improve significantly, with fewer big drawdowns and pointless trades when the markets are in the doldrums. Of course, because Bollingers are a lagging indicator, I also miss some big breakouts when the market shifts back from low to high volatility. But I'm willing to live with that - consistent trading performance is far preferable in the long run, and there's nothing that can kills your morale more quickly than waiting out a series of bad trades when the market's drifting in no particular direction. The more of those ugly periods I can avoid, the better!

Interactive Brokers • The Choice of Professional Forex Traders

2007-02-05T22:40:00.001-08:00

Interactive Brokers is the choice of professional forex traders because of our tight interbank spreads, advanced FXTrader order entry tool, and tight integration with other asset classes such as forex futures and options. In addition our IB Universal Account^TM allows customers to trade assets in multiple currencies and convert the proceeds at professional rates.

Interactive Brokers provides two vehicles for the exchange of currencies: IDEALPRO which allows a customer to trade Forex and IDEAL which allows a customer to convert their balances from one currency to another. Whatever currency balances you may hold, we always pay higher interest on credit balances, and charge lower interest rates on debit balances.

IDEALPRO provides professional Interbank spreads which are generally 0.5-3 PIPs (smallest price increment) wide, but the minimum order size is $25,000 or USD equivalent. Multiple large forex dealers provide direct price feeds with IDEALPRO displaying the composite of the best available price. With our universal account, it is easy to trade IDEALPRO cash along with currency futures from a single screen. To promote price transparency, as is the custom with all our products, we have separated our commissions from the quoted price. Please keep in mind that although many brokers don't explicitly charge forex commissions, they do build their commissions into the price spread.

IDEAL (for currency conversions) provides bid and ask quotes at spreads that are better than what you can obtain at your bank or through a credit card transaction. There is no minimum order size for an IDEAL order.

All forex trades are entered through the Trader Workstation like any other trade. The currency you wish to buy or sell is the transaction currency and is entered like any other securities or futures market data line into the Trader Workstation. You then choose Forex as the assets type and select a settlement or payment currency. Currency exchanges can be entered in one of two ways as buying one currency is the same as selling the other currency. Buying a transaction currency of Euros with a settlement currency of USD is the same as selling a transaction currency of USD with a settlement currency of Euros.

Forex Trading Example

Example 1

If you want to buy/sell a specific amount of GBP, first enter the symbol GBP as the transaction currency. Then choose USD as the settlement currency from the drop down menu. You will then receive the quote USD/GBP, e.g. Bid: 1.5300 Ask: 1.5310 This means that GBP 1 = US$1.53XX

If you want to buy GBP 10,000, click on the ask and enter 10,000 as the quantity of GBP that you wish to buy. You will pay $1.5300 for each GBP. Thus, you will pay $15,310.

If you want to sell GBP 10,000, click on the bid and enter 10,000 as the quantity of GBP that you wish to sell. You will receive $1.5300 for each GBP. Thus, you will receive $15,300.

Example 2

If you want to buy/sell a specific amount of USD, first enter the symbol USD as the transaction currency. Then choose GBP as the settlement currency from the drop down menu. You will then receive the quote GBP/USD, e.g. Bid: 0.6530 Ask: 0.6536 This means that USD 1 = GBP 0.653XX

If you want to buy USD 10,000, click on the ask and enter 10,000 as the quantity of USD that you wish to buy. You will pay GBP0.6536 for each USD. Thus, you will pay GBP 6,536.

If you want to sell USD 10,000, click on the bid and enter 10,000 as the quantity of USD that you wish to sell. You will receive GBP0.6530 for each USD. Thus, you will receive GBP 6,530.

What is Foreign Exchange?

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The Foreign Exchange market, also referred to as the "Forex" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.2 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen.

Where is the central location of the FX Market?

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FX Trading is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.

Who are the participants in the FX Market?

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The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.

When is the FX market open for trading?

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A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

What are the most commonly traded currencies in the FX markets?

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The most often traded or 'liquid' currencies are those of countries with stable governments, respected central banks, and low inflation. Today, over 85% of all daily transactions involve trading of the major currencies, which include the US Dollar (USD) , Japanese Yen (JPY) , Euro (EUR) , British Pound (GBP), Swiss Franc (CHF) , Canadian Dollar (CAD) and the Australian Dollar (AUD).

Is Forex trading expensive?

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No. FOREX.com requires a minimum deposit of $250. FOREX.com allows customers to execute margin trades at up to 200:1 leverage. This means that investors can execute trades of $10,000 with an initial margin requirement of $50. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the FX markets would be 20:1 but ultimately depends on the investor's appetite for risk.

What is Margin?

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Margin is essentially collateral for a position. It allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade. In the equity markets, the usual margin allowed is 50% which means an investor has double the buying power. In the forex market leverage ranges from 1% to 2%, giving investors the high leverage needed to trade actively.

What does it mean have a 'long' or 'short' position?

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In trading parlance, a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. In this scenario, the investor benefits from a rising market. A short position is one in which the trader sells a currency in anticipation that it will depreciate. In this scenario, the investor benefits from a declining market. However, it is important to remember that every FX position requires an investor to go long in one currency and short the other.

What about terms like "bid/ask", "spread", and "rollover"?

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FOREX.com has an extensive Glossary that provides detailed definitions of all Forex related terms

What is the difference between an "intraday" and "overnight position"?

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Intraday positions are all positions opened anytime during the 24 hour period AFTER the close of FOREX.com's normal trading hours at 4:30pm ET. Overnight positions are positions that are still on at the end of normal trading hours (4:30pm ET), which are automatically rolled by FOREX.com at competitive rates (based on the currencies interest rate differentials) to the next day's price.

How are currency prices determined?

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Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

How do I manage risk?

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The most common risk management tools in FX trading are the limit order and the stop loss order. A limit order places restriction on the maximum price to be paid or the minimum price to be received. A stop loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against an investor's position. The liquidity of the Forex market ensures that limit order and stop loss orders can be easily executed.

What kind of trading strategy should I use?

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Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor. The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectation of an event that drives the market rather than the event itself.

How often are trades made?

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Market conditions dictate trading activity on any given day. As a reference, the average small to medium trader might trade as often as 10 times a day. Most importantly, by not charging commission, FOREX.com customers can take positions as often as necessary without worrying about excessive transaction costs.

How long are positions maintained?

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Approximately 80% of all forex trades last seven days or less, while more than 40% last fewer than two days. As a general rule, a position is kept open until one of the following occurs: 1) realization of sufficient profits from a position; 2) the specified stop-loss is triggered; 3) another position that has a better potential appears and you need these funds.