Forex, is an exchange that allows investors to trade national currencies through the foreign exchange. This is the worlds largest market for currency, based on the Dollar, anywhere between 1 - 2 TRILLION dollars are traded upon this market on a daily basis.
This type of trade is typically performed online or on the telephone. By taking advantage of the world wide web, you are enabling yourself to make your investments in a reliable, easy, safe and fast way. Some investors are able to enjoy returns of around thirty percent on a monthly basis, this takes a great deal of experience to gain this type of enormous return on your investment.
The Forex market does not have one specific place of trade like many of the other markets do, for this reason alone is why most of the trade is performed by internet, fax, or telephone. In the beginning for currency trade was not all that popular, they were bringing in only about seventy billion dollars on a daily basis, with the invention of Forex, that number grew massively.Of course, the currencies do not only deal with the American dollar, these currencies can be translated to over 5,000 currency institutions world wide, which include, commercial companies, large brokers, international banks, and government banks.
Many major countries have forex trading centers such as, Frankfurt, London, New York, Paris, Hong Kong, Tokyo, and Bombay to name a few. When trading online there are many benefits such as, the ability to trade or track your investments at anytime day or night, from anywhere within the world that offers an internet connection. Another added benefit, is that some online exchange sites allow you to start with a small investment, known as a mini account, some with as little as two-hundred dollars. With online trading, the trade is instant.
When you trade offline you have to deal with paperwork, with online trading there is no paper work involved.The world of the internet, has allow us to do many things with just a click of a button, where else can you bank, trade, talk to your family and friends, research your investments and earn money all at the same time? Make the internet work in your best interest by implementing online trading into your portfolio.
There's a whole world of money waiting for you to earn with your online investments, and it's all available at the click of your mouse button.
Monday, September 7, 2009
Forex Trading
Foreign Exchange or FOREX is the financial market where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.7 trillion changing hands daily; more than three times the aggregate amount of the US equity and bond and commodity markets combined. Unlike the other financial markets mentioned, the Forex market has no physical location and no central exchange; this makes the Forex market an OTC or over-the counter market.
It operates through a global network of banks, corporations and market makers trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one time zone to another in all the major financial centres of the world. Traditionally, private traders only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes.
Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Over resent years the way the interbank currency market operates has changed dramatically. The Forex market has become accessible to private traders. The market makers have achieved this through a combination of low margin and high leverage and providing the professional tools and services needed to trade effectively in an independent atmosphere. For the active trader, foreign exchange should be no different than other investments or financial instruments such as equities, commodities, bonds, notes, bills, etc.
In fact because of the globalisation of the economic world and the consolidation of whole economic regions such as the European Union, having currencies as part of a diversified portfolio simply makes sound portfolio and investment sense. Just like these other investment alternatives mentioned, foreign exchange offers private traders and investors a market where they can buy and sell an investment product.
In this case it is a specific Currency Pairs. The currency pair may be the Euro versus the US Dollar, the US Dollar versus the Japanese Yen, the British Pound versus the US Dollar, the Euro versus British Pound, or a number of other currency combinations. The different currency combinations represent nothing more than the value of one currency versus the value of another. That relationship is represented by a single price. In foreign exchange, the price of a currency pair is the markets expectations at that time of the value of that currency vis-a-vis another currency given the current and expected economic and political situation of the two countries.
In equity terms, it would be the price of the stock. If for example, a country's inflation and interest rates are low and stable. If it's economy is strong and politics are stable and the expectations are for more of the same, then one can expect "in general" for that country's currency to remain strong versus a less fundamentally favourable currency. Keeping in mind that all comparisons are relative to that of other economic regions. Contrasting that with equity, if the domestic and global economy is strong and inflation is not running away. If competition is not taking away market share or eating into margins as well product demand and growth are strong.
If the companies internal "politics" are such that the workers are happy and productive, and expectations are for more of the same, then you can expect that companies stock to remain strong versus a company with less favourable fundamentals within the same sector. Like equities there are other factors that determine the short-term value of a product including technical analysis, short-term supply and demand, seasonal capital flow patterns, the current price of the instrument, etc.
By analysing the pricing dynamics and combining that with sound money management discipline like stop loss orders, the trader can insure greater success in his foreign exchange trading.
It operates through a global network of banks, corporations and market makers trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one time zone to another in all the major financial centres of the world. Traditionally, private traders only means of gaining access to the foreign exchange market was through banks that transacted large amounts of currencies for commercial and investment purposes.
Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. Over resent years the way the interbank currency market operates has changed dramatically. The Forex market has become accessible to private traders. The market makers have achieved this through a combination of low margin and high leverage and providing the professional tools and services needed to trade effectively in an independent atmosphere. For the active trader, foreign exchange should be no different than other investments or financial instruments such as equities, commodities, bonds, notes, bills, etc.
In fact because of the globalisation of the economic world and the consolidation of whole economic regions such as the European Union, having currencies as part of a diversified portfolio simply makes sound portfolio and investment sense. Just like these other investment alternatives mentioned, foreign exchange offers private traders and investors a market where they can buy and sell an investment product.
In this case it is a specific Currency Pairs. The currency pair may be the Euro versus the US Dollar, the US Dollar versus the Japanese Yen, the British Pound versus the US Dollar, the Euro versus British Pound, or a number of other currency combinations. The different currency combinations represent nothing more than the value of one currency versus the value of another. That relationship is represented by a single price. In foreign exchange, the price of a currency pair is the markets expectations at that time of the value of that currency vis-a-vis another currency given the current and expected economic and political situation of the two countries.
In equity terms, it would be the price of the stock. If for example, a country's inflation and interest rates are low and stable. If it's economy is strong and politics are stable and the expectations are for more of the same, then one can expect "in general" for that country's currency to remain strong versus a less fundamentally favourable currency. Keeping in mind that all comparisons are relative to that of other economic regions. Contrasting that with equity, if the domestic and global economy is strong and inflation is not running away. If competition is not taking away market share or eating into margins as well product demand and growth are strong.
If the companies internal "politics" are such that the workers are happy and productive, and expectations are for more of the same, then you can expect that companies stock to remain strong versus a company with less favourable fundamentals within the same sector. Like equities there are other factors that determine the short-term value of a product including technical analysis, short-term supply and demand, seasonal capital flow patterns, the current price of the instrument, etc.
By analysing the pricing dynamics and combining that with sound money management discipline like stop loss orders, the trader can insure greater success in his foreign exchange trading.
Why Trade the FOREX?
My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote "If It Doesn't Go Up, Don't Buy It". He said "Everyone who invests is a trader, only the time period is different." It is a lesson that I took seriously after taking a beating in the stock market in 2000.
So now, let's compare features of currency trading to those of stock and commodity trading. LiquidityThe FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.Trading TimesThe FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade.
Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.LeverageDepending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier.
Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.Trading costsTransaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.Minimum investmentYou can open a FOREX trading account for as little as $300.00. It took $5,000 for me to open my futures trading account. Focus85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks.
There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely. Trade executionIn the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky
So now, let's compare features of currency trading to those of stock and commodity trading. LiquidityThe FOREX market is the most liquid financial market in the world around 1.9 trillion dollars traded everyday. The commodities market trades around 440 billion dollars a day, and the US stock market trades around 200 billion dollars a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.Trading TimesThe FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade.
Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.LeverageDepending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier.
Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.Trading costsTransaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.Minimum investmentYou can open a FOREX trading account for as little as $300.00. It took $5,000 for me to open my futures trading account. Focus85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks.
There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely. Trade executionIn the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky
Forex Trading - Advantages Over Traditional Investment Methods
Most people are looking for the perfect way to invest their money. No one will argue against the fact that your money is only going to grow by any reasonable amount if you have invested in some type of market. The first piece of advice usually given is that they should take advantage of whatever is offered by their employer's 401k plan, if that is an option for them.
This is good, sound and advice and should be followed if at all possible. However, many people either don't have the option of investing in a 401k, or they have maxed out their 401k contributions and are looking for a good place to invest their additional funds for maximum growth. For obvious reasons (ie - terrible perfomance), traditional savings accounts and CDs are out of the question. These people are usually advised that investing in mutual funds is the only practical, "safe" alternative to a 401k. Many people hold the belief that a mutual fund is the only "safe" way for an individual to invest beyond the typical savings accounts and CD's offered by their local bank.
This belief is no doubt due to the success enjoyed by mutual funds throughout the 1990's, when all of the stock market benefited from the huge bull market that was driven by the tech sector. Ironically, though, just as mutual funds have soared in popularity, they have also peaked in performance, and over the last few years most have seen an astonishing lack of overall success. So the intrepid investor goes off in search of the perfect mutual fund, only to find that there is a bewildering array of funds to choose from, and an overwhelming number of factors to consider when making that decision.
Some people will forge ahead and make a decision on a mutual fund, while others will decide to go to the next level and start looking for investments that give them more control, and hopefully greater returns.The next level for most investors is usually the stock market, where they hope to achieve phenomenal returns. But most people are not prepared for the reality of investing in stocks, which presents them with an array of choices that is several orders of magnitude greater than that offered by mutual funds. The natural question is: Which is a good stock to invest in? How do you select the one or two rising stars out of all the thousands of stocks there are to choose from? So just like in the search for a mutual fund, the investor is stuck with the problem of how to pick which investment is the best place for his funds. At this point many people give up, which is a shame, because there are some other options available to them besides mutual funds and stocks.
The most common option considered besides stocks would be commodities. The lure of commodities is that they are able provide tremendous returns for your investment dollars due to leveraging. Leveraging simply means that for every dollar invested you are able to control more than a dollar's worth of commodity. This can lead to tremendous returns, but unfortunately commodities come with a huge downside. One of the disadvantages of commodities are broker's fees, which can be quite high per trade. Another disadvantage is market liquidity... sometimes the markets being traded don't offer enough buyers and sellers to ensure that your order can be executed in a timely manner. This can lead to unexpected losses during times of extreme market volatility.
Another disadvantage endured by commodities traders is the advantage enjoyed by the floor traders in the exchanges. These traders have a huge advantage over the retail trader because they trade with much lower commissions, and also since they have such an intimate knowledge of their market, they know what are the most likely stop and limit targets that have been set by the retail traders through their brokers. This means that they can "flush out" the retail trader by gunning for their stops and taking small incremental profits from the market. Once the small traders have been flushed out of the markets by having their stops hit, the market can continue to move in its original direction. Sadly, many of the retail traders may have been right in their opinion of the direction the market was headed, but they are now out of the market because their stops have been hit.An alternative to consider to all of the above investment options is to trade the Forex market.
The Forex market is the global, electronic, decentralized trading of the world's major currencies. In the past, only major banks government institutions were able to trade on the Forex. But recently the Forex market was opened up to retail traders who are able to trade through retail brokers. The advantages of trading the Forex are numerous when compared to all the other investment methods. The most obvious advantage is that, unlike stocks, you don't have to search through thousands of different investment types to find a likely candidate. There are a very limited number of currencies that are traded, and most Forex traders only trade in one of the four major currencies: The British Pound, the Euro, the US Dollar, and the Japanese Yen. Each market gives enough volatility to offer plenty of trade opportunities each day. So while the stock trader is busy looking for which stock to trade, the Forex trader is already busy analyzing the market and setting up his trades.
Another advantage of the Forex is that there is no one single "common place" or exchange where the trades are made. The Forex is an electronic market that is traded globally among a network of computers, and is not centralized to any one location. This means that there are no floor traders to compete with, and no one who can "flush out" the retail trader by gunning for his stops.Yet another advantage of the Forex market is that it is traded 24 hours a day, 5 days a week. This offers the extraordinary opportunity for traders all over the world to trade when it is convenient for them, and not be confined to trading a market that is only open during hours that would impossible or inconvenient.One thing the Forex offers is identical to what is offered by the futures markets: leverage.
Like commodities traders, the individual trading the Forex market can make fantastic returns compared to stocks, mutual funds. But unlike commodities traders the Forex market trades with much lower commissions. Instead of standard commissions, the Forex trader pays a small spread on each trade.There are a lot of details about the Forex market, and trading the Forex market, that have been left out of this article. This is just a very quick introduction to some of the problems with traditional investing and to the advantages to be had by trading the Forex.Be sure to check out our free ebook for more info on getting started with the Forex.Til next time... Success to you!
This is good, sound and advice and should be followed if at all possible. However, many people either don't have the option of investing in a 401k, or they have maxed out their 401k contributions and are looking for a good place to invest their additional funds for maximum growth. For obvious reasons (ie - terrible perfomance), traditional savings accounts and CDs are out of the question. These people are usually advised that investing in mutual funds is the only practical, "safe" alternative to a 401k. Many people hold the belief that a mutual fund is the only "safe" way for an individual to invest beyond the typical savings accounts and CD's offered by their local bank.
This belief is no doubt due to the success enjoyed by mutual funds throughout the 1990's, when all of the stock market benefited from the huge bull market that was driven by the tech sector. Ironically, though, just as mutual funds have soared in popularity, they have also peaked in performance, and over the last few years most have seen an astonishing lack of overall success. So the intrepid investor goes off in search of the perfect mutual fund, only to find that there is a bewildering array of funds to choose from, and an overwhelming number of factors to consider when making that decision.
Some people will forge ahead and make a decision on a mutual fund, while others will decide to go to the next level and start looking for investments that give them more control, and hopefully greater returns.The next level for most investors is usually the stock market, where they hope to achieve phenomenal returns. But most people are not prepared for the reality of investing in stocks, which presents them with an array of choices that is several orders of magnitude greater than that offered by mutual funds. The natural question is: Which is a good stock to invest in? How do you select the one or two rising stars out of all the thousands of stocks there are to choose from? So just like in the search for a mutual fund, the investor is stuck with the problem of how to pick which investment is the best place for his funds. At this point many people give up, which is a shame, because there are some other options available to them besides mutual funds and stocks.
The most common option considered besides stocks would be commodities. The lure of commodities is that they are able provide tremendous returns for your investment dollars due to leveraging. Leveraging simply means that for every dollar invested you are able to control more than a dollar's worth of commodity. This can lead to tremendous returns, but unfortunately commodities come with a huge downside. One of the disadvantages of commodities are broker's fees, which can be quite high per trade. Another disadvantage is market liquidity... sometimes the markets being traded don't offer enough buyers and sellers to ensure that your order can be executed in a timely manner. This can lead to unexpected losses during times of extreme market volatility.
Another disadvantage endured by commodities traders is the advantage enjoyed by the floor traders in the exchanges. These traders have a huge advantage over the retail trader because they trade with much lower commissions, and also since they have such an intimate knowledge of their market, they know what are the most likely stop and limit targets that have been set by the retail traders through their brokers. This means that they can "flush out" the retail trader by gunning for their stops and taking small incremental profits from the market. Once the small traders have been flushed out of the markets by having their stops hit, the market can continue to move in its original direction. Sadly, many of the retail traders may have been right in their opinion of the direction the market was headed, but they are now out of the market because their stops have been hit.An alternative to consider to all of the above investment options is to trade the Forex market.
The Forex market is the global, electronic, decentralized trading of the world's major currencies. In the past, only major banks government institutions were able to trade on the Forex. But recently the Forex market was opened up to retail traders who are able to trade through retail brokers. The advantages of trading the Forex are numerous when compared to all the other investment methods. The most obvious advantage is that, unlike stocks, you don't have to search through thousands of different investment types to find a likely candidate. There are a very limited number of currencies that are traded, and most Forex traders only trade in one of the four major currencies: The British Pound, the Euro, the US Dollar, and the Japanese Yen. Each market gives enough volatility to offer plenty of trade opportunities each day. So while the stock trader is busy looking for which stock to trade, the Forex trader is already busy analyzing the market and setting up his trades.
Another advantage of the Forex is that there is no one single "common place" or exchange where the trades are made. The Forex is an electronic market that is traded globally among a network of computers, and is not centralized to any one location. This means that there are no floor traders to compete with, and no one who can "flush out" the retail trader by gunning for his stops.Yet another advantage of the Forex market is that it is traded 24 hours a day, 5 days a week. This offers the extraordinary opportunity for traders all over the world to trade when it is convenient for them, and not be confined to trading a market that is only open during hours that would impossible or inconvenient.One thing the Forex offers is identical to what is offered by the futures markets: leverage.
Like commodities traders, the individual trading the Forex market can make fantastic returns compared to stocks, mutual funds. But unlike commodities traders the Forex market trades with much lower commissions. Instead of standard commissions, the Forex trader pays a small spread on each trade.There are a lot of details about the Forex market, and trading the Forex market, that have been left out of this article. This is just a very quick introduction to some of the problems with traditional investing and to the advantages to be had by trading the Forex.Be sure to check out our free ebook for more info on getting started with the Forex.Til next time... Success to you!
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