tag:blogger.com,1999:blog-80259059432002125332024-03-08T04:01:52.798-08:00FOREX MARKETMike Edethttp://www.blogger.com/profile/13720252595794975883noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8025905943200212533.post-86665451499168598632009-08-18T03:37:00.001-07:002009-09-15T05:13:20.585-07:00<span style="color:#000066;"><strong>Introduction to Trading Forex</strong><a name="1"></a></span><br /><span style="color:#000066;"></span><br /><span style="color:#660000;"><strong>Foreign Exchange</strong></span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">This short introduction explains the basics of trading Forex online, a brief </span><br /><span style="color:#000066;">explanation of the markets and the major benefits of trading Forex online. </span><br /><span style="color:#000066;">There </span><span style="color:#000066;">are also two samples describing the implications of trading in a <strong><u>bear</u></strong> as well as a </span><span style="color:#000066;"><strong><u>bull</u></strong> market to better acquaint you with some of the <strong><u>risks</u></strong> and opportunities of the </span><span style="color:#000066;">largest and most <strong><u>liquid</u></strong> market in the world.<a name="2"></a></span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;"><strong><span style="color:#660000;">Foreign exchange</span></strong>, Forex or just FX are all terms used to describe the trading of </span><span style="color:#000066;">the world's many currencies. The Forex market is the largest market in the </span><span style="color:#000066;">world, with trades amounting to more than USD 3 trillion every day. Most Forex </span><span style="color:#000066;">trading is speculative, with only a low percentage of market activity representing </span><span style="color:#000066;">governments' and companies' fundamental currency conversion needs.</span><br /><span style="color:#000066;">Unlike trading on the stock market, the Forex market is not conducted by a </span><span style="color:#000066;">central exchange, but on the “<strong><u>interbank” market</u></strong>, which is thought of as an <strong><u>OTC</u></strong> </span><span style="color:#000066;">(over the counter) market. Trading takes place directly between the two </span><span style="color:#000066;">counterparts necessary to make a trade, whether over the telephone or on </span><span style="color:#000066;">electronic networks all over the world. The main centres for trading are Sydney, </span><span style="color:#000066;">Tokyo, London, Frankfurt and New York. This worldwide distribution of trading </span><span style="color:#000066;">centres means that the Forex market is a 24-hour market.<a name="3"></a></span><br /><span style="color:#000066;"></span><br /><strong><span style="color:#660000;">Trading Forex</span></strong><br /><span style="color:#000066;">A currency trade is the simultaneous buying of one currency and selling of </span><br /><span style="color:#000066;">another one. The currency combination used in the trade is called a<strong> cross</strong> (for </span><span style="color:#000066;">example, the euro/US dollar, or the GB pound/Japanese yen.). The most </span><span style="color:#000066;">commonly traded currencies are the so-called “majors” – EURUSD, USDJPY, </span><span style="color:#000066;">USDCHF and GBPUSD.</span><br /><span style="color:#000066;">The most important Forex market is the spot market as it has the largest volume. </span><br /><span style="color:#000066;">The market is called the spot market because trades are settled immediately, or </span><span style="color:#000066;">“on the spot”. In practice this means two banking days.<a name="4"></a></span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;"><strong><span style="color:#660000;">Forward Outrights</span></strong></span><br /><span style="color:#000066;"><span style="color:#000066;">For</span> </span><span style="color:#000066;">forward outrights, settlement on the value date selected in the trade means </span><span style="color:#000066;">that even though the trade itself is carried out immediately, there is a small </span><span style="color:#000066;">interest rate calculation left. The interest rate differential doesn't usually affect </span><span style="color:#000066;">trade considerations unless you plan on holding a position with a large differential </span><span style="color:#000066;">for a long period of time. The interest rate differential varies according to the </span><span style="color:#000066;">cross you are trading. On the USDCHF, for example, the interest rate differential </span><span style="color:#000066;">is quite small, whereas the differential on NOKJPY is large. This is because if </span><span style="color:#000066;">you trade e.g. NOKJPY, you get almost 7% (annual) interest in Norway and close </span><span style="color:#000066;">to 0% in Japan. So, if you borrow money in Japan, to finance the trade and </span><span style="color:#000066;">buying NOK, you have a positive interest rate differential. This differential has to </span><span style="color:#000066;">be calculated and added to your account. You can have both a positive and a </span><span style="color:#000066;">negative interest rate differential, so it may work for or against you when you </span><span style="color:#000066;">make a trade. <a name="5"></a></span><br /><span style="color:#000066;"></span><br /><strong><span style="color:#660000;">Trading on Margin</span></strong><br /><span style="color:#000066;">Trading on margin means that you can buy and sell assets that represent more </span><span style="color:#000066;">value than the capital in your account. Forex trading is usually conducted with </span><span style="color:#000066;">relatively small margin deposits. This is useful since it permits investors to exploit </span><span style="color:#000066;">currency exchange rate fluctuations which tend to be very small. A margin of </span><span style="color:#000066;">1.0% means you can trade up to USD 1,000,000 even though you only have </span><span style="color:#000066;">USD 10,000 in your account. A margin of 1% corresponds to a 100:1 <strong>leverage</strong> </span><span style="color:#000066;">(or “gearing”). (Because USD 10,000 is 1% of USD 1,000,000.) Using this much </span><span style="color:#000066;">leverage enables you to make profits very quickly, but there is also a greater risk </span><span style="color:#000066;">of incurring large losses and even being completely wiped out. Therefore, it is </span><span style="color:#000066;">inadvisable to maximize your leveraging as the risks can be very high.</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;"><strong><span style="color:#330099;">Trading Sample</span></strong> – <span style="color:#993399;"><strong>Trading</strong> <span style="color:#993399;"><strong>Rising</strong></span></span><span style="color:#993399;"><strong> Prices</strong></span></span><br /><span style="color:#000066;"><span style="color:#000066;">If you</span> believe that the euro will strengthen against the dollar you'll want to buy </span><span style="color:#000066;">euro now and sell it back later at a higher price.</span><br /><span style="color:#000066;">• You buy euro</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Broker quote <strong><u>EURUSD at Bid</u></strong> 0.9875 and <strong><u>Ask</u></strong> 0.9878, which means that you </span><span style="color:#000066;">can sell 1 euro for 0.9875 USD or buy 1 euro for 0.9878 USD. In this example </span><span style="color:#000066;">you buy euro 100,000, at the quote price of 0.9878 (ask price) per euro.</span><br /><span style="color:#000066;">• The market moves in your favor</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Later the market turns in favor of the euro and the <u><strong>EURUSD</strong></u> is now quoted at Bid </span><span style="color:#000066;">0.9894 and Ask 0.9896.</span><br /><span style="color:#000066;">• Now you sell your euro and get the profit</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">You sell euro at a <strong><u>Bid</u></strong> price of 0.9894.</span><br /><span style="color:#000066;">• The profit is calculated as follows</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Sell price-buy price x size of trade (0.9894 minus 0.9878) multiplied by 100.000 = </span><span style="color:#000066;">USD 140 Profit (Note that the profit or loss is always expressed in the <strong><u>secondary </u></strong></span><span style="color:#000066;"><strong><u>currency</u></strong>)<a name="9"></a></span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;"><strong><span style="color:#330099;">Trading Sample</span></strong> – <strong><span style="color:#993399;">Trading Falling</span></strong> </span><span style="color:#000066;"><strong><span style="color:#993399;">Prices</span></strong></span><br /><span style="color:#000066;">If, on the other hand, you believe that the euro will weaken against the dollar, </span><span style="color:#000066;">you'll want to sell EURUSD.</span><br /><span style="color:#000066;">• You sell euro</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Broker quote <strong><u>EURUSD</u></strong> at a <strong><u>Bid</u></strong> price of 0.9875 and <strong><u>Ask</u></strong> price of 0.9880 and you </span><span style="color:#000066;">decide to sell euro 100,000 at a <strong>Bid</strong> price of 0.9875.</span><br /><span style="color:#000066;">• The market moves in your favor</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Then euro weakens against the dollar and the <strong><u>EURUSD</u></strong> is now quoted at bid </span><span style="color:#000066;">0.9744 and ask 0.9749.</span><br /><span style="color:#000066;">• Now you buy back your euro</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">You buy EUR at an <strong>ask</strong> price of 0.9749.</span><br /><span style="color:#000066;">• Your profit/loss is then</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;">Sell price-buy price x size of trade (0.9875 minus 0.9749) multiplied by 100.000 </span><span style="color:#000066;">= USD 1260 Profit</span><br /><span style="color:#000066;"></span><br /><span style="color:#000066;"><strong>Note: <span style="color:#6600cc;">this is only but basic samples</span></strong><br /><br /><span style="color:#660000;"><strong>You can also fine useful information about </strong></span><a href="http://www.cashcropsinvest.blogspot.com/"><span style="color:#660000;"><strong>CASH CROPS</strong></span></a> </span>Mike Edethttp://www.blogger.com/profile/13720252595794975883noreply@blogger.com0