Stock Market For Beginners » forex trading

Forex Hedging – What is Forex Hedging and should you do it?

admin — Fri, 16 Oct 2009 03:39:26 +0000

The term forex hedging refers to the strategy of reducing the risk associated with trading in the forex market. For a beginner in market, this term may not mean much but most experienced traders use hedging as a technique to reduce the losses in cases of negative events. Forex hedging involves buying or selling of correlating currency pairs to stay protected from fluctuating exchange rates.

To understand forex hedging better, you can think of it as a car insurance policy. Though you are not completely covered when you buy a car insurance policy but a lot of expenses are covered by the insurance agency in case of an accident. Similarly, forex hedging won’t provide complete protection but reduce the losses in case of an untoward incident in the market. Forex hedging protects the long or short position of a currency pair against downside or upside risk.

Forex Hedging Strategies used by investors

Investors do forex hedging in various ways. One of the most common methods of doing this is by using derivatives. The type of derivative which the traders in forex market use is called the futures contract. In this contract, there is an agreement to buy or sell one currency for another at a specified price on a specific date. Currency futures work very similar to normal future contracts of stocks and they are a great way to hedge against currency exchange rate fluctuations.

Another strategy used by traders is by using multiple currency pairs. For example, if the traders sees that the currency pair of ‘euros-to-dollars’ is facing negative price moves, he can offset this unrealized loss by selling ‘euros-to-yen’ currency pair. The ‘long’ and ‘short’ positions for the Euro, which occur at the same time, are a hedging strategy.

The difference of interest rates also acts as a hedging tool for the forex traders. In this method, the traders open the positions of a currency pair with 2 different brokers – one which charges interest and one who does not. If the currency pair performs well, then the investor gains from both brokers. In case the currency pair does not perform so well, he gives interest to one broker while he earns the ‘rollover’ interest from the other one.

Forex hedging should not be done by an experienced investor who does not understand the swings and timings of forex market. Like, no-one can predict what will happen in stock market today, similarly, forex market is also very unpredictable especially for a beginner.

Forex Managed Account – Should you get one?

admin — Tue, 13 Oct 2009 03:18:25 +0000

What is a Forex Managed Account?

Forex managed account is a forex account which is owned by a retail investor buy operated by a professional or an expert broker. In this account, the investor gives pre-approval to the expert broker to do any type of transaction in the forex market on his behalf. You can correlate a forex managed account as a mutual fund where the stock market beginners give money to the fund manager who actually allocates it in some stocks.

How does a forex managed fund work?

There are many financial institutions that are in this business of maintaining forex managed accounts. In this, these institutions hire experts in forex trading who take the decision of buy and sell of currencies based on their expertise and calculated strategies. These experts invest the money of the investor in a diverse portfolio and try to leverage it to get maximum profit. The account is still owned by the investor and he has the option to close the account and withdraw the money at any point in time.

Advantages of having a forex managed account

There are various advantages of having a forex managed account. Some of them are listed below:

1. An investor without having enough knowledge of forex trading can start trading in this market without spending too much time in going through the learning curve.

2. This account is also suitable for investors who have the knowledge but don’t have the time to monitor the market round the clock.

3. The investors can be assured that their money is in the hands of experts and they would take the call of buying or selling after gathering all the required information. These experts have access to most updated forex signals and use technical indicators which normal investors may not be able to utilize completely.

4. The investor still retains the ownership of the account and can switch/close the account at any time which gives him the control of his account.

Disadvantages of a forex managed account

1. Some financial institutions use automated systems to make the buy or sell calls. This system works on predefined parameters which may not work best to take the maximum profits at times. It is always recommended to have a human expert take the final decisions after getting signals from these systems.

2. The commissions of the human based managed accounts can be pretty high which may offset the profit margins. Therefore a balance is required in this regard.

While choosing an agency or professional to manage your forex account, make sure to thoroughly check his past performance since this is the single most important factor which will help you decide whether you can trust that company with your hard earned money. Forex managed account s a great way to invest if you don’t have the time or experience to trade in the forex market.

Forex Trading Strategy – Different forex trading strategies used by forex traders

admin — Wed, 07 Oct 2009 06:34:34 +0000

What is a Forex Trading Strategy?

Forex Trading Strategy is nothing but a set of rules or analyses which are followed by a forex trader which helps him determine whether to buy or sell the currency pair at a given pint in time. These forex trading strategies can be based on fundamental analysis, technical analysis or even news based events.

These trading strategies are usually triggered by one of more forex signals which help the traders decide whether to buy or sell the currency pair they are holding. These strategies are available for free at some places and they are available for some fee at other places. Many times, forex traders develop their own strategies as well since they don’t like to be dependent on others for their decision making.

The forex trading strategies can be created using automated mechanisms using technology or these can be manual. In the automated forex trading strategies, an automated system is used to interpret the forex signals sent out by forex signal service providers. This system is initially taught by the trader himself based on his preferences. This automated system is preferred by many traders since it discounts the human psychology while decoding the signals. In the manual forex trading strategy, the trader himself looks out for the signals on the system, interprets it and then decides whether he want to buy or sell.

Whether to choose a manual trading strategy or an automated one is purely the choice of the forex trader. Both these options are available in the market in abundance. Like in stock market trading, there is no perfect system for forex trading as well. If such a system was present, no seller would like to share that with anyone.

Forex strategies involve the combination of indicators and price patterns for the derivation of tradable signals. There are also fx trading strategies based on fundamental factors, but all short term trading strategies must include some technical component. Some of the different trading strategies being used by different traders are:

Forex scalping
Trade timing
Understanding interest rates and volatility
Technical strategies based on crossovers
Clustering Illusion
Gambler’s conceit
Trading pegged currencies – low risk fixed currency trades
Martingale trade sizing and the gambler’s fallacy
Using Stop-loss orders
Exploiting currency options expiries for forex trading
Predicting market extremes using the put/call ratio
Using news releases for trading
Using the z score to determine trade size and boost performance
Trend following
Trading managed currencies
Using the COT reports to predict forex price movements

As you can see, there is no single forex trading strategy which can be used by everyone. It all depends upon the nature of the trader and the type of strategy in which he is comfortable with.

Forex Made Easy – How Forex market works?

admin — Tue, 06 Oct 2009 10:05:20 +0000

Forex is not one of the most frequently used terms by most stock traders. This is because not everyone is interested in trading on forex markets due to its high risk game. This ‘forex made easy’ article would help you understand basics of forex and how it works. In most simple terms, forex is nothing but exchange of foreign currencies. In forex trading, more than one trillion dollars are traded on a daily basis which is much higher than any other market. This market is used by smart traders for hedging and speculation of currencies and to take long term profit taking.

In earlier days, the forex trading was available only for large institutions, banks and financial institutions. But with invention of internet and availability of high speed internet connection, anyone and everyone has an option to do this type of trading. To clear a lot of misconceptions about forex trading, here are a few pointers:

Forex trading can be done by anyone
You don’t need to be an economist to understand currency market and do forex trading
You just have to understand the basics of currency market and learn to read forex signals.

How does forex market work?

Before you start trading in a forex market, you need to understand the basics of the trading environment. Like a stock market environment, a forex market also has a few characteristics. The main players in a forex market are: banks, forex dealers and traders.

Banks – The banks or the “interbank market” is nothing but the network of banks which trade the currencies of different countries.

Forex dealers – These are essentially big institutions which have access to banks for doing currency trading through their brokerage agreements. The dealer receives current pricing on each forex pair from the banks they have relationships with. The price one dealer sees is the same as the price the other dealers see, because they all have access to the interbank market. These dealers then send the prices to the retail traders. The forex dealers make money through the difference in prices (bid price and the ask price) which is also known as “spread”

Retail Traders – These are the traders who are interested in trading foreign currencies. These are people like you and me who cannot trade currencies directly therefore we go to a forex dealer. They use the system of a forex dealer to do currency trading.

Ways to trade in a forex market

Private investors can trade directly or indirectly in foreign exchange through:

the spot market
forwards and futures
options
contracts for difference
spread betting

Currency Pairing

Currencies are a reflection of the performance of an economy of a nation. For forex trading, the currencies are paired. As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors. Over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF).

Forex Signals – What are Forex Signals and How to use Forex Signals?

admin — Tue, 06 Oct 2009 08:22:33 +0000

What are FOREX and Forex Signals?

The word FOREX is derived from the words Foreign Exchange and is the largest financial market in the world. The foreign exchange market was initially created for big and institutional players like banks and other financial institutions. But, due to modern age technologies and invention of internet, this exchange is not accessible to anyone who wants to trade in foreign currencies. Technological innovations like the internet have made it feasible for private investors to monitor currency markets and to trade via intermediaries. Forex is the foreign exchange marketplace where currencies from various different countries are exchanged. Forex trades almost $2 trillion per day, a total that exceeds all of the world’s biggest and better known markets.

Usually, the FOREX market is considered to be a high risk and high gain game. The market is very liquid and the traders buy and sell a currency pair like USD/JPY or USD/GBP. While doing FOREX trading, you should consider using FOREX Signals. These forex signals are a great way to enhance the chances of making profit in forex trading.

While doing Forex trading, time is the most important factor. You need to be kept updated every second about the movement in the market. You could make a considerable amount of profit if you are able to react quickly enough to the market movements. On the same note, you can loose similar amount of money if you fail to react to these changes quickly enough.

The forex signals are provided by various forex signal service providers and it is important that you choose the right one as per your needs. Most of these providers provide various packages depending upon the services you need to subscribe like instant notifications, availability of trading platforms, pay per signal, no multi-level target strategies, great customer support, access to multiple currency pairs etc. Forex trading signals are known to rely on several indicators that display current market trend.

In earlier days, an individual investor could not even think of trading in forex market. But, in current times you just need a reliable and fast internet connection, a good trading company and a FOREX account to get started. You can be in remote areas of Asia or Africa and still be able to trade in forex market with the help of forex signals.