tag:blogger.com,1999:blog-59024920009188863912024-03-08T16:28:22.301-08:00الفرسان فوركسUnknownnoreply@blogger.comBlogger23125tag:blogger.com,1999:blog-5902492000918886391.post-81453810356465100292014-07-02T11:11:00.001-07:002014-07-02T11:11:22.720-07:00 Forex: Identifying Trending And Range-Bound Currencies <div dir="rtl" style="text-align: right;" trbidi="on">
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<span>The overall <a href="http://www.investopedia.com/terms/f/forex.asp">forex</a> market generally <a href="http://www.investopedia.com/terms/t/trend.asp">trends</a>
more than the overall stock market. Why? The equity market, which is
really a market of many individual stocks, is governed by the micro
dynamics of particular companies. The forex market, on the other hand,
is driven by <a href="http://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a>
trends that can sometimes take years to play out. These trends best
manifest themselves through the major pairs and the commodity block
currencies. Here we take a look at these trends, examining where and why
they occur. Then we also look at what types of pairs offer the best
opportunities for <a href="http://www.investopedia.com/terms/r/rangeboundtrading.asp">range-bound trading</a>. (Trade 10 of the most popular currency pairs on our NEW forex trading simulator, <a href="http://fxtrader.investopedia.com/Secure/Home.aspx">FXtrader</a>.)<br /><strong><br />The Majors</strong> <br />There are only four major currency pairs in forex, which makes it a quite easy to follow the market. They are:</span><br /><br /><ul type="disc">
<li>EUR/USD - euro / U.S. dollar</li>
<li>USD/JPY - U.S. dollar / Japanese yen</li>
<li>GBP/USD - British pound / U.S. dollar</li>
<li>USD/CHF - U.S. dollar / Swiss franc </li>
</ul>
<span>It
is understandable why the United States, the European Union and Japan
would have the most active and liquid currencies in the world, but why
the United Kingdom? After all, as of 2005, India has a larger GDP ($3.3
trillion vs. $1.7 trillion for the U.K.), while Russia's GDP ($1.4
trillion) and Brazil's GDP ($1.5 trillion) almost match U.K.'s total
economic production. The explanation, which applies to much of the forex
market, is tradition. The U.K. was the first economy in the world to
develop sophisticated capital markets and at one time it was the British
pound, not the U.S. dollar, that served as the world's reserve
currency. Because of this legacy and because of London's primacy as the
center of global forex dealing, the pound is still considered one of the
major currencies of the world. </span><br /><br /><span>The Swiss franc, on
the other hand, takes its place amongst the four majors because of
Switzerland's famed neutrality and fiscal prudence. At one time the
Swiss franc was 40% backed by gold, but to many traders in the forex
market it is still known as "liquid gold". In times of turmoil or
economic stagflation, traders turn to the Swiss franc as a safe-haven
currency. </span><br /><br /><span>The largest major pair - in fact the
single most liquid financial instrument in the world - is the EUR/USD.
This pair trades almost $1 trillion per day of <a href="http://www.investopedia.com/terms/n/notionalvalue.asp">notional value</a>
from Tokyo to London to New York 24 hours a day, five days a week. The
two currencies represent the two largest economic entities in the world:
the U.S. with an annual GDP of $11 trillion and the Eurozone with a GDP
of about $10.5 trillion. </span><br /><br /><span>Although U.S. economic
growth has been far better than that of the Eurozone (3.1% vs.1.6%), the
Eurozone economy generates net trade surpluses while the U.S. runs
chronic trade deficits. The superior balance-sheet position of the
Eurozone and the sheer size of the Eurozone economy has made the euro an
attractive alternative reserve currency to the dollar. As such, many <a href="http://www.investopedia.com/terms/c/centralbank.asp">central banks</a>
including Russia, Brazil and South Korea have diversified some of their
reserves into euro. Clearly this diversification process has taken time
as do many of the events or shifts that affect the forex market. That
is why one of the key attributes of successful trend trading in forex is
a longer-term outlook. <br /><em><br />Observing the Significance of the Long Term</em> <br />To see the importance of this longer-term outlook, take a look at Figure 1 and Figure 2, which both use a three-<a href="http://www.investopedia.com/terms/s/sma.asp">simple-moving-average</a> (three-SMA) filter. </span><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 507px; width: 519px;"><tbody>
<tr><td> <img alt="FX-TrendOrRangePairs2fig1.gif" height="442" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig1.gif" width="500" /><span class="font1">Figure
1: Charts the EUR/USD exchange rate from Mar 1 to May 15, 2005. Note
recent price action suggests choppiness and a possible start of a
downtrend as all three simple moving averages line up under one another.
</span></td></tr>
</tbody></table>
<table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 505px; width: 376px;"><tbody>
<tr><td><img alt="FX-TrendOrRangePairs2fig2.gif" height="444" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig2.gif" width="500" /><span class="font1">Figure
2: Charts the EUR/USD exchange rate from Aug 2002 to Jun 2005. Every
bar corresponds to one week rather than one day (as in Figure 1). And in
this longer-term chart, a completely different view emerges - the
uptrend remains intact with every down move doing nothing more than
providing the starting point for new highs.</span> </td></tr>
</tbody></table>
<span>The
three-SMA filter is a good way to gauge the strength of trend. The
basic premise of this filter is that if the short-term trend (seven-day
SMA) and the intermediate-term trend (20-day SMA) and the long-term
trend (65-day SMA) are all aligned in one direction, then the trend is
strong. </span><br /><br /><span>Some traders may wonder why we use the 65
SMA. The truthful answer is that we picked up this idea from John
Carter, a futures trader and educator, as these were the values he used.
But the importance of the three-SMA filter not does lie in the specific
SMA values, but rather in the interplay of the short-, intermediate-
and long-term price trends provided by the SMAs. As long you use
reasonable proxies for each of these trends, the three-SMA filter will
provide valuable analysis. </span><br /><br /><span>Looking at the EUR/USD
from two time perspectives, we can see how different the trend signals
can be. Figure 1 displays the daily price action for the months of
March, April and May 2005, which shows choppy movement with a clear
bearish bias. Figure 2, however, charts the weekly data for all of 2003,
2004 and 2005, and paints a very different picture. According to Figure
2, EUR/USD remains in a clear uptrend despite some very sharp
corrections along the way. </span><br /><br /><div class="ad-textlink ad-incontent-wrap">
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<span>Warren Buffett, the famous investor who is well known
for making long-term trend trades, has been heavily criticized for
holding onto his massive long EUR/USD position which has suffered some
losses along the way. By looking at the formation on Figure 2, however,
it becomes much clearer why Buffet may have the last laugh.</span><br /><br /><span><strong>Commodity Block Currencies</strong> <br />The three most liquid <a href="http://www.investopedia.com/terms/c/commodityblockcurrency.asp">commodity currencies</a>
in forex markets are USD/CAD, AUD/USD and NZD/USD. The Canadian dollar
is affectionately known as the "loonie", the Australian dollar as the
"Aussie" and the New Zealand Dollar as the "kiwi". These three nations
are tremendous exporters of commodities and often trend very strongly in
concert with the demand for each their primary export commodity. </span><br /><br /><span>For
instance, take a look at Figure 3, which shows the relationship between
the Canadian dollar and prices of crude oil. Canada is the largest
exporter of oil to U.S. and almost 10% of Canada's GDP comprises the
energy exploration sector. The USD/CAD trades inversely, so Canadian
dollar strength creates a downtrend in the pair. </span><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 508px; width: 515px;"><tbody>
<tr><td> <img alt="FX-TrendOrRangePairs2fig3.gif" height="440" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig3.gif" width="500" /><span class="font1">Figure
3: This chart displaysthe relationship between the loonie and price of
crude oil. The Canadian economy is a very rich source of oil reserves.
The chart shows that as the price of oil increases, it becomes less
expensive for a person holding the Canadian dollar to purchase
U.S.dollars. </span></td></tr>
</tbody></table>
<span>Although Australia
does not have many oil reserves, the country is a very rich source of
precious metals and is the second-largest exporter of gold in the world.
In Figure 4 we can see the relationship between the Australian dollar
and gold. </span><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 508px; width: 478px;"><tbody>
<tr><td> <img alt="FX-TrendOrRangePairs2fig4.gif" height="443" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig4.gif" width="500" /><span class="font1">Figure
4: This chart looks at the relationship between the Aussie and gold
prices (in U.S. dollars). Note how a rally in gold from Dec 2002 to Nov
2004 coincided with a very strong uptrend in the Australian dollar.</span> </td></tr>
</tbody></table>
<span><strong><br />Crosses Are Best for Range</strong> <br />In
contrast to the majors and commodity block currencies, both of which
offer traders the strongest and longest trending opportunities, <a href="http://www.investopedia.com/terms/c/crosscurrency.asp">currency crosses</a>
present the best range-bound trades. In forex, crosses are defined as
currency pairs that do not have the USD as part of the pairing. The
EUR/CHF is one such cross, and it has been known to be perhaps the best
range-bound pair to trade. One of the reasons is of course that there is
very little difference between the growth rates of Switzerland and the
European Union. Both regions run current-account surpluses and adhere to
fiscally conservative policies. </span><br /><br /><span>One strategy for
range traders is to determine the parameters of the range for the pair,
divide these parameters by a median line and simply buy below the median
and sell above it. The parameters of the range is determined by the
high and low between which the prices fluctuate over a give period. For
example in EUR/CHF, range traders could, for the period between May 2004
to Apr 2005, establish <a href="https://www.blogger.com/null">1.5550 as the top and 1.5050 as the bottom of
the range with 1.5300 median line demarcating the buy and sell zones.
(See Figure 5 below). </a></span><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 526px; width: 482px;"><tbody>
<tr><td><img alt="FX-TrendOrRangePairs2fig5.gif" height="442" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig5.gif" width="500" /><span class="font1">Figure
5: This charts the EUR/CHF (from May 2004 to Apr 2005), with 1.5550 as
the top and 1.5050 as the bottom of the range, and 1.5300 as the median
line. One range-trading strategy involves selling above the median and
buying below the median. </span></td></tr>
</tbody></table>
<span>Remember range traders are agnostic about direction (for more on this, see <em><a href="http://www.investopedia.com/articles/forex/05/050505.asp">Trading Trend or Range?</a></em>). They simply want to sell relatively overbought conditions and buy relatively oversold conditions. </span><br /><br /><span>Cross
currencies are so attractive for the range-bound strategy because they
represent currency pairs from culturally and economically similar
countries; imbalances between these currencies therefore often return to
equilibrium. It is hard to fathom, for instance, that Switzerland would
go into a depression while the rest of Europe merrily expands. The same
sort of tendency toward <a href="http://www.investopedia.com/terms/e/equilibrium.asp">equilibrium</a>,
however, cannot be said for stocks of similar nature. It is quite easy
to imagine how, say, General Motors could file for bankruptcy even while
Ford and Chrysler continue to do business. Because currencies represent
macroeconomic forces they are not as susceptible to risks that occur on
the micro level - as individual company stocks are. Currencies are
therefore much safer to range trade. </span><br /><br /><div class="ad-textlink">
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<span>Nevertheless, risk is present in all speculation, and
traders should never range trade any pair without a stop loss. A
reasonable strategy is to employ a stop at half the amplitude of the
total range. In the case of the EUR/CHF range we defined in Figure 5,
the stop would be at 250 pips above the high and 250 below the low. In
other words if this pair reached 1.5800 or 1.4800, the trader should
stop him- or herself out of the trade because the range would most
likely have been broken. </span><br /><br /><span><strong>Interest Rates - the Final Piece of the Puzzle</strong> <br />While
EUR/CHF has a relatively tight range of 500 pips over the year shown in
Figure 5, a pair like GBP/JPY has a far larger range at 1800 pips,
which is shown in Figure 6. Interest rates are the reason there's a
difference. </span><br /><br /><span>The interest rate differential between
two countries affects the trading range of their currency pairs. For the
period represented in Figure 5, Switzerland has an interest rate of 75 <a href="http://www.investopedia.com/terms/b/basispoint.asp">basis points</a>
(bps) and Eurozone rates are 200 bps, creating a differential of only
125 bps. However, for the period represented in Figure 6, however, the
interest rates in the U.K are at 475 bps while in Japan - which is
gripped by <a href="http://www.investopedia.com/terms/d/deflation.asp">deflation</a>
- rates are 0 bps, making a whopping 475 bps differential between the
two countries. The rule of thumb in forex is the larger the interest
rate differential, the more volatile the pair. <strong></strong></span><br /><br /><table align="center" border="0" cellpadding="0" cellspacing="0" style="height: 486px; width: 515px;"><tbody>
<tr><td><strong><img alt="FX-TrendOrRangePairs2fig6.gif" height="442" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX-TrendOrRangePairs2fig6.gif" width="500" /></strong><span class="font1">Figure 6: This charts the GBP/JPY (from Dec 2003 to Nov 2004). Notice the range in this pair is almost 1800 pips!</span> </td></tr>
</tbody></table>
<span>To
further demonstrate the relationship between trading ranges and
interest rates, the following is a table of various crosses, their
interest rate differentials and the maximum pip movement from high to
low over the period from May 2004 to May 2005. </span><br /><br /><table align="center" border="1" cellpadding="2" cellspacing="0" style="border-collapse: collapse; width: 573px;"><tbody>
<tr bgcolor="#c0c0c0"><td nowrap="nowrap" valign="bottom" width="64"><strong>Currency Pair</strong> </td><td nowrap="nowrap" style="height: 42px; width: 180px;" valign="bottom"><strong>Central Bank Rates</strong> <strong>(in basis points)</strong> </td><td nowrap="nowrap" valign="bottom" width="155"><strong>Interest Rate Spread (in basis points)</strong> </td><td nowrap="nowrap" valign="bottom" width="151"><strong>12-Month </strong><strong>Trading</strong><strong>Range</strong><strong> (in pips)</strong> </td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">AUD/JPY</td><td nowrap="nowrap" valign="bottom">AUD - 550 / JPY - 0</td><td nowrap="nowrap" valign="bottom" width="155">550</td><td nowrap="nowrap" valign="bottom" width="151">1000</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">GBP/JPY</td><td nowrap="nowrap" valign="bottom">GBP - 475 / JPY - 0</td><td nowrap="nowrap" valign="bottom" width="155">475</td><td nowrap="nowrap" valign="bottom" width="151">1600</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">GBP/CHF</td><td nowrap="nowrap" valign="bottom">GBP - 475 / CHF - 75</td><td nowrap="nowrap" valign="bottom" width="155">400</td><td nowrap="nowrap" valign="bottom" width="151">1950</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">EUR/GBP</td><td nowrap="nowrap" valign="bottom">EUR - 200 / GBP - 475</td><td nowrap="nowrap" valign="bottom" width="155">275</td><td nowrap="nowrap" valign="bottom" width="151">550</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">EUR/JPY</td><td nowrap="nowrap" style="height: 24px;" valign="bottom">EUR - 200 / JPY - 0</td><td nowrap="nowrap" valign="bottom" width="155">200</td><td nowrap="nowrap" valign="bottom" width="151">1150</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">EUR/CHF</td><td nowrap="nowrap" valign="bottom">EUR - 200 / CHF - 75</td><td nowrap="nowrap" valign="bottom" width="155">125</td><td nowrap="nowrap" valign="bottom" width="151">603</td></tr>
<tr><td nowrap="nowrap" valign="bottom" width="64">CHF/JPY</td><td nowrap="nowrap" valign="bottom">CHF - 75 / JPY - 0</td><td nowrap="nowrap" valign="bottom" width="155">75</td><td nowrap="nowrap" valign="bottom" width="151">650</td></tr>
</tbody></table>
<span>While
the relationship is not perfect, it is certainly substantial. Note how
pairs with wider interest rate spreads typically trade in larger ranges.
Therefore, when contemplating range trading strategies in forex,
traders must be keenly aware of rate differentials and adjust for
volatility accordingly. Failure to take interest rate differential into
account could turn potentially profitable range ideas into losing
propositions. </span><br /><br /><span>The forex market is incredibly
flexible, accommodating both trend and range traders, but as with
success in any enterprise, proper knowledge is key. </span> </div>
</div>
</div>
<div class="tags" style="font-size: 15px;">
<i>Filed Under: </i> <a href="http://www.investopedia.com/tags/aud/" rel="tag" title="">AUD</a>, <a href="http://www.investopedia.com/tags/aud-jpy/" rel="tag" title="">AUD/JPY</a>, <a href="http://www.investopedia.com/tags/aud-usd/" rel="tag" title="">AUD/USD</a>, <a href="http://www.investopedia.com/tags/chf-jpy/" rel="tag" title="">CHF/JPY</a>, <a href="http://www.investopedia.com/tags/eur/" rel="tag" title="">EUR</a>, <a href="http://www.investopedia.com/tags/eur-chf/" rel="tag" title="">EUR/CHF</a>, <a href="http://www.investopedia.com/tags/eur-gbp/" rel="tag" title="">EUR/GBP</a>, <a href="http://www.investopedia.com/tags/eur-jpy/" rel="tag" title="">EUR/JPY</a>, <a href="http://www.investopedia.com/tags/eur-usd/" rel="tag" title="">EUR/USD</a>, <a href="http://www.investopedia.com/tags/euro_zone/" rel="tag" title="">Euro Zone</a>, <a href="http://www.investopedia.com/tags/european_union/" rel="tag" title="">European Union</a>, <a href="http://www.investopedia.com/tags/forex_fundamentals/" rel="tag" title="Using fundamental analysis in Forex">Forex Fundamentals</a>, <a href="http://www.investopedia.com/tags/forex_technical_analysis/" rel="tag" title="">Forex Technical Analysis</a>, <a href="http://www.investopedia.com/tags/gbp-chf/" rel="tag" title="">GBP/CHF</a>, <a href="http://www.investopedia.com/tags/gbp-jpy/" rel="tag" title="">GBP/JPY</a>, <a href="http://www.investopedia.com/tags/gbp-usd/" rel="tag" title="">GBP/USD</a>, <a href="http://www.investopedia.com/tags/nzd-usd/" rel="tag" title="">NZD/USD</a>, <a href="http://www.investopedia.com/tags/range_trading/" rel="tag" title="">Range Trading</a>, <a href="http://www.investopedia.com/tags/sma/" rel="tag" title="">SMA</a>, <a href="http://www.investopedia.com/tags/technical_indicators/" rel="tag" title="">Technical Indicators</a>, <a href="http://www.investopedia.com/tags/trend_trading/" rel="tag" title="">Trend Trading</a>, <a href="http://www.investopedia.com/tags/usd-cad/" rel="tag" title="">USD/CAD</a>, <a href="http://www.investopedia.com/tags/usd-chf/" rel="tag" title="">USD/CHF</a>, <a href="http://www.investopedia.com/tags/usd-jpy/" rel="tag" title="">USD/JPY</a>
</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-33637609258439345982014-06-30T12:48:00.002-07:002014-06-30T12:48:24.146-07:00Forex Tutorial: Economic Theories, Models, Feeds & Data<div dir="rtl" style="text-align: right;" trbidi="on">
There is a great deal of academic theory revolving around currencies.
While often not applicable directly to day-to-day trading, it is helpful
to understand the overarching ideas behind the academic research. <br /><br />The main economic theories found in the foreign exchange deal with parity conditions. A <a href="http://www.investopedia.com/terms/p/parity.asp">parity</a>
condition is an economic explanation of the price at which two
currencies should be exchanged, based on factors such as inflation and
interest rates. The economic theories suggest that when the parity
condition does not hold, an arbitrage opportunity exists for market
participants. However, arbitrage opportunities, as in many other
markets, are quickly discovered and eliminated before even giving the
individual investor an opportunity to capitalize on them. Other theories
are based on economic factors such as trade, capital flows and the way a
country runs its operations. We review each of them briefly below. <br /><br /><strong>Major Theories: Purchasing Power Parity </strong><a href="http://www.investopedia.com/terms/p/ppp.asp">Purchasing Power Parity</a>
(PPP) is the economic theory that price levels between two countries
should be equivalent to one another after exchange-rate adjustment. The
basis of this theory is the law of one price, where the cost of an
identical good should be the same around the world. Based on the theory,
if there is a large difference in price between two countries for the
same product after exchange rate adjustment, an arbitrage opportunity is
created, because the product can be obtained from the country that
sells it for the lowest price. <br /><br />The relative version of PPP is as follows: <br />
<table align="center" border="0" cellpadding="2" cellspacing="0" style="border-collapse: collapse; text-align: center; width: 320px;"><tbody>
<tr><td> <img align="bottom" height="42" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX%20-%20Purchasing%20Power%20Partiy.gif" width="82" /></td>
</tr>
</tbody></table>
<br />Where 'e' represents the rate of change in the exchange rate and 'π<sub>1</sub>' and 'π<sub>2</sub>'represent the rates of inflation for country 1 and country 2, respectively. <br /><br />For
example, if the inflation rate for country XYZ is 10% and the inflation
for country ABC is 5%, then ABC's currency should appreciate 4.76%
against that of XYZ. <br /><br /><table align="center" border="0" cellpadding="2" cellspacing="0" style="border-collapse: collapse; text-align: center; width: 320px;"><tbody>
<tr><td><img align="bottom" height="36" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX%20-%20expected%20currency%20appreciation.gif" width="466" /></td>
</tr>
</tbody></table>
<br /><strong>Interest Rate Parity </strong>The concept of <a href="http://www.investopedia.com/terms/i/interestrateparity.asp">Interest Rate Parity</a>
(IRP) is similar to PPP, in that it suggests that for there to be no
arbitrage opportunities, two assets in two different countries should
have similar interest rates, as long as the risk for each is the same.
The basis for this parity is also the law of one price, in that the
purchase of one investment asset in one country should yield the same
return as the exact same asset in another country; otherwise exchange
rates would have to adjust to make up for the difference. <br /><br />The formula for determining IRP can be found by: <br /><table align="center" border="0" cellpadding="2" cellspacing="0" style="border-collapse: collapse; text-align: center; width: 320px;"><tbody>
<tr><td> <img align="bottom" height="41" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX%20-%20Interest%20Rate%20Parity.gif" width="130" /></td>
</tr>
</tbody></table>
<br />Where 'F' represents the forward exchange rate; 'S' represents the spot exchange rate; 'i<sub>1</sub>' represents the interest rate in country 1; and 'i<sub>2</sub>' represents the interest rate in country 2. <br /><br /><strong>International Fisher Effect </strong>The <a href="http://www.investopedia.com/terms/i/ife.asp">International Fisher Effect</a> (IFE)
theory suggests that the exchange rate between two countries should
change by an amount similar to the difference between their nominal
interest rates. If the nominal rate in one country is lower than
another, the currency of the country with the lower nominal rate should
appreciate against the higher rate country by the same amount. <br /><br />The formula for IFE is as follows: <br /><table align="center" border="0" cellpadding="2" cellspacing="0" style="border-collapse: collapse; text-align: center; width: 320px;"><tbody>
<tr><td> <img align="bottom" height="38" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX%20-%20International%20Fisher%20Effect.gif" width="62" /></td>
</tr>
</tbody></table>
<br />Where 'e' represents the rate of change in the exchange rate and 'i<sub>1</sub>' and 'i<sub>2</sub>'represent the rates of inflation for country 1 and country 2, respectively. <br /><br /><strong>Balance of Payments Theory </strong>A country's <a href="http://www.investopedia.com/terms/b/bop.asp">balance of payments</a> is comprised of two segments - the <a href="http://www.investopedia.com/terms/c/currentaccount.asp">current account</a> and the <a href="http://www.investopedia.com/terms/c/capitalaccount.asp">capital account</a>
- which measure the inflows and outflows of goods and capital for a
country. The balance of payments theory looks at the current account,
which is the account dealing with trade of tangible goods, to get an
idea of exchange-rate directions. <br /><br />If a country is running a large current account <a href="http://www.investopedia.com/terms/s/surplus.asp">surplus</a> or <a href="http://www.investopedia.com/terms/d/deficit.asp">deficit</a>,
it is a sign that a country's exchange rate is out of equilibrium. To
bring the current account back into equilibrium, the exchange rate will
need to adjust over time. If a country is running a large deficit (more
imports than exports), the domestic currency will depreciate. On the
other hand, a surplus would lead to currency appreciation. <br /><br />The balance of payments identity is found by: <br /><table align="center" border="0" cellpadding="2" cellspacing="0" style="background-color: white; border-collapse: collapse; height: 27px; text-align: center; width: 183px;"><tbody>
<tr><td> <img align="bottom" height="42" hspace="5" src="http://i.investopedia.com/inv/articles/site/FX%20-%20Balance%20of%20Payments.gif" width="175" /></td>
</tr>
</tbody></table>
Where BCA represents the current account balance; BKA represents the
capital account balance; and BRA represents the reserves account
balance. <br /><br /><strong>Real Interest Rate Differentiation Model </strong>The <a href="http://www.investopedia.com/terms/r/realinterestrate.asp">Real Interest Rate</a>
Differential Model simply suggests that countries with higher real
interest rates will see their currencies appreciate against countries
with lower interest rates. The reason for this is that investors around
the world will move their money to countries with higher real rates to
earn higher returns, which bids up the price of the higher real rate
currency. <br /><br /><div class="ad-textlink ad-incontent-wrap">
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<strong>Asset Market Model </strong>The Asset Market Model
looks at the inflow of money into a country by foreign investors for
the purpose of purchasing assets such as stocks, bonds and other
financial instruments. If a country is seeing large inflows by foreign
investors, the price of its currency is expected to increase, as the
domestic currency needs to be purchased by these foreign investors. This
theory considers the capital account of the balance of trade compared
to the current account in the prior theory. This model has gained more
acceptance as the capital accounts of countries are starting to greatly
outpace the current account as international money flow increases. <br /><br /><strong>Monetary Model </strong>The
Monetary Model focuses on a country's monetary policy to help determine
the exchange rate. A country's monetary policy deals with the money
supply of that country, which is determined by both the interest rate
set by central banks and the amount of money printed by the treasury.
Countries that adopt a monetary policy that rapidly grows its monetary
supply will see inflationary pressure due to the increased amount of
money in circulation. This leads to a devaluation of the currency. <br /><br />These
economic theories, which are based on assumptions and perfect
situations, help to illustrate the basic fundamentals of currencies and
how they are impacted by economic factors. However, the fact that there
are so many conflicting theories indicates the difficulty in any one of
them being 100% accurate in predicting currency fluctuations. Their
importance will likely vary by the different market environment, but it
is still important to know the fundamental basis behind each of the
theories. <br /><br /><strong>Economic Data </strong>Economic theories
may move currencies in the long term, but on a shorter-term, day-to-day
or week-to-week basis, economic data has a more significant impact. It
is often said the biggest companies in the world are actually countries
and that their currency is essentially shares in that country. Economic
data, such as the latest gross domestic product (GDP) numbers, are often
considered to be like a company's latest earnings data. In the same way
that financial news and current events can affect a company's stock
price, news and information about a country can have a major impact on
the direction of that country's currency. Changes in interest rates,
inflation, unemployment, consumer confidence, GDP, political stability
etc. can all lead to extremely large gains/losses depending on the
nature of the announcement and the current state of the country. <br /><br />The
number of economic announcements made each day from around the world
can be intimidating, but as one spends more time learning about the
forex market it becomes clear which announcements have the greatest
influence. Listed below are a number of economic indicators that are
generally considered to have the greatest influence - regardless of
which country the announcement comes from. <br /><br /><em>Employment Data </em>Most countries release data about the number of people that currently are employed within that economy. In the U.S.,
this data is known as non-farm payrolls and is released the first
Friday of the month by the Bureau of Labor Statistics. In most cases,
strong increases in employment signal that a country enjoys a prosperous
economy, while decreases are a sign of potential contraction. If a
country has gone recently through economic troubles, strong employment
data could send the currency higher because it is a sign of economic
health and recovery. On the other hand, high employment can also lead to
inflation, so this data could send the currency downward. In other
words, economic data and the movement of currency will often depend on
the circumstances that exist when the data is released. <br /><br /><em>Interest Rates </em>As
was seen with some of the economic theories, interest rates are a major
focus in the forex market. The most focus by market participants, in
terms of interest rates, is placed on the country's central bank changes
of its bank rate, which is used to adjust monetary supply and institute
the country's monetary policy. In the U.S.,
the Federal Open Market Committee (FOMC) determines the bank rate, or
the rate at which commercial banks can borrow and lend to the U.S.
Treasury. The FOMC meets eight times a year to make decisions on whether
to raise, lower or leave the bank rate the same; and each meeting,
along with the minutes, is a point of focus. (For more on central banks
read <em><a href="http://www.investopedia.com/articles/forex/06/CentralBanks.asp">Get to Know the Major Central Banks</a></em>.) <br /><em><br />Inflation </em>Inflation
data measures the increases and decreases of price levels over a period
of time. Due to the sheer amount of goods and services within an
economy, a basket of goods and services is used to measure changes in
prices. Price increases are a sign of inflation, which suggests that the
country will see its currency depreciate. In the U.S., inflation data is shown in the Consumer Price Index, which is released on a monthly basis by the Bureau of Labor Statistics. <br /><br /><em>Gross Domestic Product </em>The
gross domestic product of a country is a measure of all of the finished
goods and services that a country generated during a given period. The
GDP calculation is split into four categories: private consumption,
government spending, business spending and total net exports. GDP is
considered the best overall measure of the health of a country's
economy, with GDP increases signaling economic growth. The healthier a
country's economy is, the more attractive it is to foreign investors,
which in turn can often lead to increases in the value of its currency,
as money moves into the country. In the U.S., this data is released by the Bureau of Economic Analysis once a month in the third or fourth quarter of the month. <br /><br /><em>Retail Sales </em>Retail
sales data measures the amount of sales that retailers make during the
period, reflecting consumer spending. The measure itself doesn't look at
all stores, but, similar to GDP, uses a group of stores of varying
types to get an idea of consumer spending. This measure also gives
market participants an idea of the strength of the economy, where
increased spending signals a strong economy. In the U.S., the Department of Commerce releases data on retail sales around the middle of the month. <br /><br /><br /><br /><em>Durable Goods </em>The
data for durable goods (those with a lifespan of more than three years)
measures the amount of manufactured goods that are ordered, shipped and
unfilled for the time period. These goods include such things as cars
and appliances, giving economists an idea of the amount of individual
spending on these longer-term goods, along with an idea of the health of
the factory sector. This measure again gives market participants
insight into the health of the economy, with data being released around
the 26th of the month by the Department of Commerce. <br /><em><br />Trade and Capital Flows </em>Interactions
between countries create huge monetary flows that can have a
substantial impact on the value of currencies. As was mentioned before, a
country that imports far more than it exports could see its currency
decline due to its need to sell its own currency to purchase the
currency of the exporting nation. Furthermore, increased investments in a
country can lead to substantial increases in the value of its currency.
<br /><br />Trade flow data looks at the difference between a country's
imports and exports, with a trade deficit occurring when imports are
greater than exports. In the U.S.,
the Commerce Department releases balance of trade data on a monthly
basis, which shows the amount of goods and services that the U.S.
exported and imported during the past month. Capital flow data looks at
the difference in the amount of currency being brought in through
investment and/or exports to currency being sold for foreign investments
and/or imports. A country that is seeing a lot of foreign investment,
where outsiders are purchasing domestic assets such as stocks or real
estate, will generally have a capital flow surplus. <br /><br />Balance of
payments data is the combined total of a country's trade and capital
flow over a period of time. The balance of payments is split into three
categories: the current account, the capital account and the financial
account. The current account looks at the flow of goods and services
between countries. The capital account looks at the exchange of money
between countries for the purpose of purchasing capital assets. The
financial account looks at the monetary flow between countries for
investment purposes. <br /><br /><em>Macroeconomic and Geopolitical Events </em>The
biggest changes in the forex often come from macroeconomic and
geopolitical events such as wars, elections, monetary policy changes and
financial crises. These events have the ability to change or reshape
the country, including its fundamentals. For example, wars can put a
huge economic strain on a country and greatly increase the volatility in
a region, which could impact the value of its currency. It is important
to keep up to date on these macroeconomic and geopolitical events. <br /><br />There
is so much data that is released in the forex market that it can be
very difficult for the average individual to know which data to follow.
Despite this, it is important to know what news releases will affect the
currencies you trade. (For more insight, check out <em><a href="http://www.investopedia.com/articles/forex/05/TradingOnNews.asp">Trading On News Releases</a></em> and <em><a href="http://www.investopedia.com/articles/forex/05/TradingOnNews.asp">Economic Indicators To Know</a></em>.) <br /><br />Now
that you know a little more about what drives the market, we will look
next at the two main trading strategies used by traders in the forex
market – fundamental and technical analysis. </div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-33088338728161724872014-06-30T12:47:00.003-07:002014-06-30T12:47:43.257-07:00Forex Tutorial: Fundamental Analysis & Fundamentals Trading Strategies<div dir="rtl" style="text-align: right;" trbidi="on">
In the equities market, <a href="http://www.investopedia.com/terms/f/fundamentalanalysis.asp">fundamental analysis</a>
looks to measure a company's true value and to base investments upon
this type of calculation. To some extent, the same is done in the retail
forex market, where forex fundamental traders evaluate currencies, and
their countries, like companies and use economic announcements to gain
an idea of the currency's true value. <br /><br />All of the news reports,
economic data and political events that come out about a country are
similar to news that comes out about a stock in that it is used by
investors to gain an idea of value. This value changes over time due to
many factors, including economic growth and financial strength.
Fundamental traders look at all of this information to evaluate a
country's currency. <br /><br />Given that there are practically unlimited
forex fundamentals trading strategies based on fundamental data, one
could write a book on this subject. To give you a better idea of a
tangible trading opportunity, let's go over one of the most well-known
situations, the forex <a href="http://www.investopedia.com/terms/c/currencycarrytrade.asp">carry trade</a>. (To read some frequently asked questions about currency trading, see <a href="http://www.investopedia.com/articles/forex/06/SevenFXFAQs.asp"><em>Common Questions About Currency Trading</em></a>.) <br /><br /><strong>A Breakdown of the Forex Carry Trade </strong>The
currency carry trade is a strategy in which a trader sells a currency
that is offering lower interest rates and purchases a currency that
offers a higher interest rate. In other words, you borrow at a low rate,
and then lend at a higher rate. The trader using the strategy captures
the difference between the two rates. When highly leveraging the trade,
even a small difference between two rates can make the trade highly
profitable. Along with capturing the rate difference, investors also
will often see the value of the higher currency rise as money flows into
the higher-yielding currency, which bids up its value. <br /><br />Real-life examples of a yen carry trade can be found starting in 1999, when Japan
decreased its interest rates to almost zero. Investors would capitalize
upon these lower interest rates and borrow a large sum of Japanese yen.
The borrowed yen is then converted into U.S. dollars, which are used to
buy U.S. Treasury bonds with yields and coupons at around 4.5-5%. Since
the Japanese interest rate was essentially zero, the investor would be
paying next to nothing to borrow the Japanese yen and earn almost all
the yield on his or her U.S. Treasury bonds. But with leverage, you can
greatly increase the return. <br /><br />For example, 10 times leverage
would create a return of 30% on a 3% yield. If you have $1,000 in your
account and have access to 10 times leverage, you will control $10,000.
If you implement the currency carry trade from the example above, you
will earn 3% per year. At the end of the year, your $10,000 investment
would equal $10,300, or a $300 gain. Because you only invested $1,000 of
your own money, your real return would be 30% ($300/$1,000). However
this strategy only works if the <a href="http://www.investopedia.com/terms/c/currencypair.asp">currency pair's</a> value remains unchanged or <a href="http://www.investopedia.com/terms/a/appreciation.asp">appreciates</a>.
Therefore, most forex carry traders look not only to earn the interest
rate differential, but also capital appreciation. While we've greatly
simplified this transaction, the key thing to remember here is that a
small difference in interest rates can result in huge gains when
leverage is applied. Most currency brokers require a minimum margin to
earn interest for carry trades. <br /><br />
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However, this transaction is complicated by changes to the
exchange rate between the two countries. If the lower-yielding currency
appreciates against the higher-yielding currency, the gain earned
between the two yields could be eliminated. The major reason that this
can happen is that the risks of the higher-yielding currency are too
much for investors, so they choose to invest in the lower-yielding,
safer currency. Because carry trades are longer term in nature, they are
susceptible to a variety of changes over time, such as rising rates in
the lower-yielding currency, which attracts more investors and can lead
to currency appreciation, diminishing the returns of the carry trade.
This makes the future direction of the currency pair just as important
as the interest rate differential itself. (To read more about currency
pairs, see <a href="http://www.investopedia.com/articles/forex/05/051905.asp"><em>Using Currency Correlations To Your Advantage</em></a>, <a href="http://www.investopedia.com/articles/forex/06/EURCHFRelationship.asp"><em>Making Sense Of The Euro/Swiss Franc Relationship</em></a> and <a href="http://www.investopedia.com/articles/basics/04/050704.asp"><em>Forces Behind Exchange Rates</em></a>.) <br /><br /><br /><br />To clarify this further, imagine that the interest rate in the U.S. was 5%, while the same interest rate in Russia was 10%, providing a carry trade opportunity for traders to <a href="http://www.investopedia.com/terms/s/short.asp">short</a> the U.S. dollar and to <a href="http://www.investopedia.com/terms/l/long.asp">long</a>
the Russian ruble. Assume the trader borrows $1,000 US at 5% for a year
and converts it into Russian rubles at a rate of 25 USD/RUB (25,000
rubles), investing the proceeds for a year. Assuming no currency
changes, the 25,000 rubles grows to 27,500 and, if converted back to
U.S. dollars, will be worth $1,100 US. But because the trader borrowed
$1,000 US at 5%, he or she owes $1,050 US, making the net proceeds of
the trade only $50. <br /><br />However, imagine that there was another crisis in Russia,
such as the one that was seen in 1998 when the Russian government
defaulted on its debt and there was large currency devaluation in Russia
as market participants sold off their Russian currency positions. If,
at the end of the year the exchange rate was 50 USD/RUB, your 27,500
rubles would now convert into only $550 US (27,500 RUB x 0.02 RUB/USD).
Because the trader owes $1,050 US, he or she will have lost a
significant percentage of the original investment on this carry trade
because of the currency's fluctuation - even though the interest rates
in Russia were higher than the U.S. <br /><br />Another good example of forex fundamental analysis is based on commodity prices. (To read more about this, see <em><a href="http://www.investopedia.com/articles/forex/06/CommodityCurrencies.asp">Commodity Prices And Currency Movements</a></em>.) <br /><br />You
should now have an idea of some of the basic economic and fundamental
ideas that underlie the forex and impact the movement of currencies. The
most important thing that should be taken away from this section is
that currencies and countries, like companies, are constantly changing
in value based on fundamental factors such as economic growth and
interest rates. You should also, based on the economic theories
mentioned above, have an idea how certain economic factors impact a
country's currency. We will now move on to <a href="http://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a>, the other school of analysis that can be used to pick trades in the forex market. </div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-68846324268057794262014-06-30T12:47:00.000-07:002014-06-30T12:47:11.989-07:00Forex Tutorial: Technical Analysis & TechnicaI Indicators<div dir="rtl" style="text-align: right;" trbidi="on">
<span>One of the underlying tenets of <a href="http://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a>
is that historical price action predicts future price action. Since the
forex is a 24-hour market, there tends to be a large amount of data
that can be used to gauge future price activity, thereby increasing the
statistical significance of the forecast. This makes it the perfect
market for traders that use technical tools, such as trends, charts and
indicators. (To learn more, see <em><a href="http://www.investopedia.com/university/technical/">Introduction to Technical Analysis</a></em> and <em><a href="http://www.investopedia.com/articles/technical/03/111203.asp">Charting Your Way To Better Returns</a></em>.)</span><br /><br /><span> <span>It
is important to note that, in general, the interpretation of technical
analysis remains the same regardless of the asset being monitored. There
are literally hundreds of books dedicated to this field of study, but
in this tutorial we will only touch on the basics of why technical
analysis is such a popular tool in the forex market. </span></span><br /><br /><span> <span>As
the specific techniques of technical analysis are discussed in other
tutorials, we will focus on the more forex-specific aspects of technical
analysis.</span></span><br /><br /><span> <strong>Technical Analysis Discounts Everything; Especially in Forex </strong><br /><em>Minimal Rate Inconsistency </em><br /><span>There
are many large players in the forex market, such as hedge funds and
large banks, that all have advanced computer systems to constantly
monitor any inconsistencies between the different currency pairs. Given
these programs, it is rare to see any major inconsistency last longer
than a matter of seconds. Many traders turn to forex technical analysis
because it presumes that all the factors that influence a price -
economic, political, social and psychological - have already been
factored into the current exchange rate by the market. With so many
investors and so much money exchanging hands each day, the trend and
flow of capital is what becomes important, rather than attempting to
identify a mispriced rate. </span></span><br /><br />
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<span> <em>Trend or Range </em><br /><span>One of the greatest
goals of technical traders in the FX market is to determine whether a
given pair will trend in a certain direction, or if it will travel
sideways and remain range-bound. The most common method to determine
these characteristics is to draw trend lines that connect historical
levels that have prevented a rate from heading higher or lower. These
levels of support and resistance are used by technical traders to
determine whether or not the given trend, or lack of trend, will
continue. </span></span><br /><br /><span> <span>Generally, the major
currency pairs - such as the EUR/USD, USD/JPY, USD/CHF and GBP/USD -
have shown the greatest characteristics of trend, while the currency
pairs that have historically shown a higher probability of becoming
range-bound have been the currency crosses (pairs not involving the U.S.
dollar). The two charts below show the strong trending nature of
USD/JPY in contrast to the range-bound nature of EUR/CHF. It is
important for every trader to be aware of the characteristics of trend
and range, because they will not only affect what pairs are traded, but
also what type of strategy should be used. (To learn more about this
subject, see <em><a href="http://www.investopedia.com/articles/forex/05/050505.asp">Trading Trend Or Range<span>?</span></a></em>) </span><br /> </span><br /><br /><table align="center" border="0" cellpadding="2" cellspacing="0" style="border-collapse: collapse; width: 320px;"><tbody>
<tr><td> <img alt="FXTutorialFigure1.gif" height="326" hspace="5" src="http://i.investopedia.com/inv/articles/site/FXTutorialFigure1.gif" width="500" /></td></tr>
<tr><td align="right"> <span class="font1">Graph created by E-Signal.</span></td></tr>
<tr><td> <span class="font1">Figure 1</span></td></tr>
</tbody></table>
<span> </span><br /><br /><span><em><img alt="FXTutorialFigure2.gif" height="328" hspace="5" src="http://i.investopedia.com/inv/articles/site/FXTutorialFigure2.gif" width="500" /><span class="font1"><span class="font1"><span class="font1">Graph created by E-Signal.</span></span></span> <span class="font1">Figure 2</span><br /> Common Indicators </em></span><br /><br /><span><span>Technical
traders use many different indicators in combination with support and
resistance to aid them in predicting the future direction of exchange
rates. Again, learning how to interpret various forex technical
indicators is a study unto itself and goes beyond the scope of this
forex tutorial. If you wish to learn more about this subject, we suggest
you read our technical analysis tutorial.</span></span><br /><br /><span> A
few indicators that we feel we should mention, due to their popularity,
are: Bollinger Bands®, Fibonacci retracement, moving averages, moving
average convergence divergence (MACD) and stochastics. These technical
tools are rarely used by themselves to generate signals, but rather in
conjunction with other indicators and chart patterns. </span></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-86056991728337222322014-06-30T12:46:00.001-07:002014-06-30T12:46:17.660-07:00Forex Tutorial: Currency Trading Summary<div dir="rtl" style="text-align: right;" trbidi="on">
While this online
forex tutorial only represents a fraction of all there is to know about
forex trading, we hope that you've gained some insight into this topic.
We also encourage those of you who are interested in potentially trading
in the online forex market to learn more about the complexities and
intricacies that make this market unique. <br /><br />Let's recap:
<br />
<ul>
<li>The forex market represents the electronic over-the-counter markets
where currencies are traded worldwide 24 hours a day, five and a half
days a week. The typical means of trading forex are on the spot, futures and forwards markets.
</li>
<li>Currencies are "priced" in currency pairs and are quoted either directly or indirectly.
</li>
<li>Currencies typically have two prices: bid (the amount that the market will buy the quote currency for in relation to the base currency); and ask
(the amount the market will sell one unit of the base currency for in
relation to the quote currency). The bid price is always smaller than
the ask price.
</li>
<li>Unlike conventional equity and debt markets, forex investors have access to large amounts of leverage, which allows substantial positions to be taken without making a large initial investment.
</li>
<li>The
adoption and elimination of several global currency systems over time
led to the formation of the present currency exchange system, in which
most countries use some measure of floating exchange rates.
</li>
<li>Governments, central banks, banks and other financial institutions, hedgers, and speculators are the main players in the forex market.
</li>
<li>The main economic theories found in the foreign exchange deal with parity conditions such as those involving interest rates and inflation.
Overall, a country's qualitative and quantitative factors are seen as
large influences on its currency in the forex market.
</li>
<li>Forex traders use fundamental analysis
to view currencies and their countries like companies, thereby using
economic announcements to gain an idea of the currency's true value.
</li>
<li>Forex traders use technical analysis
to look at currencies the same way they would any other asset and,
therefore, use technical tools such as trends, charts and indicators in
their trading strategies.
</li>
<li>Unlike stock trades, forex trades
have minimal commissions and related fees. But new forex traders should
take a conservative approach and use orders, such as the take-profit or stop-loss, to minimize losses. </li>
</ul>
<div class="content-section two">
</div>
<div class="content-section three">
</div>
<div class="content-section four">
</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-27357519589230854382014-06-30T12:45:00.000-07:002014-06-30T12:45:02.118-07:00Forex Tutorial: Introduction to Currency Trading<div dir="rtl" style="text-align: right;" trbidi="on">
<br /><br />Contributors include: Kathy Lien, Boris Schlossberg, Casey Murphy, Chad Langager and Albert Phung<br /><br />The foreign exchange market (forex or FX for short) is one of the most exciting, fast-paced markets around. Until recently, forex trading in the currency market had been the domain of large financial institutions, corporations, central banks, hedge funds and extremely wealthy individuals. The emergence of the internet has changed all of this, and now it is possible for average investors to buy and sell currencies easily with the click of a mouse through online brokerage accounts. <br /><br /><br /> <br /> Daily currency fluctuations are usually very small. Most currency pairs move less than one cent per day, representing a less than 1% change in the value of the currency. This makes foreign exchange one of the least volatile financial markets around. Therefore, many currency speculators rely on the availability of enormous leverage to increase the value of potential movements. In the retail forex market, leverage can be as much as 250:1. Higher leverage can be extremely risky, but because of round-the-clock trading and deep liquidity, foreign exchange brokers have been able to make high leverage an industry standard in order to make the movements meaningful for currency traders. <br /><br />Extreme liquidity and the availability of high leverage have helped to spur the market's rapid growth and made it the ideal place for many traders. Positions can be opened and closed within minutes or can be held for months. Currency prices are based on objective considerations of supply and demand and cannot be manipulated easily because the size of the market does not allow even the largest players, such as central banks, to move prices at will. <br /><br />The forex market provides plenty of opportunity for investors. However, in order to be successful, a currency trader has to understand the basics behind currency movements. <br /><br />The goal of this forex tutorial is to provide a foundation for investors or traders who are new to the foreign currency markets. We'll cover the basics of exchange rates, the market's history and the key concepts you need to understand in order to be able to participate in this market. We'll also venture into how to start trading foreign currencies and the different types of strategies that can be employed. <br /> <br /> <br /> <br /> </div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-46349780128916154402009-05-28T17:01:00.002-07:002009-05-28T17:02:06.566-07:00WHAT IS FOREX<div dir="rtl" style="text-align: right;">FOREX or The Foreign exchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The most commonly traded currencies are referred to as “Majors”; over 85% of daily transactions on Forex trading involve the Majors. These seven currencies are the US Currency (Dollar, USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBY), Swiss Franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency. Prior to this and in particular during World War II, exchange rate remained more stable.<br /><br />WHAT IS FOREXForex - The Foreign exchange rate market.FOREX or The Foreign exchange rate market is an international market where various currency exchange transactions take place; this is in the shape of simultaneously buying one currency and selling another. The most commonly traded currencies are referred to as “Majors”; over 85% of daily transactions on Forex trading involve the Majors. These seven currencies are the US Currency (Dollar, USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBY), Swiss Franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). The Forex system in operation today was established in the 1970s when free currency exchange rates were introduced, this period also saw the US Dollar overtake the British Pound as the benchmark currency. Prior to this and in particular during World War II, exchange rate remained more stable.Forex trading in simplest terms is the buying of one currency and the selling of another. Forex trading, also referred to, as “FX” is open to corporations, small businesses, commercial banks, investment funds and private individuals, it is the largest financial market in the world averaging a daily turnover of over $1 trillion dollars, making it a diverse and exciting market. It is a 24-hour market enabling it to accommodate constant changing world currency exchange rates . According to New York time, trading begins at 2.15pm on Sunday in Sydney and Singapore and progresses through to Tokyo at 7pm, London at 2am and reaches New York at 8am. This leaves investors free to respond to global political, economic and social events when they take place, day or night Benefits of ForexThe (FOREX) currency market is the most liquid market in the world having various participants: banks and the investment organizations, corporations and the private speculators using the market not only for realization of speculative operations, but also for insurance upon fluctuation of exchange rates at export-import transactions.High Profitableness It occurs by means of the mechanism of Margin Trade which consists that there is no necessity to have all sum of the contract to make a transaction; it is enough to bring only in a pledge which makes the certain percent from the sum of the contract. That means, you are financed with the missing sum of money for the transaction execution on currency purchase or sale. For example, it is necessary to bring only in 1000 dollars of a pledge for realization of the deal on 100 000 dollars at a pledge in 1 %. So the trader may operate with the market sums of hundred thousand dollars, having small means in stock. For instance, you are a client of Northfinance Ltd and you have a 1000 USD on your account that allows you to strike a bargain on market Lot in 100 000 USD. Assume, that having analyzed change of rate USDJPY by the means of a convergence method - divergence of sliding average MACD (the fast line has crossed slow from top to down), You have made the decision to sell 100 000 USD against the Japanese yen at the price of 124.80. In a few hours when the rate of USDJPY has fallen down to 100 points and became 123.80, You have decided to close a position and have bought dollars much cheaper, than have sold those, so You have received profit. <span class="post-author vcard"> </span></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-72275612499473282242009-05-28T17:01:00.001-07:002009-05-28T17:01:30.630-07:00Forex Options<div dir="rtl" style="text-align: right;">Forex options, are another component that draws similarities with the stock market, they offer traders more security in being able to limit risk and increase profit when trading in the market. There are generally two types of options an investor can choose from, the first being a traditional option. This gives the buyer the right but not the obligation to purchase a currency at a set or agreed price and time. If a trader has taken advantage of Forex options and during the agreed time the currency being bought appreciates, the trader can sell this currency at a profit. However, if the currency depreciates the trader loses only the premium paid for the option. The second type of Forex options available is known as SPOT- Single Payment Options Trading. The Forex trader dictates this type of option, it is a prediction from the trader on what they forecast will occur on the Forex market. If the trader is successful the profit potential can be unlimited and if the SPOT is not a success only the premium is lost. Forex options give investors another tool with which to limit losses and increase profits, they are particularly popular at period of economic reporting</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-81917230071467234762009-05-28T16:58:00.000-07:002009-05-28T16:59:08.474-07:00The Forex Strategy<div dir="rtl" style="text-align: right;">Forex strategy generally provides independent traders, companies and dealers with currency and movement analysis in the marketplace. One of the most effective strategies employed in the Forex system is consistency; fluctuations need to be monitored in accordance with events that may influence trends. A country’s political, economic and social position will have an impact on the strength of their currency when trading on the global Forex market. This is known as a trend following system and is mostly suited to medium-term investments. Base strategy monitors the generation of signals on a daily basis, it offers the benefit of a fixed stable price and is more suited to short-term investments. <span class="post-author vcard"> </span></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-71984779509419558892009-05-28T16:57:00.000-07:002009-05-28T16:58:34.895-07:00Setup Forex<div dir="rtl" style="text-align: right;">As with all aspects of the Forex system, setup Forex is a simple process that can be initiated right away. All that is needed to begin trading is a real account opening. New customers are advised to open a free trial demo account to familiarize themselves with the Forex options and organization. It is also useful in building confidence in first time investors and finding a suitable approach to trading. A demo account works like a virtual account, no real money is invested and so no money can be lost, all monies tendered are intangible and have no worth. This is the best method of introduction to the Forex trading system for new and hesitant investors. On being asked to submit a virtual deposit it is advised that customers deal with money equal to the actual amount of money they have available for investment. Customers are then free to test Forex strategy and techniques without the risk of losing money.Following the use of a demo account, the trader progresses to setup Forex real account opening, a registration will also need to be completed as well as providing required documents and signed forms. Once a real account opening has successfully been accepted it is important to remember that all monies tendered are real, your demo account will become obsolete. As with all personal accounts please ensure the details of your real account opening remain private, do not share your login or password details with others and always be vigilant and aware of security settings. <span class="post-author vcard"> </span></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-72654004330676192572009-05-28T16:55:00.000-07:002009-05-28T16:57:39.135-07:00forex system<div dir="rtl" style="text-align: right;">The Forex system offers huge potential for investors once they have learned to exploit the marketplace, as this is a relatively new investment area particularly to private investors, many would-be investors become intimated by the market. Uncertainty of the Forex trading systems mixed with fear of the unknown prevents many people from trading on this global market. NorthFinance Forex aims to simplify and explain the Forex options and the workings of the system to help all first time investors in the FX reach their prospective profits. From setting up your Forex account to beginning trading, Northfinance Forex will guide you through the process, in easy to follow instructions. There is always a range of dealers’ online supplying different quotes, regardless of being a large corporation or a private individual the rates remain the same. Being a 24-hour business allows customers to access their account at a time that suits them wherever they may be located- when trading in Forex there are no limitatio</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-44453090176955094812009-05-28T16:50:00.000-07:002009-05-28T16:55:44.980-07:00The History of Forex<div dir="rtl" style="text-align: right;"><br />Over the last three decades the interactions of the Forex market have been expanding and developing to become the robust, global market it is today. The foreign exchange market, as it now stands originated in 1973. However, money or currency has been in our society in one form or another since the time of the ancient Pharaohs. Middle Eastern moneychangers were the first currency dealers who exchanged coins from one country to another. With the introduction of paper bills a transferable payment of funds became viable, making transactions on this primitive foreign exchange market much easier for merchants and traders. International trading and Forex (FX trading) encouraged the growth and strengthening of economies and brought many benefits to the countries involved.The establishment of the current foreign exchange market underwent many modifications; the first major changes came in 1944 with the Bretton Woods Accord, towards the end of World War II. The United States, Great Britain and France met at Bretton Woods, to design a new global economic order. The U.S. dollar became the standard from of currency that currency dealers used in order to determine the value of other currencies on the foreign exchange market. Prior to this the British pound, was the major currency by which most currencies were compared to on the Forex market. At this time much of Europe was in disarray whilst the US remained unscathed by the war. The Bretton Woods Accord aimed to create a stable FX trading environment by which global economies could restore themselves in the hope of stabilizing the global economic situation.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-50567503731165138702008-07-22T17:21:00.001-07:002008-07-22T17:21:54.414-07:00Speculation vs investment<div dir="rtl" align="right">It is very important that the individual wanting to trade foreign exchange be aware of the very marked difference between speculation and investment. Forex trading is by nature a speculative occupation. Foreign exchange markets are amongst the most volatile markets in the world. When traded on a margined basis they effectively become the most volatile in the world. Day trading in foreign exchange can be extremely profitable and high-risk profile traders can generate huge percentage returns even overnight. Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. Day trading is essentially speculation and day traders essentially only do that: day trading. Most people who trade foreign exchange are not professional day traders however.Often the contractors of foreign exchange brokerage services are professionals in some capacity or other. These people do not day trade but take the occasional position from time to time. This is also speculation and should not be confused with making an investment.The conclusion here is that the nature of foreign exchange trading not lend itself as much to investment as it does to speculation and hedging (hedging may be performed in forward instruments). It is possible in a sense to make an investment in foreign exchange over a long-term period but this necessitates a large account value and low leveraging.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-42969884762744004492008-07-22T17:20:00.004-07:002008-07-22T17:21:33.645-07:00Market dynamicsThe breadth, depth, and liquidity of the market are truly impressive. It has been estimated that the world's most active exchange rates like EURUSD and USDJPY can change up to 18,000 times during a single day.Somewhere on the planet, financial centers are open for business, and banks and other institutions are trading the dollar and other currencies, every hour of the day and night, aside from possible minor gaps on weekends. In financial centers around the world, business hours overlap; as some centers close, others open and begin to trade.The foreign exchange market follows the sun around the earth. Each business day arrives first in the Asia-Pacific financial centers; first Wellington, New Zealand, then Sydney, Australia, followed by Tokyo, Hong Kong, and Singapore. A few hours later, while markets remain active in those Asian centers, trading begins in Bahrain and elsewhere in the Middle East. Later still, when it is late in the business day in Tokyo, markets in Europe open for business. Subsequently, when it is early afternoon in Europe, trading in New York and other U.S. centers starts. Finally, completing the circle, when it is middle or late afternoon in the United States, the next day has arrived in the Asia-Pacific area, the first markets there have opened, and the process begins again.The graph underneath displays not only the currency trading time cycle but also the average 'depth' of trading at different times during the day in the various business hours.1. Spot rateA spot transaction is a straightforward (or outright) exchange of one currency for another. The spot rate is the current market price or 'cash' rate. Spot transactions do not require immediate settlement, or payment 'on the spot'. By convention, the settlement date, or value date, is the second business day after the deal date on which the transaction is made by the two parties.2. Bid & askIn the foreign exchange market (and essentially in all markets) there is a buying and selling price. It is important to perceive these prices as a reflection of market condition.A market maker is expected to quote simultaneously for his customers both a price at which he is willing to buy (the bid) and a price at which he is willing to sell (the ask) standard amounts of any currency for which he is making a market.ACM quotes very competitive spreads to customers, to site an example if a trader is interested in a transaction in EURUSD then he can trade on a bid/ask of say 0.9150 / 0.9153. This means that ACM is willing to buy from him a pre-determined amount at 0.9150 or inversely to sell to him at 0.9153.Generally speaking the difference between the bid and ask rates reflect the level of liquidity in a certain instrument. On a normal trading day, the major currency pairs EURUSD, USDJPY, USDCHF and GBPUSD are traded by a multitude of market participant every few seconds. High liquidity means that there is always a seller for your buy and a buyer for your sell at actual prices.3. Base currency and counter currencyEvery foreign exchange transaction involves two currencies. It is important to keep straight which is the base currency and which is the counter currency. The counter currency is the numerator and the base currency is the denominator. When the counter currency increases, the base currency strengthens and becomes more expensive. When the counter currency decreases, the base currency weakens and becomes cheaper. In telephone trading communications, the base currency is always stated first. For example, a quotation for USDJPY means the US dollar is the base and the yen is the counter currency. In the case of GBPUSD (usually called 'cable') the British pound is the base and the US dollar is the counter currency.4. Quotes in terms of base currencyTraders always think in terms of how much it costs to buy or sell the base currency. When a quote of 0.9150 / 53 is given that means that a trader can buy EUR against USD at 0.9153. If he is buying EURUSD for 1'000'000 at that rate he would have USD 915'300 in exchange for his million Euro. Of course traders are not actually interested in exchanging large amounts of different currency, their main focus is to buy at a low rate and sell at higher one.5. Basis points or 'pips'For most currencies, bid and offer quotes are carried down to the fourth decimal place. That represents one-hundredth of one percent, or 1/10,000th of the counter currency unit, usually called a 'pip'. However, for a few currency units that are relatively small in absolute value, such as the Japanese yen, quotes may be carried down to two decimal places and a 'pip' is 1/100th of the terms currency unit. In foreign exchange, a 'pip' is the smallest amount by which a price may fluctuate in that market.6. Euro cross & cross ratesEuro cross rates are currency pairs that involve the Euro currency versus another currency. Examples of Euro crosses are EURJPY, EURCHF and GBPEUR. Currency pairs that involve neither the Euro nor the US dollar are called cross rates. Examples of cross rates are GBPJPY and CHFJPY. Of course hundreds of cross rates exist involving exotic currency pairs but they are often plagued by low liquidity. Ever since the Euro the number of liquid cross rates have decreased and have been replaced (to a certain extent) by Euro crosses.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-89210108105828034932008-07-22T17:20:00.003-07:002008-07-22T17:20:49.695-07:00Main forex markets<div dir="rtl" align="right">Foreign exchange is traded essentially in two distinctive ways. Over an organized exchange and 'over the counter'. Exchange traded foreign exchange represents a very small portion of the total foreign exchange market the great majority of foreign exchange deals being traded between banks and other market participants 'over the counter'.1. Exchange traded currenciesIn the case of an organized exchange like the Chicago Mercantile exchange (CME) in the US, standardized currency contract sizes that represent a certain monetary value are traded in the International money market (IMM). A central clearing house organizes matching of transactions between counter-parties. There are various disadvantages to trading currency futures as outlined in the chapter Advantages of trading FX.2. Forex marketIn comparison the over the counter market is traded around the world by a multitude of participants and price quality, reputation and trading conditions determine who a participant wishes to trade with. It is probably the most competitive market in the world and brokers like ACM must insure they live up to the highest standards of service and be compliant with market standards and practices if they want to acquire new customers and retain their existing ones. In 1998 a survey under the auspices of the Bank for International Settlements (BIS), global turnover of reporting dealers was estimated at about USD 1.49 trillion per day. In comparison, currency futures turnover was estimated at USD 12 billion.Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom, even though that nation's currency, the British pound is less widely traded in the market than several others. As shown in the graph underneath, the United Kingdom accounts for about 32 percent of the global total; the United States ranks a distant second with about 18 percent, and Japan is third with 8 percent.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-42458101476957463392008-07-22T17:20:00.001-07:002008-07-22T17:20:28.346-07:00Market participants<div dir="rtl" align="right">In the last years, the foreign exchange market has expanded from one where banks would execute transactions between themselves to one in which many other kinds of financial institutions like brokers and market-makers participate including non-financial corporations, investment firms, pension funds and hedge funds.Its' focus has broadened from servicing importers and exporters to handling the vast amounts of overseas investment and other capital flows that currently take place. Lately foreign exchange day trading has become increasingly popular and various firms offer trading facilities to the small investor.Foreign exchange is an 'over the counter' (OTC) market, that means that there is no central exchange and clearing house where orders are matched. Geographic trading 'centers' exist around the world however and are: (in order of importance) London, New York, Tokyo, Singapore, Frankfurt, Geneva & Zurich, Paris and Hong Kong. Essentially foreign exchange deals are made between participants on the basis of trust and reputation to deliver on an agreement. In the case of banks trading with one another, they do so solely on that basis. In the retail market, customers demand a written legally accepted contract between themselves and their broker in exchange of a deposit of funds on which basis the customer may trade.Some market participants may be involved in the 'goods' market, conducting international transactions for the purchase or sale of merchandise. Some may be engaged in 'direct investment' in plant and equipment, or may be in the 'money market,' trading short-term debt instruments internationally. The various investors, hedgers, and speculators may be focused on any time period, from a few minutes to several years. But, whether official or private, and whether their motive be investing, hedging, speculating, arbitraging, paying for imports, or seeking to influence the rate, they are all part of the aggregate demand for and supply of the currencies involved, and they all play a role in determining the exchange rate at that moment.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-48874954028236312392008-07-22T17:19:00.002-07:002008-07-22T17:20:01.473-07:00Origins of foreign exchange<div dir="rtl" align="right">In order to gain a complete understanding of what foreign exchange market is, it is useful to examine the reasons that lead to its existence in the first place. Exhaustively detailing the historical events that shaped the foreign exchange market into what it is today is of no great importance to the fx trader and therefore we happily will omit lengthy explanations of historical events such as the Bretton Woods accord in favor of a more specific insight into the reasoning behind foreign exchange as a medium of exchange of goods and services.Originally our ancestors conducted trading of goods against other goods this system of bartering was of course quite inefficient and required lengthy negotiation and searching to be able to strike a deal. Eventually forms of metal like bronze, silver and gold came to be used in standardized sizes and later grades (purity) to facilitate the exchange of merchandise. The basis for these mediums of exchange was acceptance by the general public and practical variables like durability and storage. Eventually during the late middle ages, a variety of paper IOU started gaining popularity as an exchange medium.The obvious advantage of carrying around 'precious' paper versus carrying around bags of precious metal was slowly recognized through the ages. Eventually stable governments adopted paper currency and backed the value of the paper with gold reserves. This came to be known as the gold standard. The Bretton Woods accord in July 1944 fixed the dollar to 35 USD per ounce and other currencies to the dollar. In 1971, president Nixon suspended the convertibility to gold and let the US dollar 'float' against other currencies.Since then the foreign exchange market has developed into the largest market in the world with a total daily turnover of about 1.5 trillion USD. Traditionally an institutional (inter-bank) market, the popularity of online currency trading offered to the private individual is democratising foreign exchange and widening the retail market.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-60048207993949723932008-07-22T17:19:00.001-07:002008-07-22T17:19:37.854-07:00Advantages of trading forex<div dir="rtl" align="right">Although the forex market is by far the largest and most liquid in the world, day traders have up to now focused on seeking profits in mainly stock and futures markets. This is mainly due to the restrictive nature of bank-offered forex trading services.Advanced Currency Markets (ACM) offers both online and traditional phone forex trading services to the small investor with minimum account opening values starting at 5000 USD.There are many advantages to trading spot foreign exchange as opposed to trading stocks and futures. Below are listed those main advantages.1. Bid/Ask Spread ratesSpread rates have tightened dramatically in the last years. Most online forex brokers offer a spread of 5 pips on EURUSD which is the most widely traded and liquid currency pair. ACM offers a 3 pip spread on EURUSD. In stock trading, only liquid stocks offer tight spreads. Those spreads often represent on average between 0.04% and 0.06% of the value of the stock. In comparison ACM offers a 3 pip spread on all major currencies, this equates to approximately between 0.02% and 0.03% on the underlying dollar value.Exact percentages at current rates (May 2002)EURUSD 3 pips 0.03%GBPUSD 3 pips 0.03%USDJPY 3 pips 0.023%USDCHF 3 pips 0.018%In the futures market spreads can vary anywhere between 5 and 9 pips and can become even larger under illiquid market conditions (which tends to happen substantially more often in futures currencies).2. CommissionsACM offers foreign exchange trading commission free. This is in sharp contrast to (once again) what stock and futures brokers offer. A stock trade can cost anywhere between USD 5 and 30 per trade with online brokers and typically up to USD 150 with full service brokers. Futures brokers can charge commissions anywhere between USD 10 and 30 on a round turn basis.3. Margins requirementsACM offers a foreign exchange trading with a 1% margin. In layman's terms that means a trader can control a position of a value of USD 1'000'000 with a mere USD 10'000 in his account. By comparison, futures margins are not only constantly changing but are also often quite sizeable. Stocks are generally traded on a non-margined basis and when they are, it can be as restrictive as 50% or so.4. 24 hour marketForeign exchange market trading occurs over a 24 hour period picking up in Asia around 24:00 CET Sunday evening and coming to an end in the United States on Friday around 23:00 CET. Although ECNs (electronic communications networks) exist for stock markets and futures markets (like Globex) that supply after hours trading, liquidity is often low and prices offered can often be uncompetitive.5. No Limit up / limit downFutures markets contain certain constraints that limit the number and type of transactions a trader can make under certain price conditions. When the price of a certain currency rises or falls beyond a certain pre-determined daily level traders are restricted from initiating new positions and are limited only to liquidating existing positions if they so desire. This mechanism is meant to control daily price volatility but in effect since the futures currency market follows the spot market anyway, the following day the futures market may undergo what is called a 'gap' or in other words the futures price will re-adjust to the spot price the next day. In the OTC market no such trading constraints exist permitting the trader to truly implement his trading strategy to the fullest extent. Since a trader can protect his position from large unexpected price movements with stop-loss orders the high volatility in the spot market can be fully controlled.6. Sell before you buyEquity brokers offer very restrictive short-selling margin requirements to customers. This means that a customer does not possess the liquidity to be able to sell stock before he buys it. Margin wise, a trader has exactly the same capacity when initiating a selling or buying position in the spot market. In spot trading when you're selling one currency, you're necessarily buying another.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-12731719368767753942008-07-22T17:18:00.002-07:002008-07-22T17:19:12.582-07:00Forex Glossary<div dir="rtl" align="right">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 .83Bretton 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.at 9:16 AM 1 comments FOREX Trading NewsForex Trading as commonly called stands for Foreign Exchange Trading. It is biggest financial trading market in the world having a daily turnover in excess of US$1 Trillion. The figure signifies a volume amounting to about 28 times the combined volume of all US equity trading markets.Forex Trading means buying of one foreign currency by paying in another. Each transaction involves a purchase and a sale of currency at the same time, since currency trading is always done in pairs for example USD/EUR or USD/GBP etc.Foreign Currency trading or Forex Trading is undertaken for two purposes. About 5-7% of the transactions are undertaken by institutions that do business in foreign lands or companies that have to convert their foreign currency earnings into domestic currency. The rest of the Forex Trading is done purely on speculative basis with profit objectives.For trading by speculation purposes, the best profit making opportunity lies in most traded currencies (obviously the currencies of most economically advanced countries) also called the "majors" in Forex Trading parlance. They consist of US Dollar, GB Pounds, Japanese Yen, European Unions EURO, Swiss Franc, Canadian Dollar, Australian Dollar etc</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-36345667387877234502008-07-22T17:18:00.001-07:002008-07-22T17:18:32.475-07:00How To Choose a Forex Trading System That Works and Suits You<div dir="rtl" align="right">There are so many different trading systems you could use to trade the forex market, some better suited to certain people than others. For example some people may find it easier to comprehend and take into account fundamental factors as opposed to looking at a screen covered in technical indicators, and vice-versa.The first logical step in determining what type of trading system would best suit you is actually being aware and understand the widely known methods of analysis used in trading the currency market. Once you are aware of the tools that are available, you can generally tell what type of analysis suits you. For example some of the main technical analysis methods which are popular include:Pivot pointsChart patternsFibonacci retracementsCandlestick patternsAnd some fundamental factors which are widely used include analyzing:Interest ratesTrade balancesUnemployment ratesGross domestic product (GDP)You may now actually be able to develop your own system by combining certain methods of analysis together, giving you a method which you are comfortable with. On the other hand you may decide that you would like to trade someone else’s system, either way, that brings us to the next step which is determining the profitability of a trading system.Determining ProfitabilityMost people would think that back testing is the best way to determine a systems profitability. However back testing doesn’t always give you a true idea of how profitable a system is. The reason for this is because when you’re back testing your system on historical charts, you are only seeing the obvious setups which have occurred, and not always seeing the ones that are less obvious. These less obvious ones sometimes can produce losses, which is why back testing isn’t always the best method to implement.A better method of determining profitability is by trading your system in real-time with a demo account. This would give you a true understanding of what your system is capable of. This would also allow you to familiarize yourself with your trading platform at the same time. When determining profitability you must look at it in terms of expectancy and opportunity.Expectancy & OpportunityThese two factors together will be able to tell you what you could expect to make over a period of time. Expectancy is calculated with the following formula:(Probability of winning × average win) – (Probability of losing × average loss)This will give you a figure which is the average amount you can expect to make per trade. This shouldn’t be a negative amount, if it is you should look at some other method of trading since you cannot make money on a system that produces a negative expectancy. Obviously the higher this figure is the better. Now to the opportunity factor.The opportunity factor is how often you are able to trade using your system. By multiplying your expectancy figure with your opportunity factor it will tell you how much you could expect to make over a period of time. The more opportunity you have to trade, the more money you should expect to make. This now brings us to the last component of a trading system, money management.Money ManagementWithout proper money management you will end up as a statistic. In other words one of those 90%+ of traders who loose their money. Money management tells you how much of your account balance to risk per trade. The whole point of money management is to ensure your survival over the long term, and to preserve your capital.The most common form of money management is the percent risk model which tells you not to risk more than x percent of your account balance on any one trade. A range between 1-3% is generally an accepted amount which has been a reliable percentage to use in order to make money in the long term.ConclusionBy taking into consideration the above factors you will be able to determine if a trading system best suits you, and with some simple mathematical calculations you will be able to determine its profitability</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-4183736608357337882008-07-22T17:17:00.001-07:002008-07-22T17:17:57.839-07:00About Forex<div dir="rtl" align="right">To buy foreign goods or services, or to invest in other countries, companies and individuals may need to first buy the currency of the country with which they are doing business. Generally, exporters prefer to be paid in their country's currency or in U.S. dollars, which are accepted all over the world.The foreign exchange market, or the "FX" market, is where the buying and selling of different currencies takes place. The price of one currency in terms of another is called an exchange rate.The market itself is actually a worldwide network of traders, connected by telephone lines and computer screens there is no central headquarters. There are three main centers of trading, which handle the majority of all FX transactions United Kingdom, United States, and Japan .</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-65087911625554047692008-07-22T17:16:00.000-07:002008-07-22T17:17:19.586-07:00Forex Resources<div dir="rtl" align="right">The live forex charts can be used to track ten currency pairs in real time and click on forex rates for a pop-up window of ten currency pairs with live rates for the EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD, EUR/JPY, EUR/GBP and EUR/CHF, including the daily highs and lows from 17:00 EST. For a selection of free ebooks, trial offers, calculators and tutorials, visit free downloads. For a current snapshot of the foreign exchange market, use the market monitor to display time zones for several key markets, as well as live forex rates, a sentiment indicator and an economic calendar in a detachable window. Use the online money management calculator to calculate the correct position size for your trade based on your risk profile. Browse the selection of forex books on offer in forex books which includes special sections on technical analysis and general trading. There is a great number of forex related resources to be found in the categorised forex directory to help you find a particular niche or service.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-5902492000918886391.post-5825772319186004292008-07-22T17:03:00.000-07:002008-07-22T17:16:21.719-07:00what is forex<div dir="rtl" align="right">FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip click here.Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.A technical analysis is founded on three suppositions:Movement of the market considers everything;Movement of prices is purposeful;History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).</div>Unknownnoreply@blogger.com0