Forex Trading, Forex News, Articles and Trading Strategies

It is a must that we get familiarize with terms that are often used in the Forex trading. Without knowing what they mean, we actually get lost in this major money making method. So here are few important key forex terms which I think every forex trader must be aware of.

PIP

The increment in the currency value is called a PIP. If EUR/USD move from 1.8889 to 1.8890 it is one pip. The Pip is how you measure your profit or loss. It is calculated in different way for a currency pair with USD as its base currency and for a pair in which USD is not the base currency.

Do not worry, we need not calculate this pip value, the brokers will do it for us automatically.

LOT

An important term. The standard lot size is $100,000 and the size of a mini lot is $10,000. We always buy and sell in lots. For example if you buy 1 lot of USD/CHF at 1.5000, it means,

USD/CHF at an exchange rate of 1.4555
(.0001 / 1.5000) x $100,000 = $6.6 per pip

here, 0.0001 is the minimum change in currency value i.e. the PIP
1.5000 is t he exchange rate and
100,000 is the lot we buy or sell.

The broker will calculate this for us.

LEVERAGE

It is possible to trade large money in forex with very little amount. This is made possible by what is called leverage. For example, you start an account with a broker for $1000 and the broker is offering a 100:1 leverage meaning you can trade 100 times your money i.e. with $1000 you can trade 1 lot of $100,000 of Forex money.

As luring as it might seem. It has high risks involved too. The more the leverage the more the profit but do not forget that it is also more the loss.

BID PRICE

Bid price is the price at which the market is ready to buy the currency pair. This is the price for which you can sell your base currency. For example,if GBP/USD 1.7500/05, the bid price is 1.7500. This means you sell one British pound for 1.7500 U.S. dollars.

ASK PRICE

Ask price is the price at which the market is ready to sell the currency pair. This is the price for which you can buy your base currency. For example,if GBP/USD 1.7500/05, the ask price is 1.7505. This means you buy one British pound for 1.7505 U.S. dollars.

SPREAD

Spread is the difference between Bid and Ask price. This is mostly where the broker gets his money. For example if EUR/USD is 1.5800/05, then the spread is 5 pips.

CROSS CURRENCY

The currency pairs in which neither the base nor the quote currency is USD. For example, EUR/GBP. Buying EUR/GBP riggers two trades involving USD. i.e. it is equivalent to buying EUR/USD and selling a GBP/USD. These involve high transaction cost and has higher risks involved.

MARGIN CALL

Margin call is given by your brokers. The broker notifies you that your margin deposits have fallen below the required minimum level. This is when we will not have opportunity to trade further unless we deposit further.

This is all I can think right now. If you want to know more about any listed term or anyother term please let me know.

Now that we know the basics of Forex trading, the next step would be trading the currencies. It is highly recommended to trade using demo accounts for atleast 6 months before you go live. It gives an opportunity for you to get familiarized with the trading methods and strategies. Trading Forex is not an easy task. It requires a lot of hard work and patience. Do not hurry and open a live account. It may lead to a very bad experience.


Photo by: epicharmus

Which is the Ideal time to open a forex account?

It depends. Few may feel confident enough to open an account within 2 months. But if you ask is it the correct time? I may say No. It is YOU who have to decide. Just think.

- Am I ready to bear the loss?

- If I do a mistake, Am I in a position to accept it? (both mentally and financially)

- Do I have the right Forex broker?

- Do I have the required knowledge and experience?

These are few questions you must ask yourself before opening a live account.

Choosing the Right Broker:

Even if we have enough experience and knowledge, the broker we choose plays an important role in our trading life. Be sure that you have chosen the right broker before trading live. Have a look at how to choose the forex broker who is right for you.

Before going live with the broker, do trade with their demo account.

Few Forex brokers who offer Demo account

There are many brokers. Choose your broker wisely. I would suggest you to open demo accounts with 3 different brokers and compare your broker's feature and choose the best for you.

Each broker has a different software and they provide online training on how to trade forex with their software. Most of the forex tutorials they provide are easy to understand. It is upto you to choose the right broker.

My question to you:

When do you think is the right time to open a live forex account? Do share your views so that all can be benefited.

Forex brokers play a major role in our forex trading. A Forex broker is an individual or a company which buys and sells orders according to the trader's(your) decisions. Choosing the right forex broker could be a daunting task. It kind of decides our fate with forex trading.

This Forex world is yet another place where we can find 'n' number of scams. This mainly includes forex brokers. There are many people who have lost money because of trusting wrong Forex brokers. It could be overwhelming for you as there are thousands of forex brokers providing similar services. How can you choose the right forex broker? There are few basic needs that a forex broker must satisfy in order to be considered.


Is the Forex Broker regulated?

This is the first thing you should check about a broker. In the United States, a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA protects the public against fraud, manipulation, and abusive trade practices.

You can verify the broker information at NFA's website.

How is the forex broker's Customer Service?

This is very important because at times we will get doubts and questions on using the broker's services. We must be sure that the customer service is highly satisfactory. Check if they have

- 24 hour customer support
- many options of contacting them (phone,e-mail,chat etc)
- representatives with Good knowledge about Forex
- timely and prompt response
- courtesy towards the customers

Be sure to choose the right one as it your hard earned money that you are giving to the Forex Brokers.

The Forex Trading Software

Another key factor. Most of the brokers provide online forex trading and for this an exclusive software is required. Make sure that you are clear in using the software and also feel very comfortable with the software.

- You must be able to get all the required information (current account balance with realized and unrealized profit and loss, margin available, and any margin locked in open positions) in the main screen of the software.

- Make sure that you have the ability to view real-time currency exchange rate quotes.
It is better to have a demo account first. Study the and then go live with them.

Leverage,Currency Pairs,Trading hours,transaction cost etc
Make sure you are able to trade all the major currency pairs and most of the minor currency pairs. Know more about the currency pair and how to read them.


Check if the broker offers various Leverage options. Though there are many options, 100:1 is the best for standard account and 200:1 is the best for Mini account. As said before, Leverage can make or break you. So be careful, more leverage more money and even more risk.


Check if the broker is available during the active trading hours.


Instant automatic execution of your trade is a must. Check if the broker is providing this service. If not, he is out of the list right away as this is the most important factor.


Check if we can open an trading account for a minimum amount. The ideal amount for a beginner would be anywhere between $300 to $500. As a new trader, I would strongly suggest you not to invest more unless you are sure of your trading strategy.


Check if the broker offers low spread values. Lower the spread, more the saving for you.


Check if the transaction costs and rollover charges are reasonable.

Forex broker's review

Also check the current reviews of the forex broker from the internet. Also you can find a lot of help from forex forumns. Ask people how they rate their forex brokers. The pros and cons and then decide which one is the best for you.


These are some of the basic requirements that your broker must satisfy. in order to be chosen. I would strongly suggest you to first get a demo account from 2 or 3 brokers, about whom you have already done the background checks. Trade with them using the demo account. Call their customer service and ask silly doubts and check how they are handling you. Finally choose the one who you feel is the best for you.


Choose your broker wisely. Choose a forex broker who is suitable for your needs and not because someone asked you to. Do your ground work properly and carefully. Forex is a place where you are the boss and you have all rights to hire or fire a forex broker. Your money. Decide wisely.

As a Forex newbie, I had a lot of questions about currency pairs. How to read currency pairs, when to trade which currency pairs etc. Reading forex books and articles, I could get a clear view of when to trade which currency pair. This is a very important factor as this determines our immediate Profit or Loss in Day trading.

Most of us will have a specific time which is comfortable for us to trade currencies. If we are wise enough we would be trading the correct Pair for that time. This is determined by many key factors.

I have consolidated the information to make it easy and handy for us.

Time: 7.00 PM EST - 4.00 AM EST
Best currency pairs to trade :

USD/JPY
AUD/USD
GBP/CHF
NZD/USD
GBP/JPY

Currency Pairs to avoid:

EUR/USD
EUR/CHF
EUR/GBP


Time: 8.00 AM EST - 5.00 PM EST
Best currency pairs to trade :

GBP/USD
GBP/JPY
USD/CHF
GBP/CHF


Currency Pairs to avoid:

EUR/GBP
EUR/CHF


Time: 2.00 AM EST - 12.00 AM EST
Best currency pairs to trade :

EUR/USD
USD/CAD
GBP/USD
USD/CHF
GBP/CHF


Currency Pairs to avoid:

JPY based currency


The market is highly active between 8.00AM EST and 12.00PM EST.

The market is at its slowest between 2.00AM EST and 4.00 AM EST.

Do you have any strategy for trading any currency pair at a given time?

This is the basic step in currency/forex trading. We deal with a lot of currencies here and reading the currency pairs wrongly would cost a lot of money. In forex trading, currency is always stated in pairs. For example, EUR/USD, USD/JPY etc. It is because we will be buying a currency and simultaneously selling the other.

Let us take an example and learn more in detail. The value is just an example and in real time the USD/JPY pair has a different value.

USD/JPY = 1.4500

The currency before the '/' is called the 'Base Currency' and the second currency is called the 'quote currency'. In our example, USD is the base currency and JPY is the quote currency.

When buying, the exchange rate indicates how much we have to pay in units of the quote currency to buy one unit of the base currency. In our example, we have to pay 1.4500 JPY(Japanese Yen) to buy 1 USD(US dollar).

When selling, the exchange indicates how much of the quote currency we get for selling one unit of the base currency. In our example, we will get 1.4500 JPY(Japanese Yen) when we sell 1 USD(US dollar).

It always means that you are buying the base currency and simultaneously selling the quote currency.

When to buy and Sell the Base currency?
We buy the base currency when we think it will increase (appreciate) relative to the quote currency.

We sell the base currency when we think it will decrease (depreciate) relative to the quote currency.

For example, we will buy USD/JPY if we are sure that the exchange rate for USD will increase relative to the JPY.

What is Long and Short w.r.t Forex trading?
It is very simple, Long=Buy and Short =sell.

'Going long' in forex means you are buying the base currency and selling the quote currency which is nothing but 'buying' the currency pair.

'Going Short' in forex means you are selling the base currency and buying the quote currency which is nothing but 'selling' the currency pair.

Technical analysis is nothing but analyzing the market with the help of charts. More calculation than speculation. As already mentioned, analyzing the market before placing any trade is a must for trading currency wisely. While fundamental analysis is more to do with the economic news, technical analysis is more of trends.

If you are smart enough to find a trend analyzing the charts, you would be placing profitable trades. It takes a lot of practice in identifying a "trend". To do that we must know the basics of charts. There are totally 3 types of charts.

1. Line chart
2. Bar Chart
3. Candlestick chart

Out of these three, the candlestick charts convey more information and is very easy to read and interpret. It helps the beginners to understand the market better.

Line Chart:
A line chart simple draws a line from one closing price to another closing price. It is like joining dots and making a graph. You can see the price movement of a currency pair through this chart. Here is an example of EUR/USD Line chart.



Bar Chart:
A bar chart gives more details like when the trade was opened, when it was closed, the high and low of the currency pair for that particular period. These charts are better to analyze, as we get almost all the required details. Here is an example of EUR/USD bar chart.



The basic bar chart interpretation :



Here,

Open: The horizontal line on the left is the opening price
High: The top of the vertical line defines the highest price of the time period
Low: The bottom of the vertical line defines the lowest price of the time period
Close: The horizontal line on the right is the closing price

Candlestick charts:
The most favorite charts of forex experts/traders. It gives the same information as that of a bar chart but in a more readable form. This makes a trader's life easy. Just by looking at the graph we will be able figure out the market's condition and hopefully a trend which will be our major goal in chart analysis. Here is an example of EUR/USD candlestick chart.



The basic Candlestick chart interpretation:



Here,

Open,close,high,low means the same as bar chart. However, the green color indicates that the market went bullish for that period and red color indicates that the market went bearish for that period. As of now just remember this. I will be writing more in detail about bullish and bearish markets.

Support and Resistance are key players in Forex trading. Identifying support and resistance would be our first step towards our Technical analysis. There are different ways a support and resistance line could be placed. Each trader may differ in their own analysis but the basic concept is the same.



Support Lines:
Support lines are horizontal lines drawn in a chart where the market has been at its lowest. It is believed that if the market again reaches the support line, a reversal in trend would happen.

There are times when the market has broken the support lines. We must be careful at these times as they might mislead sometimes. If a support line is broken for sure, then the trend will continue the same way.


Resistance Lines:
Resistance lines are horizontal lines drawn in a chart where the market has been at its highest. It is believed that if the market again reaches the resistance line, a reversal in trend would happen.

Similarly, resistance lines could be broken and if they are then the trend will continue.

Market trend decides if we have placed a profitable trade. Identifying the trend is very important in technical analysis. The two major terms that we will use very often in currency trading is Bullish and Bearish. It is very important to know the meaning of these terms and not to get confused.

What is a Bullish Market?

In simple words, a market where buyers are more than sellers. A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of future price increases and future capital gains. During a bull market, it is suggested to buy currency pairs.

What is a Bearish Market?

In simple words, a market where sellers are more than buyers.While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period.During a bear market, it is suggested to sell currency pairs.

Bullish or Bearish - Which is best to trade?

Both are good. Always go with the trend. It is very important to play along with the trend to place profitable trades. Mostly trends are determined with the help of technical analysis i.e. charts. It depends on which type of chart you are using to analyze the market. For example, you may use a 30 min chart to analyze and find that the market is bullish. However, if you analyze using a day chart, it might show that the market is bearish. So, when you decide on placing trades the important information you should be clear with are,

1. Which type of charts Am I going to use for trading?
2. Am I going to trade for long period or short period?

Why trading period and chart play an important role in placing profitable trades?
For example, you are trading the 30 min chart of EUR/USD and after doing immense analysis you find that the market is bullish and buy EUR/USD. After say 8 hours you come and see that you are on a loss. Why? you did the analysis correctly and what happened suddenly?

If you check the 4 hour chart for the same day, it might have given you a different idea. The 4 hour chart could have indicated that the market is bearish. Which means if you had traded EUR/USD using 30 min chart and waited for long hours the analysis could go against you. It is always better if you can trade with the chart. If you had closed the trade within 1 hour, you would have ended up with profits. I hope I made my point here. If this explanation is not clear please feel free to buzz me ask!

It is always suggested that you trade longer period chart, a min of 1 hour chart so that you get a clear idea of the market on that particular day.

Conclusion:

- Always go with the trend.

- Analyze longer period chart for a better analysis.

- Buy currency pair when the market is bullish.

- Sell currency Pair when the market is bearish.

Every currency traded in Forex is influenced by the conditions in its country of origin, and the external relations that affect its value. Economic Indicators (GDP growth, import/export trade accounts), social factors (unemployment rate, real estate market conditions) and the country’s central bank policy are the factors that determine the currency value in the Forex market. Each one of the six major currencies has its particularities, and we are going to analyze the fundamentals that drive the currencies individually.

The U.S. dollar (USD) is the most traded currency in the Forex market. It is also used as a measure to evaluate other currencies and commodities. The reserves in USD are by far the largest being held by different nations, and they compose 64% of the world reserves. Globally speaking, the fundamentals that drive the U. S. Dollar are several. Since the largest amount of metallic commodities and the oil are mostly traded with prices in USD, significant demand variations in these markets will reflect directly on the currency value, as it happened in 2008 with the EUR/USD reaching 1.60, being the oil price a big contributor for this event. In the domestic market, the biggest factor that has been moving the dollar are the industry indicators and the real estate boom, and both were caused by an unsustainable credit system which could not be paid, causing a domino effect in the United States economy, and consequently, worldwide. During the last few years, the USD has been losing ground for other currencies, thanks to the credit bubble, and erroneous social policies, but it will still remain as one of the most powerful currencies for an undetermined period of time.

The euro (EUR) is by far the newest currency traded among the major pairs traded on Forex markets. It is used by 16 European Union member countries and it tends to enlarge during the next few years. The fundamental factors that move the Euro are often based on the strongest economies using the new common currency, such as: France, Italy and mainly Germany. The countries’ indicators regarding export trade, inflation and unemployment rate tend to have a high impact on the EUR movements, considering that countries such as Germany are larger exporters of manufactures and technology. Europe still remains an energy dependant from the Russian gas and the Middle Eastern Oil, making higher demands for these commodities to have a negative reflect on the European Union common currency.

The pound sterling (GBP) is the national currency of the United Kingdom, and the fundamental factors that move it are as complex and variable as the British economy and its global influence. The London commodity market plays a fundamental role in the GBP trends, being a reference for oil and gold trading. Nevertheless, as a powerful and globally dynamic economy, the United Kingdom indicators, social situation and the housing sector are perhaps the main determinant factors for the GBP price. Lately, the British economy has faced inflation issues, which led the interest rates to be cut, industrial recession, and other domestic factors that made the trading movements to naturally flow from the GBP towards other strong economically backed currencies, such as the EUR.

The Japanese yen (JPY) is the strongest and by far the most traded currency in the Asian market. Japan’s economy is mainly orientated to the industrial production exportation, and the economic situation of its main commercial partner, the USA, tends to have a direct influence on the JPY market. The JPY is a low-yield currency, being the GBP/JPY the most volatile pair traded on Forex, usually the scalper’s favorite one.

Switzerland is a small country located in the European Alps, yet, its strong international trade and money influx, made the Swiss franc (CHF), one of the main currencies traded on Forex. The CHF is often preferred by low yield investors. In times of financial instability, such as for the last years with the USD, many traders choose the CHF as a safe investment. The CHF trends can be often compared to those of the gold, increasing their value while other markets’ tends to depreciate during economic downturns.

The Canadian Dollar (CAD) faces a similar situation with the other commodity currencies, being majorly an export-dependable. Most of the Canadian production is exported to the USA. Facing the very same credit bubble problem that dragged America into recession, Canada has to deal also with a decreasing demand for all commodities. The CAD usually correlates positively with the prices for the all commodities.