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Some Quick Forex Information

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Trading in the FOREX market is realized in lots. When you open a position, you can choose the number of lots you want from 1 to 10. One lot equals $ 100,000. The deposit sum for one lot will vary from $500 to $2000, depending on the credit leverage you choose. Leverage is a financial mechanism that allows crediting speculative transactions with a small deposit. We give you an opportunity to choose a credit leverage in the range of 1:200 to 1:25.

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Trading requires time in a couple of ways. The first is the time dedicated to developing a trading system. This can be thought of as a one-off thing, but in reality it is more an on-going process. Once a system is in place, time is required in terms of monitoring the markets for signals, executing transactions, and managing positions. How much time all these different elements require depends on the trading system. The trading system, in turn, needs to take in to account the amount of time the trader has available.

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The beginner forex currency trading should take note of the major currencies are the U.S. dollar (USD), the Euro dollar (EUR), the Japanese yen (JPY), the British pound sterling (GBP) [known as cable], the Swiss franc (CHF), the Canadian dollar (CAD), and the Australian dollar (AUD). All other currencies are referred to as minors.



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European Morning Update 25th April 2008

Fri, 25 Apr 2008 01:17:47 -0400
Dollar sidelined in Asian trading while the market digests yesterday’s moves

Releases from Japan:

March Forecast Actual
Nationwide CPI (YoY) +1.2% +1.2%
Nationwide CPI ex food & energy (YoY) +0.0% +0.1%

April
Tokyo CPI (YoY) +0.5% +0.6%
Tokyo CPI ex food & energy (YoY) +0.1% +0.0%

Core inflation across Japan moved into positive territory for the first time in 10 years. However, at +0.1% it is hardly worthy of mention. However the real CPI rate at +1.2% is a more significant issue.

As the economy minister Ota commented, rising inflation that has not been generated by domestic demand and while wages remain stagnant is just not a healthy sign. The word stagflation is one that hangs heavy at the backs of officials’ minds as they see the export life blood of GDP slowly hemorrhaging to make one wonder whether the country could dip back into recession with inflation rising…

There is no difference in Japan in a higher percentage of household budgets having to be allotted to higher food and fuel prices and when wages are stagnant this will act as a dampener to domestic demand.

Some talk of higher interest rates as inflation rises and some talk of lower interest rates because of the decline in growth. Which is likely? Frankly neither.

The BOJ is wary of returning to a zero rate policy when it clearly provided no boost before. What benefit is there for businesses borrowing at 0.25% rather than 0.50% when consumers aren’t buying goods?

Higher interest rates are just not justifiable as they only control inflation when it is caused by strong demand. Don’t expect any change from the BOJ.

The following economic releases are due today:

Q1
U.K. GDP (QoQ) +0.4%
U.K. GDP (QoQ) +2.6%

March
German Import Price Index (MoM) +0.6%
German Import Price Index (YoY) +5.9%
Euro-zone M3 (3MoY) 11.0%
Euro-zone M3 (YoY) 10.6%

April
University of Michigan Confidence (F) 63.5

Well yesterday raises the chance that we’ve seen the Euro high for the year already. At least for now we can expect the Dollar to make further gains. The bigger question is whether these gains will be direct or whether there should be a pullback first.

I’ll stick my hand up for the correction first camp. Looking at the Euro as a base currency to look at the first move from its peak would normally trigger a move to the area of the last major corrective low. This was at 1.5510. If we see any loss of last night’s 1.5636 low it would not only imply a direct test of this level but then following a mild correction a move much lower – probably to around the 1.5340 low.

Thus I feel that since the 1.5510 area should produce a slightly larger pullback it should mean that today should see a correction back to the 1.5751-75 area and from there we should anticipate the decline to around 1.5510.

This seems to be back up by the Pound which just about held the 1.9690 support and does imply a fairly sizeable pullback. The Swissie is less clear, but ideally this too needs a pullback first also, possibly as far as 1.0161-00.

Thus don’t expect quite so much excitement as yesterday as we move into the weekend. Next week promises a little more movement again with the FOMC meeting on Wednesday and a rash of month-end economic releases to confirm or deny yesterday’s dent that was put into the European economy…

Note important support and resistance areas:

USDJPY EURUSD USDCHF GBPUSD
Res: 105.07-37 1.5775-00 1.0450-70 1.9866-77
Res: 104.59-72 1.5720-51 1.0383-09 1.9753-75

Spt: 103.70-90 1.5599-36 1.0271-05 1.9659-84
Spt: 103.45-70 1.5510-34 1.0190-13 1.9599-09

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Currency Trading: Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the basics, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

EUR/USD: Euro

GBP/USD: Pound

USD/CAD: Canadian dollar

USD/JPY: Yen

USD/CHF: Swiss franc

AUD/USD: Aussie

These currency pairs generate up to 85% of the overall volume generated in the Forex market.

So, for instance, if a trader goes long or buys the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency.

Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency.

If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2545/48 or 1.2545/8

The bid price is 1.2545

The ask price is 1.2548

A Pip

A pip is the minimum incremental move a currency pair can make. Pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.05 to 113.10 equals 105 pips.

Margin Trading (leverage)

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call

A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader �theoretically� with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 60 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 26 (26 pips plus the 4 pip spread equals 30 pips) pips against us.

It's very important to understand every aspect of trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

Thoughts On Forex

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There are a few methods that are used when forecasting the Forex. Each system is used to understand how the Forex works and how the fluctuations in the market can affect traders and currency rates. The two methods that are most often used are called technical analysis and fundamental analysis. Both methods differ in their own ways, but each one can help the Forex trader understand how the rates are affecting the currency trade. Most of the time, experienced traders and brokers know each method and use a mixture of the two to trade on the Forex.
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Forex money management is where most traders go wrong in almost all cases leaving only a few as the winner at the end of the day. Money management and discipline of mind is what makes or brakes a trader at the end of the day, not the elementary entry and exit method.

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Let�s take a concrete example of getting a profit from the changing the rate of the Euro, from 0,9162 to 0,9292. If you have anticipated this change by using technical or fundamental analysis, you can buy the Euro cheaper for dollars, and then sell it back at a higher price. For example, if you choose leverage 1:100, then 99,000 dollars of the credit line, granted by the Internet broker, is added to 1000 dollars, and you buy the Euro at the price of 0.9162. As a result of this transaction we get: $ 100,000 / 0.9162 = Euro 109.146, 47.

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