FOREX TRADING
Can you really make money day trading futures? The answer, of course, is yes. The answer is only yes, if you know what to do and then you take action upon what you know.
Making money day trading futures is like making money trading in any financial market. It all starts with having a plan, and then executing the plan to the letter in order to make profits.
I believe what throws many people off when it comes to day trading futures is the fact that some are unfamiliar with futures contracts and their characteristics. This, of course, should not deter one from exploring the possibilities of profits in day trading futures. The fact of the matter is that you don't need to know every possible thing about every possible futures contract in order to make profits in trading futures.
Many futures contracts happen to be excellent vehicles for day trading. Again, it is not imperative that you understand everything about every futures contract in order to profit in day trading futures. I'll give you an example. What if everyone had to know the intricacies of the internal combustion engine before they drove a car? If that were actually the case then very few people would drive... yet there are millions of people driving cars every day. I only say this to illustrate the fact that you need to know a certain number of basic things in order to trade in any market successfully. A simplified list of those basic things would be as follows, when to get in, when to get out, and when to stand aside.
It is true that the above list may seem overly simplified. You will of course need some method to determine when to take the steps above in order to be successful. Your method will have to be one which is repeatable, therefore it will require some research on your part.
You'll need a day trading strategy in order to day trade futures successfully. You have the choice of either developing your own day trading strategy or looking for a commercially available day trading strategy. In any case, you will want to do your homework and due diligence, because in order to make money day trading futures your day trading strategy must be a good one. And remember that your level of discipline in following your day trading strategy is at least as important as the day trading strategy itself.
Forex Trader's Bill of Rights
The Forex Trader’s Bill of Rights (2005) is a non-fiction book about the foreign currency trading market, published by OANDA_Corporation. It is primarily a call to arms for currency traders to call for greater transparency and accountability within the market. The overleaf provided with the printed version of the book states: “Big banks and confederated brokerages have overcomplicated forex: trading costs are inflated, unnecessary risk abounds, and the system is grossly unfair.” Essentially, the book elaborates on this premise, detailing ways in which traders are being unfairly treated and encouraging them to take action.
OANDA is a company that provides currency trading tools for investors, travelers, and businesses. As such, there is an unavoidable marketing aspect to this publication. However, OANDA is not mentioned throughout the book. There has been a clear effort to maintain a relatively neutral point of view. The back cover does state “OANDA is a leading provider of online currency trading…FXTrade…enables all currency investors to change the way forex trading is done”.
The authors believe currency investors have 10 basic rights which are being violated: each short chapter deals with one of these rights. They are:
1. The right to immediate, uncensored access to the marketplace
2. The right to trade real spot
3. The right to know
4. The right to trade whenever you want
5. The right to equal treatment
6. The right to choose and manage risk
7. The right to understand cost
8. The right to learn – on your own, or through free exchange with other traders
9. The right to full disclosure
10. The right to pay and receive interest
1) The right to immediate, uncensored access to the marketplace
Chapter one argues that when trading traditionally (with banks etc.,) execution and price are affected by who you are (size of your order/ relationship with your market maker etc.), the amount of greed on the part of the market maker, and manual intervention which can delay the trade. The chapter calls for transparency, fairness, and efficiency for traders from market makers.
2) The right to trade real spot
Chapter two addresses unnecessary delays in settlement of trades, which according to the authors increase risk for investors.
3) The right to know
The third chapter states that market makers share information based on who you are: in some cases they share information that should not be shared; in other cases they do not share information that should be publicly available. This leads to an unfair advantage.
4) The right to trade whenever you want
The chapter asserts that market makers may advertise 24 hour trading but they close the books on Friday. However, world events which affect currency price occur on weekends. The argument continues that since the technology for 24/7 trading is available, it should be offered by all market makers.
5) The right to equal treatment
Chapter five argues that every trader should be given the same price and spread, and that market makers should not discriminate between traders.
6) The right to choose and manage risk
Traders are encouraged to use a market maker who does not require high minimums, lets them trade any amount, and provides immediate settlement as a way of minimizing risk.
7) The right to understand cost
It is reasoned that traders have the right to understand spreads, as well as who gets a “cut” and why. This chapter also includes a profitability calculator.
8) The right to learn – on your own, or through free exchange with other traders
This chapter covers multiple ways to learn about trading, and test new strategies, including trading games offered by online market makers and other sources of Internet information.
9) The right to full disclosure
The book claims that a lack of transparency in pricing, execution, and after the trade needs to addressed. Market makers should publish statistics regarding real spreads and prices and traders should demand that they do this.
10) The right to pay and receive interest
It is argued that continuous interest should be introduced, which would make for price flows that are less volatile.
Thursday, November 15, 2007
Forex Trading
Forex Trading
1: Why Hedge Foreign Currency Risk
International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.
2: Forex Swing Trading with Elliott Wave
One of the most reliable tools used to predict forex market swings is Elliott Wave analysis. Elliott Wave analysis can be used to identify trends and countertrends, trend continuation or exhaustion and to evaluate the potential price targets of a trend.
3: Timing is Everything With Forex Trading
Finding a good Forex broker is pivotal to the success gained by using the Forex trading systems. The direct result of your trading experience will be inherently dependant on the ability to find an experienced Forex broker.
4: Currency Trading Training - 7 Favorite Tips
Currency trading training is an ongoing process. Even when a trader has reached a reasonable level of success constant monitoring is necessary. These 7 favorite tips can be used regularly as reminders in the training process.
5: Online Currency Trading Tutorials
Whether are learning to drive a car or trade in the Forex market you benefit from the experience and knowledge of others. None of us ever really believe that we are an expert at something as soon as we try it for the first time. For this reason, unless you are already maintaining a healthy bank balance trading Forex then you can benefit from a tutorial in Forex trading.
1: Why Hedge Foreign Currency Risk
International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.
2: Forex Swing Trading with Elliott Wave
One of the most reliable tools used to predict forex market swings is Elliott Wave analysis. Elliott Wave analysis can be used to identify trends and countertrends, trend continuation or exhaustion and to evaluate the potential price targets of a trend.
3: Timing is Everything With Forex Trading
Finding a good Forex broker is pivotal to the success gained by using the Forex trading systems. The direct result of your trading experience will be inherently dependant on the ability to find an experienced Forex broker.
4: Currency Trading Training - 7 Favorite Tips
Currency trading training is an ongoing process. Even when a trader has reached a reasonable level of success constant monitoring is necessary. These 7 favorite tips can be used regularly as reminders in the training process.
5: Online Currency Trading Tutorials
Whether are learning to drive a car or trade in the Forex market you benefit from the experience and knowledge of others. None of us ever really believe that we are an expert at something as soon as we try it for the first time. For this reason, unless you are already maintaining a healthy bank balance trading Forex then you can benefit from a tutorial in Forex trading.
Swing Trading in Forex
Swing Trading in Forex
Building a Swing Trading System in 4 Simple Steps
If you do not know what swing trading in forex is, check out the background at currency swing trading and if you want to know why its one of the easiest forms of trading psychologically, check out our section swing trading for beginners
Here we are going to look at swing trading in forex from the standpoint of building a simple forex trading system, based on catching swing trades which is easy to understand, easy to apply and even better, can make big forex profits.
Here is your guide to a swing trading in forex with a system designed to make regular capital gains, whilst at the same time keeping losses to a minimum
Step 1 – Spot Support and Resistance
You need to use trend lines and spot areas of support or resistance to trade into.
Look for 3 tests or more – the more tests there are of course, the more valid and important the level will be.
Now you have spotted the opportunity, you need to time your trading signal and correct timing is crucial to success.
Step 2 - Trade with Price Momentum
Many traders simply like to go short into resistance or long into support, as it’s tested but this will never work.
If you do this, you are guessing or hoping the level will hold and the market will not reward you for this.
You don’t have the odds on your side and you will end up a loser.
With swing trading in forex (or any other method of trading for that matter) you need to trade the odds and get them in your favor and this means getting confirmation. You need to trade with confirmation of price momentum on your side BEFORE you execute your trading signal.
You therefore need to wait for a test of support or resistance.
Then Wait
Watch for the currency to turn away from support or resistance with accelerating price momentum and THEN execute trade.
You are trading with price momentum and the odds are in your favor.
Sure you won’t catch the turn exactly and you miss a bit of profit - but if you trade this way and grab 60 – 70% of the potential overall profit, you will make a lot of money and this is the aim of any forex trading system.
Which Indicators Are Best?
Try these:
The stochastic and the Relative Strength Index (RSI) as a good pair to start with.
We don’t have enough time to explain them in detail here - but these are superb momentum indicators.
There are many others - just pick and choose a few you like best but don’t use too many – up to 3 is fine.
When swing trading in forex, your system should be simple and robust – if you complicate it you will lose, as there will be too many elements to break.
Step 3 - Stop Reverse on Breakouts
For example, if you are trading into resistance that is at a market high, you may want to use a stop reverse upon a break.
Most major trends start from new market highs NOT market lows.
If prices break out go with the break.
The initial breakout of strong resistance, will see stops hit and new trend followers kick in and by taking the turn, you can go with this momentum.
Be careful – you should only do this into strong resistance that is considered valid by the market participants. This will ensure you don’t get caught trading false or weak breakout trades.
Step 4 Take Profits Too Soon
When swing trading in forex, your profits can disappear quickly, so you need to make sure that you get them in the bank, when the risk reward is in your favor – before recoil in price sets off a counter move.
Take your profits early and by this we mean.
BEFORE they test the next level of support and resistance.
Your aim is to “hit and run”, the closer the trade moves to a target the more chance you have of a reversal so get out early. You may miss some of the move - but as we said earlier (on getting into the trade) that doesn’t matter - your aim is 60 – 70% of the overall profit potential.
If you can do this regularly, you will make you a lot of money and ensure your forex trading strategy is successful over the long run.
Other points in relation to a successful swing trading method we covered earlier in other sections - but their important so to repeat:
Only trade liquid, volatile major currencies and pick a broker that offers you tight 2 – 3 pip spreads, so they do not impact on your overall forex profits.
Building a Swing Trading System in 4 Simple Steps
If you do not know what swing trading in forex is, check out the background at currency swing trading and if you want to know why its one of the easiest forms of trading psychologically, check out our section swing trading for beginners
Here we are going to look at swing trading in forex from the standpoint of building a simple forex trading system, based on catching swing trades which is easy to understand, easy to apply and even better, can make big forex profits.
Here is your guide to a swing trading in forex with a system designed to make regular capital gains, whilst at the same time keeping losses to a minimum
Step 1 – Spot Support and Resistance
You need to use trend lines and spot areas of support or resistance to trade into.
Look for 3 tests or more – the more tests there are of course, the more valid and important the level will be.
Now you have spotted the opportunity, you need to time your trading signal and correct timing is crucial to success.
Step 2 - Trade with Price Momentum
Many traders simply like to go short into resistance or long into support, as it’s tested but this will never work.
If you do this, you are guessing or hoping the level will hold and the market will not reward you for this.
You don’t have the odds on your side and you will end up a loser.
With swing trading in forex (or any other method of trading for that matter) you need to trade the odds and get them in your favor and this means getting confirmation. You need to trade with confirmation of price momentum on your side BEFORE you execute your trading signal.
You therefore need to wait for a test of support or resistance.
Then Wait
Watch for the currency to turn away from support or resistance with accelerating price momentum and THEN execute trade.
You are trading with price momentum and the odds are in your favor.
Sure you won’t catch the turn exactly and you miss a bit of profit - but if you trade this way and grab 60 – 70% of the potential overall profit, you will make a lot of money and this is the aim of any forex trading system.
Which Indicators Are Best?
Try these:
The stochastic and the Relative Strength Index (RSI) as a good pair to start with.
We don’t have enough time to explain them in detail here - but these are superb momentum indicators.
There are many others - just pick and choose a few you like best but don’t use too many – up to 3 is fine.
When swing trading in forex, your system should be simple and robust – if you complicate it you will lose, as there will be too many elements to break.
Step 3 - Stop Reverse on Breakouts
For example, if you are trading into resistance that is at a market high, you may want to use a stop reverse upon a break.
Most major trends start from new market highs NOT market lows.
If prices break out go with the break.
The initial breakout of strong resistance, will see stops hit and new trend followers kick in and by taking the turn, you can go with this momentum.
Be careful – you should only do this into strong resistance that is considered valid by the market participants. This will ensure you don’t get caught trading false or weak breakout trades.
Step 4 Take Profits Too Soon
When swing trading in forex, your profits can disappear quickly, so you need to make sure that you get them in the bank, when the risk reward is in your favor – before recoil in price sets off a counter move.
Take your profits early and by this we mean.
BEFORE they test the next level of support and resistance.
Your aim is to “hit and run”, the closer the trade moves to a target the more chance you have of a reversal so get out early. You may miss some of the move - but as we said earlier (on getting into the trade) that doesn’t matter - your aim is 60 – 70% of the overall profit potential.
If you can do this regularly, you will make you a lot of money and ensure your forex trading strategy is successful over the long run.
Other points in relation to a successful swing trading method we covered earlier in other sections - but their important so to repeat:
Only trade liquid, volatile major currencies and pick a broker that offers you tight 2 – 3 pip spreads, so they do not impact on your overall forex profits.
FX SCAM
FX SCAM is any trading scheme used to defraud individual traders by convincing them that they can expect to gain an unreasonably high profit by trading in the foreign exchange market [1]. This market would be a zero-sum game were it not for the fact that there are brokerage commissions, which technically make forex a "negative-sum" game. "The market has long been plagued by swindlers preying on the gullible," according to the New York Times
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,[3] improperly managed "managed accounts",[4] false advertising,[5] Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.
An official of the National Futures Association was quoted[9] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market make
These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits,[3] improperly managed "managed accounts",[4] false advertising,[5] Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.
The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry.
An official of the National Futures Association was quoted[9] as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $300 million, mostly in managed accounts. CNN also quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"
The highly technical nature of retail forex industry, the OTC nature of the market, and the loose regulation of the market, leaves retail speculators vulnerable. Defrauded traders and regulatory authorities can find it very difficult to prove that market manipulation has occurred since there is no central currency market, but rather a number of more or less interconnected marketplaces provided by interbank market make
FOREX BASICS
Forex (foreign exchange) refers to the foreign currency exchange market, the world?s largest financial trading market. Pass yourself as a forex expert with these buzz words:
Forex trading is the investment in the currency of one nation. Multinational Corporations doing business across national boundaries find value in keeping their cash reserves in a variety of countries, and holding their funds in a myriad of ways. For example, a UK corporation may hold a percentage of its working capital in UK pounds, but if it does quite a bit of business in USA it may also maintain a percentage of its money in dollars, in US banks. Individual investors over the decades have discovered that there is profit to be made in investment and speculation in the currency markets.
Take the case during the 70?s when the German DM swung rapidly in value. It was worth anywhere from 1.2 marks to the US dollar to 3.5 US marks to the dollar. When the mark was worth 2.5 it was beneficial to spend dollars buying marks, since the mark would buy more goods or services at that rate. As the mark bottomed out 1.7 to the dollar there was less incentive.
Surprisingly, the forex market itself is not unified. One can find many small forex markets specializing in trading various currencies. The most commonly traded currencies in forex speculation are the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro. Currency values vary depending on the market in which an investor is speculating, so there is really no such thing as a single, unified dollar rate, but instead there are multiple dollar rates, which vary according to the market where the trade is occurring.
The major cities in which trades occur include New York, London, and Tokyo. It?s a 24 hour process. When Asian trading ends, European trading commences, and when European trading ends, then American trading opens. Naturally, when American trading ends, it is time for Asian trading to open house once more? and so on.
Currently, the most actively traded currency is the US dollar, involved in 90% of all trades. This is followed by the Euro involved in 36% of all trades, then by the yen in 20% and the pound in 17%.
Forex trading is the investment in the currency of one nation. Multinational Corporations doing business across national boundaries find value in keeping their cash reserves in a variety of countries, and holding their funds in a myriad of ways. For example, a UK corporation may hold a percentage of its working capital in UK pounds, but if it does quite a bit of business in USA it may also maintain a percentage of its money in dollars, in US banks. Individual investors over the decades have discovered that there is profit to be made in investment and speculation in the currency markets.
Take the case during the 70?s when the German DM swung rapidly in value. It was worth anywhere from 1.2 marks to the US dollar to 3.5 US marks to the dollar. When the mark was worth 2.5 it was beneficial to spend dollars buying marks, since the mark would buy more goods or services at that rate. As the mark bottomed out 1.7 to the dollar there was less incentive.
Surprisingly, the forex market itself is not unified. One can find many small forex markets specializing in trading various currencies. The most commonly traded currencies in forex speculation are the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro. Currency values vary depending on the market in which an investor is speculating, so there is really no such thing as a single, unified dollar rate, but instead there are multiple dollar rates, which vary according to the market where the trade is occurring.
The major cities in which trades occur include New York, London, and Tokyo. It?s a 24 hour process. When Asian trading ends, European trading commences, and when European trading ends, then American trading opens. Naturally, when American trading ends, it is time for Asian trading to open house once more? and so on.
Currently, the most actively traded currency is the US dollar, involved in 90% of all trades. This is followed by the Euro involved in 36% of all trades, then by the yen in 20% and the pound in 17%.
The Foreign exchange rate market
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 (GBP), 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,
Benefits of Forex
The (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.
Profit = [(Open Price - Close Price)*Volume of Lot ]/Close Price Profit = [(124.80-123.80)*100000]/123.80=807.75 USD
Flexible schedule of work at the market
Forex Market works round the clock from Monday till Friday. You can choose any time convenient for you to work.
Participants of Forex
- commercial banks
- currency stock exchanges
- the firms which are carrying out the foreign trade operations
- investment funds
- the broker companies, private persons
Participants of this market are: large commercial banks, which the basic operations under the instruction of exporters and importers are carried out through, investment institutes, insurance and pension funds and private investors. Also these banks carry out operations and in the interests due to own means, thus volumes of daily operations at large banks reach for billions of dollars. Some banks make the basic part of the profit formed only due to speculative currency operations.
Except for banks, the broker houses are the active participants of the market, which are carrying out a role of the intermediary between a plenty of banks, funds, commission houses, the dealing centers, etc. act.
Commercial banks and broker houses not only make operations on sale and purchase of currency under the prices which are established by the other active participants, but also offer own prices. Thus, they actively influence a process of pricing and a life of all market, therefore they are named market - makers. As against active participants, passive participants of the market cannot offer own quotations and make purchase-sale of currency under the prices which are offered by active participants of the market.
Passive participants of the market pursue usually following targets: payment of export-import contracts, foreign industrial investments, opening of branches abroad or creation of joint ventures, tourism, gamble on a difference of rates, hedging of currency risks, etc.
The Central banks of the different countries come on FOREX, not with the purpose of extraction of the profit, as a rule. They usually do it with the purpose of stability check up, or correction of an existing rate of national currency, The correction of an existing rate of national currency influences on a condition of national economy.
The central banks also come out on the currency market through commercial banks. The profit is not the basic purpose of these banks, unprofitable operations do not involve them aswell. Therefore interventions of the central banks are masked usually and carried out through several commercial banks at once.
The central banks of different countries can carry out also the joint coordinated interventions. If active participants make operations with the big sums of a few millions dollars passive participants can use margin trade, They have an opportunity to temporarily operate the capital, in one hundred times exceeding this deposit. Such way of trade allows to take a part in work of the currency market to fine investors with the small capital and thus to receive significant profit.
The structure of the basic participants of the market testifies that this market is actively used by "serious business" and for the serious purposes. That means not all the participants of the market use FOREX in speculative purposes. As we already said, the change of the exchange rates can lead to huge losses at the export-import transactions. Attempts to be protected from currency risks force exporters and importers to apply for hedging various instruments of the currency market: forward transactions, options, futures, etc.
Moreover, the business not even associated to export-import transactions, can have loss at change of Currency rates. That's why studying FOREX is an obligatory component of any successful business.
Forex System
Forex for Beginners
Forex is an international market that buys and sells currencies of the world; the mechanisms of the marketplace are very similar to that of other markets such as the stock market. The purpose is to buy low and sell high to maximize profits. There are various Forex strategy and Forex options to utilize, some investors find researching past trends and fluctuations helpful. By reading trends appreciating and depreciating patterns can be recognized. There are steps new trades can take in order to ensure their introduction to the marketplace is straightforward as well as rewarding. On joining this global trading arena it is necessary to maintain constant analysis while recognizing the value of time. There are numerous Forex strategy and Forex options to choose from, being familiar with these working makes Forex for beginners comprehensible.
The Forex System
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 limitations.
Setup Forex
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.
The Forex Strategy
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.
Forex Options
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 periods of economic reporting.
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 (GBP), 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,
Benefits of Forex
The (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.
Profit = [(Open Price - Close Price)*Volume of Lot ]/Close Price Profit = [(124.80-123.80)*100000]/123.80=807.75 USD
Flexible schedule of work at the market
Forex Market works round the clock from Monday till Friday. You can choose any time convenient for you to work.
Participants of Forex
- commercial banks
- currency stock exchanges
- the firms which are carrying out the foreign trade operations
- investment funds
- the broker companies, private persons
Participants of this market are: large commercial banks, which the basic operations under the instruction of exporters and importers are carried out through, investment institutes, insurance and pension funds and private investors. Also these banks carry out operations and in the interests due to own means, thus volumes of daily operations at large banks reach for billions of dollars. Some banks make the basic part of the profit formed only due to speculative currency operations.
Except for banks, the broker houses are the active participants of the market, which are carrying out a role of the intermediary between a plenty of banks, funds, commission houses, the dealing centers, etc. act.
Commercial banks and broker houses not only make operations on sale and purchase of currency under the prices which are established by the other active participants, but also offer own prices. Thus, they actively influence a process of pricing and a life of all market, therefore they are named market - makers. As against active participants, passive participants of the market cannot offer own quotations and make purchase-sale of currency under the prices which are offered by active participants of the market.
Passive participants of the market pursue usually following targets: payment of export-import contracts, foreign industrial investments, opening of branches abroad or creation of joint ventures, tourism, gamble on a difference of rates, hedging of currency risks, etc.
The Central banks of the different countries come on FOREX, not with the purpose of extraction of the profit, as a rule. They usually do it with the purpose of stability check up, or correction of an existing rate of national currency, The correction of an existing rate of national currency influences on a condition of national economy.
The central banks also come out on the currency market through commercial banks. The profit is not the basic purpose of these banks, unprofitable operations do not involve them aswell. Therefore interventions of the central banks are masked usually and carried out through several commercial banks at once.
The central banks of different countries can carry out also the joint coordinated interventions. If active participants make operations with the big sums of a few millions dollars passive participants can use margin trade, They have an opportunity to temporarily operate the capital, in one hundred times exceeding this deposit. Such way of trade allows to take a part in work of the currency market to fine investors with the small capital and thus to receive significant profit.
The structure of the basic participants of the market testifies that this market is actively used by "serious business" and for the serious purposes. That means not all the participants of the market use FOREX in speculative purposes. As we already said, the change of the exchange rates can lead to huge losses at the export-import transactions. Attempts to be protected from currency risks force exporters and importers to apply for hedging various instruments of the currency market: forward transactions, options, futures, etc.
Moreover, the business not even associated to export-import transactions, can have loss at change of Currency rates. That's why studying FOREX is an obligatory component of any successful business.
Forex System
Forex for Beginners
Forex is an international market that buys and sells currencies of the world; the mechanisms of the marketplace are very similar to that of other markets such as the stock market. The purpose is to buy low and sell high to maximize profits. There are various Forex strategy and Forex options to utilize, some investors find researching past trends and fluctuations helpful. By reading trends appreciating and depreciating patterns can be recognized. There are steps new trades can take in order to ensure their introduction to the marketplace is straightforward as well as rewarding. On joining this global trading arena it is necessary to maintain constant analysis while recognizing the value of time. There are numerous Forex strategy and Forex options to choose from, being familiar with these working makes Forex for beginners comprehensible.
The Forex System
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 limitations.
Setup Forex
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.
The Forex Strategy
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.
Forex Options
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 periods of economic reporting.
Forex ebooks
Forex is an inter-bank market that took shape in 1971 when global trade shifted from fixed exchange rates to floating ones. This is a set of transactions among forex market agents involving exchange of specified sums of money in a currency unit of any given nation for currency of another nation at an agreed rate as of any specified date. During exchange, the exchange rate of one currency to another currency is determined simply: by supply and demand – exchange to which both parties agree.
Forex ebooks. The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations. Global daily conversion transactions came to $1,982 billion in mid-1998 (the London market accounted for some 32% of daily turnover; the New York market exchanged approx. 18%, and the German market, 10%). Not only the scope of transactions but also the rates that mark the market development are impressive: in 1977, the daily turnover stood at five billion U.S. dollars; it grew to 600 billion U.S. dollars over ten years – to one trillion in 1992. Speculative transactions intended to derive profit from jobbing on the exchange rate differences make up nearly 80% of total transactions. Jobbing attracts numerous participants – both financial institutions and individual investors.
Forex ebooks. With the highest rates of information technology development in the last two decades, the market itself changed beyond recognition. Once surrounded with a halo of caste mystique, the foreign exchange dealer’s profession became almost grasroots. Forex transactions that used to be the privilege of the biggest monopolist banks not so long ago are now publicly accessible thanks to e-commerce systems. And the foremost banks themselves also often prefer trade in electronic systems over individual bilateral transactions. E-brokers now account for 11% of the forex market turnover. The daily scope of transactions of the biggest banks (Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank) reaches billions of dollars.
Forex ebooks. The FOREX market as a place where to apply one’s personal financial, intellectual and psychic power is not designed for attempts at catching a bluebird there. Sometimes someone manages to do so but for a short time only. The key advantage of a forex market is that one can succeed there just by the strength of one’s intelligence.
Another essential feature of the FOREX market, no matter how strange it might seem, is its stability. Everybody knows that sudden falls are very typical of the financial market. However, unlike the stock market, the FOREX market never falls. If shares devalue it means a collapse. But if the dollar slumps, that only means that another currency gets stronger. For instance, the yen strengthened by a quarter against the dollar late in 1998. On some days dollar fell by dozens percentage points. However, the market did not collapse anywhere; trading continued in the usual manner. It is here that the market and the related business stability lie - currency is an absolutely liquid commodity and will be always traded in.
Forex ebooks. The FOREX market is a 24-hour market that does not depend on certain business hours of foreign exchanges; trade takes place among banks located in different corners of the globe. Exchange rates a`re so flexible that significant changes happen quite frequently, which enables to make several transactions every day. If we have an elaborate and reliable trade technology we can make a business, which no other business can match by efficiency. It is not without reason that the pivotal banks buy expensive electronic equipment and maintain the staffs of hundreds of traders operating in different sectors of the FOREX market.
Forex ebooks. The starting costs of joining this business are very low now. Actually, it costs several thousands of dollars to take a course of initial training, to buy a computer, to purchase an information service and to create a deposit; no real business can be established with this money. With excessive offers of services, finding a reliable broker is also quite a real thing. The rest depends on the trader himself or herself. Everything depends on you personally, as in no other area of business now.
Forex ebooks. The scope of transactions in the global currency market is constantly growing, which is due to development of international trade and abolition of currency restrictions in many nations. Global daily conversion transactions came to $1,982 billion in mid-1998 (the London market accounted for some 32% of daily turnover; the New York market exchanged approx. 18%, and the German market, 10%). Not only the scope of transactions but also the rates that mark the market development are impressive: in 1977, the daily turnover stood at five billion U.S. dollars; it grew to 600 billion U.S. dollars over ten years – to one trillion in 1992. Speculative transactions intended to derive profit from jobbing on the exchange rate differences make up nearly 80% of total transactions. Jobbing attracts numerous participants – both financial institutions and individual investors.
Forex ebooks. With the highest rates of information technology development in the last two decades, the market itself changed beyond recognition. Once surrounded with a halo of caste mystique, the foreign exchange dealer’s profession became almost grasroots. Forex transactions that used to be the privilege of the biggest monopolist banks not so long ago are now publicly accessible thanks to e-commerce systems. And the foremost banks themselves also often prefer trade in electronic systems over individual bilateral transactions. E-brokers now account for 11% of the forex market turnover. The daily scope of transactions of the biggest banks (Deutsche Bank, Barclays Bank, Union Bank of Switzerland, Citibank, Chase Manhattan Bank, Standard Chartered Bank) reaches billions of dollars.
Forex ebooks. The FOREX market as a place where to apply one’s personal financial, intellectual and psychic power is not designed for attempts at catching a bluebird there. Sometimes someone manages to do so but for a short time only. The key advantage of a forex market is that one can succeed there just by the strength of one’s intelligence.
Another essential feature of the FOREX market, no matter how strange it might seem, is its stability. Everybody knows that sudden falls are very typical of the financial market. However, unlike the stock market, the FOREX market never falls. If shares devalue it means a collapse. But if the dollar slumps, that only means that another currency gets stronger. For instance, the yen strengthened by a quarter against the dollar late in 1998. On some days dollar fell by dozens percentage points. However, the market did not collapse anywhere; trading continued in the usual manner. It is here that the market and the related business stability lie - currency is an absolutely liquid commodity and will be always traded in.
Forex ebooks. The FOREX market is a 24-hour market that does not depend on certain business hours of foreign exchanges; trade takes place among banks located in different corners of the globe. Exchange rates a`re so flexible that significant changes happen quite frequently, which enables to make several transactions every day. If we have an elaborate and reliable trade technology we can make a business, which no other business can match by efficiency. It is not without reason that the pivotal banks buy expensive electronic equipment and maintain the staffs of hundreds of traders operating in different sectors of the FOREX market.
Forex ebooks. The starting costs of joining this business are very low now. Actually, it costs several thousands of dollars to take a course of initial training, to buy a computer, to purchase an information service and to create a deposit; no real business can be established with this money. With excessive offers of services, finding a reliable broker is also quite a real thing. The rest depends on the trader himself or herself. Everything depends on you personally, as in no other area of business now.
foreign exchange market
foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attentions full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.
Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of Gambler's Ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade must be "resettled" each day, each time costing the full bid/ask spread.
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. However, the term foreign exchange reserves in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve position as this total figure is more readily available, however it is accurately deemed as official reserves or international reserves. These are assets of the central banks which are held in different reserve currencies such as the dollar, euro and yen, and which are used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.
Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of Gambler's Ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.
The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade must be "resettled" each day, each time costing the full bid/ask spread.
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. However, the term foreign exchange reserves in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve position as this total figure is more readily available, however it is accurately deemed as official reserves or international reserves. These are assets of the central banks which are held in different reserve currencies such as the dollar, euro and yen, and which are used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.
Retail Forex Brokers
Retail Forex Brokers
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.
In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").
Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.
A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.
The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].
Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."
All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.
In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").
Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.
The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.
A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.
The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).
According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4]
In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].
WARNING SIGNS OF FOREX
1. Stay away from opportunities that seem too good to be true
Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.
2. Avoid any company that predicts or guarantees large profits
Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are fraudulent:
"Whether the market moves up or down, in the currency market you will make a profit."
"Make $1000 per week, every week"
"We are out-performing domestic investments."
"The main advantage of the forex markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
"We promise to recover any losses you have."
"Your investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.
Companies offering currency trading on-line will usually be located in different legal jurisdictions to you. Even if they display an address or any other information identifying their nationality on their Web site it may be false. Be aware that if you transfer funds to foreign firms it may be very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.
Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.
2. Avoid any company that predicts or guarantees large profits
Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.
The following are examples of statements that either are or most likely are fraudulent:
"Whether the market moves up or down, in the currency market you will make a profit."
"Make $1000 per week, every week"
"We are out-performing domestic investments."
"The main advantage of the forex markets is that there is no bear market."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.
The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers. The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts. Therefore, beware of companies that make the following types of statements:
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
"We promise to recover any losses you have."
"Your investment is secure."
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
5. Question Firms That Claim To Trade in the "Interbank Market"
Be wary of firms that claim that you can or should trade in the "interbank market," or that they will do so on your behalf.
Unregulated, fraudulent currency trading firms often tell retail customers that their funds are traded in the "interbank market," where good prices can be obtained. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.
6. Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but often can be impossible to get a refund.
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers.
Companies offering currency trading on-line will usually be located in different legal jurisdictions to you. Even if they display an address or any other information identifying their nationality on their Web site it may be false. Be aware that if you transfer funds to foreign firms it may be very difficult or impossible to recover your funds.
7. Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, particularly persons in the Russian, Chinese and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials."
Sometimes those advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that "account executives" that are hired might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity often is another way many of these companies lure customers into parting with their cash.
Subscribe to:
Posts (Atom)