Forex trading market which is the biggest and most quickly evolving markets in the world. Currently it has a daily turn over of of 2.5 trillion dollars which is actually one hundred times larger then the NASDAQ. Different markets are great ways to diversify your investments and trade different goods and services. The same is true with the Forex market in which the "goods" are actually currencies from around the world. Here you can buy Euros with American Dollars and sell Japanese yen for Swiss Francs. The profit is make in the difference between currencies values.
To make a profit on the Forex market investors only need one rule - buy cheap and sell high. The profit comes from the fluctuations within the exchange market for currency. The great thing about the Forex market is that it has regular daily changes and a fluctuations of 1% is actually multiplied by 100. For example if the exchange rate of your pair of currencies increases by 0.7% in 5 hours, the profit you make will be 70% of your initial investment. This can happen within a single day or a single hour. Trading the Forex market is extremely secure because you can never lose more than your initial investment. This is low risk when compared to the unlimited profit you could potentially gain.
You can choose your pair of currencies and your volume whether the market is moving up or moving down - and still make a profit. You can decide to buy Euro and sell dollar or buy dollar and sell Euro. Additionally you do not have to physically have the currency you choose to buy and sell. The easiest way to get started in the Fored market is to find a Forex market site, open an account, deposit your money, and begin trading. Most companies provide you with training, support, and advice.
Once you have all the necessary research in hand you are ready to make your first trade. You need to first select the pair of currencies that you wish to trade. Then you select the volume or the amount of money you want trade. Then you must deposition the collateral needed for the whole deal, usually about 1%. Most companies allow for a brief freeze period in which the consumer can adjust or cancel their deal. While the deal is running you can monitor the status and check for additional trading tips online. You still have the ability to change the terms, or cash out the profit to minimize loss. Forex trading companies allow an automatic take profit option which allows the investor to preset the rate at which you want to see and it will do it for you. That way you do not have to stay constantly online to monitors your trade.
forex is power full trading market for new investors. The specifics of the currency trade are fairly straight forward and easily accessible to the general public. There is a low initial investment that way new investors can begin small and as they feel comfortable and work their way up to larger trades.
Thursday, May 27, 2010
Thursday, May 20, 2010
Forex Trading technical Analysis
This is one method for analyzing the prices of the two. The other method is the fundamental analysis. These two approaches differ hugely in their approaches and scopes. Technical analysis basically deals with the previous price and volume changes and uses a set of statistical calculations to project the possible price trends.
Currencies tend to trend more and fluctuate less violently unlike stocks which behave pretty much the different way. The reason for this is not hard to understand. Currencies trend depending on the countries. foreign and economic policies which are macro economic in nature and the currency pairs take fairly long enough time to react to any change in policies. Where as stock movements are more or less determined by microeconomic factors and market sentiments.
Why the Technical Analysis Is Critical For Forex Trading?
It is true that technical factors reflect changes to the fundamental parameters of a currency but but still technical approach to analyzing the movements of a forex currency grossly takes into consideration only the historic price and volume movements.
The following are the reasons for this intrinsic behavioral difference.
1. A trader may want to go short or long within the span of a day and cover up positions there by cashing in on the intraday fluctuations which are hardly affected by the economic and policy changes which are fundamental in nature.
2. Technical analysis stresses on the historical statistical data for projections which takes into consideration the short and medium term perspective which is a welcome factor for a trader who does not want to hold huge forex currency assets for longer periods.
3. Intra day fluctuations can be fairly well predicted and entry exit points, regardless of short or long positions, can be easily identified with technical analysis which is not the scope of fundamental analysis.
One question that arises in ones mind at this point is, if technical analysis steers out of fundamentals, then why is it so popular with so many traders? There are two strong arguments about its popularity.
1. Historical data are market's future indicators as they give insights into the short term behaviors of markets.
2. Although the market trends are clearly the reflection fundamental changes a currency is undergoing, they sure are the results of collective intelligence and reactions of the whole market to affecting incidences including rumors.
What Approach Must A Trader Take With Respect To Technical Analysis?
Unlike the fundamental analysis which places heavy weightage onto the intrinsic values of currencies, technical analysis doesn't do so. It is based on the price changes and volumes only and not why the prices have changed when they did. In short, it depends basically on the patterns of price behavior supported by some sophisticated mathematical paramenters.
Technical analysis of forex market has gained popularity with traders of late following the easy availability of sophisticated analytical softwares
Currencies tend to trend more and fluctuate less violently unlike stocks which behave pretty much the different way. The reason for this is not hard to understand. Currencies trend depending on the countries. foreign and economic policies which are macro economic in nature and the currency pairs take fairly long enough time to react to any change in policies. Where as stock movements are more or less determined by microeconomic factors and market sentiments.
Why the Technical Analysis Is Critical For Forex Trading?
It is true that technical factors reflect changes to the fundamental parameters of a currency but but still technical approach to analyzing the movements of a forex currency grossly takes into consideration only the historic price and volume movements.
The following are the reasons for this intrinsic behavioral difference.
1. A trader may want to go short or long within the span of a day and cover up positions there by cashing in on the intraday fluctuations which are hardly affected by the economic and policy changes which are fundamental in nature.
2. Technical analysis stresses on the historical statistical data for projections which takes into consideration the short and medium term perspective which is a welcome factor for a trader who does not want to hold huge forex currency assets for longer periods.
3. Intra day fluctuations can be fairly well predicted and entry exit points, regardless of short or long positions, can be easily identified with technical analysis which is not the scope of fundamental analysis.
One question that arises in ones mind at this point is, if technical analysis steers out of fundamentals, then why is it so popular with so many traders? There are two strong arguments about its popularity.
1. Historical data are market's future indicators as they give insights into the short term behaviors of markets.
2. Although the market trends are clearly the reflection fundamental changes a currency is undergoing, they sure are the results of collective intelligence and reactions of the whole market to affecting incidences including rumors.
What Approach Must A Trader Take With Respect To Technical Analysis?
Unlike the fundamental analysis which places heavy weightage onto the intrinsic values of currencies, technical analysis doesn't do so. It is based on the price changes and volumes only and not why the prices have changed when they did. In short, it depends basically on the patterns of price behavior supported by some sophisticated mathematical paramenters.
Technical analysis of forex market has gained popularity with traders of late following the easy availability of sophisticated analytical softwares
Successful trading in forex
The rate of exchange between international currencies provides a possibility for investment that deals with the fluctuations that occur daily in the value of those currencies. This has created a market for foreign exchange trading, otherwise known as Forex trading. The keys to successful Forex trading are based on an extensive understanding of currency rate trends and the degree of predictability by which those trends will fluctuate.
An investor who seeks to trade in currency exchange rates must first study recent valuation trends of the various currencies that are most often traded on, especially the US dollar, the British pound, the Euro, and the Japanese yen. There is an inherent volatility in any currency due to its relationship to foreign trade activities, and successful Forex trading takes this into consideration. The amount of fluctuation in currencies worldwide is what gives this market such a promising opportunity for profit.
One aspect of the foreign exchange market that increases the profitability factor is margin trading. A 1% margin is generally offered to the trader, which means that an investment of USD 1,000 provides the trader USD 100,000 of trading equity. This allows for the potential for extremely high returns on investments, making successful Forex trading quite possible to the diligent investor. A 2% change in the value of a currency trade is reflected as a 200% profitability factor, as well as an equal loss factor.
The fluctuations that occur daily in currencies are measured in small increments, known as pips. While standard values of currencies tend to remain relatively fixed from day to day, the minute fluctuations in their value can result in a gain or loss of a significant number of pips. Successful Forex trading requires that the investor understand how currencies tend to fluctuate and then buy and sell their currency based on expected incremental fluctuations.
Another positive aspect of the Forex market is the ability to spot trade or forward trade. Spot trading refers to the completion of a transaction on the spot , which translates to two business days. This is especially beneficial to commercial investors who may need more day-to-day accounting to coincide with their own business needs. Individual investors may prefer forward trading, where the close of the transaction can be put forward according to the needs of the investor to better take advantage of any possible gain from a currency differential.
Interest rates play a large role in the value of currencies as well. Generally speaking, those currencies with higher interest rates will yield better profits when traded against low interest currencies. However, there are many factors that will account for variations in interest rates, such as inflationary trends and trade deficits. Successful Forex trading, therefore, will also require diligent monitoring of political and financial situations of the various nations whose currencies the investor has an vested interest in.
These are but a few of the relevant factors that will affect successful in Forex trading. Perhaps the most positive aspect of forex market, however, is the ability to trade in foreign markets that are in different time zones, allowing the trader to open and close transactions virtually throughout every 24 hour period.
An investor who seeks to trade in currency exchange rates must first study recent valuation trends of the various currencies that are most often traded on, especially the US dollar, the British pound, the Euro, and the Japanese yen. There is an inherent volatility in any currency due to its relationship to foreign trade activities, and successful Forex trading takes this into consideration. The amount of fluctuation in currencies worldwide is what gives this market such a promising opportunity for profit.
One aspect of the foreign exchange market that increases the profitability factor is margin trading. A 1% margin is generally offered to the trader, which means that an investment of USD 1,000 provides the trader USD 100,000 of trading equity. This allows for the potential for extremely high returns on investments, making successful Forex trading quite possible to the diligent investor. A 2% change in the value of a currency trade is reflected as a 200% profitability factor, as well as an equal loss factor.
The fluctuations that occur daily in currencies are measured in small increments, known as pips. While standard values of currencies tend to remain relatively fixed from day to day, the minute fluctuations in their value can result in a gain or loss of a significant number of pips. Successful Forex trading requires that the investor understand how currencies tend to fluctuate and then buy and sell their currency based on expected incremental fluctuations.
Another positive aspect of the Forex market is the ability to spot trade or forward trade. Spot trading refers to the completion of a transaction on the spot , which translates to two business days. This is especially beneficial to commercial investors who may need more day-to-day accounting to coincide with their own business needs. Individual investors may prefer forward trading, where the close of the transaction can be put forward according to the needs of the investor to better take advantage of any possible gain from a currency differential.
Interest rates play a large role in the value of currencies as well. Generally speaking, those currencies with higher interest rates will yield better profits when traded against low interest currencies. However, there are many factors that will account for variations in interest rates, such as inflationary trends and trade deficits. Successful Forex trading, therefore, will also require diligent monitoring of political and financial situations of the various nations whose currencies the investor has an vested interest in.
These are but a few of the relevant factors that will affect successful in Forex trading. Perhaps the most positive aspect of forex market, however, is the ability to trade in foreign markets that are in different time zones, allowing the trader to open and close transactions virtually throughout every 24 hour period.
Saturday, May 8, 2010
Why we invest in Commodities?
We hear discussed widely in the financial media. But rarely do we are hear commodities discussed as an investment alternative. After all, what do commodities have to offer that stocks haven't already provided?
Here are reasons why commodities can be a good investment:
- By diversifying your portfolio, the risk can be reduced, especially during recessionary periods such as bear markets where stocks tend to decline and lose value. Commodities tend to rise and this would counter the loss of portfolio value.
- Commodities trend better than stocks, not only on individual or also stock sectors and stock indexes. As such they are a better long-term investment vehicle. Trends tend to last short term such as a few months to a few years. When the trend begins, it is very unlikely there will be sharp reversals or unpleasant surprise.
- Commodity markets have large liquidity. Not all stocks are liquid even if they look very attractive earnings-wise, but exiting can be a painful process. In commodities, all commodities traded are highly liquid.
- Commodities have been trading for more than a century. More than 90% of stocks come and go. None are changed any way so there is more reliability in back-testing (review your strategy on past historical data) than others instruments such as futures and stocks where premiums change from one expiring contract to a new one, or stock-splits.
- At tax time, profits from commodities pay lower taxes than profits from stocks. In addition, there is no need to itemize all the transactions line by line where all stock transactions must be itemized. Long term or short term capital gains do not apply in commodities.
- Due to leverage, the gains can be spectacular, possibly many multiples of the original equity. For a small sum in the account, it is possible to more than double the account equity in a very short period of time.
- If the financial objective of the person is aggressive where he has high tolerance for risk, then commodities may fit is personal tolerance for risk. With a small equity, he can use for high-growth part of the entire diversified portfolio.
Here are some reasons against the investing in commodities:
- Daily Price Limit can prevent the investor from exiting a position if prices have reaches the day's maximum price rise or decline allowed. This is especially difficult when his position is in a loss. Many times, margin calls will automatically exit the position. However, the account can be in the negative where the investor must fund additional money to the account to get back in black.
- There is lack of research materials covered in the media or in print compared to those covering stocks. The most popular financial books mainly use stocks as examples. Most brokerages and investment banks whose analysts cover industries and stocks. Investors like to see easily available and up-to-the-minute information which can be made available but not in a wide variety.
- The leverage is high, so small losses can make a big impact on the equity. This is a common scenario where the uninitiated and unprepared will see the account being wiped out.
- Future contracts constantly expire. If it's a long-term holding, contracts must be managed properly changing to forward contracts. This can be tricky because premiums change from one forward contract to the next. Acute attention must be given in doing so.
If the investor is risk-averse in which he is content with small return year to year, then commodities might not be the right investment.
This list should not be considered final for any person to decide if he or she should trade commodities. There are many other factors and priorities, such as financial situation, time and preparation of each person to commit before deciding. To effectively profit from any market, due diligence and preparedness is the method to obtain the desired objectives. Weigh each pro and con carefully and verify the arguments for oneself before committing hard-earned money to waste.
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