Sunday, July 23, 2006

Forex and Stock - is there a better market?

Many people who don’t understand how Forex works, and have some experience with the stock market, immediately think that it is too risky and has low profit margins, some would say tiny (which is the exact opposite of what investors seek - low risk and high profit). They get this idea however because less information in available on this market than other types of trading. Currency exchange requires a trader to education himself. Rather than just turning on the TV and see the financial news, a currency trader needs to read newsletters and find other ways of self-education.

Being open 24 hours a day and simply being huge is a big benefit for trading this market. A Forex trader can literally work 24 hours a day, moving from the Asian market to the European to the American (there is no actual markets, everything is online, it’s just the hours that correlate with the time-zones). Couple this with the leverage opportunities and you’d clearly see that the chances of large profit are phenomenal.

Of course stocks have their advantage in that a person can invest in the stock market without really knowing that much and probably do fine. If an investor buys blue chip stocks they are unlikely to go down in value. For long term savings stocks are fine, but the short term large gains are definitely to be found with the foreign exchange market.

Many people don’t realize how large the Forex market is. It is so huge that no single investor can corner the market as has happened in the past with some stocks, and also with some precious metals and commodities.

Sunday, July 16, 2006

The Thrill of Greed in Forex

The first time you try Forex trading - you will feel the thrill of greed. It is an ecstatic experience, your brain flush with neurotransmitters and your mind giddy with visions of untold riches about to be reaped. Greed is bold, aggressive and incredibly exciting. It can take hold of you both mentally and physically. Just imagine the possibilities!

This greed is what draws us into Forex trading in the first place - the dream of easy money and 100:1 margin rates (and even better than that). It inspires us and causes us to go through a process of rational thinking in favor of reckless abandon.

In a movie I saw, called “Wall Street”, this guy says, "Greed is good", but it is also very dangerous - especially if you are unable to recognize when greed is the one doing the talking (and the trading). Greed is also one of the most common techniques used to manipulate people. Every get rich quick scheme, promising untold riches for no money down takes advantage of your natural tendency to throw all logic and sense through all the stairs when greed lifts its head. The argument starts to appear very compelling and you ignore what would otherwise be clear warning signs. Like drunk-goggles, greed can mislead you and when you eventually wake up you are often in a very precarious position.

Forex trading is a good way of earning some money, but if greed is your main motivator - chances are you’ll end up losing instead. Be cautious and know when to take the greed and put it in a deep drawer.

Wednesday, July 12, 2006

Forex Market Background

I think that forex is the best. It proved to be the best out of all the other markets.

The global marketplace has changed dramatically over the past several years. New investment strategies are becoming more important in order to minimize risk, as well as to maintain high investment returns. Among the most rewarding of the markets opening up to traders is the Foreign Exchange market. “Easy to use” and handy trading patterns, as well as comparatively low margin requirements, have rewarding trading opportunities for many.

In a big contrast to different countries’ stock markets, forex market is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online, mostly “on paper”, without real physical transfer of the currency. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world. Average volume in foreign exchange is well over $1.5 trillion per day when the New York Stock Exchange’s volume is only about $25 billion per day. This high volume is advantageous from a trading standpoint because transactions can be executed quickly and with low transaction costs (a small buy/sell spread).

As a result, foreign exchange trading has long been recognized as a superior investment opportunity by major banks, multinational corporations and other institutions and more and more people are getting the hang of it and thinking about joining (a lot have already joined).

Just to be clear (some didn’t know that) in the forex market trades are always done as one currency in relation to another. So a trader, who believes that the dollar will rise in relation to the Euro, would sell EURUSD.

Monday, July 10, 2006

Forex profits using technical analysis

A few words from a forex trader who read a bit about technical analysis:

The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade.

As in all other aspects of trading, discipline is the key when using technical analysis. Too often, a forex trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place.

As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan.

It’s enough to read the above to understand that forex is easy as 1 2 3, but making a profit, requires a lot of research and studying.

Thursday, June 29, 2006

The Forex Market

The foreign currency exchange market, also known as forex market, is the biggest market in the world. The concept in this market is buying and selling different foreign currencies. The market wasn’t always like it is nowadays, and it had its changes and turbulence since it started it’s way in the late 60’s.
The major currencies are:
  • The USD (United States dollar)
  • The EUR (European euro)
  • The JPY (Japanese yen)
  • GBP (UK pound)
  • CAD (Canadian dollar)
  • AUD (Australian dollar)
  • CHF (Switzerland franc)

This market offers 24 hours trading. It means that any time during the day you can trade currencies. Another bug plus side is the fact that it has no regulations and no outside control. Just to get a glimpse - each day over 2 trillion dollars are traded in the market.

Trading in the foreign exchange market means that you are using one currency to buy another - that means you’re investing in a certain currency. For example, you're buying $500 and selling that equivalence in EUR. Then, if the dollar's worth rises in comparison to the EUR, you will make a profit. On the other hand, if the EUR rises in value (compared to the USD), you’ll lose.
This means that you basically try to predict (based on technical analysis and news about the currencies) if a certain currency would go stronger or weaker, compared to another currency - that’s how forex works.

Why do prices of foreign currency change?
Currencies keep changing their values from many different reasons. It can be from fluctuations in economic conditions and go on to political instability or change in interest rates. A wise forex investor knows how to analyze these changes, and make a money-making opportunity out of it.