Category: Forex Market

Articles explaining the financial markets and its stakeholders. Governments, Central Banks, Economic calendar and releases, Institutional traders and their attempts to manipulate prices, retail Brokers, retail traders, and their psychology.

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Forex Market

Structure of the Global Financial Market

What is the global financial market and what comprises its structure? Who participates in the financial market, what is its interaction, and how does the system function? Economic indicators of financial markets are key information for Forex traders, so let’s take a look at the actual structure of the global market as a whole. Why […]

What is the global financial market and what comprises its structure? Who participates in the financial market, what is its interaction, and how does the system function? Economic indicators of financial markets are key information for Forex traders, so let’s take a look at the actual structure of the global market as a whole. Why […]

What is the global financial market and what comprises its structure? Who participates in the financial market, what is its interaction, and how does the system function? Economic indicators of financial markets are key information for Forex traders, so let’s take a look at the actual structure of the global market as a whole.

Why is theory necessary? The term “financial market” cannot be called as one that the novice trader should first become familiar with, but nevertheless, it is necessary to understand the structure of the financial market. Understanding how the financial market works and how its participants interact with each other can lead traders to new investment opportunities, help optimize costs, and minimize risks. If one is not knowledgeable of the theory, it is not possible to become a practical professional trader. Spend 5 minutes reading this article. We hope it comes in handy!

Structure of the Global Financial Market

When you read about financial markets, do you know what you’re really dealing with? Banks, insurance funds, pension funds; the list of structures that make up the financial market is long enough. From this article, you will learn:

  • What types of financial markets exist.
  • Who participates in financial markets and how they interact with each other.
  • Which assets are subject to an interaction between market participants.
  • What functions financial markets play.

While approaches to determining the structure of the financial market and the role of each participant are different, this article will help you get an overview.

Fundamental Basis for the Trader or Everything in Due Time

If someone tells you to understand the term “financial market”, its structure and functions are essential for each trader, don’t believe it. That’s not the case. However, we can’t say that this information is unnecessary. At first, we didn’t study from A to Z on Forex. We strive to acquire the necessary skills independently. Only when we accumulate some experience by trial and error do we resort to knowledge.

It can be a webinar, a negotiation course, educational articles, or A to Z books on Forex. Depending on the level of our experience, we choose this or that type of information. If a beginner trader takes advantage of reading about 2 types of financial market analysis, fundamental and technical, a more experienced trader might be interested in learning more about the basics of trading, that great thing that is the currency market, your workplace. As they say, all in good time.

Structure of the Financial Market

All national and international markets make up the financial market. It incorporates banks, funds (pension, insurance, currency), and many other economic institutions that help accumulate and redistribute money.

As a complex system, the financial market has a multilevel structure that includes 5 market segments: foreign exchange market, credit market, insurance market, investment market, and securities market. As you can imagine, the Forex currency market represents one-fifth of the financial market.

1. Foreign exchange market: Forex

It is the market in which the question of the interaction of its participants is the currency and everything related to its equivalent. Derivative instruments can also serve as trading instruments (e.g., foreign exchange CFDs). Depending on the form, the agreement may be effective and not effective, according to the term of the transaction, the market may be current (spot) and derived currencies. Derivative market contracts may be:

-Forward. A forward contract is personalized between two parties at an agreed price, the intermediaries of the operation are the banks, we have no guarantees.

-Futures. Futures are priced on the basis of exchange rate movement, the intermediary is an exchange, the guarantees are the reserve deposit.

-Currency options and swaps.

Foreign exchange transactions can be carried out both on the stock exchange and on the OTC market (Interbank Foreign Exchange Market, Forex).

2. Credit market

In this market, there is a distribution of funds from those who have them to those who do not. Unlike in the investment market, the credit market is much more complex (it maintains a three-tier structure) and has stricter requirements for participants to meet their obligations. Levels of the credit market:

The central bank and the commercial banks. Here, the central bank acts as a regulator. Through loans, the central bank regulates the supply of money, supports banks facing temporary problems, maintains the liquidity of the banking system, and covers cash gaps.

-Commercial banks and their clients.

-Credit relationships between legal entities.

3. Insurance market

We’re talking about a separate segment because insurance companies are the world’s leading investors. By providing various types of insurance services, accumulate money, capital that can temporarily invest in metals, deposits, and stocks.

4. Investment market

It is a system based on partnerships and free competition between investment operators. It has a lot in common with the stock market, where funds are invested in stocks, but it could still take the form of equity investments, fixed assets, etc. In short, the investment market provides money to invest in any type of asset for the purpose of subsequent gains for a period of time due to an increase in the price of an asset or dividend payments.

5. Securities market: securities

It suggests a complex interaction between market participants in terms of issuance and the circulation of securities. Securities may be traded on both exchanges and beyond. In exchanges, you can only exchange registered assets that meet certain requirements. Assets can be:

They can be simple actions and preferred actions. Simple shares generally have voting privileges, while preferred stockholders may not. The dividend return is floating and may not be paid by the decision of the shareholders or in case of loss. Preference shares receive a fixed dividend from the company that does not give voting rights at the Shareholders’ Meeting.

Bonds can be (issuer – company), municipal (issuer – local authorities), state, international (for example, Eurobonds). Bonds can also be preferential (the holder will be among the first to receive money during the liquidation of the company) and subordinate (more profitable, but riskier). There is a gradation in the coupon rate and yield at maturity.

Indices are consolidated instruments consisting of a basket of securities, which reflect average price statistics for the sector or for the industry in general.

Derivatives are derivative instruments, which form a multi-level securities system.

ETF securities. An ETF is an indexed fund whose shares (units) are traded on the stock exchange. The investment structure of the fund can be any one, from securities of companies in a particular sector to a diversified portfolio, including shares, gold, etc. Unlike investment fund shares, it can carry out any transaction with ETF shares, as well as with values. As you can imagine, the Forex currency market represents one-fifth of the financial market.

There is another more general, but more accurate, classification of the world market: the foreign exchange market, the commodity market, and the stock market. The first includes all transactions with any currency (including cryptocurrency), the second includes everything related to securities, the third provides trading of metals, oil, goods, and services, including non-conventional investments (antiques, art, etc.). The three markets are connected by credit, investment, and other relationships.

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Forex Market

The U.S. Presidential Cycle in the Markets

Does the US presidential election cycle predict what the stock market will do? History reveals that there is some relevance to this stock market indicator, although in recent years it seems that the market has not behaved as this theory says, so traders should be careful when maintaining their investment strategies related to the results […]

Does the US presidential election cycle predict what the stock market will do? History reveals that there is some relevance to this stock market indicator, although in recent years it seems that the market has not behaved as this theory says, so traders should be careful when maintaining their investment strategies related to the results […]

Does the US presidential election cycle predict what the stock market will do? History reveals that there is some relevance to this stock market indicator, although in recent years it seems that the market has not behaved as this theory says, so traders should be careful when maintaining their investment strategies related to the results of a presidential election.

What is the theory of the US presidential electoral cycle?

The Presidential Electoral Cycle Theory is developed by Yale Hirsch, who states that United States stock markets are weaker in the year following the election of a new United States president. According to this theory, after the first year, the market improves until the cycle begins again with the next presidential election.

Description of the United States presidential cycle: While the Presidential Election Cycle Theory was developed relatively reliably from the early to mid-twentieth century, the data from the late twentieth century have not behaved according to its principles.

In 1937, the first year of Franklin D. Roosevelt, the market dropped 27.3 percent. The times of Truman and Eisenhower also began with a negative year in the stock market. However, the start of the most recent presidencies did not show the same pattern. For example, the stock market’s performance in the first two years of Barack Obama’s first presidential term was much stronger than its third year. And the same results happened in Obama’s second term, the first two years were much stronger than the third and fourth. Likewise, in the first year of George H.W. Bush’s tenure, the market rose by 25.2 percent, and the start of Bill Clinton’s two terms showed solid performance in the market, with 19.9 percent and 35.9 percent.

This evidence reinforces the idea that no market timing strategy is reliable enough to completely eliminate market risk. Market risk arises mainly from the random and unpredictable nature of economic and market conditions. The truth seems to be that much of the relationship between the president’s actions (or inaction) is casual when it comes to financial markets.

Primary Principles of the Presidential Electoral Cycle Theory

In the first two years of the presidential term, the president abandons the campaign mode and works very hard to meet the commitments made in the campaign before the next elections start. It is thought that due to the circumstances surrounding the office of president, the first year after his election is the weakest of the presidential term, while the second year is not much better.

This trend of initial economic weakness was thought to be true because campaign promises in the first half of the presidency often do not aim to strengthen the economy. Instead, political interests, such as changes in tax legislation and social welfare issues, tend to be the top priority. In the last two years of the presidential term, the president is thought to be returning to campaign mode and working hard to strengthen the economy in an effort to win votes through economic stimulus, such as tax cuts and job creation. As such, the third year had often been the strongest of the four-year period and the fourth year, the second strongest year of the period.

History and Accuracy

To summarize the performance aspect of the US stock market from the Presidential Election Cycle Theory, we can say that the performance of stocks, ranked from the best year to the worst, is the highest in the third year, followed by the fourth year, then the second year and finally the first year. As with any other timing strategy on the market, the return on investment related to the Presidential Election Cycle can be convincing, but this pattern is based on averages and averages do not guarantee consistent results!

For example, as we have already indicated, the performance of the stock market in the first and second year of President Obama’s first presidential cycle was much stronger than in his third year. And the same results happened in Obama’s second term: the first two years were much stronger than the third and fourth. Likewise, Bill Clinton had a solid first year on both counts. In what we have seen in the Donald Trump administration, the stock market has performed excellently.

Therefore, an intelligent investor will consider the Presidential Election Cycle as one of the many factors influencing economic and market conditions. Certainly, politics plays an important role in financial markets, and legislation passed in Congress (which often originates from the legislative agenda of a sitting president) has a significant impact on corporate profits of businesses. However, the policy and actions of a President-in-Office are only one of many factors that can influence market risk. Other important factors affecting financial markets may include global economic conditions, interest rates, investor psychology, and climate.

Does the presidential cycle really affect the stock market?

As with any market timing strategy, it is not possible to eliminate the element of risk from the market by using the theory of the presidential cycle to make some predictions about the behavior of the actions. The data shows this, especially in recent years where the opposite has happened to what should happen according to their predictions. This is due to the random and unpredictable nature of economic and market conditions.

This is a classic example of the madness of confusing causality with correlation: some of the increases or falls in the overall performance of the stock market are attributable to political activities, but much of the relationship between shares (or inaction) of the president and the markets is casual. In fact, correlations have been found between the winner of the Super Bowl and the performance of the stock market.

Can a basketball team influence the markets? surely not as much as a president of the United States, and no serious investor would risk large sums of money on the basis of such a doubtful correlation. At the same time, a prudent investor would not bet against notable employers either. While history shows that the third year of a president’s term has been, on average, better for actions than the first year of his presidency, the key phrase is «on average».

There is no written rule that ensures that a presidential term will be «average», and we are currently living that with the presidency of Donald Trump. In addition, the President of the United States does not have enough power to control the global political environment. Similarly, investors do not have the means to control the return on investment of their equity funds on an annual basis. The greatest determinant of the performance of an investment fund portfolio is the allocation of assets and the different funds used, not the year of the President’s term of office.

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Forex Market

Covid-19 and Dow Jones: Market Collapse and Prospects

The coronavirus epidemic appeared in January 2020, but markets reacted with a collapse only at the end of February. Until then, the epidemic once widespread in China was considered local. But after the emergence of an outbreak in Italy and many other new cases in Europe, it ended the patience of traders. If we look […]

The coronavirus epidemic appeared in January 2020, but markets reacted with a collapse only at the end of February. Until then, the epidemic once widespread in China was considered local. But after the emergence of an outbreak in Italy and many other new cases in Europe, it ended the patience of traders. If we look […]

The coronavirus epidemic appeared in January 2020, but markets reacted with a collapse only at the end of February. Until then, the epidemic once widespread in China was considered local. But after the emergence of an outbreak in Italy and many other new cases in Europe, it ended the patience of traders. If we look at the context of a profound fall in production, and a break in economic ties and, Dow Jones lost more than 20% in just 3 weeks. Has the fund been reached yet? Is the coronavirus so terrible? What are the Dow Jones’ prospects for the future? Let’s try to answer the questions raised in this article.

Dow Jones Crash: Stock Market Crash Due to Coronavirus Panic

From February 21 to March 12, in just under 3 weeks, Dow Jones has lost more than 20%, plummeting from an all-time high of 29551-29219 to 23553. During the last week of February, the world market lost 5 trillion dollars. In capitalization, the US stock market lost 1.7 trillion US dollars. Financial Times rated the first week of panic as the worst since the 2008 crisis.

Dow Jones and Coronavirus: Overview of Events

Finally, an imminent coronavirus epidemic was discussed in January this year, when China began to record a truly dramatic increase in the number of people infected. The epidemic partially affected several countries in Asia, but US stock markets did not respond to this, and on February 18, Dow Jones updated its record high to 29,551. Investors felt that the epidemic was local, not dangerous, and would soon be taken under control.

Expectations for a quick solution to the epidemic were not met. On 21 February, the Italian authorities reported the first six cases, the following day there were 50. This was enough, and investors immediately withdrew their capital from all world markets for fear of the further spread of coronavirus. The mass-selling panic continued during the following week.

“Misfortunes never come alone.”

At the end of February, it was hoped that the would almost reach and the thaw would begin. At that time, according to WHO, the number of new cases recorded daily was decreasing, and markets took the news positively. In early March, Dow Jones even climbed a bit. And perhaps the upward movement could continue, were it not for the dispute between OPEC and Russia.

Another OPEC meeting was held from 4 to 6 March, where it was decided to extend the agreement ending on 1 April to reduce oil production. There is no clear justification for why Russia flatly refused to extend the agreement, but more events took place as follows:

Saudi Arabia, interested in maintaining the agreement, practically declared a price war. Saudi Aramco Corporation was instructed to offer customers record discounts (6-8 dollars per barrel). As of April 1, Riyadh will dramatically increase oil production from 9.6 million to 10, 11, and 12 million barrels per day.

There is information indicating that Russia will seek to remove US oil shale production from the market, as it ceases to be profitable when the price of oil is less than USD 40. There were also vague indications in the Russian media recently that the rouble should weaken slightly. In other words, this scenario was predictable.

On March 9, many quotes from several markets, including Dow Jones, showed another record decline. On that same day, the Dow Jones dropped 7.79% in just one day, reaching a minimum of 52 weeks. The most stable stocks were those of Walmart Inc (-0.06%), Virizon Communications Inc (-1.83%), Pfizer Inc (-3.60%). The shares of Dow Inc (-21.66%), Chevron Corp (-15.37%), Caterpillar Inc (-14.28%) fell more than all.

What Steps Should Investors Take Now?

The current situation with the expansion of coronavirus in Europe is still quite tense today. According to WHO statements, in Europe cases are increasing. Italy remains the country most affected at the moment. On March 10, the country registered around 1000 new cases of the disease and 168 deaths, the country is now under lock and key. Ukraine, Poland, the Czech Republic are entering quarantine. Cases of the disease have already been reported in Turkey, Georgia, Bolivia, Panama, and Jamaica. Analysts believe that in developing countries (e.g., CIS), statistics could be even sadder because, for various reasons, coronavirus cases can be diagnosed as regular flu or simply hidden.

But not everything is so bad. China has officially declared that the coronavirus epidemic is fading in the country. The growth rate of the disease in recent days is 0.023%, the number of new cases of coronavirus is 10.03, 74% of those infected have already recovered, 16 temporary hospitals have been closed.

Although WHO has described the outbreak of coronavirus as a pandemic, the organization admits that the common flu occurs every year and that between 40 and 45 million people are infected, 600,000-650,000 of them die from the flu or its complications. WHO fights with new types of viruses every year, however, this does not result in such a dramatic collapse of markets, panic, and quarantine.

Based on the above, there are certain unknowns:

Who will benefit from the coronavirus-fueled panic? Corporations lose billions, transport communications (logistics, tourism) are interrupted, production volume decreases. But, if the coronavirus mortality rate is 3.4% (WHO data), and the flu/pneumonia mortality rate is 7.1% (CDC data, USA), could the problem be exaggerated? Although statistical data can be skilfully manipulated, only the coronavirus can be compared with influenza or tuberculosis.

Is the coronavirus the most important reason for the Dow Jones accident? Was the pandemic just a trigger? Could it be the last straw in the US stock market that had been pushed extremely hard before?
The solution to these unknowns will give us a clue about the future of the global stock market, including Dow Jones.

This looks like this:

Optimistic: It took China two months to fight the epidemic. The coronavirus is at its peak in Europe, so the situation will be uncertain for at least a month. During this time, the Dow Jones can lose another 10% or more in a panic and drop to 2018 levels. Given the performance of the index in recent years, things are not so bad.

WHO officials point out that the epidemic in China may have begun to decline due to warming, as the virus is supposed to die at high temperatures. The world community should therefore begin to calm down as early as May. Meanwhile, Russia and Saudi Arabia should agree on oil prices (no one benefits from current oil prices), so another problem of geopolitical and trade uncertainty will be solved. The US shares that reached the bottom in May should roll back to historic highs again, amid optimism, the resumption of trading and economic activities, and increased business activity. Although the shares will barely cover the losses quickly, investors, having entered long positions at the lows, will be able to earn 15-20% from Dow Jones alone.

Pessimistic: Panic in the midst of the coronavirus pandemic will fade, yet it will be remembered for a long time. Despite the injection of cash from central banks, the global community will not quickly restore the previous pace of economic growth. That’s why stock markets will recover very slowly if they do. Dow Jones’ situation is even more complicated. Analysts predict that the US stock market is overheated. According to wave theory, a long-term crisis should now begin. And if at the end of February the recession could be called local, there is now a bearish trend. The bearish trend could be strengthened in the midst of the US presidential election this fall. At best, Dow Jones will shrink further and consolidate at the bottom until the end of the year. In the most tragic scenario, the situation in 2008 can be repeated.

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Forex Market

What You Need to Know About US Non-Farm Payroll Reports

Among all the regular economic announcements published by governments of major world economies, the most important is the US non-farm payroll report (sometimes called simply NFP) which is published by the United States Bureau of Labor Statistics. The market can react rather violently to these reports and there was a time when trading in these ads was a well-known strategy. Today, however, you often see most of the big players remaining out of the market during these ads.

Among all the regular economic announcements published by governments of major world economies, the most important is the US non-farm payroll report (sometimes called simply NFP) which is published by the United States Bureau of Labor Statistics. The market can react rather violently to these reports and there was a time when trading in these ads was a well-known strategy. Today, however, you often see most of the big players remaining out of the market during these ads.

Among all the regular economic announcements published by governments of major world economies, the most important is the US non-farm payroll report (sometimes called simply NFP) which is published by the United States Bureau of Labor Statistics. The market can react rather violently to these reports and there was a time when trading in these ads was a well-known strategy. Today, however, you often see most of the big players remaining out of the market during these ads.

What is the Non-Agricultural Payroll Report?

The non-agricultural payroll announcement is simply the US employment report, which excludes agriculture-related jobs, unincorporated self-employment, nonprofit organizations, and military and intelligence agencies. In other words, it is a report of the “common worker” of the United States. The report is published on the first Friday of each month at 8:30 am EST and summarises the number of jobs created or eliminated from the economy during the previous month. For example, if it is the first Friday of June 2018, the report shows the employment for May 2018. This gives us roughly an idea of how healthy the US economy is, which of course has a big influence on the dollar. News that affects the market

Other central banks also have employment figures, obviously, but Forex traders don’t pay them as much attention as the dollar is the world’s reserve currency. All major Forex pairs are somehow connected to the dollar, so it makes sense that it has a massive influence on the way money flows across international borders.

How the Report Is Broken Down

Beyond simply reporting on how many jobs are created or eliminated, the non-farm payroll report also disaggregates jobs by sector. Some of the sectors include health care, wholesale, retail, transportation and storage, mining, construction, and many more. This will give you an idea not only of how the US economy is growing but also of what specific sectors are growing. This information is also very useful for stockbrokers. For example, if you see that employment in health care is increasing, that means that there should generally be more demand for that sector. A stock trader would seek to buy HMO or some other type of company from the sector in question.

Consensus

Normally, about a week before the announcement comes out, you will begin to see predictions about the outcome of the announcement. For example, some analysts may expect to create 350,000 jobs by the previous month, while others may have higher or lower expectations. When the ad goes out as expected, it usually doesn’t have much impact on the Forex markets. However, if it veers sharply in either direction, the dollar will generally react quite strongly. This is compounded by the lack of liquidity at the time of the announcement. If you have a broker with floating spreads, you will see that spreads will expand during the announcement because most large funds will be withdrawn

Unemployment Rate

The unemployment rate is also part of this advertisement, as it is published simultaneously. The higher the unemployment rate, the weaker the economy. This is because employers will not hire workers if the economy is slowing down. It is for this reason that a rising unemployment rate is usually bad for the dollar. On the other hand, if the unemployment rate continues to decline, this means that more people are working, which means that the Federal Reserve is more likely to raise interest rates. At that point, the dollar will appreciate.

Critique

As with almost any other government data, there are many critics out there. For example, the official unemployment rate published by the Bureau of Labour Statistics is known as “U3”. It is calculated by dividing the total labour force by the number of unemployed and multiplying it by 100. One problem is that the US government sees those who are working part-time as employees, regardless of whether they want to find a full-time job. It also sees employees as those who perform at least 15 hours of unpaid family work and those who perform temporary work. To be part of the workforce, he must have been looking for work in the last four weeks. Unfortunately, it does not count those who have “given up” as unemployed, because it does not keep them in the workforce. Most people will consider the “U6” as the most predictive and correct indicator. The U6 indicator is an employment report that includes part-time workers to provide a stronger economic outlook.

Most traders consider the non-agricultural payroll announcement to be the best numbers we have to work with, so the market will pay attention to them. However, in the end, it is not very correct, because, if you look at the data a year later, you would see that they are almost always corrected and revised, usually downwards.

The Bigger Picture

Foreign exchange markets have changed quite dramatically over the past decade and, although the non-farm payroll report remains very important, it is no longer as important as before, mainly because foreign exchange markets are beginning to move on different factors. For example, we are beginning to see that the dollar acts as a security currency more than anything else and traders accept more than the employment situation in several countries (including the US) will be somewhat fluid. Occasionally you get the anomaly of a bad or good month, so keep in mind that most traders are starting to see the non-agricultural payroll report as a trend to follow, not necessarily the cornerstone of indicators to see which currency to trade.

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Forex Market

Why are Forex Traders Losing Money in 2020?

What are the reasons why the vast majority of traders are losing money in 2020? It’s a pretty interesting question and the answers help you to better understand the market and give you a focus on what you should and should not be doing. Here, we’ve provided a summary of the most common mistakes seen within the industry this year.

What are the reasons why the vast majority of traders are losing money in 2020? It’s a pretty interesting question and the answers help you to better understand the market and give you a focus on what you should and should not be doing. Here, we’ve provided a summary of the most common mistakes seen within the industry this year.

What are the reasons why the vast majority of traders are losing money in 2020? It’s a pretty interesting question and the answers help you to better understand the market and give you a focus on what you should and should not be doing. Here, we’ve provided a summary of the most common mistakes seen within the industry this year.

Index

  1. Insufficient training to start trading
  2. Poor approach and lack of perspective
  3. Emotions interfere with your trading
  4. Do not limit losses
  5. Making predictions
  6. Trading scams
  7. Lack of persistence

Insufficient Training to Start Trading

More than 70% of the traders who start bankrupt their accounts in the first month. This fact says it all. It’s not that they lose money, it’s that they lose all their money. It is curious as for any other kind of professions as can be a doctor, teacher, dentist We dedicate years and to do trading you turn on your computer, watch some free videos on the Internet and you already think you can make a lot of money in one or two days. ¡ Ou, mama!

This does not mean that you have the need to spend years studying and training until you can start, only that your training takes time and doing things right beyond running and running and burning your account.

Poor Approach and Lack of Perspective

As you well know, there is too much information on the Internet about the study of graphics (chartism) and technical analysis. Lots of copied and pasted information that you start to devour and that many people apply over and over again. This has two consequences:

The vast majority of people lose money because they apply the same thing and this ends up making those patterns not fulfilled in the market. This way or approach to analysis is very subjective and makes you not know if what you’re learning or applying works. What we mean is there’s a lot of people teaching how to trade from twenty-page manuals without opening a real account or without results. There are few barriers to entry in terms of training and most are very theoretical.

All this, coupled with the idea that you can open a $100 trading account and take it in a couple of days at $1000, is a fateful cocktail. Recently someone asked me if I could earn 5 euros a day with 100 euros. We are talking about 5% daily. My answer was “How many days?”. You can earn 5% in one day, but you can’t expect to earn 5% or 1% every day. You know why? Because profitability in such a short term is not up to you. I like to say this because the other person’s reaction is usually to think “Okay, you don’t know, but you can”. After a while, that person usually remembers you. Sometimes the human being needs to be wrong to realize things.

All I can tell you about all this is that you need to see this business objectively and with a real perspective.

Emotions Interfere with Your Trading

It’s normal that you don’t feel the same when your account goes up as when your account goes down. We have emotions and that you feel them is normal. The problem comes when you do the opposite and your emotions interfere with your operations. For example, your adrenaline goes up and you start to raise your exposure and the size of your positions or, worse, you’re losing and you start doing surgeries without a beat. It works something like this, “Wow, I’ve run three operations and they’ve all been positive. From now on I’m going to double my tickets”. Or so, “The last two operations have been negative, abandonment”.

You need to create a methodology that makes you make cold decisions. This I have achieved with algorithmic trading, I focus on creating systems and evaluating them, measuring them. And once they’re running, I just supervise them. In this way you gain x1000 peace of mind and feel relaxed, knowing that you do everything that is in your hand.

Do Not Limit Losses

I’m not just talking stop loss that limits your loss when an operation is against you (of course they have to be applied). I’m talking about having the ability to eliminate strategies that are having a bad performance by others that can work better.

What most traders usually do is apply a single strategy. As you know, every strategy has a winning phase and a losing phase. What is it possible for you to do when you only have one strategy and start losing? Wait, little more. However, if you work with different strategies you can remove from your account those that behave worse and constantly incorporate those that do better. This will not just depend on a system and make your curve more stable.

Limiting losses is a key aspect of survival. Someday, whatever system you’re using will stop working. What are you going to do then?

Making Predictions

If you are a trader, you will often be asked something like “what do you think of the price of bitcoin?”. The reality is, no one knows unless you have inside information about it. And it’s not usually common unless a relative of yours is a colleague of Trump’s.

Making predictions in the press or social networks is very cheap. In the case of not fulfilling people usually delete the tweet or forget. But if everything goes as they said, they will say that they were right and that they are experts in it. You should not as a Forex trader depend on this.

You also don’t need to make predictions to make money. You need trading systems with a statistical advantage in your favor. Don’t worry about how to do it, nowadays there are tools that allow you to do it without programming and create your own arsenal. This is what I do myself and I recommend you to do: focus on creating strategies, check that they are robust, apply them and supervise. That’s it.

Trading Scams

Yes, unfortunately, there are many online scams related to trading. Unregulated brokers, groups of signals that make up your results, martingale robots that burst your account. You need to know that all this is there and not fall down to know what is best for you. You need to differentiate what is right for you from what is not.

You want profitability or you want to lose everything already? Many people fall into this kind of scam not because they are clumsy, but because they have the illusion of multiplying their money in a few hours and just in case they try. It happens in different sectors, in sports betting, online shops that do not deliver their products, etc. This has been and will be there. The question you have to ask when a broker calls you offering something is whether it is aligned with your interests. This type of broker wins when you lose. Need a partner for your business who would make money if you perform badly? It doesn’t make sense. Just avoid all of it and keep your head clean to focus on what you’re really interested in generating profitability.

Lack of Persistence

Many people are attracted to trade as a way to make quick money. They start, they start with a lot of risks and when a losing streak comes they leave it. They don’t know exactly what the subject is. They seek to make money by doing anything. And they finally end up losing all the money doing a lot of things. All without results.

Like any other business, you’ll need to take some time off and not run off at the first exchange. If you’re not really attracted to trading and just looking for results, you have a lot of ballots to go out the back door.

Change the Chip

It may seem complex, but it’s very easy to avoid all of the above. From not reading biased news or predictions, from being relaxed looking at your screen while watching how the EAs are running. I certainly do not know what will happen to the price of the EUR/USD pair, or EUR/GBP. I am dedicated to creating strategies that have worked based on profitable patterns. I test them and measure their robustness and work with a number high enough not to obsess over the performance of one. I eliminate the ones that don’t work well and incorporate the ones that are working correctly.

It all comes down to working with systems that make you take positions without thinking too much and react by impulses. The only thing we have as traders is the possibility to see how things have gone in the past. We do this through backtesting. Doing reliable backtests and managing your strategies in the present is how I’ve managed to get results, doing all this in a scalable and bearable way.

If you can automate to leave out of control the divergences of doing it manually, but you can start discretionally. The important thing is not to automate by automating, the important thing is to apply strategies that work. This is what is in your hand. At present, the real question is, how can I know what works? The answer is simple, focus on statistics.

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Forex Market

The The Primary Global Trading Sessions

The forex markets are a 24-hour business (Sunday to Friday), but people need to sleep, so how does it stay open 24 hours a day? Well, there are four different trading sessions based on different continents that relate to their timezone. So while London sleeps, Tokyo will be running. The four trading sessions as the […]

The forex markets are a 24-hour business (Sunday to Friday), but people need to sleep, so how does it stay open 24 hours a day? Well, there are four different trading sessions based on different continents that relate to their timezone. So while London sleeps, Tokyo will be running. The four trading sessions as the […]

The forex markets are a 24-hour business (Sunday to Friday), but people need to sleep, so how does it stay open 24 hours a day? Well, there are four different trading sessions based on different continents that relate to their timezone. So while London sleeps, Tokyo will be running.

The four trading sessions as the Asian session (which is both Sydney and Tokyo), the London session, and the New York session. Let’s get a little more information about each one.

The Asian Session

The Asian session runs from 22:00 GMT to 08:00 GMT, it is made up of both the Sydney markets and the Tokyo markets.

  • The most traded currency during this session is unsurprisingly the Yen which makes up around 16.5% of the transactions during this session.
  • Approximately 21% of all forex transactions occur during this trading session.
  • The liquidity during this session is often lower than in the other three sessions.
  • It is far more likely for a currency pair to range during this market rather than to go on a trending movement.
  • Most of the activity will occur at the start of the session as this is when most of the economic news is announced.
  • The most movement will be with the JPY, AUD and NZD pairs as the economic news events for these currencies occur during this session.

The London Session

The London session runs from between 08:00 GMT and 16:00 GMT, this has a slight cross over with the New York Session between 13:00 GMT and 16:00 GMT. the Londo session is considered to be the major market session and often attracts the most interest as the key financial center for Europe.

  • The session has a huge trading volume with over 32% of all trading transactions occurring during the London session.
  • There is a large amount of liquidity.
  • This is the session with the most uptrends and downtrends.
  • Spreads are often very low during this session.
  • The volatility can sometimes slow down in the middle of the London session due to London traders being off for lunch, this remains until the New York Session starts up at 13:00.
  • Market trends can sometimes reverse at the end of the session due to European traders locking in their profits.

The New York Session

The New York session runs from 13:00 GMT to 21:00 GMT, this has a slight cross over with the London session between 13:00 GMT and 16:00 GMT.

  • There is a rough estimation that about 19% of all forex transactions occur during this session.
  • There is a lot of market-moving potential during this session as 85% of all trades involve the US dollar.
  • There are high liquidity levels at the start as it overlaps the London session.
  • Most of the economic news events are released towards the beginning of this session.
  • Liquidity and volatility often decrease as the session goes on.
  • There is often little movement on Friday afternoon and a high chance for trend reversals in the second half of the day.

So that is a little overview of the three (four if you could Asia as two) trading sessions that keep the forex trading world running 24/7. The session that you should trade in depends on the pairs that you wish to trade, but we would suggest sticking to ones that don’t keep you up in the middle of the night.

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Beginners Forex Education Forex Market

Tips for Trading in a Bear Market

In a bear market, prices are trending downwards, with the most accepted definition being that the market declines more than 20% in value. The opposite of a bear market is a bull market, where prices have increased in value by more than 20%. Although most people prefer to trade in a bull market, it is […]

In a bear market, prices are trending downwards, with the most accepted definition being that the market declines more than 20% in value. The opposite of a bear market is a bull market, where prices have increased in value by more than 20%. Although most people prefer to trade in a bull market, it is […]

In a bear market, prices are trending downwards, with the most accepted definition being that the market declines more than 20% in value. The opposite of a bear market is a bull market, where prices have increased in value by more than 20%. Although most people prefer to trade in a bull market, it is often said that the best traders are made in bear markets when the pressure is on. Still, it can be intimidating to trade in a bear market and some traders avoid this situation altogether. Regardless of whether you have or haven’t traded in this type of market before, you should take a look at our tips for surviving in a bear market below.

Tip #1: Diversify Your Investments

Rather than focusing on one or two instruments, the best strategy in a bear market is to diversify your portfolio by investing in other currency pairs.
It’s best to stick with majors & minors. Avoid exotics.

Consider hedging your trades by trading pairs that usually counter one another so that you can make a profit either way or reduce your loss.

Consider adding other instruments like stocks to your portfolio for more diversity.

Tip #2: Invest in the Right Currency Pairs

In order to trade successfully in a bear market, you’ll need to be able to spot which pairs are worth trading. This may seem difficult at first, as it will seem as though every pair is down.

Look for signs that the market is undervalued and will change soon.

Invest in a pair that is likely to recover soon and you will be able to sell your position at a good price because it was undervalued when you purchased it.

Tip #3: Buy Low and Sell High

This might seem obvious, but the best money-making strategy in a bear market is to buy once the market is close to the lowest price and to sell once the price rises. However, this can be risky because the market could continue to decrease in value.

Look for confirmation that the price is going to rise before buying low. The best indicator of this is a bullish candle.

Be sure to figure out how much you’re willing to risk first and use a stop loss along with your risk-management plan.

Consider using indicators to better trade the trends in the market

Tip #4: Larger Timeframes are Best

You’ll want to look at larger timeframes when trading in a bear market because they can last a long time and shorter timeframes just don’t get you a view of the bigger picture.

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Beginners Forex Education Forex Market

Not Trading Well? Here’s Why You Don’t Blame The Markets…

It can be easy to blame the markets, in fact it is what a lot of people do, something goes wrong, it can’t be my fault, it must have been the markets moving against me. Sometimes it can look like the markets are purposely fighting against you, you set a stop loss, the markets just […]

It can be easy to blame the markets, in fact it is what a lot of people do, something goes wrong, it can’t be my fault, it must have been the markets moving against me. Sometimes it can look like the markets are purposely fighting against you, you set a stop loss, the markets just […]

It can be easy to blame the markets, in fact it is what a lot of people do, something goes wrong, it can’t be my fault, it must have been the markets moving against me. Sometimes it can look like the markets are purposely fighting against you, you set a stop loss, the markets just about touch it and then shoot off in the other diffraction, everyone has experienced it, but did it know you were there?

In short, no. When you look at the big picture, it isn’t nice to hear, but you are so insignificant in the overall scheme of things when it comes to the value of your account, that even if the markets or the big fish could see you, they most likely would not even blink in your direction.

When the markets move, they are moving in the direction that thousands and thousands of traders are going, this isn’t just small fry like yourself, this includes those huge organisations and institutions that are moving billions of currency around. Just because you put on a 0.05 lot trade, doesn’t scare them, it won’t make them want to pull back to catch you out, it just isn’t something that they would spend their time or money on doing.

So if it is not the markets that are moving against you, what could it be? Could it in fact be you? The answer is most likely yes. This does not, however, mean that you are a bad trader or that you did something wrong, it just means that the timing may have been wrong, or the markets decided to move before hitting your take profit levels, these things happen and they are a part of trading, a part that will never go away.

There are a lot of things that can cause this, when you look back at your trading journal and your strategy, maybe a part of it was not followed properly, often when trading to a plan, if just a single rule is broker it can break the integrity of the trade and will make it far more likely to lose than win. Maybe you got distracted and ignored a signal that you would normally take into account. Sometimes, the conditions of the markets change and so they are no longer favourable to your current strategy and something ends up being adapted.

All of these things can lead to that loss and they are far more likely than the markets looking at your trade and wanting to take you out.

So we have worked out that it is most likely something that you have done or not done which has caused the loss rather than the markets being out to get you. So now we know that, what can we do about it? There are actually a few easy solutions, they won’t give you a 100% win rate, but they will help you to adapt to the changes that are taking place.

Double-check your strategy, maybe there is something in there that isn’t quite working properly. More often than not a trading plan is pretty in-depth, the more information in it, the more information that can be lost or misunderstood. One thing you can do if it is quite convoluted is to try and scale it down, take out the bits that do not really do anything so it is a lot clearer and far easier to follow for each trade.

Have the market conditions changed? Maybe the strategy that you were using for the past three months is no longer as effective as it used to be due to a change in the overall market conditions or sentiment. If this is the case, then you need to be able to see where your strategy is no longer effective and you need to change something. Being able to adapt your strategy is what will keep it profitable for a lot longer than just leaving it as it is, it will need constant adjustments to ensure that you are on top of this at all times.

Double-check the markets, sometimes, especially if you have been working long shifts, you can miss things in the markets, maybe there was something obvious but because you are tired you missed it. Or if the market conditions have changed, so will the patterns on the charts. If they have changed then the charts may now be showing and saying something completely different to what they did last night, make sure you double-check to see whether it has changed and then adapt your strategy to whatever those changes are. If you did miss something, then make a note of it, it will help you to always remember to check it in the future.

As a trader, there will be times when the markets look like they did something just to spite you, it is important to remember that the markets are like the sea, they do not care about a single drop of rain, however, a thunderstorm can make a lot of movements. So when the markets are moving, you as an individual is not important, it won’t move to just get you, it will move the way that the storm is blowing, if you just happen to be against it or in the wrong place, it won’t discriminate, it will take you out.

All that you can do is prepare yourself, there will be losses, there will be wins, constantly adapt to the changing markets and you will be able to be a more successful trader.

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Beginners Forex Education Forex Market

What We Can Learn From Quiet Markets

The markets can be a crazy thing, huge movements up and down, huge spikes in volatility, and subject to a whole host of outside news and events that can rapidly shift them both up and down. However, there are also times when the markets are at a standstill, this is the first time for a trade as nothing is really happening, the markets are sat still, nothing is coming into range of your strategy so you really don’t have anything to do. This is the scenario that a lot of traders come against at least a few times a year, so we need to be able to know what we can do when the markets are in this situation, and to understand that there are still some things that you can do to help you improve your overall trading.

The markets can be a crazy thing, huge movements up and down, huge spikes in volatility, and subject to a whole host of outside news and events that can rapidly shift them both up and down. However, there are also times when the markets are at a standstill, this is the first time for a trade as nothing is really happening, the markets are sat still, nothing is coming into range of your strategy so you really don’t have anything to do. This is the scenario that a lot of traders come against at least a few times a year, so we need to be able to know what we can do when the markets are in this situation, and to understand that there are still some things that you can do to help you improve your overall trading.

The markets can be a crazy thing, huge movements up and down, huge spikes in volatility, and subject to a whole host of outside news and events that can rapidly shift them both up and down. However, there are also times when the markets are at a standstill, this is the first time for a trade as nothing is really happening, the markets are sat still, nothing is coming into range of your strategy so you really don’t have anything to do. This is the scenario that a lot of traders come against at least a few times a year, so we need to be able to know what we can do when the markets are in this situation, and to understand that there are still some things that you can do to help you improve your overall trading.

Patience

Something that we often find that a lot of people lack, especially those that are new to the market. The need to always be doing something, whether it is analysis or actual trading, it can be a strong impulse. Having a low market gives you the perfect opportunity to practice being patient, and let’s face it, it isn’t giving you much choice. Being patient does not necessarily mean just sitting in front of the computer waiting, it can also involve doing something else entirely, away from the computer or on. Being selective in your trades is a good trait to have anyway, so this is a good way to help teach you to wait and take the trades that match your strategy.

Being able to wait for the right trade instead of acting on patience is such a vital skill to learn, so take this opportunity to learn it, it will greatly improve your future trading even in more busy market conditions.

Adaptability

It is normal to be required to adapt to the changing markets, they are constantly moving up and down and you will need to be able to adapt to that to adjust your strategies, however, another thing that you need to be able to adapt to is when a market decides to slow down or even flatline. This could be about adapting your own perception and staying put, which ties in with patience that we mentioned above. Another way to adapt is to have a backup plan when your pairs are deciding to not move, is there anything else that you can move onto? Maybe there is a commodity or a metal that you are interested in, often when the currency markets have stopped, there is still a bit of movement in the others.

Of course, looking at a new asset to trade would require changes to your strategy and also learning how they move, but having these other options available will make it a lot easier for you to adapt and change when things are a little slow.

Strategy Flexibility

Having a flexible strategy or even more than one strategy will help you to be flexible when the markets are not behaving nicely if you can have a strategy available for when it is trending and one for when it is a little more stagnant can help you to find trades no matter what is happening. If you wish to be trading all year round, then you will need to be able to flex your strategy to suit all possible market conditions, so allowing yourself to have those additional options would be a huge benefit to your overall trading plan.

Learning Style

We all have different learning styles, some learn from sitting and reading while others learn from actually doing. If you learn from actually trading then these quiet periods could be a nightmare for you as there is nothing to do. In a situation like this, it is important that you have a look at various other ways of learning, this will help you to learn new ways to study which would then give you the opportunity to learn even in these slow times. It can be hard, it can be a little boring, to begin with, but after training yourself on new ways to learn, it will be a huge benefit in the future.

So those are a few things you can do and learn during a slow market, while it can be a slow time for trading, there are certain things that you can try to learn and teach yourself to help you get through those slower periods.

Categories
Forex Market

Classic Dual Line Forex Scam

What makes us vulnerable to scams and what can we do to make ourselves less vulnerable? There’s a particular phenomenon out there amongst forex traders, one that we have all seen or even experienced ourselves but that it is worth spending a little bit of time discussing. We all have our vulnerabilities and it doesn’t […]

What makes us vulnerable to scams and what can we do to make ourselves less vulnerable? There’s a particular phenomenon out there amongst forex traders, one that we have all seen or even experienced ourselves but that it is worth spending a little bit of time discussing. We all have our vulnerabilities and it doesn’t […]

What makes us vulnerable to scams and what can we do to make ourselves less vulnerable?

There’s a particular phenomenon out there amongst forex traders, one that we have all seen or even experienced ourselves but that it is worth spending a little bit of time discussing. We all have our vulnerabilities and it doesn’t even matter how long you have been trading, you still have them to some extent. Over time you might shed the ones you started out with – or at least you will probably have learned what they are and how to suppress them – but there’s a good chance you will also gain new ones along the way. Now, for the more seasoned traders among you, this will involve a little trip down memory lane. For those of you who have only been trading for a couple of years, listen up as this will be the kind of knowledge people don’t just share with you every day.

Emotional Rollercoaster

Everyone who has ever gone into forex trading has experienced one of two things at the beginning. Some have lost money right from the get-go – often they’ve everything they put in. Others have arguably had the sharper end of the stick and had some luck to begin with. That can be worse because it gives you a false sense that you know what you’re doing. It gives you the feeling that every decision you make is a stroke of genius and that you’re a natural at this. Either way, it can suck you in, in an emotional sense. Those who’ve won from the start become hooked on that euphoric feeling of getting it right – it’s a feeling like hitting the jackpot or scoring a winning goal or point. It can be very satisfying but also it can mislead you.

Those who’ve lost out most often still want to play but can no longer trust themselves to rake in the money. But that first feeling of having found the solution to a lot of your problems with forex trading – that’s a hard feeling to shake. And so we stick with it and cling on to the hope that we’re going to be able to get back in the game. That hope you feel, that against the odds you will figure this out and that you can find a system that works – that hope can be a useful thing if you don’t let it rule your decisions. It can also be a dangerous thing.

It can be dangerous because there are scammers out there who prey on that hope. Or, to be more precise, they prey on those whose hope has consumed them and turned into desperation. Scammers will do what they can to make you feel like they are your knight in shining armor, riding in to rescue you from your failures and promising big things. For people who are desperate to regain their losses, who feel like they have a mountain of learning to climb and are looking for a shortcut, that message can be irresistible.

Baltimore Stockbroker

There are a great many scams out there and many people and groups looking to run them on anyone they can identify as a potential victim. It might be instructive to take a look at how one of these scams works to get a better understanding of the mechanisms underlying this unscrupulous racket. Now, this particular scam we’re going to examine here more closely goes under several different names, the most popular of which is probably the Baltimore stockbroker but it is also sometimes known as the file drawer problem or the touting pyramid.

It is most commonly run in the sports betting world but it has migrated across to equity, forex, and other kinds of trading and investment. It is also worth bearing in mind that it has many different iterations and variations, so what we’re covering here are just the main principles.

In its most basic form, the scam starts by making outrageous claims through mass emailing or through social media. Sometimes they’re even run as ads or promoted social media content – although it is worth mentioning that most of the larger social media platforms are doing a better and better job of clamping down on these scams and reporting them to the authorities. Nonetheless, they still get through. And we’ve all seen these claims: “Turn just $1,000 into $10,000 with this amazing trading technique!”, “Earn yourself returns of 100% every month!”, “Use this unique trading technique to make 2,000 pips or more!”

Of course, these claims are outrageous and you’d have to be desperate for them to reel you in but that’s just the point. Scammers pulling the Baltimore stockbroker and other similar cons rely on your desperation. Also, it is certainly worth bearing in mind that these examples are pretty basic. Scammers have devised much more sophisticated methods to get these claims across and make them seem both more believable and more legitimate. One such technique is to use real testimonials from people who are marks in the scam but are temporarily doing well out of it. As you will see, for a time some people will be victims of the scam but will have bought into it so deeply that they will sound very genuine when recommending it to others.

Using these tactics the scammer builds up a pool of marks. Often this pool will number tens or even hundreds of people but in order to keep it simple here, let’s say the scammer’s pool is just 16 people. Firstly, the scammer will charge the marks a fixed amount per week or per month to stay in the game. And they buy into it because they have become convinced that they are onto something that will make them that fee back and then some. The scammer then tells the marks that he has some secret, inside information about some future movement of the market. For example, they say they have the lowdown on an upcoming news event and they know which way the market will move as a result. For the sake of this example, let’s say the scammer tells his sixteen marks that he has some information about some news that will affect the EUR/USD pair and he knows which way it will send the price of the dollar against the euro.

Now, here’s the key component. The scammer will use the fact that none of the marks know each other or have any contact with each other to split them into two equal groups – in this case, with eight people in each group. One group receives a prediction that the dollar will go up against the euro in response to the news event, while the other group gets the exact opposite prediction. Each group is completely convinced that they have the right prediction because they are completely unaware that there even is another group.

So when a news event does come around, one group will have made money on their trades while the other group will have lost – and they will probably have lost everything because the scammer will have advised them to leverage their accounts to the max. But, of course, the scammer doesn’t care that one group lost because they’re relying on the monthly fee from their marks.

Here’s where it gets really devious. The group that won big is still in the game. The scammer now splits them into equal halves again – in our example, this would be two groups of four but in real life, it could be much larger groups. Then it’s just a case of rinse and repeat. One group will have made money again, through sheer chance, while the other group loses big. Then the scam goes back to the beginning and is run again.

But here’s what’s interesting. There will eventually be a group of surviving marks who have been on the receiving end of the most miraculous series of predictions you’ve ever seen. At this point, they must be thinking that the scammer feeding them these predictions has a crystal ball or a sixth sense or is otherwise a member of the Illuminati. They are not only ready to pay to stay in the game but are willing to write or record the most glowing testimonials to the scammer possible. And these testimonials are additionally believable because these marks aren’t making it up – they really have been winning big on the back of seemingly impossible predictions of the market.

This not only helps the scammer to attract a new pool of marks but also means that they are likely to part with increasingly large sums of money along the way. And here’s the thing, you would be too. If you thought you were onto a good thing like this, you would be more than happy to keep reaching into your pocket to stay in, happily unaware that each prediction is no better than a random guess.

The flip side is, of course, all of those marks who weren’t in the surviving group. Most of them will certainly have dropped out when they lost the first time but, sadly, some of them will stay in despite their losses and will not only lose more on the next ‘prediction’ but will also be paying the scammer to do so.

The scam relies on a number of psychological tricks. Firstly, like almost all scams, it targets our vulnerabilities but it also relies on selection bias – where the results look amazing because the scammer is essentially only showing you the winning marks. In 2008 a British TV magician and entertainer used a variation on this scam to send a woman correct tips for five successive horse races. She was so blown away by his ability to predict the outcome of the races that he was able to persuade her to bet her whole life savings on the sixth race. Luckily for her, this was just a TV show and he simply revealed at the end that he’d tricked her and she got to keep her money. In real life, the scammer would simply have disappeared into the ether.

Protecting Yourself

You are probably reading this and thinking to yourself, “that’s all very well but it doesn’t apply to me because I would never fall for a scam like that.” Maybe that’s true but ask yourself this: before you read this, did you even know how this scam worked? And that’s not even the scary part of this, the scary part is that scammers will work hard to conceal that it’s a scam and there’s a good chance you won’t see it coming. Also, you should never underestimate the desperation you might feel if you hit a losing streak and you need a big win to get back on the horse. Or, conversely, if you smell the sweet, sweet smell of potential success just around the corner. Because those two drives will make you vulnerable to scammers and they can smell that vulnerability just as sure as you can smell a win.

But that’s not the crux of the matter. The real way to protect yourself is not to know how each and every scam works and to avoid them like the plague. First off, because nobody outside the white-collar crime department of the FBI can be expected to know all of the scams and cons out there – and even they probably struggle to keep up. And, secondly, because fraudsters will always be looking to change and adapt their scams so they can hook in as many marks as possible.

The real way to protect yourself is to maintain at all times a realistic appraisal of the situation. Trading forex is not like winning the lottery and those people who treat it like that are leaving themselves open both to scammers and a big, big disappointment down the road. There is no easy way to “win” at forex trading. There is no cheat code. Nothing gets handed to you on a silver platter. Becoming a successful forex trader takes hard work, dedication, intelligence, the ability to learn and adapt, and an ingrained understanding of oneself. This is, after all, a multi-trillion dollar market and the ranks of successful traders are brimming with the cream of the crop in terms of brains and determination. You can’t simply walk up, enter a few trades, and get your hands on the big bucks.

By keeping your expectations realistic you are not only giving yourself a shield against the allure of all kinds of scammers and tricksters, you are also setting yourself up to stay in trading long-term. It is only by staying in it, building up your experience and putting in that hard graft everybody seems so keen to avoid these days, that you can become consistently good. There are no guarantees for anything, of course, but keeping on going until you find systems and approaches that work is the only thing that gives you a chance to play the long game. And playing the long game is the only way that you will continue to improve and evolve, which is ultimately your best shot at success. Anybody who tells you otherwise is probably selling something.

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Forex Market

The Phenomenon of President Trump’s Tweets

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing […]

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing […]

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘rip-off USA'($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….” Does this ring a bell?

Maybe this? “As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work ‘brilliantly’ with both, and the U.S. will do great…” It is extremely unique how and in what ways we have seen tweets from President Donald Trump affect the market almost immediately after he posts them and what that does to our trades. This is the type of phenomenon that we have never had to deal with before, it is something completely new for traders.

There’s been a lot of complaining all over social media about something that we cannot see coming and we substantially have absolutely no control over. Something that has the ability to pop up and ruin our wonderfully perfect technical trade almost instantly. We will try to focus on this from the politically agnostic stand of point because our number one goal should be finding ways to make money from the forex market. But this whole thing with President Trump’s tweets is pretty eccentric to anything we had to deal with before because it is constant and it is highly unpredictable. We never know when it is going to happen but we can surely anticipate that markets are going to freak out. So why this is happening? How could smart investors with all that big money be so foolish and react to something like this? Especially when most of the words from tweets end up never really materializing. It is perfectly normal to wonder about that. There are a couple of factors in play here.

Firstly, if we give the opportunity to big banks to manipulate prices a lot in a hurry, they are going to take advantage of that opportunity every single time. They don’t need to explain to anybody why they did what they did. This whole interesting moment with the huge central banks we can see only happening some of the time when we see big moves after a Trump tweet. Secondly, we have institutions. For example, hedge funds play a significant part in this because they have a lot of money and when they move, they move all at the same time. Proprietary trading firms are an example of institutional trading but to a much lesser degree. Typically they don’t have the amount of money at these hedge funds have, and their traders don’t all move in lockstep.

There has been a rumor among traders that some of these hedge funds have algorithms that are able to comb through Twitter mainly when Trump tweets something and they are targeting for certain words or a certain combination of words that will automatically trigger their algorithms to go long or to go short on whatever instrument they’re trading. It is the ultimate front-running tactic. The financial game is more about survival than anything else and these funds and firms are finding ways the keep their heads above the water. We can’t be mad at them, it is pretty innovative and it’s working. So the two main types of entities that can have a big impact on the forex market all on their own are the big banks and larger institutions, they play instant reaction games and they are both involved in this little amusement with Donald Trump’s tweets.

The question remains, what we the small retail traders can do about it? Is there any recourse for us? To be honest, there is nothing we can do to counter this phenomenon. We are just going to have to deal with this new normal. We are not going to be able to change the way we trade at all to adjust to something like this. It might be better not to worry about it. On one hand, this could make the price of a currency pair go up or down, so it is going to make a mess sometimes because we are going to be emotionally invested in those times where this external factor out of nowhere came and messed up our trade. On the other hand, there is a 50% chance that it could propel our trade even further. We have been seen some people who are complaining and the ones that benefited from these tweets.

There will always be the factors that we can’t control and they might negatively affect us but we mustn’t allow things like this to get us down. You guys don’t worry about the things that you can’t control. In forex trading, It’s always going to be something, either the markets are too crazy, it’s too dead, we have now this Trump tweets, it is always going to be something that prevents us from getting the results we think we deserve. We simply need to find a way to be immune to all the financial earthquakes. In the end, our best approach should be just to trade our system and let it organically do what it does regardless of the circumstances. These external factors are not actual factors, they should have nothing to do with our constant improvement. We don’ have any impact on them and we can’t do much about that. So traders focus on the things that actually matter without complaining. The best thing we can do is to leave politics as it is and try to make our trade better every single day.

Categories
Forex Market Forex Risk Management

These Are Some Of The Best Position Sizing Techniques You Should Know!

Introduction
In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which

Introduction
In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which

Introduction

In our previous article, we addressed the concept of position sizing, drawdown, and techniques. Now we extend this discussion and look at other crucial aspects of position sizing, which are very important. In this article, let’s determine how one can position themselves in the forex market based on three different models. Each of these has its own merits that impose some sort of position sizing discipline in traders.

The three core position sizing techniques in terms of risk are:

  • Fixed lot per amount
  • Percentage margin
  • Degree of volatility

These models can be applied to all the asset classes and are time frame independent.

We suggest you stick to one model to estimate the position size or at most two position sizing techniques. Following every given method will increase complexity, and that is not good for a trader.

Fixed Lot Per Amount

This is a fairly simple model. It requires a trader to simply state how many lots he is willing to trade for a given amount of capital. For example, let us assume a trader is having $2000 in his trading account, and he trades only the major currency pairs like  EUR/USD, GBP/USD, GBP/JPY, USD/JPY, etc.

The trader simply needs to make a thumb rule that he/she will not trade more than one standard lot of futures (of major currency pairs) per $2000 at any given point.

The lot size can also be determined based on their risk appetite and money management principles. This technique of ‘fixed risk’ is based more on the discipline than strategy.

Percentage Margin

This position sizing technique is more structured than the ‘Fixed lot per amount’ technique, especially for intraday traders. It requires a trader to position themself based on the margin. Here, a trader essentially fixes an ‘X’ percentage of their capital as margin amount to any particular trade. Let’s see how this works with the help of an example.

Assume a trader named Tim has a trading capital of $5000; with this, he decides not to expose more than 20% as margin amount on a particular trade. This translates to a capital of $1000 per trade.

Now, if Tim gets an opportunity in another currency pair, he would be forced to let go of this margin as it would double to 40% (20% + 20%). This new opportunity will be out of his trading universe until and unless he increases his trading capital. Hence, one should not randomly increase the margin to accommodate opportunities.

The percentage margin ensures a trader pays roughly the same margin to all positions irrespective of the forex pair and volatility. Otherwise, they would end up in risky bets and therefore altering the entire risk profile of their account.

Degree Of Volatility

The degree of volatility accounts for the volatility of the underlying asset. To measure volatility, we make use of the ATR indicator, as suggested by Van Tharp. This position sizing technique defines the maximum amount of volatility exposure one can assume for the given trading capital.

Below we have plotted the ATR indicator on to the USD/JPY forex chart.

The 14-day ATR has a peak and then a decline, which shows a decrease in volatility. As you know that high volatility conditions are the best times to trade (less slippage, high liquidity, etc.), you can risk up to 5% of your trading capital on the trade while one should not risk more than 1% when the ATR is at the lowest point. Do not forget the risks involved while trading highly volatile markets. Only use this position sizing technique when you completely trust your trading strategy.

Conclusion

A trader should not risk too much on any trade, especially if their trading capital is small. Remember, your odds of making a profit are high when you manage your position size and risk the right amount on each of the trade you take.

Beginners should trade thin to get experience with open positions, so they can assess the stress of a loss and gradually increase the position size as he is comfortable with the strategy results and performance. As a matter of fact, this is also the right way to proceed when trading live a new strategy, be it a beginner or an experienced trader.

Cheers!

Categories
Forex Market

Finding The Optimal Risk % In Forex Trading

Introduction
Calculating risk is one of the most important parts of Money Mangement. Many novice traders or traders with limited experience won’t be aware of the amount of risk they

Introduction
Calculating risk is one of the most important parts of Money Mangement. Many novice traders or traders with limited experience won’t be aware of the amount of risk they

Introduction

Calculating risk is one of the most important parts of Money Mangement. Many novice traders or traders with limited experience won’t be aware of the amount of risk they can tolerate. In this article, we shall focus on determining the appropriate risk % that fits your trading style. The goal of risk management is to gain control over three things:

  • Emotions
  • Leverage
  • Sustenance

Furthermore, by limiting the loss per trade, a trader can ensure that his/her trading capital is not wiped out in one single trade. Having this discipline systematically reduces the loss per trade and provides an opportunity for the trader to re-look at the situation.

Calculating the risk

One can determine the risk based on the following factors:

Win rate

Win rate refers to how often a trader takes profitable trades relative to the trades that result in a loss. Win rate is determined by using the risk-to-reward ratio (RRR) and is calculated by the following formula.

Win rate = 1/(1+RRR)

The above-given formula is also referred to as the Minimum win rate. If any trader is trading with an RRR of 1, then his/her minimum win rate will be 50%. So out of 100 trades, we require a minimum of 50 trades to end as winners to compensate for the losing trades.

This will help a trader in deciding their maximum risk based on the win rate. This formula can also determine if a trade can be taken or not. For example, if someone has a win rate of 25%, he/she will not be able to take trades that have a risk-to-reward ratio of less than 3.

Nature of the market

Depending on the market situation, the risk can vary substantially. In a trending market, like the one in the below chart, risk should be reduced as much as possible by using a stop-loss order. We are recommending this idea as you would most probably be trend trading, and there is no point in risking more than the usual (can be lesser).

Trending Market

In a market that is trapped in a range (below image), the risk is always higher. This means anyone who trades the consolidation market is essentially increasing their risk. This would mean increasing the stop-loss, thereby reducing the risk-to-reward ratio (RRR) of the trade.

Ranging Market

Maintaining a risk of 1% constantly, regardless of the market conditions, will help the traders to sustain the loses and stay in the game even after a series of losing trades. This is a conservative method that reaps fewer rewards, but the risk is certain.

Conclusion

The aim is to achieve some level of consistency in trading by allowing yourself and your trading strategy to fight the evil forces of the market. We would say in all circumstances, a max risk of 1% appears to be the winner if you are a conservative trader. When the risk increases, it is said to impact not only the capital of the trading account but also the psychology of a trader. Hence it is better to keep risk at a bare minimum in times of uncertainty.

Categories
Forex Market

Understanding Drawdown & Its Relation With Position Size

Introduction
Do you know that there is a safe way to choose the maximum lot size when you trade? That too while keeping your account safe from blowing when a

Introduction
Do you know that there is a safe way to choose the maximum lot size when you trade? That too while keeping your account safe from blowing when a

Introduction

Do you know that there is a safe way to choose the maximum lot size when you trade? That too while keeping your account safe from blowing when a losing streak of trades occur? To constantly stay in the game and be able to recover from losses requires patience, clarity, and, more importantly – optimal Position sizing. The position size in simple words is how much a trader invests in each trade. There are different models deployed to reach the optimal position sizing depending on the objective of the trade. Before that, let’s first understand what drawdown is and how it is related to position sizing.

What is the maximum drawdown?

The maximum drawdown is the biggest drop in the accumulated profit chart and, consequently, that of the trading capital. Imagine a situation where a trader had 200 pips in profit after a number of trades, and on the following days’ profit dropped to 136 pips before he can make new accumulated high.

So, the drawdown here was 200-136 = 64 pips

When this drawdown increases, it reaches a level (negative drawdown), after which it becomes impossible to trade (due to loss of trading capital). Maximum drawdown is the loss that the trader can take in order to survive in the market and be able to continue trading.

How is drawdown related to position sizing?

Taking the above example, let us assume that the trading capital was $500 and the trader trades with a lot size of 0.01. The drawdown he experienced was 64 pips, which is $6.4 (1 Pip = $0.1). So the amount of money he/she risking in this trade is 6.4/500 x 100 = 1.28% of the account size.

Now let us see how this drawdown increases with a change in position size.

How much drawdown can I handle so that it doesn’t affect the mental state and my trading style?

As you can see below, the drawdown % increase as the lot size increases and the account gets into an unsustainable state (Especially when the Trading Capital is $500). Hence you need to calculate risk based on your risk tolerance drawdown.

The right way to look at drawdown and position size

Typically, the drawdown occurs after a series of consecutive losses. The very first thing a trader needs to do is to analyze and figure out the number of losing trader he/she can endure. Depending on that, the maximum risk percentage should be defined. So essentially, this percentage is the maximum amount of trading capital a trader affords to lose. If the losses cross this percentage, his/her account get unsustainable.

For instance, I can bear a maximum drawdown of 20%. So I should be willing to design a strategy and chose my trading size in such a way that it is very unlikely for me to reach the 20% drawdown. Let’s denote the number of losing streaks as N. I should make sure that my strategy has a winning percentage of at least 50% or more with high RRRs. Let’s assume the maximum number of losing streaks I can afford is 10 (i.e. N=10).

Dividing the maximum drawdown (20%) with N (10) gives 2%. This means that I cannot risk more than 2% of my trading capital on a trade to sustain in the market. If I have more than one open trading position, I should be distributing the risk among all of the open positions. So here, if I have 2 open positions, I shouldn’t be risking more than 1% in each of the trades. This is one of the best ways to look at drawdown and position size.

Different approaches to position sizing

Defined Percentage Risk

In this position sizing strategy, we risk a fixed percentage of the trading capital (e.g., 1%) for each trade. This is followed by most of the traders across the world and it is pretty simple to use as well. Essentially, the trader is required to put the stop-loss more accurately and not randomly to prevent the stop-loss hunt. This might sound pretty easy but it needs a lot of discipline to overcome the greed and not raise the position size when you see a clear profitable trading signal.

The Kelly Criterion Model

John Kelly described this criterion pretty long ago, which computes the optimal position size for a series of trades.

Kelly Percentage = W – [(1-W) / R)

Where, W – Winning probability and R – Profit/Loss ratio

When a trader keeps a record of all their trades, they can calculate their winning probability and profit/loss ratio. Then, they can use them in the above equation to calculate the optimal position size.

Conclusion

You now know the importance of position size and its relation to drawdown. By using this, leverage can also be used appropriately to avoid blowing-up your account because of the drawdown. By doing this, you can maximize your earnings and reduce drawdown to an acceptable value.

Our suggestion for you is to use a trading strategy for a long time. If a strategy hasn’t been tried many times, the big drawdown might not have appeared yet. The bigger the history of using the strategy, the more confidence you will get to increase the lot size. Cheers!

Categories
Forex Market

Advantages & Risks Involved With Volatility Trading In The Forex Market

Introduction
The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are

Introduction
The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are

Introduction

The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are often the main obstacles that new traders face.

In this article, we will discuss the hourly volatility in the forex market and the trading risks involved during these hours. Some traders trade the market based on its volatility. Few traders enjoy volatile markets, while others prefer trading in non-volatile conditions. So let’s get right into the topic.

The volatility of a major currency pair

Hourly volatility is relevant to short term forex traders but is not a significant factor for long term investors. The global trading sessions affect volatility within the 24 hours. A forex pair is typically most volatile when a major trading session opens, or two market sessions overlap with one another. For example, EUR/USD is the most volatile and active when London or New York is open because these markets are associated with the Euro and USD, respectively. The below figure depicts the volatility of EUR/USD in a day.

The average volatility of EUR/USD currency pair on a single day

The bar chart shown above represents the volatility of EUR/USD in a day. It depicts nothing but a candle with lower wick, body, and upper wick. One can see that during the Asia session, the price is not volatile. Whereas during the New York session, the price makes large movements shown by larger wick and body of the bar chart. Even without looking at candlestick charts on the trading platform, these bar charts are sufficient to decide at what time to trade during the day, which is much easier than analyzing candlestick charts.

Low volatile hours – Asia Session and Time b/w NY close & Asia Open  

Traders have a misperception that “More risk equals more return.” There is no doubt that highly volatile pairs deliver impressive returns, but research and data have found that lower-volatility sessions generate risk-adjusted returns over time. This is the reason why traders include the ‘Low volatility factor’ in their portfolio.

Risk of trading in low volatile hours

In times of low volatility, there is increased slippage, which means a trader will hardly get the price they desire for. This would mean eating up of their profits, or even sometimes a complete drain of profits (when trading on a lower time frame). In this way, a trader will not be trading according to the rules of money management. Hence, to manage risk, there is a right way to trade during such times. Some of them are discussed below.

Why is it important?

There are several reasons why trading in lower volatility conditions has the potential to create a lot of money over the long term.

Leverage aversion– In money management theory, we had mentioned earlier that the more leverage a trader use, the more is the risk. In times of lower volatility, traders are restricted from using the leverage from their trading account. As a result, they buy and sell currency pairs that are less risky with good profit potential.

The lottery ticket– Many traders treat the forex market as a “lottery” where they buy and sell currency pairs like they are purchasing lottery tickets. This, in turn, raises the bid of high-risk pairs, which leads to the type of lottery effect and increases volatility. Here, we need to find pairs that are under no one’s attention and buy them (which will be least volatile).

High volatile hours – London & New York Sessions

Many traders live on volatility in the forex market, as volatility is what creates profitable trading opportunities.

Risk of trading in high volatile hours

High volatility hours also has its own disadvantages. During such times, one can see their stop-losses getting triggered frequently. This happens due to the tricks played by more significant players like stop-loss hunting. Another risk is the high leverage provided by forex brokers. So to manage these risks, high volatile hours should be traded in a certain way. Some of them are listed below.

Trend trading– One key opportunity in a volatile market is that trending currency pairs may see the rate of their trend increase. When we are trading with the trend, our risk drastically reduces, which is good for money management.

Short-term strategies– In volatile markets, strategies work the best by booking profits automatically than manually. In this way, we will be eliminating emotions in trading as everything will be done by the system, which is crucial for risk management. Strategies also make use of indicators like RSI and Bollinger bands, which help in identifying overbought and oversold zones.

Bottom line

Every trading session and hour has its own advantages and risks, which a trader needs to evaluate, based on his/her risk appetite. The right time to trade depends on the personality of the trader and style of trading. Volatility on an hourly basis is more complex than how much a forex pair moves each day on an average basis. We see volatility varies drastically across different hours of the day and days of the week. We need to monitor and adapt to these changes. Cheers!

Categories
Forex Market

Leverage Trading & Important Money Management Rules To Follow

What is Leverage?
Leverage trading, AKA Margin trading involves borrowing extra funds to increase a trader’s bet while they trade. In this aggressive mode of trading, traders take more risk

What is Leverage?
Leverage trading, AKA Margin trading involves borrowing extra funds to increase a trader’s bet while they trade. In this aggressive mode of trading, traders take more risk

What is Leverage?

Leverage trading, AKA Margin trading involves borrowing extra funds to increase a trader’s bet while they trade. In this aggressive mode of trading, traders take more risk while expecting for additional rewards. This is done by the traders only when they think the odds are in their favor. Leverages is basically represented as a ratio or with an ‘X’ next to the times of leverage. For instance, to take a trade what is double the size of the amount you want to risk, you are essentially taking leverage of 2:1 or 2x.

The main leveraged products available today for Forex traders are spread betting and contract for difference (CFDs). Other products include options, futures, and some exchange-traded funds (ETFs). Before using leverage, a trader needs to understand the risk associated with it. Controlling risk means having money management principles that can be used on a daily basis. Since leverage trading can be risky, as losses can exceed your initial investment, there are appropriate money management tools that can be used to reduce your potential losses. Now let’s look at a few of these tools.

Money management rules

Using stops

Putting a stop-loss to your position can restrict your losses if the price moves against you. As mentioned in previous articles, markets move quickly, and certain conditions may result in your stop-loss not being triggered at the price you’ve set. Do not forget to trail your stop-loss after you get in a profitable position. By trailing your stop-loss, you will be able to lock in the profits you have made on your trade. There is no need to monitor your position nor the need to adjust your stop-loss manually.

The right risk to reward ratio

The risk to reward ratio can be calculated by taking the total potential profit and then dividing it by the potential loss. You need to calculate risk based on your trading capital (risking not more than 2% of trading capital) and the leverage that you use to trade, as the leverage can alter your stop-loss.

Choosing the right leverage level

It is hard to determine the right margin level for a trader as it depends on trading strategy and the overall market volatility. But from a risk perspective, there is a maximum level of margin that one should use in order not to overexpose themselves to the market. It is seen that scalpers and breakout traders use high leverage when compared to positional traders, who often trade with low leverage. Irrespective of the type of trader you are, you should choose the level of leverage that makes you most comfortable. Since forex brokers provide a maximum leverage of 1:500, newcomers find it attractive and start trading with that amount of leverage, which is very dangerous.

If you are a novice trader, the optimal leverage to use in Forex should be below 10X. But if you are an experienced trader and are extremely sure about the trade you are about to take, the maximum you can go up to is 50X. But as discussed, Forex brokers offer a maximum leverage of 500X and some time more too. But it is advisable not to go that far until and unless you have the appetite to take that risk. By using less leverage, you can still trade even after having a series of losses in the market as you are taking a calculated risk.

Bottom line

A simple rule to keep in mind is that you shouldn’t be risking more than you can afford in the market. You can open a special type of account with a forex broker known as limited-risk accounts, which ensures that all your positions have a guaranteed stop. They decide your account type and leverage based on the information you give them while opening an account. Hence, leverage can be used successfully and profitably with proper money management techniques.

Categories
Forex Market

Dealing With Liquidity & Volatility In The Forex Market

What is liquidity?
When a trader starts his trading journey, one of the things he finds most attractive is the amount of liquidity offered by the forex market. The latest

What is liquidity?
When a trader starts his trading journey, one of the things he finds most attractive is the amount of liquidity offered by the forex market. The latest

What is liquidity?

When a trader starts his trading journey, one of the things he finds most attractive is the amount of liquidity offered by the forex market. The latest figures suggest that the daily trading volume of forex is close to $5.1 trillion.

Liquidity is the ability to trade a currency pair on demand. In simple terms, it is the measure of how easily a currency can be exchanged. When you are trading major currency pairs, you have an exceedingly high amount of liquidity. This liquidity is provided by financial institutions, big businesses, and retail traders as well. However, not all the currency pairs are liquid; liquidity depends on whether a currency pair is major, minor, or exotic. Major pairs typically have high liquidity compared to the other currency pairs. In the next section, we will look at some of the money management principles in trading with respect to liquidity.

Liquidity and Risk

A market with low liquidity has chaotic moves and gaps because of the absence of buyers and sellers at any given point of time. These gaps occur when news announcements are made over the weekend or if an event happens at the same time. The chart below depicts such a gap after a news release.

According to money management principles, when you know that there will be a change in liquidity levels between Friday to Monday, it is not advised to carry huge positions on Friday. The risk drastically increases, if the price opens above your stop loss on Monday, it will become a market order, and this loss will be much higher than the predefined loss (determined using stop-loss). A conservative trader especially should not take any positions during times of news releases.

Retail forex traders need to manage liquidity risk by lowering their leverage and putting stop losses based on higher time frames. In this way, you would be safe from any kind of gaps that happen at the beginning of the week.

Volatility

Volatility refers to the currency fluctuations in the global exchange market. Price movements can vary from hour to hour, minute to minute, and second to second, depending on many factors. A lot of forex traders enjoy volatility, but it comes with a risk. Therefore it is important to manage volatility and do plenty of research before placing a trade.

Eliminating the risk of volatility

In order to make the most out of volatility, follow the below-mentioned techniques:

Volatility strategies

Money management, in relation to volatility, essentially suggests traders invest in strategies that can perform in different market conditions. Some of the strategies that can be used to turn the volatility in your favor include widening your targets, placing tight stop-losses, and analyzing the higher timeframes.

Stay diversified

Don’t rely too much on any asset class or forex pair. If one investment performs poorly, other investments may perform better over that same period and thereby reducing your overall losses. This happens due to the difference in volatility across various asset classes. A balanced portfolio protects from losses and provides a high return on investment.

Money management should always be a top priority for every trader, as these principles guide us while taking trading decisions. A lot more concepts related to money management will be discussed in the upcoming articles.

Categories
Forex Market

What Should You Know About Funding Your Forex Trading Account?

Introduction
A forex account, also known as the foreign exchange account, is used to hold and trade different currencies. When a trader opens an account with a forex broker, they

Introduction
A forex account, also known as the foreign exchange account, is used to hold and trade different currencies. When a trader opens an account with a forex broker, they

Introduction

A forex account, also known as the foreign exchange account, is used to hold and trade different currencies. When a trader opens an account with a forex broker, they will have to fund his account with his home currency, and then they get to buy or sell foreign currencies using that money. Today, opening a forex account and funding that account is a pretty seamless process. All you need to do is to choose a reliable and credible Forex broker, open an account with them, and fund it to start trading. Forex brokers provide many options to fund a trading account. Let’s look at those methods in this article.

Funding methods in forex

To attract traders, forex brokers offer a wide range of payment options for both deposits and withdrawals. They are categorized into the following methods.

Offline payments

Offline payment options involve traditional means of funding trading account which includes:

  • Local deposit
  • Western union
  • Bank wire
  • Cheque

These methods are best used when you want to trade in huge amounts of money. However, before you transfer this large amount of money, make sure that you know the broker well enough and that you trust them completely. Payment via Bank wire and other methods are relatively more expensive and take at least six days or more. The reason for this method being expensive is because it involves bank transaction fees and currency exchange services fees. These are additional costs which are levied when you make payments.

The disadvantage of using the above method is that if you fall prey to a scam, it will get hard to get your money back. The broker will provide you with the transaction ID, which is the only proof of payment.

eWallet payments

eWallet payments are getting more and more popular nowadays due to their ease of use, relatively lower transaction costs, and faster execution. In fact, most brokers offer instant deposits and withdrawals with eWallets. Some of the widely used eWallet funding methods include:

  • Neteller
  • Skrill
  • Paypal
  • CashU
  • Webmoney

Using the eWallet payment method is often better than using offline payment methods. eWallet service providers offer higher protection of trading account, which means if you want a refund of your deposit, your eWallet can get the job done for you easily. It acts as a medium between the merchant (the forex broker) and the customer (the trader). Forex brokers also offer special bonuses when you use your eWallet very frequently or make transactions with huge volume.

Debit/Credit cards

Funding your trading account using debit/credit cards is another popular way for traders to deposit instantly. However, the bank will enforce a limit on deposit and withdrawal based on the trader’s capacity. If you notice the broker is carrying out any malicious activity, you can take back all your money using a facility called ‘chargeback.’ Note that a ‘chargeback’ does not guarantee your money back. Therefore traders need to be cautious when funding their account using debit/credit cards. Even the credit card details will be exposed, of course, when using this method for transactions.

Best way to fund your trading account

After looking at different funding methods, eWallet payments turn out to be the best option for funding for the following reasons:

  • Lower transaction cost (relatively) – Deposits and withdrawals can be done almost cost-free, which are usually covered in spreads charged by the broker.
  • Safe – eWallets ensure the safety of your money, with great transparency.
  • Fast execution – Deposits and withdrawals are faster via eWallets as it is instant in most of the cases. You can also link your debit or credit card to your eWallet and use them.

This covers most of the ways through which you can fund your trading account. If you have any questions, let us know in the comments below. Cheers!

Categories
Forex Market

The Basics of Spread & Slippage

Spread
Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a

Spread
Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a

Spread

Did you know that each time you place a trade, you pay a fee to the broker for providing the opportunity & platform to trade? Spreads act as a fee on zero-commission accounts (STP accounts). A spread is simply the price difference between the purchase price and selling price of an asset. The broker always shows two quotes of currency – one at which they sell the underlying asset to you and another at which they buy the underlying asset from you. The spread between these two prices makes the broker’s revenue from the foreign exchange transactions they perform for their clients.

Bid-Ask spread

There are two types of forex rates, the Bid and the Ask.

The price you pay to buy the forex pair is called Ask. It is always slightly higher than the market price.

The price at which you sell the forex pair is called Bid. It is always slightly lower than the market price.

The price that you see on the chart is always a Bid price. The ‘Ask’ price is always higher than the ‘Bid’ price by a few pips. Spread is essentially the difference between these two rates.

Spread = Ask – Bid

For example, when you see EUR/USD rates quoted as 1.1290/1.1291, you buy the pair at the highest Ask price of 1.1291 and sell it lower Bid price of 1.1290. This particular quote shows a spread of 1 pip.

Types of spreads

The kinds of spread depend on the rules of the broker. Spreads can either be fixed or floating.

Fixed spreads remain fixed no matter what the market conditions are at any given point of time. The advantage of this type of spread is that the broker will not be able to widen the spreads during volatility.

Floating, also known as variable spreads, are continually changing. They widen or tighten depending on the supply and demand of currencies and market volatility.

Slippage

Slippage is a phenomenon in the forex market where currency prices change while an order is being placed, thus causing traders to enter or exit trades at prices higher or lower than they desire. Slippage happens because of the imbalance of buyers, sellers, and trade volumes. It also occurs when the market is less active with lower liquidity.

For instance, a trader wants to buy a currency pair at $1.0015 (Current Market Price) with a broker of his choice. Once he submits the buy order, the best-offered price suddenly changes to $1.0020. It is considered as a negative slippage of 5 pips. In the same example, if the best-offered buy price suddenly changes to $1.0005, it is regarded as a positive slippage of 10 pips.

How to avoid slippage?

Slippage cannot be entirely avoided if you trade using market orders, but it can be reduced. One way a trader can minimize slippage is to ensure that their broker has many liquidity providers. Another way is to avoid trading during periods of high volatility as prices move faster and at wider intervals. To check volatility, traders can make use of technical indicators such as Bollinger bands or Average True Range.

The only way to entirely avoid slippage is by using strategies that employ limit orders on entries and exits.

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Forex Market

What Is Pip & Why Should You Know About It?

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?
Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that

What is a pip?

Essentially, a pip represents the price interest point. It is known to be the smallest numerical price move in the forex market. As you know that most currencies are priced to 4 decimal places, obviously, any change in price would start from the last decimal point. For example, in the price quote, $1.0002, ‘2’ indicates the pip value. A pipette means the 5th decimal place, while pip is the 4th decimal place.

For most pairs (except JPY), it is equivalent to 0.01% or 1/100th of one percent. In the forex market, this is referred to as Basis Point (BPS). One BPS is equal to 0.01% and denotes the percentage change in the exchange rate.

Calculation of move

Now that you know what pip means, let us see how it changes the profit and loss in your trading account. Large positions will have greater monetary consequences in your balance. The formula for calculating the value of the position is:

Position size x 0.0001 = Monetary value of pip

Let us use the above formula and apply it in some real pairs. If you open a position of 1000 units, the pip value can be calculated as 1000 (units) x 0.0001 (one pip) = $0.1 per pip.

When you open buy positions and market reacts in your favor, for every pip movement, you will earn $0.1, and the same is the case for a sell position. If the market moves against you after you buy or sell, $0.1 will be lost per pip movement as the trend continues in the opposite direction. Increasing or decreasing the number of positions will have the exact effect on the pip value.

Different currencies and their pip value

Pip value varies per currency as they are dependent on how it is traded. It also depends on the trading platform and the price feed. It is important to know that there are brokers who show four digits as pip, and some show five. One of the most important points you need to know is the average daily trading range, in order to gauge volatility in the market.

Average daily pip movement of major currency pairs

Conclusion

To conclude, pips are the smallest increment by which a currency pair can change in value and represents the fourth decimal of a currency pair other than the Japanese yen. In the case of Japanese yen, the pip is located at the second decimal place. Proper knowledge of pips will help you determine your stop loss size, as it is a major part of any strategy. One should never underestimate the simplicity of pip. Now that you have learned what a pip means, you can proceed to more trading concepts. Cheers!

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Forex Market

What Are The Different Types Of Orders In The Forex Market?

What is an order?
One of the first things every forex trader should know is about the different order types and implications of each one. An order in forex determines

What is an order?
One of the first things every forex trader should know is about the different order types and implications of each one. An order in forex determines

What is an order?

One of the first things every forex trader should know is about the different order types and implications of each one. An order in forex determines how you will enter or exit the market. Today, in trading, more options are available than just buying and selling at the current market price. With different order types, one can make the most of their trading opportunities.

Why are different order types needed in the forex market?

There needs to be some automation in the forex market. As we know that forex is 24 hours market, investors’ holdings, and their net worth keeps changing 24/7. If an open position is not managed regularly, the profit/loss figure can change drastically. Also, it is not possible to manage your positions all the time if you are working full time.

Therefore, in such a scenario, pending orders came in handy. These are tools investors and traders in the forex market use to manage their open positions. ‘Orders’ allow the traders to ensure that the value of their trades remain within certain bounds even though the market is open all day. Now let’s look at different order types.

Market order

Market orders are the most common types of orders used in the forex market. It is just an order to buy an asset at the current market price. Market orders are executed on a real-time basis when placed. Since prices in the forex market are changing rapidly, the order may be completed at a different price than you intended. This is known as slippage in market terminology. Slippage may work in the favor or against an investor. A market order creates an open position immediately.

Pending order

A pending order is an instruction to buy or sell an asset when certain conditions are met. It is a type of market order that gets executed only when certain conditions are fulfilled. It is a conditional market order. Pending orders eliminate the need to monitor the screen for placing trades continuously. It sets up an automatic order system that will execute trades instantly when the conditions are met. There are different types of pending orders. They are:

  • Buy Limit Order
  • Sell Limit Order
  • Buy Stop Order
  • Sell Stop Order

Let’s understand each of these orders below.

Buy & Sell Limit Order

It is an order placed by the traders to buy or sell a currency at a particular price. Typically, this price is better than the current market price. Traders can find both buy and sell limit orders in most of the trading platforms. A buy limit order will always be below the current market price (or sometimes equal), while a sell limit is always above the current market price (or sometimes equal). For instance, if you want to buy EUR/USD at 1.05 and the current market price is 1.11. You can place a limit order at 1.05, and your order will automatically get executed if the currency pair reaches this price.

Application limit orders

Let us assume that the market is in a downtrend. As a trend, you wish to sell precisely at the support and resistance line. Since a market order does not assure the precise price, you can prefer placing a sell limit order instead. This is because, with a limit order, your order will get executed at the exact price you were willing to take the trade.

Buy & Sell Stop Order

This is the converse of Limit order. By using this order, traders can place a buy order above the market price and a sell order below the market price. By doing this, they can increase the odds of entering or exiting the trade at their preferred price.

Application of stop orders

Let’s say the market is in a range and there is some news coming up which you think will break above the range and head north. You being a breakout trader wish to buy it after the breakout. During the news, the volatility is so high that it is hard to get hold of a good price if executing a market order. So, here is where a stop order comes to action. With this order, you can keep a buy stop order just above the range, as it will execute the trade automatically when the price hits the buy stop price.

Stop-loss order

It is an order placed by the traders to limit their losses on the trades they take. By using this order, a currency pair can be bought or sold once its price reaches a particular price, also known as ‘Stop Price.’ For instance, if you buy USD/CAD for $1.31 and not willing to lose more than $0.1 when you exit, you can place your stop-loss order at $1.21. This order only gets executed if and only if the price of the currency goes below $1.21.

Conclusion

There are more premium orders that are being provided by the advance brokerage firms. Some of them include Trailing Stop-Loss Order, After Market Order, and Bracket Order, etc. The forex market is gradually moving towards artificial intelligence for executing trades. The latest development in ‘orders’ is the creation of dependent orders. This means the investor can place two orders simultaneously, and based on the input, only one of the two will be executed. Dependent orders use complex algorithms that execute trades with minimal human intervention.

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Forex Market

Trading Energy Commodities – Crude Oil, Coal & Natural Gas

Introduction
Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on

Introduction
Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on

Introduction

Energy belongs to that category of commodities, which has the most significant impact on our daily lives. Energy prices affect the cost of almost everything that we consume on a daily basis, including the clothes we wear, the fuel we put in our cars, and the electronic gadgets. They, in turn, determine the increase or decrease in the prices of homes, hospitals, schools, etc. We cannot imagine ourselves in a world without energy.

The unit that is used to define the quantities of energy is the British thermal unit (Btu), which measures the heat content of fuels. According to the Energy Information Agency (EIA), every year, worldwide energy consumption exceeds 575 quadrillions Btu and is expected to reach 736 quadrillions by 2040.

Major energy commodities

Highly traded energy commodities are from non-renewable energy sources, except for ethanol and electricity generation. These commodities are very liquid when it comes to trading. Traders can also invest in these commodities through ETFs and CFDs.

Crude oil

Crude oil is one of the most actively traded commodities in the world. The price of crude oil affects many other commodities, including natural gas and gasoline. Crude oil comes in different grades. Light Crude oil is traded on the New York Mercantile Exchange (NYMEX). This type of crude oil is popular because it is the easiest to distill into other products. The next grade of oil is Brent Crude oil, which is primarily traded in London and is seeing the increasing interest. The last grade of oil is the West Texas Intermediate (WTI) oil from U.S. wells. The product is light and sweet and is ideal for making gasoline. The reports for crude oil are found in the U.S. Energy Information Administration (EIA) reports. This report is released every Wednesday around 10:30 PM ET. Traders take investment decisions based on the data of this report.

Coal

Coal is a fossil fuel that is formed from dead plant matter trapped between rock deposits. Coal is used as an energy source for hundreds of years. This mineral generates 41% of the global supply of electricity and plays a crucial role in other industries. The top 5 coal-producing countries are China, the USA, India, Australia, and New Zealand.

Natural gas

Natural gas is formed either by methane-releasing microorganisms in swamps or by pressurizing organic material deep underground. Three major reserves for natural gas are Canada, USA, and Russia. This commodity has many applications, from electricity generation to fertilizers. Natural gas futures and ETFs are available for traders and investors. The price of natural gas depends on the demand and supply of the commodity itself.

Energy commodities can also be traded through Forex Brokers these days. Many of the credible and regulated and unregulated Foreign exchange brokers allow their customers to trade all the major energy commodities like Crude Oil, Coal, and Natural Gas.

Factors affecting the prices of energy commodities

  • Market growth
  • Energy efficiency
  • Population growth
  • Electricity penetration
  • Industrialization in developing economies

Conclusion

Investors who want to invest in the energy sector should track the indices of that sector. These indices measure the production and sale of energy. One can also monitor the performance of energy company shares prices. Energy company’s revenue depends on the price of the commodity they are selling. Other factors include production costs, competition, and interest rates. That’s about Energy commodity. Cheers!

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Forex Market

What Should You Know About Trading Metals?

Introduction
We have discussed metal commodities briefly in the previous article. In this article, let’s understand trading metals in detail. Trading precious metals were only possible by wealthy investors in

Introduction
We have discussed metal commodities briefly in the previous article. In this article, let’s understand trading metals in detail. Trading precious metals were only possible by wealthy investors in

Introduction

We have discussed metal commodities briefly in the previous article. In this article, let’s understand trading metals in detail. Trading precious metals were only possible by wealthy investors in earlier days. But now, every retail forex trader gets to trade these metals with the advent of CFD trading. Hence, a lot of investors hold metals in their portfolios by investing a significant chunk of their money in metals. Metals create a balanced portfolio as they are considered a hedge against inflation. Metals such as gold and silver can be treated as safe-haven bets since their scarcity provides support to their value.

Gold – The highly traded metal

Among all the metals, Gold is the most actively traded metal. This metal possesses intrinsic properties such as durability, malleability, and conductivity. These properties offered by gold account for its superiority. They also find their primary use in jewelry making. As with other commodities, forces of demand and supply determine prices of gold. The gold market is also influenced by risk parameters, market sentiment, and inflation trends. Investors turn to gold and invest heavily when there are signs of a global economic slowdown. The slowdown could be due to reasons like recession, political crisis, or government debt.

Because of these reasons, Gold is mostly traded by long term investors. They only look for signs of gold entering a bull or bear market. The trend can be determined with the help of equity indices. A strengthening economy means weaker demand for gold.

Silver

Silver is seen as the best metal trading option right after gold. It has its own merits. This metal is used in various industries, making it more sensitive to business conditions and trading activities. Hence, the prices of silver are more volatile than that of gold. So we can say that silver is ideal for short term traders.

Platinum

Platinum is also seen to gain value during times of economic and financial crisis. However, because of scarcity in the availability of platinum, the price is much higher compared to gold. Therefore it is less frequently traded. It still is a robust and safe-haven alternative, especially when the Gold is overbought in the market. The industrial use of Platinum is kind of similar to that of silver, making it price-sensitive to business conditions. In recent times, the demand for platinum in industrial usage is reduced by the increased use of catalytic converters.

You can trade metals with Forex brokers too

One of the important advantages of trading metals is that they give protection against inflation, which is not offered by any other financial instrument. Taking this into consideration, a lot of Forex brokers offer above mentioned precious metal trading against major currencies such as the US dollar, Japanese yen, Euro, Australian dollar, Canadian dollar, and British pound. You will also find metals such as Copper and Palladium on their platform. Some of the metal currency pairs include XAU/USD (Gold), XAG/USD (Silver) and XPT/USD (Platinum).

Conclusion

Even if it obvious, we must tell you that buying and selling precious metals do not mean the actual delivery of these commodities. We trade these metals over the counter (OTC). In this type of trading, there is high risk involved. So make sure you have a risk management plan in place, else there is a possibility of you losing all the money you have in your trading account. Some vital risk management tools include stop-loss and order cancellation. They will always protect the balance of your account.

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Forex Market

Contract For Difference (CFDs) Explained!

What is CFD?
A contract for difference (CFD) is a form of derivative trading. CFD allows a trader to speculate on prices of global financial markets such as shares, indices

What is CFD?
A contract for difference (CFD) is a form of derivative trading. CFD allows a trader to speculate on prices of global financial markets such as shares, indices

What is CFD?

A contract for difference (CFD) is a form of derivative trading. CFD allows a trader to speculate on prices of global financial markets such as shares, indices, commodities, and of course, currencies. While trading CFDs, a trader gets to bet on both upside and downside movements of the market. The profit and loss for CFD are calculated by taking the difference between the entry and exit prices and multiplying it by the number of units. CFDs always comes with an expiration date, before which you need to close your position. Trading these CFDs may appear sophisticated and complex in the beginning, but once you start trading them, it becomes easy to handle.

Leverage trading CFDs

CFDs are a leveraged product, which means a trader needs to maintain an optimum level of capital in their trading account to execute a trade. As it is leverage/margin trading, this capital can only be a small percentage of the full position’s value. While margin trading allows a trader to magnify their returns, losses will also be more as a trader will lose leverage times the capital he is betting on. Hence it is always recommended to go for less leverage. If you are a novice trader, we suggest you not to go beyond 2X leverage. And obviously, the gains and losses will be based on the value of a CFD contract.

Costs involved while trading CFDs

There are three types of costs a trader may incur while trading CFDs. Each of them is explained below.

Holding cost – At the end of each trading day (mostly at 5 PM New York time), if the positions are open in your account, it will be subject to a charge called ‘holding cost.’ Holding costs will depend on the CFD, direction of the position, and the holding rate.

Spread – CFDs always come with a spread, which is the difference between the buy and sell price. This price is decided by the broker, and it varies from broker to broker. A trader will have to enter a buy trade at the buy price quoted by the broker, and exit using the broker quoted sell price. The narrower the spread, the less the price needs to move in trader’s favor for their profits to start. These spreads are extremely competitive across all the brokers.

Market data charges – For getting live market feed and accurate prices, a trader must pay the relevant market data subscription fees. However, this fee is mostly applicable to stock CDFs and varies from broker to broker.

Things to remember

Like any other market, there are high risks involved in trading CFDs as well. CFDs are complex in nature (at least for novice traders), they carry a high risk, so it is important to do your research before you start trading. Also, since CFDs are leveraged products, losses can easily exceed your total investment. In volatile markets, your account balance can drop down to zero or even to a negative balance in no time. Following best trading practices like proper applying risk management to your trades will increase the chances of profiting.

We hope you find this article informative. Let us know if you have any questions in the comments below. Cheers!

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Forex Market

Everything You Need To Know About The Forex Currency Pairs

In the previous articles, we have discussed the overview of the Forex industry as a whole. In this article, let us understand in detail about the currency pairs which Forex

In the previous articles, we have discussed the overview of the Forex industry as a whole. In this article, let us understand in detail about the currency pairs which Forex

In the previous articles, we have discussed the overview of the Forex industry as a whole. In this article, let us understand in detail about the currency pairs which Forex is fundamentally about.

How does it work? 

A currency pair is a code representing the interaction of two different currencies. In that pair, the first currency is known as the Base currency, and the second one is called the Quote currency. When you are buying a currency pair, you are essentially buying the base currency and selling the quote currency. It is vice-versa for selling.

When you see a currency quoted as 1.32., it means you can exchange 1 unit of base currency for 1.32 units of the quote/counter currency. When the value of currency changes, it is always relative to another currency. If the value of GBP/USD changes from 1.26345 to 1.26460 the next day, it means that the Pound has appreciated relative to U.S. dollar or U.S. dollar has depreciated relative to Pound as it will cost more USD to purchase 1 Pound.

What are the major currency pairs?

The most liquid currency pairs are known as major currency pairs. These are the pairs where USD is involved either as a quote currency or base currency. Some of the most popular currency pairs include EUR/USD, USD/JPY, GBP/USD, USD/CHF, and USD/CAD. They represent some of the largest economies of the world and are traded in high volumes. These currencies also have low spreads, which is good for traders.

Minor or cross-currency pairs

Cross-currency pairs are nothing but the crosses of major currencies. They do not include the USD in them. Some of the popular cross-currency pairs include EUR/GBP, EUR/JPY, and EUR/CHF. Even though the trading volume of these pairs is significantly low compared to the major currency pairs, they do contribute with a large amount of volume to the Forex market. Let’s understand more about the volatilities and preferences of these minor currencies.

  • Predicting the EUR/GBP currency pair is most difficult compared to other currencies.
  • Traders prefer trading EUR/JPY as they believe it is easier to forecast, thus making it a popular cross-currency pair.
  • EUR/CHF is also popular because of the fact that the Franc is a safe-haven currency. It is traded during times of high volatility.

Here we have only discussed the EUR crosses. We recommend you to explore more cross-currency pairs and understand each of their volatilities. There is another type of currency pair known as Exotics. In this type of currency pairs, one currency is Major while the other an upcoming currency. Examples – USD/TRY & USD/MXN.

Commodity currencies

Australian dollar and New Zealand dollar are the currencies that are greatly influenced by commodity prices. The Australian dollar is greatly affected by mining commodities, beef, wool, and wheat. Aussie (AUD) is strongly influenced by China as these two countries are huge trading partners. USD/CAD is also one currency that is affected by commodities like oil, timber, and natural gas. The Canadian dollar price movement is strongly related to the U.S. economy. New Zealand, however, is heavily influenced by news release of agriculture and tourism. Along with commodities, the effect of central banks and reserve banks shouldn’t be underestimated. Changes in monetary policy from either of the country’s banks will lead to huge volatility.

The point we are trying to make here is that each of the currency pair’s price movements is influenced by some of the other external factors. As you start your journey in trading Forex markets, you will understand these influencing factors in detail.

What moves these currency pairs?

As discussed above, there a lot of independent factors that move the price of these currencies. But the fundamental factors are interest rates, economic data, and politics. Let’s understand these in detail.

Interest rates – Central banks raise or reduce interest rates to maintain financial stability. This increases demand for currencies whose interest rates are high, as investors get a higher yield on their investments.

Economic data – Economic releases are reports that give a glimpse of the nation’s economy. Relevant economic data include CPI, Non-farm payroll, GDP, Retail sales, and PMI. This data will have a positive or negative effect on that country’s currency.

Politics – Trade wars, elections, and changes in the ruling government introduce instability, which reflects in the Forex market. The decision the government’s take can boost or depreciate the economy.

Which currency pair should you trade? 

If you are new to forex, choose the currency pair which has the most liquidity. Always start with Major pairs before exploring the others. Analyze the fundamentals of a currency. If you know technical analysis, you can combine it with technical indicators to know and understand when to trade. Do not use leverage; even if you do, use appropriately so that you don’t wipe out your account. To learn more about Forex trading from the very basics, you can sign-up for our free Forex course here. Cheers!

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Forex Market

What Should You Know About Forex Brokers?

Introduction
In the previous article, we have discussed an overview of the financial industry. Now we know that the entire Forex market is about buying and selling of currencies. The

Introduction
In the previous article, we have discussed an overview of the financial industry. Now we know that the entire Forex market is about buying and selling of currencies. The

Introduction

In the previous article, we have discussed an overview of the financial industry. Now we know that the entire Forex market is about buying and selling of currencies. The majority of these foreign exchange transactions are done by major financial institutions and global organizations. But where do the retail traders like you and I undertake Forex trading? We do it through independent companies called brokers. In this article, let’s understand what a Forex broker is and the different types of Forex brokers existing in the market.

What is a Forex broker?

In the Forex market, buyers and sellers can be thousands of miles apart. So there needs to be a mechanism that matches their interest. This is where a Forex broker comes into the picture. A Forex broker is a platform where the buyers and sellers get to buy and sell currencies. It acts as a middleman between a trader and the market. In simple words, to find a buyer or seller for a particular currency, the broker matches your order with the respective buyer or seller. These brokers are also known as ‘liquidity providers.’

Types of Forex brokers

Even though all brokers in the Forex industry provide the same basic service, there is a difference in their functionality and mechanism. The first thing to look for with every Forex broker is whether they have a ‘dealing desk’ or not. In brokerage firms, the dealing desk refers to a team of traders who manage the broker’s inventory and hedging operations. Nowadays, most of the dealing desks consist of hundreds of traders and analysts.

Brokers that work on dealing desk operate in a closed environment wherein they set their own price rates. They fill their client orders by matching the buy and sell orders of their clients. When a broker uses a dealing desk, they are called as Market Makers.

Brokers that don’t use a dealing desk get rates from the interbank market and process their client orders by linking them directly to institutions, hedge funds, mutual funds, and other brokers. When a broker does not use a dealing desk, they are either known as ECN (Electronic Communication broker) or an STP (Straight Through Processing) broker.

Market Makers

Market Makers (MM) are called ‘dealers’ in the interbank market. They charge a variable spread instead of commission, which is why most of the time, they are accused of manipulating the spread and prices of the currency pairs. Theoretically, the spread should widen or narrow during high liquidity conditions, but MM brokers offer a fixed spread and compete based on the spread.

Electronic Communications Network (ECN) Broker

ECN brokers make their profits from spreads they charge on buy and sell rates or from fixed trade commission. The transactions here are mostly interbank. Because the spreads in the interbank markets are dynamic, ECN brokers prefer charging commissions rather than fixed spreads. This is one of the easiest ways to trade, but this requires a much higher investment capital as clients in the interbank markets only trade large lots. Therefore, trading with ECN brokers requires a minimum account balance of $1000. In addition, there is no guarantee that you will find a buyer or seller in the interbank market at your quoted price. ECN brokers sometimes won’t be able to execute orders at that price, so they issue a re-quote or simply reject the order. These are some of the limitations of ECN brokers.

Straight Through Processing (STP) brokers

Like ECN brokers, STP brokers, too, don’t have a dealing desk. But they use some of the practices of Market Maker brokers to provide flexibility to their clients. They display rates similar to the interbank market rates, and their first priority is to process trades directly in the interbank market, like an ECN broker. If the counterparty is not found, they start acting like a Market maker and match the order with their own client. The initial capital required to trade with this type of broker is relatively lesser compared to ECN brokers.

These are the different types of brokers in the market. So when you are choosing a broker, make sure to select the one that suits your trading style and capital available to trade.

Trading Platforms 

The ‘Market Makers’ provide trading platforms like Act Trader and MetaTrader since their orders are executed at the dealing desk. However, non-dealing desk type of brokers uses direct access trading platforms. They display prices directly from different liquidity providers. The platforms which are best suited for this requirement include Currenex Viking software and Level II software. The trading platform should be chosen in such a way that it suits your trading objectives. We hope this article helped you in deciding that. Let us know if you have any questions in the comments below. Cheers!

Categories
Forex Market

An Overview Of The Forex Trading Industry

Introduction
Some of the most relevant markets include the Stock market, Futures market, Options market, and Foreign Exchange market. All these markets provide vast trading opportunities, and out of these

Introduction
Some of the most relevant markets include the Stock market, Futures market, Options market, and Foreign Exchange market. All these markets provide vast trading opportunities, and out of these

Introduction

Some of the most relevant markets include the Stock market, Futures market, Options market, and Foreign Exchange market. All these markets provide vast trading opportunities, and out of these, Foreign Exchange AKA FOREX is one of the most popular ones. Forex is nothing but the exchange and trade of different country’s currencies. The first Forex trading market was established in Amsterdam nearly five centuries ago, and this explains the rich history of this market.

The Forex market is the largest yet most accessible market in the world. Largest because the daily trading volume of the Forex market is above $5 trillion. To put that in perspective, the average daily trading volume of the NYSE (largest stock market in the world) is just above $20 billion. By this, we can understand the enormous size of this market. Out of this $5 trillion, retail trader transactions contribute 5% to 6%, i.e., about $400 billion. The rest of the transaction volume is from large institutions and businesses.

We also mentioned accessibility because traders have thousands of retail brokers around the globe to choose from. They can start trading currencies in this market with investments starting from just $100. Forex trading is open 24 hours a day and five days a week. It doesn’t operate on weekends. On weekdays, the market doesn’t get closed at the end of each business day, like how the stock market does. Rather the trading shifts from one financial center to others. Some of the major financial centers include London, Sydney, New York, and Tokyo.

What affects the Forex market?

One of the critical factors that most of the experienced traders pay attention to is the macro-economic trend. The forex market reacts to macroeconomic data more than the stock or commodity market. In a stock market, we have companies that are affected by micro-dynamics, which are specific to that company. But that’s not the case in the Forex market. This market is affected and moderated by GDP, unemployment rates, and inflation. The currency could react positively or negatively depending on the data, but after reacting, the trend will be maintained for a long time. The significant pairs to watch during such news releases are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The rate hikes from the U.S. Federal Reserve is also closely watched by traders around the world.

The rise of algorithmic trading

Banks and financial institutions are adopting algorithmic trading systems powered by technological advancement. Technology is changing traders’ approach towards the market. There is a boom in engineered computer programs that offer new ways of creating orders with faster trade execution. The automated systems have improved speed and precision. This technology is expected to eliminate trading bias and human errors that increase the risk in a trade. Algorithmic trading improves trend analysis that greatly helps beginners in reducing losses. Due to this, traders are getting more time to analyze markets and trends.

Future of Forex market

The Forex is continuously growing. Trading currencies is still not a mainstream profession in many of the third world countries. There are still many people who aren’t aware of the fantastic opportunities this industry has to offer. One of the important goals of the brokerage firms is to get more and more people involved in pursuing trading as a serious profession.

  • Market volatility will rise as newer strategies are being released and used by traders.
  • Strict regulation in the forex market will also attract conservative traders. However, some traders search for unregulated brokers since they provide inexpensive trading services.
  • Paid systems and strategies will continue to grow among wealthy investors.
  • Trading Forex is getting easier and extremely accessible with the advent of smartphone trading applications.

Bottom line

The Forex industry has changed significantly over the years. Many efforts are being made to create a legitimate trading environment as the industry has become more dynamic and ever-changing. Major European regulators are taking serious steps to tighten control of the Forex market. Besides, they are also introducing new rules to forbid high leverage trading to protect investor’s funds.

A known fact about Forex trading is that most traders fail. It is estimated that 96% of the people end up losing. To be in the succeeding 4%, one should have a disciplined approach to the way they trade. Some of the practices include starting with low capital, managing risk, controlling emotions, and accepting failures. If you follow these rules, you are on track to becoming a successful trader.

Also, education plays an essential role for someone to succeed in their Forex trading journey. We at Forex Academy designed a course just for our readers. By taking up this free course, one can learn everything about Forex trading even if they have zero experience. You can find all of our course articles here.

Got any questions? Let us know in the comments below.