When you start to look around forex websites online, you will soon see references to the forex pip. Your gains and losses will be measured in pips. Something else that is measured in pips is the spread, the difference between the bid and ask prices which is the main cost of forex trading and how the brokers make their money. So it is clearly very important to understand what is a forex pip.
The word is an acronym standing for percentage in point (or sometimes, price interest point). It is the smallest increment of changes in values. It allows us to measure a rise or fall in currency values in percentage terms instead of in dollars and cents.
Why do we need to talk in pips? The reason for this is simple. In the foreign exchange market there is no world currency in which to express values. The US dollar may be the most commonly traded currency but it is not involved in all trades. If you are trading cross rates, i.e. two other currencies such as EUR/GBP or any other combination that does not involve USD, it would not make any sense at all to express your gains and losses in terms of US dollars. Instead, we need something that is a small percentage of the value of whatever currencies we are dealing with.
This means that the monetary value of a pip varies according to the currency.
Most currencies are quoted to four decimal points. For example you might see the bid price for EUR/USD quoted at 1.3642 and ask price 1.3644. The difference (the spread) is 0.0002 or 2 pips. Here a pip is 0.01% of a lot.
So if the lot size was $100,000, one pip would be worth $10. For a lot size of $10,000, one pip would be $1.
That is the value of pips when the US dollar is the quote currency, i.e. XXX/USD. But when the quote currency is different, one pip is usually 10 units of that currency (e.g. 10 euros or 10 pounds). Or if your lot size is 10,000 units, one pip is 1 unit (1 euro or 1 pound).
The exception is the Japanese yen which has a much lower unit value than most currencies (you get a lot of yen to the dollar). Because of this, the yen is only quoted to the second decimal point. You might see a price USD/JPY 110.15. In this case one pip is 0.01 or 1% but in yen, not dollars. So the pip value is JPY 1000 which at that price would be worth US $11.015.
These differences can be confusing when you are just starting out. So it is better for beginners to trade consistently with just one currency pair.
If you are trading one pair regularly every day you will soon get used to how much a pip means in terms of your actual gains and losses in your account. You will know how much one pip is worth in dollars or in your own currency.
But when you are trading several different currency pairs, you have to deal with pips of different value. If you get confused, you could be taking greater risks than you planned or closing trades with less profit than you thought. It is much easier to deal with only one pair at first until you have a sound understanding of trading practices and forex pip values.
Thursday, June 11, 2009
Tuesday, June 9, 2009
Currency Trading Tips
There is a lot of money to be made in foreign exchange trading. Here are 3 currency trading tips to help you maximize your profits.
1. Use weekly charts in addition to daily charts
Checking back over the week's price movements for your chosen currency pair will give you a better perspective on both short and long term trends in the market. It is easy to become blinkered in spot forex trading especially if your method concentrates on day trading. Weekly
charts allow you to take a step back.
Sometimes the new perspective that you gain in this way will help you see what went right or wrong with your trading and why. This can help you to refine your systems to make them more profitable. However, do not make changes in a good system every time something goes wrong. There is a need for balance here.
2. Don't over trade.
It is tempting to jump into the market and open a trade whenever you think you spot an opportunity, when really you should have held back. It is often true that the fewer trades you make, the more money you will make. This seems counterintuitive because we tend to think that we need to make a lot of trades to build up big profits. But opening a trade at the wrong moment leads to losses, so in fact the opposite is often true.
You need to be comfortable with risk in order to engage in forex trading. Most traders even enjoy the risk. So it can be difficult to hold back from something that looks like a big opportunity. Remember this is investment, not gambling. You must choose your trades carefully. Taking chances in the hope of making a big killing is likely to lead to your account balance taking a hammering.
If you have a profitable forex trading system that does not often offer the opportunity to trade so it is not making you much money, do not be tempted to widen the criteria so that it lets you trade more often. This will almost certainly turn your profitable system into an unprofitable one.
Instead there are two things you can do. First you can increase the amount of each trade. This increases your risk and is probably not a good idea unless you are very sure of your system. Second you can try to find a different system that is equally profitable that you can operate alongside the first. This is the better option for most people but make sure that you test your new system thoroughly before adopting it.
3. Be realistic.
When you are thinking about how much money you hope to make with currency trading, it is important to be realistic and accept that sometimes you will lose. You should only be trading with money that you can afford to lose and do not expect to double your money over and over in a short time.
Unfortunately many advertisements lead you to have very high expectations. You may see an ad that suggests you can double your money in 7 days, for example. This does not mean you are certain to double your money, and it definitely does not mean that you can do it every 7 days with no setbacks. Doubling your money in a short time is possible but doing it over and over without losses is not realistic. Expect to take at least one step back for every two steps forward and have reasonable targets by comparing with what you might make if you invested in stocks or bonds.
Before starting forex trading for real, be sure you are armed with sound strategies that you have tested for yourself. Weigh up all of your options and remember that you are entering a risky business. Keep these currency trading tips in mind and give yourself the best chance of succeeding as a forex trader.
1. Use weekly charts in addition to daily charts
Checking back over the week's price movements for your chosen currency pair will give you a better perspective on both short and long term trends in the market. It is easy to become blinkered in spot forex trading especially if your method concentrates on day trading. Weekly
charts allow you to take a step back.
Sometimes the new perspective that you gain in this way will help you see what went right or wrong with your trading and why. This can help you to refine your systems to make them more profitable. However, do not make changes in a good system every time something goes wrong. There is a need for balance here.
2. Don't over trade.
It is tempting to jump into the market and open a trade whenever you think you spot an opportunity, when really you should have held back. It is often true that the fewer trades you make, the more money you will make. This seems counterintuitive because we tend to think that we need to make a lot of trades to build up big profits. But opening a trade at the wrong moment leads to losses, so in fact the opposite is often true.
You need to be comfortable with risk in order to engage in forex trading. Most traders even enjoy the risk. So it can be difficult to hold back from something that looks like a big opportunity. Remember this is investment, not gambling. You must choose your trades carefully. Taking chances in the hope of making a big killing is likely to lead to your account balance taking a hammering.
If you have a profitable forex trading system that does not often offer the opportunity to trade so it is not making you much money, do not be tempted to widen the criteria so that it lets you trade more often. This will almost certainly turn your profitable system into an unprofitable one.
Instead there are two things you can do. First you can increase the amount of each trade. This increases your risk and is probably not a good idea unless you are very sure of your system. Second you can try to find a different system that is equally profitable that you can operate alongside the first. This is the better option for most people but make sure that you test your new system thoroughly before adopting it.
3. Be realistic.
When you are thinking about how much money you hope to make with currency trading, it is important to be realistic and accept that sometimes you will lose. You should only be trading with money that you can afford to lose and do not expect to double your money over and over in a short time.
Unfortunately many advertisements lead you to have very high expectations. You may see an ad that suggests you can double your money in 7 days, for example. This does not mean you are certain to double your money, and it definitely does not mean that you can do it every 7 days with no setbacks. Doubling your money in a short time is possible but doing it over and over without losses is not realistic. Expect to take at least one step back for every two steps forward and have reasonable targets by comparing with what you might make if you invested in stocks or bonds.
Before starting forex trading for real, be sure you are armed with sound strategies that you have tested for yourself. Weigh up all of your options and remember that you are entering a risky business. Keep these currency trading tips in mind and give yourself the best chance of succeeding as a forex trader.
The Best Forex Trading Times
So what are the best forex trading times? The forex market is open 24 hours a day during the business week, but this does not necessarily mean that all of those 24 hours are good for trading.
There is a lot more activity on the foreign exchange markets at certain times of day and generally speaking, the best times to trade are when the markets are busiest.
The two biggest trading floors for forex are London and the US markets. Although the UK does not use the euro, most euro countries are within one hour time difference from the UK, as is Switzerland. US time zones also include Canadian. So the London session and the US session between them cover most of the major currencies that are traded.
The London session starts at 8.00 UTC and finishes at 16.00 UTC. The currencies that are most active during this session are the euro (EUR), British pound (GBP) and US dollar (USD) which is involved in the majority of all trades.
The US session starts at 13.00 UTC (8.00 EST) and finishes at 22.00 UTC (17.00 EST). The most traded currencies during these times are USD, EUR, GBP, AUD (Australian dollar), JPY (Japanese yen) and CAD (Canadian dollar).
The peak trading time, as you might expect, is during the three hours when these two sessions overlap and the markets are open in both London and New York. This period runs from 13.00 to 16.00 UTC (8.00 to 11.00 EST).
If you like to let your orders run over several days it may not make so much difference to you to know the busiest times on the markets. But if you are involved in day trading forex where you might open and close a trade within a few minutes, you will find most opportunities coming up during the most active hours.
If you are involved in a cross rate, i.e. a currency pair that does not involve the US dollar, you may have another window of time when the financial centers in your two countries are open for business.
For example if you were trading AUD/JPY you might find that trading was good during what is called the Asian session. The Australian and Japanese business hours are pretty close and on a day when activity was expected you might find some profitable trades during the overlap.
However, generally speaking this is a slower session for just about all currencies.
So the best time for most forex traders is during that three hour window in the morning in the US and the afternoon in the UK and Europe, when the markets are open on both sides of the Atlantic. Trading can be frantic during those hours, there is maximum liquidity and the currencies move far and fast. A lot of the important financial news is released during this period too, especially toward the beginning. So these hours are the best forex trading times if you want to grab quick profits.
There is a lot more activity on the foreign exchange markets at certain times of day and generally speaking, the best times to trade are when the markets are busiest.
The two biggest trading floors for forex are London and the US markets. Although the UK does not use the euro, most euro countries are within one hour time difference from the UK, as is Switzerland. US time zones also include Canadian. So the London session and the US session between them cover most of the major currencies that are traded.
The London session starts at 8.00 UTC and finishes at 16.00 UTC. The currencies that are most active during this session are the euro (EUR), British pound (GBP) and US dollar (USD) which is involved in the majority of all trades.
The US session starts at 13.00 UTC (8.00 EST) and finishes at 22.00 UTC (17.00 EST). The most traded currencies during these times are USD, EUR, GBP, AUD (Australian dollar), JPY (Japanese yen) and CAD (Canadian dollar).
The peak trading time, as you might expect, is during the three hours when these two sessions overlap and the markets are open in both London and New York. This period runs from 13.00 to 16.00 UTC (8.00 to 11.00 EST).
If you like to let your orders run over several days it may not make so much difference to you to know the busiest times on the markets. But if you are involved in day trading forex where you might open and close a trade within a few minutes, you will find most opportunities coming up during the most active hours.
If you are involved in a cross rate, i.e. a currency pair that does not involve the US dollar, you may have another window of time when the financial centers in your two countries are open for business.
For example if you were trading AUD/JPY you might find that trading was good during what is called the Asian session. The Australian and Japanese business hours are pretty close and on a day when activity was expected you might find some profitable trades during the overlap.
However, generally speaking this is a slower session for just about all currencies.
So the best time for most forex traders is during that three hour window in the morning in the US and the afternoon in the UK and Europe, when the markets are open on both sides of the Atlantic. Trading can be frantic during those hours, there is maximum liquidity and the currencies move far and fast. A lot of the important financial news is released during this period too, especially toward the beginning. So these hours are the best forex trading times if you want to grab quick profits.
Monday, June 8, 2009
Electronic Currency Trading: The Basics
Electronic currency trading is simply a way of dealing in currency exchange online. You may have seen it described as foreign exchange, forex or fx trading. It is something that appeals to many people who are looking for a way to make money on the internet using their home computer.
Forex is a little like stock trading, although the market itself is very different. You have the same aim of buying something hoping the price will rise. But with forex you are always dealing with money so you can also make money from a falling price, by exchanging out of the falling currency into a steady or rising currency.
Imagine for example that you are trading on the currency pair EUR/USD. This is a common combination for beginners. The US dollar and euro are most traded currencies and there is a lot of information available to help you, so it is a good choice to start.
With this pair you can choose to either buy or sell euros. If you place a buy order, this is called 'going long'. You would do this if you think the euro will strengthen or rise in value (or the dollar will fall).
If you place a sell order, that is 'going short'. You would do this if you think the dollar will strengthen (or the euro will weaken).
Your aim is to make a profit by closing the trade when the price goes the way that you anticipated. Closing the trade would involve selling euros if you had gone long, or buying them if you had gone short.
Of course, there is a risk. The price could go the wrong way, and you could make a loss. So it is important to have good information and a profitable trading system.
You do not need a lot of money to get started with electronic currency trading. Many brokers will let you begin with a couple hundred dollars, although it is better if that is not all the money that you have in the world!
Forex trading involves margins. This means that you can place orders for a lot more money than you actually have. You do this through a broker who will guarantee the balance of the order. They know you will be closing the trade at some time and if one currency is falling, another is rising. Currency values are relative, so it is not possible for all currencies to crash in the way that all stocks can crash.
Currencies can be very volatile but you can use stop losses to ensure that you do not lose more than you are willing to risk. Some brokers operate limited risk accounts where they will automatically close your trade if you lose the balance of your account. This means you do not have the dreaded margin calls which can be so disastrous for stock traders.
Forex is a little like stock trading, although the market itself is very different. You have the same aim of buying something hoping the price will rise. But with forex you are always dealing with money so you can also make money from a falling price, by exchanging out of the falling currency into a steady or rising currency.
Imagine for example that you are trading on the currency pair EUR/USD. This is a common combination for beginners. The US dollar and euro are most traded currencies and there is a lot of information available to help you, so it is a good choice to start.
With this pair you can choose to either buy or sell euros. If you place a buy order, this is called 'going long'. You would do this if you think the euro will strengthen or rise in value (or the dollar will fall).
If you place a sell order, that is 'going short'. You would do this if you think the dollar will strengthen (or the euro will weaken).
Your aim is to make a profit by closing the trade when the price goes the way that you anticipated. Closing the trade would involve selling euros if you had gone long, or buying them if you had gone short.
Of course, there is a risk. The price could go the wrong way, and you could make a loss. So it is important to have good information and a profitable trading system.
You do not need a lot of money to get started with electronic currency trading. Many brokers will let you begin with a couple hundred dollars, although it is better if that is not all the money that you have in the world!
Forex trading involves margins. This means that you can place orders for a lot more money than you actually have. You do this through a broker who will guarantee the balance of the order. They know you will be closing the trade at some time and if one currency is falling, another is rising. Currency values are relative, so it is not possible for all currencies to crash in the way that all stocks can crash.
Currencies can be very volatile but you can use stop losses to ensure that you do not lose more than you are willing to risk. Some brokers operate limited risk accounts where they will automatically close your trade if you lose the balance of your account. This means you do not have the dreaded margin calls which can be so disastrous for stock traders.
What You Need To Know about Metatrader 4 Expert Advisor
The Metatrader 4 expert advisor range is the most popular range of forex autopilot software. There is a wide choice of expert advisors designed to run on this free downloadable platform or framework that sets a structure for EAs to be built on. Whichever expert advisor (EA) you choose will act as a robot on the forex market, trading for you according to the boundaries that you set.
Clearly this has many advantages over making all of the moves in a trade yourself. The EA does not need breaks for eating, sleeping and human contact. Neither does it suffer from human weaknesses such as fear and over optimism which can distract us from our systems and lead us to exit a trade too soon or not soon enough. Once you have set it up it will obey your system to the letter all the time that it is online.
An EA will often protect your interests when you could not do it yourself. The opportunity to set a trailing stop is one example. A trailing stop automatically moves up with rising prices but stays in place if the market falls. This means that on a successful trade it protects a part of your profits without exiting too soon. On an unsuccessful trade it protects you from heavy losses just as a standard stop would do.
Some of the functions of an expert advisor depend on having it constantly connected to the internet. This because MT4 and the EA run on your own computer or server, not on your broker's servers. For example if you have set a trailing stop, MT4 sends a message to your broker account to move the stop each time and it has to be connected to the internet to do that.
This means that to make the most of the potential of a Metatrader 4 expert advisor on a home computer you have to leave your computer online 24 hours Sunday night thru Friday unless you happen to have exited all of your trades before you stop work on any particular day.
Any break in the connection will mean that no more messages are sent to your brokerage so the trailing stop will be left where it was last set. It will still protect you from a large loss but it will not move up any more so you will have lost some of the advantage of having a system that works while you sleep.
However, some EAs can be hosted remotely. This means that you can set them up on an internet server instead of your own computer. This could be your own or a facility offered by the EA company. They may offer this option as an upgrade after you order their Metatrader 4 expert advisor.
Clearly this has many advantages over making all of the moves in a trade yourself. The EA does not need breaks for eating, sleeping and human contact. Neither does it suffer from human weaknesses such as fear and over optimism which can distract us from our systems and lead us to exit a trade too soon or not soon enough. Once you have set it up it will obey your system to the letter all the time that it is online.
An EA will often protect your interests when you could not do it yourself. The opportunity to set a trailing stop is one example. A trailing stop automatically moves up with rising prices but stays in place if the market falls. This means that on a successful trade it protects a part of your profits without exiting too soon. On an unsuccessful trade it protects you from heavy losses just as a standard stop would do.
Some of the functions of an expert advisor depend on having it constantly connected to the internet. This because MT4 and the EA run on your own computer or server, not on your broker's servers. For example if you have set a trailing stop, MT4 sends a message to your broker account to move the stop each time and it has to be connected to the internet to do that.
This means that to make the most of the potential of a Metatrader 4 expert advisor on a home computer you have to leave your computer online 24 hours Sunday night thru Friday unless you happen to have exited all of your trades before you stop work on any particular day.
Any break in the connection will mean that no more messages are sent to your brokerage so the trailing stop will be left where it was last set. It will still protect you from a large loss but it will not move up any more so you will have lost some of the advantage of having a system that works while you sleep.
However, some EAs can be hosted remotely. This means that you can set them up on an internet server instead of your own computer. This could be your own or a facility offered by the EA company. They may offer this option as an upgrade after you order their Metatrader 4 expert advisor.
Sunday, June 7, 2009
Forex Trading Education: 5 Tips For Sticking to a System
One of the most important things you can learn in any forex trading education is how to stick to your chosen system or systems in a consistent way.
Changing from one thing to another will kill any chance you have of success, but we are all tempted from time to time. If you find it hard to stick to one trading system, here are some techniques that may help you to learn to be consistent.
1. Consider carefully before you decide to follow any system. One successful businessman has said that the secret of his success was thorough research before a decision, and then sticking to it like iron. You need to be sure that your system is profitable ... not necessarily the very best. And you need to be comfortable with all the actions that it will require you to take, whether things are going well or badly.
2. If you have problems with self discipline in other areas of your life, use those to train yourself in the skill before you start live trading. Do not pick the thing that you have most trouble with, but something that you could fairly easily master. It might be getting up at
the same time every day,
3. Allow yourself a small 'fun' budget or have a separate mini account for trades that look so tempting that you cannot pass them up even though they do not fit your criteria. You will almost certainly lose this money over a period of time, so be sure you can afford it. If not, avoid the temptation and track these trades on paper instead or use a demo account. Be sure to track them all because we have a tendency to remember the few that would have profited us and forget the majority that would have lost.
4. Do not discuss your trades or your system with anybody else. It is fine to ask around on forums before you have decided on your system, but do not be drawn into debate about the merits of a system after you start using it. You will quickly be swamped by negativity from people who want to believe that their own system is better. Equally, do not discuss it with non trading friends or family members. They will often be negative simply because they do not understand.
5. Do not drink alcohol while you are trading. In fact, it is better not to even look at the markets when you have had a few beers. If you see a tempting trade that breaks your normal rules it will be much harder to resist when you are under the influence of alcohol.
So even though we all love the idea of working from home in our pajamas with a beer at one elbow and the cookie jar at the other, reality is that relaxing to this extent does not combine with successful forex trading. A mind that is even slightly fuzzed by alcohol will not be able to keep to a consistent trading plan.
An automated forex robot can help you out here. You can set it up to trade automatically for you, if you are not yet able to act consistently while you pursue your forex trading education. This robot is highly recommended Click Here!
Changing from one thing to another will kill any chance you have of success, but we are all tempted from time to time. If you find it hard to stick to one trading system, here are some techniques that may help you to learn to be consistent.
1. Consider carefully before you decide to follow any system. One successful businessman has said that the secret of his success was thorough research before a decision, and then sticking to it like iron. You need to be sure that your system is profitable ... not necessarily the very best. And you need to be comfortable with all the actions that it will require you to take, whether things are going well or badly.
2. If you have problems with self discipline in other areas of your life, use those to train yourself in the skill before you start live trading. Do not pick the thing that you have most trouble with, but something that you could fairly easily master. It might be getting up at
the same time every day,
3. Allow yourself a small 'fun' budget or have a separate mini account for trades that look so tempting that you cannot pass them up even though they do not fit your criteria. You will almost certainly lose this money over a period of time, so be sure you can afford it. If not, avoid the temptation and track these trades on paper instead or use a demo account. Be sure to track them all because we have a tendency to remember the few that would have profited us and forget the majority that would have lost.
4. Do not discuss your trades or your system with anybody else. It is fine to ask around on forums before you have decided on your system, but do not be drawn into debate about the merits of a system after you start using it. You will quickly be swamped by negativity from people who want to believe that their own system is better. Equally, do not discuss it with non trading friends or family members. They will often be negative simply because they do not understand.
5. Do not drink alcohol while you are trading. In fact, it is better not to even look at the markets when you have had a few beers. If you see a tempting trade that breaks your normal rules it will be much harder to resist when you are under the influence of alcohol.
So even though we all love the idea of working from home in our pajamas with a beer at one elbow and the cookie jar at the other, reality is that relaxing to this extent does not combine with successful forex trading. A mind that is even slightly fuzzed by alcohol will not be able to keep to a consistent trading plan.
An automated forex robot can help you out here. You can set it up to trade automatically for you, if you are not yet able to act consistently while you pursue your forex trading education. This robot is highly recommended Click Here!
Monday, June 1, 2009
Trading Currencies: 7 Good Reasons Why Trading Currencies is an Attractive form of Investment.
With the advent of fast internet connection, trading currencies has become a very attractive form of investment. Otherwise known as foreign exchange or forex, it's a market where almost anyone can become involved. You need a computer with an internet connection, some money to invest and a little time at the beginning to learn the market, develop your own system or buy into one of many off the shelf systems.
The amount of money you need is not much. Many brokers are vying for your business and now offering mini or micro forex trading accounts requiring just a couple of hundred dollars to set up. Of course, there is a risk in forex trading as in any other form of investment, especially to start with as your learn the ropes, so you should stick to the old adage and not invest money you cannot afford to lose.
However, assuming you have the funds and you are keen to invest those funds to make money, then I will give you seven good reasons why you should choose trading currencies as opposed to trading in stocks, shares and commodity markets.
1) No fees or commissions.
Brokers make their money from the spread between the bid and buy price of a currency. So unlike the stock, shares and commodity markets, you do not pay fees and commissions which can absorb much of your profit.
2) Minimal start up costs.
All you need is a couple of hundred dollars to open a trading account, a computer with a high speed internet connection and you are away. You may decide to buy into some automated trading software which will set you back another $100 or so (example: Click Here!
).
3) Tools and information are free.
There is a lot of competition between brokers and consequently they are falling over themselves to win your custom. A good broker will offer tutorials and demonstration accounts where you can learn to paper trade without real money while you learn the basics. They will also provide you with free charts and show you how to use and interpret them. Otherwise, all the learning and information you need is freely available on the internet via specialised websites or blogs such as mine.
4) 24 hour trading.
Because the currency market is Global, it is effectively open 24 hours per day, 5 days per week. It opens in Sydney Australia at 22:00 UTC on Sunday evening and closes at 22:00 UTC on Friday afternoon in New York. This makes it very easy to do this part time while holding down a normal day job. Once you have leaned the ropes and become successful at trading currencies, you can give up the day job and become a full time forex trader.
5) Higher levels of Leverage
The leverage that is achievable in the forex market is one of the highest that investors can obtain. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the trade. This gives you the opportunity to make a lot of money by trading with more money than is available in your trading account. Be aware, this is not for the faint hearted - if your trade goes bad you will have to pay the money back. However, when you become more experienced and successful with your trades this high level of leverage makes this form of investment stand out from the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.
6) No fixed size of contract.
Standard trading is done on 100,000 units of currency. However, with spot trading you can, in theory, determine the size of contract you wish to trade. Some brokers do have set sizes for administrative purposes but if you shop around you will find a broker who will cater for your needs.
7) Liquidity and Volume.
The liquidity of an asset is the ease with which it can be turned into cash without loss of value or at least without any significant loss in value. Currency is money and money is cash and is therefore more liquid than any other asset making it very easy to trade. The volume or amount of money being traded in the forex market every day is around $4 trillion. The international banks and other financial institutions as big and as influential as they are have no chance of dominating the market. Trading currencies is also void of the risk of insider trading which can blight other forms of investment.
The amount of money you need is not much. Many brokers are vying for your business and now offering mini or micro forex trading accounts requiring just a couple of hundred dollars to set up. Of course, there is a risk in forex trading as in any other form of investment, especially to start with as your learn the ropes, so you should stick to the old adage and not invest money you cannot afford to lose.
However, assuming you have the funds and you are keen to invest those funds to make money, then I will give you seven good reasons why you should choose trading currencies as opposed to trading in stocks, shares and commodity markets.
1) No fees or commissions.
Brokers make their money from the spread between the bid and buy price of a currency. So unlike the stock, shares and commodity markets, you do not pay fees and commissions which can absorb much of your profit.
2) Minimal start up costs.
All you need is a couple of hundred dollars to open a trading account, a computer with a high speed internet connection and you are away. You may decide to buy into some automated trading software which will set you back another $100 or so (example: Click Here!
).
3) Tools and information are free.
There is a lot of competition between brokers and consequently they are falling over themselves to win your custom. A good broker will offer tutorials and demonstration accounts where you can learn to paper trade without real money while you learn the basics. They will also provide you with free charts and show you how to use and interpret them. Otherwise, all the learning and information you need is freely available on the internet via specialised websites or blogs such as mine.
4) 24 hour trading.
Because the currency market is Global, it is effectively open 24 hours per day, 5 days per week. It opens in Sydney Australia at 22:00 UTC on Sunday evening and closes at 22:00 UTC on Friday afternoon in New York. This makes it very easy to do this part time while holding down a normal day job. Once you have leaned the ropes and become successful at trading currencies, you can give up the day job and become a full time forex trader.
5) Higher levels of Leverage
The leverage that is achievable in the forex market is one of the highest that investors can obtain. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the trade. This gives you the opportunity to make a lot of money by trading with more money than is available in your trading account. Be aware, this is not for the faint hearted - if your trade goes bad you will have to pay the money back. However, when you become more experienced and successful with your trades this high level of leverage makes this form of investment stand out from the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.
6) No fixed size of contract.
Standard trading is done on 100,000 units of currency. However, with spot trading you can, in theory, determine the size of contract you wish to trade. Some brokers do have set sizes for administrative purposes but if you shop around you will find a broker who will cater for your needs.
7) Liquidity and Volume.
The liquidity of an asset is the ease with which it can be turned into cash without loss of value or at least without any significant loss in value. Currency is money and money is cash and is therefore more liquid than any other asset making it very easy to trade. The volume or amount of money being traded in the forex market every day is around $4 trillion. The international banks and other financial institutions as big and as influential as they are have no chance of dominating the market. Trading currencies is also void of the risk of insider trading which can blight other forms of investment.
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