The overall forex market generally trends more than the overall stock market. Why? The equity market, which is really a market of many individual stocks, is governed by the micro dynamics of particular companies. The forex market, on the other hand, is driven by macroeconomic trends that can sometimes take years to play out. These trends best manifest themselves through the major pairs and the commodity block currencies. Here we take a look at these trends, examining where and why they occur. Then we also look at what types of pairs offer the best opportunities for range-bound trading.
The Majors
There are only four major currency pairs in forex, which makes it a quite easy to follow the market. They are:
EUR/USD - euro / U.S. dollar
USD/JPY - U.S. dollar / Japanese yen
GBP/USD - British pound / U.S. dollar
USD/CHF - U.S. dollar / Swiss franc
It is understandable why the United States, the European Union and Japan would have the most active and liquid currencies in the world, but why the United Kingdom? After all, as of 2005, India has a larger GDP ($3.3 trillion vs. $1.7 trillion for the U.K.), while Russia's GDP ($1.4 trillion) and Brazil's GDP ($1.5 trillion) almost match U.K.'s total economic production. The explanation, which applies to much of the forex market, is tradition. The U.K. was the first economy in the world to develop sophisticated capital markets and at one time it was the British pound, not the U.S. dollar, that served as the world's reserve currency. Because of this legacy and because of London's primacy as the center of global forex dealing, the pound is still considered one of the major currencies of the world.
The Swiss franc, on the other hand, takes its place amongst the four majors because of Switzerland's famed neutrality and fiscal prudence. At one time the Swiss franc was 40% backed by gold, but to many traders in the forex market it is still known as "liquid gold". In times of turmoil or economic stagflation, traders turn to the Swiss franc as a safe-haven currency.
The largest major pair - in fact the single most liquid financial instrument in the world - is the EUR/USD. This pair trades almost $1 trillion per day of notional value from Tokyo to London to New York 24 hours a day, five days a week. The two currencies represent the two largest economic entities in the world: the U.S. with an annual GDP of $11 trillion and the Eurozone with a GDP of about $10.5 trillion.
Although U.S. economic growth has been far better than that of the Eurozone (3.1% vs.1.6%), the Eurozone economy generates net trade surpluses while the U.S. runs chronic trade deficits. The superior balance-sheet position of the Eurozone and the sheer size of the Eurozone economy has made the euro an attractive alternative reserve currency to the dollar. As such, many central banks including Russia, Brazil and South Korea have diversified some of their reserves into euro. Clearly this diversification process has taken time as do many of the events or shifts that affect the forex market. That is why one of the key attributes of successful trend trading in forex is a longer-term outlook.
Sunday, September 27, 2009
Forex News Trading: The latest marketing wizardry in the forex market
I want to explain to you how so-called News Trading is the latest method devised by the marketing wizards to take your money.
The more subtle marketing wizards package it very scientifically. They use impressive looking historical statistics to show how price action unfolded immediately after certain economic data releases. See the pattern, they trumpet, and make money from it.
The less subtle approach explains how to beat the gun with proprietary data feeds on supposedly important data releases. In reality, most of these data releases have never had any significant impact on the forex market before, but despite this, the marketing wizards invite you to join them in the shoot-out by paying a monthly subscription in the belief that this will help you beat the market makers.
Before I go any further in showing you how to really lose your money, your mind and your interest in this most lucrative market, let me just tell you why I think you can pay attention to what I have to say on the topic. Apart from the fact that I describe in my book, Bird Watching in Lion Country – Retail Forex Trading Explained (BWILC), the absolute necessity of real-time analysis and the folly of basing a trading strategy for the long-term on very short-term technical analysis indicators - or other illusionary patterns - I also explain a term which I coined: “relational analysis”. This simply means that, if you are trading forex, you have to relate three things all the time: price, time and events.
News trading as a concept has mainly to do with “events” and specifically with those anticipated events that cause prices to move more than usual, but only briefly - brief even in terms of short-term trading. News trading as offered by the marketing wizards takes this concept and then distorts it to rob you of your money.
Non-farm payrolls: March 1998
My mentor is an institutional bond trader who has a simple view on technical analysis: “if the prices are high, it may be time to sell and if the prices are low it may be a time to buy”. (He amusingly referred to traders’ screens filled with every conceivable squiggle, line and indicator as Playboys – dirty pictures.)
The point he was making is that trading decisions were not made based on technical analysis other than for the basic positioning it could give you as regards where the price is now, relative to where it has been recently. If you are closely monitoring the market you will have a feel for this anyway, but charts are helpful for a quick snapshot picture.
Noting and being acutely aware of upcoming economic data releases was one of the main elements of his analysis and approach to understanding the market and price action. This is what he based his trading decisions on. At the time I started trading in 1998 I was only vaguely aware of things like CPI, PPI, trade balance, money supply, and unemployment – all the things that give economists and analysts that warm and fuzzy feeling – but I quickly acquired an interest, figured out what each of them meant and started using the Sunday papers’ business section to monitor releases and follow the comments.
The more subtle marketing wizards package it very scientifically. They use impressive looking historical statistics to show how price action unfolded immediately after certain economic data releases. See the pattern, they trumpet, and make money from it.
The less subtle approach explains how to beat the gun with proprietary data feeds on supposedly important data releases. In reality, most of these data releases have never had any significant impact on the forex market before, but despite this, the marketing wizards invite you to join them in the shoot-out by paying a monthly subscription in the belief that this will help you beat the market makers.
Before I go any further in showing you how to really lose your money, your mind and your interest in this most lucrative market, let me just tell you why I think you can pay attention to what I have to say on the topic. Apart from the fact that I describe in my book, Bird Watching in Lion Country – Retail Forex Trading Explained (BWILC), the absolute necessity of real-time analysis and the folly of basing a trading strategy for the long-term on very short-term technical analysis indicators - or other illusionary patterns - I also explain a term which I coined: “relational analysis”. This simply means that, if you are trading forex, you have to relate three things all the time: price, time and events.
News trading as a concept has mainly to do with “events” and specifically with those anticipated events that cause prices to move more than usual, but only briefly - brief even in terms of short-term trading. News trading as offered by the marketing wizards takes this concept and then distorts it to rob you of your money.
Non-farm payrolls: March 1998
My mentor is an institutional bond trader who has a simple view on technical analysis: “if the prices are high, it may be time to sell and if the prices are low it may be a time to buy”. (He amusingly referred to traders’ screens filled with every conceivable squiggle, line and indicator as Playboys – dirty pictures.)
The point he was making is that trading decisions were not made based on technical analysis other than for the basic positioning it could give you as regards where the price is now, relative to where it has been recently. If you are closely monitoring the market you will have a feel for this anyway, but charts are helpful for a quick snapshot picture.
Noting and being acutely aware of upcoming economic data releases was one of the main elements of his analysis and approach to understanding the market and price action. This is what he based his trading decisions on. At the time I started trading in 1998 I was only vaguely aware of things like CPI, PPI, trade balance, money supply, and unemployment – all the things that give economists and analysts that warm and fuzzy feeling – but I quickly acquired an interest, figured out what each of them meant and started using the Sunday papers’ business section to monitor releases and follow the comments.
Rollovers in Forex
Even though the mighty US dominates many markets, most of Spot Forex is still traded through London in Great Britain. So for our next description we shall use London time. Most deals in Forex are done as Spot deals. Spot deals are nearly always due for settlement two business days later. This is referred to as the value date or delivery date. On that date the counter parties theoretically take delivery of the currency they have sold or bought.
In Spot FX the majority of the time the end of the business day is 21:59 (London time). Any positions still open at this time are automatically rolled over to the next business day, which again finishes at 21:59.
This is necessary to avoid the actual delivery of the currency. As Spot FX is predominantly speculative most of the time the traders never wish to actually take delivery of the currency. They will instruct the brokerage to always rollover their position.
Many of the brokers nowadays do this automatically and it will be in their policies and procedures. The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day.
Just to go over this again, your broker will automatically rollover your position unless you instruct him that you actually want delivery of the currency. Another point noting is that most leveraged accounts are unable to actually deliver the currency as there is insufficient capital there to cover the transaction.
Remember that if you are trading on margin, you have in effect got a loan from your broker for the amount you are trading. If you had a 1 lot position you broker has advanced you the $100,000 even though you did not actually have $100,000. The broker will normally charge you the interest differential between the two currencies if you rollover your position. This normally only happens if you have rolled over the position and not if you open and close the position within the same business day.
To calculate the broker's interest he will normally close your position at the end of the business day and again reopen a new position almost simultaneously. You open a 1 lot ($100,000) EUR/USD position on Monday 15th at 11:00 at an exchange rate of 0.9950.
During the day the rate fluctuates and at 22:00 the rate is 0.9975. The broker closes your position and reopens a new position with a different value date. The new position was opened at 0.9976 - a 1 pip difference. The 1 pip deference reflects the difference in interest rates between the US Dollar and the Euro.
In our example your are long Euro and short US Dollar. As the US Dollar in the example has a higher interest rate than the Euro you pay the premium of 1 pip.
Now the good news. If you had the reverse position and you were short Euros and long US Dollars you would gain the interest differential of 1 pip. If the first named currency has an overnight interest rate lower than the second currency then you will pay that interest differential if you bought that currency. If the first named currency has a higher interest rate than the second currency then you will gain the interest differential.
To simplify the above. If you are long (bought) a particular currency and that currency has a higher overnight interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will lose the difference.
I would like to emphasise here that although we are going a little in-depth to explain how all this works, your broker will calculate all this for you. The purpose of this article is just to give you an overview of how the forex market works
In Spot FX the majority of the time the end of the business day is 21:59 (London time). Any positions still open at this time are automatically rolled over to the next business day, which again finishes at 21:59.
This is necessary to avoid the actual delivery of the currency. As Spot FX is predominantly speculative most of the time the traders never wish to actually take delivery of the currency. They will instruct the brokerage to always rollover their position.
Many of the brokers nowadays do this automatically and it will be in their policies and procedures. The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day.
Just to go over this again, your broker will automatically rollover your position unless you instruct him that you actually want delivery of the currency. Another point noting is that most leveraged accounts are unable to actually deliver the currency as there is insufficient capital there to cover the transaction.
Remember that if you are trading on margin, you have in effect got a loan from your broker for the amount you are trading. If you had a 1 lot position you broker has advanced you the $100,000 even though you did not actually have $100,000. The broker will normally charge you the interest differential between the two currencies if you rollover your position. This normally only happens if you have rolled over the position and not if you open and close the position within the same business day.
To calculate the broker's interest he will normally close your position at the end of the business day and again reopen a new position almost simultaneously. You open a 1 lot ($100,000) EUR/USD position on Monday 15th at 11:00 at an exchange rate of 0.9950.
During the day the rate fluctuates and at 22:00 the rate is 0.9975. The broker closes your position and reopens a new position with a different value date. The new position was opened at 0.9976 - a 1 pip difference. The 1 pip deference reflects the difference in interest rates between the US Dollar and the Euro.
In our example your are long Euro and short US Dollar. As the US Dollar in the example has a higher interest rate than the Euro you pay the premium of 1 pip.
Now the good news. If you had the reverse position and you were short Euros and long US Dollars you would gain the interest differential of 1 pip. If the first named currency has an overnight interest rate lower than the second currency then you will pay that interest differential if you bought that currency. If the first named currency has a higher interest rate than the second currency then you will gain the interest differential.
To simplify the above. If you are long (bought) a particular currency and that currency has a higher overnight interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will lose the difference.
I would like to emphasise here that although we are going a little in-depth to explain how all this works, your broker will calculate all this for you. The purpose of this article is just to give you an overview of how the forex market works
Taking Profits
So much time is spent on entering a trade. Today I want to focus on some exit strategies. This is not a full Fibonacci course, so if you don't understand the basics I suggest that you visit my website for help with those aspects.
Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you're sitting on the sidelines while the market continues well beyond your exit.
In this lesson I'll show you how to bank those profits before they turn against you.
Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you're sitting on the sidelines while the market continues well beyond your exit.
In this lesson I'll show you how to bank those profits before they turn against you.
Choosing a Forex Broker
As you may already know, foreign exchange (Forex/FX) is an unregulated market that is not traded on an exchange, which means that prices you see and get from one broker could vary from those of another broker. There are mainly two types of brokers. One type is an ECN (Electronic Communications Network) and another a Market-Maker.
Market-makers "make" or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to "hedge" or "cover" your order by passing it on to someone else; however, some may decide to hold your order, and thus trade against you. This can result in a conflict of interest between the retail trader (you) and the market-maker.
ECNs, on the other hand, pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed commission for each transaction.
Market-makers "make" or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to "hedge" or "cover" your order by passing it on to someone else; however, some may decide to hold your order, and thus trade against you. This can result in a conflict of interest between the retail trader (you) and the market-maker.
ECNs, on the other hand, pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed commission for each transaction.
Foreign Exchange Market
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market. They may only participate indirectly through brokers or banks and may be targets of forex scams.
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Friday, September 25, 2009
An Ideal College freshers
AN ideal college freshman must be relaxed. One must conserve his or her energy in preparation for the grueling two years with majors. That is specially essential if you are taking a technical course such as Management Accounting or Electronics and Communications Engineering.
If you have been a model in high school or a ballet dancer and you’ve been continuing to do these things, then do so if you are still a college freshman. That won’t affect your studies because most subjects in the first two years in college are just reviews of what you had taken in high school. In other words, the lessons
are still fresh in one’s mind such as trigonometry, biology, religious studies and other what-have-yous.
If you are a scholar, then that’s better. But be aware that there is a grade cap in each subject that you have to cope, otherwise you’ll lose your scholarship. If you are an athlete or a cheerleader and your college tuition is funded through this athletic scholarship , then you must maintain your performance so that you won’t lose your scholarship. See more on how to cope with college life here in StuVu. This is your ticket to an exciting college life.
If you have been a model in high school or a ballet dancer and you’ve been continuing to do these things, then do so if you are still a college freshman. That won’t affect your studies because most subjects in the first two years in college are just reviews of what you had taken in high school. In other words, the lessons
are still fresh in one’s mind such as trigonometry, biology, religious studies and other what-have-yous.
If you are a scholar, then that’s better. But be aware that there is a grade cap in each subject that you have to cope, otherwise you’ll lose your scholarship. If you are an athlete or a cheerleader and your college tuition is funded through this athletic scholarship , then you must maintain your performance so that you won’t lose your scholarship. See more on how to cope with college life here in StuVu. This is your ticket to an exciting college life.
Make Your College Life Exciting
COLLEGE can be a lonely place especially if you come from a rural town and your girlfriend or your friends won’t go with you to college. Staying in a boarding school may help but we’d like to introduce to you an online feature which can maximize your college fun.
Of course, we’d like to emphasize that StuVu must not replace your study time but during lonely times when there is nothing else to unwind about, StuVu is a great alternative. Here in StuVu, you can meet new friends. Who knows, you’ll find your new love here in StuVu.
When you create a profile here in StuVu, you’ll have the capability to upload exciting pictures, videos and every procrastination and rant that you have via the StuVu blog. Of course , that includes entries vividly describing how the atmosphere in each classroom/college professor/instructor looks like and how facilities from one campus vary with the other in that particular community that you are enrolled in. Students also get to discuss what the happenings in the place are as well as the trendy sororities recommended. Another feature in StuVu is students helping out one another in tackling difficult lessons
Of course, we’d like to emphasize that StuVu must not replace your study time but during lonely times when there is nothing else to unwind about, StuVu is a great alternative. Here in StuVu, you can meet new friends. Who knows, you’ll find your new love here in StuVu.
When you create a profile here in StuVu, you’ll have the capability to upload exciting pictures, videos and every procrastination and rant that you have via the StuVu blog. Of course , that includes entries vividly describing how the atmosphere in each classroom/college professor/instructor looks like and how facilities from one campus vary with the other in that particular community that you are enrolled in. Students also get to discuss what the happenings in the place are as well as the trendy sororities recommended. Another feature in StuVu is students helping out one another in tackling difficult lessons
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