What is Forex Day Trading?

Demand and supply are two very important factors that constitute any given economy and market. The forces of demand and supply, their expansion and contraction, their increase and decrease, govern the rise and fall of the prices of a given commodity or financial instrument, or for that matter any possible goods and service that has a given monetary value. This simple principle is applied while trading in the Forex market.

What is Forex?

There are hundreds of national economies that operate throughout the world. The rates of currencies that these economies establish, have fluctuating trend, that changes almost daily. The Forex market is the market, where these currencies can be bought, sold and traded.

For example, you can purchase Euros worth US$ 20. The Forex market basically originated to facilitate international trade transactions. The current scenario is that many banks, financial institutes and professional institutes have stepped into the picture in order to trade, and make profits from the fluctuating rates of currency. Today, the Forex market basically operates as a full-time market, (with the exceptions of weekends) and one can trade through authorized Forex brokers.

What is Day Trading?

In any given market, day trading basically implies trading of currency within a given amount of time. This time span starts with the opening of markets and ends with the close of the market. In case of the Forex market, the concept of day trading is, however, governed by the different time zones.

For example, if a Chinese person is trading in the United States Dollars and Euros, his day trading time starts during the evening. In this type of day trading, there are some brokers and institutes that operate round the clock (again with the exception of weekends).

Forex Day Trading Strategies

It has been proved that as a result of substantial growth in the international trade, Forex markets have started booming and many people have started trading in the market to churn out profit. The following are some very simple tips that you can follow.

  • Trend Following: The simplest of all Forex strategies is trend following. In such a policy, the investor uses his own intuition to purchase a rising instrument (in this case a currency), and sell it before the fall of the trend. Another situation where the investor can sell the currency is known as a short sell, where a falling currency can be sold before it reaches a point equivalent to initial investment.
  • Constrain Investing: Constrain investing is very similar to the trend following. However in such a case, an investor relies solely on a short sell. Here, a constantly rising currency is sold as soon as it crosses a point that is equivalent to investment, and same goes for a sale of falling currency.
  • Range Trading: There are some trends that rise, instantly after a fall or vice versa. The investor can thus invest in a falling rate, and sell the same as soon as it rises. This policy can be a bit risky, and one has to make a careful analysis of the rising and falling trends.
  • Scalping: The fastest and the most difficult strategy is that of scalping. During scalping, a person buys a currency and sells it instantly, almost within a few minutes or seconds. There are basically two drawbacks of this process. Firstly, the amount of purchased units should be large and moreover, it requires a larger initial investment. On the other hand, there is a great risk of the currency remaining stable for a long time.

However, before you take up any kind of trading, it is always advisable to get to know some trading strategies, and also some of the principles of economics. I would also recommend you to go through day trading rules, and practice some ghost trading with the help of Forex training.

Forex Day Trading Systems

Usually, we link trading with buying a commodity, taking it home or to our office premises, and then selling it. Likewise, we buy stocks and shares in the stocks and shares market, hold them until their price improves and then sell them off.

Times have been transformed, and at present times trading can be done on a daily or even hourly manner in the stocks and shares market, and also in the foreign currency markets with a lot of brokers. This has turned out to be possible due to the forex day trading services, also called intraday trading. Because of intraday trading or day trading, individuals can make money on the trading day itself. Intraday trading, despite differences in times zones all over the the world, is also famous since the forex market remains on 24 hours a day.

One more reason that draws individuals to day trading is the fact that the forex market is the most liquid market throughout the world. The instant your transaction is carried out, your profits are added to your bank account. This has turned out to be possible due to the decentralized clearing system, which allows the market to stay liquid day and night.

One more benefit of day trading is that you are not required to spend a lot of money to make profits, remember for that! You don’t have to incur big losses either. This is, certainly, if you pay attention to the help provided by your brokering company regarding the entry and exit times. There are a lot of forex-trading companies that can coach you for day trading so that your deals are not condensed to gambling. These businesses provide you with trading techniques and data charts that guide you when to trade.

They also teach you to interpret forex quotes, and also how and when to trade the currencies by understanding various technical and analytical studies.

Forex Day Trading System

The forex day trading system is the largest financial market in the world where currencies from around the globe are traded for profit. Currencies are constantly being bought and sold across the market by banks, brokerage firms, organizations, and individuals. Due to this, the investments in global markets keep changing in value according to the movement in its associated currency. The change in value of a currency is affected by real world events, very similar to how stocks get their value. A unique feature of this market is that there is no central marketplace to conduct business. Trading is carried out electronically via networks between the investors and traders from all over the world. It never closes, i.e., it is a 24-hour market, so people can trade online any time they wish.

History of the Forex Market

By the end of World War II, the western nations made the Bretton Woods Agreement that fixed the exchange value of all currencies in terms of the U.S. Dollar. During that time, the U.S. Dollar stood at $35 per ounce of gold, and followed the gold standard. Since the global economy was completely disturbed, the aim of the agreement was to stabilize it and avoid any political or social turmoil. It worked well for some time, but later, the agreement became outdated and restrictive. Finally, due to the abolishment of the gold standard, the Bretton Woods Agreement ended in 1971. The currency market was then established, with the United States in the lead. The market gradually evolved, and with the arrival of the Internet, currency trading became much simpler. The continuous practice of depositing U.S. currency in foreign banks exhilarated the foreign exchange market, and today it averages over $5.3 trillion per day in transactions.

How To Trade on the Forex Market

There are mainly three ways in which banks, corporations, and individuals trade on the foreign exchange market: the spot market, the forwards market, and the futures market. In the spot market, the currency is bought and sold at its present price. It has always been the largest of the three markets. The forward and futures markets handle the contracts which represent the assertion to a certain currency type, a specific price per unit, and a future date for settlement. Earlier, the futures market was considered the most important, but with the rise of electronic trading, everything changed. Nowadays, the forwards and futures market is only used by companies that require to hedge their foreign exchange risks out to a specific date in the future.

The forex is purely a liquid market with simple currency trading. It is highly volatile, i.e., it can rise and fall very quickly, offering profits and loses within minutes of trading. But ample of software are available that help minimize risk and generate profits.

Foreign Exchange Market

Globally, different currencies are traded for one another in the foreign exchange market (Forex). It is held to be the biggest financial market in the world, and which is closest to the ideal of “perfect competition” held by all the economists. The traders in include currency speculators, banks, central banks, governments, multinational corporations, and other financial organizations.

Features

The forex market is characterized by:

  • Huge trading volumes
  • 24 hour trading
  • Geographical diversity
  • Liquidity
  • Large variety and number of traders

The trading volumes exceed billions of dollars, and the market is open throughout the day, as currency is traded across the globe. This geographical diversity is the reason that a large variety of traders exist in this market. Also, the capability of different platforms such as Internet trading, creates a diverse trader base in this market. Trade in this market consists of currency or foreign exchange also creates a very high amount of liquidity.

The main feature includes the absence of a central marketplace for trading purposes. As such, the trade is carried out OTC or “Over The Counter”. Depending upon the kind of foreign exchange or currency instrument that is being traded, and the kind of trade being conducted, the prices vary. For example, the price for buying currency notes would be different from the price for buying checks. Similarly, a buy transaction exchange rate will differ from a sell transaction exchange rate.

The Top 5 currencies that are traded in this market are:

  • US Dollar (USD)
  • Eurozone Euro (EUR)
  • Japanese Yen (JPY)
  • British Pound Sterling (GBP)
  • Swiss Franc (CHF)

Currency rates are always expressed in terms of another currency, which is popular and more stable than the former one. For example, the exchange rate of the Indian Rupee is always expressed in comparison with the USD.

Factors Affecting Trade

Due to its particular features, forex rates and trading are primarily the result of the demand and supply functions of the currency.

Other than this view, the forex market is also affected by factors, which can be broadly classified into:

  • Political
  • Economic
  • Market Psychology

Political conditions of a country can affect the currency rates. Growth and economic prosperity can have a positive effect, while political upheaval like civil war can negatively affect these rates. Economic factors include things such as the budget deficit or surplus conditions, the balance of trade situation, levels of inflation, and the general trend of economic growth in that nation.

Market psychology includes the susceptibility of the forex market to rumors, perceptions of the market regarding the safety of a particular currency, and the definitive long term trends of a currency in the market.

Types

These are different types of financial instruments or trading systems, which are followed commonly in this market.

Spot

The transaction has a two day delivery date. This is a direct exchange between two currencies, often involves cash, and does not include any interest. This is the most voluminous trade that is carried out in the market.

Forward

Currencies are exchanged on a future date, which is decided by the buyer and seller. This is undertaken depending on the rate of exchange that is prevalent on that day.

Future

This is similar to the Futures trade that takes place in the stock market. This involves standard contracts, which often have maturity dates. The contract will state how much currency is to be exchanged at a specific rate and on a particular day. There often are special exchanges for this type of trading, and often includes interest costs.

Swap

This is a very unique type of transaction. In this way, two parties decide to exchange currencies with each other for an agreed length of time, and then decide to reverse the transaction at a future date.

Option

This is similar to the Options trade in the stock market. The owner of the transaction can exchange currency at a pre-agreed rate on an already decided date. This is an option or a right, but not an obligation of the Option owner.

Thus, the foreign exchange market is a very important aspect of the measurement of the financial situation of a particular country, in the global marketplace.

Forex Broker Tricks

Many people start trading forex without knowing the games their forex broker can play with them. Choosing a right forex broker is very important for you. Dont get stuck up with an unscrupulous forex broker. Know the tricks a forex broker has for you.

Retail forex market where small traders like you and I trade forex is different than the interbank forex market. Interbank forex market is where big banks, corporations, hedge fund and other institutional investors exchange currencies. It is only open to big players.

With the advent of internet, retail forex trading became popular. Forex brokers work as intermediaries between the retail traders and the interbank market. Forex brokers popularize retail fx trading by offering online margin accounts. But beware retail forex market is not highly regulated. Due to poor regulation forex brokers can do what they want with immunity.

You need to know the games; a forex broker can play with you. If you dont know what games a forex broker can play with you, you will never succeed at forex trading. Understand how the broker can trick you:

Pricing is Not Transparent: Being an OTC (Over the Counter) market, forex broker can quote prices that may not be fair but you have accept them or choose another broker. The prices that your forex broker is going to quote to you, is the price that you will get. You cannot do anything about it.

Use of Leverage: Your forex broker will love you to use a high leverage like 100-1 or 200-1 in your trading. Since most of the small forex traders are unsophisticated, they easily overexpose themselves and get wiped out in the market making gains for the broker in return.

Brokers try to trade against you: Forex brokers act as an intermediary between the retail trader and the interbank forex market. Since most of the retail trades are too small in size and cannot be immediately offset in the interbank market, forex brokers get the opportunity to trade against you. If you go long, the broker will go short and if you go short, the broker will take the long position. As most of the retail traders are not good traders and lose most of the time, forex brokers make profit from this.

Practices that are unfair: Forex brokers and Casinos have the same mentality: they dont like winner. If you are winning too much, the house will be stacked against you. Your forex broker may make the execution of your trades very difficult or start denying the service to you. Your trade may not execute due to slippage. There are many games the broker will play against you so beware.

Once you know these facts, you can use a scorecard for evaluating different forex brokers. Bill Poulos, a veteran forex trader has developed one for you. Visit my Blog to read about it.

New Website Gives Information on FOREX

Port Charlotte, FL (PRWEB) September 22, 2005

The new website, http://www.dondino.biz/forex/, has the current news about Forex. The foreign exchange market, Forex or FX, uses currencies of different countries as its trading instruments. Forex has now integrated into one of the largest markets in the world today.

Currently, the Forex market is a global telecommunication network of banks and different financial organizations. A huge advantage the Forex market has over other markets is that it does not have any specific trading place. Also, Forex is traded around the clock all over the world.

There are many Forex software programs to help the home investor participate in the market. As well with software, online trading for Forex is available from countless internet sites. And many of the programs out there are linked together for smooth research and up to date information to use to make you investment decisions and to keep you organized.

Of course, whenever you are dealing with money, you must watch out for scams. Discussed are some of the programs to watch out for and programs that are highly regarded. With any market being in the right place at the right time is crucial. All investment is a risk, but having a portal that has current information helps make better decisions.

A great feature is that this site, http://www.dondino.biz/forex/, is connected with a variety of other financial resources. As part of any good series of sites, the Webmaster constructed the series of the sites with a uniformed structure. Loaded with current information on all of the financial topics, the series make for a great bookmark for future reference.

Lastly, no one can make you risk your money, but if and when you decide to invest, the best tool of all is information. The Forex market is covered at length including software, sites, and scams. For all of the current news on Forex I recommend going to this site:

http://www.dondino.biz/forex/

Forex Trading Tips

Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?

This two-part report clearly and simply details essential tips on how to avoid typical pitfalls and start making more money in your forex trading.

Trade pairs, not currencies – Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.

Knowledge is Power – When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.

The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.

Unambitious trading – Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.

Over-cautious trading – Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don’t place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.

Independence – If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:

Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period);

Seek advice from too many sources – multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome – by yourself, for yourself.

Tiny margins – Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.

No strategy – The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.

Trading Off-Peak Hours – Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple – don’t.

The only way is up/down – When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That’s it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you’ll be amazed at how hard it is to blame anyone else.

Trade on the news – Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.

Exiting Trades – If you place a trade and it’s not working out for you, get out. Don’t compound your mistake by staying in and hoping for a reversal. If you’re in a winning trade, don’t talk yourself out of the position because you’re bored or want to relieve stress; stress is a natural part of trading; get used to it.

Don’t trade too short-term – If you are aiming to make less than 20 points profit, don’t undertake the trade. The spread you are trading on will make the odds against you far too high.

Don’t be smart – The most successful traders I know keep their trading simple. They don’t analyse all day or research historical trends and track web logs and their results are excellent.

Tops and Bottoms – There are no real “bargains” in trading foreign exchange. Trade in the direction the price is going in and you’re results will be almost guaranteed to improve.

Ignoring the technicals- Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.

Emotional Trading – Without that all-important strategy, you’re trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don’t tend to make the wisest decisions. Don’t let your emotions sway you.

Confidence – Confidence comes from successful trading. If you lose money early in your trading career it’s very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.

The second and final part of this report clearly and simply details more essential tips on how to avoid the pitfalls and start making more money in your forex trading.

Take it like a man – If you decide to ride a loss, you are simply displaying stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Sticking to a bad position ruins lots of traders – permanently. Try to remember that the market often behaves illogically, so don’t get commit to any one trade; it’s just a trade. One good trade will not make you a trading success; it’s ongoing regular performance over months and years that makes a good trader.

Focus – Fantasising about possible profits and then “spending” them before you have realised them is no good. Focus on your current position(s) and place reasonable stop losses at the time you do the trade. Then sit back and enjoy the ride – you have no real control from now on, the market will do what it wants to do.

Don’t trust demos – Demo trading often causes new traders to learn bad habits. These bad habits, which can be very dangerous in the long run, come about because you are playing with virtual money. Once you know how your broker’s system works, start trading small amounts and only take the risk you can afford to win or lose.

Stick to the strategy – When you make money on a well thought-out strategic trade, don’t go and lose half of it next time on a fancy; stick to your strategy and invest profits on the next trade that matches your long-term goals.

Trade today – Most successful day traders are highly focused on what’s happening in the short-term, not what may happen over the next month. If you’re trading with 40 to 60-point stops focus on what’s happening today as the market will probably move too quickly to consider the long-term future. However, the long-term trends are not unimportant; they will not always help you though if you’re trading intraday.

The clues are in the details – The bottom line on your account balance doesn’t tell the whole story. Consider individual trade details; analyse your losses and the telling losing streaks. Generally, traders that make money without suffering significant daily losses have the best chance of sustaining positive performance in the long term.

Simulated Results – Be very careful and wary about infamous “black box” systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced. Typically, these systems only show their track record of extraordinary results – historical results. Successfully predicting future trade scenarios is altogether more complex. The high-speed algorithmic capabilities of these systems provide significant retrospective trading systems, not ones which will help you trade effectively in the future.

Get to know one cross at a time – Each currency pair is unique, and has a unique way of moving in the marketplace. The forces which cause the pair to move up and down are individual to each cross, so study them and learn from your experience and apply your learning to one cross at a time.

Risk Reward – If you put a 20 point stop and a 50 point profit your chances of winning are probably about 1-3 against you. In fact, given the spread you’re trading on, it’s more likely to be 1-4. Play the odds the market gives you.

Trading for Wrong Reasons – Don’t trade if you are bored, unsure or reacting on a whim. The reason that you are bored in the first place is probably because there is no trade to make in the first place. If you are unsure, it’s probably because you can’t see the trade to make, so don’t make one.

Zen Trading- Even when you have taken a position in the markets, you should try and think as you would if you hadn’t taken one. This level of detachment is essential if you want to retain your clarity of mind and avoid succumbing to emotional impulses and therefore increasing the likelihood of incurring losses. To achieve this, you need to cultivate a calm and relaxed outlook. Trade in brief periods of no more than a few hours at a time and accept that once the trade has been made, it’s out of your hands.

Determination – Once you have decided to place a trade, stick to it and let it run its course. This means that if your stop loss is close to being triggered, let it trigger. If you move your stop midway through a trade’s life, you are more than likely to suffer worse moves against you. Your determination must be show itself when you acknowledge that you got it wrong, so get out.

Short-term Moving Average Crossovers – This is one of the most dangerous trade scenarios for non professional traders. When the short-term moving average crosses the longer-term moving average it only means that the average price in the short run is equal to the average price in the longer run. This is neither a bullish nor bearish indication, so don’t fall into the trap of believing it is one.

Stochastic – Another dangerous scenario. When it first signals an exhausted condition that’s when the big spike in the “exhausted” currency cross tends to occur. My advice is to buy on the first sign of an overbought cross and then sell on the first sign of an oversold one. This approach means that you’ll be with the trend and have successfully identified a positive move that still has some way to go. So if percentage K and percentage D are both crossing 80, then buy! (This is the same on sell side, where you sell at 20).

One cross is all that counts – EURUSD seems to be trading higher, so you buy GBPUSD because it appears not to have moved yet. This is dangerous. Focus on one cross at a time – if EURUSD looks good to you, then just buy EURUSD.

Wrong Broker – A lot of FOREX brokers are in business only to make money from yours. Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker.

Too bullish – Trading statistics show that 90% of most traders will fail at some point. Being too bullish about your trading aptitude can be fatal to your long-term success. You can always learn more about trading the markets, even if you are currently successful in your trades. Stay modest, and keep your eyes open for new ideas and bad habits you might be falling in to.

Interpret forex news yourself – Learn to read the source documents of forex news and events – don’t rely on the interpretations of news media or others.

Fiorenzo Fontana

http://www.forextrading-system.com – online trading, currency trading, financial service

Benefits and Risks Associated With The Forex Market

Investors are able to put extremely big trades without affecting any known exchange rate in forex trading. These large positions are built available to fx traders because of the low margin supplies used by the bulk of the industry's brokers. For the instant, it is probable for a trader to manage a position of US$100,000 by putting down as small as US$1,000 up front and have access to the remainder from his or her fx broker. This amount of influence acts as a double-edged blade because the trader can realize large increase when rates create a small favorable later, but they also run the risk of a huge loss when the rates go against them. Even though the fx risks, the amount of leverage accessible in the forex market is what makes it beautiful for many speculators.

The currency marketplace is also the only platform that is truthfully available for 24 hours a day with honest liquidity during the day. For investors who may have a day work or just a busy timetable, it is an optimal market to deal in. As you can observe from the chart under, the major trading centers are spread throughout various different time zones, reduce the need to stay for an opening or closing bell. As the U.S. investor's closes, another marketplace in the East is opening, making it probable to deal at any time during the day.

Whereas the forex market may propose more pleasure to the traders, the risks are also higher in judgment to trading equities. The ultra-high leverage of the forex market revenue that huge gains can quickly turn to damaging losses and can wipe out the majority of your account in a matter of minutes. This is significant for all new investors to understand, as in the forex market – due to the big amount of cash involved and the number of players – traders will answer quickly to report released into the market, leading to intelligent moves in the cost of the currency pair.