Forex Trading Advice

There are many countries and their central banks all over the world that influence the exchange rate between currencies. This exchange rate is established by central banks, such as the Federal Reserve System of the United States. The Forex is basically an abbreviation of the term Foreign Exchange. Just as the rise and fall in the stock market can be used as a means of trade, the differences in the exchange rate of two currencies is used in order to trade and reap the financial benefit of the exchange rate.

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Forex Trading Market

Forex is also known as a currency trading market or an FX. Its basic working structure and principle is based on the simple economic model of barter exchange. Supply and demand facilitates the need of each other. For example, a businessman in the US needs some amount of Euros, and at the same time another businessman in the UK needs some Dollars. The two parties that are the ends of the barter exchange transact with the help of a Forex broker, and the need for Dollars and Euros is satisfied.

The exchange rate changes every day. For example, on a day, the Euro might be equal to 1.45 US Dollars, and the very next day, it might change to 1.30 (it must be noted that these figures are just random examples and are not actual). This difference in the currencies that occurs across the world is used as a subject of trade by many individuals and organizations. There are many individuals who, just like the investors of share markets make use of the difference in values. At the same time, there are many banks, financial institutions, and people involved in import and export trade, who use it to either make or save money.

The Advice

The key advice that you should remember while undertaking FX trading is ‘sell before it falls, and buy before it rises’. If you are planning upon trading and investing, then it is important to get the right education. You might as well try out the trading course that is available on the Internet, which will give you a brief idea about the process that is involved in it. It is also important that you arm yourself with the good knowledge of Macroeconomic theories. It must be noted that, the changes in the FX are heavily governed by the Laws of Demand and Supply. Thus, it is necessary to grasp all the essential economic theories.

You will find that there are many different sources that will give you extensive tips. However, the best trick to really get the grasp of the market is to have a look at the economies that you wish to trade in. It is best that you stick to a specific pair of currencies, like USD and Euro or USD and Yen, or even Euro and Rupee. The best way to keep a tab on the behavior of such economies is to take into consideration their trends, by studying the changes in the prices of the recent past or studying the annual GDP and National Income.

There are also other economic indicators, such as prices of gold and silver or the prices of oil, that you can use to predict and forecast the increase and decrease in the currency exchange rate. You may also observe the seasonal rise in the rates of exchange, and also observe the upward and downward projections. The best strategy is to patiently observe growth, and sell before the economy starts going into a downward projection.

The Forex trading strategy is another crucial point that you need to follow. For example, select just a handful of national economies and specialize in their observations. For example, you can trade with only Asian economies or only developed economies. After a few months time, you will become an expert in trading with these economies.

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.