Euro Continues Rally on Eurozone Members Growth

The euro gained versus the dollar and other several currencies today as countries like Germany and France indicated a unexpected growth for the previous quarter, surprising traders and analysts, raising the positive sentiment towards the Eurozone currency.

A perfect scenario for a bullish pattern in the euro-dollar chart was set today as the German and French economies grew in the second quarter, as the Federal Reserve affirmed yesterday that interest rates in the United States shall remain low for an extended period of time, forcing the dollar down versus most of the 16 main traded currencies. Today, speculations indicate that a report is likely to show an economic rebound for all the current Eurozone country members, which is also favoring the outlook for the euro, which has been bearish since last week when it reached the highest level in months.

The euro is likely to remain high during the day if the report confirms the Eurozone diminishing contraction. Risk has returned to markets, and signs coming from main economies in Europe like Germany and France helped the euro to pare half of last risk aversion wave losses in the beginning of the week, but it is hard to determine until what level it may climb, since markets remain highly volatile.

EUR/USD traded at 1.4262 as of 9:47 GMT from a previous rate of 1.4155 yesterday. EUR/JPY traded at 137.35 from 135.23 yesterday.

If you want to comment on the Euro’s recent action or have any questions regarding this currency, please, feel free to reply below.

Crude Oil Reverts Canadian Dollar Falling Trend

After losing for five consecutive days, the Canadian currency rebounded versus its U.S. counterpart as stocks in Toronto climbed and the crude oil rebounded followed by most of the main traded commodities.

The Canadian dollar, which reached a 10-month high versus the greenback during the past week, returned to more reasonable rates as pessimism came back to equities markets following the end of the past week. Today, the Canadian trade deficit diminished more than forecasts, helping to loonie to climb with favorable crude oil prices and stock markets movements.

USD/CAD traded at 1.0877 as of 17:32 GMT from a previous rate of 1.1075 just a few hours earlier.

If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.

GLobal stocks, euro up on German, French growth surprise

PARIS (Reuters) - World stocks, commodities and the euro rose on Thursday as Germany and France surprised investors by reporting a return to GDP growth, while the dollar dipped after the Federal Reserve's less gloomy outlook for the U.S. economy.

Overall the euro zone remained just in recession in the second quarter, data showed on Thursday, although the 0.1 percent drop in GDP was much smaller than originally expected.

Germany and France provided the big shock by ending their recessions in April-June, earlier than many policymakers and economists had expected.

Gross domestic product in the euro zone's two biggest economies rose unexpectedly by 0.3 percent in the quarter, boosting hopes of a lasting recovery and sending the euro rising against the dollar and yen.

"(The GDP figures are) better than expected and that supports the euro a little bit," said Antje Praefcke, currency strategist at Commerzbank in Franfurt. "But overall, it's still the effect of post-Fed trading with stocks being a little more on the positive side."

The euro climbed 0.4 percent to $1.4262 and was up 0.9 percent against the yen at 137.60.

The dollar drifted lower as investors switched to riskier assets such as commodities after the Fed on Wednesday gave its clearest statement to date that it saw the U.S. recession nearing an end. It was down a quarter percent against a basket of major currencies .DXY.

The Fed said the U.S. economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades and it moved to phase out one emergency measure.

It is the first time since August 2008 that the Fed's statement has not characterized the economy as contracting, weakening, or slowing. But it cautioned that the economy remains fragile as employers continue to cut jobs and businesses trim investment.

World stocks as measured by MSCI were up 0.8 percent on Thursday.

The FTSEurofirst 300 .FTEU3 index of top European shares was up 1 percent at 951.34 points, led by banking shares such as UBS (UBSN.VX) and Deutsche Bank (DBKGn.DE), while mining shares such as Rio Tinto (RIO.L) and Anglo American (AAL.L) rallied along with metal prices.

Japan's Nikkei share average .N225 rose 0.8 percent, driven higher by big auto exporters and tech shares.

COMMODITIES ON THE RISE

The more positive Fed comments on the economy had pushed key U.S. stock indexes up more than 1 percent overnight, though shares lost steam near the end of the session. .N

At 5:17 a.m. EDT on Thursday, futures for the S&P 500 were up 0.9 percent, Dow Jones futures were also up 0.9 percent and Nasdaq 100 futures were up 0.8 percent.

Oil rises on positive economic news

LONDON (Reuters) - Oil rose back above $71 a barrel on Thursday after positive economic news from the United States and Europe's two largest economies, despite data showing U.S. crude inventories rose much more than expected last week.

U.S. light crude for September delivery rose $1.61 cents to $71.77 a barrel by 1111 GMT, having ended a four-day falling streak on Wednesday.

London Brent crude gained $1.27 to $74.16.

Gross domestic product (GDP) in France and Germany, the euro zone's two biggest economies, rose by 0.3 percent each in the second quarter against expectations for a decline of 0.3 percent.

The unexpectedly bullish news added to sentiment that the worst of the deepest financial crisis in decades was over, particularly after the U.S. Federal Reserve made its clearest statement yet that it sees the recession nearing an end.

This in turn pressured the dollar, as investors moved to riskier assets, including commodities, after the Fed on Wednesday held its benchmark rate near zero and said it would likely keep it there for an extended period to guide the way to recovery.

"There's this global good feeling at the moment. It's reverberating through everything, commodity markets equally as well," said CMC Markets analyst James Hughes in London.

"Retail sales numbers could derail the markets later this afternoon, but that's not likely because the economy doesn't turn around on good feeling."

A Reuters survey of 74 economists this week said a jump in new car sales fueled by the "cash-for-clunkers" trade-in program likely powered U.S. retail sales to a third straight monthly gain in July.

INVENTORY DATA

U.S. crude inventories rose much more than expected last week on higher imports and lower demand from domestic refiners, U.S. Energy Information data showed on Wednesday.

But forecasts that an oil demand recovery is at hand led traders to shrug off the bearish weekly data from the world's biggest consumer of energy.

Analysts at Barclays Capital forecast a bullish upswing in global oil demand, seven times larger than the forecast from the International Energy Agency, although they said there was continuing upside risk.

"In the U.S., a swing up in industrial output, consumer sales, final sales and a turn in the wholesale goods inventory argue for an impending sharp change in the underlying dynamic of U.S. oil demand," Barclays Capital said in its weekly oil data review.

Potentially tightening supplies and adding support, reports from the U.S. National Hurricane Center said the Atlantic could get its first named storm of the year as a tropical depression strengthens toward the U.S. Virgin Islands.

Stock futures point to higher Wall St open

(Reuters) - Stock index futures pointed to a higher start on Wall Street on Thursday ahead of Wal-Mart Stores Inc (WMT.N) results and U.S. July retail sales data.

By 4:12 a.m. EDT, futures for the S&P 500, the Dow Jones Industrial average and the Nasdaq Composite were up 0.6 percent.

Wal-Mart, the world's largest retailer, is due to report earnings per share of $0.85 in the second quarter, compared with $0.86 a year earlier, according to a Reuters survey of 22 analysts. Wal-Mart shares in Frankfurt (WMT.F) were down 0.2 percent.

U.S. retail sales for July is due at 8:30 a.m. EDT. Economist in a Reuters survey expect a 0.7 percent rise compared with a 0.6 percent rise in June, and excluding automobiles sales are seen up 0.1 percent compared with a 0.3 percent decline in the prior month.

The U.S. Labor Department will release weekly jobless claims at 8:30 a.m. EDT. Economists in a Reuters survey forecast a total of 545,000 new filings compared with 550,000 in the prior week.

U.S. unemployment levels are likely to stay higher for longer following the country's severe recession and ongoing banking crisis, according to a study by the Federal Reserve Bank of Kansas City released on Wednesday.

In Europe, Germany and France enjoyed a surprising return to economic growth in the second quarter of the year, ending their recessions earlier than many policymakers and economists had expected.

European shares rose 0.7 percent, with sentiment improving after the U.S. Federal Reserve said the U.S. economy was showing signs of leveling out and after growth data from Germany and France. .EU

The euro rose against the dollar and yen after the GDP data from Germany and France.

Hedge fund manager John Paulson, who made a fortune betting against financial companies after foreseeing the credit crisis, stocked up on shares of Bank of America (BAC.N) during the second quarter, a regulatory filing showed. Bank of America shares in Frankfurt (BAC.F) rose 4.8 percent.

Citigroup Inc (C.N) has been forced by U.S. regulators to hire external consultants who will consider whether the New York company's current management is capable of leading it out of financial crisis, the Financial Times reported on its website.

Other U.S. data to be released include import/export prices for July, due at 8:30 a.m. EDT, and business inventories for June, due at 1400 GMT.

Dr Pepper Snapple Group Inc, Kohls Corp, Nordstrom, Estee Lauder Co Inc and Autodesk Inc (ADSK.O) are also due to release their second quarter results on Thursday.

Anheuser-Busch InBev (ABI.BR) reported second-quarter profit above analyst forecasts, but said the second half of the year would be significantly weaker.

Large U.S. food companies, including Kraft Foods Inc (KFT.N), General Mills Inc (GIS.N) and Hershey Co (HSY.N), said the country could "virtually run out of sugar" unless the Obama administration eased import curbs, the Wall Street Journal said.

Monsanto Co (MON.N) said on Wednesday chief financial officer Terry Crews would retire after 32 years at what has grown to become the world's largest seed company, as it tackles new competitive threats.

What are PIPS?

Currencies are quoted using 5 significant digits. The last digit, called a "pip", represents the smallest potential move in an exchange rate, and is very similar to ticks or points in other financial products. In the example below, a 10 pip increase in the Ask price would result in a quote of 1.2287. Likewise, a 10 pip decrease in the Ask price would result in a quote of 1.2267. Half-pips are a more recent development offering traders even tighter spreads and more competitive and transparent accuracy in pricing. When trading foreign exchange, the value of a pip is dependent on two variables – the amount of currency and the currency pair.
USD Value of a Pip

Below, we have calculated the US Dollar value of a 1 pip movement for some of the more frequently traded currency pairs. Please note, all values are calculated using 100,000 units of the base currency (the left-hand currency in the pair).

Forex Order Types

Margin Order Types

The basic landscape in Forex trading involves a number of order types that facilitate efficient transactions. Below, we have defined several of the most common terms.

1. Limit
A limit order is commonly used to enter or exit markets at a specified price or better than the market price. In addition, a limit order allows the trader to manage the length of time that the order is current or outstanding before it is canceled.

2. Stop if Bid
A Stop if Bid order is used to buy or sell a currency is the Bid price breaches the specific level in the price field. Typically, Stop if Bid orders are used to buy a Forex position in order to make sure a certain level is broken.

3. Stop if Offer
A Stop if Offer order is used to buy or sell a currency is the Ask price breaches the specific level in the price field. Typically, Stop if Offer orders are used to sell a Forex position in order to make sure a certain level is broken.
Linking orders offers traders a logical aggregation of order types that outline contingencies in market participation, making it much easier to trade in moving markets.

4. One Cancels Other (OCO)
This most common linked order, OCO, stipulates that if one part of the order is executed, then the other part is automatically canceled. In Forex trading, OCO often refers to a buy order and sell order linked together so that when one of the orders is executed, the other is canceled. Consider the OCO as follows: the trader protects an existing position from loss (stop order) and ensures that profits are taken (limit order).

5. If Done (ID)
These contingent trade orders, also known as slave orders become active only if the primary order is executed first. An example would be a working order to buy EURUSD at 1.2500 and a contingent order to sell at 1.2400 Stop if Bid – if the first order is done.

6. Trailing Stop
A Trailing Stop Order is a stop order that has a trigger price that changes with the spot price. As the Forex online market rises (for long positions) the stop price rises according to the proportion set by the user, but if the market price falls, the stop price remains unchanged. This type of stop order helps an investor to set a limit on the maximum possible loss without limiting the possible gain on a position. It also reduces the need to constantly monitor the market prices of open positions.

7. Tom-Next
Spot Forex positions are traded with a standard Value Date of 2 business days – the theoretical delivery date for the currency exchange if we were going to take delivery of a currency. For example, positions opened on Monday would have a Value Date of Wednesday.

As we are speculating on Forex and not actually taking delivery (settlement), positions are never allowed to reach their Value Date and are 'Rolled Over' to a new Value Date instead. So if the position we opened on Monday is still open on Tuesday, it will be closed then reopened again immediately at almost the same market price with the new Value Date of Thursday.

8. Spot Trades

A spot Forex trade is an immediate execution of one currency against another at an agreed rate, settlement of which traditionally takes place two business days later. Finexo offers spot trading on streaming real-time prices for over 150 different currency crosses, with deep liquidity on the most liquid currency pairs.

In the Forex Trade module, if the Bid/Ask fields are highlighted green, then the platform is delivering a live-tradable price.

9. Forward Outright

A Forward Outright is a trade that will commence at an agreed upon date (in the future). There is no centralized exchange for Forwards and forward trading is often customized to meet the needs of the buyer and seller. Forward Outrights are expressed as a price above (premium) or below (discount) the spot rate. The forward Forex price is the sum of the spot price and the margin. This price is a reflection of the Forex rate at the forward date where if the trade were executed at that rate there would be no profit or loss.

Basic Forex Information

What is the Forex market?

The online trading environment for foreign exchange encompasses the largest, most dynamic capital market in the world with more than USD 3 trillion traded daily. The Forex market is a continuous, 24/5 marketplace open from Sunday afternoon (4 PM EDT) through the close of the US markets on Friday (5 PM EDT). The Forex market is where investors can trade one currency against another currency.

What is a currency cross?

Currencies are always priced in pairs. All trades take place between two different currencies resulting in the concurrent purchase of one currency and sale of another. For example, when you trade EURUSD, the currency cross is Euros versus US dollars. One currency will be bought (long position) while the other currency is sold (short position).

What is the Bid-Ask Spread?

The bid-ask spread is the buying and selling spread between two currencies. The bid price is the price at which the currency is sold. The ask price is the price at which the currency is bought. The difference between the bid price and the ask price is known as the bid-ask spread. The bid-ask spread differs between currency crosses with more common crosses (majors) having tighter spreads.

US Dollar on a Seesaw Ride

The US Dollar jumped higher against most currencies on Friday after a data release showed that the rate of job losses in the US slowed more than expected last month.

The data capped a week filled with very strong data that suggested the US economy will recover before other economies, and that will lead to higher interest rates and boost the value of Dollar related assets.

This Forex trading pattern was a turn for the Dollar which has been trading down on good news during this crisis. This appears to mark a return to simple fundamentals where trades are made based on economic growth and interest rate speculation.

At the close, the Dollar was up 1.3% to the Euro to 1.4181, up 1.5% to the Japanese Yen to 97.54 up .92% to the British Pound to 1.6681, up .34% to the Canadian Dollar to 1.0811, up .6% to the Australian Dollar to .0837 and up 1.2% to the Swiss Franc to 1.0808. The Dollar did lose .3% to the New Zealand Dollar to .672 - it's only loss of the day.

Rising oil prices have them Dancing Down Under

The Dollar has fallen to a year low against almost every major currency, given the problems that the US is facing, it is understandable - but the stock market gains are what is puzzling to me.

Forex Investors and traders are pumping up the markets because historically, when people have a sense of security they tend to abandon the the USD and the Yen and test their luck with stocks.

If the pundit, Nuriel Roubini is right though, the global economic challenge that we are facing is far from over. Only yesterday did the US revise 4th quarter 2008 and 1st quarter 2009 figures to show a decline twice than what was originally disclosed. Worse even, than at the worst time during the Great Depression.

The US Economy is still in freefall. The fact that Tim Geithner, the US Treasury Secretary, has now began telling news outlets that the biggest challenges lay ahead with the enormous deficit is a big warning sign of that.

Broker trading companies investing and trading in the markets have begun to recognize this as the Dollar has matched the economy. The market seems to have reversed from a psychological one to a fundamental one and this is good.

I still believe that the real money to be made lies with Australia and New Zealand. The risk is less because of the low value of their currency in comparison with the big four, Yen, Euro, Pound and US Dollar, and the yields can be higher.

The Aussie and Kiwi have been doing very well as of late, and the Australian honesty we saw last week has seemingly driven much confidence in the competence of the leadership there.

Oil is rising and with it other commodities that rely on the slippery black stuff to help extract it - the $71 per barrel that oil is now is very good for both down under dollars.
Keep an eye out this week for the unemployment numbers from the US and the British GDP figures. They will go a long way to showing us how to move in the coming days.

Forex Patterns & Probabilities

While most books on trading deal with general concepts and shy away from specifics, Forex Patterns and Probabilities provides you with real-world strategies and a rare sense of clarity about the specific mechanics of currency trading. Leading trading educator Ed Ponsi will explain the driving forces in the currency markets and will provide strategies to enter, exit, and manage successful trades. Dozens of chart examples and explanations will guide you each step of the way and allow the reader to "look over the shoulder" of a professional trader hard at work at his craft. This book provides traders with step-by-step methodologies that are based on real market tendencies. The strategies in this book are presented clearly and in detail, so that anyone who wishes to can learn how to trade like a professional. It is written in a style that is easy to understand, so that the reader can quickly learn and use the techniques provided. From the Inside Flap In recent years, traders have turned to the foreign exchange market expecting to capture substantial profits. While the high availability of leverage within this arena can improve your chances of making money, ultimately the success of your endeavors depends upon how well you understand and operate within this market. Nobody knows this better than author Ed Ponsi. As a professional trader and leading educator of traders, Ponsi has developed a proven approach to trading today's forex market, and now, with Forex Patterns and Probabilities, he wants to share it with you. While most books on trading deal with general concepts and shy away from specifics, Forex Patterns and Probabilities provides you with real-world strategies and a rare sense of clarity about the specific mechanics of currency trading that will allow you to take advantage of both trending and range-bound markets. Written in a straightforward and accessible style, Forex Patterns and Probabilities will help you make the most of your time in this market. You'll be introduced to a variety of elements that are essential to forex trading success and discover the best ways to enter, exit, and manage trades. Dozens of chart examples and explanations will guide you each step of the way and allow you to "look over the shoulder" of a professional trader hard at work at his craft. Divided into four comprehensive parts, this detailed guide: * Explains the playing field of the forex market, using powerful metaphors that relate trading scenarios to situations in everyday life * Outlines several specific trading strategies—including the FX-Ed Trend Technique—designed for trending markets * Delves into a variety of non-trending trading techniques—from the volatility-based Squeeze Play to the hedge fund–inspired Interest Rate Edge—which are all based on unique market tendencies * Offers an insider's view on how to emulate the behavioral patterns of successful professional traders—and how to escape the mindset of the amateur * And much more Today's forex market contains some of the most profitable trading opportunities in the world. With the practical strategies and trading methodologies found in Forex Patterns and Probabilities you can uncover these opportunities and achieve long-term financial success along the way.

Online Trading (Trading Currency and Stock Trading)

Forex Knowledge is what I say to explain all about Forex. This blog will give anything information about Forex such forex indikator, forex strategy, forex broker, forex tutorial, ebook forex, and all information about forex. So let's start increase your forex knowledge with this introduction.

What is FOREX? The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "Retail forex" or “FX” or "Spot FX" or just "Spot" is the largest financial market in the world, with a volume of over $2 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually eq9 P a g e uates to more than three times the total amount of the stocks and futures markets combined! Forex rocks! What is traded on the Foreign Exchange? The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY). Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy. In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies. Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period. Until the late 1990’s, only the “big guys” could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions - and not by us “little guys”. However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us. All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site.

What is a Spot Market? A spot market is any market that deals in the current price of a financial instrument. Which Currencies Are Traded? The most popular currencies along with their symbols are shown below: Symbol Country Currency Nickname USD United States Dollar Buck EUR Euro members Euro Fiber JPY Japan Yen Yen GBP Great Britain Pound Cable CHF Switzerland Franc Swissy CAD Canada Dollar Loonie AUD Australia Dollar Aussie NZD New Zealand Dollar Kiwi Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency. When Can Currencies Be Traded? The spot FX market is unique within the world markets. It’s like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend. The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market - you might get the worm but a bigger, nastier bird of prey can sneak up and eat you too… Time Zone New York GMT Tokyo Open 7:00 pm 0:00 Tokyo Close 4:00 am 9:00 London Open 3:00 am 8:00 London Close 12:00 pm 17:00 New York Open 8:00 am 13:00 New York Close 5:00 pm 22:00 source: school of pipsology

What to look for in an online Forex broker/dealer

What to look for in an online Forex broker/dealer:
1. Low Spreads.
In Forex trading the ‘spread’ is the difference between the buy and sell price of any given currency pair. Lower spreads save you money.
2. Low minimum account openings.
For those that are new to Forex trading and for those that don’t have millions of dollars in risk capital to trade, being able to open a micro trading account with only $250 (we recommend at least $1,000) is a great feature for new traders.
3. Instant automatic execution of your orders.
This is very important when choosing a Forex broker. Don’t settle with a firm that re-quotes you when you click on a price or a firm that allows for price ‘slippage’. This is very important when trading for small profits. You want what we call a WYSIWYG (pronounced wiz-ee-wig) broker! This means you want instant execution of your orders and the price you see and "click" is the price that you should get...WYSIWYG = What You See Is What You Get!
4. Free charting and technical analysis
Choose a broker that gives you access to the best charting and technical analysis available to active traders. Look for a broker that provides free professional charting services and allows traders to trade directly on the charts.
5. LeverageLeverage can either make you super rich or super broke. Most likely, it will be the latter. As an inexperienced trader, you don't want too much leverage. A good rule of thumb is to not use more than 100:1 leverage for Standard (100k) accounts and 200:1 for Mini (10k) accounts.

The Factor to choose Forex Broker

Before selecting an online Forex broker, you should closely examine their features and
policies. These include:
• Available Currency Pairs
You should confirm that the prospective broker offers, at minimum, the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD).
• Transaction Costs
Transaction costs are calculated in pips. The lower the number of pips required per trade by the broker, the greater the profit that the trader makes. Comparing pip spreads of half dozen brokers will reveal different transaction costs. For example, the bid/ask spread for EUR/USD is usually 3 pips, but if you can find 2 pips, that’s even better.
• Margin Requirement
The lower the margin requirement (meaning the higher the leverage), the greater the potential for higher profits and losses. Margin percentages vary from .25% and up. Low margin requirements are great when your trades are good, but not so great when you are wrong. Be realistic about margins and remember that they swing both ways.
• Minimum Trading Size Requirement
The size of one lot may differ from broker to broker, spanning 1,000, 10,000, and 100,000 units. A lot consisting of 100,000 units is called a “standard” lot. A lot consisting of 10,000 units is called a “mini” lot. A lot consisting of 1,000 units is called a “micro” lot. Some brokers even offer fractional unit sizes (called odd lots) which allow you create your own unit size.
• Rollover Charges
Rollover charges are determined by the difference between the interest rate of the country of the base currency and the interest rates of the other country. The greater the interest rate differential between the two currencies in the currency pair, the greater the rollover charge will be. For example, when trading GBP/USD, if the British pound has the greater interest differential with the U.S. dollar, then the rollover charge for holding British pound positions would be the most expensive. On the other hand, if the Swiss Franc were to have the smallest interest differential to the U.S. dollar, then overnight charges for USD/CHF would be the least expensive of the currency pairs.
• Margin Account Interest Rate
Most brokers pay interest on a trader’s margin account. The interest rates normally fluctuate with the prevailing national rates. If you decide to take an extended break from trading, the money in your margin account will be accruing interest. Keep in mind that most brokers DO NOT allow you to accrue interest unless your margin requirement is at least 2% (50:1).
• Trading Hours
Nearly all brokers align their hours of operation to coincide with the hours of operation of the global Forex market: 5:00 pm EST Sunday through 4:00 pm EST Friday.
Other Policies
Be sure to scrutinize a prospective broker’s “fine print” section to be fully aware of all the nuances that a specific broker may impose on a new trader. Finding the right broker is a critical part of the process. It’s not easy and requires some real work on your part. Don’t pick the first one that looks good to you. Keep looking and trying different demo accounts.

Retail forex platform

Retail forex trading is a segment of the vast foreign exchange market. It has been speculated that it represents 2 percent of the whole forex market which amounts to $50-60 billion ^[1][2] in daily trading turnover. Due to the increasing tendency in the past years of the gradual shift from traditional intrabank 'paper' trading to the more advanced and accurate electronic trading, there has been spur in software development in this field. This change provided different types of trading platforms and tools intended for the use by banks, portfolio managers, retail brokers and retail traders.

One of the most important tools required to perform a forex transaction is the trading platform providing retail traders and brokers with accurate currency quotes.

History and new developments

Since 1996, when retail forex trading was introduced, several brokers who lacked the sufficient tools developed their own trading platforms tailored specifically to their needs. These platforms were good enough at the time but required constant investments in R&D and its development cost too much. This was the first wave.

The second wave was in the early 2000s: several software companies entered the retail forex trading market by launching their own versions of trading platforms. Typically these versions were cumbersome for both front-end users (retail traders) and back-end users (retail brokers) due to the misunderstanding of the developers about the forex market and also because of the insufficient programming tools/languages at the time. Simultaneously most of the retail brokers kept using and developing their own systems as they waited for better platforms which were yet to be developed.

There are currently few to no brokers which were part of the first wave trading systems. By now most of the first wave brokers have either vanished, merged or progressed to the second wave trading platforms – the most common example of which is Metaquotes.

It is only in the last couple of years that the advanced trading platforms started to emerge. These platforms put much stronger emphasis on the user interface (GUI) making it more accessible to the retail traders while making trading on it very simple and intuitive. Moreover a very strong emphasis was put on the back-end which allowed the retail brokers better control over their operations, better reporting and accurate system and ways to manage marketing campaigns. Gradually this wave is replacing the previous second wave with a major shift now to the friendlier and more intuitive systems of the third wave which according to Aite Group are necessary in order to maintain growth ^.

forex scam

Not beating the market

The foreign exchange market is a zero sum game in which there are many experienced well-capitalized professional traders (e.g. working for banks) who can devote their attention full time to trading. An inexperienced retail trader will have a significant information disadvantage compared to these traders.

Although it is possible for a few experts to successfully arbitrage the market for an unusually large return, this does not mean that a larger number could earn the same returns even given the same tools, techniques and data sources. This is because the arbitrages are essentially drawn from a pool of finite size; although information about how to capture arbitrages is a nonrival good, the arbritrages themselves are a rival good. (To draw an analogy, the total amount of buried treasure on an island is the same, regardless of how many treasure hunters have bought copies of the treasure map.)

Retail traders are - almost by definition - undercapitalized. Thus they are subject to the problem of gambler's ruin. In a fair game (one with no information advantages) between two players that continues until one trader goes bankrupt, the player with the lower amount of capital has a higher probability of going bankrupt first. Since the retail speculator is effectively playing against the market as a whole - which has nearly infinite capital - he will almost certainly go bankrupt.

The retail trader always pays the bid/ask spread which makes his odds of winning less than those of a fair game. Additional costs may include margin interest, or if a spot position is kept open for more than one day the trade may be "resettled" each day, each time costing the full bid/ask spread.

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "

Paul Belogour, the Managing Director of a Boston based retail forex trader, was quoted by the Financial Times as saying, "Trading foreign exchange is an excellent way for investors to find out how tough the markets really are. But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange."

The use of high leverage

By offering high leverage, the market maker encourages traders to trade extremely large positions. This increases the trading volume cleared by the market maker and increases his profits, but increases the risk that the trader will receive a margin call. While professional currency dealers (banks, hedge funds) never use more than 10:1 leverage, retail clients are generally offered leverage between 50:1 and 200:1.

A self-regulating body for the foreign exchange market, the National Futures Association, warns traders in a forex training presentation of the risk in trading currency. “As stated at the beginning of this program, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital; in other words, funds you can afford to lose without affecting your financial situation.“

Convicted scammers

• Russell Cline
• Russell Erxleben
• Richard Matthews, Jr.
• Joel N. Ward

Forex scam

A forex (or foreign exchange) scam is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading "has become the fraud du jour" as of early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission. But "the market has long been plagued by swindlers preying on the gullible," according to the New York Times . "The average individual foreign-exchange-trading victim loses about $15,000, according to CFTC records" according to The Wall Street Journal. The North American Securities Administrators Association says that "off-exchange forex trading by retail investors is at best extremely risky, and at worst, outright fraud."

“In a typical case, investors may be promised tens of thousands of dollars in profits in just a few weeks or months, with an initial investment of only $5,000. Often, the investor’s money is never actually placed in the market through a legitimate dealer, but simply diverted – stolen – for the personal benefit of the con artists.”

In August, 2008 the CFTC set up a special task force to deal with growing foreign exchange fraud.”

The forex market is a zero-sum game , meaning that whatever one trader gains, another loses, except that brokerage commissions and other transaction costs are subtracted from the results of all traders, technically making forex a "negative-sum" game.

These scams might include churning of customer accounts for the purpose of generating commissions, selling software that is supposed to guide the customer to large profits, improperly managed "managed accounts", false advertising, Ponzi schemes and outright fraud. It also refers to any retail forex broker who indicates that trading foreign exchange is a low risk, high profit investment.

The U.S. Commodity Futures Trading Commission (CFTC), which loosely regulates the foreign exchange market in the United States, has noted an increase in the amount of unscrupulous activity in the non-bank foreign exchange industry^.

An official of the National Futures Association was quoted as saying, "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically..." Between 2001 and 2006 the U.S. Commodity Futures Trading Commission has prosecuted more than 80 cases involving the defrauding of more than 23,000 customers who lost $350 million. From 2001 to 2007, about 26,000 people lost $460 million in forex frauds. CNN quoted Godfried De Vidts, President of the Financial Markets Association, a European body, as saying, "Banks have a duty to protect their customers and they should make sure customers understand what they are doing. Now if people go online, on non-bank portals, how is this control being done?"

Bank Forex Trading

Bank forex trading is one of the focal customs the individuals select to trade nowadays, though it has been more popular than it is at the jiffy. Many traders have lost concern in it as the findings of the rising popularity of Internet forex trading by several companies. However, store forex trading can also be done on the Internet and many individuals still group the banks with their money.

There are various habits and means of choosing the best pool forex trading. However, with thousands to want from, all which go through one of huskily three hundred multinational banks, the choices can actually make the regulate spin. Following the tips below though can actually give you an insight into the world of edge forex trading with a notice to judgment the best one for you.

1. Assess the group forex trading accessibility of you series The maturity of banks participating in forex trading now give their customers access via a category of habits and means. However, some heap forex trading systems regulate accessibility. In language of receiving convene of your money, invest forex trading gives access 24 hours a day and five existence a week. However, in language of generous forex trading instruction, some only drive via the Internet or the handset, while others start via both means. It is up to you to prefer what form of stock forex trading suits you best.
2. Look at the cache forex trading range Some banks trade millions of dollars every day, and only a small percentage of their tilt forex trading is for their customers while the place is for shareholders and the lean in general. It is through this arrange of store you should choose to conduct. Although the overhaul may be excluding delicate, you could indeed suppose the series with your money and know that verge forex trading was as nontoxic as could be.
3. Reputation Some institutions taking part in lean forex trading are well known for it, while others are considered to basically be onlookers. The banks that are most active should be considered above those that are not. Active involvement in the series forex trading usage points to learn and defense somewhat than opportunism, which could conversely central to large extent death.

Of course, there are other factors tortuous in your fine of layer for forex trading, including personal preferences, visibility to the outside world and word of gate, but the three above are the most important factors to believe. If you are looking for stillness of demur and your examine into a bank checks all the boxes then you have found the right one for you!

Forex Entry Signal

A steadfast Forex doorway indicator regularly involves a combination of factors which all come together at the same time..

No definite indicator can impart the height account place and the new Forex merchant has to clasp with this bare truth. Many find this hard to accept and consume countless weeks and months and hard earned money in pursuit of what could be termed the ‘holy grail.’

Learning to trade the Forex is hard work and requests to be treated like an interest, the same as any other issue. It requires a large investment of time, energy, mental discipline, and a vigilant investment of money until the vital skills are acquired.

Trendlines are just one of the tools tested traders use along with other indicators to afford an unfailing Forex entrance signify.

Here we signify out two evident habits in which trendlines can be used undamaged. Using a superior time build candlestick chart such as a 60 moment, 4 hour, or even daily chart, a trendline is pinched along the most significant lows in an uptrend or across the most significant highs in a downtrend.

1. Momentum Combo

As outlay moves upward in an uptrend or downward in a downtrend, it will repeat and bounce off the trendline at certain epoch. However, with a trendline bounce by itself as a Forex doorway indicator is too risky. There have to be other factors.

Once you have haggard the trendline you now have a graphical representation of cost group and you will be able to see where assess has to retrace to check the trendline once again.

Now use other indicators to see if that parallel where worth would hardship to retrace to check the trendline combines with other factors.

Calculate your daily hinge points and draw horizontal lines on your chart to score them.

Run your eyes left on the chart and tone if there were any significant highs or lows that formed maintain or resistance inside the last few time. Support and resistance on advanced time frames generally provide more substantial position points.

Use the Fibonacci tool on your charting software and blot retracement and/or annex levels on a form of swing highs and lows and see if any traverse the trendline.

Also make effective you have the 200 EMA (Exponential Moving Average) line shown on your charts and reminder whether this also intersects near or at the trendline.

Now if you have a combination of two or three of the above indicators gathering at the same place you have now identified a Forex entrance gesture that can be regarded as high probability.

2. Break Combo

The instant way to name a reliable Forex entrance show with trendlines is to observe for a respite of a trendline on a higher time enclose such as the 60 little, 4 hour, or daily chart.

Some traders sent an access order to go long or rapid once penalty has wrecked the trendline by a few pips. That mechanism for some.

There is however a safer way to trade a trendline surpass.

It will be pragmatic that often (not always, nothing is absolutely certain when trading the Forex) once outlay has dejected a trendline and motivated 15-30 pips, it will come back, retrace, and test the reverse of that trendline.

This is where again you use the combination of factors mentioned in the prior strategy.

Look to see if the sense at which cost may come back to test the reverse of the trendline coincides or combines with factors such as:

Pivot points
Previous swing highs or lows marking defend and resistance
Fibonacci retracement or porch levels
200 EMA
Now when you place an ingress order to be taken in at that raze you are liability so on the origin of an obviously definite Forex account sign.

For a graphical example of the above, see the reserve box below.

Be informed that trading trendline signals on inferior time frames such as 30 close, 15 instant, or even 5 minute charts are very high attempt trades. Price will occasion these short call time frames frequently during a day and problem a new merchant frequently by luring them into a trade they later bemoan.

Be tolerant and linger for equipment to system as described in the two methods above for high probability trades triggered by a combination Forex opening suggest.

Put in your entry order to be take in long at this point where the trendline intersects with the other indicators and set a reasonable mark regulate for what probably will be a profitable trade.

Forex Trading Markets Forex Trading Markets

Foreign Exchange (forex) is the simultaneous wholesale of one currency, and promotion of another currency. Daily book in the currency promote exceeds $1.4 trillion, making it the prime and most liquid sell in the world. Unlike other monetary markets, the forex advertise has no corporal scene or crucial chat. It is an over-the-answer promote where buyers and sellers with banks, corporations, and secret investors conduct contract. Foreign replace trading takes place in pecuniary trading centers all over the world, counting New York, London, and Tokyo creating one cohesive, international sell.

The giant numbered and diversity of players awkward make it difficult for even governments to handling the course of the sell. The supreme liquidity and around-the-clock global activity make forex the epitome advertise for active traders.

Traditionally the forex promote was only presented to superior entities trading currencies for commercial and investment purposes through banks. Now trading platforms, such as the FX Trading Station, permit smaller fiscal institutions and retail investors access to an analogous even of liquidity as the foremost alien trade banks, by donation a gateway to the important (Interbank) market.

Forex Trading: British Pound Makes New Highs Against US Dollar

On a Monday morning in Asia, the risk and commodity pairs have caught an early and strong big against the USD, with equity futures projecting gains and commodities moving to session highs. The Sterling is the biggest winner as it moves to 9 month highs and has found support earlier at the 61.8% retracement of the move from September ‘08 to January ‘09.

On a shorter term perspecitve we see the pair found support and the 200hr a few time toward the end of last week.

Forex Strategy Outlook: US Dollar Breakout Critical to Trend Systems

Our forex trading strategies have seen major gains on the US Dollar’s breakdown against key currencies, as the trend-following systems remain heavily short the USD through time of writing. It had increasingly become a battle of patience for breakout traders who have waited for the US currency to break below key levels. Now that the Greenback has finally broken, the question becomes whether we can see sustained directional moves in the Euro/US Dollar and other important pairs. A relatively muted response from volatility expectations limits optimism for continued trends.

We were fortunate to remain biased towards 'Momentum' trading signals through the past week of trade, as currency pairs have finally seen major sustained price moves on the US Dollar and Japanese Yen breakdown. It was a gutsy decision as the USD was near major support, and it is a similarly gutsy decision to remain biased towards Momentum systems as we are at prime risk for reversal. Suffice it to say, we hope to have similar fortune in the week ahead.

Momentum2 and Breakout2 have largely underperformed through the past month or so of trading, but the very recent USD and JPY breakdowns have left both systems with sizeable floating profits. We remain similarly bullish the strategies through the coming week's trade, but we are wary of risks that FX markets will see major retracements on sizeable moves. There is obviously little way to know for sure whether such pullbacks may occur, but we will keep risk relatively tight on any Momentum or Breakout trading positions.

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

Working with statistics

Trade Balance

The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.

The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.

It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.

Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.

Gross Domestic Product

The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.

GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.

As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.

A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.

Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.

The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.

Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.

Producer Price Index

The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.

The PPI is considered important because it accounts for price changes throughout the manufacturing sector.

The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.

Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.

A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.

Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.

Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.

Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.

Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.

Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.

Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.

Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.

Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.

Housing Starts

Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.

The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.

Forex trading examples

Example 1

An investor has a margin deposit with Saxo Bank of USD 100,000.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.

The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.

Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.

Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.

Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.

Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.

As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.

This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.
Example 2:

The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).

The dealer quotes 112.05-10. The investor sells EUR at 112.05.

Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.

He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.

Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.

The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.

This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.
Example 3

The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:

He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.

Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.

After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.

Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.

Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.

The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

Forex Trading Basics

The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.

There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.

Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.

In the following article, we would like to introduce you to some of the basic concepts of foreign exchange trading. If you would like any further information, we suggest that you sign up for a FREE Membership on this website, where you will be able to exchange views with other Forex traders and get answers to any questions you might have.

Margin Trading

Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.

In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions.

Base Currency and Variable Currency

When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.

The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.

Dealing Spread, but No Commissions

When trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.

The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.

This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USDEUR presents price swings of 150-200 points.

Spot and forward trading

When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.

Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.

Interest Rate Differentials

Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.

Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.
Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!

Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.

Stop-loss discipline

As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.

Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.

But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.

For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.

History

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.

The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.

But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

Introduction to Trading Forex

Foreign Exchange

This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online. There are also two scenarios describing the implications of trading in a bear as well as a bull market to better acquaint you with some of the risks and opportunities of the largest and most liquid market in the world.

As an additional aid for those who are new to Forex, there is also a glossary at the bottom of this text which explains some of the terms used in connection with currency trading.

Overview

Foreign exchange, Forex or just FX are all terms used to describe the trading of the world's many currencies. The Forex market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative, with only a low percentage of market activity representing governments' and companies' fundamental currency conversion needs.

Unlike trading on the stock market, the Forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the Forex market is a 24-hour market.

Trading Forex

A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the euro/US dollar, or the GB pound/Japanese yen.). The most commonly traded currencies are the so-called “majors” – EURUSD, USDJPY, USDCHF and GBPUSD.

The most important Forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or “on the spot”. In practice this means two banking days.

Forward Outrights

For forward outrights, settlement on the value date selected in the trade means that even though the trade itself is carried out immediately, there is a small interest rate calculation left. The interest rate differential doesn't usually affect trade considerations unless you plan on holding a position with a large differential for a long period of time. The interest rate differential varies according to the cross you are trading. On the USDCHF, for example, the interest rate differential is quite small, whereas the differential on NOKJPY is large. This is because if you trade e.g. NOKJPY, you get almost 7% (annual) interest in Norway and close to 0% in Japan. So, if you borrow money in Japan, to finance the trade and buying NOK, you have a positive interest rate differential. This differential has to be calculated and added to your account. You can have both a positive and a negative interest rate differential, so it may work for or against you when you make a trade.

Trading on Margin

Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually conducted with relatively small margin deposits. This is useful since it permits investors to exploit currency exchange rate fluctuations which tend to be very small. A margin of 1.0% means you can trade up to USD 1,000,000 even though you only have USD 10,000 in your account. A margin of 1% corresponds to a 100:1 leverage (or “gearing”). (Because USD 10,000 is 1% of USD 1,000,000.) Using this much leverage enables you to make profits very quickly, but there is also a greater risk of incurring large losses and even being completely wiped out. Therefore, it is inadvisable to maximise your leveraging as the risks can be very high. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

Why Trade Forex?

• 24 hour trading

  One of the major advantages of trading Forex is the opportunity to trade 24 hours a day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique opportunity to react instantly to breaking news that is affecting the markets.

• Superior liquidity

  The Forex market is so liquid that there are always buyers and sellers to trade with. The liquidity of this market, especially that of the major currencies, helps ensure price stability and narrow spreads. The liquidity comes mainly from banks that provide liquidity to investors, companies, institutions and other currency market players.

• No commissions

  The fact that Forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis.
  Trading the “majors” is also cheaper than trading other cross because of the high level of liquidity. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

• 100:1 Leverage

  Leverage (gearing) enables you to hold a position worth up to 100 times more than your margin deposit. For example, a USD 10,000 deposit can command positions of up to USD 1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to 100 times and additional collateral up to 50 times.

• Profit potential in falling markets

  Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines, for example, it is because the US dollar gets stronger against the euro and vice versa. So, if you think the EURUSD will decline (that is, that the euro will weaken versus the dollar), you would sell EUR now and then later you buy euro back at a lower price. In case that the EURUSD indeed declines, then you can take your profit. The opposite trading scenario would occur if the EURUSD appreciates.

Important Forex Trading Terms

• Spread

  The spread is the difference between the price that you can sell currency at (Bid) and the price you can buy currency at (Ask). The spread on majors is usually 3 pips under normal market conditions. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary.

• Pips

  A pip is the smallest unit by which a cross price quote changes. When trading Forex you will often hear that there is a 3-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to 3 “pips”.
  
  On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is cancel out the four zeros on the amount you trade and you will have the value of one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.

Trading Scenario – Trading Rising Prices

If you believe that the euro will strengthen against the dollar you'll want to buy euro now and sell it back later at a higher price.

• You buy euro

We quote EURUSD at Bid 0.9875 and Ask 0.9878, which means that you can sell 1 euro for 0.9875 USD or buy 1 euro for 0.9878 USD. In this example you buy euro 100,000, at the quote price of 0.9878 (ask price) per euro.

• The market moves in your favor

Later the market turns in favour of the euro and the EURUSD is now quoted at Bid 0.9894 and Ask 0.9896.

• Now you sell your euro and get the profit

You sell euro at a Bid price of 0.9894.

• The profit is calculated as follows

Sell price-buy price x size of trade (0.9894 minus 0.9878) multiplied by 100.000 = USD 140 Profit (Note that the profit or loss is always expressed in the secondary currency)

Trading Scenario – Trading Falling Prices

If, on the other hand, you believe that the euro will weaken against the dollar, you'll want to sell EURUSD.

• You sell euro

We quote EURUSD at a Bid price of 0.9875 and Ask price of 0.9880 and you decide to sell euro 100,000 at a Bid price of 0.9875.

• The market moves in your favour

The euro weakens against the dollar and the EURUSD is now quoted at bid 0.9744 and ask 0.9749.

• Now you buy back your euro

You buy EUR at an ask price of 0.9749.

• Your profit/loss is then

Sell price-buy price x size of trade (0.9875 minus 0.9749) multiplied by 100.000 = USD 1260 Profit

Remember that trading EUR 100,000 as we have done in our examples, does not mean that you have to put up euro 100,000 yourself. On a 2% margin means that you have to deposit 2.0% of euro 100,000, which is euro 2,000 on margin as a guarantee for the future performance of your position.

Further Reading

To see how you can trade the Forex market and benefit from our toolbox of information and live quotes, please proceed to the Forex Quick Start found under the Trading menu of SaxoTrader.

Glossary

• Appreciation

An increase in the value of a currency.

• Ask

The price requested by the trader. This usually indicates the lowest price a seller will accept.

• Base currency

The currency that the investor buys or sells (i.e. EUR in EURUSD).

• Bear

Someone who believes prices are heading down. A bear market is one in which there has been a sustained fall in prices and which does not look like it will recover quickly.

• Bid

The price offered by the trader. This usually indicates the highest price a purchaser will pay.

• Bid/Ask

The Bid rate is the rate at which you can sell. The Ask (or offer) rate is the rate at which you can buy.

• Bull

Someone who is optimistic about the market. A bull market is characterised by enthusiastic and sustained buying.

• cross

When trading with currencies, the investor buys one currency with another. These two currencies form the cross: for example, EURUSD.

• Cross rate

An exchange rate that is calculated from two other exchange rates.

• Depreciation/decline

A fall in the value of a currency.

• Exchange rate

What one currency is worth in terms of another, for example the Australian dollar might be worth 58 US cents or 70 yen. Currencies traded freely on foreign-exchange markets have a spot rate (applying to trades settled “spot”, i.e., two working days hence) and a forward rate. Countries can determine their exchange rates in a variety of ways. 1. A floating exchange rate system where the currency finds its own level in the market. 2. A crawling or flexible peg system which is a combination of an officially fixed rate and frequent small adjustments which in theory work against a build-up of speculation about a revaluation or devaluation. 3. A fixed exchange-rate system where the value of the currency is set by the government and/or the central bank.

• EURUSD

Means that you trade EUR against dollars. If you buy euro you pay in dollars and if you sell euro you receive dollars.

• FX, Forex, Foreign Exchange

All names for the transaction of one currency for another, e.g. you buy GBP 100.00 with USD 150.25 or sell USD 150.25 for GBP 100.00.

• Interbank

Short-term (often overnight) borrowing and lending between banks, as distinct from a banks business with their corporate clients or other financial institutions.

• Interest rate differential

The yield spread between two otherwise comparable debt instruments denominated in different currencies.

• Leverage (gearing)

The investor only funds part of the amount traded.

• Long

To buy.

• Long position

A position that increases its value if market prices increase.

• Liquid (-ity)

The capacity to be converted easily and with minimum loss into cash. A liquid market is one in which there is enough activity to satisfy both buyers and sellers. Ultra-short-dated treasury notes are an example of a liquid investment.

• Margin

The deposit required when entering into a position as well as to hold an open position. Your margin status can be monitored in the Account Summary.

• NYSE

The New York Stock Exchange.

• Open position

A position in a currency that has not yet been offset. For example, if you have bought 100,000 USDJPY, you have an open position in USDJPY until you offset it by selling 100,000 USDJPY, thus “closing” the position.

• Over the counter

When trading takes place directly between two parties, rather than on an exchange. Over the counter trades can be customised whereas exchange-traded products are often standardised.

• Pips

A pip is the smallest unit by which a Forex cross price quote changes. So if EURUSD bid is now quoted at 0.9767 and it moves up 2 pips, it will be quoted at 0.9769.

• Position

Traders talk of “taking a position” which simply means buying or selling currency cross. “Position” can also refer to a trader's cash/securities/currencies balance, whether he or she is short of cash, has money to lend, is overbought or oversold in a currency, etc.

• Risk

Trying to control outcomes to a known or predictable range of gains or losses. Risk management involves several steps which begin with a sound understanding of one's business and the exposures or risks that have to be covered to protect the value of that business. Then an assessment should be made of the types of variables that can affect the business and how best to protect against unwelcome outcomes. Consideration must also be given to the preferred risk profile – whether one is risk – averse or fairly aggressive in approach. This also involves deciding which instruments to use to manage risk and whether a natural hedge exists that can be used. Once undertaken, a risk-management strategy should be continually assessed for effectiveness and cost.

• Secondary currency (variable currency or counter currency)

The currency that the investor trades the base currency against (i.e. USD in EURUSD).

• Short position

A position that benefits from a decline in market prices.

• Short

To sell.

• Speculative

Buying and selling in the hope of making a profit, rather than doing so for some fundamental business-related need.

• Spot

A Spot rate is the current market price of an asset.

• Spot market

The part of the market calling for spot settlement of transactions. The precise meaning of “spot” will depend on local custom for a commodity, security or currency. In the UK, US and Australian foreign-exchange markets, “spot” means delivery two working days hence.

• Spread

The difference between the bid and the ask rate.