Forex Trading Fundamental Analysis

The two primary approaches of analyzing currency markets are fundamental analysis and technical analysis. Fundamentals focus on financial and economic theories, as well as political developments to determine forces of supply and demand. One clear point of distinction between fundamentals and technical’s is that fundamental analysis studies the causes of forex market movements, while technical analysis studies the effects of market movements.

Purchasing Power Parity

The PPP theory states that exchange rates are determined by the relative prices of similar baskets of goods. Changes in inflation rates are expected to be offset by equal but opposite changes in the exchange rate. Take the classic example of hamburgers. If the burger costs $2.00 in the US and £1.00 in the UK, then according to PPP, the £-$ exchange rate must be 2 dollars per one British pound. If the prevailing market exchange rate is $1.7 per British pound, then the pound is said to be undervalued and the dollar overvalued.

PPP's major weakness is that it assumes goods are easily tradable, with no costs to trade such as tariffs, quotas or taxes. Another weakness is that it applies only for goods and ignores services, where room for differences in value is significant. Furthermore, there are several factors besides inflation and interest rate differentials impacting exchange rates, such as economic releases/reports, asset markets and political developments. There was little empirical evidence of the effectiveness of PPP prior to the 1990s. Thereafter, PPP was seen to have worked only in the long term when prices eventually correct towards parity.

Interest Rate Parity

IRP states that an appreciation of one currency trading against another currency must be neutralized by a change in the interest rate differential. If US interest rates exceed Japanese interest rates, then the US dollar should depreciate against the Japanese yen by an amount that prevents risk less arbitrage. The future exchange rate is reflected into the forward exchange rate stated today. In our example, the forward exchange rate of the dollar is said to be at discount because it buys fewer Japanese yen in the forward rate than it does in the spot rate. The yen is said to be at a premium. IRP showed no proof of working after the 1990s. Contrary to the theory, currencies with higher interest rates characteristically appreciated rather than depreciated on the reward of future containment of inflation and a higher yielding currency.

Asset Market Model

The explosion in forex trading of financial assets has reshaped the way analysts and traders look at currencies. Economic variables such as growth, inflation, and productivity are no longer the only drivers of currency movements. The proportion of foreign exchange transactions stemming from cross border-trading of financial assets has dwarfed the extent of currency transactions generated from trading in goods and services.

Online Forex Trading For Novices

If you are a beginner in the online forex trading business it is utmost necessary for you to understand the basics of the trade. Remember that you need to have a better understanding about the components of Forex market, how it works, and all the events that are likely to affect the currencies traded. Forex trading is all about trading currencies of different countries and to make money in this business you have to buy low and sell high. Beginners must be aware of the fact that Forex currency market fluctuations depend on various socio-economic factors as well as some political factors like the government policies, banking activities, and the interest rates. The currency values are always in motion and it is very rarely that a currency would continue to have the same value for a long period.

For a beginner the best way to learn forex trading would be through the Internet. Learning Forex trading online has become easy and less time consuming as you can find every single detail you want to know. You can get yourself associated with a reliable broker who can be the best guide for you. Another basic thing a beginner needs to know is that Forex trading operates 24 hours of the day and for 51/2 days a week. A lot of money is being traded each day and the daily transactions in Forex trading can go beyond $2.5 trillion. You must keep yourself updated with the currency trading value changes and must be prompt to act accordingly.

Beginners need to know very well that Forex trading is not about getting rich overnight. You need to develop yourself in the process to become successful. It is not just about one night or one week but may take you several weeks and months to adapt to the system. You will have to keep your priorities clear and must be able to bear losses, gains, market instability, threats, and challenges as you carry yourself in this game of trade. For a beginner it is very essential to find a good platform to prevent the initial losses and with the mushrooming of plenty of forex trading.

Once you begin to understand the business properly, try to get hold of it and proceed cautiously. You need to remember that you are in the Forex trading business to be a long-term player and reap maximum profits with the best of your capabilities. Forex trading can be anyone’s game, provided you keep cool and be focused in your priorities. Tips on Learning Forex Trading

Learning Forex trading can be very beneficial to your success. Not knowing what you're doing in the FX market can be very detrimental. So, what I'm going to do is share with you some tips on learning online currency trading. That way, you'll be able to make a lot of money as a trader. When learning to trade forex, the first thing you should do is open a demo account. This will allow you to trade without risking your own money. Make sure you get familiar and comfortable with the process. This will help you become better. Also, be sure you understand the terms used in forex trading. If you don't, you'll get lost very easily. It's not a difficult thing to learn. Once you've learned the terms associating with forex trading and after you have practiced with a demo account, you should now open a live account.

This account will allow you to start trading Forex. If you want to maximize your opportunity to make money in the FX market, you should get yourself a robot. This robot will help find opportunities for you to profit from. But as with any tool, such as the robot, it's going to take a little practice on your end. Once you're comfortable with using the robot, making money will become easier. Especially if you pick the right forex robot. Another tip on learning Forex trading is to make yourself a plan, some goals, and have a system. This will help you succeed a lot faster. platforms it is a hard task to identify a really good one. To begin with, you must operate with a demo account instead of dealing real money. In this aspect your broker can guide you in the right path.

What Not To Do In Forex Trading

One can say that forex traders are made, not born. Hence, even if you have completely no idea about the ins and outs of this industry, you still stand a fair game even with the experts just by knowing the right moves and avoiding the harmful attitude makes the prospect of gaining easier to achieve.

Beginners would naturally tend to feel emotional about their trade that either nervousness or overexcitement can affect their decision-making. This could potentially lead to loss of investment that would have an effect on future decisions as well. Taking it on a lighter note, an outcome of an error due to emotional factors can be treated as a lesson in online forex trading. Some, even those who are already experts in the field, make the mistake of investing their emotions as well. It is never wrong to be happy when a move turns in money, but getting too emotionally attached can bring in more stress than you can afford to.

One of the mentalities that you would have to eliminate, when in excess, is thinking of forex trading as an instant success. Take time to be familiarized with the industry and know the market. Thinking positive is good, but when you become overconfident that sound decisions are easy to do, that is when you start to commit mistakes.

Lastly, a know-it-all attitude can get you submerged with losses. The dynamic characteristic of the foreign exchange market makes it necessary to keep some of the traditional exchange strategies, formulate new ones, or collaborate both. Assuming that you know its movement would signify that you do not understand fully its trends and flows.

Forex Education Tips

Every successful Forex trader knows this well, one cannot depend on an automated software to bring them up the trading success ladder. Besides having great automated trading software, one would also require a good knowledge of how the market works as well as its other aspects. A successful trader understands this well and equips his or herself with the information they need.

This isn't limited the functions of the market alone, in fact, to be truly successful you need to understand all the various aspects of online forex trading. This might sound a little daunting and not to mention tedious but only when you begin actual trading will you ever truly understand how important this is. You need not have a master degree on Forex trading but you would need the proper Forex education in order for you to be able to trade well and earn a significant amount of money. This education would also be very useful once you decide to go for long term profits and eventually increase your investments and take on higher level trading. Going up a level also means that you are going to encounter a lot more risks and your education and the things you have learned through experience would most certainly come in handy during such times. The Forex market is extremely unpredictable and those who are unprepared for it usually fail as traders and lose significant amounts of money.

Now, even if you are relatively new to trading, you would be able to prevent this from happening to you if you arm yourself with all the information you need even before you start trading. In fact, the experts themselves would tell you that the first thing every first time trader should consider is getting Forex education. But merely learning all the strategies would all account to nothing if you don't really understand how they work. Once you fully grasp how everything works, only then would you be able to trade properly.

How would this help you? Well, even without an automated software to guide you, you would be able to make sound decisions according to what you have learned and understand. Thus, this knowledge and great understanding of the markets and all its aspects would be your greatest trading asset and certainly gives you and advantage over the other traders. If you want to get educated in everything Forex related you may do so through the numerous online tutorials and guides that are provided for by different websites. Most of these are for free and as such you should definitely take advantage of them.

These free tutorials mostly cover the basics and some advanced learning but if you really want to learn everything, you would need to enroll yourself in a website that offers to teach you everything you need to know for a small membership fee. Just make sure that they are legit through asking other members of the website about their opinions and how it has helped them with trading thus far. Remember, you are risking your hard earned money here so you would want to prevent any chance of losing everything through educating yourself with the various techniques you may utilize when trading.

Forex Market Structure

At the very top of the forex market are transactions which are collectively called Interbank transactions. The “Interbank” is not, as some people may believe, an exchange. Rather, it is a collection or compilation of agreements between and among the major money center banks in the world.

An example may make it easier to understand this thing we’re calling the “Interbank” market. In most larger offices or business, perhaps even in your own home, there may be several computers which are inter-connected by means of a simple network cable. Now, each computer operates independently until the moment it needs a resource, program or file from one of the other computers. When that happens, computer A will contact computer B (or C or D, etc.) and request permission to access the needed resource. If the owner or operator of Computer B authorizes it, and if Computer B is functioning the way it should be, then the needed file or program can be accessed. Within minutes, Computer A’s request is fulfilled. It works the same way in the forex market; just substitute Computer A and Computer B for Bank A and Bank B and let resources substitute for currency. You now have the machinations for the relationships that exist within the Interbank system.

By the same context, if you’ve ever tried to locate resources from a computer that isn’t united by a computer network, you probably know full well what a time consuming, inefficient, sometimes futile effort it can be. You have to search each and every independent computer until you’ve found your resource, copy it and then download it to your own computer. Regarding prices and forex currency inventory, the same issue exists within the Interbank market system. If a bank in Taiwan occasionally transacts business with a firm in Sao Paula they need to exchange their currency. In this case, it can be quite difficult to determine what the proper exchange rate between the New Taiwan Dollar and the Brazilian Real should be. Because of situations such as this, the Electronic Broking Service (EBS) and Reuters established their services. For simplicity, we’ll refer to this service as ESB.

In a way, the EBS service acts as a blanket over the Interbank communication links. Through the EBS service, Interbank members are able to see how much currency trading is available, and the price(s) the other Interbank participants are willing to pay. It’s important to understand that the EBS is not in itself a market nor is it a market maker. The EBS system is merely an application allowing bank members to see offers and bids from the other members.

The forex market’s second tier essentially exists within each individual bank. If you were to call your local Citibank branch, they can arrange for you to exchange your U.S. Dollar for the foreign currency of your choosing. In all probability, they will likely just move the desired currency from one bank branch to another one. This is known as a single party micro-exchange, so you are pretty much at their mercy as it applies to the foreign exchange rate you’re quoted. You can either accept their “kind” offer or shop around for a better rate. Anyone who trades in the forex market should consider paying their bank a visit, at least once, to have an idea of their quotes. Certainly, it will be very “enlightening,” if not downright shocking, to see just how profitable these transactions are… for your bank.

FOREX Trading Philosophy

Many beginning FOREX traders are captivated by the allure of easy money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' – these claims have a grain of truth in them, but the reality of FOREX is a bit more complex. As with anything in life, what you put in will determine what you get out.

There are two common mistakes that many beginner traders make – trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose you money, and have you waste your time. FOREX traders need to have a rational trading strategy and not allow emotions to rule their trading decisions.

The two emotions prevalent in the above example is greed (entering the market immediately) and fear (selling when the market temporarily moves against you). Investing and these two emotions do not gel at all. Keep them out of your trading and you will see results.

To make rational trading decisions the FOREX trader must be well-educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.

The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? Who is successful and why are they successful? This knowledge will allow you to identify successful trading strategies and use them as models for your own.

There are 5 major groups of investors who participate in FOREX – Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one thing that all the groups (except traders) have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.

If you do not keep yourself in check, nobody else will. Why should they worry if you aimlessly waste your money?

This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must play by the same rules. That is studying these strategies and rules before starting to trade is so important.

FOREX Trading Philosophy - Money Management

Money management is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market.

This may sound like Greek now! If it does, you have more reason to get to know these terms. Knowledge will empower you on any investment market, including FOREX.

There are various strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000.

When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1000 to $3000 – preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position.

As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.

By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.

As you can see, the novice needs to get through quite a bit of education, understanding and planning before those 'risk-free' trading, 'high returns' and 'low investment' promises will come into play. What are you waiting for? Get yourself a decent FOREX Trading Education.

Reasons for people to get into Forex

I have seen many times peoples always ask why I should trade in Forex. Forex trading has different offers for small and large investors. Here I would like to solve this puzzle a bit and would try to give some valuable reasons why should people go to trade in forex.

Forex trading is immediate: Forex market is superbly fast. Your order gets filled and gets executed within 1-2 seconds. Since all the things are done automatically with no humans involved. Forex trading online proves to be more profitable than any other form of trading.

Free from bulls or bears: As forex trading is buying one currency while simultaneously selling another you probably have an equal opportunity for profit. And another advantage is there are quite a less number of currencies in comparison of thousands of stock, options, futures.

By far Forex is the largest market: Forex market has touched the mark of 3 trillion 4 times larger than the market of equity 6 times bigger than futures which facilitates unlimited flexibility and liquidity.

Forex trading offers leverages: Some online forex broker offers 200:1 margin ratios in your trading accounts. Mini forex account normally opened with $200-300. That’s why more and more people are moving towards forex trading.

24 hours trading: You can trade forex online 24*7. No waiting for market to get opened. This is the most amazing feature of online forex trading.

Forex prices are conventional to know: Prices of various currencies are predictable though volatile. Forex experts have that extra bit of knowledge through which they can predict the entry and exit points.

There is no commission charged in forex trading: No commission, no exchange fee or no hidden charges. This is very transparent market and the broker takes a small percentage of bid/ask spread. Forex trader does not require calculating commissions and fees on the trade

What to look for in a Forex Training Program ?

Forex Training: What To Look For In A Forex Training Program Should new Forex traders take Forex trading courses or join a Forex training program? Definitely yes; by now you have probably heard that only 5% of traders achieve consistent profitable results when trading the Forex market. The main reason for this is the lack of education. Don’t get me wrong here, taking a Forex training program or a Forex trading course won’t guarantee profitable results, nothing can, but choosing the right Forex training program or Forex trading course will definitely put the odds in your favor. Before spending any amount of money on any Forex trading course or Forex training program there are some important aspects you need to take in consideration.

There are many training programs available, but not every one of them suits the needs of every trader. The first thing you should be looking in a Forex training program is the content of the material. Unfortunately, most courses or training programs focus or spend most of the time on basic concepts. Though these basic concepts are important, spending most of the course on them won’t help the trader to make consistent results.

The following subjects are what I consider the most important aspects of trading and every training program or trading course should address: Forex trading basics. Review basic concepts such as: margin, type of orders, a little background, bid/ask, rollover, etc. You need to make sure you understand every single concept to perfection. Main drawbacks of Forex traders. Being aware of the common mistakes made by Forex traders and knowing how to handle them will prevent new traders from making those mistakes. Technical and fundamental analysis. These are the two main approaches adopted by Forex traders. Knowing how to properly apply each concept will definitely put the odds in your favor.

The three pillars of Forex trading. I consider that these three subjects have the most impact on every trader trading account. Forex trading system development. Having the right system is a must if you want to have consistent profitable results. Having a system that doesn’t fit you will cause a series of problems that will make your trading account vanish away (second guessing the system, not following your system, etc.) Money management.

This is considered by many successful traders to be the most important single aspect of trading. Money management helps to increase your profits geometrically and at the same time limit your losses (i.e. a good risk reward ratio of about 2:1 will make you money in a Forex trading system that is right only 38% of the time.) Trading psychology. Being aware and knowing hot to handle the psychological barriers that affect every trader decision will put the odds in your favor. Other important aspects every training program should include are: Developing habits for success (such as discipline patience, taking responsibility of every action, commitment, etc.,) understanding and taking our trading as a business, risk and trade management.

Another important aspect you should take into consideration when choosing a Forex training program is the mechanics of it, getting to know how the training program works. A good course will have the following: A live conference room, where you can apply everything learned under live market conditions. One-on-one feedback, every trader has different needs and requires special attention. For instance a trader wanting to improve the system and requires individual feedback from the instructor about it.Online trading course, a course that could be accessible through internet.

A plus is a course where you are able to access the course at the convenient time for you, so you don’t have to change your lifestyle. A forum, where members can talk just about everything related to the Forex market and the Forex training program. Trading the Forex market is no easy task. It requires a lot of hard work. Making the right decision will definitely put the odds in your favor. Take your time when doing your diligence because it is a big and important step in a trader’s trading career.

Things You Should Know Before Opening A Forex Account

Forex or Foreign exchange has been more visible in many business portfolios ever since small investors were given a chance to join in the currency exchange realm. Even with the presence of pressure and the rigors of a day job, numerous traders still aspire to enter and profit from the Forex markets.There are available Forex accounts that lets you practice your trading skills for 1 month without risk. There are quotes, currency pairs, technical charts and analysis and 24 hour news regarding your account. The amount of the mini practice account is $5,000 while the standard practice account costs $50,000.

The minimum investment in a standard Forex account ranges from $5,000 to $10,000.There are different types of foreign exchange accounts and most traders keep two or more accounts while trading. These accounts are basically categorized according to how much capital a broker can invest. Generally there are three types of Forex accounts namely:

Mini account which is ideal for beginners who have an initial capital of less than $10,000. Basically, one is allowed to engage in Forex with just $250. Mini account can be a good starting point which can build up the confidence of new and less experienced traders in the market.

With just a small capital, one should not expect a high profit; nevertheless your money is subject to low risks of loss.

1. Standard account which requires a trader an initial investment of $2,000.
2. Premium accounts with significant amounts of capital required. These accounts can have different trading services and tools for innovation.

With the presence of these kinds of accounts, it is worth pointing out that a good managed Forex account can do miracles in trading. A trader can gain much by choosing a managed account backed up with good track records. Aside from these facts, certain benefits are worth mentioning such as:

• Managed Forex accounts can let a trader participate in trading market without the hassle of monitoring it 24 hours.
• Managed accounts are handled by professionals
• There are managed accounts that are not attached to the stock market, thus assets can be more diversified.
• Greater profit maximization can be possible in both falling and rising markets.
• Assets are liquid and can be withdrawn regularly
• Monthly reports of account are accessible and there is a real time management of account.

Choosing a right account and investing in it poses a risk. It is important therefore to know what steps are to take in order to minimize. Here are the few things to remember when opening a

Forex account:

1. In signing up for an account, identification is necessary; this is required by the Federal Law to avoid fraud. A trader will be asked to sign a margin agreement. Prepare the necessary documents and read the agreements thoroughly to avoid confusions.

2. Try the practice or demo account to learn the basics of trading. There are brokers who impulsively leap into trading and quickly lose their money. Take your time and learn how the trading process works.

3. Avoid being emotional while in a trade. Traders should stick to their decisions and not let their emotions control them.

Foreign exchange can be considered as the biggest and most interesting markets in the world. Certain individuals, even inexperienced ones get hooked on trading it. Before opening a Forex account, it is but necessary to be knowledgeable in all the aspects involved in trading.