Is Forex Trading Really As Risky as They Say?

There has been a lot of information about Forex recently, and it seems, just as many claims that there is no risk involved with Forex trading. This is absolutely not true. As with any type of investment, there is the possibility of your investment, or trade, not working out in your favor. There are, however, numerous tools that traders use to help reduce the risks. But you must also educate yourself concerning the Forex as well.

Just as there are risks, there are also scams when it comes to Forex claims. Fortunately, most of these scams have been uncovered, but you must still use caution and good sense before you choose a Forex broker. Make sure that your broker is registered with the CFTC (Commodities Futures Trading Commission), or that they are a member of the National Futures Association (NFA). Check the broker out with your local Better Business Bureau as well, and insure that the broker has the backing of one or more large financial institutions.

Even if you have a good broker, there are still risks that you must consider. The Forex market can be volatile, and can change very quickly. The fluctuations in currency prices over a trading period, known as the Exchange Rate Risk, can literally ruin you in a matter of minutes if you don’t have a stop loss order in place. With a stop loss order, you can basically instruct your broker, ahead of time, to close an open position if the currency price drops to a certain level. You can also use limit orders to determine when an open position should be closed.

You must also be aware of other risks, such as the interest rate risk, the credit risk, and the country risk. The interest rate risks exists when there is a large difference between the interest rates in a currency pair. This difference can have a huge impact on expected profit or loss.

With the credit risk, you must be aware that when you are buying a currency, someone else is selling you that currency, and vice versa. There is always the possibility that the other party won’t honor the debt. The country risks relates to a situation when a government may try to control the available currency. Ideally, the major currencies are not at this type of risk, but the minor ones are.

Never doubt that Forex trading has risks, but also understand that there are ways that you can minimize your risk. Start by developing a trading strategy. Your strategy should tell you when to enter and exit the market. Of course, research and analysis are needed to develop a strategy. Also, as with any type of gamble – and investing is gambling – don’t invest money that you aren’t willing to lose.

You need to know how to read financial charts and quotes, and understand fundamental and technical analysis. Before you start investing, you need to learn these things, and learn as much about Forex as possible. Remember that even the best trader can only guess at what the market is going to do – there are no guarantees that all will go as you expect it to.

Learn to use risk minimizing tools, such as stop loss orders and limit orders. These types of orders are issued at the time that you make a trade, and it basically automates that trading. Your stop order can close your position when the price falls to a certain amount. A limit order can hold a buy until the price reaches a certain point.

Fundamental Analysis of Forex and Why It Is Important To Understand

When choosing stock investments, savvy investors rely on analysis and research to determine how stocks will perform in the future. When trading on the Forex market, traders must also rely on analysis to plan trading strategies. In the Forex market, there are two types of analysis: Technical analysis and Fundamental analysis.

Fundamental analysis basically comes from political and economical conditions that may affect currency rates. This analysis may come from a variety of sources, such as news reports, unemployment rates, policies, interest rates, inflation, growth rates, and economic policies.

With fundamental analysis, a trader is able to see a big picture concerning the economic conditions of a currency, and how that currency may move in the market. Fundamental analysis are then supported with technical analysis so that a trader is able to determine entry and exit points.

The Forex market currencies are greatly affected by the supply and demand of those currencies. This supply and demand also has an effect on the economic conditions around the world. Supply and demand is affected by interest rates, as well as how strong the economy is. The economy, in turn, is determined by the Gross Domestic Product, Foreign Investment, and Trade Balance.

Governments and academic sources release indicators. Indicators are measures of the health of the economy. These indicators are typically released monthly, but there are some that are weekly. Interest rates and International trade are the two most important indicators, although other indicators are the Consumer Price Index (CPI), Durable Goods Orders, Purchasing Manager’s Index (PMI), Producer Price Index (PPI), and of course retail sales.

Interest rates can affect the economy in two ways: they can either make the economy stronger, or make it weaker, and this in turn makes that currency stronger or weaker. If the interest rates are high, there are more foreign investments, which makes the currency stronger. However, high interest rates can be bad as well, causing stock investors to sell their stocks, which in turn has an impact on the stock market, and the overall national economical condition.

The trade balance can show a positive or negative balance. If there are more imports than exports, the trade balance will be negative. This is a good indication that the currency value will drop, as this means that money is leaving the country, instead of coming into the country.

The cost of living (CPI) also matters, as does the PPI, which is the cost of producing goods. The value of services and goods in a country is measured by the GDP, and the amount of currency available is measured by the M2 Money Supply. In fact, in the United States, there are 28 indicators that are used. Forex traders must make themselves aware of these indicators if they hope to be successful, as these indicators will help plan strategies.

Types Of Orders A Forex Broker May Have

If you are still sceptical about making money with forex trading, you need to reconsider your beliefs and because many people make a good living just doing it for only a few hours a week. Those who do make money from it follow a strong set of money management rules and a robust trading strategy. That said, there are a number of trading strategies that have been proven by some experts to guarantee success for anyone including you if you are disciplined enough to stick to the rules.

In this article, you will discover some very useful tips to get you started. The techniques described here have to do with types of orders and how they work. Understanding each of these and when to use them will help you limit risk as well as secure profit from time to time.

Types of Orders:

The main types of orders are: Good Till Cancelled (GTC) Oder, Day Order, Market Order, Limit Order, Stop Order, OCO Order, If Done Order, and Loop Order. When placing an order, you must specify how long the order should be valid for; this is where GTC and Day Order come in. That is, when you place an order under the rest of the order types (market, limit, stop and OCO), you need to choose whether the order is GTC or a Day order – the whole concept will become clear to you in a minute.

The GTC order is an order that, when placed, remains valid for the entire day until cancelled by you. In other words, if you place an order and place it under GTC, it means the order will run 24 hours a day and will not automatically cancel itself at the end of the forex trading hours on Friday; instead it will reinstate itself on a Monday morning unless you cancel it. This type of order is the most commonly used by forex traders.

On the other hand, Day Orders when placed are good until 23:00 CET each day. This means if you leave it running, or forget to cancel it, it will automatically cancel itself at the end of trading hours.

Hence, if you place a market, limit, stop or OCO order, you need to specify whether you want it to cancel at the end of the trading hour or run until you decide otherwise.

Obviously, there is more to the types of orders a forex trader can place. Hence, in the next article in this 2-part foreign exchange trading series, the remaining order types (i.e. market, limit, OCO, and stop orders) will be described. This will throw more light into the order types and help you understand more.

When you place an order, you need to specify how long the order should be valid for. This is where Good Till Cancelled (GTC) and Day Order come in. That is, each order you place fall under either of this two types: with GTC, your order will run continuously until you cancel it while day order will cancel itself at the end of each trading day. Now back to the main purpose of this part of the article.

In this part, we will highlight how the other orders work using very basic examples that should be easily understood. They are:

Market Order: When a foreign exchange trader places a market order, he/ she is doing so to purchase currencies at the currently available prices – known as current spots. For example, if the current spot for EUR/USD is 1.06730 and you place a market order, this is the price you’ll get for it at that moment.

Limit Order: With this, you are giving an instruction to deal if a market moves to a favourable level. This sort of order is often used to take profit on an existing position but can also be used to establish a new one. For example, EUR/ USD is trading at 1.0690/94 and you believe the euro will get stronger while the EUR/USD will fall back to below 1.0650 before it goes any higher. Then you put a Limit Order to buy EUR/USD 1’000’000 at 1.0650. Your Limit Order will be executed only when EUR/USD is offered at 1.0650.

Stop Order: Is an instruction to deal if the market moves to a less favourable position. For example, if you bought a long USD/JPY position at 120.65 and you want to prevent loss should the value of USD/JPY starts to fall, what you need to do is to place a Stop Order to sell USD/JPY at say 120.0. This will close your position with a 50-pip lose.

One Cancels the Other (OCO) Order: Is a special type of order where a stop order and a limit order in the same market are linked together. With an OCO order, the execution of one of the two linked orders results in an automatic cancellation of the other.

If Done Order: This type of order is a two-part order, in which the execution of one part occurs only when the order has been completed. Here, the first part (which is only a Limit) is created in an active state while the second (can be either a Stop, a Limit, or and OCO) is created in a dormant state. When the desired price is reached for part 1, it will be activated and the second will then be activated.

Loop Order: Has to do with repeating a certain order in the hope that a cyclical movement in the market would result in profit. Like the OCO, it is a pair of orders (except in this case they are matching orders) where the first part is active and the other dormant. When the desired price is reached by the dormant order, it will be executed thereby causing the second to become active and a new order is setup in a dormant state. This process repeats itself until explicitly cancelled; hence the name Loop Order.

For a beginner, understanding each of these orders and knowing exactly when to place them can be somewhat challenging. However, with a bit of practice and time, you should be able to master it with ease to maximise profit.

How To Effectively Use Stop Losses In Your Forex Trading

Participating in forex trading without the use of stop loss is a recipe for disaster; it is like digging yourself a premature grave which could easily be avoided. The reason behind this will be discussed in detail in this article so read on!

Every day hundreds of traders – both new and old – lose a large sum of their earnings or investment because they placed a trade without using protective stops. They failed to safeguard their trade should in case something goes wrong. The sad thing about most of these traders is the fact that the money they lose is worth weeks, months, or even years of trading; all of which could have been avoided.

Anyway, the term “stop losses” does exactly what it implies: that is to stop you from losing money as much as possible. In the rest of this article, you’ll see four of the main stops you could use to protect yourself against profound losses.

Simple Equity Stop: When it comes to forex trading, traders are thought to restrain from taking risks that are more than 2-3% of the total account per trade. As an example, say a trader with a $1000 USD account places an order for 4000 units on EUR/USD, which gives him around $0.40 cents per 1 pip. Since the 2% – 3% risk he is thought to take stands at $20 – $30 ($1000 * 2%-3%), which yields $20 – $30/ $0.40 cents = 50 – 75 pips when calculated. These pips are the limit for this trade.

Chart Stop – this stop relies on a number of chart patterns, indicators, and signals received at the time which the market was analysed. There are several of this depending on the forex trading platform but the main thing to keep in mind is that it requires being able to read forex trading charts.

Margin Stop – This stop loss method is recommended only for expert foreign exchange traders. This is because it works best for traders who are more than happy to place all their money at once on a particular trade. If a trader knows nothing about how the market works, risking everything on one trade could be a disaster.

Volatility Related Stop – Price volatility can also be used when placing a Stop loss order. With this method, traders place stops further than usual to avoid seldom price noise so that they only react to major price changes. During the trading hours of a low market volatility, protective stops are placed closer in order to react in time should the market accelerate.

Understanding Economic Indicators

Many foreign exchange traders seize to take full advantage of the power of using economic indicators as a trading strategy to make money with forex trading. Some do so because of little to no knowledge of the advantage they stand to gain while others do simply due to negligence or shear laziness.

Whatever the reason may be for you, in this article, we aim at explaining the concept (of economic indicators) and the role they can play to ensure profit for forex online traders, both old and new.

First, let’s define the term “economic indicators”: They are simply a statistical representation of a country’s economy. With economic indicators, economist and analysts can analyse the state of an economy and make predictions regarding future performance. It can also be used to study business cycles of a particular country.

For instance, factors such as GDP and a number of other industrial production measurements indicate the total growth in an economy. On the other hand, PPI, inflation, CPI, and a host of other measurements determine the value of a country’s currency at any given time. Aside from all that, more mathematical and dynamic measurements are also quite useful in determine the state of a country’s economic.

These measurements are also very important when it comes to forex trading. Hence, your goal as a foreign exchange trader is to use these measurements to follow leading indicators that show where the market is headed. The more accurate knowledge you have of these trends, the greater your opportunity is to make profit.

Your job as an online forex trader is to learn how to integrate each of these indicators and other economic factors into your trading strategies – regardless of what currencies you are trading. To many, this step is the highest of all the foreign exchange trading strategies that should be learned by anyone looking to succeed. It allows you to look at a country’s current economic growth or decline and predict whether that will lead to a rise or fall in its currency. You see? The more accurate you are able to make this prediction and base you trading on it, the more likely you are to profit big time from foreign exchange trading.

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