Monthly Archives: February 2008

How to Avoid Forex Trading Scams

Be careful out there – tips and guidance to avoid scams in the FX Trading World. Our tips and suggestions on avoiding Forex Trading Scams

More and more people have started forex trading in the last few years and while many of them have done very well, a few have become victims of the increasing numbers of forex scammers. Tempted by the promises of easy profits at little risk playing a market they know little about, some new forex traders have lost money to con-artists who knew an easy mark when they saw one.

Don’t be one of them. Get educated, and don’t become a scam victim.

There’s NO such thing as a FREE lunch

The easiest way to spot a forex scam is by its promises.

There’s no such thing as a high profit and low risk investment. Anyone who tells you there is is likely to be generating a few high profits for himself… and running the risk of going to jail. Really if there was an easy fool proof way to make unlimited money with no effort and no risk, then you can bet that the people doing it wouldn’t share the secret for $99.99. Why would they bother..? They could train you for free if money wasn’t an issue, or simple give out money to worthy causes, couldn’t they..

IIf a forex deal looks too good to be true — like anything — it probably is.

Steer clear too of highly leveraged margin trading, at least when you’re starting to trade forex. As you can find yourself easily wiping out completely over small market movements.

Margins are similar to deposits. They let traders commit to larger deals in the future, and allow unscrupulous traders to gamble with other people’s money without fully explaining to them what they’re risking. An investor might believe that he or she has only risked $1,000 when in fact they’ve committed to a trade several times that figure. If the trade becomes unprofitable, the victims of such forex scams could find themselves with much larger losses than they anticipated.

Another sign that a trader might be looking to take you for a ride is if they claim that they can trade in the Interbank Market. This is a network of currency transactions involving banks and other large organizations. Because the volumes are much higher, prices can be higher too. It’s not usually the sort of place where small investors tend to trade so being told by a trader that he can put your money there is a little like buying a watch from a man in a bar: there’s a good chance the person you’re dealing with isn’t the most honest.

Forex scams have become more common but they’re still pretty rare. The best protection is an understanding of the forex market and a lot of common sense.

Key Points to remember:

  • Get educated – don’t be the rabbit..
  • Question everything – even what I tell you (Buddhist idea)
  • There’s no such thing as a free lunch
  • If the sales pitch involves pictures of guys with swimming pools, cars, beaches.. it’s probably not real – just that a sales pitch
  • Start with FREE demo accounts – no risk – no loss
  • Check who regulates the company
  • Check where the company is based
  • Can you call them? if not why not? What if something goes wrong.. what would you do
  • Ask your independent financial advisor
  • Check the trading forums, search engines and sites like StartTradingFx.co.uk

List of FX Trading Companies

What Affects the value of a currency

As the currency’s value changes so does the profit or loss you make

Trying to track the reasons behind the rise and fall of a currency — and trying to predict whether it will rise or fall in the future — isn’t easy. But there are a number of factors that you can depend on to determine the value of a currency.

When you’re just starting to trade in forex, it’s important to understand those factors.

Perhaps the most important factor is demand for the currency. Demand for a country’s currency rises when: exports rise (and foreign currency flows in which needs to be converted by the exporters); the country receives foreign investment; or when the central bank or speculators buy currency.

All of these things push up the price of that currency on forex markets.

The supply of a currency is also important, of course. Supply falls when: goods or services are imported (and the currency is exported); investment capital flows out of the country; or when central banks or speculators sell the currency.

When any of these things happen, the price of the currency rises on forex markets.

In addition to supply and demand, a rise in interest rates can also increase the value of a currency (while a fall in interest rates can cause a currency to drop.)

Economic growth also affects the value of a currency on forex markets. Countries experiencing strong export growth — and that show signs that their exports will continue — are likely to enjoy high currency values. Weak economies — or economies that are perceived by forex traders to be weak — will suffer from low currency values.

A growing economy though, might suffer from rising inflation. That can cause exports to fall, reducing demand for the country’s currency and increasing imports. Both of those can cause the currency to drop in the forex markets.

The state of a country’s economy is often revealed, at least in part, by its balance of payments. A country that exports more than it imports will see a large demand for its currency, and therefore a high price. A country that imports more than it exports will see its currency fall.

And finally, speculators can cause a currency to rise and fall too when the trades are large enough. When you’re starting to trade forex, it’s unlikely that your forex trades will be large enough to do this!

See how this works in practice at paddypowertrader.com

Interesting Facts about the United States Dollar (USD)

Things You Might Like To Know About The Dollar Before You Start Trading Forex. A useful guide to one of the major world currencies. So before you start to trade USD – know what it is you are choosing to buy, sell or hold.

The US dollar remains the world’s foremost reserve currency. That means it’s the currency most held by other countries rather than being converted into their own currency. Holding large dollar reserves allows those countries to purchase foreign goods without paying the transaction fees involved in converting their own currency into dollars.

By choosing not to buy back their own currencies on forex markets, countries holding dollars also make their currencies cheaper and improve their exports.

On the other hand, the constant demand for dollars as a reserve currency has allowed the United States to run up large trade deficits without being punished by a weaker currency in the same way that other currencies would suffer.

The dollar is also the standard unit of currency for many commodities traded internationally such as gold and oil.

The relative strength of the dollar is indicated by the US dollar index: the larger the index figure, the stronger the dollar. Over the last two decades, the US dollar index has fallen consistently — a response to consistent budget deficits.

The main body used to control the supply of money in the United States — and therefore a major influence on the price of the dollar — is the Federal Reserve. The “Fed” has three tools that can affect the price of the dollar: open-market operations, the discount rate and reserve requirements.

Open-market operations refer to the actions the Fed takes on forex markets (such as buying or selling dollars); the discount rate measures how much of a value is interest and how much is capital; and reserve requirements refer to the amount of money banks must hold against their deposits.

Although each of those tools gives the Fed some control over the dollar, the international nature of the forex markets means that that control will always be limited.

When you start trading forex, it’s likely that you’ll be using the dollar a lot. But you don’t have to. There are plenty of other major currencies that you could specialize in…

To see how the dollar is moving now, take a look at paddypowertrader.com where you can open a free demo account and start trading today.

What makes the Forex Market Unique

Unique features of the FX Forex Currency Markets

For investors hoping to start trading forex, the forex market can look pretty unfamiliar. Compared to other kinds of financial markets, much is different. Here are just some of the things that make the forex market a unique trading environment.

1. Long trading hours – Trade 24/7
While some trading on stock exchanges might continue after closing, the forex market has a weekly closing time rather than a daily closing time. Forex is, by definition, international. Someone, somewhere in the world, will be trading forex at any time of day… except the weekend. Forex traders like to leave some time to enjoy the profits they’ve made without being tempted to look at what’s happening in the market.

2. Low profit margins
On the whole, currencies tend to be fairly stable. While there might be occasional collapses, currencies tend to rise and fall in fairly narrow bands. That’s quite a contrast to stocks and shares which can shoot upwards following a positive announcement or drop suddenly following a profit warning. That means profits tend to be small, but made up for by the large volume of trade.

3. Geography
Every country in the world has to trade foreign currency if it’s going to buy foreign products. That means you can find forex markets everywhere — although the major currencies still make up the bulk of trades.

4. The variety of traders
This wasn’t always the case. Forex trading used to be limited to banks with deep pockets and plenty of volume to move around. Today though, almost anyone can start trading forex. The result is that you could be buying your currencies from a multinational corporation and selling them to brokers in Indonesia.

5. The variety of factors that influence prices
While the price of company shares can be affected by macroeconomic factors such as the employment rate or taxation, the most important measure of a company is its profits. Currencies though can be affected by all sorts of things: by the Chinese government selling Treasury bonds, by oil prices, by inflation in the EU and by house prices in Wisconsin to name just a few of the things that make forex trading so exciting.

Try it out today with an account at paddypowertrader.com

Forex Markets Overview

Trading Foreign Exchange – A summary guide to Forex / FX and Currency Trading

We all use currency every day, whenever we buy something we pay with money, in our own currency. So far so good.

Normal FX/Currency Trades.. that we don’t think of as trading:

Lets assume it’s the summer and now we want to go on holiday (lets assume we live in England, maybe to the US so we buy some USD $ so we can spend them when we get there. We pay for them with Sterlign (GBP £). We have a great holiday, then when we get home we have some extra USD $ in our wallet. So what do we do? Well we can either keep them (maybe we’ll go back, or we’re lazy, or we like the look of them?), or we can go and sell them (the USD $) back for Sterling (GBP £).

Now do you think the bank/broker/money exchange with give us the same price as when we bought them.. of course not.. the prices will have changed (due to .. well many reasons.. interest rates, inflation, macro and micro economic factors).

Ok imagine that nothing else had changed and the true price was the same.. well they still wouldn’t buy them for you at the same price as they sold them to you.. Oh no.. they charge a “bid-offer”. This is their comission.

So when you go on holiday, and decide to buy and sell money, you are in fact doing currency trading. Most people don’t think about this, and don’t have much of a choice.. but maybe you can see that you do..

Other Options for you:

  • Pay on your credit card, and settle it at the fx rate your credit card gives you.
  • Buy and hold the USD $ you need.
  • Open another bank account and keep the USD $, there.

This is what big companies do day in day out, deciding when to buy and sell, when to hold, when to invest (go long),and when to sell (go short).

So now, what if you’re part of a family, and one wants to go to the USA, and others to Hong Kong, and another to New Zealand.. ok.. so now you can see it gets a bit complicated.

So what are the FOREX / FX Markets?

These are the Markets where FX is traded, usually in real-time, where people, companies and traders buying one currency and sell another). IIt is one of the biggest trading markets in the world, with people trading for hedging, short term profit, investment, speculation.

Ok.. so far so good.. it now gets a bit complicated but keep reading and reviewing and we know you’ll get there. At the end of the day, if you think something will be worth more in the future, you want to invest in that (buy it), if you think it will be worth less you want to sell it. But trading the FOREX / FX markets is more complicated than this.

Some points to look into:

  • People can trade currency right now – the spot market
  • People can trade currency in the future – forwards and futures
  • People can trade options and other derivatives linked to the FOREX markets.
  • Quotes – Currency is quoted in pairs – ie USD/GBP
  • Consider what is the base currency – usually USD , but sometime GBP – check the quote direction
  • Dealing charges
  • Bid-Offer Spreads
  • Leverage
  • Minimum holding time
  • Maximum holding time
  • Interest – (if you have GBP in a bank account you would earn interest wouldn’t you..)

Basic Forex Markets ( FX / Currency ) Trading Terms

Forex Trading Terms to Know and Understand the language of the market

Like any financial market, the forex market has its own jargon and terminology that you will need to understand before you start trading forex. Here are some of the most important — and most commonly used terms:

Spot trades
Spot trades are the largest by volume on the forex markets. The exchange between the two currencies is almost instantaneous — the deal must take place within two days. There’s no interest charged over those two days and the deal must be transacted in cash.

Forward Contract
You can think of a forward contract as an agreement to make an agreement. The two parties agree on a rate and the deal takes place at a set date in the future at a pre-agreed price, regardless of what the market rates at that time might be. Deals can be transacted years after the agreement is made. Forward contracts are usually used to offset future risk.

Currency Future 
A currency future is similar to a forward contract but tends to have a standard contract size and a fixed maturity date. You can think of forwards as customized contracts to suit two traders while currency futures are standardized products that you can pull off the shelf. It’s possible to buy and sell currency futures on an exchange, earning (or losing) on the change in market value. Investors can close the contract at any time before the contract’s delivery date.

Forex Swap
Forex swaps are the most common type of forward transaction. The buyer and seller agree to exchange currencies then swap them back again at an agreed date in the future. Forex swaps allow sellers to liquidize excess currency, reducing risk, and lets speculators profit from changes in the exchange rate.

Foreign exchange option
A foreign exchange option (or FX option) allows the owner to change one currency for another at an agreed rate at an agreed date. Options are often used by businesses to protect themselves against falls in currency while waiting for payment.

As you can see, the forex market can seem complicated, but in practice, when you’re starting to trade forex, you can expect to be dealing mostly with spot trades and the occasional future, and you should understand fully what you are doing, and it’s risks before you start trading for real. Remember you can open a demo account for FREE with paddypowertrader.com and start practising today.

Background you must know before you start trading fx

Or how not to lose your shirt before you even get on the pitch

The Foreign Exchange market (Forex) is the biggest financial market in the world. More than $1.5 trillion changes hands on the Forex market each day as investors buy and sell currency in the hope that their purchases will increase in value.

Until recently, those investors were banks. The minimum investment of $200,000 dollars was enough to keep most members of the public away. That’s now changed. Managed accounts can be opened with $10,000 although some brokerage firms can even get you running for as little as $1,000 — provided you’re prepared to do the buying and selling yourself on the forex markets. In addition to the banks, investors now include multinationals, money managers, dealers and brokers, as well as private speculators.

Those investors are active 24 hours a day. The forex market officially starts trading in Sydney on Monday morning (7 pm Sunday EST) and continues around the world with traders in one part of the globe beginning their day as others end theirs. The week ends when New York traders stop at 3 pm the following Friday.

Although any two currencies which have a buyer and a seller could, in theory, be traded, in practice, more than 85 percent of all daily transactions involve the major currencies: the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and the Australian Dollar. The stable governments and the transparency of the central banks in those countries make it easier for speculators to predict what the currencies will do and to minimize risk.

And of course, there is risk in the Forex market, and that’s especially true when you’re just starting. Like any type of investment, it’s important to understand what can cause values to rise or fall, to develop an investment plan and stick to it, and to spread your risk.

The best strategies often come with practice, so a good way to start trading forex is to open a demo trade and treat it as though it were the real thing. You won’t make any money but the education could be worth a fortune!

Open a demo account with paddypowertrader.com and start practising today.

Why and How to Start Trading Forex

In this article we’ll set out the reasons to start trading forex, and how you can go about it.

When you’re ready you’ll be able to open your first trading account, and start trading, and have learned to trade the currency markets for free, and be part of an exciting vibrant trading community

  • The fx/forex markets are rapidly becoming the most popular market in the world for people to start trading. They have low entry costs, very competitive offerings.
  • If you’re in the UK .. you can trade the FX markets for free using platforms like PaddyPowerTrader (Winner of our 2007 Award for Best Platform)

Paddy Power Trader

Why trading the fx markets makes sense

  • The markets are mature
  • Millions of people trade the markets every day
  • Currency is used by people across the globe in their daily lives

Trading Games?

  • There are lots of free demos and trading games, where you can practice trading before ever risking any real money
  • These often have real world financial prizes

FX Trading Platforms

There are many online trading platforms, which means you can chose the one which most appeals to you. You should consider:

  • The costs
  • The service you receive
  • The times of trading
  • The number of underlyings
  • The location and regulatoiry background (e.g. FSA registered in the UK)
  • Their extras – training activities, newsletters, advice
  • Their current customer feedback
  • Revies / Ratings
  • The advice of your independent financial advisors

Paddy Power Trader

How I got started in FX trading

Like many people I hadn’t been brought up with a lot of exposure to trading and “the markets”. In fact I couldn’t tell an option from a future, or a contract from a premium.

i was trading FX and didn’t even realise it..

One summer I went travelling from London, UK to Toronto, Canada, and it was great to have my 1 GBP be worth so much, and realise that the $20 jeans only cost me 10 pounds. But when I went back the following xmas, and shopped, then came home I was shocked on my credit card statement.. they cost me 15 pounds..

My first exposure to FX movments.. and something which is all too real to any of us that go travelling.

to be continued..