Category Archives: Introduction to Forex Markets

Recommended FX Trading Learning and Study Materials

Recommended Tradining Materials from the Online Trading Academy

Home Study Videos and E-Books

Professional Trader Plus DVD Library Part 1 Online Trading Academy is delighted to announce that the first 3-day section of the famous on-location 7 day trading fundamentals course is now being released. Section 1 of the Professional Traders Series is 16 DVDs containing 24 hours of pro trader education.

Professional Trader Plus DVD Library Part 2 Online Trading Academy is delighted to announce that the second part of the famous on-location 7 day trading fundamentals course. Section 1 of the Professional Traders Series is 16 DVDs containing 24 hours of pro trader education. This second, continuation of the course is approximately 28 hours over the last 4 days in 16 DVD’s.

Introduction to Day Trading Video This award-winning interactive CD allows you to learn trading at your own pace, starting from the ground up. Interactive quizzes at the end of each section allow to test your knowledge and determine what you need to focus on.

E-Book: Electronic Trading Guide for NASDAQ, Level 2 A manual to teach investors how to electronic trade the NASDAQ using the now popular Level 2 screen. This manual is designed to get right down to business and is followed closely in our Professional Trader courses.

Home Study Value Packs

The Ultimate Professional Trader Plus CD Library Receive over 38+ hours (24 CD’s) of our highest quality trading education in one package! Order all of our trading education CDs at an astonishingly low price! Get the education you need to increase your trading profits!

Professional Trader Value Pack for Direct Access Stock Traders Receive over 30 hours (16 CD’s) of our best direct access trading education in one package! Our new trading value pack focuses on the core aspects of direct access stock trading. A great place to start your trading education!

Professional Trader Education Value Pack for Emini Traders Receive 15 hours (9 CD’s) of high intensity Emini trading education in one package! From core trading techniques applicable to all types of trading, to Emini-specific training, this 15 hour value pack has what you need to learn Emini trading at it’s best.

Professional Trader Education Value Pack for Forex Traders Receive over 15 hours (8 CD’s) of our best Forex trading education in one package! Containing the newest Advanced Forex CD, this education pack focuses on exactly what you need to know to become a successful Forex Trader.

Professional Trader Education Value Pack for Options Traders Receive over 16 hours (9 CD’s) of our best Options trading education in one package! From our beginner to our more advanced courses, this package will work synergistically to increase your trading knowledge and propel you to trading success.

Trading on Target Home Study Course Developed over a 14 year period by an expert Trader’s Coach, this program gives step-by-step solutions to problems that traders have with discipline. Includes CD’s, Videos, Audio Tapes, Workbooks and Hardcover Books.

The Complete Trading Education Package Completely revolutionize your trading education with this combination of The Professional Trader CD Library (24 CD’s / 38+ Hours) AND the Trading on Target Home Study Course! (Includes CD’s, Videos, Audio Tapes, Workbooks and Hardcover Books.)

Professional Trader Plus DVD Library Part 1 Online Trading Academy is delighted to announce that the first 3-day section of the famous on-location 7 day trading fundamentals course is now being released. Section 1 of the Professional Traders Series is 16 DVDs containing 24 hours of pro trader education.

Professional Trader Plus DVD Library Part 2 Online Trading Academy is delighted to announce that the second part of the famous on-location 7 day trading fundamentals course. Section 1 of the Professional Traders Series is 16 DVDs containing 24 hours of pro trader education. This second, continuation of the course is approximately 28 hours over the last 4 days in 16 DVD’s.

EMini Trading Home Study Courses

Professional Trader Education Value Pack for Emini Traders Receive 15 hours (9 CD’s) of high intensity Emini trading education in one package! From core trading techniques applicable to all types of trading, to Emini-specific training, this 15 hour value pack has what you need to learn Emini trading at it’s best.

E-Mini CD 1 – E-Mini Derivative Futures Get more bang for your buck through the leverage of E-minis! Mike McMahon takes you through the ins and outs of trading this highly liquid financial instrument.

E-Mini CD 2 – E-Mini Derivative Futures Once you understand the “mechanics” of the E-Mini’s, you are now ready to step up to the actual trade plans and begin making REAL money! Use these advanced strategies to leapfrog you to the next level!

Technical Analysis for the Professional Trader CD (Part 1) This CD contains critical information to help you learn to use charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits.

Technical Analysis for the Professional Trader CD (Part 2) Further refine your ability to use S&R lines, trend lines, candlesticks, continuation patterns and more.

Technical Analysis for the Professional Trader CD (Part 3) Learn how to truly understand and use Indicators for what they were designed for.

Fibonacci CD – Use Mathematical Magic for Better Profits from Each Trade Learn how to use Fibonacci Retracement, Extension and Projection Analysis to maximize your profits and tightly control the losses.

Trading as a Business CD – Trader Tax Strategies Learn to keep your trading profits with this excellent new CD, co-produced by Online Trading Academy and Traders Accounting.

Stress Management CD – Turn Yourself into that Successful Trader That is Inside Learn how to reduce stress in your life as a trader – remain cool under pressure and take the profits as they come.

10 Laws of Risk Management CD This course will take you through the 10 basic laws of Risk Management that will solidify your success as a trader.

Forex Trading Home Study Courses

Professional Trader Education Value Pack for Forex Traders Receive over 15 hours (8 CD’s) of our best Forex trading education in one package! Containing the newest Advanced Forex CD, this education pack focuses on exactly what you need to know to become a successful Forex Trader.

Forex CD 1 – The Fantastic World of Forex Learn Forex Trading from a pro with this Brand New CD – by Mike Mc Mahon – pips, leverage, which currencies to trade – it’s all here!

Forex CD 2 – Advanced Forex Trading Strategies Learn the more advanced Forex Trading techniques from a pro with this Brand New CD – step-by-step instructions through high probability entries, exits and the necessary stops to give you maximum profitability and capital preservation.

Technical Analysis for the Professional Forex Trader CD (Part 1) Learn to use charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits.

Technical Analysis for the Professional Forex Trader CD (Part 2) Learn to use Support & Resistance in combination with proper Trend Line drawing to mark on the high probability Entry/Exit. You learn how to “Stay In” a trade as we explore continuation patterns and the use of Moving Averages.

Technical Analysis for the Professional Forex Trader CD (Part 3) Learn to use Technical Indicators for the trading of Forex. We will explore their proper use and evaluation and dispel many of the bad beliefs many have been given by the “guru’s”.

Technical Analysis for the Professional Trader CD (Part 1) This CD contains critical information to help you learn to use charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits.

Technical Analysis for the Professional Trader CD (Part 2) Further refine your ability to use S&R lines, trend lines, candlesticks, continuation patterns and more.

Technical Analysis for the Professional Trader CD (Part 3) Learn how to truly understand and use Indicators for what they were designed for.

Fibonacci CD – Use Mathematical Magic for Better Profits from Each Trade Learn how to use Fibonacci Retracement, Extension and Projection Analysis to maximize your profits and tightly control the losses.

Trading as a Business CD – Trader Tax Strategies Learn to keep your trading profits with this excellent new CD, co-produced by Online Trading Academy and Traders Accounting.

Stress Management CD – Turn Yourself into that Successful Trader That is Inside Learn how to reduce stress in your life as a trader – remain cool under pressure and take the profits as they come.

10 Laws of Risk Management CD This course will take you through the 10 basic laws of Risk Management that will solidify your success as a trader.

Options Trading Home Study Courses

Professional Trader Education Value Pack for Options Traders Receive over 16 hours (9 CD’s) of our best Options trading education in one package! From our beginner to our more advanced courses, this package will work synergistically to increase your trading knowledge and propel you to trading success.

Options CD 1 – Opting for Options Trading Get introduced to the flexible world of Options trading and how to use them to manage risk in your trading.

Options CD 2 – Understanding the Greeks Get the real story behind the “Greek” letters and how they affect options!

Options CD 3 – Mastering Options Volatility Volatility in Options Trading is singly the most important aspect when calculating a high probability profit. In other words, master this concept, and watch your trading account increase!

Technical Analysis for the Professional Trader CD (Part 1) This CD contains critical information to help you learn to use charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits.

Technical Analysis for the Professional Trader CD (Part 2) Further refine your ability to use S&R lines, trend lines, candlesticks, continuation patterns and more.

Technical Analysis for the Professional Trader CD (Part 3) Learn how to truly understand and use Indicators for what they were designed for.

Fibonacci CD – Use Mathematical Magic for Better Profits from Each Trade Learn how to use Fibonacci Retracement, Extension and Projection Analysis to maximize your profits and tightly control the losses.

Trading as a Business CD – Trader Tax Strategies Learn to keep your trading profits with this excellent new CD, co-produced by Online Trading Academy and Traders Accounting.

Stress Management CD – Turn Yourself into that Successful Trader That is Inside Learn how to reduce stress in your life as a trader – remain cool under pressure and take the profits as they come.

10 Laws of Risk Management CD This course will take you through the 10 basic laws of Risk Management that will solidify your success as a trader.

Stock Trading Home Study Courses

The Ultimate Professional Trader Plus CD Library Receive over 38+ hours (24 CD’s) of our highest quality trading education in one package! Order all of our trading education CDs at an astonishingly low price! Get the education you need to increase your trading profits!

Professional Trader Value Pack for Direct Access Stock Traders Receive over 30 hours (16 CD’s) of our best direct access trading education in one package! Our new trading value pack focuses on the core aspects of direct access stock trading. A great place to start your trading education!

Advantages of Direct Access Trading with NASDAQ Level II CD This CD is a must if you want to understand the New Tools of the Trade and the problems the common investor or Online Electronic Trader are faced with.

 

Fibonacci CD – Use Mathematical Magic for Better Profits from Each Trade Learn how to use Fibonacci Retracement, Extension and Projection Analysis to maximize your profits and tightly control the losses.

8 Key Times of the Market Day CD You will learn when to be in the market and when it is more profitable to stay out.

Technical Analysis for the Professional Trader CD (Part 1) This CD contains critical information to help you learn to use charts and technical indicators in a clear, simple and concise manner to improve your trade entries and exits.

Technical Analysis for the Professional Trader CD (Part 2) Further refine your ability to use S&R lines, trend lines, candlesticks, continuation patterns and more.

Technical Analysis for the Professional Trader CD (Part 3) Learn how to truly understand and use Indicators for what they were designed for.

Trading as a Business CD – Trader Tax Strategies Learn to keep your trading profits with this excellent new CD, co-produced by Online Trading Academy and Traders Accounting.

Stress Management CD – Turn Yourself into that Successful Trader That is Inside Learn how to reduce stress in your life as a trader – remain cool under pressure and take the profits as they come.

Learn To Think Differently CD – How to Profit from Market Trend Changes Profit with contrarian indicators by identifying market tops and bottoms.

Short Positions – How to Trade Profitably by Going Short Most traders go long quite often – but in a flat or bear market, knowing how to go short will spell the difference between success and failure!

10 Laws of Risk Management CD This course will take you through the 10 basic laws of Risk Management that will solidify your success as a trader.

6 Psychological Biases CD – Who are you really? One the biggest causes of trading failure is a lack of understanding of what drives each of us to act in certain ways. This course will help you explore why, what and how to overcome these “pitfalls of the mind”.

Mastering Nasdaq TotalView Data System CD (Part 1 & 2) Learn how the new cutting edge TotalView system can help you enhance your trading results.

Power Trading in Globalization 3.0 CD This excellent CD will show you a true perspective on the chaotic world of finance, debt bubbles and how to protect yourselves, loved ones and finances.

Broad Market Analysis With Fernando Gonzalez Adaptation is the name of the game in long term trading success. Join Fernando Gonzalez and Mike Mc Mahon in a key educational CD that will show you how to analyze the big picture of the market and how to continually adapt yourself and your trading to it.

Mind, Method and Market With Mike Mc Mahon Discover how to overcome personal characteristics and “hard-wire” successful responses in your trading. Controlling your emotions is a huge part of trading success!

Start Trading FX Financial Trading Center

We’re proud to be able to offer you access to some great financial training materials. We’ve been talking with the Online Trading Academy, who run free seminars and have great free resources.

They’ve set up some information for our readers here:

How to Trade without losing any money ever

Trade Online.. and never lose money they claim..How can this be possible? Let us show you the only way we know how..

We all read the stories of people losing millions trading the markets (or recently the Socgen losses in the billions) and in recent times (2007 Oct – the losses in the “Credit Crunch” are Billions of pounds.. it boggles the mind. Ok so it’s clear, you can lose a lot of money if you don’t know what you’re doing.

On the flip side, we hear of traders earning vast sums, and the excesses of the city. So what is reality? and how can you get the good without the risk. Well here’s one solution.

So are you ready now to let us show you the how you can learn to trade without losing any money.

The secret is simple: Don’t trade with real money!! We told you it was simple.

Most only trading companies have great free games and trials where you can trade, with all the fun, excitement, and experiences of the real world onlne trading platform. They are often a 100% free, and don’t usually require you to send in any paperwork or give you credit card details (if they do we’d recommend you check the fine print very very carefully – after all why would they need these details?) So then you can learn to trade and all without risking any real world money.

As with many things in life, you can only become better through hard work and practice, (unless you’re a natural genius, which many of us aren’t) so “Practice Makes Perfect”.

So what to to look for:

  • Using real world price feeds for the trading game
  • Ability to run a position for a long time, (weeks, months)
  • The ability to have multiple demo accounts
  • Don’t put in any bank details to play the game

There’s a great one here

Paddy Power Trading

Things we’ve found help when you’re learning/practicing:

  • Try and behave as if the money is real (losing £100k, shouldnt’ just mean you reset the account as if nothing went wrong, in the real world that would not be the case)
  • Come up with your strategy, and trial it over a steady piece of time. Test it, and re-test it.
  • Do research different markets
  • Do research trading strategy, regulations, laws and taxes.
  • Do enjoy learning.. it is a game, and you can’t lose any money as you’ll be trading in a simulation, also you learn better when the mind is stimulated and having fun. (for getting the mindset try nlp).

Summary: Learn to trade in a Game/Simulated Environment

So it’s fairly clear, that by learning to trade in a simulated “game” environment, where you use real market data and the same online platforms, you can build up experience and learn how to start online trading.

So just like when you learnt to pass your driving test, you didn’t first go onto the motorway in rush hour by yourself, so it is with learning to trade online.

How about winning real money.. without risking any

There are also competitions out there that pay real world money to the winners of their trading games. Now that is a great trade! You can find a list of current competitions here

Paddy Power Trading

Players in the FX Markets

To understand the Forex market, you need to understand the players in the market, the participants and their motivations. In this article we’ll give you a brief summary.

The main participants and players in the market are:

  • Banks
  • Reserve banks
  • Hedge funds
  • Individual traders
    • Speculators
    • Investors
  • Brokers

 

1) Banks

Banks comprise a large portion of the total turnover. They use the foreign exchange market to buy and sell currencies that are needed for foreign exchange for their customers, to hedge or protect against market movements on behalf of their customers (for example when an importer may wish to protect against adverse currency movements) as well as for trading purposes.

2) Reserve banks

These are government owned organisations that are responsible for managing the economy of their countries by setting interest rates and they also may take positions on foreign exchange in an attempt to regulate or smooth exchange rates. Examples include the Bank of England, the Bank of Japan, the Federal Reserve and the Reserve Bank of Australia.

For example, the Bank of Japan may enter the market to sell Japanese Yen and buy Euros if they believe that Japanese Yen are priced too high relative to Euros.

Reserve banks are typically active in their own currency. They may make enormous trades that can quickly result in significant short term market movements. Usually the actions of reserve banks can be seen when there are sudden spikes or dips in a currency.

In addition, reserve banks often manage the release of key economic statistics. This information is eagerly awaited by market participants and results in immediate price movements if the statistics differs from the consensus view.

3) Hedge funds

Hedge funds are professional investment firms that usually manage funds on behalf of high net worth investors. They may invest in a variety of financial instruments, including foreign currencies. Their motivation is speculative profit for their investors, as they earn their money from a percentage of profits earned.

4) Individual traders

Individual traders are increasingly active in the FX markets. This is driven by the ready access to the market through the Internet and the opportunities available to earn significant profits with a relatively low capital investment.

Individual traders are often unsuccessful. In fact, about 90% of individual traders lose money during their time in the FX markets. Individual traders often don’t have systems, and don’t manage risk well.

In addition, individual traders face higher transaction costs than professional traders as they don’t have direct access to the market and have to use a broker. Also, individual traders can’t watch the market all the time as they usually have other committments such as work or family life.

These factors are a disadvantage, but the advantage is that the individual trader can choose whether to participate in the market at any given point in time. Professional traders are pretty much obliged to trade all the time by the nature of their jobs which means that they may not be able to be as selective about the trades that they enter.

  • Speculators – They may be day trading, and not trading in a manner which seems to make sense to all the market. They tend to be short term in focus.
  • Investors – They are looking to trade fundamental market movements, often with a longer maturity

5) Brokers

Brokers provide access to the FX market to individual traders. Typically banks and hedge funds have direct access to the market as they are a part of the market.

A broker will provide account keeping services, execute trades and usually provides some software to place orders and allow you to look at current prices and charts.

Brokers earn their profit by charging a spread. This is a difference between the buying and selling price. For example to buy EUR/USD, the price may be quoted 15/19, which means that the broker makes a spread of 4 basis points per trade. A trade is either buying or selling a foreign currency position.

Glossary of Forex Trading Terms

Glossary of FX trading terms. Highlighting the main ones used with the currency markets. If in doubt, double check or ask questions. It’s the wise man who knows what he doesn’t know.

  • American Option – An option that may be exercised at any time prior to its expiration date.
  • Ask – The price at which a currency pair may be purchased. Also called the offer, ask price or ask rate. (also see Bid – e.g. Bid/Ask Spread)
  • Base Currency – The first currency in a trading pair. In the case of a trade involving the U.S. and the Australian Dollar (USD/AUD), the U.S. Dollar would be the Base Currency. Also called the primary currency. The U.S. Dollar is the most common base currency
  • Bearish – Defines a market where prices are declining. Also known as a Bear Market.
  • Bid – The price that a currency pair can be sold at. Also known as a bid price or bid rate. (see Offer)
  • Bid/Ask Spread – The difference in points between the bid and ask price. Also called the Bid/Offer Spread.
  • Bullish – Defines a market where prices are rising. Also known as a Bull Market.
  • Call – A call option gives the buyer the right, but not the obligation, to purchase a specific currency pair at a pre-agreed price. An option to Buy.
  • Cross-rate – The exchange rate between two currencies, neither of which are the U.S. dollar.
  • Currency Pair – The two currencies comprising the FX rate. The USD/AUD represents a currency pair.
  • Dealer – A trading firm that is the other party in a FX transaction.
  • Euro – The official currency of many European countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The Euro is also the official currency of Montenegro and Kosovo, Andorra, Monaco, San Marino, the Vatican, and these French territories: Martinique, Guadalupe, Reunion.
  • European Option – An option that can only be exercised on the date it expires.
  • Expiration – The date on which an option must be exercised or offset. (or maturity)
  • Forward Transaction – An agreement for actual delivery and payment for currency to occur at a specific date in the future.
  • Interbank Market – Currency transactions that are negotiated between banks or between large financial organizations. An individual can not trade on the Interbank Market directly.
  • Leverage (or Gearing) – A trader’s ability to control a large amount of currency with a relatively small amount of capital invested.
  • Long – A position that is expected to appreciate in value as the market increases. (compare with Short)
  • Limit Order – An order which is placed with some pre-condition, usually the maximum price the trader is willing to pay.
  • Margin – The amount of money required before anyone can open or maintain a position. Also called a Security Deposit.
  • Offer – The price at which a currency pair may be purchased. Also called the ask price or ask rate.
  • Open position – Any transaction which has not been closed out by an opposite transaction. This is a position at “risk”
  • Pip – The smallest FX currency unit of price movement.
  • Premium – The priced paid by an option buyer. Does not include commissions.
  • Profit – The difference between the selling and the buying price. Not a profit may be realised (ie safe), and unrealised (i.e. exposed to risk – e.g. on an open position)
  • Put – A Put option gives the buyer the right, but not the obligation, to sell a specific currency pair at a pre-agreed price. The opposite of a Put is a Call.
  • Quote Currency – The second currency in a trading pair. In the case of a trade involving the U.S. and the Australian Dollar (USD/AUD), the AUD would be the Quote Currency Also called the secondary or counter currency.
  • Rollover – The act of extending the settlement date for an open position until the next settlement date.
  • Resistance – A price level beyond which the currency finds it difficult to move.
  • Settlement – The delivery of the currency upon the trade’s maturity date. Trades can settle 1,2,3,or x days after trade date.
  • Short – The act of selling a currency that the trader believes will decline in value. The trader need not actually own the currency being sold. It can be borrowed from the broker and repaid at a future date when the price is more advantageous. (Short Selling)
  • Spot Market – A transaction where payment and delivery of currency is immediate.
  • Spread – The pip difference between the ask and bid price of a currency pair. The smaller the spread the better, when you are trading as otherwise any profits are reduced by trading costs.
  • Stop Loss – A standing order which instructs the broker to liquidate an open position if the price falls to a pre-specified level. In essence “Stopping any further losses”
  • Strike Price – The exchange rate at which the buyer of a call or the seller of a put can exercise a trade. Also called the exercise price.
  • Support – The price level at which traders feel comfortable enough to buy.
  • Trend – The direction in which the market is heading. The three categories of trends are: major, intermediate and short-term. Trends move in one of three directions: up, down, sideways.
  • Turning point – The point where a market ceases being though of as being bullish or bearish and moves in the opposite direction.

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.