StephanFX - Forex Trading

Thursday, November 23, 2006

Stop Hunting” - a Simple FOREX Strategy

Today FOREX world is built around large leverage and constant use of margin, in equities, standard margin is set at 2:1, in options, the leverage increases to 10:1, in the futures market, the leverage factor is increased to 20:1, but in the FOREX market the leverage sets the highest bar by increasing to 100:1 ratio and can climb up to 200:1 meaning that you can invest $100 for a $20,000 value control! An experienced trader would limit his leverage to no more than 10:1.

Alongside leverage usage, or as in many FOREX rookies’ cases using too much leverage, comes the opportunity for either extremely profitable or extraordinarily dangerous and huge loses. You can double your account overnight or lose it all in a matter of hours if you make use of the full margin at your disposal. Considering that fact, most FOREX traders use “stops” order / “stop-loss” - they simply do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged, and here you can step in and take advantage of this knowledge.

Stop order in a nutshell is a form of insurance or security measure that is given to buy or sell when a currencies' price surpasses a particular point. Using stop loss is critical for long-term survival. By setting a predetermined entry or exit price, investors usually use this system to minimize their loses when off for the business day or any other situation in which they are unable to monitor their portfolio for an extended period.

The main FOREX strategy which takes advantage of this knowledge is “Stop Hunting” , which attempts to force some foreign currency exchange investors out of their positions by driving the price of a currency pair to a level where many investors have chosen to set their stop-loss orders (aka “weak longs”), by understanding that the human mind naturally seeks order, most stops are clustered around round numbers ending in "00" (i.e. if the EUR/USD pair was trading at 1.1380 and rising in value, most stops would reside within one or two points of the 1.1400 price point rather than, say, 1.1417).

Absorbing that fact alone is priceless knowledge (the price of a currency pair can experience sharp moves when many stop losses are triggered); professional traders place their stops at less crowded and more unusual locations.

The possibility of profit from these unique dynamics of the foreign currency market is huge and proven.

by: Mia Millis

About The Author
Mia Milis is an independent trader and provides financial advice regarding foreign exchange to several institutions as well as private individuals. Being an Internet enthusiast, she has taken up to provide advice through her brilliant articles, and in recent years has also founded theforexblogger.com in order to provide a platform online traders worldwide could share experiences through. To learn more about the FOREX market, visit Mia's website at
http://www.theforexblogger.com.

Wednesday, November 22, 2006

How to Read Forex Quotes Correctly

Reading forex quotes correctly is essential to forex trading but it can be quite confusing for the new comer. Actually, they are quite simple to read and understand. Here is a guideline to reading forex quotes correctly.

Let us look at an example of how a forex rate quote looks like:
EUR/USD = 1.2526

The above looks simple enough, right? This is an example of a foreign exchange rate between the Euro and the US Dollar.

Do not forget that in all forex quotes, there are always two currencies quoted. The forex quote is displayed such because when you make a trade in forex trading, you are always buying one currency and selling another at the same time.

In all forex quotes, the first currency listed is known as the base currency while the second is known as the quote currency. Forex quotes are meant to show us the price relationship between the two currencies.

The foreign exchange rate gives us an indication of how many units of the quote currency we have to pay to get one unit of the base currency.

The above example shows us that the base currency is the Euro and the quote currency is the US dollar. The forex quote tells us how each currency is trading relative to the other. In order to purchase one unit of Euros you will have to sell 1.2526 units of US Dollars.

It should be easy to understand so far. Now let’s add an additional thing to our example and that is the bid ask spread.

Forex brokers are paid not on the trades placed in the forex market but on the bid/ask spread instead.

We shall add the bid/ask spread to our example above:
EUR/USD = 1.2526/1.2528

This can be simplified to:
EUR/USD = 1.2526/8

Forex brokers make their commissions by selling currencies at a slightly higher rate than they buy them. This is perfectly legal and all forex brokers do it, though the amount of the spread may vary.

As a forex trader, you will be buying at the bid price, which is the first price quoted. You will then sell at the ask price which is the second price listed. This difference between the two prices is called the spread which is retained by the forex broker as their profit on the trade.
In our above example, you will buy at 1.2526 and sell at 1.2528. The 0.0002 (2 pips) will go to the forex broker as a payment for executing the trade for you.

The bid/ask spread is an easy to understand and clear-cut way for calculating trading fees and expenses.

With a good understanding of how to read forex quotes correctly, it can go a long way in helping you achieve success in forex trading.

Keywords: Forex Trading System, Forex Trading Course, Forex Trading Ebooks, Learn Forex Trading, Duncan Lee

by Duncan Lee
Send Feedback to Duncan LeeMore Details about Online Forex Trading Course here.

Tuesday, November 21, 2006

What to look for in FOREX Trading Software

With the growth of the Internet and its accessibility to the general masses, every FOREX broker maintains a software package for his clients to transact and get information about market prices online. With the increasing popularity of online trading with traders, the FOREX brokers are improvising their tools keeping in mind the clients needs in terms of software tools.

The two basic types of the FOREX trading software are - web based and client based. Since the most crucial functionality of the online trading tool must be the ability to provide market information at real time and updating it in the flash of a second; the software must be able to perform with minimal processing delay and must be accurate to deliver the entry and exit points for the trade.

The web based software is the one which is on the broker's website. There is no installation required on the client’s computer. The client based software is the one which is first downloaded and then installed on the client’s machine which is in synch with the broker’s. The web based client software is considered to be more popular due to their convenience, safety and reliability characteristics as the users can log in to them using their unique account from any computer and from any location over an Internet connection. Whereas the client based software has the restriction of using one chosen computer for every trade.

Another mandatory requirement for trading software is security or protecting the user’s critical data over the net. In the web based software the user information is secured with high-strength encryption to prevent viruses, intruders or hackers to access or modify the user’s data during transmission. Although the client based software is also secured during transmission, it has the shortcomings of the usage of a single trader’s computer and hence the possibilities for data loss are higher in this case.

The FOREX software is aided by a series of data servers which hold the web site content and user transactions. These servers are reliable in securing the user information and data integrity and ensure accurate transaction processing. Since servers are subject to power outages and natural disasters, at least two sets of servers in separate locations are maintained to ensure maximum uptime and data backups guaranteeing the integrity of the user’s financial data in case of server failure.

One of the problems in online trading software/tools is the processing or the data transmission delays. There are a number of factors that result in a delay in data transmission for software like Internet connection speeds and the physical distance between the client machine and main server. To avoid these obstacles in trading the FOREX traders should have a reasonably high-speed modern computer and a fast paced stable Internet connection to ensure the full functionality of the FOREX software offered by their broker. Also the broker must be chosen in the same area as one’s trading place to avoid the delays in this extremely volatile market.

Most popular trading software have integrated charting functions with a variety of viewing functions facilitating the access of real-time price quotes for most currency pairs and they allow the trader to buy or sell at market prices or enter and exit the market using stops or limits. Some brokers offer advanced packages like the ability to trade directly from the chart and full analytical functions in their software for a monthly fee.


For more information on FOREX Strategies and FOREX Tools visit http://www.Fx-Trading-Guide.com/
Article Source: http://EzineArticles.com/?expert=Jill_Kane

Monday, November 20, 2006

Mini-Forex Brokers

With the advent of technology, it has become possible for new and small investors to start currency trading. These investors do not have the huge capital that a conglomerate or an MNC (Multi-National Company) has. Therefore, such small investors are given an option of opening a mini forex account.

Mini-Forex Brokers allow investors to open their forex accounts by putting down a comparatively smaller down payment. The minimum requirement for actual forex trading is $100,000. Mini forex brokers may accept contracts as small as $10,000. Also, the margin in real forex trading is 1%, where as mini accounts may operate at around 0.5%. Many mini forex accounts can be opened with a deposit as low as $100.

A mini-forex broker offers the investor a quick and inexpensive way to trade from the comfort of home day and night. All the specifications remain the same, except that these trades are operated from a mini forex account.

For beginners, many online websites of these brokers offer demo or trial accounts that help the investor practice trading skills. These accounts also help increase the understanding of the functioning of the real time forex market.

Mini-forex brokers often guide their customers regarding the best trading options that could yield the most profit. The major factors to consider while choosing a mini forex broker are feedback from other traders about the broker, if the broker has insured his client's funds and the amount of commissions charged.

A trader's success in forex trading depends on the information they possess. Brokers keep traders informed of market fluctuations, which help them to take maximum advantage of the forex market.

Forex Brokers provides detailed information on Forex Brokers, Forex Trading, Forex Market Makers, Online Forex Brokers and more. Forex Brokers is affiliated with Forex Brokers.