Thursday, September 27, 2007

Trading On The Online Forex Market

The online Forex market, as its name suggests, has no centralized physical address like the NYSE or the London Stock Exchange. It is in reality a global electronic network of currency dealers, who produce an incredibly high volume of monetary transactions in each twenty-four hour period.

A single day of online Forex trading will see the equivalent of nearly two trillion US dollars exchanging hands as traders buy and sell currencies. How much is that? Well, If you consider that the combined daily transactions of the US Bond and stock markets total about four hundred billion dollars, its impressive.

And with the arrival of home computers with Internet access, and the relaxation of certain monetary policies, the online Forex trading market is no longer the exclusive domain of movers and shakers who had the big bucks necessary to qualify as currency traders in prior years.

Currency trading is now available for all investors, and because of the generous leverage terms, or up to 100:1, many small investors are allowed to control significant sums of money without having a lot of their own capital in a trade. Someone who has only $1000, with that sort of leverage, can be trading currencies in $100,000 lots.

Understanding Online Forex Trading
There are many different trading platforms through which small investors can practice their online Forex trading; and, because the currency markets are conducting business around the clock three hundred and sixty-five days a year, there is no time of day during which online Forex trading is unavailable. Online Forex trading is open to banks, hedge funds, international conglomerates, and individual investors alike.

Online Forex trading may sound more complicated that it actually is. Currency trading is the simple process of using the national currency of one country to by the national currency of another. Buying Yen with Euros, or Canadian dollars with US dollars are both examples of currency trading; if youve ever gone to a foreign country as a tourist, youve probably engaged in some currency exchanges yourself.

The important thing about online Forex transactions is their sheer volume. Nearly two trillion in US dollars is exchanged on the Forex each day all year long. Online Forex trading is the largest financial market in the world. And even though small investors are now participating, the overwhelming bulk of money changing hands comes from banks, hedge funds, international corporations, and financial institutions.

Reasons For The Appeal Of Online Forex Trading
The reasons for the surge in Forex trading are fairly simple. The Forex market offers around the clock trading, exceedingly generous leverage terms and exceedingly relaxed margin requirements. The massive liquidity of the Forex market means most trades are constantly completed; and the volatility of the exchange rates offers a chance for quick profits. Those who educate themselves can adopt techniques proven to limit their risks, and finally, online Forex trading provides an opportunity to profit both in rising and dropping markets.

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Forex Trading The Six Major Reasons Traders Lose Money

In FOREX trading, there are six major reasons traders lose money. If you can avoid these pitfalls then you can join the minority of winners that pile up the big profits consistently.

Here are the trading traps that will cause you to lose money:

1. The Contrarians Disease

You should have a contrary opinion to the other Forex traders in the market most traders lose money, so you want to trade in opposition to the herd.

Most traders lose because they lack discipline and money management - but theyre very often right about market direction. Its the traders inability to maximise these opportunities when theyre trading the FOREX - and stay with the trend, that makes them lose money.

Many traders are looking to pick tops and bottoms, and never focus on trend following. Picking tops and bottoms is impossible. You cant predict the turning points in FOREX trading - so you need to change your focus to trend following, not prediction.

2. The Chartists Trap

In FOREX trading many traders fall into the trap of putting all their efforts into studying charts. Studying charts is important - but you must not be too subjective, or you will end up losing.

Avoid methods that need too much subjective analysis, such as Elliot Wave and cycles - and gravitate towards indicators that define trends - such as moving averages and momentum oscillators.

Be objective and not subjective in your FOREX trading.

3. Ego

FOREX trading attracts some of the cleverest people in the world, these traders are smart - but they also have big egos. An ego is a bad trait in FOREX trading - as it means you always want to see the market, as you want to see it - and not how it really is.

Traders need to ask themselves this question: Do you want to make money or feel smart? The market wont accommodate both of these desires if you want to make money, leave your ego behind.

The humble trader who has an objective and disciplined FOREX trading plan, realizes the market can make him (and everyone else) look stupid. However, hes only interested in making money, and hell generally out perform an ego filled trader, who wants to beat the market.

4. Guru Syndrome

When youre trading in the FOREX market, its tempting to follow someone whos made money - or says they have.

Its a fact that most traders want success given to them by someone else, and these traders cant take responsibility for their own actions.

In the game of FOREX trading, the only way to succeed is on your own - if you cant accept this, then do something else.

5. Chasing your Tail

Many traders get impatient when FOREX trading - they start trading using one method, get frustrated with it when its not performing - they then switch to a different method, and so on.

Bad periods are normally followed by good trading results (if youre using a soundly based system) - so patience and discipline are needed. By frequently chopping and changing systems, youll lose money.

If you have a trading plan that you believe in, then stick with it - and stop chasing your tail. Stay focused, and be patient with your system.

6. Using Options Incorrectly

When youre FOREX trading, using options gives you staying power - and limited risk, which makes options a great trading tool.

Many traders use options incorrectly - they focus on buying options with small time value, and that are way out of the money. This is a guaranteed way to lose money when options trading! What you need to do is focus on buying options, at or in the money - with lots of time value - also use spreads to increase your chances of success.

In conclusion - Dont try and be too smart - the above pitfalls are made by some of the brightest traders around. In most cases these mistakes come from thinking you have to be clever, or use complicated methods to succeed - however the reverse is true.

Keep your method simple, keep your focus, accept responsibility for your actions, and accept that the market will make you look stupid at times it does it to everyone!

If you watch out for the six pitfalls outlined above, youll be able to make big long-term profits - and thats the ONLY goal in FOREX trading.

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How To Earn Serious Money With Forex

The market

The currency trading (FOREX) market is the biggest and the fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars, which is 100 times greater than the NASDAQ daily turnover.

Markets are places to trade goods. The same goes with FOREX. The Forex goods (or merchandise) are the currencies of various countries. You buy Euro, paying with US dollars, or you sell Japanese Yens for Canadian dollars. That's all.

How does one profit in Forex?

Very simple and obvious: buy cheap and sell for more! The profit is generated from the fluctuations (changes) in the currency exchange market.

The nice thing about the FOREX market, is that regular daily fluctuations, say - around 1%, are multiplied by 100! (in general FOREX companies offer trading ratios from 1:50 to 1:200). If, for example, the exchange rate of "your" pair of currencies increased by 0.6% in the last 4 hours, your profit will be 60% on your investment! Such can happen in one business day, or in a few hours, even minutes.

Moreover, you cannot lose more than your "margin"! You may profit unlimited amounts, but you never lose more than what you initially risked and invested.

You can implement your choice (the pair of currencies, the volume amount) under any direction to which the market is moving, and yet make profit. It does not matter whether the exchange rate is going up or down: you can always decide to buy Euro and sell dollar, or vice versa - buy dollar and sell Euro. You don't have to physically possess certain currencies in order to perform "buy" or "sell" with them.

How do I trade Forex?

You select the pair of currencies with which you wish to make a Forex deal. You determine the volume (the amount of the deal). You deposit the "margin" (collateral needed to facilitate the deal. Usually - only a very small portion of the whole deal, say: 1% or 1:100).

Before you finally activate the deal, you can still "freeze" it for a few seconds. That enables you to either change the terms, or accept it as is, or altogether regret the whole idea. The "freeze" feature is a unique service.

When your Forex deal is running (you hold an "open position"), you can monitor its status and check scenarios online, whenever you wish. You may change some terms in the deal, or close it (and cash the profit, if any, or minimize the loss, if any). Moreover, some companies let you determine a "take-profit" rate, with which the deal will close automatically for you, when and if such rate occurs in the market. Meaning: you do not have to stay near your computer when you hold open positions.

Good luck!

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