Category Archives: Forex

Recent Developments in the Global Forex Market

Since the 1970s, the forex market has witnessed profound changes not only in terms of size but in how it operates. This has been the result of major structural shifts in the global financial system. Political shocks like the election of Donald Trump as the US President and Brexit in 2016 caused major jolts in the foreign exchange markets, fuelling more hedge funds trading activity and bank trading rooms. The uncertainty surrounding higher interest rates and a stronger dollar could fuel more volatility as 2017 enters the last quarter.

New thinking both in terms of finance theory and practice has led to the growth of numerous new derivative products and financial instruments. Advances in thinking and technology have also contributed to a deeper understanding of the global financial system as well as the techniques needed to operate within this system.

Introduction of Global Code of Conduct

The aim of the Code is to set out global good practice principles in the forex market that offer a common market guide. This includes areas where there exists an element of uncertainty regarding what forex trading practices are acceptable or not. This is designed to address issues surrounding trust and promote effective wholesale FX market functioning.

Towards that goal, among the guiding principles that underpin the work on the Global Code is to promote an open, fair, robust, liquid, and transparent forex market. With the support of a resilient infrastructure, a diverse set of forex sellers and buyers should have the ability of effectively and confidently transacting in a manner that is in line with acceptable standards of behaviour and at prices that are reflective of the market information that is available.

Financial Deregulation

Across the globe, major financial deregulation that includes doing away with government restrictions and controls is taking place in nearly every country. This has led to far greater freedom when it comes to national and cross-border financial transactions and more competition between financial institutions.

Also being witnessed is a fundamental change in investment and savings with investors around the world, both individual and institutional diversifying their range of investments into multiple currencies and across international borders.

Algorithms and Speed Bumps

Over the recent past, algorithmic forex trading has been growing as the appeal of trading signals that are automated also grows. The demand for these “black box” automated tools is boosting quick execution that requires minimal human supervision. In 2017, however, speed-based trading strategies have assumed less significance to currency markets. This may be attributed to the introduction by key interdealer platforms of speed bumps that are coming in the form of latency floors.The years ahead might witness a continued move to strategies that are more passive based on electronic market making.

Increased Usage of Block chain

Forex experts are predicting that blockchain, the global distributed ledger technology that underpins bitcoin trading, will in the days ahead, have a big impact in terms of delivering real-time currencies clearance and settlement. This is an international data structure that enables the recording of transactions and sharing the same across a distributed computers network.

Many trading firms are already experimenting with the usage of blockchain as a way of storing and verifying forex transactions without going through a central authority. This has the potential of speeding speed up and greatly cutting trading costs as well as doing away with legacy infrastructure.

Conclusion

A key beneficiary of these emerging FX trading changes is the forex trader who now has an investment vehicle that was undreamt of just a decade ago. Looking out towards 2020, FX market pundits are banking on lighter regulations, the transforming power of blockchain, and an increased role of humans in the forex trading process.

CFD Finance in 2017

Contract for difference refer to derivatives that aren’t traded on an exchange, but they traded in an over-the-counter market by CFD providers. A CFD offers investors a chance to speculate about the future movement of the asset without owning it or taking the physical delivery of the asset. In other words, CFDs serve as leveraging instruments. They are available for a broad range of assets including shares, currencies, and commodities. Typically, a CFD involves two major things;

  • Entering into an opening with a CFD provider at one price which creates an open position that you will be required to close later. You only close the position with a reverse trade with the CFD provider but at a different price.
  • If your first position was a buying position, then your position which closes the trade shall be a selling position. Conversely, if your first position was a selling position, then you close the trade by adopting a buying position.

CFD Trading and Beginners

I know the big question you must be asking yourself at this particular point is whether CFD trading is suitable for beginners. The answer to this query is both a yes and no. CFD isn’t suitable for beginners who are naïve about the trade. However, if you are a beginner but you still find time to understand what is involved in CFD trading then you are good enough to try it out. The key point here is that you must understand what CFD is all about, the risks associated with it and the benefits associated with it as well. With a thorough understanding of the trade, you can make an informed decision whether the product is good for you.

The difference in finance rates between trading CFDS and trading shares

The financing component doesn’t come up when you are trading shares because you only pay to finance on shares if you take out a margin loan. On the other hand, when you are trading in CFDs, you are required to place a small margin up front to help you gain control of the entire position. Therefore, trading in CFDs involves taking out a loan every time you open a trade and hold it overnight.

Holding the CFD position Versus Holding for several days

Most brokers only charge you finance fees if you hold a position past the New York’s close time. Closing your position before the New York close ensures that you won’t pay CFD finance fees. This implies that if you hold your position for several weeks, you pay the CFD finance fee every single day that you hold the trade opens. Most of the CFD providers opt to charge a pro rata rate instead of the margin loan. You don’t to apply for a credit rating to get approval to trade CFDs.

Finance Rates

As of April 2017, the CMC Markets was charging what they referred to as a holding cost if you hold your position past 5 PM New York time. According to the company website, this is not a financing charge as most people may refer to it. The holding cost for CFDs and Forex trades is calculated differently.

A point to note is that CFD finance charges differ on a daily basis as your position rises and falls in the market. The best way you can avoid the CFD finance fees is by opening and closing your share CFD position within the same day. You do not have to pay the financing because you never held the position overnight.

Is CFD for everyone?

Contract for Difference is not for everyone. Do not consider CFD trading if:

  • You do not understand all the factors that may affect CFD prices in the market
  • You are too occupied to monitor the markets closely and identify significant trends that may help you to trade successfully. You need to be in a good position to respond to margin calls to cover your losses at short notice, or you risk having your CFD position closed at a loss.
  • You do not understand all the risks associated with CFD trading.

The Forex Market

Online currency trading is increasingly popular all over the world, and thanks to the internet it’s easy for anyone to trade forex from any location, at any time of the day or night. It’s also become simple for anyone to learn about currency trading, thanks to the huge range of tutorials and guides available online.

forex-market

forex-market

  • Benefits:

Becoming a profitable trader may take time, but one of the main benefits of the forex market is the ease with which you can learn. You don’t need to sign up to expensive courses – all the information you need is available online for free. Likewise, to trade all you need is a computer and an internet connection so the barrier to entry is very low.

The forex market allows you to trade on margin, meaning that effectively you’re able to trade far larger sums of money that your initial outlay. Because of this, even small movements in currency prices can lead to big profits or losses. The forex market is attractive because of the size of profits available, but it’s also possible to lose more than your actual deposit.

Global currency markets amount to trillions of dollars in trades every day. This liquidity and opportunity is unique to the forex market, again making it very attractive to investors. You can make profits when the market rises, but also when it falls – all you have to do is pick the correct trades.

Of course, it helps if you have a lot of information to hand. Data on currency prices is available in real time through services like TradeStream, so you can see from your trading platform exactly how the market is moving. You can also get economic updates from various websites and forex providers, analysing the economic landscape of particular regions and predicting how the market will move.

  • Dangers:

As mentioned above, one of the main dangers to any forex trader is the risk of big losses due to the leverage available. A clear risk management plan is essential, this can include things like stop-loss orders which provide a safety net to limit the losses a trader can make.

Because of the low barrier to entry, many traders are self-taught, and a lack of training can be their undoing. It’s advisable to trade on a demo forex account for several months before risking real money on the market.

Other link:

http://en.wikipedia.org/wiki/Foreign_exchange_market

FX trading account – A must for every new trader

 

forex

forex

Many people are shifting from their jobs to home business because of making huge money in the latter. These people are trading on the FX currency market from the comforts of their home. In order to do this business, you should have the right FX trading account. You will find plenty of broker accounts on the internet and thousands of websites in your search results. Here are a few tips in searching for the right FX trading account?

Registration: You must search the Forex brokers thoroughly. They should be registered with the Futures Commission Merchant and a member of the National Futures Associates. Don’t deposit your money with some company who is new in this business and not properly registered. Your money will be lost overnight.

Cost: Forex brokers make their money through currency pair spreads. The spreads is between 1 to 3 pips for the top traded currency pairs EUR/USD, USD/JPY. USD/JPY, USD/CHF, GBP/USD, USD/CAD. Few brokers charge a small fee per trade. There are firms offering managed forex accounts who will do trades for you. They will charge around 30% of your trade profits plus a per transaction fee. Search for the company offering a fair price.

Leverage: After you know your FX trading strategy and practice it, you will want to start out by depositing a small amount of money. You feel like making more money on every single trade. This is done by leverage. You will want the option to leverage your money by 1:10, 1:50, or 1:100. For doing this, you should have the flexibility with the broker account.

Support: Robust customer support is a must in the trading platform. Whenever you face any technical issues, you should be able to reach the customer support by phone, web chat or email.

Practice account: You should start with a practice account before you start your trading. This is an account feature with which you can trade using fake money. When you have your FX trading accounts, make sure that you have this option.

Follow these simple guidelines to find the best FX trading account. Then find an easy to use trading system that will make you a lot of money whenever you trade.

Forex Trading method – the smartest way to review the trading system

forex-trading

forex-trading

Do you know what constitutes a quality trading method? Or how to figure out which trading method is worth purchasing? In this article, we will discuss the majority of strategies and work out effective approaches to asses a trading method.

If you deeply study the so called forex trading methods and programs available to buy, you will find many disadvantages in it. These include the following:

Most of the forex trading methods are incomplete. Most of the tutorials spend numerous hours in theory, but as far as practical knowledge is concerned, it hardly spends any time in step-by-step strategy that may help in trading.

These products do not include risk management. The most common mistake that most of the traders make is not managing risk to their trades. If the program or the event you are looking at would not provide risk management consistent with the system, you might probably walk away from it.

A lot of these products aim on elementary analysis only. These approaches in most cases happen to be incredibly inefficient and subjective. They require deep understanding of more complex economic and fiscal matters. If you are not able to grasp them fully, your business won’t be successful enough.

They will need you to “day trade”. Most of the systems will engage you in front of the computer almost throughout the day in order to be able to react.

  • So, what constitutes a “good” technique? A good trading system will work in the following manner:

The method has to be complete and should teach the start-up circumstances, entry procedures, preliminary stop rules as well as the exit techniques rules theoretically as well as practically.

forex

forex

The method has to teach and incorporate particular instructions for risk management and money management in compliance with its methods.

The method has to utilize technical analysis, however it cannot be entirely mechanical or programmed procedure.

The technique needs to be functional in regards to time spent putting it on.

These guidelines has helped tremendously in weeding out the “pretenders” between trading methods and highlighting exclusively on the contenders. Methods which in turn offer complete description of the right way to apply, protect and trade. You should utilize these strategies only within your currency trading.

Best Forex Spreads

forex-trading

forex-trading

Forex trade means exchange of money. The currency is always priced in pairs. When you are trading, you are buying one currency while you are selling another one simultaneously. Once you make the commitment to trade, you have to complete the deal. If you decide to exit the trade in the middle, you will have to either buy or sell the opposite position. This means that you will have to sell Euros and buy US dollars in return.

Spreads are forex traders’ best friends. It does not affect the profitability. Brokers usually do very good business when they have the tightest spreads. It is very complicated to understand the spread in forex spot market. The spread is the difference between the bid and the ask price. The quote will be given to you in pips. The “bid” is the price that you can sell the currency at. The “ask” is the price you can buy currency at. A pip is the smallest unit by which a cross price quote changes. For example; if the quote you receive between EUR/USD is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips. Spreads are important because the affect the ability to make a return on your investment.

Spreads are the commission base for all brokers. Most of the brokers make their money with the help of best forex spreads. Wider spreads result in large broker commissions. The wider the spread is, it results higher ask price and lower bid price. The consequences of this formula is that a trader will end up paying more when you buy, and less when you sell. As a result, it will lower the profit potential. A broker that has a tighter spread will always get the maximum priority in this business.

Just because a broker has a tight spread does not automatically mean that you will turn a profit. You also need to have a proven trading strategy and proper execution. If your execution is poor, it will be tough to determine that the broker you are using has a wide or tight spread. A tight spread that is executed properly will produce the profit as per the expectations.

In Forex trading, your main priority is to buy low and sell high. Therefore, you don’t want to limit your dealings with a broker that has a wider spread, because it means lower profit earning abilities. A half-pip lower spreads does not sound like much. However, it can easily mean the difference between making a profit and losing your shirt. A good example is when your monitor shows a tight spread, but your trade comes in a few pips higher.

Forex trading does not follow the conventional trading floor. On the inter bank market, the larger the ticket size, the larger is the spread. This is not automatically the same for Forex trading.

Why back testing is misleading: History doesn’t repeat in forex

forex

forex

Forex is a risky business, and one of the major preoccupations of forex traders is the reduction of uncertainty through every possible means. In the case of live trading, the tools and options that are available for this purpose are limited. In one way or the other, any conjecture about the future must involve a degree of risk, and with all the unknowns and variables that go into the formulation of a strategy, the extent to which risk can be reduced in real trading is not very large. This fact has made many traders willing to consider back testing on historical data as an alternative to testing in live trading. The presumption is that the market action repeats itself, that a method that was successful consistently over a period stretching back decades into the past, in some cases, is likely to be successful in the future as well. But how true is this presumption? We will take a look at this subject in this article.

1. Forex price action is chaotic

Let’s first recall that forex price action is a chaotic process. Other chaotic processes include the Brownian motion of molecules, weather events, and earthquakes. The common property of all these events is that their response to different initial conditions is vastly divergent. A small difference in the input, a seemingly insignificant alteration of the data fed to these systems results in a vastly different outcome. What this means from our point of view as forex traders is that each days dynamics, and rules governing the price movements is difference from the others, and as such, success at one point in the past implies nothing whatsoever about success in the future.

2. Back testing a strategy ignores crucial broker-specific factors.

There are other factors that make back testing an unrealistic tool. Broker-specific issues are some of them. What would happen if the software crashes? Would back testing reflect those cases where the broker misquotes a price, or refuses to execute a trade? What about those situations where the broker experiences very brief but severe liquidity problems, which widen the spreads rapidly while triggering stops? Such short-term, temporary issues are commonplace, but are not always discounted in the back testing process since they are not observed by all traders. (You may trade with firm A, while back testing your strategy with the software of firm B, which would lead to misleading results.)

3. Back testing is a marketing tool

All this being the case, why is back testing so popular? Since back testing makes many promises and claims possible for strategy developers, and peddlers of automated systems, it infuses an air of credibility and reliability to a trading method being advertised. Thus, it is effective as a marketing tool, and in order to promote their own products, the sellers of online software choose to promote back testing as well, as a certification mechanism for a valid and profitable strategy.

4. Back testing optimization is dangerous and futile

One of the worst approaches that can be taken with back testing involves the notorious back testing optimization method where the strategy is tweaked in such a way that it generates optimal results when it is applied to past input. Yet we have already noted that past patterns are highly unlikely to be repeated in the future. They were the result of particular combination of factors that is extremely unlikely to be repeated for the foreseeable future. If this is the case, back testing optimization ensures that we’ll blow up our account sooner or later, especially if the results of back testing do indeed work to inspire some false confidence in our trading decisions.

5. Back testing is only useful for educational, and entertainment purposes

What is the best use of back testing, then? Back testing can be excellent tool for the forex novice who doesn’t know much about indicators and patterns, and is even more ignorant of how a strategy can be constructed. In that case, back testing can be used to create, and evaluate strategies not with respect to future performance, but to show whether the creator is fully in command of the tools that he employs, whether he understands how they were created, and what purpose they serve.

Perhaps the most popular back testing platform is the MetaTrader software popular with both online forex brokers,and trader. The merits of this platform are in fact numerous, but its back testing capabilities are not one of them. While making use of the platform, we advise that you focus on its analytical capabilities while minimizing the historical aspect of testing. Trading is risk taking; there’s no way around this basic fact.

Make money with Forex Trading

If you are looking to make some money with Forex trading, you need to devote some time and do a lot of studies on this subject. People who go through this prospect of market exchange can do a lucrative business and know additive investment strategies.

Forex trading means the purchase and sale of foreign currencies. Investors keep a close eye on the rates of the currencies when they are moving up and down according to their needs. For example, if you are looking to make a good buy will pin point towards that currency that is currently having a lower value in the Forex market, but is anticipated that the rates will definitely go up sometime in the near future. Just like stocks, you buy the currencies at lower rates and sell it at higher rates to make profits.

You need to apply a lot of different approaches when you are making money with Forex trading. Some of the most common ways to start trading foreign currency include:

  • Going through hands on brokerage firms – just like stock brokers, Forex has its own skilled and trained traders. When an investor signs on with a huge investment, he will usually invest his funds on the broker’s best judgments. Investor can still have the hold on his funds and when to pull out on the purchase.
  • Day trading – The Forex market is quite popular among the small dollar day traders. Investors will usually go to the brokerage sites to place their orders and request for sales. The individual client will call all the shots even though there is a broker to handle the deals. Day traders often go to great pains to learn market indicators to watch out for and to study up on trends associated with certain currencies.

Making money with Forex trading can be a quite tricky proposition. When you see the currency value moving up and down virtually on a daily basis, this market is still fast-paced, active and interesting for investors to get involved in.