US Dollar Dives in Low Volume Trading - US Personal Income and Spending Due Out on Friday

• British Pound Under Pressure as UK Business Investment Plunges 10.4%, Bodes Ill for Friday’s UK GDP Revisions
• Euro Ends Day Higher After German Consumer Confidence Improves
• Commodity Dollars Jump on Late Rally in Oil Prices, Equities

US Dollar Dives in Low Volume Trading - US Personal Income and Spending Due Out on Friday
The US dollar experienced a very wild day of price action, which is indicative of the low volume trading we typically see at this time of year. In fact, the currency had spent much of the morning making headway, but between 14:00 ET and 14:30 ET the DXY index spiked lower, leaving it as the weakest of the majors. In US news, the final reading of US GDP was confirmed at -1.0 percent for Q2, which was in line with previous estimates. While this was actually better than forecasts that had called for a reading of -1.4 percent, the news failed to spur optimism in the markets, as evidenced by the subsequent drop in equities and carry trades. A breakdown in the GDP results showed mostly upward revisions, including personal consumption (-1.0 percent from -1.2 percent), exports (-5.0 percent from -7.0 percent), and government consumption (+6.4 percent from +5.6 percent). On the flip side, gross private investment was revised down to -24.4 percent from -20.4 percent, due mostly to steeper declines in nonresidential structures, while the change in inventories was revised down to -$159.2 billion from -$141.1 billion.

Meanwhile, initial jobless claims fell by 10,000 during the week ending August 22 to 570,000 while continuing claims tumbled by 119,000 during the week ending August 15 to 6,133,000, the lowest since the second week of April. Ultimately, the data suggests that next week's non-farm payrolls report could reflect another month of slowing job losses.

Upcoming income and consumption data for the US is projected to reflect fairly lackluster results on the economy. First, personal income in anticipated to rise by 0.1 percent for the month of July, but it is worth noting that past increases in income have been due purely to surging transfer payments, which include government benefits like unemployment, while wage and salary growth has fallen steadily (-4.7 percent in June from a year ago). Next, personal spending is forecasted to rise by 0.2 percent for the third straight month in July, but based on the steep decline we saw in consumer confidence during that period, this reading could be somewhat disappointing. If this is indeed the case, the US dollar could gain slightly on flight-to-safety. On the other hand, surprisingly strong results could hammer the currency even lower as carry trade demand rises.

Related Articles: FX Carry Trade Direction Hinges Upon Proof of Global Economic Recovery, US Dollar Weekly Trading Forecast

British Pound Under Pressure as UK Business Investment Plunges 10.4%, Bodes Ill for Friday’s UK GDP Revisions
The British pound was close to being the weakest of the majors on Thursday, second only to the US dollar, but this was only because of sudden spike lower in the greenback across the majors between 14:00 ET and 14:30 ET. Looking to the UK data on hand, total business investment fell much more than anticipated during Q2 at a rate of -10.4 percent, dragging the annual rate of growth down to -18.4 percent from -9.7 percent. The disappointing news highlights the impact of the recession and tight credit conditions on businesses in the nation, and bodes very ill for tomorrow’s preliminary release of Q2 GDP. This index is not anticipated to be revised from previous estimates of a 0.8 percent quarterly contraction and a 5.6 percent annual contraction, the worst since recordkeeping began in 1955. The economic decline was led by a 2.2 percent drop in construction and a 0.7 percent slump in business services and finance, but the updated figures may reflect a greater deterioration in growth given the steep drop in investment. That said, with the Bank of England’s latest meeting minutes showing that three Monetary Policy Committee members, including BOE Governor Mervyn King, voted in favor of a larger increase to their quantitative easing program than was actually implemented, a steeper than expected decline could lead the markets to price in another QE expansion at the end of the year and push the British pound lower. Additionally, worsened growth figures will only add to fears that the government’s fiscal deficits will widen further, spurring speculation that the UK’s AAA credit rating could be in danger, as Standard & Poor’s already downgraded the credit outlook to “negative” from “stable” in May.

Related Article: British Pound Weekly Trading Forecast

Euro Ends Day Higher After German Consumer Confidence Improves
The euro didn’t show much of a reaction to European data today, though most of it was positive for the currency. German consumer confidence rose to a 15-month high in September, as indicated by the GfK index, which increased to 3.7 from a revised 3.4 in August. The breakdown of the report showed income expectations jumped from 1.8 in July to 8.38 in August, largely due to the government’s second quarter stimulus measures, while the gauge measuring consumers’ willingness to buy increased from 25.1 to 31.1 in August. Adding to the mix, the preliminary reading of German CPI rose 0.2 percent in August, leading the annual rate of growth up to 0.0 percent from -0.5 percent. That said, the afternoon dive in the US dollar helped propel EURUSD higher once again, which may open the day up for a test of the 2009 highs.

Commodity Dollars Jump on Late Rally in Oil Prices, Equities
The Australian dollar, Canadian dollar, and New Zealand dollar were the strongest major currencies on Thursday, though their sharpest moves didn’t come until after 12:00 ET. Indeed, after this time, oil suddenly shot higher and the US dollar plunged, benefiting the commodity dollars greatly. There was no formal “trigger” for the move, and the reality of the situation is that we’re still in the “summer doldrums”, in which low trading volumes contribute to extremely choppy price action. Looking to last night’s data, the New Zealand trade deficit narrowed to NZ$163 million in July from NZ$332 million, but this was due purely to a 6.2 percent slump in imports to NZ$3.34 billion as exports also slipped 1.6 percent to NZ$3.18 billion. The news didn't have much of impact on NZDUSD, as the results were largely in line with expectations.

Written by: Terri Belkas, Currency Strategist for DailyFX.com

EUR/USD on Record High

As the Forex traders wait for today’s housing data release, EUR/USD reached its new historical maximum at 1.4778. With just a little trailing back it continues to hover around 1.4770 level ready to strike again to probable 1.4800 level.

Markets await a huge decline in Housing Starts and Building Permits releases today. Both data reports will be published by the United States Census Bureau today at 8:30 AM EDT. Hosing Starts is believed to drop to 1175K annual rate, while Building Permits are expected to fall to 1200K. If these expectations come true, both indicators would be on their bottom levels since 1993.

Combined with high probability of 0.50% rates cut by Federal Reserve (according to current interest rates futures trading) bad housing data expectations cause great pressure on the U.S. currency, which might see another wave of depreciation against other major world currencies.

But if they housing data report will show more optimistic numbers, Forex market will have to play back its “undeserved” gains earlier this day. In this case dollar will have some spare time for correction and maybe a medium-term revaluation.

Top 7 News Sources for Financial Trader

Getting the latest important news is a vital requirement for every Forex, stocks or options trader. The Internet is full of various sites, but not all them feature financial news or provide such news in a timely manner. This list consists of top ten sources for the trader’s news that are updated often and are not mixed up with irrelevant news.

1. Bloomberg — the ultimate news source about everything that is in any way related to the financial markets. Categorization by the regions helps in finding important international news.
2. Forbes.com Breaking News — a great site to get the recent financial information, it also provides free news from several paid news sources (i.e. Associated Press). Stock market traders will like the coverage of almost all kinds of companies.
3. Reuters Business & Finance — Reuters is one of the most professional informational companies in the world and they offer news as a free service to everyone.
4. BusinessWeek — they may be too old-fashioned, but BusinessWeek still features some exclusive news content and the very professional analysis.
5. Financial Times — I like FT for they are not as US-centered as some other financial news sites, they offer a pretty good world news outlook. Can be recommended as a source of Forex related news if you prefer trading exotic currency pairs.
6. CNNMoney — opposite to FT, CNN prefers news from United States, but it’s still good because the majority of world stocks are concentrated on the Wall Street. It will also be useful to the Forex dollar traders.
7. CNBC — a "must have" bookmark for every currency trader; news on foreign currency markets are delivered at the top quality level.

Currency Market Bull Trend Stalling as Growth Forecast and Financial Stability Loose Traction

High volatility has carried over from last week owing largely to low levels of liquidity that amplify intraday market swings. However, despite the high level of activity in the market, direction is still a missing vital component of the long-term bull trend that investors have steadily funded since the reversal in risk appetite back in March. Once again, the question of whether the past six months have represented a genuine bull market or merely a bear market retracement is being posed.

• Currency Market Bull Trend Stalling as Growth Forecast and Financial Stability Loose Traction
• Will Bullish Speculation Relent to a more Bearish Fundamental Outlook?
• Fed Ruling May Test Investors Confidence in Market Stability

High volatility has carried over from last week owing largely to low levels of liquidity that amplify intraday market swings. However, despite the high level of activity in the market, direction is still a missing vital component of the long-term bull trend that investors have steadily funded since the reversal in risk appetite back in March. Once again, the question of whether the past six months have represented a genuine bull market or merely a bear market retracement is being posed. Eventually, genuine fundamentals and the sedate forecasts they project will have to be reconciled with the steady rise in investor sentiment; and at these levels it is increasingly clear which is growing overextended. Most capital markets have shown an unbroken, bullish bias that has retraced a significant portion of the unprecedented losses through the 2007-2008 financial crisis. For the popular equities market, the benchmark Dow Jones Industrial Average has advanced nearly 50 percent from its lows in the first quarter. What’s more, the index has risen for every one of the last eight sessions. Yet, thanks to easily compiled volume data, we can see that the conviction behind this move has become severely taxed. Not only has the general investment in this market cycle started to deteriorate since it began; but the weekly average has fallen to its lowest levels for the year. For the FX market, the progress of risk appetite is reflected in the performance of high potential currencies against those that are stationary or deteriorating (as measured by yield). Both the dollar and Japanese yen have developed relative levels of support over the past weeks against counterparts like the euro, Australian and New Zealand dollar.

While congestion has become a common sight across the markets, it is clear that the general bias is still positive. Speculative interests are well supported – especially with a considerable portion of the market’s investable capital still held in relatively ‘risk-free’ securities like Treasuries and money market accounts. Nonetheless, the influx of capital cannot be sustained on capital appreciation alone. Eventually, the profit potential in investing in an oversold market will dry up as demand for return quickly overwhelms the yield that the global markets can support. Just when will this shift happen is a matter of significant debate. Policy officials have carefully articulated their forecasts for growth by suggesting an initial recovery from the worst recession since WWII will be followed by a period of weak expansion. Naturally, this is not the type of markets that wealth and yields grow in. What we await now is a catalyst to align the markets to fundamentals. The most immediate threat is the recent ruling by a US court that the Federal Reserve must release the details it has on hand of its emergency lending programs (with names and amounts) by August 31st. While this ruling can be appealed and delayed; it could still unsettle confidence in the credit markets and fuel fears of another wave of runs on banks (the kind that led to the collapse of Bear Sterns and Lehman Brothers). Even if this threat never materializes, there are still many other active hazards. Recently, the FDIC reported the number of troubled banks rose to a 15-year high 416. The market cannot support issues like this for very long.

Risk Indicators:	Definitions:
	What is the DailyFX Volatility Index: The DailyFX Volatility Index measures the general level of volatility in the currency market. The index is a composite of the implied volatility in options underlying a basket of currencies. Our basket is equally weighed and composed of some of the most liquid currency pairs in the Foreign exchange market. In reading this graph, whenever the DailyFX Volatility Index rises, it suggests traders expect the currency market to be more active in the coming days and weeks. Since carry trades underperform when volatility is high (due to the threat of capital losses that may overwhelm carry income), a rise in volatility is unfavorable for the strategy.
	What are Risk Reversals: Risk reversals are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options. The measurement is calculated by finding the difference between the implied volatility of a call with a 25 Delta and a put with a 25 Delta. When Risk Reversals are skewed to the downside, it suggests volatility and therefore demand is greater for puts than for calls and traders are expecting the pair to fall; and visa versa. We use risk reversals on USDJPY as global interest are bottoming after having fallen substantially over the past year or more. Both the US and Japanese benchmark lending rates are near zero and expected to remain there until at least the middle of 2010. This attributes level of stability to this pairs options that better allows it to follow investment trends. When Risk Reversals move to a negative extreme, it typically reflects a demand for safety of funds - an unfavorable condition for carry.
	How are Rate Expectations calculated: Forecasting rate decisions is notoriously speculative, yet the market is typically very efficient at predicting rate movements (and many economists and analysts even believe market prices influence policy decisions). To take advantage of the collective wisdom of the market in forecasting rate decisions, we will use a combination of long and short-term, risk-free interest rate assets to determine the cumulative movement the Reserve Bank of Australia (RBA) will make over the coming 12 months. We have chosen the RBA as the Australian dollar is one of few currencies, still considered a high yielders. To read this chart, any positive number represents an expected firming in the Australian benchmark lending rate over the coming year with each point representing one basis point change. When rate expectations rise, the carry differential is expected to increase and carry trades return improves.

Additional Information

What is a Carry Trade
All that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Each currency has a different interest rate attached to it determined partly by policy authorities and partly by market demand. When taking a foreign exchange position a trader holds long position one currency and short position in another. Each day, the trader will collect the interest on the long side of their trade and pay the interest on the short side. If the interest rate on the purchased currency is higher than that of the sold currency, the result is a net inflow of interest. If the sold currency’s interest rate is greater than the purchased currency’s rate, the trader must pay the net interest.

Carry Trade As A Strategy
For many years, money managers and banks have utilized the inflow and outflow of yield to collect consistent income in times of low volatility and high risk appetite. Holding only one or two currency pairs would invite considerable idiosyncratic risk (or risk related to those few pairs held); so traders create portfolios of various carry trade pairs to diversify risk from any single pair and isolate exposure to demand for yield. However, even with risk diversified away from any one pair, a carry basket is still exposed to those conditions that render this yield seeking strategy undesirable, such as: high volatility, small interest rate differentials or a general aversion to risk. Therefore, the carry trade will consistently collect an interest income, but there are still situation when the carry trade can face large drawdowns in certain market conditions. As such, a trader needs to decide when it is time to underweight or overweight their carry trade exposure.

Written by: John Kicklighter, Currency Strategist for DailyFX.com.

Fundamental Factors behind Major Currencies

Every currency traded in Forex is influenced by the conditions in its country of origin, and the external relations that affect its value. Economic Indicators (GDP growth, import/export trade accounts), social factors (unemployment rate, real estate market conditions) and the country’s central bank policy are the factors that determine the currency value in the Forex market. Each one of the six major currencies has its particularities, and we are going to analyze the fundamentals that drive the currencies individually.

The U.S. dollar (USD) is the most traded currency in the Forex market. It is also used as a measure to evaluate other currencies and commodities. The reserves in USD are by far the largest being held by different nations, and they compose 64% of the world reserves. Globally speaking, the fundamentals that drive the U. S. Dollar are several. Since the largest amount of metallic commodities and the oil are mostly traded with prices in USD, significant demand variations in these markets will reflect directly on the currency value, as it happened in 2008 with the EUR/USD reaching 1.60, being the oil price a big contributor for this event. In the domestic market, the biggest factor that has been moving the dollar are the industry indicators and the real estate boom, and both were caused by an unsustainable credit system which could not be paid, causing a domino effect in the United States economy, and consequently, worldwide. During the last few years, the USD has been losing ground for other currencies, thanks to the credit bubble, and erroneous social policies, but it will still remain as one of the most powerful currencies for an undetermined period of time.

The euro (EUR) is by far the newest currency traded among the major pairs traded on Forex markets. It is used by 16 European Union member countries and it tends to enlarge during the next few years. The fundamental factors that move the Euro are often based on the strongest economies using the new common currency, such as: France, Italy and mainly Germany. The countries’ indicators regarding export trade, inflation and unemployment rate tend to have a high impact on the EUR movements, considering that countries such as Germany are larger exporters of manufactures and technology. Europe still remains an energy dependant from the Russian gas and the Middle Eastern Oil, making higher demands for these commodities to have a negative reflect on the European Union common currency.

The pound sterling (GBP) is the national currency of the United Kingdom, and the fundamental factors that move it are as complex and variable as the British economy and its global influence. The London commodity market plays a fundamental role in the GBP trends, being a reference for oil and gold trading. Nevertheless, as a powerful and globally dynamic economy, the United Kingdom indicators, social situation and the housing sector are perhaps the main determinant factors for the GBP price. Lately, the British economy has faced inflation issues, which led the interest rates to be cut, industrial recession, and other domestic factors that made the trading movements to naturally flow from the GBP towards other strong economically backed currencies, such as the EUR.

The Japanese yen (JPY) is the strongest and by far the most traded currency in the Asian market. Japan’s economy is mainly orientated to the industrial production exportation, and the economic situation of its main commercial partner, the USA, tends to have a direct influence on the JPY market. The JPY is a low-yield currency, being the GBP/JPY the most volatile pair traded on Forex, usually the scalper’s favorite one.

Switzerland is a small country located in the European Alps, yet, its strong international trade and money influx, made the Swiss franc (CHF), one of the main currencies traded on Forex. The CHF is often preferred by low yield investors. In times of financial instability, such as for the last years with the USD, many traders choose the CHF as a safe investment. The CHF trends can be often compared to those of the gold, increasing their value while other markets’ tends to depreciate during economic downturns.

The Canadian Dollar (CAD) faces a similar situation with the other commodity currencies, being majorly an export-dependable. Most of the Canadian production is exported to the USA. Facing the very same credit bubble problem that dragged America into recession, Canada has to deal also with a decreasing demand for all commodities. The CAD usually correlates positively with the prices for the all commodities.

Is There Any Such Thing As Stress-Free Forex Trading?

Forex trading can be a highly stressful profession, particularly if you are trading your own money, but there are ways in which you can adopt a more automated trading approach and dramatically reduce stress levels.

The first method I'm going to suggest is to use a basic, but profitable system which eliminates the need for you to make trading decisions yourself. A classic example would be some kind of breakout system. For example, some traders like to plot the opening 15 minutes of a trading session and place orders to go long or short at say 5 points outside the high and low points of this range, with the strategy being to catch any moves when the price inevitably moves outside of this opening range.

Another similar breakout strategy would be to sit and watch a currency pair until it enters a quiet trading period where it trades within a very narrow range and then again place orders to buy just above the high point, and sell just below the low point to catch any moves.

If you can use a solid and reliable breakout strategy then this is relatively stress-free because all you do is identify a trading range and place orders just outside of this range with appropriate stops and limits in place if required.

Another way to eliminate stress from your trading is to stop scalping and placing very short-term trades which require quick decisions, and can result in quick profits or equally quick losses, but adopt a more long-term approach instead.

Not only is this less stressful but it is also widely accepted that this is often a more profitable way of trading. Indeed I chatted to an employee from one of the spread betting firms a while ago and he told me that most of their most profitable traders were all medium and long-term traders.

Technical analysis conforms extremely well to longer time horizons with currencies and indeed most financial instruments, so why not adopt a longer term approach? This way you don't have to sit at your computer screen for 8 hours a day jumping in and out of trades, but can instead build up a long-term position when all your trading criteria are met.

This way you could even make a full-time living as a forex trader whilst also holding down a full-time job, because you could just as easily study the charts for an hour or so every evening and trade daily or weekly charts.

The final method I want to discuss briefly is a more expensive method and sadly out of reach of most people. It involves building and programming a bot to trade for you. Obviously this is extremely complex as it involves mathematical equations and algorithms but I thought it was worth mentioning anyway.

The main points I wanted to get across today is that forex trading doesn't have to be stressful. There are certain methods of trading you can adopt, as I've mentioned in this post, that can take the actual trading decisions away from you to some extent, and can produce consistent profits over sustained periods of time without stressing you out all the time.

Successful Forex Trading Is All About Probabilities

When you first start to trade forex, it's very easy to test out a technical indicator or two and then apply it to your first few trades, or even just trade based on your gut feelings, but if you are serious about becoming a long-term successful trader then you need a well-thought out strategy.

A good forex trading strategy is one where the probabilities are in your favour for every single trade you make.

For example, I don't believe in entering a position where one single technical indicator provides a good signal, but instead rely on several indicators to all indicate either a buy signal or a sell signal in order to enter a trade with confidence.

I also use different time frames as well to show the overall trend. For example, if I'm analyzing a 5-minute chart and all my indicators indicate a buy signal, then I will check the 30-minute chart as well to make sure that we're not in an overbought position or that we are in a strong downwards trend.

To demonstrate with a real-life example, the GBP/USD signalled an outstanding sell signal at around 11.45 this morning (UK time) where all of the signals I use were signalling that a downward move was imminent.

The 10, 50 and 100 EMA's were all trending downwards, the supertrend was currently red, and the MACD was crossing over on both charts. Now I was just waiting to see if the support level on the 5 minute chart of 2.0747, indicated by the parabolic SAR, was going to break before entering.

As it turned out, it did break downwards and I immediately entered my position to go short, and it subsequently dropped 150 points (although I banked a lot less than that )

As you can see in this instance all my signals were indicating a downwards breakout, and therefore providing it breached this support level, this was a classic example of a high probability trade.

So always try and create a trading system that will provide you with high probability trading positions as this is the key to making long-term profits from forex trading.

Best Currencies To Trade When Trading Forex?

The trouble with being a full-time forex trader is that it can be a very lonely profession if you're trading your own account at home.

Everyone thinks it's an exciting, exhilarating profession sitting at your computer in your underwear watching the markets, going long, going short, raking in huge profits, but the reality is somewhat different.

You can sit staring at your computer screen for hours on end waiting for a good set-up to enter a trade, and sometimes you can sit there for the whole day and not enter a trade. And even if you do find a trade, when it goes against you and you have to close out at a loss, then it's a gut-wrenching feeling. You've wasted a whole day, and not only have you not earned any money, but you've actually lost money. You could have made more money working a menial job for the minimum wage that day.

Also in most cases you're all alone and therefore have no work colleagues. You have no social interaction at all during the day except to maybe exchange pleasantries with the postman or to go down to the newsagents for a paper. Over many months and years this lack of social interaction can be quite depressing, especially if you are a naturally social person. Talking to traders on a forum or a load of pretend friends on Facebook is no substitute for real human interaction.

There will also be lean times for even the most profitable traders, which can be extremely stressful, particularly if you have mortgage payments to make, bills to pay, and a family to support.

Yes the potential profits you can make are almost limitless thanks to leverage and compounding, but it's a very tough, and often very stressful way of making a living.

Saying all that though, I've been working for myself since 2001, with forex trading contributing greatly to my overall income and I absolutely love it. Admittedly the lack of social interaction isn't really an issue as I don't really like people generally.

In all seriousness though, if you can learn to trade successfully then you will be very well rewarded financially, which will allow you to have a great social life away from your computer screen and you can enjoy the benefits of being your own boss and the maker of your own destiny.

Best Currencies To Trade When Trading Forex?

When you first become interested in forex trading it can be difficult deciding which currency pairs you should be trading. Is it best to keep your eye on all of them or focus on just a few pairs?

Well there isn't really a right and wrong answer. A major factor is your own particular trading style. For example, if you have a very solid trading system based on technical analysis criteria, then you could watch all the currency pairs and wait for the right set-up to occur in any one of them in order to enter a trade.

Most pairs conform very well to technical analysis so this can be a very profitable method if you have a solid reliable trading system in place.

Another approach used by myself, and I would guess the majority of traders, is to only focus on the major currency pairs – GBP/USD, EUR/USD, USD/JPY and USD/CHF.

These are the most actively traded currencies so it makes sense to only trade these as they conform extremely well to technical analysis. This is because charts are essentially displaying human behaviour and with so many people across the world all looking at the same charts, you can start to understand where people are likely to enter and exit positions.

The major advantage of this method is that these pairs generally have the tightest spreads which is important because over the longer term these wider spreads can really make a dent in your profits.

Another benefit of only watching these pairs is that by concentrating on a fewer number of pairs you can learn the personality of each one and learn how they move, making it easier to identify trends and take a position.

Finally, one other factor is your location and the time of the day when you are available to trade. For example, if you can trade the forex markets between 7.00 GMT and 17.00 GMT, then the GBP/USD or EUR/USD would be a good volatile pair to trade as this is when the London and European markets are open and at their most busiest.

So to sum up, there are not really any best currencies to trade, all can be very profitable. However you should take the tightness of the spreads into consideration and the behaviour of each currency pair, which is why I generally recommend trading just one or more of the four major currency pairs - GBP/USD, EUR/USD, USD/JPY and USD/CHF.

For more forex tips and strategies, including full details of my main 4 hour trading strategy, simply sign up to my newsletter by filling in the short form above.

Techniques for Advanced Forex Trading

Forex is a potential platform for earning substantial profit. In fact it is one of the largest trading markets of the world. Featuring an average daily trade of US$ 2 trillion and above, this market is best known for its high scale trading volume and intense liquidity. Adding to this, today with the advancement of technology it can be done from anywhere of the world. Backed up by world-wide web, you can easily trade in the forex market at the comfort of your own home. However, it is important to understand that fx trading is based hugely on speculation. You must be smart enough to guess exactly when the rate of a certain currency pair will rise and go down, and then buy or sell based on that. Indeed it is said that if you learn to study the speculation of this market, you will have a better chance of getting profit.

Today, it is more advanced and turned into an active investment arena, where only a factual understanding of the intricacies and complexities can make your capital grow every day. Moreover, like any other business, it also involves some amount of risks. There is no shot fx trading technique for success in the currency trading market, but there are some well-known techniques that can assist you formulate a good advanced foreign exchange trading strategy. Here are few essential techniques that can help you cut your losses and increases profits:

Forex Scalping: It is a latest technique of trading where profits are taken after relatively small moves in the forex market. It is a technique where trading is done over small time frames, and smaller profits are taken more frequently. As the position exposed to the market is shorter, it automatically reduces the risk of adverse market events causing the price to go against the trade. It is a different approach to most other forex strategies, but still requires you to analyze the market to ensure that the set up for a trade is present. This type of trading greatly appeals to day traders and those who look to reduce the risk involved in trading currencies.

Forex Hedging: It is a technique that helps in reducing some of the risk involved in holding an open forex position. It decreases the risk by taking both sides of a trade at once. If your broker allows it, a simple way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.

It is important to understand that much of the risk involved in holding any forex position is market risk; i.e. if the market falls sharply, your losses may escalate dramatically. So if you have an open Forex position with fine projection but you think the currency pair may reverse against you, it is advised to hedge your position.

Forex Position Trading: Forex position trading approach is yet another trouble-free technique to boost your position size without increasing your risk. This trading tactic is very effective with mini lots. The major highlight with this technique is that - with forex position trading your exposure to the market is less and so therefore is no need to monitor the market continuously. Moreover, you may even earn profit with negligible loss that can further boost your trading confidence. For Example- you might make a short trade on EUR/USD at 1.40. If the pair is ultimately trending lower, but happens to retrace up, and you take another short at say 1.42, your average position would be 1.41. Once the EUR/USD drops back below 1.41, you will be back in overall profit.

Today forex trading is all about watching your options when you make a trade. Aside from using effective risk management and extreme vigilance, advanced trading can be an alternate way to make profits and control losses. Nevertheless, these above mentioned advanced trading techniques are more about using the market behavior to your advantage. Utilizing these advanced techniques can give you the edge from other average trader.

Money Management Principles

One of the worst blunders that forex traders can make is attempting to trade without sufficient capital.

The trader with limited capital not only will be a worried trader, always looking to minimize losses beyond the point of realistic trading, but he will also frequently be taken out of the trading game before he can realize any sense of success trading the method(s) or patterns.

Exercise Discipline

Discipline is probably one of the most overused words in forex trading education. However, despite the clich¨¦, discipline continues to be the most important behaviour one can master to become a profitable trader. Discipline is the ability to plan your work and work your plan.

It¡¯s the ability to give your trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to trade the methods and patterns even after you¡¯ve suffered losses. Do your best to cultivate the degree of discipline required to be a world-class trader.

Employ Risk-to-Reward Ratios

The following shows you possible risk-to reward ratios, and the win ratios required to break even in a trading system.

Risk-to-Reward Ratio (in pips)and Win Ratio Required to Break Even(%)

40/20 (2 to 1) = 67%, 40/40 (1 to1) = 50%, 40/60 (1 to 1.5) = 40%,
40/80 (1 to 2) = 33.5%,
60/20 (3 to 1) = 75%,
60/60 (1 to 1) = 50%,
60 /90 (1 to 1.5) = 40%,
60/120 (1 to 2) = 33.5%

Important Note

Never risk more pips on a trade then you plan to make. It doesn¡¯t make sense to risk 100 pips in order to make only 10. Why? See below example.

Profit taking level (pips): 10
Stop used or pips at risk: 100

You win 10 times which makes 100 winning pips. You ONLY lose once and have to give back all profits!!!

This type of trading makes no sense and you will lose on the long term guaranteed!

What is a forex broker?

Have you ever felt intrigued by the many advertisements on high leverage and great profit potential involved in currency trading? The golden gate of the kingdom of money, we are told, is reached by the road of forex. Are forex brokers highway robbers infesting that road, or honest dealers making our journey easier? We'll discuss the brokerage business in this article.

A forex broker is the mediator between the retail and wholesale forex markets The wholesale market is comprised of banks and similar large institutions, and the retail market, of course, includes individual traders who are seeking to acquire speculative gains. Forex brokers are not traders themselves, but occasionally they will have their own staff trading the market on their behalf.

Forex brokers allow retail traders to interact with the markets, and are compensated for their services through the bid-ask spread which is the difference between the price a trader must accept to sell (bid), and the price he must pay to buy(ask) a currency. Since forex traders suffer losses often, brokers make the utmost effort to protect themselves. First, they net out the positions of their clients with entries on the opposite side. Since the vast majority of forex traders lose money, by entering the opposite order they usually make profits. And they also protect themselves by activating margin calls in case that a trader's account value falls below a threshold level (margin requirement).

At the inception of the forex brokerage business, retail trading was largely unregulated as authorities did not possess the expertise and background for effective oversight. Today, however, numerous regulatory bodies which include the CFTC in the U.S., the BaFin in Germany, and the FSA in the U.K. ensure a healthy, legal and competitive environment by maintaining strict regulation of the business. As such, one of the most important considerations for a beginning forex trader is guaranteeing that the broker is regulated by the relevant national authority.

In general, today's laws and regulations do not protect forex traders in the same way that stock traders are protected. Accounts opened with online stock brokers are usually protected against broker insolvency by up to $100000, and yet there is no equivalent protection for forex traders. UK-based brokers are required to segregate client assets from the firm's own capital, and so, creditors cannot press claims against forex traders if an FSA regulated broker goes bankrupt.

Forex trading is a great, profitable career for the committed individual. And a carefully scrutinized, patiently selected broker can be an excellent partner for a successful forex trader. Ultimately, finding the right broker is not just about screening forex broker lists, but improving our own discipline, and analytical skills in determining what we want from trading. Set your goals right, and you can reach them in due time. Vacillate in defining your aims, and success will likewise hesitate to come your path.

The Foreign Exchange Market Differs From The Stock Market

The alien interchange market is likewise known as the FX market, and the forex market. Syndication that takes place amongst two regions with dissimilar currencies is the basis for the fx market and the background of the Syndication in this market. The forex market is over thirty years old, traditionalistic in the early 1970's. The forex market is one that is not grounded on any one business or laying out money in any one business, but the retail and retail of currencies.

The divergence amongst the stock market and the forex market is the tremendous retail that occurs on the forex market. There is millions and millions that are traded daily on the forex market, almost two trillion dollars is traded daily. There is is much higher than the cash traded on the daily stock market of any country. The forex market is one that involves governments, banks, financial foundations and those similar types of foundations from other countries. The

What is traded, purchased and sold on the forex market is a thing that can easily be liquidated, meaning it can be turned back to cash fast, or often times it is really going to be cash. From one currency to another, the accessibility of cash in the forex market is a thing that can take place fast for any investor from any country.

The divergence amongst the stock market and the forex market is that the forex market is worldwide, worldwide. The stock market is a thing that takes place only within a country. The stock market is grounded on businesses and products that are within a country, and the forex market takes that a step farther to include any country.

The stock market has set business hours. In general, this is going to follow the business day, and will be closed on banking holidays and weekends. The forex market is one that is open in general twenty four hours a day because the tremendous number of countries that have part in forex retail, buying and retail are located in galore dissimilar times zones. As one market is opening, another countries market is closing. This is the continual method of how the forex market retail occurs.

The stock market in any country is going to be grounded on only that countries currency, say as an illustration the Japanese yen, and the Japanese stock market, or the United States stock market and the dollar. However, in the forex market, you're involved with galore types of countries, and galore currencies. You will find references to a variety of currencies, and this is a big divergence amongst the stock market and the forex market.

New York Session Published: June 3, 2009 5:00 PM

The commodity complex came off the boil in the NY session and this led to a revival in the US dollar. The weekly oil inventory data showed a massive 2.9 million barrel build in the latest week (market was looking for a -1.5 million draw) and this helped push the oil imbalance back in the favor of supply for the first time in three weeks. Oil briefly tried below $65/bbl before recovering, but the damage was done.

The correlations witnessed over the last month or so were in full force and the commodity currencies bore the brunt of the weakness in crude. USD/CAD confirmed the hourly double-bottom by 1.0790 and squeezed through the 1.0970 neckline. Look for potential to 1.1150 before this is over. AUD/USD saw a similarly impressive decline of about -150 pips in the session. The pair found support at the 200-hour SMA by 0.7940 and was trying to sneak back above 0.8000 ahead of the close.

US dollar strength extended well beyond the commodity currencies. Cable saw an impressive -200 pip drop towards 1.6310/20 and was down about -400 pips on the day at one point. Below 1.6240 opens up potential for further weakness. EUR/USD shed a more modest -50 pips into the 1.4150/60 area. The 1.4100 level remains like a rock and contained the weakness once again. The immediate risk is for a squeeze higher towards 1.4200/50 ahead of tomorrow's ECB meeting. This, however, would set up a potential head-and-shoulders hourly consolidation. If this comes to fruition, then the ensuing 1.41 break could be ''lights out''.

The big story in stocks was that the S&P managed to stay above the 200-day SMA (923.30) today after an earnest attempt on the market's part to take the level out. The index squeezed higher at the end of the day but closed -1.4% in negative terrain nonetheless. The weakness here left the yen crosses heavy with EUR/JPY, for example, dipping -60 pips towards the 135.80/90 zone.

Upcoming Economic Data Releases (Asia Session) prior expected

6/3 23:50 GMT JN Capital Spending 1Q -17.30% -27.10%

6/3 23:50 GMT JN Capital Spending excl Sftwre 1Q -18.10% - -

6/4 1:30 GMT AU Trade Balance APR 2498M 1700M

6/4 2:30 GMT AU RBA Governor Stevens Speech in Townsville

6/4 3:00 GMT NZ ANZ Commodity Price MAY 2.50% - -

6/4 3:00 GMT NZ Commodity Price Index for May

Difference Between Forex and Futures

1. A Forex trader could trade more transaction compared to the futures market (the trading volume could be a times larger), and the risk will be strictly under control. The trading volume of the Forex market is 46 times larger compared to the futures market, moreover Forex traders could make more profit from the Forex market due to the larger trading volume (the transaction volume is a few times larger), the REFCO Switzerland rich transaction platform allowed transaction between 1-100 times to be carry on, moreover a Forex trader could decide his or her own transaction amount, for example: Your account has $30,000, the basic transaction unit is each $1,000 (which transaction amount in $1.00, million), namely, so the proportion of the margin of each transaction unit is 100:1.

2. The risk of the Forex trader is under control, such margin call will not happen compared to futures, through the Forex trading system, your risk will receive the strict limit, even if your margin if lower then the deposit required, the Forex trading system will automatically settle your position, this means even if a Forex trader suffered losses, moreover if the market is suffering from a disaster fluctuation, your loss could not surpass your account amount. In order to understand the advantages, please apply for the demo account to carry on the complete zero risk.

3. A Forex trader will receive a large limitation of liquidation and a relatively fair market because the trading volume of the Forex market is large and it is also the largest liquidation market in the world. At present the trading volume in the Forex market is 140 billion Dollars, such big market will completely digest your transaction cash.

4. A Forex trader may do 24 hours transactions and other markets are different, the Forex market is a 24 hour linkages market, it starts from every Sunday before dawn Australian Sydney market, substandard collect the transaction center Singapore, Tokyo, London, Frankfurt to New York continuously to open, such linkage market enable you to do 24 hours transactions, also provide flexibility for Forex trader to do transaction.

Glossary

merican-style option An option contract that may be exercised at any time before it expires.

Ask The quoted price at which a customer can buy a currency pair. Also referred to as the 'offer', 'ask price', or 'ask rate'.

Base Currency For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.

Bid The quoted price where a customer can sell a currency pair. Also known as the 'bid price' or 'bid rate'.

Bid/Ask Spread The point difference between the bid and ask (offer) price.

Call A call option gives the option buyer the right to purchase a particular currency pair at a stated exchange rate.

Counterparty The counterparty is the person who is on the other side of an OTC trade. For retail customers, the dealer will always be the counterparty.

Cross-rate The exchange rate between two currencies where neither of the currencies are the US dollar.

Currency pair The two currencies that make up a foreign exchange rate. For example, USD/YEN is a currency pair.

Dealer A firm in the business of acting as a counterparty to foreign currency transactions.

Euro The common currency adopted by eleven European nations (i.e., Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) on January 1, 1999.

European-style option An option contract that can be exercised only on or near its expiration date.

Expiration This is the last day on which an option may either be exercised or offset.

Forward transaction A true forward transaction is an agreement that expects actual delivery of and full payment for the currency to occur on a future date. This term may also be used to refer to transactions that the parties expect to offset at some time in the future, but these transactions are not true forward transactions and are governed by the federal Commodity Exchange Act.

Interbank market A loose network of currency transactions negotiated between financial institutions and other large companies.

Leverage The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as 'gearing'.

Margin See Security Deposit.

Offer See ask.

Open position Any transaction that has not been closed out by a corresponding opposite transaction.

Pip The smallest unit of trading in a foreign currency price.

Premium The price an option buyer pays for the option, not including commissions.

Put A put option gives the option buyer the right to sell a particular currency pair at a stated exchange rate.

Quote currency The second currency in a currency pair is referred to as the quote currency. For example, in a USD/JPY currency pair, the Japanese yen is the quote currency. Also referred to as the secondary currency or the counter currency.

Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.

Retail customer Any party to a forex trade who is not an eligible contract participant as defined under the Commodity Exchange Act. This includes individuals with assets of less than $10 million and most small businesses.

Security deposit The amount of money needed to open or maintain a position. Also known as 'margin'.

Settlement The actual delivery of currencies made on the maturity date of a trade.

Spot market A market of immediate delivery of and payment for the product, in this case, currency.

Spot transaction A true spot transaction is a transaction requiring prompt delivery of and full payment for the currency. In the interbank market, spot transactions are usually settled in two business days. This term may also be used to refer to transactions that the parties expect to offset or roll over within two business days, but these transactions are not true spot transactions and are governed by the federal Commodity Exchange Act.

Spread The point or pip difference between the ask and bid price of a currency pair.

Sterling Another term for British currency, the pound.

Strike price The exchange rate at which the buyer of a call has the right to purchase a specific currency pair or at which the buyer of a put has the right to sell a specific currency pair. Also known as the 'exercise price'.

Forex Development History

Foreign exchange development history - exchange market evolution foreign exchange development history - exchange market evolution gold remittance system and Bretton woods agreement

In 1967, a Chicago bank rejected to provide pound loan to a professor named Milton Friedman, because his purposed was to use this fund to sell short the British pound. Mr. Friedman realized excessively that the price ratio from the British pound to US dollar at that time was high, he wanted first to sell the British pound, after the British pound fell he buys back the British pound to repay the bank again. This family bank rejects the loan offer based on the "Bretton woods Agreement" which was established 20 years ago. This agreement has fixed the various countries' currency to US dollar exchange rate, and the price ratio between the U.S dollar and the gold is also fixed to 35 US dollars to each ounce of gold.

The Bretton Woods Agreement was signed in 1944, the purposed was to prevent the currency to escape between countries, and also to limit the international speculation, thus to stabilize the international currency. Before this agreement was signed, the gold remittance standard system which was widely used since 1876 - was leading the international economy system until the First World War. In the gold remittance system, the currency was at the stable level under the support of the gold price. The gold remittance system has abolished the old time king and the ruler which depreciates the currency value unlawfully, which will lead to inflation.

But, the gold remittance standard system is certainly imperfect. Along with a country economic potentiality enhancement, it can import massive products from overseas, until it exhausts the gold reserve of certain country. It resulted the supply of the currency reduces, the interest rate raises, the economic activity will start to decline until it reaches the recession limit. Finally, the commodity price falls to the valley, gradually attracts other countries to stream in, massively rushes to purchase this country commodity. This will pour gold into this country, this will increase this country currency supplies quantity, and it will reduce the interest rate, and will create the wealth. This is so called the "the prosperity - decline” pattern and is the circulation of the gold remittance standard system, until the trade circulation and the gold freedom was broken by the First World War.

After several catastrophes wars, the Bretton Woods agreement has appeared. The countries which signed the treaty agreed to maintain the domestic currency to US dollar exchange rate, as well as the necessity of the corresponding ratio of the gold, and only allow a small fluctuation. Countries are prohibited to depreciate the currency value for the gain trade benefit, only allows the country to depreciate not more then 10%. Enters the 50's, the continuous growth of the international trade causes the fund large-scale shift which produces because of the postwar reconstruction, this causes Bretton Woods system which establishes the foreign exchange rate to lose stability.

This agreement was finally abolished in 1971, US dollar no longer could convert to gold. Until 1973, each major industrialized nation currency exchange rate fluctuation has been more freely, mainly regulates by the foreign exchange market through the currency supplies and demand quantity. The business volume, the transaction speed as well as the price variability, have achieved a comprehensive growth in the 1970's, come along with the emerge of price ratio fluctuation, the brand-new financial tool, then only the market liberalization and the trade liberalization could be achieved.

In the 1980s, along with the published of the computer and correlation technology, the international capital has flow rapidly, and strongly related the Asia, Europe and America market. Foreign exchange business volume from 80's rises daily from 70 billion US dollars to 150 billion US dollars after 20 years

European market inflation

One of the reasons why the foreign exchange developed rapidly was the rapid development of the Euro dollar market. In a Euro dollar market, US dollar is stored beyond the border of America banks. Similarly, the European market is refers to property depositing outside the currency rightful owner country market. A Euro dollar market was formed at first in the 50's, at that time Russia deposited its petroleum income beyond the US border, avoid being freeze by the US government. This has formed a large offshore US dollar national treasury which is beyond the control of the US government. The American government has formulated a law to prohibited US dollar from lending money for the foreigner. Because the degree of freedom of the Euro dollar market is bigger and the rate of return is bigger, therefore it has large attraction. Starting from the 80's, the American company starts to borrow loan from the offshore market, they discovered that the European market is a wealth center which consists of large amount of floating capital which could provide short-term loan.

London once was (until now still is) one of the main offshore market. In the 80's, the Bank of England in order to maintain its global finance industry center dominant position, using US dollar as England pound substitution to make loan, thus to become a Euro dollar market center. London's convenient geographical position (is situated between Asian and Americas market) also helps to maintain the European market as the dominant position.

Foreign Exchange Analysis Rupee Against Dollar

Pakistani Rupee is on decline against Dollar, the whole week it was a demand of Dollar .. Rupee was declined upto 10 Paisa against Dollar in the Inter Bank Market buying and selling at 82.80 and 82.85.

Rupee in Open Market: The rupee is on lower side against dollar due to the consumption responded powerfully Buying and selling was at 82.80 and 82.90 on an average. Euro was also in position against rupee and Rupee felling downward Euro buying and selling at Rs. 116.90 and Rs. 117.40 market responded

Rupee in Interbank Closing Rates: Inter Bank Rates buying and selling at 82.70 and 82.80 at the end.



In Lahore rupee got lower on selling point upto 10 paisa although the trend of Rupee Verses Dollar was unchanged. In starting it was 82.80 and 83.00 at the end of time it was seen at 82.80 and 83.00. Rupee seen firmed in Islamabad and Rawalpindi Rupee observed at 82.50 buying and selling 82.60 and the rates were remain unchanged in the end with the same 82.50 buying and 82.60 selling.

10 Things You Should Beware of During Currency Trading:

• Watch out of those who guarantee large profits.
• Stay away from those who promise no financial free
• Beware of those everything sounds very easy.
• Don’t trade on Margin unless you have been trained
• Please take cautious to online/phony transferring cash in online trading
• Make sure its really interbank market
• Job offer as Account Executive might lead you to use your money for currency trading
• Need to ensure the company background
• Avoid those company who won’t let you know their background
• Don’t fully trust any agency or broker, put some effort to understand currency trading by yourself.

Risks Accessment Consideration

Trading currency exchange will carry certain level of risk which may not be fitting all investors' appetite. Prior to trading, investor should take consideration of their experience level, monetary objectives, financial management plan and risk-bearing.

Credit risk
Due to intended or unintended action by counter party, an outstanding currency position may not be paid off as agreed due to voluntary or involuntary action by counter party.

Replacement risk
When you cannot get refund from the counter party and induce your account deranges, instantly clear off your books to hold the currency price rate.

Settlement risk
Due to different prices at different time zones between you and your counter party, transaction payment might possible to be declared not enough money before payment is executed.

Exchange rate risk
Variation of currency rate is due to the worldwide market supply and demand. Price changes may bring to loss from profitable position.

Interest rate risk
Because of variation of currency rate, in forward spread , there might be some maturity gaps and transaction mismatch.

Dictatorship risk.
Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Ttraders have to realize that kind of the risk and be in state to account possible administrative restrictions.

Basics of Forex

FOREX or Foreign Exchange market is the world largest financial market, where currency of one country is exchanged with another country through currency exchange rate system. Trader’s purpose is to get the profit as the result of foreign currencies purchase and sale. From latest assessment, Forex trading daily constitution is approximately average from 1.5 trillion to 2.5 trillion. . The free-floating of currencies being in the market turnover are determined by the supply and demand. The currency rate is actually run through telecommunication all over the network of banks 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Importance of human society event in the sphere of economy strongly influences the currency market. Traders gain the profit from the fluctuations in accordance with an agreed principle “buy cheaper- sell higher” or “sell higher-buy cheaper”. Forex is a continuously changing number financial system which exclusively create high trade turnover to all individual and corporative traders with an ensured liquidity of traded currencies. Due to the high potential profitability, therefore the higher risk should be essentially considered. Traders can only be the successful forex investors by going through proper training including an understanding of forex structure and types, the common techniques of analysis, the factors influencing currencies and potential risks, high confident prediction of the market movements with the trading tools and data. There are lots of simulation trading software on web, you can simply choose anyone of them for self training. This will help you to be in a better scenario. Most of the trading providers have the toll free phone number, so just call them up! Ask them question! Learn from them! Some of them may take initiative to consult you, so do write down the question from time to time.

There are many countries in world; so results different currency pairs. Among all of them, these are the popular in currency trading:

EUR/USD, USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, USD/CAD, NZD/USD, EUR/GBP, EUR/JPY, GBP/JPY, CHF/JPY, GBP/CHF, EUR/AUD, EUR/CAD, AUD/CAD, AUD/JPY, CAD/JPY, NZD/JPY, GBP/AUD, AUD/NZD

Five Major Currencies are:

U.S dollar - The United States dollar is the world's main currency – an universal measure to evaluate any other currency traded on Forex.

Euro- Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the U.S. dollar, the euro has a strong international presence stemming from members of the European Monetary Union.

Japanese Yen- The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock.

British Pound - Until the end of World War II, the pound was the currency of reference. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies.After the introduction of the euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the euro zone.

Swiss Franc - Swiss franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small, the Swiss franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.

To have a well focusing, you have to concentrate on less than 5 currency pairs( preferred the U.S. cross-currency pairs.)

Some traders see forex as a business, and some see it as a fortune. And even some traders think forex is an art. But anyway, its highly recommended to use pivot system in your trading plan or else you are trading blind.

An Introduction

Forex is an international system where you can buy and sell foreign currencies in wholesale quantities. It is generally acknowledged to be the largest market in terms of size, bigger than stocks and shares. There are people in the world who make money day in, day out, by using a Forex trading system.

Forex transactions take place 24 hours a day, except on weekends. The market itself is extremely liquid, which means that you can buy or sell on demand. The difference between the buying and selling price is known as the “spread”. Typically, the smaller your transaction size, the bigger the spread.

There is very little, if any, “insider information” in the Forex market. Exchange rates are influenced by a mixture of the flow of money, interest rates and inflation expectations.

Currencies on the Forex market are traded against each other and each market is separate. For instance, the market for the Dollar against the Euro is separate from the market for the Yen against the Pound. But the market for, say, the Dollar against the Pound will reflect what is happening in the other markets that these two currencies are operating in.

Sounds complicated? Well, yes and no. At its most basic, the prices are a reflection of supply and demand for individual currencies. If a currency is in short supply and high demand, the price of that currency will go up. If investors lose faith in a currency, maybe because of inflation or some other factor, then the price of that currency will drop.

Economic factors and political conditions will influence the price at which a currency is traded. Future expectations can also play a part: for instance, if it is expected that a country will implement an interest rate change this is likely to be factored in to the currency price.

Forex Trading Styles

There are two main Forex trading styles that are used by a majority of Forex traders:

• Technical Trading
• Fundamental Trading

Each of these has its differences, so let’s look into them in some more detail.

Technical Forex trading is primarily based on one of two tools. Charting tools are, as the name suggests, charts of past currency movements. As with any chart, you can add in trend lines to help smooth out the minor fluctuations and allow you to see the bigger picture. Of course, charting is a lot more complicated than mere trend lines but there are software programs out there that will help with your chart analysis. Once you get deeper into charts, the other main technical Forex trading method is the use of Quantitative Trading Models. These use math to analyze the markets and identify opportunites for trading. Technical trading uses past data to endeavor to predict future movements in the market.

Fundamental Forex trading involves the analysis of things such as key economic data. This includes reports from governments, current event news coverage and any other data that the fundamental analyst considers useful. Fundamentalists consider that currency movements are mainly affected by economic and political conditions and events. Whilst central banks have been known to get involved in the currency markets, this has become less common in recent years. Fundamentalist Forex trading looks at interest rates, inflation figures, balance of trade figures, Gross Domestic Product, retail price indexes, producer price indexes amongst other factors.

You need to decide which of these two trading styles fits best with your own personal style as well as the amount of time you have available for analysis and any help that you can get from computer programs.

Forexyard is the leader in online currency trading. It provides real-time deal execution, free Forex charts and quotes together with 24 hour commission free Forex trading. Click here to find out more.

How To Choose A Forex Trading System

Choosing a Forex trading system should be a careful decision for you. Choose the wrong system and you’ll be out of pocket for both the cost of the system and the cost of the trades that went wrong when you follow the trading system you’ve just bought.

Make sure that you check out the various reviews and forums that are available online.

If you’re relying on a review, make sure that it comes from a site that you can trust. If the design of the site looks cheap and unprofessional and is littered with flashing adverts then it’s worth pressing the Back button fast!

Forums are probably a better bet as you’ll get lots of different opinions from the regular people who post. The better forums may even have a section devoted to systems, with a number of user reviews of each one.

Take the time to seek out this kind of advice. It will cost you time but almost certainly save you money.

The Explosion of the Euromarket

A major catalyst to the acceleration of Forex trading was the rapid development of the eurodollar market; where US dollars are deposited in banks outside the US. Similarly, Euromarkets are those where assets are deposited outside the currency of origin. The Eurodollar market first came into being in the 1950s when Russia’s oil revenue-- all in dollars -- was deposited outside the US in fear of being frozen by US regulators. That gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government imposed laws to restrict dollar lending to foreigners. Euromarkets were particularly attractive because they had far less regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euromarkets a beneficial center for holding excess liquidity, providing short-term loans and financing imports and exports.

London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London’s convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euromarket.

History

In 1967, a Chicago bank refused a college professor by the name of Milton Friedman a loan in pound sterling because he had intended to use the funds to short the British currency. Friedman, who had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. The bank’s refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold.

The Bretton Woods Agreement, set up in 1944, aimed at installing international monetary stability by preventing money from fleeing across nations, and restricting speculation in the world currencies. Prior to the Agreement, the gold exchange standard--prevailing between 1876 and World War I--dominated the international economic system. Under the gold exchange, currencies gained a new phase of stability as they were backed by the price of gold. It abolished the age-old practice used by kings and rulers of arbitrarily debasing money and triggering inflation.

But the gold exchange standard didn’t lack faults. As an economy strengthened, it would import heavily from abroad until it ran down its gold reserves required to back its money; consequently, the money supply would shrink, interest rates rose and economic activity slowed to the extent of recession. Ultimately, prices of goods had hit bottom, appearing attractive to other nations, who would rush into buying sprees that injected the economy with gold until it increased its money supply, and drive down interest rates and recreate wealth into the economy. Such boom-bust patterns prevailed throughout the gold standard until the outbreak of World War I interrupted trade flows and the free movement of gold.

After the Wars, the Bretton Woods Agreement was founded, where participating countries agreed to try and maintain the value of their currency with a narrow margin against the dollar and a corresponding rate of gold as needed. Countries were prohibited from devaluing their currencies to their trade advantage and were only allowed to do so for devaluations of less than 10%. Into the 1950s, the ever-expanding volume of international trade led to massive movements of capital generated by post-war construction. That destabilized foreign exchange rates as setup in Bretton Woods.

The Agreement was finally abandoned in 1971, and the US dollar would no longer be convertible into gold. By 1973, currencies of major industrialized nations floated more freely, as they were controlled mainly by the forces of supply and demand. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s, giving rise to new financial instruments, market deregulation and trade liberalization.

In the 1980s, cross-border capital movements accelerated with the advent of computers and technology, extending market continuum through Asian, European and American time zones. Transactions in foreign exchange rocketed from about $70 billion a day in the 1980s, to more than $1.5 trillion a day two decades later.