What are Pips?

20th March 2012 | Currency Trading, Forex Tips, Forex Trading

Whilst profit is measured in terms of the base currency – the one a Forex trader uses to buy a currency, and gets back when that currency is sold on – the value of a currency pair is quoted in pips and lots. When the value of the EUR/GBP pair goes up slightly, say from 0.8688 to 0.8689, it has gone up by one pip (or ‘tick’) and the size of the movement is one pip.

Although generally a pip is considered to be the smallest measure of the amount of change to the value of a currency pair, there are some brokers who offer decimalised pricing or fractional pips, represented by measuring values to include one tenth of a pip. This is known as a Fifth Digit Decimal Quote and it enables Forex traders to take advantage of the tiniest precise movement in market value. In the example used above, the EUR/GBP pair might move from 0.86888 to 0.86891.

When learning how to trade Forex, those who are new to online currency trading will benefit from becoming accustomed to measuring in pips instead of GBP – whether for profit or loss. Developing this skill helps traders to gauge their success accurately, especially if planning to make the transition from smaller to larger investments. After all, a gain or loss of one pip is the same whether the amount being traded is £10 or £1,000 – even though the actual fiscal value varies a great deal.

Making Money at Home with Forex Trading

18th March 2012 | Currency Trading, Forex Tips, Forex Trading, Online Forex Trading

The idea of being able to work from home is very appealing for most people and there are plenty of ways that you can make money without having to leave the house.  One of the simplest ways to do this is by trading foreign exchange.  All it takes is some study, a free piece of software from a forex broker and some practice, and you will be ready to go.

It is always best to practice trading before you risk your own cash as this allows you to develop a profitable strategy – you can do this in a forex simulator.  All good brokers will offer a simulator so you can try forex trading out to see if you will be successful at it.  Checkout broker reviews and fx guides to find out who offers the best simulation software for you to practice.

Once you know you can be consistently profitable, invest a small amount of money.  You cannot expect to be earning big amounts right away but if you are cautious, you can turn forex trading into a serious income generator.

Trading on Margin

16th March 2012 | Currency Trading, Forex Tips, Forex Trading

Online trading involves more than just buying foreign exchange currencies and hoping they increase in value.  There are many subtleties to the process.  Learning these nuances can make investors more successful as they try to earn money in online trading.

One such nuance is trading on margin.  Margin investing involves borrowing.  It is a method of borrowing that allows the trader or investor to trade their currencies at a higher volume than they normally would be able to on their own.  Investors will have margin capacities.  If an investor’s margin capacity in online trading is, for example, five percent, then that is the minimum equity percentage the investor must maintain.  Usually, this investor would only be allowed to trade the money they have in their forex account.  If, however, they want to trade on the margin, they can do a margin trade by borrowing money from their broker.

Clearly, this is a risky strategy.  In the above example, the investor can borrow a lot more money than they have in their account.  If they make the wrong move in their online trading and lose that money, they now owe their broker a huge debt.  It is therefore clear that trading on the margin is best left to online trading investors who are comfortable with that sort of risk.

Of course, the flip side is that investors are able to make a lot of money through trading on the margin.  By trading with more money than they have in their account, they can earn more money faster.

Should You Purchase Forex Software?

14th March 2012 | Forex, Forex Tips, Forex Trading

If you are interested in placing your own Forex trades over the internet, Forex trading software may be a good choice for you. These programs often include pre-determined investing strategies, resources and free trials that can help you decide which platform is best for your personal trading style.

Evaluating Your Trading Needs

A large part of deciding if you need Forex software is considering your individual trading requirements. If you will be placing a large number of your trades outside of normal business hours in your time zone, you will probably need a program that includes 24-hour customer assistance and trading support, as well as providing up to date Forex news and Forex tutorials. This will give you the support you need to place a trade at any time. It is also wise to check if the trading strategies suit your long-term and short-term financial goals. If you are hoping to earn money gradually, over a period of time, a conservative low-risk strategy may be best for you, so be sure that your program includes this option.

Selecting the Right Program for You

Many Forex software programs include free trials, which give you the opportunity to try them out before purchasing one. During these free trial periods, you can use the program to place ‘virtual’ trades and become accustomed to using the software. If the program feels complicated or difficult to use, you will have the option to cancel your trial without being charged. Another way to select the best program for you is to read product reviews of each platform, such as CitiFX Pro Reviews. Learning how other customers have used the platform can help you decide whether to purchase.

What Are Forex Rates?

12th March 2012 | Currency Trading, Forex Tips, Forex Trading

One of the most important things a forex trader must understand is how forex rates work.  Currencies are bought and sold just like any other commodity and this means they have a price attached to them.  The forex rate is the actual price paid for a particular currency.  Several factors determine this rate and the better you understand them, the easier it is to understand how to buy and sell.

Fixed Exchange Rate

One way in which a forex rate is determined is through a fixed exchange rate.  This does not change frequently, because it is fixed by an individual country’s government.  Random events may cause the rate to change, but not as easily as other types of rates.

Floating Exchange Rate

The floating exchange rate system works quite differently from that of the fixed exchange rate.  Instead of the government setting the rate, it is determined by the supply and demand for that country’s currency.  Factors such as economic state, government interventions, flow of goods and services, war or political unrest and speculation about any of these factors affect the exchange rate considerably.  It frequently changes daily, experiencing extreme highs or lows, only to even out during calm periods.

Understanding

The best way to understand how a country’s forex rate works is through in-depth analysis.  If you are interested in trading particular currencies, research the trends surrounding those currencies by studying the relevant chart and forex signal to help give you a grounding before you start trading.

Scalping Forex

10th March 2012 | Currency Trading, Forex Tips, Forex Trading

Scalping forex is a form of fx trading where the trader holds their position for a couple of minutes, some traders only doing so for just a minute.  This method of dealing is seen by some as a way of reducing a trader’s exposure to loss. 

Traditionally those traders who scalp do not make huge profits, as they are not so exposed as day traders to market volatility.  These traders do need to carry out extensive market analysis, as they are not following specific trends.  They need to ensure that the speed of their deals and small profits combine to make a profit rather than a culmination of losses.

Some brokers do not carry out the practice of scalping so it is a good idea to shop around.  It is also important to be aware that scalping is best carried out with the major currencies as, usually, they are not so susceptible to currency fluctuations and therefore suit the scalper’s preference for small profits gained from small currency movements.

Finding the Right Forex Broker

7th March 2012 | Currency Trading, Forex Tips, Online Forex Trading

Amateur investors who are keen to give the Forex market a try will need to find a broker to handle their transactions for them; luckily many of the best brokerage houses now have an established presence on the internet, making it simplicity itself to find a trustworthy company and have them handle all your financial transactions. Check out forex review sites before choosing a broker; these sites also offer beginner forex guides along with up to date news and trading information.

Choosing a reputable broker is essential if the investor wants to be confident that their money is not only safe, but also going to the places where he or she has asked for it to go. In currency trading time is of the essence, so a firm that guarantees quick transactions is a must. Similarly, access to real-time numbers is vital if the investor wants to be able to make informed decisions about a trade. Most brokers have websites that are linked to the main trading centres, allowing users to see exactly what the state of play is at any given point during the day or night.

There are some practical matters to consider when choosing a Forex broker too. Obviously, these firms do not provide the service out of the goodness of their hearts and will charge customers a certain amount of commission on each deal, usually a percentage of the total amount. However, this can vary quite widely between different brokerage firms, so it is worth shopping around to find the best deal. Be careful when choosing a company that is based abroad, as there may be difficulties in making deposits or withdrawals if you do not have a bank account in that country. Some will allow credit card deposits, but to be sure you can get access to your money quickly and easily it might be better to choose a locally-based firm or one that has a presence in your home country.

The Market Structure

6th March 2012 | Currency Trading, Forex Trading

Unlike the stock market, the forex market hasn’t been around for that long.  The earliest inception of the forex market was back in the early 1970s.  Back then, the lack of a central marketplace for trading currencies made it hard for importers and exporters to track daily movements.  Fortunately, technology has exploded and so has forex investing.

In the early days of forex, brokers had very little experience in trading currencies and dealing with floating exchange rates.  This meant that there was virtually no in-house expertise to draw from.  Basically, brokers were at the mercy of the banking industry, especially the larger banks that had their own foreign exchange practices.

Because there is so much room for growth and profit in the forex market, it made sense that in the mid-1970s the first full-time forex brokers came onto the scene.  Individual forex brokers started working in the market to offset the larger market for the smaller banks.  A few years later, individual investors started dipping into the pot as well.

In the beginning, forex brokers had a direct line to any bank that was willing to participate in foreign currency exchange.  The way it worked back then was that a major bank would set a rate and the forex broker would show other banks what that rate was simultaneously.  The first bank interested would complete the transaction and the other banks would wait for the next rate.

Basically, any bank could make a rate and then show a bid or offer.  As advances in technology came about, forex brokers became more sophisticated.  In fact, today there are automated forex platforms that allow traders to invest in the market all day and all night.

Trading in the Forex Market

3rd March 2012 | Forex, Forex Tips, Forex Trading

Forex Trading for New Investors

A forex trader is an investor who makes money by buying and selling national currencies in the foreign exchange market.  While there are many professional investing houses and brokerage firms involved in forex trading, many private individuals also conduct regular trades in the currency market.  Learning forex trading is relatively easy and does not require any special education or expertise, but new traders should familiarize themselves with the market’s operation and terminology. 

How to Trade Currency

Anyone can perform transactions in the foreign exchange market.  Investors can simply find a national currency that they think will gain value and purchase it.  Generally, these individuals purchase units of the national currency in another currency, expressed as a currency pair, XXX/YYY.  For example, GBP/EUR is the product for the British Pound valued in Euros.  These products are traded in the same way one would trade shares on the stock market.  A broker will quote prices in the form of a bid price, the amount at which the market will buy, and an asking price, the level at which the market will sell to a trader or institution.

For example, say a trader expects the value of the British Pound to gain against the Euro.  That trader might well trade the pair GBP/EUR, buying at the lower price, expecting the price to rise, providing a profit once the trader sells. 

Computer Software for Traders

To assist traders, several financial companies have developed forex software.  This software includes forex programs that offer investing strategies for long-term and short-term traders.  Some programs also feature updated forex news, reports, and information such as currency price monitoring that may affect trade decisions investors make. 

Online Forex Resources

Many forex news websites also provide information that is relevant to new forex traders.  These websites may provide commentary on market changes, news about shifting currency values and international economic indicators.  These websites can help investors develop a trading strategy that will increase their rate of return.  It is important, though, that private investors only accept financial advice from respected sources such as financial publications and experienced traders. 

The Beasts of Finance

2nd March 2012 | Currency Trading, Forex Tips, Forex Trading

Market trends are the movement of a financial market in a particular direction. In the foreign exchange market or forex, trends can be secular, secondary or primary and could be described, as could the market itself, as bear or bull. So what does this mean?

Market Trends

Secular trends are a series of primary trends lasting from five to 25 years. A secular trend can be bear or bull, meaning it is primarily one or the other, but will consist of some opposing trends.

Secondary trends are short-term changes within primary trends, lasting a few weeks or months. For example, if the market is bull, but sees a downtrend for a few weeks, this would not be considered a bear market, but rather a correction. Conversely, a short-term uptrend in a bear market is not considered a bull trend, but is referred to as a bear market rally.

Primary trends maintain a clear bull or bear trend for a year or more.

Bear v Bull

A bull market indicates upward financial trends. Investors have increased confidence in the market and therefore increase their investing. A bear market indicates downward financial trends, investor optimism turns to pessimism and investment declines by 20% or more.

Sometimes a bear market is also referred to as a market where there are more sellers than buyers and a bull market as one where there are more buyers than sellers. Generally the terms are used to describe the mood of the market. Keeping an eye on the mood of the forex currency market helps the trader identify where opportunity exists and profit can be made.