Finding Your Way Around for Ex

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Forex

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  • Presented By:http://www.masteringforex.net/forexprogram.htm

    DISCLAIMER: This information is provided "as is". The author, publishers andmarketers of this information disclaim any loss or liability, either directly or indirectly

    as a consequence of applying the information presented herein, or in regardto the use and application of said information. No guarantee is given,

    either expressed or implied, in regard to the merchantability, accuracy,or acceptability of the information.

    Forex trading is highly speculative in nature and can mean that currency prices can become extremely volatile. Forex trading is highly leveraged, since low margin requirements are normally required, an extremely high

    degree is obtainable in foreign exchange trading. A relatively small market movement will have a proportionally larger impact on the funds you have deposited. You may sustain a total loss of your funds. Since the possibility

    of losing your entire cash balance does exist, speculation in the Forex market should be conducted only with risk capital you can afford to loose and not adversely effect your lifestyle.

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  • Finding Your Way Around Forex Trading

    Table of Contents

    How to Get Started in Forex

    Forex Basics

    A Popularity Contest

    The Forex Market

    Before You Begin

    All About Trends

    Multiple Time Frame Strategy

    Normal Trading Strategies

    Flags and Filtering

    Rounding Off

    Interest Rate

    The Boomerang Effect

    Scoring Big Gains

    A Level Playing Field

    Summing it Up

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  • How to Get Started in Forex

    How to Get Started in Forex

    Basically, Forex, or currency market or foreign exchange market, is a market

    wherein one currency is traded for another. Additionally, Forex is one of the

    largest markets in the world. The goal of some participants in the Forex

    market is to seek an exchange of a foreign currency for their own use. A

    large part of the market is made up of currency traders, who speculate

    movements in the exchange rates, similar to others who speculate

    movements of stock prices.

    Learning Forex

    The investments placed on Forex markets normally deal with the four major

    pairs, namely EUR/USD, USD/JPY, GBP/USD, and the USD/CHF. These pairs

    are also considered as blue chips.

    Additionally, the foreign exchange market is unique due to several aspects,

    such as: the trading volumes, extreme market liquidity, the large amount

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  • and variety of traders, geographical dispersion, 24-hour trading, the factors

    affecting the exchange rates, and the low margins of profit with other fixed

    income markets.

    The exchange-traded foreign exchange future contracts were first introduced

    in the year 1972 at the Chicago Mercantile Exchange. Future volumes of

    Forex have grown rapidly in recent years, and accounts for about seven

    percent of the total Forex market volume.

    From Stocks to Forex

    Most traders in the United States are involved in stock trading. Within that

    environment, a trader who is following a trend for as long as possible would

    not have any difficulty in making money. The stock market is also a very

    forgiving market, which can bail out even poor traders. The only trick is to

    understand the difference between the good and the lucky. There are

    several talented traders and even they can falter when the conditions of

    trading become less then ideal.

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  • Although both the stock and Forex markets involve risks, the latter is not

    conducted on a regulated exchange, thus there are additional risks

    correlated with Forex trading. However, many traders previously involved in

    stock markets are transferring to Forex markets due to a number of

    benefits.

    One is the availability of greater leverage. Forex trading provides greater

    leverage when compared to traditional stock trading, which only allows

    traders to be leveraged and in charge of larger positions with smaller

    amounts of capital. The availability of greater leverage in Forex allows an

    individual to trade the same size positions that he or she might take with a

    stock broker, while leaving them with more available capital to trade more

    markets.

    In Forex markets, there are no middlemen. When trading directly in Forex

    markets, the only players are the dealer and the primary market maker, or

    the trader and the buyer or seller of the currency pair; no outside parties are

    involved. On the other hand, the stock market involves the trader, broker

    and the exchange, all of which charge commissions and fees.

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  • Stock Market Headaches

    There are a number of unpleasant events that a person must learn to deal

    with in life. After a while, these problems are no longer considered as a

    burden but instead a norm. Likewise, for traders, there are also unpleasant

    occasions that can be considered as normal or a part of the job.

    One of these problems is the partial fill. The partial fill is a normal incident in

    stock trading. It occurs when a trader puts an order for a definite number of

    shares and instead receives only a portion of the order. The market will not

    be able to absorb an entire order if there are not enough shares available at

    a defined price. This can be frustrating for the trader, especially if he or she

    wants to pursue large orders. Still, this kind of event is considered as normal

    for equity traders.

    Slippage is another problem that futures and stock traders encounter every

    day. By definition, slippage is the difference between the anticipated

    transaction costs and the amount actually paid. Slippage tends to cut into

    the traders profits and is a major headache for futures and stock traders.

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  • Aside from those two, another hurdle that a trader must overcome is the

    specialist. A specialist is an individual who controls all the trading activity of

    a listed stock. More so, the specialist also controls the spread; he or she can

    widen or narrow the spread at his of her discretion. Hence, the specialist can

    either make your trade successful or make your life miserable.

    The uptick rule is another frustrating obstacle that faces the success of an

    equity trader. Stock traders can place a trade that will become profitable if

    the stock rises whenever they wish. However, if they desire to place a trade

    that will become profitable if the stock falls, the traders must go through

    several machination processes that can be both costly and problematic.

    Stock Market Headaches in Forex

    Fortunately, the Forex market is less problematic compared to the stock

    market. The currency market is considered as highly liquid or thick. This is

    the reason why the partial fill headache evident in the stock market is

    extremely rare for all but the largest traders in the foreign exchange market.

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  • Additionally, the slippage is also rare in the Forex market. Several foreign

    exchange market makers have a one slippage policy, thus giving currency

    traders a superior degree of certainty regarding the price.

    As for the specialist, there are no specialists in the foreign exchange market.

    More so, the spread is often fixed in the currency market. This allows the

    trader another greater degree of certainty.

    Lastly, the Forex market has no uptick rule. The trader can buy or sell at his

    or her own discretion. Conversions, bullets or married puts are not required

    to be purchased.

    Forex Basics

    Forex Basics

    Whenever people travel outside their home country, there is good chance

    that they have performed currency transactions. Travelers, in many cases,

    are required to exchange their home countrys currency for the currency of

    the country they are visiting. Much like the Forex market, there are two

    currencies involved in such occasions but only one exchange rate.

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  • The U.S. Dollar and the Canadian Dollar

    Back in the year 2002, travelers would have received an estimated C$1.60

    in Canadian currency for every U.S. dollar. It is safe to say that the

    exchange rate during that year for the U.S. dollar and Canadian dollar was

    about 1.60 Canadian dollars for each U.S. dollar.

    Years that followed resulted in a dramatic change in the exchange rate and

    by the year 2006, the rate had fallen to 1.10. This means that a traveler

    from the United States would only receive about C$1.10 in Canadian

    currency for every U.S. dollar exchanged. The measurement of very small

    changes in this exchange rate can be expressed using 1.1000. If so, the U.S.

    dollar significantly depreciated against the Canadian dollar during the early

    part of the twenty-first century.

    Eventually, the rate of the Canadian dollar approached parity with the U.S.

    dollar. U.S. citizens were also less likely to visit Canada, because if they did,

    they were more likely to spend more than they would have in the past, when

    the exchange rate was more favorable. On the other hand, travelers from

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  • Canada were more likely to visit the United States, since their currency

    bought more U.S. products than it had previously.

    The U.S. Dollar and the Euro

    The rise of the Euro also created a similar situation to that of the Canadian

    dollar. In 2002, 2003 and 2004, the Euro achieved dramatic gains against

    the U.S. dollar. Additionally during those years, the value of the Euro rose

    from US$0.85 to above US$1.35. Because of this movement in the exchange

    rates, citizens from the United States found that vacationing in Europe

    became very expensive. This kind of shift caused a huge influx of shoppers

    from Europe traveling to the United States, especially during the Christmas

    season.

    There is no doubt that fortunes were made and lost on huge movements,

    such as those mentioned. However, it is important to remember that even

    the tiniest shift in the exchange rates can also result in substantial gains and

    losses.

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  • Understanding the Exchange Rate

    An easy way to understand the exchange rate is to think of the base

    currency as the number one. For instance, assume that the exchange rate

    for the EUR/USD pair is 1.2904. Since the base currency is Euro, that is also

    the first member of the pair. Thinking of Euro as the number one will only

    mean that one Euro would be worth approximately $1.29 U.S. dollars.

    But how do these movements in the exchange rates translate to the Forex

    traders bottom line? With trading a pair, like the EUR/USD, the U.S.-based

    trader will note that the pair has a fixed value of $10 per pip. This is also

    true for all pairs that have USD as the second currency. Hence, in any

    currency pair containing USD as the second currency, a flattering movement

    in the exchange rate of 10 pips will make a gain of $100; unfavorable

    movement of 10 pips would cause a loss of $100. In the case of the

    EUR/USD pair, a gain or loss of 10 pips can happen easily since the pair

    moves about 100 pips each day on average.

    Terminologies in Trading

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  • A non-trader or a beginner can get easily confused around traders, since

    they mostly use their own language. This kind of language is easily

    synonymous to a secret handshake, which would let others know that they

    are a member of the group.

    First trading terminology is going long. Whenever you hear this come out of

    a traders mouth, it only means that he or she is placing a trade that will only

    be profitable if there is a rise in the exchange rate. selling short, on the

    other hand, means that the trader will be placing a trade that will only be

    profitable if the exchange rate falls. Flat means that the trade is neither long

    nor short. More so, the trader saying this has no open positions in the

    market.

    Another trading term is the pip. By definition, the pip is the smallest

    increment of price in Forex markets. It is also an acronym for the phrase

    percentage in point. An example for this term would be when supposing the

    exchange rate for a pair rises from 1.1000 to 1.1001. It is safe to say that

    the rate rose by one pip.

    Included within the trading terminologies are the major currencies, such as:

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  • EUR for Euro, GBP for Great Britain pound, JPY for Japanese yen, USD for

    U.S. dollar, CAD for Canadian dollar, CHF for Swiss franc, AUD for Australian

    dollar and NZD for New Zealand dollar.

    Nicknames are also used in trading. These are slang terms that several

    traders like to use. Several examples of these nicknames are: cable or

    sterling for the British pound, greenback or buck for the U.S. dollar, single

    currency for the Euro, Swissy for the Swiss franc, kiwi for the New Zealand

    dollar, loonie for the Canadian dollar, and Aussie for the Australian dollar.

    A Popularity Contest

    A Popularity Contest

    Over the years, more and more investors grew dissatisfied with the

    performance of markets relying on domestic stocks. Because of this they

    began to venture into other options for international investments. There are

    many available opportunities for investing in foreign markets but foreign

    exchange trading is becoming one the most popular. The primary reason

    why investors like Forex is that trades are quick and trading comes with

    minimum hassles.

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  • Previously access to this kind of market has only been available to hedge

    funds, major corporations and other institutional investors. Some of the

    worlds major banks have been involved in foreign exchange markets for

    years. In the past the individual trader had no way to access Forex since

    there were no methods of competing with the big boys on an even playing

    field.

    The foreign exchange market finally opened its doors to retail clients in the

    1990s. Makers of the online Forex market further opened the gates and

    made a fortune by breaking huge trading positions into small-sized chunks

    that several individuals could buy and sell.

    What this means is that individuals can now make trades alongside the

    largest banks in the world. More so, they can even use the same strategies

    and techniques that other professional traders utilize. The landscape of

    Forex trading has changed dramatically and traders have obtained a new

    alternative to future and stock markets.

    The Big...

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