Forex , Foreign Exchange

Types of Foreign Exchange Orders

2007-03-27T17:07:00.000-07:00

Entry Orders: An order, stop or limit, initiating an open position and executed when a specific price level is reached and/or broken. The execution is handled by the dealing desk and the order is in effect until cancelled by the client.

Entry Limit Orders: An order initiating an open position to sell as the market rises, or buy as the market falls. The client believes the market will reverse direction at the level of the order.

Entry Stop Orders: An order initiating an open position to sell as the market falls, or buy as the market rises. The client placing the order believes that prices will continue to move in the same direction as the previous momentum after hitting the order level.

Limit Orders: A limit order is an order tied to a specific position for the purpose of locking in the gains from that position. A limit order placed on a buy position is an order to sell. A limit order placed on a sell position is an order to buy. A limit order remains in effect until the position is liquidated or cancelled by the client.

Market Order: An order to buy or sell which is to be filled immediately at the prevailing currency price.

OCO (One Cancels the Other): A stop-loss order and a limit order linked to a specific position. One order, the stop, is to prevent additional loss on the position, and one order, the limit is to take profit on the position. When either order is executed, closing the position, the other is automatically cancelled.

Stop-Loss Orders: An order linked to a specific position to close that position and prevent additional losses. A stop-loss order placed on a buy position is an order to sell that position. A stop-loss order on a sell position is an order to buy that position. A stop-loss order remains in effect until the position is liquidated or cancelled by the client.

Forex Terms

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Hedge fund: A private, unregulated investment fund for wealthy investors (minimum investments typically begin at US$1 million) specializing in high risk, short-term speculation on bonds, currencies, stock options and derivatives.
Hedging: A strategy designed to reduce investment risk. Its purpose is to reduce the volatility of a portfolio by investing in alternative instruments that offset the risk in the primary portfolio.
London Inter-Bank Offer Rate or LIBOR: The standard for the interest rate that banks charge each other for loans (usually in Eurodollars ). This rate is applicable to the short-term international interbank deposit market, and applies to very large loans borrowed from one day to five years. This market allows banks with liquidity requirements to borrow quickly from other banks with surpluses, enabling banks to avoid holding excessively large amounts of their asset base as liquid assets. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.
Leverage: The degree to which an investor or business is utilizing borrowed money. The amount, expressed as a multiple, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded is $100,000 dollars and the required margin is $2000, the trader can trade with 50 times leverage ($100,000/$2000). For investors, leverage means buying on margin to enhance return on value without increasing investment. Leveraged investing can be extremely risky because you can lose not only your money, but the money you borrowed as well.
Liquidity: The ability of a market to accept large transactions. A function of volume and activity in a market. It is the efficiency and cost effectiveness with which positions can be traded and orders executed. A more liquid market will provide more frequent price quotes at a smaller bid/ask spread.
Long: A position purchasing a particular currency against another currency, anticipating that the value of the purchased currency will appreciate against the second currency.
Margin: Funds that customers must deposit as collateral to cover any potential losses from adverse movements in prices.
Margin Call: A requirement for additional funds or other collateral, from a broker or dealer, to increase margin to a necessary level to guarantee performance on a position that has moved against the customer.
Market Maker: A dealer that supplies prices, and is prepared to buy and sell at those bid and ask prices. All CFTC registered FCMs are market makers.
Pip (tick): The term used in currency markets to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).
Position: A view expressed by a trader through the buying or selling of currencies, and can also refer to the amount of currency either owned or owed by an investor.
Premium (cost of carry): The cost or benefit associated with carrying an open position from one day to the next calculated by using the differential in short-term interest rates between the two currencies in the currency pair.
Revaluation: An increase in the foreign exchange value of a currency that is pegged to other currencies or gold.
Revaluation rates: The rate for any period or currency, which is used to revalue a position or book. The revaluation rates are the market rates used when a trader runs an end-of-day to establish profit and loss for the day.
Rollover: The settlement of a deal is rolled forward to another value date with the cost of this process based on the interest rate differential of the two currencies. An overnight swap, specifically the next business day against the following business day.
Short: To sell a currency without actually owning it, and to hold a short position with expectations that the price will decrease so that it can be bought back at a later time at a profit.
Spread: The difference between the bid and offer (ask) prices of a currency; used to measure market liquidity. Narrower spreads usually signify high liquidity.
Spot Price: Current market price. Settlement of spot transactions normally occurs within two business days.
Swaps: A foreign exchange swap is a trade that combines both a spot and a forward transaction into one deal, or two forward trades with different maturity dates.
Uptick: A new price quote that is higher than the preceding quote for the same currency.

Standard Forex Terms

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Base currency: The base currency is the first currency in a currency pair, and the currency that remains constant when determining a currency pair's price. The United States Dollar (USD) and the European Union Euro(EUR) are the dominant base currencies in terms of daily traded volume in the foreign exchange market. The British Pound (GBP), also called sterling or cable, is the third ranking base currency. The USD based pairs are USD/JPY, USD/CHF and USD/CAD; the Euro based pairs are EUR/USD, EUR/JPY, EUR/GBP, and EUR/CHF. The GBP is the base for GBP/USD and GBP/JPY. The Australian Dollar (AUD) is its own base against the USD (AUD/USD).

Basis: The difference between the spot price and the futures price.

Basis point: One hundredth of a percentage point.

Bid /Ask Spread: The difference between the bid and offer (ask) prices; also known as a two-way price.

Cable: Trader term for the British Pound Sterling referring to the Sterling/US Dollar exchange rate. Term began due to the fact that the rate was originally transmitted via a transatlantic cable starting in the mid 1800's.

Central bank: The principal monetary authority of a nation, controlled by the national government. It is responsible for issuing currency, setting monetary policy, interest rates, exchange rate policy and the regulation and supervision of the private banking sector. The Federal Reserve is the central bank of the United States. Others include the European Central Bank, Bank of England, and the Bank of Japan.

Conversion: The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Cross rates: An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US , a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.

Currency: A country's unit of exchange issued by their government or central bank whose value is the basis for trade.

Currency (exchange rate) risk: The risk of incurring losses resulting from an adverse change in exchange rates.

Devaluation: Lowering of the value of a country's currency relative to the currencies of other nations. When a nation devalues its currency, the goods it imports become more expensive, while its exports become less expensive abroad and thus more competitive.

Drawdown: The magnitude of a decline in account value, either in percentage or dollar terms, as measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5000 (incurred when the account declined from $20,000 to $15,000) even though that trader's account was never in a loss position from inception.

End of day (mark to market): Mark-to-market values a trader's open position at the end of each working day using the closing market rates or revaluation rates. Generally the revaluation rates are market rates at 5pm EST time. Any profit or loss is booked and the trader will start the next day with the position valued at the prior day's closing rate.

Euro: The currency of the European Monetary Union (EMU), which replaced the European Currency Unit (ECU). The countries currently participating in the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Greece, Italy, and Spain.

Exchange rate: The price of one currency stated in terms of another currency. Example: $1 Canadian Dollar (CDN) = $0.7700 US Dollar (USD)

Fixed exchange rate: A country's decision to tie the value of its currency to another country's currency, gold (or another commodity) , or a basket of currencies . In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Foreign exchange (Forex): The simultaneous buying of one currency and selling of another in an over-the-counter market.

G-7: The seven leading industrial countries, being the United States, Germany, Japan, France, Britain, Canada, and Italy.

G-10: G7 plus Belgium , Netherlands and Sweden , a group associated with the IMF discussions. Switzerland is sometimes involved.

G-20: A group composed of the Finance Ministers and central bankers of the following 20

countries: Argentina , Australia , Brazil , Canada , China , France , Germany , India , Indonesia , Italy , Japan , Mexico , Russia , Saudi Arabia , South Africa , South Korea , Turkey , the United Kingdom , the United States and the European Union. The IMF and the World Bank also participate. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that “promote international financial stability”.

Design and Chart Your Indicators

2007-03-19T13:28:00.000-07:00

WHERE TO GET IDEAS
Where do you get ideas for strategies? There are numerous sources, including
seminars, books, newsletters, friends, and strategy purchases. I've found that most
good trading ideas are counter-intuitive. The techniques that usually make money
seem to go against basic human nature, just like managing a strategy forces you to
keep trading against your usual judgement and human nature to be successful. The
reason for this is that most people look for ideas that feel good and make sense. If
the ideas that made sense and felt good to trade worked, everyone would make
money, and we know they don’t. It is finding unique ideas and using common
techniques in different and creative ways that will make you a successful trader.

BOOKS AND MAGAZINES
Trading books are a good source of ideas। There are always books available that
describe a bunch of new or improved indicators and show how to use them. I am
always skeptical about the “how to” part of the book, but it is a great place to
start. I like to use indicators in my own way, but I usually chart the indicator and
test it as the author has suggested. This inevitably gives me a starting point for a
whole slew of ideas from which to do my own research.
Magazines are another great place to find ideas. There are several good magazines
for commodity traders and some for stock traders.

THE इन्तेरने
There is a lot of information about trading both stocks and futures on the
Internet. If you are not hooked up to the Internet, you should be. If it isn’t
already, the Internet will soon be the most extensive resource for trading
information.
PURCHASE A STRATEGY
Yes, you also can purchase a strategy. They are always available. You can find
them in the magazine classifieds, and if you have been trading for any length of
time, get pitches for strategies in direct mail. And of course there are the Omega
Research Solution Providers, who provide strategies and indicators specifically for
TradeStation। So how do we sort through these?

Strategy purchases are a valid way to get ideas, if, and only if, the strategy code
itself is disclosed. If the code is not disclosed, you really are at the mercy of the
strategy designer.
The important thing to remember about purchasing another person’s strategy is
that you are also buying all of that person’s personal decisions about risk. You are
buying a strategy designed to take into account all of another person’s
psychological quirks and decisions about how trades should be made. They have
made decisions as to how many losers in a row are acceptable, how big a
drawdown is reasonable, what percentage profitable trades are acceptable to him,
not you. You are buying his strategy type and his decisions about what is the best
way to trade it.
Unless you are positive that your psychological make-up is very similar to that of
the individual who designed the strategy, you are bound to have a problem trading
that strategy. I have talked to many traders who have purchased profitable
strategies but have been unable to trade them.
I purchase strategies for ideas. If the strategy itself is a black box, that is the
strategy and its code is not disclosed, I simply refuse to buy it unless the developer
can give me enough information so that I can be sure it meets my criteria. For
instance, is it possible that this strategy could miss a big move? I also insist on
seeing a historical track record in TradeStation format before I will consider
buying a strategy. I want to make sure the Performance Summary reflects
something that I will be able to trade. I will not trade anything that I do not
completely, totally and thoroughly understand.

SEMINAR
Going to seminars given by individuals or even to the mega-seminars with a whole
group of gurus is always fun. One or two good ideas are worth the price of
admission. Seminars are also fun because you get to meet other traders and
bounce ideas around with them. Many traders I know go to seminars more for the
camaraderie and discussions with other traders than for the seminar itself.
One of my favorite places to get ideas is a Larry Williams4 seminar. They are
loaded with TradeStation code and strategy ideas. The idea per dollar ratio is the
highest that I have found anywhere.

Forex Training And Professional Instructor

2007-03-11T17:29:00.000-07:00

The Forex market is perhaps the biggest financial market in today’s world। According to the latest stats, today more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. There is so much to learn about this highly competitive, volatile and fragile market that we may find it a daunting task to learn it inside-out, so we do need some sort of forex training or education to equip our self to perform better in the market.

Before starting the forex trading, you should begin your Forex training. A professional instructor can assist you in learning different terminologies, concepts and process as a whole in forex trading. In a good Forex training, there are no high-pressure sales pitches, no tricks, and no hidden agendas, but just plain knowledge. Forex training provides traders the ability to take advantage of the foreign currency exchange. This Forex training empowers investors to become world-class forex traders.
In any Forex training program, it is recommended that don't invest in any market, the stock market, futures, mutual funds, bonds or the foreign currency exchange, until you first invest in yourself. There are many types of Forex training and education for trading techniques and methodologies. These are almost for anyone to everyone (for the novices and experienced traders), helping them obtain the skills, knowledge and abilities to successfully trade in the foreign currency echange.
During your Forex training you will learn to control your own order flow by using the state-of-the-art ECN for Forex trading। You will learn how the Pros make money and learn the differences between Forex and equities trading. Decide for yourself, which is the best instrument for you. Don’t be surprised to find that you can use both in harmony. Forex offers 100 to 1 leverage and 24/6 trading hours – trade in the evenings, trade in the early morning before work. Learn to trade with discipline, a plan and the technical tools that the World currency Traders use.

Literally, there are numerous online and offline resources for Forex training. Some of most common and highly effective ways to get forex trading knowledge are using live seminars, online webinars, trading books, subscription services, etc. depending upon the individual taste, preference, availability and budget constraints there is something to suit almost everyone. For example, learning forex analysis through trading book will enable experienced traders and beginners to trade with confidence. You can run your own successful forex trading business part time or full time from home and generate cash flow in rising or falling markets. You can earn a great income online by training yourself with trading books.
However, the problem is most books on the subject cover dozens of technical analysis indicators or discusses macroeconomics. There is too much padding and not enough focus on what you really need to trade successfully. Don’t worry in that case; there are several other ways to train you.
The live seminars delivers a comprehensive aggregation of daily information from the exchanges around world, brokerage firms, regulators and other parties involved in these industries that is not found elsewhere. The live seminars provides you headlines and hyperlinks to media stories, press releases and notices, which gives you an easy to scan and functional format delivered to you every day through internet.

Advantages Of Forex Trading

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*. Lower Margin

Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000. What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.

When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well. You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.
The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount. You may not actually get a margin call before your positions are liquidated. Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.
**. No Commission and No Exchange Fees

When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.

***.You can make money on ordinary news items, like changes in interest rates
If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency market. Traditionally, if a country raises its interest rate, the currency of that country will strengthen in relation to other countries as investors shift assets to that country to gain a higher return.

Hikes in interest rates, however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Determining which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest impact on interest rates are PPI, CPI, and GDP. Generally the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.