Spot Foreign Exchange Contracts
The basic tools of Forex risk management are spot contracts and forward contracts which are contracts between the end users and the financial institutions that specify the terms of an exchange of two currencies. In any Forex contract there are variables that need to be agreed upon and they are:
1. Which currencies are to be bought and sold (every contract has two currencies, the one that is bought and the one that is sold)
2. The amount of currency to be bought or sold
3. The contract maturity date
4. The rate at which the exchange of currencies will occur
When you see exchange rates advertised, the rates of exchange assume a deal with a maturity of two business days ahead and a deal done on this basis is called a spot deal. The currency that is bought will be receivable in two days whilst the currency that is sold will be payable in two days. This applies to all major currencies (except the Canadian Dollar)
Thursday, May 7, 2009
Monday, May 4, 2009
Why Should I Learn to Trade the Forex?
There are advantages to trading Forex and here are some reasons why so many people trade in the Forex Market:
There are no commissions. As far as fees go there are no clearing fees, exchange fees, government fees or brokerage fees. The Forex brokers are paid for their services through something called the bid-ask spread.
There are no middlemen in your trades. This means spot currency trading gets rid of the middlemen which allows you to trade directly with the market responsible for the pricing on a particular currency pair.
The lot sizes are not fixed. In the futures markets, the lot or contract size is determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. Therefore traders are allowed to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea).
Low transaction costs. The transaction cost, or the bid/ask spread, is typically less than 0.1 percent under normal market conditionsand can be as low as .07 percent but this of course this depends on your leverage.
The forex is a 24-hour market so there is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is fatastic for those who trade on a part-time basis, because you can choose when you want to trade, in the morning, afternoon or night.
No one can corner the market on the Forex as it is so huge and has so many participants, that no single entity (not even a central bank) can control the market price for an extended period of time.
You can use leverage in Forex trading, which means a small margin deposit can control a much larger total contract value. It gives the trader the ability to make good profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $100 dollar margin deposit would enable a trader to buy or sell $20,000 worth of currencies. Similarly, with $1000 dollars, one could trade with $200,000 dollars and so on. But be warned that leverage is a double-edged sword and without proper risk management, this high degree of leverage can lead to large losses too.
The Forex has high liquidity because is so huge, so under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade and can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
You can practice with a free “Demo” Accounts, News, Charts, and Analysis as most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
Forex has “Mini” and “Micro” trading, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does mean that Forex is much more accessible to the average (less rich) individual who doesn't have lots of start-up trading capital.
There are no commissions. As far as fees go there are no clearing fees, exchange fees, government fees or brokerage fees. The Forex brokers are paid for their services through something called the bid-ask spread.
There are no middlemen in your trades. This means spot currency trading gets rid of the middlemen which allows you to trade directly with the market responsible for the pricing on a particular currency pair.
The lot sizes are not fixed. In the futures markets, the lot or contract size is determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. Therefore traders are allowed to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea).
Low transaction costs. The transaction cost, or the bid/ask spread, is typically less than 0.1 percent under normal market conditionsand can be as low as .07 percent but this of course this depends on your leverage.
The forex is a 24-hour market so there is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is fatastic for those who trade on a part-time basis, because you can choose when you want to trade, in the morning, afternoon or night.
No one can corner the market on the Forex as it is so huge and has so many participants, that no single entity (not even a central bank) can control the market price for an extended period of time.
You can use leverage in Forex trading, which means a small margin deposit can control a much larger total contract value. It gives the trader the ability to make good profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $100 dollar margin deposit would enable a trader to buy or sell $20,000 worth of currencies. Similarly, with $1000 dollars, one could trade with $200,000 dollars and so on. But be warned that leverage is a double-edged sword and without proper risk management, this high degree of leverage can lead to large losses too.
The Forex has high liquidity because is so huge, so under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade and can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
You can practice with a free “Demo” Accounts, News, Charts, and Analysis as most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
Forex has “Mini” and “Micro” trading, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does mean that Forex is much more accessible to the average (less rich) individual who doesn't have lots of start-up trading capital.
Saturday, May 2, 2009
What is Forex and Forex Market?
Forex is a short way of saying Foreign Exchange and it is all about currencies and changing then from one countries currency to another one.
Most people would have come across exchanging one currency for another when holidaying overseas. We go to the foreign exchange counter at the airport (or our bank or travel agent before we leave, if we are more organised) and hand over our cash and get back some cash from the new country we are visiting.
The amount we get back is determined by the currency market and what the currencies are worth when compared to each other. If you are from the US and are visiting Australia, you will get more Australian dollars back than the amount of US dollars you hand over the counter. There are many factors built into how the amount is worked out and it is very complicated.
Online forex trading has been around since about 1996. It relies on trading currency pairs. Currency prices can only change when compared to another countries currency (as I explained in the airport example above) so therefore they are traded in pairs. The most common currency pairs are the EUR/USD (which is the price of US dollars quoted in euros) and the GBP/USD (which is the price of US dollars quoted in British pounds).
The Top 6 Most Traded Currencies
1. United States dollar (USD $)
2. Euro (EUR €)
3. Japanese yen (JPY ¥)
4. British pound sterling (GBP £)
5/6. Swiss franc CHF and Australian dollar (AUD $)
Most people would have come across exchanging one currency for another when holidaying overseas. We go to the foreign exchange counter at the airport (or our bank or travel agent before we leave, if we are more organised) and hand over our cash and get back some cash from the new country we are visiting.
The amount we get back is determined by the currency market and what the currencies are worth when compared to each other. If you are from the US and are visiting Australia, you will get more Australian dollars back than the amount of US dollars you hand over the counter. There are many factors built into how the amount is worked out and it is very complicated.
Online forex trading has been around since about 1996. It relies on trading currency pairs. Currency prices can only change when compared to another countries currency (as I explained in the airport example above) so therefore they are traded in pairs. The most common currency pairs are the EUR/USD (which is the price of US dollars quoted in euros) and the GBP/USD (which is the price of US dollars quoted in British pounds).
The Top 6 Most Traded Currencies
1. United States dollar (USD $)
2. Euro (EUR €)
3. Japanese yen (JPY ¥)
4. British pound sterling (GBP £)
5/6. Swiss franc CHF and Australian dollar (AUD $)
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