Wednesday, January 13, 2010

Advantages and Disadvantages of Operating in the Foreign Exchange Market

If you are thinking of investing your money in Forex it is essential to know about the pros and cons of it. One of the main advantages and reasons why hundreds of people worldwide rely on this market is because it’s considered "the most liquid market in the world. This is because Forex can absorb many large operations, compared with any other financial market. Proof of this is that daily movements are more than 3 billion dollars in the Forex market.

Another very important factor is that due to the global economic crisis, Forex is in its best time to invest because they so clearly by the volatility in the foreign exchange crisis, leads to better profits for traders. These would be the 2 main advantages of investing in this market, but the greater risk that a trader can take in Forex, is to trade without knowing what they are doing, without receiving special education and believing that this market is a game. But here are we are going to show many other market advantages and disadvantages, as believe it is important to be clear and honest with the traders and users before investing.

Advantages of Forex:

• It's a liquid market: as I mentioned, Forex is a liquid market for the many large operations that are performed daily. They are operated trillion dollars a day.

• Access all day: It is available to operate 24 hours a day. From Monday to Friday.

• It is easy market access and globally used: I can operate from anywhere in the world and in any location. It only needs an Internet connection. In other financial markets it needs a single physical location to trade.

• No high fees or additional expenses: At this point if we stop to explain: The Forex is transaction costs much lower than other investment markets, so you should consider commissions to broker or intermediary companies to manage their capital, if appropriate. There are no fees for services. There are no additional costs of operating time, but you should know that if you want to be a successful trader, you must spend on your education and on a specialized course in Forex strategies.

• It is a transparent market: Due to the multi-day market movement, it is virtually impossible to market manipulation.

• There are no deadlines forced: Traders of other financial markets are constrained by having to comply with a particular extension in time. In the FOREX market, however, a position can remain open as long as the trader-investor deems necessary.

• It is a leveraged market: That is, you can take leverage when investing your money, which means that a broker with solid finances lends money for investment and your profit, is greater. The leverage allows the trader to enter the market with only one hundredth of what he has invested.

Leverage is from:

• 2:1 = $ 1 you pay $ 2
• 10:1 = $ 1 you pay $ 10
• 100:1 = $ 1 you pay $ 100
• 200:1 = $ 1 you pay $ 200
• 400:1 = $ 1 you pay $ 400

• There are lots of free and paid courses to train: There are many experts’ traders on the web, which provide specialized education and even video demonstrations for learning to trade. You can also open a demo account for you to start gaining experience before opening a practice account with real money. In we strive to provide adequate education and specialized, we have free courses, forums, articles, virtual classrooms and other services for you to be a skilled trader to operate properly and getting steady gains. If you would like to have more information please visit the following link:

Disadvantages of Forex:

• Runs the risk of choosing a inexperienced broker: On the web there are many unscrupulous people who are dedicated to defraud honest people. It is important when investing your money to have the support of a trusted broker; they usually must be properly registered, including some requests that the brokerage firms and they must have made at least 100 successful operations. Also do not forget that in the United States, the broker must be registered with the CFTC, which means by its acronym in English (Commodities Futures Trading Commission - Committee on Trade in Goods Fixed Term) or become members of the NFA (National Futures Association - National Futures Association). You can also check with Consumer Protection Office, depending on your country of origin and cyber laws thereof.

• Can leverage yourself:
As mentioned, you can take a leverage, which will allow you to enter the market with a larger capital, if the operations are successful, and use good strategies you can obtain better returns but if the opposite happens, you may lose all your money.

• Requires knowledge and time: If you know the market, you may enter without having the skills to trade and lose lots of money. If you manage to improve and train yourself, this ceases to be a disadvantage. Also if you do not have time to sit at your computer to monitor market movements, you may end up losing more than you think. If this is the case this would be a disadvantage if you take the signal service which ForexandaPips offers. In this service, an experienced trader will monitor and analyze the market and subsequently sends its results and it signals to buy or sell directly to you. For more information about this service click here:

• You have a complex nature: the techniques are complex market analysis and strategy implementation requires much training and education. The currency exchange rates are influenced by a variety of factors, which may fluctuate over time.

• By a winner is a loser: Unfortunately there is always a loser and you may have some operations in its early losses, but then begin to make profits.

Being a bit more specific, there are two ways to invest your money have both advantages and disadvantages, so you need to choose which best fits your needs, to avoid failures:

1. Operating its own capital.
2. Giving capital to a company specialized intermediaries.

1. Operating its own capital:


• You can devote yourself to a career as a Forex trader and expert.
• You can get unlimited income within their capabilities, if you use the best strategies.
• You can enter with a small investment.


• As a novice you can lose all your capital, by not having a proper education.
• To become a skilled trader it may take more than 1 year on their education to show positive results.
• It requires dedication and time.
• You must invest in education, with some capital.
• First trades may have losses.

2. Giving capital to a company specialized intermediaries.


• You do not need special skills and experience.
• The potential losses are lower because their capital is operated by experts in forex.
• You can forget about the management of emotions and psychology and not directly trade.
• Your capital can make big profits quickly.
• You can open an account with xxxx capital.


• There are unscrupulous companies that engage in cheating people. You must be sure the company you trust.
• The company does not provide a guarantee of profits.

Remember that the Forex is a market full of opportunities but also risks, especially for inexperienced traders and those who are not disciplined in receiving education and investing time. It is very complex to traders in this market and currency volatility is very high, so the chances of losing all the money invested is very high for new entrants, but if you use the right strategies and several indicators simultaneously, you can get great profits.

If You would like to have more information please clicke here: Trading Forex

Wednesday, January 6, 2010

Using the Bollinger Band indicator to invest in Forex

What are Bollinger bands? It is a technical analysis indicator used in the financial markets such as Forex, which are used to determine market volatility and relative prices in a period of time determined by the trader.

This technique was developed by John Bollinger in the early 80's. Bollinger was based on mathematical formulas commonly used by statisticians to determine the standard deviations of the data series and adapted for use in the Forex Market. Bollinger bands are used to determine over-bought and over-sold levels.

The use of Bollinger bands Indicator is more effective when the Forex markets is without trend (ranging markets) and it is suggested that it should be applied in periods of 20 days but it may also be used even in periods of 50 days.

Bollinger bands consist of three lines drawn in relation to price action. These three lines are:

• The middle or central band: it is as a rule; a simple moving average and provides information on market trends. From the middle band it is calculated upper and lower bands by one standard deviation.
• The upper band: is equal to a moving average of 20 periods and 2 standard deviations above the moving average.
• The bottom band: is equal to a moving average of 20 periods and 2 standard deviations below the moving average.

How to use Bollinger bands to invest in Forex?

You can use this indicator to determine market volatility and relative prices for trading in Forex. You must start tracing the 3 lines in the graphs, which provide you with the indications of when you should buy and sell.

In Markets without trends the strategy is to sell in higher bands and compared in the lower bands. The interval between the upper and lower band will provide you with information on the volatility or market activity to trade. This means that the higher the volatility in the Forex market is, the higher the standard deviation and because of that the bands are a little broader. If on the contrary, it happens that there is less volatility in the market, the lower the standard deviation and thus the bands will be narrower.

On the other hand, if you notice that currency prices will break through the upper band, in the band that is contrary, we must expect a continuation of current trends in the market.

Calculate the moving average (MA) using the following formula:

MA = (P1+ ... + Pn)/n

Pn = Price at an interval n
n = Number of periods

• Subtract the moving average (MA) of each data point (p) used in calculating the moving average. This will give you a list of deviations (d):
• Finally, calculate the three Bollinger Bands using the following formulas:

Superior Band = MA + 2σ
Media Band = MA
Lower Band = MA-2σ

It is not recommend using this indicator in volatile markets. But if you do use the indicator, you should buy right on the break above the upper band and sell right on the break below the lower band. This is important if you notice that the bands shrink too fast (consolidation), it is likely to occur a violent break, a moment you can use trade.

Bollinger Bands provide you with 3 types of signals:

• Contractions (squeeze) means that there is less volatility in the market.
• Expansion (expansion) means that there is greater market volatility.
• 2.0 STDV close : Breakouts

What you should NEVER do?

• Never buy or sell without observing the candlestick patterns.
• Do not buy or sell if it has not detected a clear breakout of the market.
• Do not use this indicator in periods longer than 100 days.
• If prices touch the band alone, it does not mean that you should buy or sell. Never trade without a preliminary analysis.

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Remember that no investment is risk free and the Bollinger Band indicator in Forex will help you most effectively when it is used in conjunction with other tools.

If you would like to have information about Technical Analysis, Please Click Here: Forex Trading

Thursday, December 17, 2009

Risk and Your Forex Trading Style

The most valuable part of any style of investing, is understanding your personal risk tolerance. Without a good understanding of this, it will be way too easy for you to loose all your capital. Each type of Forex trade carries its own risk parameters and these tie in directly with your risk tolerance. Then there is your style of trading, conservative, moderate, and aggressive.

When you first come to Forex trading you may decide to trade a day chart. The pip movement over a day can be 100’s of pips, so when you select your stop-loss position you have to assess what your drawdown risks are. If your money management dictates a 3% funds exposure, you will get into problems on day charts unless your account is significant.

The 5M or 30M charts maybe more appropriate since the pip range tends to be smaller, so your stop strategies can fall within your management criteria.

Yes, we all want increase our wealth from out trades, but risking ones account to wide stop positions and excessive draw-downs is going to burn out your account and trading career very quickly.

A common risk level is 3% or $300 on a $10,000 account. Switch this to pips, 1 standard lot ($100,000) has a pip value of $10 so if you trade end of day and your stop loss placement, whether count-back or support and resistance or any other, indicates a 100 pip stop position, then you are not risking 3% but 30%! Three wrong trades and your account has vanished!

An aggressive trader is willing to take riskier trades that a conservative trader. Their tendency is to expose bigger sums or money in riskier trades with the hope of achieving larger returns – often over extended trading time frames but they may still use the similar strategies for shorter times as well. Very much the ’all risk’ trader.

So where do you place yourself? Are you a disciplined trader with correct money management and risk rates, or a trader that will take over the top risks with all or nothing gains? If you are the latter, you won’t be around for long, that’s a guarantee.

If any of this leaves you a bit uncertain, you need to learn more, so begin by getting your Forex training with Top Dog Trading, you will learn a huge amount and it will help you trade with safety to win pips not risk everything.

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Friday, December 11, 2009

Currency Trading Methods

Risk Management : I would like to continue the dialogue on ways to find the right trading strategy for Forex trading. Previously, I shared that for any Forex trading methodology to be considered, it has got to be a total technique ( insert link to prior article ) .

Today, I need to add to that by talking about risk management. This is maybe the area where 95% of Forex traders screw up and lose cash. Managing risk is about reducing your losses AND about protecting trade capital by employing specific strategies to accomplish each of these simultaneously.

What do I mean by that and why is it important?

First, most Forex traders make simple trading mistakes: they take too large of a position and expose themselves to serious and steep losses should the markets move against them. Second, they fail to protect their ENTIRE account by allowing ONE trade to put their full account balance at risk.

Here's a quick and perhaps extreme example:

Suppose a forex trader has a ,000 account balance. The foreign exchange trader takes a five standard lot forex trade on the EUR/USD pair. The forex trader now has at least ,000 'margin' at risk (or 50% or more of the forex trader's account balance).

For every 1 point that this forex trade moves against the forex trader, the trader loses 1/2% of the total account balance. Find out more see this Forex Income Engine 2.0 Report. At first glance, that may not seem like a steep loss. However, should the Forex trade move a total of fifty pips against the Forex trader , and the trader afterwards exits the position, the currency exchange trader 's total loss would be an INCREDIBLE ,500! ( 25% of the trader 's account balance ). This is poor risk management and it often leads to finish wipeouts of Forex trading accounts.

How did we figure out that loss? One pip for the EUR/USD pair is the same as ( on the standard lot trade ). A fifty pip loss equals a financial loss of 0 ; and remember our example currency exchange trader had traded five standard lots -- for a gigantic loss of ,500!

Instead, any trading technique should teach you highly specific rules for incorporating money management and risk management into each foreign exchange trade you take. Find out more see my Forex Income Engine Review.

Money Management should involve the distribution of a forex account among the various trades a forex trader takes. For instance, foreign exchange traders should never trade their complete account on a single trade, and should seldom have more than some open positions. By using multiple positions, the foreign exchange trader distributes the chance among every one of the foreign exchange trades they have taken.

Risk management should involve the maximum risk in any SINGLE Forex trade, and should limit the impact of a losing Forex trade on the trader 's account balance.

Here are 2 fast examples:

Money Management : A unproven foreign exchange trader takes four separate one lot trades on 4 separate pairs. Assuming here that each of the pairs have a pip value of on a standard lot, then the total amount of the account being margined across all four trades is about 40% (it may be higher depending upon the actual pairs traded. With correct stop loss management in association with risk management, it is Doubtful the currency exchange trader would attract a complete 40% loss.

Carrying forward to chance management : In each one of the unproven currency exchange trades above, the foreign exchange trader risks only 2% of the trader 's total account balance on each foreign exchange trade. That suggests a maximum loss of 0 per foreign exchange pair traded if ALL FOUR trades are stopped out. Total loss in this situation would be 0 -- a way more recoverable eventuality than the 00 in the 1st currency exchange trade example.

Furthermore, Risk Management has the capacity to make loss recovery less complicated. For example, in the first case, where the Forex trader lost 00, the trader would need a nearly 250% gain on their next trade to recover the lost value on the first trade.

In the second example, however, the forex trader would need only an 8% gain.

A second part of Risk Management not typically discussed in poor trading methods is protecting gains. Though this starts as a consultation on Exit Technique rules, it's also a factor of risk management. Once a forex trade turns profitable, it is imperative that the forex trader manage the gains with smart stop loss management. The worst thing a foreign exchange trader can do is permit a moneymaking position to reverse and become a losing position. Thus, managing risk extends to the protection of gains on a forex trade, just as it does protecting against deep losses on a forex trade.

Therefore, in considering any trading method for use in your Forex trading, you must ensure that risk management is not only discussed, but clearly explained in conjunction with the use of the trading method. If risk management isn't present, confusing, or not particular to the trading technique, you need to avoid using that trading method. For additional info see read my Forex Income Engine 2 Review.

Monday, December 7, 2009

Separating the Brokers from the Bucketshops

Forex (Foreign Currency Exchange) traders invest a great deal of time wringing their hands and discussing their various uncertainties regarding the retail brokers they use to handle their money. Of course it's natural to presume that to make money in Forex merely means to 'beat the market' by finding and executing good quality trades. Sadly, the agency that a client employs can have as much to do with whether or not he wins as anything else.

Bucketshops are retail brokers which take unfair advantage of their traders by taking positions against their clients and sometimes by manipulating the price values they give. Very few companies will own up to doing this, primarily due to the undeniable fact that it gives them a strong reason to make their clients lose. The appellation 'Market Makers' also is often used to denote those agencies who commonly assume the opposite half of their clients' trades. They are creating the market that their clients are trading in, rather than simply sending their trades on to the broader market. A truthful look at the environment of currency, though, shows us that this type of practice is actually vital to making it possible for small retail trades to happen, and though it is often used for illegal purposes, it's not necessarily a nefarious business model.

The reason for this is because there's no physical 'Forex market', in the way that there is for typical kinds of trading. As an example, commercial stocks are available only by way of typical stock exchanges -- the NYSE being among the largest. Exchanges like these are governing agencies that qualify each corporation to be listed, define the terms of the acceptable trading contracts, keep an eye on brokers, and finally clear all trades financially. Stock exchanges establish the daily hours of business and have the authority to decide whether any stock or brokerage should be delisted or shut down as a result of policies that run the risk of compromising the market at large. They exist at actual physical addresses and are themselves regulated by government offices.

The Forex market, on the other hand, is made up largely of giant organizations that need to swap capital with other nations. The real Forex market is made up of giant multinational corporations and international banks that transfer currency from place to place in order to facilitate global trade. If a Japanese company sells products in America, it will likely be paid in the form of US Dollars, but it have to pay its internal costs in the form of JPY, such that it must be able to convert significant amounts of currency on a consistent basis. Companies like this and the banks they use to exchange the currency are the real market, and small time traders are incapable of being involved at this level; they simply don't have the huge sums of capital that would be of interest to the major currency players.

That's the reason why Forex brokers trade with their own customers. The brokers create manageable trade opportunities for the small time guys (that's us) who might not ever be able to participate in the Foreign Exchange market. Then they make bigger offsetting trades on the open market via agreements they have with 'Liquidity Providers'. By ourselves we could never be able to attract the attention of the major banking institutions. It simply would not be reasonable for them.

Because of this, the trader depends on her broker to provide their own currency prices rather than receiving a unified price from a central exchange. Each broker does trades with their specific liquidity providers and different brokerages can be expected to employ different banks. Those differences are apparent in the variation between broker quotes. From this truth arises the requirement for a broker to make the market for its customers, not purely from a want to defraud them (though some few most likely do). A broker can be upright and still have the need to trade opposite its clients, even though they're not attempting to mess with prices and make those clients lose.

So we can see, with regard to most trades a typical broker will be forced to 'trade against' their clients, though they are required by law and ethics not to do this in a way that harms them. This sets up a serious case of 'caveat emptor' - let the buyer (and especially those looking to learn forex) be careful. It's crucial to always keep a close watch on the quoted prices and trading practices of their agency, and to select that brokerage sensibly. It would be unjust, however, to assume that a broker who takes the other side of a client's trades is doing so to screw them. It might seem strange and also somewhat distressing, but it's a fundamental and important part of the small capital foreign currency exchange business model.