Foreign exchange trading (also called Forex trading, for short) is a very popular means by which people can trade on currency pairs. Different than stock trading, foreign exchange trading deals with currency pairs; you place trades based upon the assumption that one currency in your pair is going to do better than the other currency in your pair.

The foreign exchange market is the largest in the world and operates 24 hours a day, six days a week. Because it operates globally, you can place trades that literally anytime of the day or night, whenever you choose. The Internet has made Forex trading a very popular and sometimes lucrative pastime for many people. And in fact, some people have even made it their full-time occupations.

If you want to be successful in foreign exchange trading, you have to do a number of things to get started. First of all, you have to learn the Forex market, inside and out. How do you do this? The best way may be to simply get hands-on practice. In fact, this can be free to do so. Simply research a number of Forex brokers and choose the best one for you. The Forex broker you choose likely has something called “demo trading.” Demo trades are trades that beginning Forex traders can use to practice Forex trading before they risk their own money.

As you participate in demo trades, you’ll also need to be learning other ins and outs of the market. Among the skills you have to learn will be technical and fundamental analysis. Technical analysis is the means by which you analyze and then predict how a particular currency is going to do based upon past behavior. For example, if a particular currency has been doing well and has been for some time, it’s likely that it’s going to continue to do so for at least the short-term. You’ll need to keep abreast of any changes and be able to make snap decisions based upon those changes in the event you should have to get out of that particular trade.

Fundamental analysis predicts how well a particular currency is going to do based upon its country’s social, economic and political stability. Again, as examples, if a country is very stable in these three areas, and its currency is likely also going to be strong. If the country, on the other hand is very unstable in any of these three areas, its currency is not going to be as stable or as strong. Therefore, strong currencies are likely to have strong countries, in essence.

Now, with foreign exchange trading, there is a lot of data to keep track of, and you have new data coming in all the time. There is Forex software available that can help you keep track of your data and be able to analyze it “in a glance” once you know what you’re doing, even as it changes rapidly. There are programs available both through Forex brokers (sometimes for free to their clients) and there are also independent programs you can buy. Read reviews and choose carefully if you do decide to use a software program. Nonetheless, be aware that you will still need to know how to read and analyze the data independently in order to use the foreign exchange software. You should not rely exclusively on the software to tell you what trades should be made.

Your best advice however is to use Forex trading software that is NOT provided by the Forex broker. Why? Because just about everyone who uses that broker will be using the same software, and therefore likely to be making the same trade decisions, which will dilute your profits. You are much further ahead to use a very capable Forex software package that will likely not make the same trading recommendations as the software from your broker, which can then maximize your trade profits.

Foreign exchange trading gives you the means to make some pretty decent money once you know what you’re doing, and in fact, some people make very good livings just by engaging in Forex trading and nothing else. That said, you’re going to have the psychological and technical skills to be successful. Don’t engage in real money trades until you know what you’re doing. And never risk money you can’t afford to lose; even successful Forex traders lose money sometimes, and you will, too. With that said, though, foreign exchange trading can be a very lucrative pastime or even full-time profession, if you find it exciting and challenging.

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For more insights and additional information about Foreign Exchange Trading as well as reading review of three of the most popular and successful Forex trading software programs, please visit our web site at http://www.forexcurrencysystems.com

Hi Guys

It’s hard to believe how quickly the weeks go in.

Welcome back!

As promised in the last Newsletter I am going to define some of the most common terms and discuss their importance for you.

I will split them up into basic forex terms and then I will discuss two types of trading which are commonly employed by most traders.

‘Pips’

These are the units that comprise a forex currency quote. For example the USD/CHF (dollar/swiss) is trading at 1.0250. This means that you would get 1.0250 Swiss Francs for every $1. Now say that the price is now 1.0265. This means that there is a difference of 15. This number is the pips i.e. ‘15 pips’.

What you may not know is that the pips per currency differ in how they are applied. For example JPY (Japanese Yen) are quoted against the USD as follows 103.75 or 103.60 - the pips in this case are to 2 decimal places whereas the CHF and most other major currencies are quoted to the 3rd and 4th decimal place.

A good place to see these ‘pips’ in action is your local bureau de change or your banks quoted currency rates for travellers’ checks etc.

‘Pairs’

Forex is quoted in pairs i.e. GBP/USD, that is pounds (often referred to as Cable or Stirling) against USD, that is £1 to $1 i.e. how many dollars to the pound. This is a bit of an anomaly which is historical but just bear with it for the present. You are probably more familiar with USD/JPY, USD/CHF, USD/CAD - now do you get the picture?

You can’t buy a currency unless you sell the one its ‘paired’ with!

‘Position’

A position is a purchase/sale of a currency pair at any one time that is currently open and is the net amount exposed to the market. This position would be ‘long’ dollars (bought) against ’short’ currency (sold), or vice versa.

‘Quotes’

A currency will always be quoted as a buy/sell price i.e. 1.0250/65. The price that is offered by the bank/broker can be a little confusing at first but remember it this way. The left price is the bank buys USD off the customer and the right side is to sell USD to the customer. So lets say that you deal i.e. buy and sell at these two prices - what is the net effect on your bank balance?

OK, lets assume you have $100,000 and there are no broker charges.

You sell $100,000 at 1.0250 (remember, that’s the price the bank buys the USD at) you get CHF 102,500

i.e. -$100,000 +CHF 102,500

You then sell CHF 102,500 i.e. buy back USD from the bank and they are buying at the rate 1.0265, this means that you have to ‘pay’ CHF 102,650 to get the $100,000 back or receive 102,500/102,650 x $100,000 = $99,854.

i.e.

-$100,000 +CHF 102,500
+$100,000 -CHF 102,650
_________ ______________
0 -CHF 150

This difference in this case a loss is CHF150 or $146 and represents the spread of the bank/broker - the cost to you or me. Spreads are usually no more than 5 pips but it is always best to get the buy/sell quote so as you can see the spread - remember the narrower the spread the cheaper the deal.

You should practice with rates and familiarize yourself with this concept - it is a vital first step in understanding forex. It is also not unusual for your broker to give you a buy price or a sell price - I have found that it’s best get both sides!

‘The majors’

This is shorthand for the major currencies traded. There are 7 of them, these are the USD ($), GBP (£), JPY, AUD (Australian dollar), CAD (Canadian dollar), CHF (Swiss franc) and the EUR (Euro). These 7 currencies make up the bulk of the $3 trillion dollars traded daily.

Now onto Trading Styles

Day Trading

Day trading is pretty self explanatory. This involves the trading of currencies daily and can involve the taking of one position or many positions depending on market conditions.

Rarely are trades held for longer than a day as there is an added cost to rolling over a position to the following day - I will go into this in more detail in a future Newsletter. This is usually the ’safer’ of the two types that I will be discussing today.

Scalping

This is an opportunistic form of trading and positions may be taken for a few minutes and then squared (liquidated). This type of trading usually requires a specialist broker as many brokers frown upon scalpers and terminate their accounts.

I hope you have found some of these forex definitions useful

Next week we will look in more detail at charts and chart patterns!

See You then!!