2Bull Forex Blog

The foreign exchange market, or Forex market, is an around-the-clock cash market where the currencies of nations are bought and sold. Forex trading is always done in currency pairs. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. The value of your Forex investment increases or decreases because of changes in the currency exchange rate or Forex rate. These changes can occur at any time, and often result from economic and political events. Using a hypothetical Forex investment, this article shows you how to calculate profit and loss in Forex trading.

To understand how the exchange rate can affect the value of your Forex investment, you need to learn how to read a Forex quote. Forex quotes are always expressed in pairs. In the following example, your pair of currencies are the U.S. Dollar (USD) and the Canadian Dollar (CAD). The Forex quote, USD/CAD = 170.50, means that one U.S. Dollar is equal to 170.50 Canadian Dollars. The currency to the left of the “/” (USD in this example) is referred to as base currency and its value is always 1. The currency to the right of the “/” (CAD in this example) is referred to as the counter currency. In this example, one USD can buy 170.50 CAD, because it is the stronger of the two currencies. The U.S. Dollar is regarded as the central currency of the Forex market, and it is always treated as the base currency in any Forex quote where it is one of the pairs.

Let’s go now to our hypothetical Forex investment to show how you can profit or come up short in Forex trading. In this example, your pair of currencies are the U.S. Dollar and the Euro. The Forex rate of EUR/USD on August 26, 2003 was 1.0857, which means that one U.S. Dollar was equal to 1.0857 Euros, and was the weaker of the two currencies. If you had bought 1,000 Euros on that date, you would have paid $1,085.70.

One year later, the Forex rate of EUR/USD was 1.2083, which means that the value of the Euro increased in relation to the USD. If you had sold the 1,000 Euros one year later, you would have received $1,208.30, which is $122.60 more than what you had started with one year earlier.

Conversely, if the Forex rate one year later had been EUR/USD = 1.0576, the value of the Euro would have weakened in relation to the U.S. Dollar. If you had sold the 1,000 Euros at this Forex rate, you would have received $1,057.60, which is $28.10 less than what you had started out with one year earlier.

As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the currency exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you.

The world of stock broking is generally seen as the realm of financial gurus and is not usually considered something that ordinary people might do in their day to day lives. However, many people deal in risky investments on the stock market, either directly or through a stock broker. A stock broker is a person or a company who sells stocks - i.e. the capital raised by a corporation through the issuance and distribution of shares - on behalf of another person or company.

Generally speaking, there are 3 types of attitudes to investment: low-risk, medium-risk and high risk. Low-risk investors usually seek to garner better returns than they might gain from a bank or building society account. Medium-risk investors generally look for higher spending power and are more likely to place a greater proportion of their money on the stock market than low-risk investors. High-risk investors, however, are mostly interested in high total returns and therefore account for the greatest proportion of money ploughed into the stock market.

While understanding the risks of investing in the stock market is crucial if you’re thinking about dealing in stocks, it is also important to understand the products and terminology related to the stock market. Covered warrants, for instance, are the right to buy or sell an investment or a basket of investments at a given price; here, your loss is limited to your initial investments. The London Stock Exchange offers guides on Covered Warrants in order that people seeking to deal in stocks can better equip themselves with knowledge before they launch into the stock market.

CDFs are a product that will allow you to trade on equity, index, foreign exchange and commodities market movement at the price of a relatively small initial investment. This sort of trading is known as margin trading and can give investors huge leverage on investment; but it also carries high associated risks. Your loss, for example, is not limited to your initial deposit, unlike the case with Covered Warrants. Additionally, Listed CDFs allow you to control your position in a wide range of underlying assets with built-in Stop-Loss; here, investors can never lose more than the amount of their initial investment. Listed CDFs are also traded freely on exchanges rather than through issuers.

You might be interested to know that there are many stock brokers that have become famous icons in popular culture; for instance, silent film actor George Murphy once worked as a Wall Street Runner and American lifestyle-guru Martha Stewart worked as a stock broker for nearly 8 years before setting up her vast business empire. But despite the glamour that the stock market might seem to exude, it is crucial to equip yourself with knowledge if you want to invest. Many leading financial institutions offer educational advice and services on stock broking; and if you’re thinking of dealing in investments, it’s always best to see what the experts have to say before you jump in at the deep end.

Many people shy away from the possibilities of investment due to the potentially high financial risks that are involved; however, many don’t take into account that investors have the ability to choose the level of risk in which they place their money. Whether you’re an experienced investor or just thinking of testing the investment waters, rest assured that there’s an ideal option for you.

That said, people have different attitudes towards risk and, generally speaking, investors can be grouped into one of three categories: low-risk, medium-risk and high-risk investors. Low-risk investors are usually looking to gain better returns than those offered by a bank or building society bank account; they’re therefore willing to place a limited portion of their funds into stock market investment. However, low-risk investment portfolios have limited exposure to equities; what’s more, returns are slightly above, the same, or even below the inflation rate which often means that investment will fall in value over time. So while a cautious approach may prevent sudden loss, it can also inhibit the potential for an investor’s money to grow.

Medium-risk investors, however, are usually looking for a significantly higher spending power and are therefore likely to place more of their money into the stock market. And while this means that their portfolios have greater exposure to risky investments, like equities, such investments have the potential to perform better over a longer period of time.

High-risk investors are interested in higher total returns, and thus account for the greatest portion of money placed in stock market investment. A high-risk investor’s portfolio is likely to be governed by equities, with perhaps a small percentage of bonds or cash. In high-risk investment, money is subject to greater fluctuations and, therefore, greater potential loss. Such instability means that there is no guarantee of a positive return in any given year, making this type of investment unsuitable for anyone who requires a consistent income. However, higher-risk investments tend to grow faster than more stable investments - so, over time, an investor would increase their chances of achieving higher total returns.

What type of investment is right for you? There are a few points you should consider first: do you have specific financial goals in mind, like retirement funding or a major purchase? You should also consider whether you’re looking for immediate return or if you’d rather achieve a steady income from your investments. If the latter describes your situation, for example, low-risk, income-yielding investment would be more appropriate for you. These are important deliberations, since the first step in the process of investment is to clarify your financial priorities. This is because a ‘good’ investment isn’t necessarily determined by how well it performs in any given year, but is, rather, dependent on your circumstances. Once you determine your financial priorities, you can begin to consider your investment options.

That said, it’s also important to consider the level of risk you’re willing to accept and, while it’s essential to understand and act upon your own attitudes towards investment, it’s always helpful to gain insight from qualified advisers. If you have doubts and anxieties about investing, a financial adviser can help you sort through the wide range of investment options to find those that match your investment goals. What’s more, they can thoroughly explain levels of risk, reward and protection. And if you’re an experienced investor, an adviser can help you effectively evaluate your investment circumstances and, if necessary, help you make amendments or work towards enhancement. Many stock brokers offer a comprehensive set of products and services to help you get started or continue with your investment aspirations. So consider your options today - and remember that investment is only as risky as you make it.

The use of a currency broker or money transfer specialist has become essential when trading overseas. High Street banks that do not specialise in this field tend to charge higher fees and secure less favourable exchange rates. So you can benefit from a money transfer specialists?

* Overseas property buyers and overseas property investors
* Companies that trade overseas
* Any one making large transactions abroad or regular payments abroad.

Overseas property buyers. Overseas property buyers are amazed at the savings that they can make on buying property abroad compared with buying property at home. A common mistake is not to research the currency market, adverse swings in the foreign exchange rates can wipe any gains made during on the sale of the overseas property. Currency brokers can book good exchange rates for long periods in advance therefore protecting the overseas buyer from the uncertainty of the currency markets. Exchange rates change constantly and 10% fluctuations in a relatively short space of time are not uncommon.

Companies need to find the best dealer too. Companies that are selling or buying services and goods abroad need to use a good currency dealer to secure the best exchange rate. Companies that do not plan their currency arrangements will find it impossible to accurately forecast their expenditure. Imagine securing a great deal only to have your precision financial planning ruined by the effects of ever moving foreign currency rates.

Anyone making large transactions abroad. Buying a car yacht or anything of value abroad requires planning from the onset. Currency dealers can provide accurate rate predications and could save you a great deal of money making the item or service you buy abroad even more of a bargain.

How to choose the right currency exchange dealer. The consumer has a huge choice of money transfer brokerages all will want your business so how do you sort the good from the not so good. Here are some features that a good dealer should provide:

Simple to open trading facility. Opening a Trading Facility should be hassle free and should take no more than a few minutes of your time.

Allocation of a personal currency dealer. The best brokers allocate you a personal Dealer who will monitor the currency markets on your behalf and update you accordingly, providing information on the best time to buy and sell.

Risk Management service. The broker should provide a comprehensive Risk Management Service to help protect you from adverse currency movements.

Speedy money transfers. Transactions should be processed faster than through the normal banking system the currency dealer should provide with instant telephone trading and worldwide transfers.

Extended Trading Hours. Nothing more annoying then a currency dealer that only available 9am to 5pm . they should offer extended hours allowing you to benefit from exchange rate movements outside normal banking hours.

Competitive exchange Rates. Ask your dealer to provide you with their most competitive rate and compare this with others

Booking rates in advance. Some of the major savings you may make on money transfers abroad are with booking rates in advance. Check to see how long the currency dealer can book your exchange a rate. Some of the better dealers can book your rate up to two years in advance.

Regular payments abroad. The dealer should provide facilities that enable you to make regular payments abroad your currency dealer should be able to : Fix the currency amount that you transfer each month Fix the currency amount that you receive Fix the exchange rate for all of your transfers. By fixing the exchange rate. You will know how much in your own currency you will pay and how much currency you will receive in your overseas bank account. This keeps your finances in control and takes the mystery of what amounts will be arriving in your bank account. Keeping you informed with market updates Your broker should be in a position to send you a daily or weekly market update, providing you with the latest information on market moves. This will help you make informed decisions

Established Business. You cannot pay for peace of mind this will come when dealing with an established business who will provide you with the security of dealing with a reputable and secure business partner.

SWIFT membership. Check to see if your currency dealer is a member of SWIFT (Society for World-wide Interbank Financial Telecommunications), the global platform for instant wiring of domestic and international money transfers. This provides increased speed and efficiency as well as more control over your transfers.

This all may seem a very tall order however most good currency dealers will provide the facilities mentioned.

Have you ever noticed that awareness is the first step toward future growth? If you want to improve in any area, read on below to understand the four stages of awareness as they relate to good trading.

The learning curve in any endeavor involves four stages:

1) Unconscious incompetence (where the trader has no idea how much
he doesn’t know about trading)

2) Conscious incompetence (where the traders realizes after initial losses
that he has a lot to learn)

3) Conscious competence (where the trader has developed and is now
doing well as long as he works his system and its rules)

4) Unconscious competence (where the trader has mastered the rules
and also knows when to break the rules as conditions change, in a
complete flow with the markets based on great experience)

One of the biggest problems beginning traders face is not having a defined method or system to tell them when to get in and out. This leads to ego-based decisions which ultimately make it harder for the trader to pull the trigger due to increased uncertainty and overthinking the position.

The way you avoid thinking too much during the trade itself is to practice consistent execution of your system’s trades. This takes you from the conscious incompetence stage where the trader has not learned how to execute, to the conscious competence stage where you know that if you just focus on consistent execution of your plan, you can expect to win more consistently over time. It also is less stressful on your emotional state, since a systematic trader takes his ego out of the game and focuses on execution.

Every trader who wishes to improve his bottom-line results must decide what area most needs attention right now. The trader must start by taking an honest self-assessment of strengths and weaknesses, prioritize the highest impact areas and then focus on changing one behavior at a time. Most ambitious traders (myself included) have at one time tried to tackle too many issues at once, only to not produce the desired change in any of those areas. Change takes time. Just as a golfer hitting a drive or a basketball player shooting free throws has developed a certain “muscle memory” for success by repeated practice, so too have you created a muscle memory for your mindset, both in trading and in all areas of your life. The hardest part of the process is changing that memory from one that hasn’t worked to one that will produce consistent results. But once your mind starts to recognize and get comfortable with these new procedures, maintenance of the change will be much easier.

You must commit to one objective and focus on it. Give yourself a month to work on a given issue, focusing on it each day in your trading journal. Set up potential solutions and then try them out to see if they fit your personality. Create a method to measure your progress. Do you have trouble taking a loss at your pre-defined stop objective? Trade very small for a month, and just work on following your system and taking each loss. The financial impact will be small for a month, but the discipline you instill will last you for years if done properly. You can take this approach with any issue you face.

Just remember to stay focused on one habit at a time until you are confident you have mastered it.