2Bull Forex Blog

Back in the nineteenth century farmers started selling contracts to deliver their produce at a fixed price at some specified future date in an effort to stabilize the supply and demand of agricultural products out of season. At this point the futures market was effectively born.

Today the futures market extends far beyond agricultural products and includes many different items from manufactured goods to currencies and treasury bonds, but the principal remains the same. One essential difference however lies in the fact that for many futures traders there is no intention to actually purchase the goods in question or to take delivery and it is the futures contract itself that is the trading instrument.

As an example of how futures trading works let’s assume that a baker enters into a contract with a farmer to supply 100 tons of wheat at $50 a ton on a specified date. This contract need not necessarily require the baker to purchase the wheat specified in the contract but gives him the option to do so if he so chooses. Now, Futures accounts are settled at the end of each trading day and so, if after entering into the contract, the market price of wheat on a particular day is $40 a ton the farmer’s trading account will be credited with $1000 ($50 - $40 X 100) and the baker’s account will be credited with the same amount.

Final settlement of the account and delivery of the wheat will then take place on the agreed date and, for the sake of argument, we’ll assume that the price of wheat is still $40 a ton at this point. The farmer will now have $1000 in his trading account and the baker will need to pay his account the $1000 that it is down. So how did both parties do?

The baker has lost $1000 on his futures contract but is able to buy wheat on the open market now at just $40 a ton rather than the $50 he anticipated and so his loss on the contracted is balanced by his ability to buy cheaply on the open market. In effect he has protected himself against having to pay more than $50 a ton but has in essence lost because the market price has fallen.

The farmer on the other hand has made $1000 on his futures contract but, because the market has fallen, he can now only sell his wheat for $40 a ton. Once again the difference between the two is balanced and, by entering into the contract he has effectively gained the $1000 he would otherwise have lost on the open market.

In many cases speculators will enter the market and will buy and sell futures contracts. For example, if they expect prices to rise they will purchase the contract from the buyer (known as buying long) and, if they expect the price to fall, they will purchase the contract from the seller (known as buying short).

The Forex, or foreign exchange, market is similar in many ways to the futures market but has several important advantages.

The Forex is the largest financial market in the world and is a giant when set alongside the futures market. This makes the Forex market very much more “liquid” and provided many more trading opportunities for both buyers and seller.

The Forex market is also open 24 hours a day, 5 days a week, while most futures exchanges are open for only 7 hours a day on Monday to Friday.

Forex transactions are commission-free, while brokers will charge both commission and brokerage fees on futures contracts.

Forex transactions are executed almost immediately because of the high volume of trading and there is usually little difference between a quoted price and that actually paid on the transaction. In futures trading quoted prices will often reflect the last price paid on a similar trade and there can be a marked difference between the quoted price and the actual price paid.

Finally, the Forex market has a number of in-built safeguards which mean that trading on the Forex carries less risk than trading on the futures exchange.

Every investor has their own often unique methods to decide how and when to place trades on Forex. Some rely solely on recommendations provided by subscriber services.

Others learn different methods of charting and analyzing graphs to predict future trends. Others use a combination strategy. No matter what methods you use staying informed about Forex news online can make a big difference in your bottom line.

Trading currencies and the Forex market are affected by certain factors that are basic to all currencies, no matter what the country. Things like the country’s economic stability, political stability, and the trade status of the country can all affect the strength of a country’s currency. While its virtually impossible to stay informed about all countries and their state in each of these areas there is an easy way to stay informed on major factors.

Using forex news online can provide you with current and accurate information regarding these factors. You’ll immediately become aware of what’s happening and of the predictions made as a result of those happenings.

Forex News Online - The Variety

Forex news on the Internet also provides other information regarding trading currencies. Market new, daily market outlooks, recommended trades, and information about specific signals and signs are all a part of news in the Forex market.

Daily RSS feeds, broker updates, analysts sites, and the news in general are all good methods to find out what’s happening and the potential effect on currencies.

Some investors rely solely on professionals to do these new reviews and then make recommendations. It is still a good idea for every individual currency investor to do their own investigations on news and the forex market.

Reading and studying trends and watching the effect of those trends can help make you a much more solid investor. You’re not simply relying on what someone else suggests you do. By staying abreast of pertinent news you have the information you need to do your own evaluation of recommendations and suggestions.

Without being informed you’re simply allowing someone else to control your investment moves. Obviously not every professional makes the same recommendations.

If you’re one of those Forex investors that rely solely on one group for recommendations and information, it may be time for you to wake up to the rest of the news online. t could mean the difference between lots of profit and minimal results. The choice is yours.

As with any other form of investment, trading in the Forex, or foreign exchange, market carries risks and it is vitally important that you understand just what these risks are before you embark on trading. In any trading environment there will always be loses as well as gains and the secret of course is to minimize the former and maximize the latter.

To a large extent this is a question of education in the first instance. Taking the time to learn the ins and outs of Forex market trading, preferable with the assistance of a good Forex trading mentor, is an essential first step. Next, it is important to familiarize yourself with the wide range of trading tools available to you and to learn exactly how to use these to the maximum advantage and to extract accurate real-time trading data from them. Finally, no matter how well educated you are and how competent you are in the use of the various tools available, you will always need to proceed with caution and exercise carefully reasoned judgment in each trade that you make.

All of this said, here are some of risks to be aware of:

1. Forex scams. You will hear a great deal about Forex scams which, a few years ago, were very common. Fortunately the industry has done much to get its act together since Forex scams first appeared and they are uncommon today. Nevertheless they do still occur.

Opening a trading account, especially online, is a simple matter of filling in a form or two with a broker and depositing funds into your trading account. You can then start trading.

While this process is attractive to many new traders it is also attractive to scam artists who will setup a website posing as a broker and happily open an account for you, let you deposit your money and then simply disappear without trace.

The first step therefore for anybody entering the world of forex trading is to ensure that you open an account with a reputable broker and this means doing some background checking. All reputable brokers will be associated with a large financial organization, such as a bank or insurance company, and will also be registered with the appropriate government department. In the case of brokers in the United State this means being registered with the Commodities Futures Trading Commission (CFTC) or being a member of the National Futures Association (NFA). It is also a good idea to check out a potential broker through your local Consumer Protection Bureau and the Better Business Bureau.

2. Exchange Rate Risk. The essence of Forex trading is that you can make money as currencies rise and fall in value against each other. The currency markets can be extremely volatile at times and currencies can rise and fall significantly in very short periods of time giving rise to substantial gains and losses.

This is one risk however over which the trader does have considerable control by setting a stop loss order. This simply means that on any trade you can specify that the trade is to be closed if currency levels involved in the trade reach a predetermined level.

Stop loss orders can also be used alongside limit orders to effectively automate your Forex trading. A limit order is similar to a stop loss order and simply specifies that a trade should also be concluded when a specific profit target has been reached.

3. Interest Rate Risk. Discrepancies can occur between the underlying interest rates in the two countries whose currencies are involved in a particular trade which can result in a variation between the actual profit made on a trade and the expected profit.

4. Credit Risk. As there are always two parties involved in every transaction (a buyer and a seller) it is always possible that one party to the transaction will not honor their commitment once a deal is closed. This normally happens when a financial institution or bank involved in the transaction declares insolvency.

Credit risk can be substantially reduced by ensuring that you trade on regulated exchanges which will require all members to be monitored to ensure their credit worthiness.

5. Country Risk. From time to time governments may step into the foreign exchange markets and limit the flow of their country’s currency. This is unlikely to happen in the case of the major world currencies where the countries involved permit free trading of their currencies but can occur where minor and less commonly traded currencies are concerned.

One of the secrets to successful Forex trading, apart from sound education and a good Forex trading mentor, is to know and understand the risks involved and just how these can be avoided or minimized.

This is probably the most traditional form of investment pre-Internet. And has it gone away today? No! Quite to the contrary, it’s alive, revamped and there is a lot more opportunity to make money…and lose money…from the stockmarkets.

Is it worth putting money on the stockmarket?

Classical question, to which I will give the classical answer. It depends how long you want to keep the money in there for.

If you want to, and can, leave the money aside for 5 years or more (i.e. you are putting some of your SAVINGS into the stockmarket), then definitely YES. Whilst past performance is not a guarantee of future performance, the stock market tends to outperform other forms of investments in the long term.

Then what if I want to make a short-term gain?

Once again, I will give a classical answer to this classical question. BE CAREFUL. You can also LOSE money on the stock market. Yes, it’s very true. Many, many people have lost money on the stock market. Some have become bankrupt, some have committed suicide over it. But many people earn big money in the City and Wall Street doing just that, don’t they?

True. But you cannot and should not aim to compete with them. First, you do not have the resources, database, training and time to research stocks as much as they do. Second and more importantly, you do not have the huge financial backing that the banks/funds have to leverage or hedge your positions. And finally, even they lose money. They just don’t publicise it as much for obvious reasons. Click here to read an article on that matter.

Therefore, you should only play the stockmarket with money that you can afford to lose!

If you do want to play the stockmarket, please consider the following advice which, once again, is not exhaustive:

1. If you want the potential for higher gains, consider buying Contracts for Differences (CFDs). These are sophisticated derivative products that are now available to the public. You only put down a fraction of the money you want to invest on the stockmarket and borrow the rest. Obviously, you pay interest on the amount you borrow. This means that your investment is then geared. You stand to make stronger gains, but also more painful losses! I invested $3,500 in a CFD on a blue-chip company in August 2006. I am still licking my wounds!!

2. Bear in mind that you don’t have to trade only in stocks/shares anymore. You can trade on gilt bonds, derivatives and commodities such as oil, gold and silver. If you feel you have some better knowledge about a particular market, go for that!

3. Research the market. For example, every day, I read This is Money. Every weekend, I read the Money and Business Section of The Guardian. I try to pick blue-chip stocks that are giving a relatively high dividend yield. This is interesting for 2 reasons.

(a) If, like me, you are buying stocks on a CFD, you will pay interest the longer you hold the position open. However, you will also be paid dividend. Hence, a higher dividend helps to offset the cost of keeping the position open;

(b) Such stocks may soon attract hot money hence pushing up their price;

Obviously, you need to take this with a pinch of salt, so ALWAYS research the company first to try to ascertain why this is the case. For example, has there been a profit warning issued recently?

My tips for stockmarket investments are:

1. Invest in currencies - the markets and less volatile and more predictable;
2. Invest in funds - they are less volatile and still offer good value;
3. Never act on inside information - you can go to jail for that!

Foreign Exchange market is influenced by several market and economic conditions, which makes it a complex processes. Its trading complexity is managed by employing a systematic approach derived from various aspects of international business, economics, geopolitics, mathematics and behavioral science.

Winning in forex market requires an efficient and effective strategy. Here are 7 guidelines to formulate your strategies as a successful forex trader.

1. Research and Analysis

Research and analysis are the key and fundamental ingredients of successful forex trader. Continuously research and analyze on important economic events, price movements, trends, and general market developments that impact currency pairs. You should incorporate both technical and fundamental analysis tools to analyze the market that would help you make trading decisions.

Technical tools will help you determine price action of the market, while fundamental analysis helps you predict price action and market trends by analyzing economic indicators, government policy, interest rate decisions and others.

2. Make a plan ? Work a plan

One way of managing your trading activities is by working based on plan .Trading Plan should consist of why you enter, stop loss price and profit taking level.

3. Control Risk

As with every other trading, forex trading has its own risk. Achieving success in foreign trading market requires managing and controlling these risks.

4. Properly apply money Management techniques

Management in forex market requires proper capital management. Do not trade more than 10% of your deposit in a single trade. For example, if your total deposit is $100, 000 you should limit every trade to not more than $10,000. This would help you secure your account under worst market conditions.

5. Track your Trading Activities

Track every trading activities so that you will be able improve your performance. When you buy a currency, write down why you buy and your feelings at the same time. You do same when you sell. Analyze and write down the mistakes you have made, as well as things you have done right. By referring your trading journal, you learn from your past mistakes. Keep tracking your records and improve your performance accordingly.

6. Control your positions

The numbers of positions you hold at a time is very important to control you trading activity. There fore, it is important that to should limit the number of positions you hold at same time in between 3 to 5. It I always recommended to hold the minimal amount possible, so that you will be able to control you performance.

7. Avoid Greed and Fear

You should never allow fear and greed influence your trade, because if you take emotional measures in your forex trading activities, you will badly lose your account. Be advised that, forex trading has its own process. You should avoid fear and Greed, and trade based on research and analyses of market trends.

Summary

You should properly implement the following guidelines in your daily trading activities. If you follow the guidelines explained above and formulate your trading strategies based on these bases, you will attain success in forex trading market.