2Bull Forex Blog

Forex traders or FX traders trade currencies to make profits. They buy and sell currencies including both native and foreign currencies with respect to the changes in exchange rate of one currency to another. Forex traders buy a currency for lesser amount of one currency and sell that to earn greater amount of the currency. Forex trades are done in pairs known as “currency pairs”. Each nation’s currency carries a special triletter currency code like JPY for Japanese Yen and USD for United States Dollar. Each currency pair is represented as JPY/USD, which mean the trader start trading by buying USD spending JPY.

The calculation of profit or loss in forex trading exclusively depends on the increase or decrease in the exchange rate of the second currency (one first brought) to the first one in the currency pair. If the exchange rate increases the trader is profited, if that goes in opposite way then loss. In order to reduce the possible loss associated with any forex trade, the trader can place stop-loss orders and can configure alerts.

As a result of the high liquidity (the market stability) present in the market most forex brokers offer high leverages for trading currencies. Leverages enable traders to trade on margin that is trade in large amount with fewer amounts in the account. Most forex brokers offer leverage on or beyond 100:1 that is with $1 (or any other currency) in the account, the trader can borrow up to $100 from his broker for trading.

Today almost all forex trades by individual trades are carried out online using sophisticated trading systems. These trading systems include both web-based or broker-side forex trading systems and direct access or stand-alone forex trading systems. The choosing of the type of trading system solely depends on the trading necessities of the trader. If the trader is an infrequent trader or long-term trader then the web-based trading softwares are more useful; if he or she is an active trader or day trader then the direct access trading softwares is the best. Now a days, both types of systems are offered by forex brokers free of charge, some ask you to fulfill certain minimum requirements.

Unlike stock exchanges there is no actual exchange for trading currencies. Thus all the trades are executed in a more advanced and automated trading practice called OTC (Over The Counter) trading. This type of trading involves broker-dealer interactions and price negotiations. Traders directly or via brokers places their orders to market makers, whose automated software executes the trade by matching the ask and bid prices. This type of trading minimizes human requirements. All contracts traded in forex market are standardized for facilitate traders to do detailed analysis. There are mini and standard forex contracts available.

Choosing a forex broker is important in maximising your trading profits and making sure your trading experience is smooth.

Here you will find a checklist so that you can find a broker that will maximize your trading experience.

1. Execution Only

Your broker is only there to help you transact your orders and make sure your account runs smoothly – they should NOT give trading recommendations.

Many novice traders think this is a good idea and their broker knows best, however if he could make money trading he wouldn’t be a broker!

Brokers are there to transact orders and that’s all.

If you don’t take responsibility for your trading you won’t win.

2. Look for tight spreads

This is your cost of doing business and the less you pay the more of your profits you get to keep.

Look for spreads from your forex broker of 3 – 5 pips for trading the majors.

There should be no other commissions or fees - make sure the spread is all you pay.

3. Leverage

Look fro leverage of at least 200:1, although many brokers will offer you more and some go as high as 400:1.

4. Trading platform

Check it out and see how useable and reliable it is and that you get 24 hour support, if you need it at anytime for any problems you may encouter - not all brokers offer 24 hour service so beware.

5. Ease of funding and minimum investment

Today, many forex brokers will let you fund an account online with as little as a $100.00.

If you are a novice starting small is a good way to get your feet wet.

These companies also allow small minimum trades.

If there are online payment facilities, you can fund your account quickly and equally get your profits back quickly.

6. Guaranteed stops

If you are a novice trader and worried about the unlimited liability that margin trading presents, you may want to guarantee your stop and there are many brokers who will provide this comfort for a fee.

7. Extras

A forex broker is not there to give you trading advice but it is nice to get extras such as demo accounts, free newsletters, reports and other educational material, which can help you improve your trading – You will find many brokers who offer a lot of extras and if you are new to trading they are well worth having.

Your forex broker is important and if they provide all of the above in terms of service, you should be able to maximize your trading experience and profitability.

The rise of online forex trading means that anyone can swing trade for short term profits, Its not only profitable, its easy to learn, good fun and that’s what trading should be.

Forex swing trading online provides the ideal market for the methodology of swing trading.

So why are currency markets the ideal for swing trading?

Lets first of all define what forex swing trading actually is

Forex Swing trading aims to identify intermediate swings in price, that can last from anywhere from a few days, to a few weeks.

This is not day trading – day trading has no reliable data as the period is to short and you cant make money.

Swing trading here means still looking at short time frames, but the data is reliable enough for you to get the odds in your favor.

The following conditions make FOREX swing trading potentially such a lucrative way of trading

1. Liquidity

Each day the global forex markets see trillions of dollars transacted.

This is a 24 hour market and is the world’s biggest investment marketplace.

The huge size of the markets allows traders to open and close transactions quickly, to lock in profits and minimize losses.

2. Volatility

Currency markets are volatile and this is why a short term trading method such as forex swing trading can be so profitable.

A volatile moving market is essential for swing trading.

This volatility means a large number of potential opportunities that are presented to forex traders.

3. Transaction costs

Low transaction costs that were once the preserve of large institutions, now any trader can get 3 – 5 pip spreads meaning short term trading is viable for any trader

Swing trades come regularly

While currencies present long term trends, there are many profitable swing trading opportunities within them.

These shorter trends last for a few days to a few weeks and they offer regular high reward low risk trading opportunities for forex swing traders

5 Psychology is easy to learn

Many traders lack patience and want to have quick action well that’s exactly what you get with forex swing trading.

FOREX swing trading offers them a lot of trades regularly and you don’t need the patience of a long term trend follower.

Swing trades tend to either run to profit quickly or loss, keeping the trader interested, motivated, disciplined and focused.

This is an ideal way of trading for someone who loves trading.

Forex swing trading is also

Easy to learn you can simply use support and resistance lines with some confirming momentum indicators. For example, we use just stochastics and
RSI – It’s simple and a stress free way of trading and best of all can make big profits with low risk.

FOREX Swing trading is fun and very profitable and that’s the way trading should be.

If you are starting out in forex trading you need a quick forex 101 checklist to see that you can succeed where over 90% of others fail.

Actually, forex trading is not as hard as many people think it is, all you just need to do is keep these points in mind and they will lead you to success.

Let’s get started.

1. Only you can make yourself successful.

If you think you can buy success for $100 or so and follow a vendor blindly – you’re mistaken.

Even if you follow someone else, you need to know how and why their system works and most of the forex education sold doesn’t work.

Think about it:

If it did it wouldn’t be sold.

Fact is you won’t be successful unless, you understand why your method works and have the confidence to follow it with discipline.

2. Get a methodology that works.

Avoid day trading, the odds are not in your favour and day traders lose – it’s a mugs game. You can’t find reliable data in short time frames so don’t try.

Either use a long term trend following methodology, or if you are the impatient type try swing trading.

3. Don’t over leverage.

Take it slowly to start and deal in small sizes.

Most novice traders over leverage and blow themselves out.

Sure, the profit potential is bigger, but don’t forget the losses!

To win you need to play great defence first and then let your offence make you profits.

There are very few football teams that don’t build their success on firm defence and trading is the same.

4. Stops.

Don’t place them in your head, place them in the market straightaway, to maintain discipline and only trade in line with your methodology, don’t try and force trades.

5. Keep it simple.

If you want to prove how clever you are, get a degree and don’t trade.

Another common fallacy is that complicated systems work better than simple ones and the harder you work the more you will achieve.

This may apply to digging roads but not to forex trading.

You get paid for getting market direction right, nothing else.

Simple systems work best and beat complicated systems, as there are fewer elements to break, in the face of ever changing brutal market conditions.

6. Pace yourself and be realistic.

Sure there are traders who make millions quickly, but that’s not the norm.

The best traders make 50 – 100% per annum and if you can make these sort of gains you will soon be very wealthy.

7. Remember this equation!

Everything about trading can be specifically learned and everyone has the potential to be a great trader, however fact is most forex traders don’t win, so what’s the secret to succeed?

The secret is attitude.

This means applying the right knowledge and the equation below if you understand it can bring you success:

Work smart and learn the right knowledge + Simple method = Confidence & Discipline = PROFIT

You need to have total confidence in what you’re doing, this means working smart not hard.

Once this is achieved, confidence comes and this leads to discipline and longer term profits.

Trading success is mostly down to mindset.

You simply have to learn the right knowledge, have confidence and discipline and profits will follow.

It really is that simple.

We hope you enjoyed our forex 101 summary and wish you good luck in the world’s most exciting investment.

It’s likely that either curiosity or skepticism led you to this article, and I would agree that, for most individual investors, trading is approached in a totally speculative manner. Stock trading, in its more popular forms (Day Trading, Swing Trading, Penny Stock Speculating, etc.) includes none of the elements that a conservative investment strategy would have at its very core: Little if any attention is given to the fundamental Quality of the equities selected. Any Diversification that exists in the portfolio is determined by chance alone and is, at best, a transient result of the selection guesswork. No attempt whatever is made to develop an increasing and dependable stream of Income. But stock trading by individual investors doesn’t deserve quite as bad a “rep” as it has earned. After all, its very foundation is Profit Taking, probably the most important (and possibly the most often neglected) of the activities required for successful investment portfolio management. Unfortunately for most non-professional equity traders, loss taking is a more common occurrence.

Bond, (and other Income Security) trading is generally avoided by most non-professional traders. Obviously, it takes more investment capital to establish positions in Corporate and Municipal Bonds, Real Estate, or Government Securities than it does in Equities, and the volatility that traders thrive upon is just not a standard feature of the mundane world of debt securities. Surprisingly, most investment advisors and stock brokers have not discovered that there is a more exciting approach to Income Investing that is actually safer for investors and less inflexible in the face of changing interest rate expectation scenarios. Certainly, Wall Street financial institutions pressure their representatives to push individual new issues and/or investment products, but I think that the Market Value fixation that stretches from Wall Street to Main Street is the real culprit. Income securities need to be “valued” for long-term income growth and traded with great pleasure… albeit much less frequently.

Consequently, most trading is done in an Equity only environment that, by its very nature, is too speculative for most mature (in whatever sense you choose) investors. But this is not the way it needs to be. Since stock prices are likely to remain volatile in the short run and cyclical in the long run, there will always be opportunities for profit taking. [Note that it is the combination of volatility, market accessibility, universal equity ownership, and confiscatory taxation that have made "Buy 'n Hold" a tar pit Investment strategy.] Similarly, there are no rules against taking advantage of the cyclical nature of interest rate sensitive security prices. Trading is the world’s oldest form of commercial activity, and it is unfortunate that it is treated with such disrespect by our dysfunctional tax code. It is even more unfortunate that it is looked at askance by client attorneys and brokerage firm compliance officers… masters of hindsight that they are.

Trading does not have to be done quickly to be productive, and it doesn’t have to focus on higher risk securities to be profitable. And perhaps most importantly, it doesn’t have to avoid the interest rate sensitive income securities that are so important to the long-term success of any true investment portfolio. No matter how beaten up a speculative day trader becomes, whatever profit taking experience there has been is invaluable. Once a trader/speculator is weaned off the gambling mentality that brought him to the “shock market” in the first place, he can apply his trading skills to investing and to portfolio management. The transition from trader/speculator to trader/investor requires some education… education that cannot be obtained from product salespersons.

Step One is to gain an appreciation of the power of Asset Allocation using the principles of The Working Capital Model. Asset Allocation is the process of dividing the portfolio into two conceptual “buckets”. The first of these will contain Equity Securities, whose primary purpose is to produce growth in the form of Realized Capital Gains. The other bucket will contain various securities whose primary purpose is to produce some form of regular income… dividends, interest, rents, royalties, etc. The percentage allocated to each is a function of a short list of personal facts, concerns, goals, and objectives. The cost basis of the securities, absolutely not their constantly changing Market Values, must be used in all Asset Allocation calculations. Asset Allocation is a critical portfolio planning exercise that is: based on the purpose of the securities to be purchased, long term in nature, and never “rebalanced’ or altered due either to current market circumstances, hedging, or some form of market timing (which, of course, is impossible).

Market Values are used in the selection process that identifies trading candidates that will fill the buckets… cash from all income sources, by the way, is always “destined” for one bucket or the other, and may be held unused if no proper candidates exist. Selecting potential Equities must first be “fundamental”, then “technical”… i.e. based on the Quality of the security first, and the price second. My experience is that higher quality companies purchased at a 20% or more discount from the 52-week high, with a profit target of approximately 10% (realized as quickly as possible) is a very manageable approach. The proceeds find their way back into the “smart cash” pot for Asset Allocation according to formula. There will be times when “smart cash” grows quickly while the list of new trading candidates shrinks, but when trading candidates are all over the place, “smart cash” is replenished with a portion of every income dollar produced by both fully invested buckets! Thus, insistence upon some form of income from all securities owned makes enormous sense!

But what about trading the Income Bucket securities? Enter the Closed End Income Fund, in the form of a common stock, and in a surprising variety of income producing specialties ranging from Preferred Stocks to Oil Royalties, Treasury Securities to Municipal Bonds, and REITs to Mortgage Income. No more worries about liquidity and hidden markups. No more cash flow positioning or laddering of maturities. And best of all, no more calls of your highest yielding paper when interest rates fall. Instead, you are taking capital gains, compounding your yield, and paying your dues to the Equity Bucket. And when interest rates move back up… you’ll have the luxury of reducing your cost basis by adding additional shares. Of course its magic… that’s what we do here on Wall Street!