Forex Investing and Trading for Newcomers
0 views
Skip to first unread message
Amos Hannah
Jan 15, 2010, 7:04:40 PM1/15/10
to fxmyhui
The foreign exchange market, or 'forex' market, is becoming
increasingly popular in a wide variety of applications. Everyone knows
that countries have currencies and they are traded against one
another, but few realize the economic significance of these markets in
their daily lives, and also there are many myths and rumors
surrounding the forex market. In addition, few realize how to get
involved in the forex market, and become discouraged when getting the
wrong answers.
The forex market by nature is de-centralized because there is no
official currency exchange such as for equities or commodities. On
some exchanges, such as the CBOT, forex futures are traded as
commodity contracts. However there is nothing stopping any bank from
trading currency with another bank, with the CBOT, or with retail
customers. There are no rules or regulations, and thus, there are many
different opinions and packaging surrounding forex markets that are
always disputed. The regulators in the US markets, such as the NFA,
have stepped into take action involving forex trading, and provide
limited rules to follow. It should be noted however that these
regulators are involved only when you accept funds from the public. If
you are a bank and have no customers, there are no regulations to
follow regarding how to trade currency. The regulators are concerned
only how you raise money from the public. Forex strategy Many people
think that to trade currency you need to evaluate a countries economic
performance, interest rate policy, and other macro-economic and
geopolitical factors. While this no doubt influences the forex market,
it is no longer the base of many traders' strategies. A new kind of
trading is quickly evolving, based on mathematical analysis of prices,
called indicators. If you have ever traded you are probably aware of
common indicators such as RSI, MACD, Moving Averages, and Bollinger
Bands. But programmers have expanded on this to create their own
custom indicators, and some strategies monitor a plethora of
indicators creating a super-indicator, which generates buy / sell
signals. These strategies are very effective because traders can do an
extensive amount of testing before trading live money on them.
Finally, when live money is traded and it has a track record, the
system can be easily replicated.
One popular platform, Meta Trader, allows anyone to download a demo
version of their software which is 100% free. There are nearly 200
brokers in the world using this software platform, so if you find a
technique which is working, you can open an account at one of these
brokers and implement it with few problems. That means also that a
programmer can code a strategy and use it at any of the brokers using
Meta Trader platform. Strategies are compiled in files called "Expert
Advisors" and can be implemented by clients without programmer or
trader intervention. Due to the lack of restrictions and cost, there
is a growing international community working on strategies for
trading. Of course most of these people are amateurs, but not all of
them. And in this case, being an amateur can be an advantage, because
you have time to dedicate to the strategy (which requires a high
degree of concentration) and possibly money to invest. Also you do not
have rules imposed on you by a company or a market; it is a free
development environment.
A further extension to these types of strategies and their
implementation is seen in technology called Trade Robot. The robot
collects buy / sell signals from hundreds of providers, and creates a
signal database which includes auditing and tracking. After years of
performance data, the robot knows what systems are profitable, and
specific trade statistics such as length of trades typically seen by a
system, and drawdown ratios. A drawdown is the calculation of loss
when an account is losing. No strategy is perfect, even the best are
subject to drawdowns, so when the sophisticated investor evaluates a
system he is concerned less about absolute returns and more about
drawdowns. For example if a system makes 200% with a 50% drawdown that
means you are risking 50% of your capital to achieve a 200% return.
Usually high yielding systems are very risky and have deep drawdowns,
sometimes as much as 20% or more. What is a pip?
In forex a pip is the smallest unit of measurement. In the EUR/USD 1
pip =$1 on a 10k contract. If the EUR/USD is 1.3448 the 8 represents 8
pips, if the EUR/USD moves from 1.3448 to 1.3449 that would be a 1 pip
move. The value of 1 pip depends on the size of contract traded and
the base currency, in this case USD. EUR/USD means that 1 Euro =
1.3448 USD. As this rate changes, your open position will have a
profit or loss. How does one get into forex?
Anyone who is new into forex should find someone in the profession who
they can trust and can consult with. It is a small world and a trader
likely knows a good broker and so on. We do not recommend investing a
large amount of money into an account that you will trade, until you
have learned the forex market well. There is no reason to drop your
account by 50% as a learning curve - open a managed account. There are
many successful forex managed programs that you can invest in while
you learn. Then when you are ready to trade for yourself (if you want
to) then open a mini-account for self-trading and leave money
management to the pros. Of course there is a high degree of risk
involved in any forex account, but in evaluating the best placement of
the capital of a novice investor in the forex arena, it is best placed
with someone with experience and track record. Novice mistakes
If you are new to forex, there are many well produced educational
courses you can take which will explain the details of forex trading
and investing. However taking one of these courses will not make you
an expert, nor will it give you the experience you need to trade as
well or better than a seasoned veteran. It is recommended that while
you are learning, you work with professionals who can guide you
through initial stages of forex. If you don't want to know the
details, that's fine too, but you should understand the nature of the
market before even investing. Forex is a unique market and there are
many features of forex investing that are not available in other
markets, such as:? You need only $1 to open a forex trading account at
some brokers? Many brokers will allow traders as much as 400:1
leverage, meaning with only $1,000 in your account you could trade up
to $400,000 in currency!? Forex is available in many shapes and sizes,
there are few standards for trading and software? The forex market is
the most liquid in the world, with over $3 Trillion USD exchanged
daily Accounts and Brokers
A forex trading account is much like other types of accounts you may
find at stock brokers or commodity brokers. Usually there are no
commissions involved in forex trading, as brokers are compensated
through the bid/ask spread. Although brokers offer tight spreads on
forex contracts, as little as 3 pips on the EUR/USD for example, with
large volume that can add up to substantial revenue for the broker.
A managed account is structurally the same as a self-traded account,
except clients sign a Limited Power of Attorney giving a professional
money manager access to trade their account. Traders have trading
authority only, they cannot deposit and withdraw funds. The account is
always in the name of the client, never give funds to a non-registered
individual. Any professional would never accept client funds directly,
funds are always handled by registered institution. Common
misconceptions
When you are investing in forex funds are not leaving the country! You
are trading on the interbank market (or off-exchange market) in either
case, brokers settle their aggregate positions end of day in a similar
method to stock exchanges, debiting and crediting profit and loss to
client accounts. It is not as if your funds are being 'wired' out of
the country and back.
The forex markets are some of the most technologically sophisticated
in the world due to their simplicity. In forex there are less issues
relating to execution, auditing, and clearing, which enable the
software to be designed small and simple. For trading for profit, or
for designing automated trading systems, forex is clearly the superior
market.
increasingly popular in a wide variety of applications. Everyone knows
that countries have currencies and they are traded against one
another, but few realize the economic significance of these markets in
their daily lives, and also there are many myths and rumors
surrounding the forex market. In addition, few realize how to get
involved in the forex market, and become discouraged when getting the
wrong answers.
The forex market by nature is de-centralized because there is no
official currency exchange such as for equities or commodities. On
some exchanges, such as the CBOT, forex futures are traded as
commodity contracts. However there is nothing stopping any bank from
trading currency with another bank, with the CBOT, or with retail
customers. There are no rules or regulations, and thus, there are many
different opinions and packaging surrounding forex markets that are
always disputed. The regulators in the US markets, such as the NFA,
have stepped into take action involving forex trading, and provide
limited rules to follow. It should be noted however that these
regulators are involved only when you accept funds from the public. If
you are a bank and have no customers, there are no regulations to
follow regarding how to trade currency. The regulators are concerned
only how you raise money from the public. Forex strategy Many people
think that to trade currency you need to evaluate a countries economic
performance, interest rate policy, and other macro-economic and
geopolitical factors. While this no doubt influences the forex market,
it is no longer the base of many traders' strategies. A new kind of
trading is quickly evolving, based on mathematical analysis of prices,
called indicators. If you have ever traded you are probably aware of
common indicators such as RSI, MACD, Moving Averages, and Bollinger
Bands. But programmers have expanded on this to create their own
custom indicators, and some strategies monitor a plethora of
indicators creating a super-indicator, which generates buy / sell
signals. These strategies are very effective because traders can do an
extensive amount of testing before trading live money on them.
Finally, when live money is traded and it has a track record, the
system can be easily replicated.
One popular platform, Meta Trader, allows anyone to download a demo
version of their software which is 100% free. There are nearly 200
brokers in the world using this software platform, so if you find a
technique which is working, you can open an account at one of these
brokers and implement it with few problems. That means also that a
programmer can code a strategy and use it at any of the brokers using
Meta Trader platform. Strategies are compiled in files called "Expert
Advisors" and can be implemented by clients without programmer or
trader intervention. Due to the lack of restrictions and cost, there
is a growing international community working on strategies for
trading. Of course most of these people are amateurs, but not all of
them. And in this case, being an amateur can be an advantage, because
you have time to dedicate to the strategy (which requires a high
degree of concentration) and possibly money to invest. Also you do not
have rules imposed on you by a company or a market; it is a free
development environment.
A further extension to these types of strategies and their
implementation is seen in technology called Trade Robot. The robot
collects buy / sell signals from hundreds of providers, and creates a
signal database which includes auditing and tracking. After years of
performance data, the robot knows what systems are profitable, and
specific trade statistics such as length of trades typically seen by a
system, and drawdown ratios. A drawdown is the calculation of loss
when an account is losing. No strategy is perfect, even the best are
subject to drawdowns, so when the sophisticated investor evaluates a
system he is concerned less about absolute returns and more about
drawdowns. For example if a system makes 200% with a 50% drawdown that
means you are risking 50% of your capital to achieve a 200% return.
Usually high yielding systems are very risky and have deep drawdowns,
sometimes as much as 20% or more. What is a pip?
In forex a pip is the smallest unit of measurement. In the EUR/USD 1
pip =$1 on a 10k contract. If the EUR/USD is 1.3448 the 8 represents 8
pips, if the EUR/USD moves from 1.3448 to 1.3449 that would be a 1 pip
move. The value of 1 pip depends on the size of contract traded and
the base currency, in this case USD. EUR/USD means that 1 Euro =
1.3448 USD. As this rate changes, your open position will have a
profit or loss. How does one get into forex?
Anyone who is new into forex should find someone in the profession who
they can trust and can consult with. It is a small world and a trader
likely knows a good broker and so on. We do not recommend investing a
large amount of money into an account that you will trade, until you
have learned the forex market well. There is no reason to drop your
account by 50% as a learning curve - open a managed account. There are
many successful forex managed programs that you can invest in while
you learn. Then when you are ready to trade for yourself (if you want
to) then open a mini-account for self-trading and leave money
management to the pros. Of course there is a high degree of risk
involved in any forex account, but in evaluating the best placement of
the capital of a novice investor in the forex arena, it is best placed
with someone with experience and track record. Novice mistakes
If you are new to forex, there are many well produced educational
courses you can take which will explain the details of forex trading
and investing. However taking one of these courses will not make you
an expert, nor will it give you the experience you need to trade as
well or better than a seasoned veteran. It is recommended that while
you are learning, you work with professionals who can guide you
through initial stages of forex. If you don't want to know the
details, that's fine too, but you should understand the nature of the
market before even investing. Forex is a unique market and there are
many features of forex investing that are not available in other
markets, such as:? You need only $1 to open a forex trading account at
some brokers? Many brokers will allow traders as much as 400:1
leverage, meaning with only $1,000 in your account you could trade up
to $400,000 in currency!? Forex is available in many shapes and sizes,
there are few standards for trading and software? The forex market is
the most liquid in the world, with over $3 Trillion USD exchanged
daily Accounts and Brokers
A forex trading account is much like other types of accounts you may
find at stock brokers or commodity brokers. Usually there are no
commissions involved in forex trading, as brokers are compensated
through the bid/ask spread. Although brokers offer tight spreads on
forex contracts, as little as 3 pips on the EUR/USD for example, with
large volume that can add up to substantial revenue for the broker.
A managed account is structurally the same as a self-traded account,
except clients sign a Limited Power of Attorney giving a professional
money manager access to trade their account. Traders have trading
authority only, they cannot deposit and withdraw funds. The account is
always in the name of the client, never give funds to a non-registered
individual. Any professional would never accept client funds directly,
funds are always handled by registered institution. Common
misconceptions
When you are investing in forex funds are not leaving the country! You
are trading on the interbank market (or off-exchange market) in either
case, brokers settle their aggregate positions end of day in a similar
method to stock exchanges, debiting and crediting profit and loss to
client accounts. It is not as if your funds are being 'wired' out of
the country and back.
The forex markets are some of the most technologically sophisticated
in the world due to their simplicity. In forex there are less issues
relating to execution, auditing, and clearing, which enable the
software to be designed small and simple. For trading for profit, or
for designing automated trading systems, forex is clearly the superior
market.
Long Candle Forex Trading Course Teaches Technical Analysis Techniques
- http://www.longcandles.tk/
Reply all
Reply to author
Forward
0 new messages