The Power of Small Consistent Returns

For most of us, 'safe investments' are limited to the rate of return that we can earn on our savings accounts or long-term deposits. The return would depend on the interest rate applicable in each country. At the time of writing, November 2007, the interest rate earned on a savings account in Australia is around 7% a year. That is a return of 0.57% a month. Despite this fact, many have preconceptions regarding the type of returns they can make from trading the financial markets.
A novice trader puts on a winning trade and gains between ten to fifty percent of his trading account. He forms a belief that, by trading, he can quickly become a millionaire. Indeed, if we assume a 20% return per month on a $10,000 trading account, we can expect $89,161 by the end of our first twelve months of trading. What if we assume an estimate of 50% return per month? We would have $1,297,463 by the end of the year. Of course, the problem with expectations like these is that they are unrealistic. Even most of those who claim to have made these types of returns have only done so in simulated environments, in trading competitions using game accounts, for example, where real money was not at risk.
It is possible to make these types of returns for a short while but I have not heard of anybody achieving such steep returns consistently year after year. After testing hundreds of trading systems and ideas I have come to believe that systems, which seem to promise exorbitant returns, turn out to be over-optimized for the period they have been tested on. Or even worse, they have flaws in their logic or assumptions.
Lately, I have been looking at the performance reports of trading firms in the USA. What would you say if I told you that the top trading firm over the last ten years only made an average return of 25% a year and the median trading firm made somewhere around 15% a year? Well, this is in fact what I am telling you.
A 20% and a 15% return a year is 'only' 1.877% and 1.171% return a month, respectively. I am sure that many novice traders and investors reading this article will have a mix of reactions towards these figures. Some might laugh and scoff at such 'paltry' returns, secretly believing that they can do a lot better than just 1.877% a month. Others may be surprised or even disappointed because their dreams of living rich will not come as quickly as they hoped.
Setting aside your initial reaction to these figures however, let us refocus on what these numbers actually mean in the real world. I would like to show you that these types of returns are very powerful. With time, these seemingly small, but consistent, gains will give you enormous profits in the future.
15% A YEAR RETURN ON A $10,000 ACCOUNT
Let us start with the assumption of having a $10,000 account, making at least 1.171% return a month, or 15% a year, trading the market. Based on these, the projections are:

1. $11,500 (15% growth) after 1 year.
2. $13,223 (32% growth) after 2 years.
3. $20,108 (101% growth) after 5 years.
4. $40,432 (304% growth) after 10 years.
5. $163,475 (1535% growth) after 20 years.
6. $660,960 (6510% growth) after 30 years.

25% A YEAR RETURN ON A $10,000 ACCOUNT
Let us now assume having a $10,000 account, making at least 1.877% a month, or 25% a year, trading the market Based on these, the projections are:

1. $12,500 (25% growth) after 1 year.
2. $15,625 (56% growth) after 2 years.
3. $30,519 (205% growth) after 5 years.
4. $93,140 (831% growth) after 10 years.
5. $867,512 (8575% growth) after 20 years.
6. $8,080,034 (80700% growth) after 30 years.

It is very important to note that not all fund managers make money. Returns of 15% or 25% a year belong only to those money managers who were consistently profitable. Furthermore, these types of returns are out-of-bounds for most investors. To invest in such schemes, most of the fund managers I have been looking into will deal with you only if you are a 'sophisticated' investor with a spare $500,000 minimum to invest. In fact, the highest earner only took on investors with a minimum of $25,000,000 US dollars to invest. (I will not mention any names here, however, you can do your own research by typing "commodity trading advisors" in your favourite search engine.)
I do not know about you but I certainly do not have 25 million dollars lying around, to hand over for someone else to manage. The dilemma, however, is that life is way too short for me to be satisfied with a 7% annual return either. I guess this is why you and I have taken the decision to trade and invest in the financial markets ourselves. At least there, we have full control and responsibility over the returns we get. It has its risks, but we can all avoid being reckless if we keep realistic expectations.
(This article was first published in The Part-Time Investor Magazine, Issue 3.)

Money Management in Forex: the Real Deal in Trading

In comparison to the amount of time, money and energy spent by some traders on Forex robots, error-proof technical strategies, and quasi-magical foreign exchange trading courses where we are promised to be made super-traders, it is a pity that money management receives insufficient attention. Although almost every trader worthy of the title is aware that success in Forex is largely dependent on careful management of losses, as well as profits, this aspect of trading is somewhat neglected in preference to indicators, statistics, analysis and strategy. Yet the first issue faced by a beginning trader is losing money while trading, and strategy or analysis doesn't say much about how to cope with it. As such, careful study and practice of money management methods must be paramount in the mind of the trader who is committed to achieving success in trading Forex.
What is analysis? It is the identification of high probability scenarios for profits. Probability does not involve any certainty, and by definition, any analytical scenario, however solid it may be, will lead to losses sooner or later. In the case of the beginner, whose skills are underdeveloped in best cases, and undeveloped in the worst, losses will come a lot sooner than profits. It is clear, then, that any trader's education must begin with a good understanding of the importance and necessity of money management skills.
Money management teaches us how to manage losses, and how to maximize profits. It all commands us to cultivate a responsible and disciplined attitude to trading by acquiring consistency in our habits. We are taught not to be erratic in trade sizes, to be consistent about the entry of stop loss or take profit orders, and above all, to regard loss as a natural, and indeed, inseparable part of a trading career. There are many ways of managing loss, but there is no way of avoiding it altogether in a trading career. Even George Soros has had a number of serious, sometimes massive blunders in his long career, but he is still regarded as a master trader by many. Warren Buffet bought the shares of an oil company at the peak of the oil bubble in 2008, and he made wrong choices with Salomon Brothers in the 90's as well. But all these traders were quick to recognize errors, and mange losses instead of denying them and letting them fester and achieve huge proportions. What happens to those who refuse to accept losses, and choose to add to them with the hope of eventual gains is obvious in the case of Nick Leeson and Jerome Kerviel, one of who bankrupted a U.K. bank, and the other lost $7 billion. Both went to jail eventually.
So money management is the heart and soul of trading, the safety valve against errors, and the shield against fear and irrationality. Forex trading brokers may give you the tools of technical analysis and tens of indicators, but money management skills can only be acquired by diligent and patient practice, and a total commitment to success in trading. On the other hand, a master of money management is a master trader, and it is but a matter of time before he perfects his skills in analysis and strategy and acquires the great riches which he deserves.

Why You Should Treat Forex Trading as a Business

If you trade the forex market you will undoubtedly be aware that it is a high risk venture. Most traders who trade currencies end up losing money. Unfortunately, some traders end up losing a substantial part of their net worth.
Many traders, especially new traders are attracted to forex because they see brokers offering "200 to 1 leverage" and in some cases even higher amounts. It is a common belief amongst new traders that they can use this leverage to generate a substantial amount of wealth. This belief nearly always ends in tears.
To be a successful forex trader, it is imperative that you treat trading like a business. It is unlikely that you could put $50 in to a business and turn it into $20,000 in a short frame of time. Granted, there are exceptions, but they are EXTREMELY few and far between.
You need to apply this same theory to forex trading. One of the biggest reasons traders lose money is having an account size that is too small.
One of the major advantages is forex is that you can effectively borrow as much money as you like from your broker. However, it is important to remember that borrowing money to trade will increase your profits, but it will also increase your losses.
There are no universal rules to state how much you should borrow. Many new traders should start off borrowing very little, if anything. Of course, it does depend on the type of strategy that you use.
If you have a $10,000 trading account, most brokers would allow you to open positions to the value of at least $500,000. If you bought a USD pair, this would be 50:1 leverage. The position size is 50 times the size of your account.
It would not take much of a price movement in the wrong direction to cause a significant loss to your account.
Many new traders start with a small account balance. The same principle can be applied to a $100 account trading a $5,000 position.
The smallest position allowed by many brokers is often $10,000, yet they may still allow you to open an account with $100.
The brokers don't mind, they know that 99% of the clients who do this will blow their account.
The point I am trying to get across is the one of being realistic. Treat trading as if it is a business. Aim for realistic returns. Think about the stock market or mutual funds. They often earn less than 10% per year on average. If you can make 30% per year trading forex, that is significantly higher!
Don't expect to make $1,000 a month from your $100 account. It almost certainly will NOT happen.

Forex Money Management: Leverage and Margin Basics

Two very important concepts of forex money management are leverage and margin. Leverage allows forex traders to invest much more into currency trading than is available in their trading accounts. Thus, forex traders can operate larger funds. Margin is the real funds that are required to be held in the trading account as a collateral to cover any possible losses.
Forex Money Management: Leverage
Profits and losses in the forex market tend to be higher than what you would experience in the stock market even though the actual price of currencies may not fluctuate wildly. Most brokers allow a 100:1 leverage. This means you can buy or sell €100,000 worth of currencies, even though you have only €1,000 in your trading account. Some brokers offer leverage as high as 400:1.
Leverage can also work against you in forex trading. For example, if a currency moves against your expectations, the leverage would multiply your loss by the same factor as it would multiply the gain. Many people starting forex trading do not completely understand the concepts of leverage and margin. Leverage appears to be an amazing service provided by brokers. However, one must remember that even a 1% fluctuation of currency prices could wipe out your entire capital, depending on the amount of leverage offered by the forex broker. Using a smaller leverage could help you prevent losing too much too fast. So, you need to find the perfect balance.
Forex Money Management: Margin
In the example stated above, when you buy €100,000 worth of currencies, you are in fact borrowing €99,000 for your purchases. The €1,000 that is used to cover your losses is the margin.

Leverage	Margin Required	Amount Traded	Required Margin
20:1	5%	€100,000	€5,000
50:1	2%	€100,000	€2,000
100:1	1%	€100,000	€1,000
200:1	0.5%	€100,000	€500

A trader may choose the highest leverage (200:1), with the margin being only 0.5%. However, sound money management principles say that the trader should never trade huge lots. This would prevent leverage from hurting the trader.
Therefore, it is essential to understand how much leverage your forex broker offers and what the margin requirements are. If you are new to trading, you should compare the leverage and margin specifications of different brokers.

Forex Risk Management

This aspect is one of the most important aspects you will ever read about trading.
Why is it important? In reality, we are in the business of making money, and to be able to do so we need to learn how to manage it well in order to prevent continuous loss. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can lose in a single trade and get into the trade.
Trading on Forex, the investor has opportunities to multiply his money, but he also risks losing future profit and much more, the invested capital. Deviation from expected profit average is what determines the investor's risk on the financial market. Risk management methods are applied before and after opening positions. The main risk management method is applied to reduce losses.

Using Protective Stop-Loss to Control Risk

It is advisable to place a protective stop-loss for every open position. Stop-loss is a point when the trader leaves the market in order to avoid an unfavourable situation. When opening a position it is recommended to use stop-loss to insure against extra losses.
While in active trade it is good to protect your fund against potential total loss. That is the central purpose of money and risk management. Too often, the beginning trader will be overly concerned about incurring losing trades. Trader therefore lets losses mount, with the hope that the market will turn around and the loss will turn into a gain.
Almost all successful trading strategies include a disciplined procedure for cutting losses. When a trader is down on a position, many emotions often come into play, making it difficult to cut losses at the right level. The best practice is to decide where losses will be cut before a trade is even initiated. This will assure the trader of the maximum amount he or she can expect to lose on the trade.

Risk a Tolerable Account Portion Per Trade Position

To manage your invested fund well, you have to decide before the opening of any position how much of the money you can afford to lose in case the trade goes negative from your projection. For instance, you may decide that for every opened position your risked money will be 3%, 5% or 10% of the total fund, by so doing you have known prior to the execution of the trade the highest amount that can ever go out of your money on that single trading position, by so doing you have even taken away emotion.
The factor needed to work out this are:

1. The fund balance in your account.
2. The number of pip set as stop loss.
3. The lot size (volume) traded.

For example:
Let's say your fund balance is $5000 and your predetermined stop loss pip is 50 pips (selecting the number of your stop-loss pips should be from your analytical research) and you are ready to risk only 2% of your fund for a position.
What do you do?
Work out the 2% of $5000
Which is = $100.
Implying that you can afford to lose $100 in case of any eventuality.
Then, Divide $100 by 50 pips
It will be $2
Your lot size must be 1 pip to $2. That will be 0.2 lot size.
So you must use 0.2 lot size.
As much as possible try not to be greedy, to be less greedy is to be able to minimize risk.
In a way leverage can help to control risk: if your leverage is relatively low it will limit you against opening a trade with high lot size.

Re-Evaluate Your Strategies

The other key element of risk control is overall account risk. If trade is going against you, at what point will you stop and re-evaluate your trading strategy? Is it when you lost 30% of your money or 50% or 80% or when you lost the entire money? Assess your market analytical methods and see if there would be need for further perfection or even a change.
Also, check out if your set lot size is too large for your entire account size.
Risk management and fund management go hand in hand, if you manage your FUNDD well you are equally reducing your risk, also if you control your risk well you are equally protecting your fund.

Why Forex Money Management Is So Essential?

People who trade in forex market are usually directed to receive high profits. However, is it as easy as most of the novice traders think? Of course it is not.
As you know, in every business there have always been some sorts of managing your own actions and decisions that refer to the protection from the big losses. It is called the forex money management, and it contains saving, investing, budgeting, spending and controlling the accounts with the purpose of increasing gains and decreasing losses. So to do the right forex money management it is obvious to know some forex money management rules.
For every trader, this certain set of forex money management rules differ one from the other. It is based on the personality of a trader, his or her position and strategy in trading. Forex money management implies the process of managing the accounts in a rational and not emotional way. Traders who are only the beginners in this kind of business may choose the wrong way of managing money. They may think that the actions that the trader does, refer to the gambling. In fact, the gains from such type of trading would be less profitable than from the sober and sensible forex money management. That is why it is very important to realize that the traders do really need forex management rules. These rules will definitely help to deal with the accounts and find out all the necessary information for the right and profitable forex trading.
So what is the first thing the trader should know about forex money management and forex management rules?
It is the risk that has a place all over the trading process as there would be no profits without some risk. Forex money management rules are based on the position to decrease the risk and help the traders to find out what big the risk could be and is it smart to risk more than you should risk in a certain situation. These rules can help the traders to identify how much exactly shares, stocks or currencies he or she could buy or sell in a particular trade. The maximal risk that might occur during the number of situations in these forex money management rules is on the basis of the percentage of the risk. The trader decides how many trades he could open at a certain period of trading.
Also as much important as risk the reward is. It is directed to show the traders the ratio of reward. There is a particular number of rewards and it is also very important not to ignore the rules of this ratio and stick to the right forex money management strategy. It makes your profits to rise in big values. There are also many other forex management tips that are called for better trading and increasing profits. They are directed to the strategies which would help to scale up the results of trading in a profitable way.
All of these forex money management rules may be defined in some sort of a list in a program that is similar to an Excel or Open Office Calc. And all the values which are used in forex money management will be calculated automatically and will help the traders to control the accounts and trades with the less risky decisions. It would be the most important for the traders in the Forex market.
All things considered, you can see that the forex money management shows to be the most important method in the strategies of forex trading. These forex management advices help to operate with funds and accounts of traders in a strict and controlled way that is directed to fewer losses and make high profits. Furthermore, the investment management services appear to control and manage the accounts and finances.

Forex Market Overview

Introduction

The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2010 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2010. 53 central banks and monetary authorities participated in the survey, collecting information from 1,309 market participants.

Excerpt from the BIS:

"The 2010 triennial survey shows another significant increase in global foreign exchange market activity since the last survey in 2007, following the unprecedented rise in activity between 2004 and 2007. Global foreign exchange market turnover was 20% higher in April 2010 than in April 2007. This increase brought average daily turnover to $4.0 trillion (from $3.3 trillion) at current exchange rates...The higher global foreign exchange market turnover in 2010 is largely due to the increased trading activity of “other financial institutions” – a category that includes nonreporting banks, hedge funds, pension funds, mutual funds, insurance companies and central banks, among others. Turnover by this category grew by 42%, increasing to $1.9 trillion in April 2010 from $1.3 trillion in April 2007." - BIS

Structure

• Decentralised 'interbank' market
• Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
• The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
• Online trading began in the mid to late 1990's

Source: BIS Triennial Survey 2010

Trading Hours

• 24 hour market
• Sunday 5pm EST through Friday 4pm EST.
• Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America

Size

• One of the largest financial markets in the world
• $4.0 trillion average daily turnover, equivalent to:
   
• More than 12 times the average daily turnover of global equity markets¹
• More than 50 times the average daily turnover of the NYSE²
• More than $500 a day for every man, woman, and child on earth³
• An annual turnover more than 10 times world GDP⁴
  
• The spot market accounts for over one-third of daily turnover

1. About $320 billion - World Federation of Exchanges aggregate 2009
2. About $70 billion - World Federation of Exchanges 2009
3. Based on world population of 6.9 billion - US Census Bureau
4. About $58 trillion - World Bank 2009.

Source: BIS Triennial Survey 2010

Major Markets

• The US & UK markets account for over 50% of daily turnover
• Major markets: London, New York, Tokyo
• Trading activity is heaviest when major markets overlap⁵
• Nearly two-thirds of NY activity occurs in the morning hours while European markets are open⁶

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location

Source: BIS Triennial Survey 2010
Concentration in the Banking Industry

• 9 banks account for 75% of turnover in the U.K.
• 7 banks account for 75% of turnover in the U.S.
• 2 banks account for 75% of turnover in Switzerland
• 8 banks account for 75% of turnover in Japan

Source: BIS Triennial Survey 2010

Technical Analysis

Commonly used technical indicators:

• Moving averages
• RSI
• Fibonacci retracements
• Stochastics
• MACD
• Momentum
• Bollinger bands
• Pivot point
• Elliott Wave

Currencies

• The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$3.3 trillion per day

Currency Codes

• USD = US Dollar
• EUR = Euro
• JPY = Japanese Yen
• GBP = British Pound
• CHF = Swiss Franc
• CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
• AUD = Australian Dollar
• NZD = New Zealand Dollar

Average Daily Turnover by Currency

N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2010

Currency Pairs

• Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"), USD/CHF
• Commodity currencies: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi")
• Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Forex currencies

Most Forex exchanges invariably involve the U.S. dollar against a different currency, as the American economy remains the biggest. Other currencies serve as the base for trade as well, such as the Japanese Yen, the British Sterling, the Swiss Franc, and the German mark. Each country's market has its own particular properties.
Euro came up to take the place of the German mark. The latter was the foundation. The European central bank has replaced the Bundesbank that has lost its past significance after the former East Germany came to reconsolidation.
The feature of the Japanese yen is its instability in some previous years. The greatest rise of this currency has happened in October 1998 when the dollar has suffered 15% reduction against the Japanese yen within a number of days.
The Swiss franc is sometimes called "a safe haven" fulfilling the same function as the dollar does. It is called like this because of the neutrality and independent policy pursued by Switzerland, its economy isolation and banking system privacy.
The British pound has always had significance for the international exchange markets but it mostly has not been stronger than other currencies. This trend has changed vice-versa lately and the British pound has become one of the most important and attractive currencies in Europe. It was the first currency that the forex market dealt with through cables crossing the Atlantic, which is why the term "cable" has appeared.
European currencies had a number of crises because of the attempts to adjust their rates towards one another artificially. French franc and German mark used to create the basis for the Continental European currencies and formed the European currency stem. The stability was useful for the Benelux countries.
Considerable fluctuations around this stem were seen in the currencies of rest of the Europe, Mediterranean and Scandinavian countries in particular. Great alterations have come to foreign exchange trading after the European common currency has appeared in 2001. A number of European banks were forced to make their trading assets reconsideration after the currencies of the countries taking part in the unification were fixed relative one another at the beginning of 1998. Still the Euro appearance is not thought to be harmful for the foreign exchange markets health. The Euro being weak has turned into mark and made non-participating European currencies less stable and more affective to speculative forces. It gives prospects for sterling along with the Swiss franc to turn into the most important European currency market.
Exotic currencies have a severe risk together with an ability to gain very high possible profits. The weak but fixed currencies can be sought much in order to carry out speculative attacks on them that may lead the countries involved to wide depreciation and economical difficulties. A number of developing currencies try to peg their currencies to the US dollar exchange rates to bring the monetary officials to order and force currency holders not to resort to devaluations. In most of the cases, it is impossible to fix the exchange rates due to indiscipline and it mostly leads to considerable depreciation. These devaluations often cause high possible profit but within the stable periods, investors mostly hold the currencies due to high interest rates.
Forex market should not have solid technical aspects grasp while dealing with foreign exchange market especially at emerging markets due to their riskiness. Inability to gain a protection against the risks of these markets can be very harmful at the outlook of the commercial companies. South East Asian and South American markets seem to be the most interesting but it does not exclude African Continent and Eastern Europe possibility to become important markets in future. forex carries out its trading through lots that are the equivalent of the dollar. The "margin" means that while the value of one lot is $1,000 you can accordingly have a control of $100,000 within the currency.
Currency trading in the forex market is usually carried out in pairs. The notation of each pair shows the rates at which its currencies are being traded. The ABC/XYZ format is always used to show the notation. Here, ABC/XYZ does not correspond to any currency pair but it does show the possible notation. ABC symbolizes the currency of one country whether XYZ shows the currency of another one.
It is impossible for the currency to be traded by itself. For instance to make sense of the trade with JPY it must be compared to any other currency but never traded by itself. This process forms the core of the forex market.
Here are some of the creal and common symbols used in the Forex market:

• USD - The US Dollar
• EUR - The currency of the European Union "EURO"
• GBP - The British Pound
• JPN - The Japanese Yen
• CHF - The Swiss Franc
• AUD - The Australian Dollar
• CAD - The Canadian Dollar
• NZD - The New Zealand Dollar

The most commonly traded currencies are referred to as the 'Majors':

• US Dollar (USD)
• Japanese Yen (JPY)
• Euro (EUR)
• British Pound (GBP)
• Canadian Dollar (CAD)
• Australian Dollar (AUD)
• Swiss Franc (CHF)

Most commonly traded currency pairs are:

• EUR/USD which stands for Euro / US Dollar
• USD/JPY which stand for US Dollar / Japanese Yen
• GBP/USD which stands for British Pound / US Dollar
• USD/CAD which stands for US Dollar / Canadian Dollar
• AUD/USD which stands for Australian Dollar/US Dollar
• USD/CHF which stands for US Dollar / Swiss Franc
• EUR/JPY which stands for Euro / Japanese Yen

Numerator and Denominator

The higher fraction is supposed to be the Numerator while the Denominator corresponds to its lower part. For example, in the EUR/USD pair EUR would act as a Numerator being the first or the top, whether USD being after or below is known as Denominator.
The basic currency is usually the Numerator whether Denominator is a counter currency.
Thus, when you would like to buy a currency and you will place the corresponding "BUY" order dealing with the EUR/USD on the forex platform you are considered to be selling the USD and buying EUR. "LONG" is the name for buying process. On the contrary, if you would like to sell the pair you mean that you are buying the USD and selling the EUR. This is called "SHORT" along with the same stock market process when you first sell any stock, currency or commodity trying to buy it later at a lower price, which means you use short selling.
In case you would like to sell or buy a currency pair you are going to sell or buy its Numerator (base currency or the top one), so that the base currency should be dealt vice-versa when you are selling a currency pair.
While trading, the base currently is always bought and the counter one is sold. To sell any pair, you simply specify the currency for sale and the one to buy. Finally, the transaction is equal. The absence of any restriction, while short selling, is an advantage of the forex market. Another plus is that both market rise and fall bring profit. You can earn in forex at any trends directions whether the stock market should rise in order to give profit.

Forex market

Forex exchange market is the largest market that sells and exchanges the currency. The concept for the Forex and Forex trading is changed and kept on changing for its improvements. It is the work of the bank, but now it is given to the private owners. The bank has given it to them because technology is very advanced and they pay them the necessary infrastructure. The banks sell and purchase the forex trader at higher prices and sell them at lower prices because you cannot sell vice versa in this market.
Spread is only pay to the market and that is the main earning. This currency forex exchange is categories in two currencies. First is base currency and other is quote currency. The spread is the difference of the bid and ask price of given currency. The brokers apply the altered quotes on the transaction fees and earn lot of money. forex do not know any rules and regulation because SEC cannot apply any type of regulation on it. SEC is regulates the orderly market, so it is the non-regulated market. The innermost privates are the commercial banks that are now in the top most banks. Pips are the large digit of quotes. The currency trade with spread available is usually within 1 to 5 pips. EUR or USD bid and ask quote may vary among 1.3000 to 1.3001. It is having the spread of 0.01%.
Most of the currency quotes are purely driven by the supply and demand. Usually the USD hit divert from its direction for a second or minute. When the spread widens or worse you will not let you in at all. This is market, where the market maker has the compulsion to the honor trading to supply the quotes. He will let your order hand until the price slows down. The brokers also make threat, when the market price slower downs. They will shift the quotes in the direction of the trend, make their markup, and delay the execution. After waiting for some time it will gives lower price that occurred meantime. Some of the broker just shut down their server and do not distribute the information and say that there is some technical problem there. Broker does not want to give the news to the customers. The broker does these types of manipulation and therefore is a big market player. The customer should be bewaring of those brokers. They can trap your money from the lines of resistance and create the technical signals for breakouts. The bank must get some other sort of advantages but the customer might get the inevitable loss.
If you are dealing with interest then the accounts are reduced or increased with the interest rates. For the slower trend, the betting option is good for a price change. The weak currency comes with the high interest rates. There must be a comparison between forex and stock market but there are many more good options in the stock market better than forex. You can be exploited in some medium sized trends and technical analysis. In short, forex is just having no motors. Everything is having its pros and cons so forex is also having the demerits. You are left with the risky entry and you will get your money, after very long settlement. It is the easy cash cow for the banks so the forex is running just for their benefit. The new traders should keep in mind that you should focus more on currency pair.
Market size and liquidity
The foreign exchange market is unique because of the following features:

• trading volume
• the extreme liquidity
• the large number of, and variety of, traders
• geographical dispersion
• long trading hours - 24 hours a day (except on weekends)
• the variety of factors that affect exchange rates

Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004:

• $600 billion spot
• $1,300 billion in derivatives, ie
• $200 billion in outright forwards
• $1,000 billion in Forex swaps
• $100 billion in FX options

On the spot market, according to the BIS study, the most heavily traded products were:

• EUR/USD - 28 %
• USD/JPY - 17 %
• GBP/USD (also called cable) - 14 %

in addition, the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%).

What is FOREX (Foreign Exchange)?

The simple sense of Forex (Forex currency exchange, Foreign Exchange) is simultaneous purchase and sale of the currency or the exchange of one country's currency for the one of another country. The world currencies do not have a fixed exchange rate and are always fluctuating, since each are traded in the currency pairs like Euro/Dollar, Dollar/Yen and others. 85% of daily trades are taken by major currencies trading.
Investments usually deal with 4 major pairs: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc or EUR/USD, USD/JPY, GBP/USD, and USD/CHF used to sign these pairs accordingly. These major pairs are considered as the Forex market's "blue chips.� You will not receive any dividends on the currencies. Well known "buy low - sell high" gives the profit for currency trades.
In case you have a forecast that one currency would get higher to another, you can exchange the second one for the first one and wait for the profit. If you are lucky to see the trades following your forecast you can make an opposite transaction and to exchange currencies back gaining the profit.
Forex brokerage companies, also known as major banks dealers, carry out Forex transactions. Forex market is worldwide and your European colleagues may make a transaction with Japanese traders when it is time for you to sleep in the North America. There are 3 shifts for the major institutions to work in due to 24-hours a day activity of the Forex market. It's possible to ask for overnight execution for take-profit and stop-loss orders of the client.
Prices in the Forex market fluctuate without any dramatic changes unlike stock market where considerable gaps are likely to be seen. There isn't any problems entering and exit the market due to its daily turnover of about $1.2 trillion. Forex market can never be forced to stop. The transactions were carried out even in 2001, on September 11th.
Foreign exchange market (also called Forex of FX to shorten the name) is the oldest market in the world. It is also seen to be the largest one. Since currencies' primary market work 24-hours a day, Forex is also the largest market with highest liquidity. This is an interbank market carrying out spot (or cash) transactions. The currency futures market, to be compared with Forex is traded only 1% as much.
Forex market does not have any exchange center unlike the stock market. Forex trading seem to go after the sun around the world, from banks of the United States to other parts of the world like Australia, New Zealand, the Far East or Europe and back to the US some time later.
High minimum amount of transaction and strict financial requirements used to make this interbank market unavailable for small speculators. The only dealers of currency markets were banks, huge-amount speculators, and largest currency dealers. They had an ultimate access to this market dealing with lots of primary exchange rates of the world currencies, the market with an extremely high liquidity along with an unusually strong nature of trends.
Nowadays small traders have an opportunity to purchase the small lots (units), because of the large inter-bank units being split by market maker brokers like FX Solutions, at the amount they like.
The traders of any size like small companies and individual speculators have an access to the market at the same price fluctuations and exchange rates, which only large players used to enjoy recently. Market makers monitor the rates so that produce their profit on the difference of rates at which the currency was bought and sold.
Foreign Exchange Market has an acronymic name Forex. It has the largest size and the liquidity throughout the world nowadays. Forex daily transactions are carried out at the common amount from 1 to 3 trillion dollars. No stock market is able to deal with a comparable amount of money.
This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time, it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.
This is certainly hypothetically because many newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.
The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit, and less than 1% of traders make large fortune at Forex. You should not produce, sell, or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.
This market is a platform for banks, transnational corporations, and individual traders to change the currencies they possess into other ones. This is the spot Forex market. In this market, you can trade with up to 1:400 leverage. This means you will receive $400 (to your account) for each dollar invested. Therefore, you can trade with the $400,000 sum having invested $1,000 onto your account.
Still, there are lots of experienced traders who consider such leverage to be dangerous and will not proceed forward. Nevertheless, if you know how to use such high leverage, it will only do you good. However, this is the place to stop speaking about the basic things. Keep reading these articles if you want to be aware of how this market has occurred and some of its historical matters.
Now it is time to speak about the strategies and the way of making money at Forex some traders use. First, we should say that the things that work in one case do not certainly work in another. The fact is that currency trading surely means risk. Still, there are a number of strategies for the newbie to use to be the winner.
Forex trading may seem very easy but it is not. Your high today earnings may turn into considerable losses even of your starting capital tomorrow. Newbie traders are likely to make the same mistakes several times. Here is a list of such typical mistakes.

1. There is no use of searching the "Holy Grail"

This phrase is to think for those who are scared of losses or being too greedy does his best to get rich in no time. You can surely make lots of money some of the time and there isn't a necessity of producing and advertising anything but a huge homework is required to learn first. You have to know how this market works and which factors can take the exchange rate up or down. You should also be aware of the effective management for your money not to lose everything.
The majority of traders starting at Forex, look for their ultimate strategy that will cause no losses and will bring only profit. The desire of such people is to make a strategy that guarantees stable profit and millions of earnings in a short time without any losses for them to quit and enjoy their fortune and the new huge house. This will never bring any success.
No strategy will give you only profit and such research is only waste of time. High profits of trading are caused by high risk, and you will not earn a fortune without being on the knife-edge. Do not be sure that every trade will close in advantage to you. You will always feel uncertain and there is no way to vanish it. It means that you should always be ready to the possibility of your strategy failing even if it is thought as perfect.
You will save a plenty of time and nerves by avoiding the search for the perfect strategy of earning millions. Even if you find this strategy, you will not ever need it. You will see why later.

2. Apply fundamental and technical analysis.

At the beginning of my trading, I relied only on the money management on which I wanted to base my strategy and saw no sense of these analyses. However, money management, which is still very important, does not worth omitting them. You can forecast the direction of the market basing on your technical and fundamental strategies to see their effectiveness.
You'll be able to make forecasts of price movements by applying the past data of the prices and graphs to the technical analysis methods. You can predict future prices with the level of accuracy dependent on your technical analysis skills using the graphs of the rates you observe.
Trading with some brokers you can see technical indicators along with the graphs. You can apply it to your demo account and estimate your prediction skills necessary for planning trading decisions.
It is impossible to choose the most effective indicator among lots of various ones. Each trader has to decide for himself which indicator is best for him. You cannot find any magic formula; you just see the graphs, make your forecasts and find out whether they come true seeing the values in the news later.
Your decisions form this formula along with your knowledge that occurs out of the practical experience. Starting trading with an online broker it is best for you to trade with yourself on the sheet of paper rather than invest real money at once.
There are many technical analysis indicators available but here are the ones that are the most widespread: the Moving Average Convergence Divergence (MACD), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, and Elliot Waves.
The broker's software will automatically make all the necessary calculations when you add the technical analysis indicator to the graph so that you will see some facts, which are unavailable without using these indicators. It is even possible for you to build your own technical systems basing on these indicators. Fundamental analysis is another tool that maximizes your profit and minimizes your losses on the trades. Some traders prefer only one kind, but the majority prefers both.
Fundamental analysis means trading following the news (e.g. telling about the economies or unemployment rate) in the countries of the currencies you trade. They can also tell about the events that can have a strong influence on the currencies' exchange rate.
You can make forecasts on the market direction by following the news as well. That is why various trading software of the brokers like www.oanda.com offer a link to the page containing important news.

• bloomberg.com
• businessweek.com
• economist.com
• money.cnn.com
• markets.ft.com
• reuters.com
• fxstreet.com

3. Use the strategies of money management.

Money management strategies let you win or lose. You should use them to be in a profit. Many traders make too vast investments in every trade and this is not always rational and reminds of a saying: "Expect to make too much and you will make too little, expect to make little and you will make a lot." It means that even if you invest much trying to get a lot on every trade you can lose all and even if you make small investments looking for a small reward you can make a lot in some period.
1% of the total sum of your account is the maximum sum of the potential risk. This is the first rule of the money management. Stop loss and limit orders may help you to follow this rule. This may be the reason of the small profit, especially if you have small initial investments. However, by compounding a part of your profit or the entire amount, you can get an exponentially growing income.
This strategy of compound profits is the one that helped to make millions on financial market instead of gambling that results in losing all investments quickly.
Here is the example of the opposite tactics that many traders follow. Imagine that you have an initial investment of $5,000. You are lucky to possess the trading account and you enter a $1,000 trade. In case the market trends down and you lose your $1,000, then your assets become $4,000. Keep following your strategy and enter a $1,500 trade. Just make sure the market is at its low and remain hopeful that you get your $1,000 back on top of an earned extra $500. Then the market keeps moving against you leaving you with $2,500 on your account, which is only one-half of your starting capital. This is a very difficult situation to recover from.

Trade Forex or Invest in Real Estate?

Most people who want to establish a financially-secure future choose to invest or trade in real estate. Indeed, if you take a look at the list of names of the wealthiest people in any category, most of them have allocated major portions of their assets in real estate. Donald Trump, who made his fortune in real estate is very popular and his success story is an inspiration to all of us.
Books like Rich Dad, Poor Dad , by Robert Kiyosaki and other property investing books written in the last fifteen years, introduced the average person to real estate investing. Thanks to these books, many people have opened their minds to new possibilities which they can now envision for themselves.
This article will not dispute the validity and the wisdom of investing in real estate. However, it might not be the best option for everybody. Each of us has different limitations and our circumstances vary. At the start -- for most of us -- we have to choose which area to specialise in since there is only so much money to go around. What I can do, is to at least highlight a few aspects of trading and investing in both areas. I then leave it to you to decide what you would like to focus on.
I should let you know that I have not yet invested in real estate myself, but I have considered it and I have asked myself the same questions you might be asking yourself now. I have read a lot on the subject matter and my assessment is purely based from my readings. Individuals using real-estate as their vehicle to create wealth may have different perspectives and I strongly advise you to seek their counsel to gain a more balanced outlook on this issue.
PASSIVE INCOME OR CAPITAL GAINS
If you like the idea of buying property to receive rent revenue, then the real estate market maybe better for you. You can structure your properties and contractual agreements to maximise the passive income you get from your tenants.
However, if you prefer to buy a property mainly because you think you can resell it at a higher price later, then you want to make money mainly from capital gains. If this is your philosophy, then forex could be a better trading vehicle for you than real estate because exchange rates fluctuate faster than real estate prices. Furthermore, transactions are easier and they are instantaneous to complete.
CAPITAL
To buy real estate, you need have at least 10% of the acquisition cost of the property, if your bank is willing to lend you the other 90%. If the house costs $350,000, you will need to cough up $35,000. That is a year's gross income for many people.
If you want to start trading forex, most brokers allow you to open a trading account for just $200. With $50, you can trade 10,000 units of a currency, if you have a margin ratio of 200:1.
LIQUIDITY
Whenever you want to buy or sell currencies, there is always someone willing to buy from - or sell to - you at the most competitive price. The forex market is the biggest market in the world and if you have hundreds of thousands of dollars you want to exchange for another currency, you can do so within a couple of seconds. To buy or sell a house or an apartment, you expect to wait for weeks, if not months.
PRODUCT HOMOGENEITY
In the real estate market, one house is not the same as another. Each property is unique. One might have a better foundation, a worse design or a prettier garden than another. Knowledge of these strengths and weaknesses become a significant factor if you are to make money from a transaction. Therefore, if you enjoy or if you are good at selling, promoting, negotiating and bargaining based on these differences, the real estate market is for you. Further, your lawyers, accountants, advisers, real estate agents and consultants play a significant role in your success.
If you want to trade currencies, there is no need to negotiate the price with the other party. If you are a seller, there is no need to educate potential buyers as to the benefits of your product. If you are buying, you have piece of mind that you are getting the best possible price for the currency from your broker at that particular point in time.
TRANSACTION COSTS
Buying and selling real estate is much more expensive than buying and selling currencies.
'SHORTING' MARKETS
When you have a property and you suspect that its price will go down in the future, your options are limited: hang on to the property or sell it now. In forex, if you suspect that a particular currency will depreciate in value, then you can exchange it for another currency. You buy it back again after it has already reduced in value to realise your gain.
MEDIATED TRANSACTIONS
In real estate you are dealing directly with the other party, taking on the other side of the transaction. This is why you need to go through a lot of paperwork and consult your lawyers to ensure that you know about the options available to you when the other party fails to fulfil his or her end of the bargain.
In forex, you do not have to worry about whether a buyer or a seller is going to fulfil his or her end of the bargain for whatever reason, because you are not directly dealing with that particular person. You are dealing with the broker who ensures that somebody will always take the other side of your trade.
CONVENIENCE
The forex market is open 24 hours a day. You do not have to meet the buyers or sellers in person. You do not have to conduct meetings with lawyers, accountant, bank representatives and so on. You can buy and sell currencies in your pyjamas at midnight if you like and the transaction will be complete before you go back to bed.
CONCLUSION
All in all, if you are an investor looking to make money from a combination of rent revenue and capital gains, you may want to invest in real estate for the long-term. If you are a trader wanting to profit purely on capital gains, then trading forex is probably better for you than trading real estate because you can start with a small fund and your rate of return is limited only by your ability to trade well. The transactions are mediated, it is more convenient and transaction costs are a lot smaller. The market is also more efficient due to product homogeneity and liquidity. Lastly, there are opportunities to profit regardless if the prices are going up or down.
I believe that if done right, neither venture is more or less riskier than the other. The risks are up to you to manage. With this article, I hope I helped you make a decision appropriate to your circumstances.

Is It Possible to Trade Forex on a Part-Time Basis with Success?

Currency trading is an exciting new market for ambitious individuals who would like to test their skills in a truly competitive environment with potentially very significant rewards. It is not simple to become proficient in forex, you need to commit some time, and make some effort in learning about and practicing trading, before you achieve results that are favorable to any degree. This fact sometimes scares potential traders to such an extent that they choose not to entertain the idea of currency trading at all, due to time limits, and the constraints of offline life. In this article, we are going to take a look at the plausibility of a part-time forex trading experience for the average person.
Perhaps the most exciting feature of the forex trading experience is the almost unlimited degree of flexibility involved. The fractal nature of charts means that, ignoring broker costs, trading at long or short term is essentially the same business from the technical point of view. The fundamental point of view, on the other hand, implies that it is possible to apply entirely different methods as a long or short term trader.
Thus one can be a part-time forex trader on both a long term and a short term basis, but with different options available, and differing approaches being necessary. A part-time short term trader must follow a purely technical approach and apply money management methods with rigor and discipline. In this case the time of entry does not matter that much, but we strongly advise that periods of high volatility be avoided unless one has an ample amount of time available to be devoted to the absorbtion of the steady stream of news flooding the market. As such, the part time trader would probably thrive when the market is calmer, trading is subdued, and technical factors dominate, a scenario that is most often encountered towards the closing hours of the market.
A long term part-time trader, on the other hand, must choose the time for entry into the market very carefully. Since a position held on the long term requires strong conviction and analysis, it is crucial that a period of deep and thorough analysis precede the actual trading action. The advantage of fundamental, long-term trading is in its greater potential for very significant rewards, and also for reduced risk, contrary to common assumptions. A long trader must use low leverage since he is going to keep his position dormant for a long time, and to have it survive volatility, high or even moderately high leverage has to be avoided, which makes potential losses smaller, provided that clear criteria exist for the closing of a position.
It is not really possible to decide which firm is more suitable to a part-time trading experience merely by reading online forex broker reviews and going through ratings. You need to go and test the firm actively for a period. The part-time trader demands a high degree of accuracy and reliability from the broker because he can't afford to see his trading platform fail during the comparatively infrequent periods when he's online. So make your choices wisely; but part-time trading is indeed a workable approach with some practice.

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Because we are not all equal at this point. It is clear that having a large portfolio is significant support for a trader: increased confidence and greater security. Some have much, others have little. Here are the possible strategies according to the size of your trading account:

€0

In other words: NOTHING! You do not have a budget trading, you're not alone...

• Free forex contests can be a solution to build up a nest egg to start.
• Some brokers offer unlimited demo accounts. You can refine it at their leisure while waiting to acquire a bankroll.

€100–€250

It is usually the minimum amount of deposits. The size of the order authorized the smallest lot being 0.1, you must take risks consequent forced to place orders. If you are a winning trader, your account will grow rapidly.

• Scalping, very risky but very profitable, is perfectly suited to these small accounts.
• A conservative swing trading is a good start for patient traders.

€1,000–€5,000

Much of the speculators have such a sum in their trading account. It is possible to make good profits without taking excessive risks.

• The daytrading and swing trading are favored by traders in this category.
• Automatic trading with Expert Advisor gets really interesting.

€50,000+

You will be pampered by your broker! Trading is likely to make a big source of income.

• Bet on the long term is feasible.
• All trading strategies are open to you!

Why Forex Traders Need a Business Plan (Just Like Any Business)

Forex trading can be a great way to make money. However, it requires a substantial commitment of both time and resources. Some of the costs of getting into Forex trading include:

• Broker commissions and fees
• Sophisticated computers
• Advanced software that can perform detailed analysis
• Research services
• Losing money on bad trades (this is inevitable I am afraid)

The foreign exchange market is the largest market in the world. More than $200 billion worth of trades are conducted every day, which means that traders have a substantial opportunity to make a lot of money.
However, Forex trading is also very risky. It is a zero-sum game. This means that every dollar one player wins will be a dollar another player lost. Forex traders will either win big or lose big. You also need to keep in mind that when you are trading on the Forex market you are betting against some of the biggest sharks in the financial world. You definitely need to know what you are dong if you are going to operate a Forex trading business.

Tips for Running Your Forex Business

The most important thing to keep in mind when you are trading Forex is that you are running a business. You can't treat it like a hobby if you want to succeed. Make sure you have a detailed business strategy as you work the markets. I have outlined a couple key things to keep in mind here.

Revenue Model

First of all, you need to know how you will be making money on Forex. You will calculate your profit the same way you would with any other financial investment. Your profit will be the sum of your winnings minus the sum of your losses.
You probably already knew that, so let me tell you something a little more informative. The mistake many people make is assuming that they are going to need to win more often than they lose. That tends to be more the exception that the rule.
Some of the best traders have struck it rich with Forex trading by winning less than 40% of the time. However, other people have taken less risk and still don't win often enough to realize a net profit. The trick is to take smart, healthy risks that will yield high returns that outweigh your risks. You will need to have an organized approach to win as a Forex trader.

Common Forex Trading Mistakes

As I said, Forex is a zero-sum game. In the long-run there are more losers than winners, but the winners tend to make a lot more money. That's because they know how to operate a serious business.
Here are some of the biggest reasons Forex traders lose money:

• They make their trades on emotions.
• They don't have a system they are willing to commit to.
• They don't understand how to use risk to their advantage.
• They don't learn how Forex markets work or how to trade effectively.These mistakes have cost traders a considerable amount of money. Many financial institutions have also lost money with traders who have made these mistakes. Many banks now require people to have a business plan before they will even allow them to open an account.

Remember, as a Forex trader you will be competing with seasoned traders all over the world. Most of them are trading full-time. You will need to make the same commitment and take the same risks if you hope to beat them.
You need to take the time to develop an optimized system. You will need to implement your strategy consistently if you intend to make money with Forex. You will be better off having a good strategy that you use consistently than having a great strategy that you never implement.

Advantages of the Forex Market

There are several advantages of the Forex market over some other types of financial trading.
When talking about various investments that are accessible to almost everyone, there is one type that springs to mind. The Forex or foreign exchange market has many advantages over other types of tradin. Since it is an OTC (over-the-counter) market, the Forex market is open 24 hours a day, unlike the regular stock or commodity markets. Most investments require a significant amount of money before you can take advantage of that investment opportunity. You only need a small amount of capital to trade Forex. Everyone can enter the market with as little as $1 to trade a "micro account", which allows you to open positions of 1,000 units. One lot of 1,000 units of currency is equal to 1 contract in micro account. Each "pip" or "tick" (smallest currency rate movement up or down) is worth $0.10 profit or loss, depending on wheather you are going with the market or against it. A Forex mini account gives you control over 10,000 units of currency, where one pip is worth $1.00. While a standard account gives you control over 100,000 units of currency, and a pip here is usually worth $10.00.
Forex is also one of the most liquid markets. When trading currencies on the spot Forex market you have full control of your capital, meaning that you can buy and sell your positions anytime during market open period. This is a definite advantage because, if you need to use your account money, it can be accessed immediately without additional commission or waiting periods. Many other types of investments require holding your money up for rather long periods of time.
Also, in Forex, with a small amount of money, you can control bigger market positions using the leverage or margin trading. Leverage of 1:100 is common in the Fore market. It allows you to control amounts 100 times bigger than your capital, while leverage of 1:500 and 1:1000 can be found with some offshore companies.
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit, since short-selling is a subject to strict limits in stock exchanges. Forex traders can make a profit during both uptrends and downtrends. Forex trading is rightfully considered risky but with a good trading system to follow, good money management skills, and some level of self-discipline, the risks of Forex trading can be minimized considerably.
The Forex market can be traded anytime and anywhere. As long as you have access to a computer and internet, you have the ability to trade the Forex market. An important thing to remember before jumping into trading currencies is that it is worth practicing with "paper money", or "fake money", on the demo account. Most foreign exchange brokers have demo accounts where you can download their trading platform and practice in real-time with real market data but with "virtual money". While profitable demo trading cannot guarantee your success with real money, practicing can give you a huge advantage to become better prepared when you start trading with your real, hard-earned money.