Archive for the "Trading" Category

08.07.2010 Post in Trading

All traders working on the international currency market use analytical reviews and forecasts. This substantial component plays a great role in reaching success and making a permanent profit. As all decisions taken by a trader in the market work must base on some forecasts and researches that is why Forex market forecasts are so necessary for the traders.

Today there is a great many of different sources which provide Forex forecasts as an additional of service. A trader must decide on one of the information resources. But before making your mind who will be your information deliverer on Forex market it is necessary to rely on your market view, as all market forecasts are nothing but somebody’s suppositions concerning the situation expected on the market in the nearest time. A trader must learn well to combine his opinion with the analysts’ opinion who make the forecasts.

Using the analytical forecasts a trader must base on the following rules:

1. A trader must determine the range of sources, from their forecasts he will use the information about the existing processes on Forex market. Nowadays there are a lot of sources on the market which deserve the investors’ attention. The trader can apply to analytical reviews issued by the official resources as well individual traders.

2. Almost all forecasts of Forex market are paid that is why in order to be sure in the received information worth paying attention to the publication popularity. At present, it is rather easy to find it out. You just have to know the public opinion that is actively promoted by thematic forums and blogs.

3. The forecast quality. This assessment criterion can be also easily educed as almost all analytical outlooks are paid and if a trader decides to pay money for Forex market forecast, then the most reliable and competent source must be chosen for this matter.

It would be wrong to say that using the forecasts for Forex market is low efficient. However, even big financial institutes interested in the quality of the provided analytical information do not give a 100% guarantee of a positive result. And none of the financial companies can give, that is why it is better to choose the one which has the biggest and longest work experience on the market.

Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department

02.07.2010 Post in Trading

The fundamental analysis is one of the most important elements of the analysis and forecasting on the Forex market. The technical analysis is also a powerful instrument, however, the forecasts made on the basis of the fundamental analysis are more precise and the process of the analysis will allow to go to the root of the situation at the market.

One of the most important processes affecting the movement on the market is the process of the interest rates’ change by the central banks, in most cases this leads to the activation of the market. In this article we will discuss the connection between the change of the interest rate and exchange rate.

Each state has its own interest rate policy of the central banks. When it is formed, such major instruments as the base rate and bank rate for the transactions on the financial market are used. All decisions about the change in the interest rates are taken on the assumption of different macroeconomic indices. The market is the most unpredictable in the moment when the interest rates are change unexpectedly. That is why each trader, who uses the fundamental analysis, should pay attention to the forecasts and reports. Basing on his/her knowledge the trader should make the conclusions regarding the probable behavior of the market in future. This will allow to avoid the probable losses and to use the situation for his/her benefit.

The basic concept of the interest rate

Traders, using the fundamental analysis, have to take into account the role of the interest rates. This moment is very important for the traders who work during the day. The explanation is very simple. The trader, who works on the Forex market during the day, orients on the certain amount of the profit. That is why such trader has a particular level of the intraday income. Correspondingly, the higher is the level, the greater are the sums used by the trader.

However, such type of trading should not be considered as the opportunity to earn quickly the large sums of money. It is far from true. The fundamental analysis of the Forex market is a vast science, which requires form the traders the intellectual flexibility and efficient application of knowledge. This implies that trading on the Forex market the dynamics of the market should be taken into account, since the currency fluctuations can lead either to the profit or to large losses.

How the value of the interest rate is determined?

Primarily, you should remember that the interest rate is the leverage of the Central bank on the national currency and is one of the links of the monetary policy. Every Central Bank has a Board of Directors, which takes the decision concerning the short-term interest rates. The interest on credit is determined by the short-term interest rate, which is issued by the Central Bank to the commercial banks. In case the inflation starts the Central Bank, depending on the targets, will try to influence the national currency due to the control over the interest rates. When the counter inflationary decisions are taken, the interest rates are raised. In such way, the volume of active money will be decreased and this in its turn will lead to the decline of the inflation. If the decision is taken to advance the money supply then the interest rate will be lowered.

It is impossible to foresee which decision will be made by the Central Bank. That is why the trader should study the fundamental analysis. The trader should know the economic indices, which will help to forecast what measures will be accepted by the Central Bank in regard to interest rates. In this connection it is worth to pay attention to the following indicators:

Housing Price Index

Employment rate

Consumer Price Index

Consumer Spending Index

How these data can be used?

Earlier, we have talked about the indices, which should be taken into account by the trader, using the fundamental analysis. Besides, the Central Bank can take into account other data also, however, the indices which you can see above are the base. That is why the traders have to follow their dynamics. If the indices improve then the economy develops normally. In this case the level of the interest rates is unchanged, or it is increased partly. If the readings of indices worsen than the level of the interest rates declines. In such way the amount of funds, which are in circulation, increases.

What should the trader do when the level of the interest rate changes?

Very often the forecasts can be mistaken, because the measures taken on the control over the interest rate can be unexpected. That is why each trader should carefully study the fundamental analysis in order to know what to do even in cases of force majeure. At first, the trader should remember that in case the interest rates are decreased unexpectedly, then the bulk sale of currency is possible. This is connected with the fact that the majority strives to protect themselves against the possible losses.

Conclusion

The fundamental analysis of Forex market is a complicated system, which consists of different indicators. Nevertheless, despite the fact that it is almost impossible to study all details of the fundamental analysis, the knowledge of the basic factors is necessary for the successful trading on the international Forex market. The interest rates are one of the bases of the fundamental analysis.

Added by Alexey Badianov,
InstaForex
specialist in finance

23.06.2010 Post in Trading

Besides reversal patterns on the charts of technical analysis of Forex market the figures of the trend continuation can be singled out. The trend figures illustrate a short period of the market correction. The most important figures of the market continuation are flags, pennants, triangles, wedges and rectangles. Below we will discuss every figure in detail.

Flags and Pennant

Flags and pennants are the most often models of the trend continuation, as a rule, they can be noticed in a very energetically developing trend. The dynamics of the flag and of the pennant have much in common. Both of these figures arise after a dynamic market movement, forming almost a straight line on the graph.

The figure actually is a pause in the trend development, during which the price is almost at one and the same level. A pennant looks as a small triangle on the chart whereas a flag is a short-term price range. After the figure has broken the curve, the prior trend continues, passing the distance equal to that of the figure.

Flag and pennant are the reliable trend continuation figures, when they are moving against the trend. Thus, a flag which is inclined downside gives a bullish signal. If the flag is inclined upwards, the signal is bearish. Before the emergence of the figure, the market activity is high. After the trend continuation pattern has arisen, the activity starts to fall. When the break happened, the activity is upturning again. Another feature of a flag is that when the market is lowering, the figures are being formed much faster, than during the ascending market. The appearance of these patterns on the actively expanding market denotes that a puncture is possible.

It should also be mentioned that flags and pennants are directed not against but along the prior trend and are more a trend retrace.

flag

Flag

pennant

Pennant

Unlike rebound figures, the figures of the trend continuation can very often denote the false direction of the trend. The things are more complicated with the figure of the trend reversal “triangle”.

Triangle

Triangles can be viewed as flags without flagpoles. Four types of triangles are distinguished: symmetrical, uprising, downfalling and expanding.

A symmetrical triangle is built by symmetrically converging support and resistance lines, drawn though at least four points. The symmetrical convergence of these lines reflects the existing on the currency market balance between demand and supply. Consequently, the breakthrough can emerge in any direction. But if there is a bullish symmetrical triangle, the break is likely to be directed like the previous trend, proving the name of triangle as a figure of trend continuation.

Triangle

Uprising Triangle

An uprising triangle is formed by the horizontal resistance line and the uprising support line. This figure demonstrates the situation when the demand exceeds the supply considerably. The break is upward, and further on the target is the price level which is positioned at a distance equal to the base of the triangle from the point of the break through.

Downfalling triangle

A downfalling triangle is a mirror reflection of the uprising one. It is formed by a horizontal support line and a declining resistance line. The figure illustrates the situation on the market when the supply is much higher than demand. The price breakthrough happens in this situation to the bottom. The trading volume is gradually declining in accordance to approaching the high, but it surges at the moment of the break.

Expanding Triangle

An expanding triangle, or megaphone, is an inverted image of any prior discussed triangles, where not the base of the triangle, but its corner is adjusted to the line of the prior trend. The change of the trading volume happens accordingly, the volume increases proportionally to the formation of the expanding triangle.

The break can be considered concluded if the close price was fixed outside the corresponding line, that is either above or below one of the triangle sides. After the break the curve is usually rebounding towards the punctured side.

Wedges

Wedge is closely related to the patterns of triangle and pennant. It is similar in form and the time of formation, but from the viewpoint of form and analysis, it resembles a pennant without a flagpole more. It’s usually broken through in the direction opposite to its incline, but coinciding with the direction of the prior trend. Depending on the trend, the wedge can be bullish or bearish. By the wedge on the chart it is possible to see only the trend continuation.

Wedge

Rectangles

The figure Rectangle demonstrates the market consolidation period. After its breakthrough, the currency is likely to continue the previous trend. But its disruption can, however, lead to the transition from the trend continuation to the recoil.

Rectangle

This figure is easily distinguished, and it can be considered as a small sideways trend. When it is formed along the up-trend and the price breaks though it upwards, the rectangle is called bullish.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager

17.06.2010 Post in Trading

The arbitrage concept means several ‘buy’ or ‘sell’ deals in order to profit from unequal prices of the same or resembling assets at the same time in different markets or in one market, but at different times.

Also there is the concept as Forex arbitrage. It is ‘buy’ or ‘sell’ operations made by a trader and a required further reverse deal for the purpose of making profit.

Controlling its risk, Forex arbitrage can be very beneficial. The meaning of Forex arbitrage is following: profit is made by mean of buying/selling of financial instruments at different times. In addition, a trader has opportunity to complete financial transaction in different market. Forex arbitrage means obligatory making both buy/sell deal in Forex and a reverse operation, which will bring a profit.

There are several types of arbitrage available. It is simple arbitrage, which involves using of just two currencies and a complicated type, which involves trading with three and more currencies.

Depending on what profit one can make there are following types of arbitrage:

– Temporary arbitrage is the most accepted type of arbitrage. Its meaning is in quotes difference of currency pairs at different times. The temporary arbitrage can be of two kinds:

1. “Purchase-Sale”. A trader buys a currency at a lower price in order to sell it at a higher price and get profit.

2. “Sale-Purchase”. Trader sells currency at higher price in order to buy at lower price in the future.

– Crossing arbitrage is one of the most complicated types of arbitrage. During the crossing arbitrage simultaneous synchronous exchange rates changing takes place in two pairs. Such cross-imbalances appear in Forex all the time.

– Intermarket arbitrage occurs in case of if you want to earn on exchange rates difference in different currency markets.

However, the using of Forex arbitrage is not always profitable, as in today’s conditions exchange rates in various exchanges do not differ often that does not allow traders to obtain additional profit.

The main essence of arbitrage is the complication of fixed-date buy/sell deals of currency options. The option must be executed without fail and its conditions depend on its type and the conditions of the contract.

In general, the choice of strategy depends on many factors related to each other, which trader must consider during the trading.

Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager

10.06.2010 Post in Trading

There are two model of people’s activity –work or gaming. Game is always a risk, but in addition it is freedom of choice. Game can bring you huge winning and at the same time huge loss. However, it is insignificant how much efforts you spent for achieving the goal. So the main characteristic of a game is risk.

Work, on the contrary, is disciplined process, completely excluding any risks. The result of working process is salary.

Considering trade on the international currency market Forex, there cannot be any unambiguous answer for the question “What Forex is”. Everything depends on trader’s choice. Thinking of trading at Forex in terms of work, we can find many significant differences between it and usual working process. A trader does not have supervisors, position, career ladder, trader does not get fixed monthly salary, he does not need to go to the office every day. All this is both advantages and disadvantages of being a trader. It is not usual notion of work which everybody got used to.

Let’s now consider trading in the context of game. Opening and closing positions, traders parlay – what happens with the currency, whether its rate will move down or up. So having given correct forecast, trader gets profit, and, on the contrary, if he failed to predict changes on the market, he loses everything. It can be compared with casino but can not be called work.

As of today, many traders tend to suppose that trade on the international currency market Forex is work. The difference between casino game and trading on Forex consists in constant self-development, market analysis, basing on fundamental and technical factors of market behavior. A trader should monitor the quotations, follow the most important economic and political events in the world. And according to the information, he should make a decision on execution of operation.

If trader relies only on his intuition, the trading process adds up to casino game. If trading on Forex, you adhere to the basis of fundamental and technical analysis, you are always aware of economical and political situation in the world, estimate probable risks beforehand, then, undoubtedly, trade on the international market Forex is work.

Added by InstaForex Staff