Archive for the ‘Trading’ Category

Methods of the exchange market analysis

Tuesday, May 29th, 2012

binocTraders analyze Forex market in order to make a forecast that will enable to increase the profitability of transactions. Forecast is the part of a trading plan. Different methods of analysis are used to define long-term trends, favorable conditions for opening and closing of deals, prospect price rebounds etc.

As a rule, there are two main methods of analysis on Forex:

  • fundamental analysis
  • technical analysis

Fundamental analysis is based on the investigation of different economic indicators as interest rates, inflation, business activity indices, employment, GDP. The instruments of the fundamental analysis include news, directly or indirectly connected with world financial markets, economic calendar, various statistical reports, statements of main politicians and even rumors.

Traders that follow this type of analysis must know how to separate the key aspects from secondary ones and find cause-and-effect relations between events. To make the proper use of the fundamental analysis one should be aware of the global economy and financial markets, knowing what factors and what information may affect the price of currencies and securities.

The technical analysis is based on the historical data of prices. The study of previous price changes enables to forecast the future situation. The instruments of the technical analysis are price charts, technical indicators and trade advisors. This type of analysis allows to define trends, support and resistance levels etc.

There are several types of price charts: linear, candlestick, bar. It is possible to place various indicators on charts. Most of them are integrated in trade terminal. Indicators are mainly subdivided into two groups –trend indicators and oscillatory indicators. Trend indicators define the current price tendency, oscillatory ones work better while the sideways movement indicating the oversold and the overbought market.

Also trading advisors enable to automate the trading process partially or completely. These are certain programs aimed at performing operations on Forex without trader’s participation, i.e. that advisors (robots or experts) can make deals basing on the received signals automatically.

To compile the trading forecast many traders combine different types of analysis. It is crucial to keep in mind that the forecast is just the forecast: it may not be justified. Even professional analysts sometimes make mistakes in their analysis as Forex market is not stable. The usage of various methods of analysis is crucial for successful work, but the main task of a trader is to trade in accordance with the market and respond quickly on any changes.

Added by Alexandr Kornilov,
InstaForex Clients’ relationship manager

Forex Myths

Tuesday, May 22nd, 2012

Forex is enveloped in myths and delusions. Having no idea about currency market functioning and work mechanisms people ascribe to Forex and trading such things that do not quadrate to facts. Let us consider the most widespread legends.

1. Forex is a complete deception.

mythAnother variant of this phrase is: “Forex is a casino where nobody wins”. There is a suggestion that it is impossible to earn on price fluctuations, and brokerage companies are trying to put a spoke in their clients’ wheel.

A proof that this is far from being the case is brought by successful traders experience, as for them Forex has become the main source of income. We have already written that sometimes there can emerge unfair participants as well. However, their tricks can be seen through easily, if choosing the appropriate broker. There are quite many respectable companies in the market rendering good trading terms and great service – all you need is to examine the necessary information in order to take the right decision.

Worth remembering that brokerage company affords the private traders an opportunity to trade in an interbank market, offering various instruments and encouraging its customers with bonuses, campaigns etc., but that does not guarantee profit receiving finally. If you want your trading to be of success – you have to devote energies by yourself.

2. Forex requires a huge capital.

Those times when access to currency and stock markets was open for the high and mightiest only have passed. Today anyone willing may start trading and there is no huge capital required for that. No doubts that with a big deposit the work would be more effective, but you can begin with a few dollars. Modern brokers offer different account types – even cent accounts, contests and bonus programs, taking part in them it is possible to make a starting capital.

3. Forex involves a great risk.

To some extent it is really so. But it is enough to have just a little of sanity to avoid most of them. Do not put your last money into trades or the money which you borrowed. Follow the rules of money management, refine your skills, learn hedging methods and diversification risks.

4. Forex takes all the time.

Trader decides by himself how much time he is going to spend on trading. Trades can be executed 50 times a day, 5 days a week, once a year – the frequency depends on your desire, mood, trading strategy, skills etc. You don’t have to sit in front of the screen, tracking the price moves in order to be a trader. Trading can be easily combined with the main job.

5. Forex requires a special education.

Analytical skills, knowledge of maths and world economy would be useful in trading, but no special education is needed. If desired a trader can complete training at a brokerage company, attend webinars, get familiarized with a relevant Forex literature, widely accessible in the Internet and book stores.

Forex market is the youngest and fast developing financial market. For millions of people all over the world trading has become a life style and a source of income. People like to draw on imagination, but one should divide fancy from fact.

Added by Alexandr Petryanin,
InstaForex Clients’ relationship manager

Do Swaps Make Sense?

Tuesday, May 8th, 2012

The easiest definition of swap term is assets retained or added to a trading account for prolongation (carry over) of a position to the next day or a fee for carrying a position over midnight.

moneySwaps can be either positive or negative. Interest for a position carry over in a currency market is paid or deducted for every open trade at 17.00 EST (Eastern Standard Time) for every trading day. Trades opened before 17.00 EST and retained after this time are considered as carried over till next day and are charged or credited with an interest depending on a trading position opened by trader.

The currency of one country bought/sold by trader versus the one of another determines if it is going to be positive or negative swap. The swap rates are set by currency rates composing a currency pair. In case the loan rate exceeds the deposit one, the swap is written off from a trading account. Positive swap is credited when the active rate of bought currency is higher than the one of sold currency.

The target of Forex traders is to derive profit running speculative operations with currency contracts. Practically, a currency delivery does not take place. Working through a brokerage company, trader may apply to leverage and hold positions open for as long as he wants. In case a factual currency delivery is expected, it should have been accomplished within 2 days.

In most cases a position carrying over to the next day is implemented automatically by broker. It is required for prolongation of a current open position and avoiding a real accrual of purchased currency to a trading account. Swap combines with buying or selling of two contracts with different settlement dates on equal terms. If a position remains open by the end of the day, it will be closed and opened immediately, but with a small gap. During trade execution a currency purchased by trader is conditionally deposited into bank at interest, and the sold currency is taken as a loan at interest rate as well. For instance, you open a trade with USD/JPY pair, buying dollars for yens. In case at that time the interest rate in the USA is higher (for example, at 1%) than in Japan (0.3%), then you will have the difference between them (0.7%) accrued. If you would sell dollars buying yens, then you would have to pay the difference between the rates.

From Wednesday to Thursday a triple swap is added or deducted. Why? As trade calculations and currency delivery would have been completed on the second day (in our case it is Saturday), when world banks are closed, the settlement date shifts to Monday and the swap is calculated for 3 days.

Positive swaps allow trader to raise additional profit. Currencies with huge interest rate difference are actively applied in carry trade operations for gaining only due to rate fluctuations and swaps.

Some brokers provide their customers with swap-free accounts, if standard trading terms run counter to their religious convictions. On swap-free accounts (also called Islamic) any currency pair trades can be executed, but if they are carried over midnight, trader gets no profit or loss.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager

Forex Rebate

Monday, April 30th, 2012

rebateWhile making deals on Forex a trader pays the spread to a brokerage firm. A spread is the difference between the bid and ask price of an asset. There are several types of spread: fixed spread, fixed spread with extension, floating spread. For different currency pairs there are often different types of spread that can vary depending on the market situation.

Spread is the main source of broker’s income. In fact, a spread is a fee charged for carrying out a transaction. But you can easily regain the part of the spread by using various rebate-services.

Rebate service offers consumers cash back on the purchase price of a good or service. Having performed the settlements, a seller offers a certain discount to the customer. This service is widely used not only on Forex but also in marketing in order to promote sales.

On currency market rebate-projects enable traders to receive a refund from each executed deal. As a rule brokerage firms provide that kind of services not directly but via special services targeting at paying off a spread (but not always). If you want to use this service, you need to register your trading account in the rebate system or open a new brokerage account with the help of a referral link on the rebate-services website.

The interaction between a trader, broker and a rebate service can be described as follows: a broker pays to the company providing rebate services, a fee for acquiring a new client. Rebate service gives the part of this fee to a trader. Thus, we can say that the spread is divided into three parts of certain proportions.

The rebate services are provided for free. Trading conditions and the size of a commission fee remain unchanged. You will simply be partially refunded – monthly or weekly regardless of whether you trades were profitable or not.

The registration in rebate projects is quite simple and does not take much time. The only thing you need is to find an appropriate service and choose a broker, then open a trading account and begin to take a profit for each deal.

The size of a rebate commission depends on the amount of trades and the size of commission fee set by the broker and the service.

Such operations allow traders to reduce losses and get additional profit while making deals on Forex. Whatever your professional experience is, you will be able to use rebate-service and make your trading strategy more effective.

InstaForex cooperates with a number of projects aiming at returning part of the spread – for example, InstaRebate. The participants of the project receive 1.5 pips rebate for each deal, the highest refund rate on the brokerage services market. The rebate payments are accrued automatically on a trading account and the only thing a trader needs is to register in InstaRebate program.

Added by Tatyana Makhina,
InstaForex Clients’ relationship manager

Trader Slang

Monday, April 23rd, 2012

Slang is a term denoting a set of specific words and expressions which are peculiar of non-official communication for a certain group of people. The speech of the representatives of different professions, cultural societies, and geographic places has its peculiarities reflecting the views of people and in fact pointing at their society and status. Slang or jargon deviates from the literary language norm but most often it makes the communication between people easier, adding special colouring to the speech of people. Traders also have their jargon words as they have a good sense of humour and imagination.

The list of the words below contains the major terms which are used by the traders in non-formal communication; it will help the newbie of the market to get into the core of trading faster.

speechBull market (bullish) – market in uptrend.

Bear market (bearish) – market in downtrend.

Margin call – the moment when there is a lack of maintenance margin account, you must either upload your account or close some open positions.

Tick, Item – the minimum step change in the price.

Long (position), also ‘longs’ – to buy something, to assume an increase.

Short (position), also ’shorts’ – to sell something, to assume a drop.

Heat – how big risks are we taking in our trade.

Range – when the market doesn’t move either in downtrend or uptrend for some time.

Flat (Square) – neutral state when all your positions are closed.

Set up – particular environment for a trade.

Gap – a difference between the previous period’s close price and the next period’s open price.

Whipsaw – a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Rally – a recovery in price after a period of decline.

Profit (Gain) – positive amount of money gained for closing the position.

Loss – loss of the transaction (or in the open position).

Pip (Point) – the last digit in the rate (e.g. for EUR/USD 1 point = 0.0001).

Slippage – execution of order for a price different than expected (ordered), main reasons for slippage are: “fast” market, low liquidity and low broker’s ability to execute orders.

Drawdown – the amount of the decline in value of a forex trading account, expressed either in dollars or as a percentage, between its highest and lowest points.

Squeeze – action by a central bank to reduce supply in order to increase the price of money.

Limit – order to buy or sell currency at a specified price or better.

Lock - the opening of two positions for one instrument, one specification and the same size in different directions.

Majors – the most popular currency pairs available for trading, include EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD and AUD/USD. Less traded pairs are known as “Exotics”.

Cable - GBP, British Pound .

Aussie - AUD, Australian Dollar.

Swissie – CHF, Swiss Federation franc.

Kiwi - NZD, New Zealand dollar.

Loonie – CAD, Canadian Dollar.

Holy Grail – consistently profitable trading system.

This list of course is not complete, there are hundreds of other words and meanings in trader slang and it is continually growing.

Added by Alexey Skachilov,
Clients’ relationship manager