Archive for the "Trading" Category

08.05.2012 Post in Trading

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

30.04.2012 Post in Trading

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

23.04.2012 Post in Trading

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

12.04.2012 Post in Trading

As soon as you learn about Forex market and classic online trading, pay attention to the opportunity to increase your income. Besides using the PAMM system, rebate projects and other services, have a look at the affiliate programs.

PartnersThe affiliate programs offered by forex brokers help to receive zero risk income from the Internet by attracting new clients to the company. Often they are based on the following scheme:

  • You register with the website of a broker as a partner (choosing the type of partnership);
  • Receive a unique affiliate link, promo and educational materials;
  • Refer clients;
  • Earn from the activity of your referrals.

The referrals are traders who have opened trading accounts with the broker upon your recommendation. After a trader has followed your affiliate link and opened a trading account with the broker, he is automatically included in your affiliate group. In this case every trade of the referral brings you money.

By the way, a partner is not necessarily a trader. Both individual and legal entity as well as those who strive to extend their business in the Internet or in the financial field can register with the forex affiliate program.

How do referrals bring profit to a partner? The main tool of a partner is the affiliate link, which can be embedded in any object of the website. If a user who followed the affiliate link opens a trading account with the broker, he is added to the partner’s affiliate group so the partner will be paid a commission for his every trade (both profit and loss). For example, partners of InstaForex Company receive 1.5 – 2 pips commission for every trade of every referral. Moreover, affiliate program can have several levels. It means that a partner can refer more partners to the company and receive a part of their commissions.

The partner can also take advantage of the affiliate statistics that contains the following information: the number of users followed the affiliate link, the number of referred clients, and the amount of received commission.

Some brokers provide partners with promo materials such as banners, informers, booklets and ready-to-use website. The range of promo depends on the affiliate program.

Affiliate program is a sure way to earn money in the Internet. Moreover, the potential income is quite high with little efforts! Choose affiliate programs of the brokers with solid business reputation and well-known brand.

Often partners place their affiliate links and banners on blogs, in forum profiles and signatures, in social networks, articles, etc. Practice proves that the most efficient advertisement is the one offering to learn something new and useful.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager

03.04.2012 Post in Trading

Margin trading (or trading with the leverage) is a specific peculiarity of financial markets and a very attractive opportunity for traders. Thanks to the cash borrowed from a broker investors are able to carry out trades with volumes that exceed several times the size of their own capital.

To get a loan an investor should deposit a required sum of money– a margin that serves as collateral and prevents the client’s debt obligations from growing. A margin ensures that losses of a trader will not exceed the actual size of deposit. If losses are approaching the size of margin, a trader should replenish the trading account. Otherwise broker will automatically close all open positions. A signal indicating that a trader should replenish the deposit is called margin call.

creditThe sum of a margin (collateral) depends on the size of the leverage and volume of trades. For example, with 1:100 leverage and $100 equity, a trader will get $10000 to carry out deals. If you open a $ 5000 deal, then considering the leverage, a margin should be $50, i.e. client’s funds cover only a part of a deal, the rest is paid by money borrowed from the broker. If the deal is closed with profit, then all the money get with the help of the leverage is transferred to trader’s account. Thus, with favorable circumstances it is possible to improve your financial situation quickly and effectively. Margin is frozen in the trading account; a trader is free to use the rest of the deposit. If a trader suffers losses that exceed the certain part of the collateral, positions can be closed automatically. Different brokerage firms set different margin call requirements.

If you would like to avoid a margin call, you should use limiting orders as Stop Loss and Take Profit as they will allow you to set the target profits and permissible loss level.

On Forex the leverage is provided for free and for unlimited term unlike stock markets that usually charge for this service. While opening a margin account with Forex-broker a trader usually can define at once the size of leverage and begin to carry out deals. Some years ago 1:200 leverage was astonishing. Nowadays brokers can provide their clients with 1:1000 leverage! But as a rule traders are satisfied with 1:50 and 1:100 leverages. Some traders prefer 1:5 leverage and some of them refrain from using leverages. In short, everything depends on strategy and trading style.

It is necessary to keep in mind that big profits are always related to big risks. The higher the leverage is, the higher the risk of losing a deposit is. You should choose the leverage according to your experience.

The usage of the leverage will be effective and justified if your approach to money management is reasonable. Also it is necessary to control the equity and refrain from opening deals with huge lots. In this case the profitability of deals can be increased significantly.

Added by Roman Tsepelev,
InstaForex development manager