Archive for the ‘Trading’ Category

Forex Options

Wednesday, December 14th, 2011

keyOptions represent one of six investment instruments of Forex trading. Option is a contract to buy or sell an asset at a specific price within a specific time period. However, the contract gives the right and not the obligation. An option holder is entitled to repudiate the contract if it will bring him no profits. The option’s nature lies in its name which implies “choice” and means that traders have almost absolute freedom in setting contract’s conditions.

There are different types of options: exchange and off-exchange, exotic and common, call and put, and American and European. Forex is well-known to be off-exchange market. Forex options are called currency options.

Call and put options are major types of options. Call options give the right to buy an asset, while put options give the right to sell it. If traders expect the option’s cost basis to rise, they buy the first type of options. If they expect it to fall, they buy the second type.

American option gives its holder the right to buy or sell an asset of a specific volume at a specific price within a specific time period. European option can be only executed at its expiration date.

Although currency options may have rather long life, short-time option contracts are of bigger interest to us. Experts describe option trading as a rapidly developing sector of exchange market. Previously, options had been primarily used by exporting and importing companies to hedge risks, and today they have revealed new opportunities for investors and attracted more traders. However, not all traders fully understand exact principles of option trading and the results it may lead to. Some consider options to be highly profitable with no danger of huge losses while the others think that they are too risky.

Today’s brokers provide traders with various types of options. Experienced investors and specialists have developed multiple strategies for option trading. Undoubtedly, options are a very flexible instrument that can minimize risks and shortly maximize profits provided that it is handled ably. Options are on your side in both low and highly market volatility and bring profits at even a slight price fluctuation.

Beginners in option trading are usually recommended to start with small amounts of money and simple strategies. First, choose a type of options. Then study the theoretical basis and compare trading conditions provided by brokers. And always work out trading process. Developed analytical skills would be an asset as option trading is based on technical and fundamental analyses as well.

Binary options, another type of exotic options, have recently gained popularity among traders. These options are usually called “all or nothing”. It means that a trader will get either known profits or nothing and the debited option value. The only prerequisite for successful binary option trading is to forecast accurately the price direction. Will it rise or fall? Option will win if your choice proves to be correct. Although binary options are quite a clear and simple trading method, thoughtless actions may perceptibly affect your budget. Always remember to plan carefully before act and do not rely on luck.

Added by Roman Tsepelev,
InstaForex development manager

Trading Without Indicators (Price Action)

Thursday, December 1st, 2011

Studying basic trading and browsing multiple Forex resources, Forex beginners may conclude that the technical analysis is wedded to indicators and expert advisers. Although most traders surely use them in everyday trading, there are those who consider indicators to be nothing else but obstacles to gaining profits. They prefer trading without indicators, or the Price Action trading.

pricePrice Action fans are confident that trading will become really effective only if any additional software, economic calendars and news feeds are dismissed and traders fully pore over price charts.

Have you ever heard a phrase: “the price discounts everything”? It means that anything besides it is just factors which may directly or indirectly influence the market. In other words, the price is the final result which should lead a trader in his decisions.

The price is the key Forex element; the Price Action method enables a trader to concentrate on the price and do not squander his energies on minor elements.

This approach seems quite sound: charts reflect the reality that has already happened. You will not be misled by contradictory signals or continuous news feeds. If you know how to read a price chart, it looks very simple.

Price Action traders are certain that the price gives hints to forecast its direction. If you learn to analyze price fluctuations, you will have a base for making efficient decisions, improving your strategy and finding your sea legs in trading. Certainly, you will not need to exclude other analysis methods from your strategy. However, advantages of mastery in price charts would be hard to argue.

Price Action simplifies many aspects of trading and enables easing emotional tension; you will not need to decode indicators or analyze economic news.

Being a private Forex investor, you should monitor major market makers to gain profits. Although market fluctuations come in zigzags, there is always a trend. Furthermore, history tends to repeat itself. Therefore, if you base your strategy on specific patterns, your chances to profits will increase. The Price Action method has a number of such patterns called price patterns, which Forex experts consider to be extremely informative. According to them, beginners should start with daily charts that better reveal trends and facilitate analysis.

The main principle of Price Action is that indicators provide inaccurate or outdated information while price charts give comprehensive and credible data. If you learn to monitor price movements, you will understand market principles and find the tight time for entering or quitting the market.

Added by Svetlana Milyushko,
InstaForex Clients’ relationship manager

Forex news trading

Tuesday, November 29th, 2011

Different macroeconomic factors influence financial markets. Fundamental analysis experts examine these factors and base their forecast of currency directions on economic indicators, statistics, reports and news.

Being quite a controversial type of trading, news trading is a popular way of earning on Forex market.

Although news definitely forces the market, it may cause unpredictable consequences.Снимок

New trading has certain drawbacks:

  • information overload;
  • necessity to select right news from the news feed;
  • unexpected changes (events seemed minor at first glance may develop crucial importance, and conversely);
  • changes in data importance depending on global economic situation.

A trader addicted to fundamental analysis face lots of new information every day: planned reports, statements of policymakers, research notes, announcements of political events and rumors…

Anyone who chooses to trade on news should learn to analyze links between economic events, consider psychology of the market and be very careful. Trading on news may easily lead to a trap. The market may move in one direction on the back of expected data and suddenly jump to the contrary after its release.

Information overload is another reason for a headache even to an experienced trader. To select useful information from a mix of different and sometimes contradictory facts is not that simple. Two mistakes are common: a trader either tries to embrace the boundless, or focuses on a particular news aspect and forgets about the others.

Which data should be based on? According to experts, the most important data is information related to unemployment, inflations, GDPs, percentage rates, indexes of consumer and producer prices, production output and retail sales.

Intraday traders are definitely interested in news trading. Normally, the release of important economic or political data cause well-marked short-term price movements. Market volatility may increase and bring profits to short-time traders. Experienced traders say that knowing when regular releases are made and which of them are most important may lead to a success.

However, to avoid risks, many traders prefer to suspend trading at the moment when the data is published. Major traders reputedly know about oncoming market reactions in advance and reap benefits while ordinary traders are able analyze news only post factum…

In any case, it is better not to ignore news. Firstly, there are investors who successfully combine techniques of fundamental and technical analyses (still there are some who repudiate both), and secondly, economic news fosters intellectual development.

Added by Alexey Skachilov,
Clients’ relationship manager

Players of Foreign Exchange Market

Tuesday, November 8th, 2011

forexForex market players comprise two groups: active and passive.

Active market players include central and commercial banks, and major brokers. They are also called market makers.

Passive market players are called market users: they can only use market services and cannot set prices.

Major banks make a massive impact on markets by selling and buying huge volumes of currency.

Central banks are regulatory authorities which set key interest rates. In some cases they are entitled to perform exchange market interventions to weaken or strengthen a national currency.

The most part of currency operations is convened by commercial banks at their own expense and for the account of their customers.

Market makers quote currency rates for other market players. They own hefty assets and directly influence the rate-making. Market makers include the following banks: Deutsche Bank, Mizuho Bank, Barclays Bank, PBS, Citi Bank, Chase Manhattan Bank, and Union Bank of Switzerland, etc.

Export and import companies are market players as well. They use international exchange mechanisms in their business activities and are both major providers and consumers of foreign currencies.

Insurance and investment funds manage asset portfolios, provide hedging (protect positions from potential losses), and make profit from purchase and sale of assets.

Brokers are mediators providing customers with access to foreign exchange market (Forex). They contribute to trading between sellers and buyers. Carrying out activities in the name and on behalf of their customers, brokers set a certain commission for these activities. Major brokers may perform as market makers and provide their customers with trading at low cost.

Assisted by brokers, private investors carry out profit-seeking activities by investing funds in Forex and exchanging currencies.

Therefore, passive market participants have to abide by the rules of the game set by active market players.

Added by Olga Vitkovskaya,
InstaForex Clients’ relationship manager

Robot or trader: which one does future pivot on?

Wednesday, November 2nd, 2011
Everybody needs a robot – something I have always said.
Everybody needs a friend who’s got shiny metal head.
Everybody needs a robot, even if you’ve found someone.
Now and then you need a friend with hormones made from Mobil 1.

Everybody needs a robot on the dashboard of their car.
If you try to drive yourself you won’t be getting very far.

These lines from a popular song are exactly about Forex trading. Once we need robots to help us in many ways today, to let them earn instead of us may be a good idea.

The big question is, whether robot traders may replace human beings on financial markets.

Robot traders (also known as expert advisers) are special software that fulfills a range of functions on Forex market. In the MetaTrader trading terminal robot traders are based on the MQL programming language. They enable to automatically implement a well-tried trading strategy. Does this mean that a man may launch robots and relax watching them getting profit?

On specialized Forex forums there is no broad consensus. Some are skeptical about such a golden goose. Others talk about ideal expert advisers which enable successful automatic trading.

1309584765_robotType ‘expert adviser’ in an indexing service and you will see thousands of juicy advertisements: Buy Expert Advisers, The Ever-Best Expert Adviser, 500% Profits. Going to buy? Hold the horses. Robot traders have both strengths and weak spots.

Forex newcomers often tend to lose their deposits as they act hot-blooded and are short of experience in trading. They can neither analyze each and every market fluctuation, nor bear in mind tens of trading instruments. And that is not something unusual: no man cans. Every human being needs time to take measured decisions.

In contrast, expert advisers are not human beings, and everything human is alien to them. They are prompt and multifunctional. They manage to control any number of currency pairs, respond immediately to market fluctuations, and instantly make accurate calculations. More importantly, robot traders have no emotions.

However, don’t be exited to download and launch a robot trader immediately. Although bait is much to use oeuvres of professionals, without knowledge you risk to go down like a lead balloon. What is a robot trader, after all? It is a reflection of someone’s trading strategy. Examine this strategy carefully before you follow it.

Moreover, no expert adviser guarantees profits without losses. It neither is responsible for outcomes of your trading, nor protects you against financial losses.

Even their strengths may turn to drawbacks. A strict strategy excludes any flexibility. A robot will never be able to deviate from what it has been programmed for. It has no intuition, reads no news and knows nothing about human psychology.

Although robot traders accurately fulfill a number of functions in Forex trading, they still need a certain portion of human control. A rational way is to practice semi-automated trading: work out a strategy and then develop a robot trader, or simply get it developed for you. At least you will know exactly how it should work. Whether you choose to use expert advisers or not; if you choose to use robots, test and adjust any of them before you start trading. A folk wisdom says: put your trust in robot but keep your powder dry.

Added by Tatyana Makhina,
InstaForex Clients’ relationship manager