Posts Tagged ‘forex’

01.06.2012 Post in Trading

Each trader has his personal approach to the situation on currency market and his own trading methods and trading system. Each one chooses the strategy that to his mind is the most effective. As a rule, the opinions of traders on that subject are different.

But today we will focus on the most popular strategy appreciated by traders all over the world.

Carry trade is the trading method based on the difference between low-yielding and high-yielding national currencies. The main principle of the strategy is to purchase a currency yielding a lower interest rate and sell it at higher interest rate. In other words, you open a position with a large swap point trying not to close it as long as possible in order to get a maximum profit with the help of swap points.

The bigger the difference between the interest rates of currencies in your pair is, the bigger is the size of swap points. Therefore, you should choose currencies with the biggest difference in interest rates. The most popular currency pairs are AUD/JPY, NZD/JPY, and GBP/CHF.

You can get the necessary information on exchange rates any time. The detailed information can be easily found on the websites of central banks and Forex-brokers.

As any other trading strategy, Carry trade has its own peculiarities. Firstly, in order to gain profit you should use the large initial deposit and keep a position open as long as possible. Secondly, the interest rates are subject to fluctuations. They can change sharply which is quite risky.

Thus, in order to use the strategy Carry trade successfully, it is crucial to follow the changes of exchange rates and focus on long-term trade. In this case patience is the key to successful trade.

Added by Andrey Misyuk,
InstaForex Clients’ relationship manager

22.05.2012 Post in Trading

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 InstaForex Staff

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,
InstaForex
Clients’ relationship manager

07.03.2012 Post in Trading

countCharles Dow is often considered as the founder of the technical analysis. Jointly with his companion he implemented the famous Dow Jones industrial average, created one of the leading world financial information agencies and began the publishing of the comprehensive financial data. Moreover, he wrote several articles concerning the financial market.

The suggestions described in these publications were later summarized. Today they are known as Dow theory. This theory became fundamental for the modern technical analysis. Though Dow described the processes occurring at the securities market, his theory is applicable to the other financial markets.

Charles Dow paid a lot of attention to the well-known principles as directed character of the price changes, cyclical character of the market processes, the interrelation between the trading volume and exchange rates etc. The theory is based on 6 tenets

1. The market has three types of movements

    Dow confirms that trends can be subdivided into primary (long-term) trends, secondary (intermediate) trends and minor (short-term) trends. Each type of trend is in turn an upward or downward. The upward trend means that each high and low is higher than the previous one. In the downward trend each high and low is located lower than the previous one.

    The primary trend may last from less than a year to several years. The secondary trend serves as a correction and usually lasts for over 3 months. The minor trend is defined as lasting for less than three weeks reflecting the short-term market fluctuations.

    2. Market trend has three phases

      Phases of the long-term trend are: an accumulation phase, a public participation phase, and a distribution phase.

      During the first phase provident investors with significant capital make trade operations that appear to be against the general opinion of the market. The second phase begins when active and technically oriented traders take part. These traders are intended to follow the market trends. The phase is accompanied by the strengthening of the trend and price changes. Then begins the third phase: the public is fully involved in the market resulting in agiotage. Thanks to the experienced investors begins the new accumulation phase.

      3. The stock market averages must confirm each other

        According to Dow, the industrial and transportation averages must confirm the current trend and provide signals of its reversal with slight divergence in time.

        4. The market discounts everything

          Everyone knows the expression “the price accounts everything”. Charles Dow supposed that the market responds very quickly to any information. Any factor that can affect the demand or supply is immediately reflected in dynamics of price and averages.

          5. Trends are confirmed by volume

            moneyThe increase of the trading volume takes place when the prices are moving within the main trend. Otherwise the price changes do not reflect the real market opinion.

            6. Trends exist until definitive signals prove that they have ended

              A trend will be changed in any case, but if the signals of price changes are not clear, this fact can be considered as a signal of temporary corrective movement, but not as a sign of a trend reversal.

              Thus, it is evident that some part of these assumptions is applicable to the Forex market. The ideas of Charles Dow are relevant even now despite more than 100-years history and the fact that the modern analytical tools emerged.

              Added by Kristina Leshkevich,
              InstaForex Clients’ relationship manager

              25.01.2012 Post in Trading

              Forex is the international currency market. However, besides currencies there are other financial instruments traded on Forex. They are metals: gold, silver, platinum, etc.

              The international market includes different types of metal operations: spot, swap, and forward deals, operations with derivatives (futures, options). If we are talking about Forex, we mean spot market as assets are not delivered to the purchaser. Metal trading is conducted using trading or web platform, so it does not differ from trading other financial instruments. Prices on the spot market depend on demand and supply, and buyer possesses proprietary rights as soon as he buys an asset.

              goldsilverPrecious metals have dual character: they are both valuable industrial commodity and reliable investment instrument. Precious metals are considered by private and institutional investors to be instrument of speculation, hedging, and risk diversification.

              The largest centers of metal trading are London, New York, and Zurich. The gold price is daily influenced by the fixing – estimation of equilibrium price based on the current demand and supply.

              Compared to currencies, metals are also traded 24 hours a day, but one of the symbols in the pair is precious metal. Here are examples: XAU/USD for the gold/US dollar pair, XAG/USD for the silver/US dollar pair. Traditionally metal prices are quoted in the US dollars for troy ounce (31.1035 gram) and traded in lots. If the rate rises, it means that an ounce becomes more expensive and costs more US dollars. If the rate falls, the metal becomes cheaper against the US dollar.

              The first place by trading volume is taken by gold. It is the safe haven for investors to wait out an economic turmoil.

              The second place is taken by silver. It is cheaper but it can save its value. Sometimes silver price grows faster than the gold one.

              As metal trading technique has small difference from the currency one, it does not require separate strategy. Methods of fundamental analysis and various technical indicators can be applied to metal trading. However, price of any financial instrument has its own dynamics. Precious metal market also has its ups and downs: metal prices are interrelated with the economical and political factors as well as the major currency rates. For example, Eurozone debt crisis has influenced the gold price: the precious metal price declined amid the euro rate plunge down. The gold price and the US dollar prices have invert correlation: growing concerns about the reserve currency force the gold price to rise, and when the US dollar strengthens, the gold price moves down. High volatility on the currency market can cause sharp movements on the metal market.

              Nevertheless, investments in the precious metals are rather safe. During the crisis investors often choose gold or silver to keep their money safe.

              Added by Svetlana Degtyareva,
              InstaForex Clients’ relationship manager