Posts Tagged ‘forex’

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