An Introduction To Forex Money Management
Forex trading money management is one of the most imperative things you must learn before you really start up with live trades. The Forex money management principles discussed here would further teach you how to keep yourself away from the expensive mistakes many fresh forex traders make, frequently to the degree that they lose their full investment on the first few trades. Psychology is actually the most key factor to money management when it comes to forex trading. You have to be clever to separate yourself from any touching affection you might have got to your money. This is not extremely simple to do, but it works and it could be really done.First and foremost, you have to mull over leverage and risk. It is sensible that you by no means risk more than two percent of your account stability on any forex trade. However, some go beyond and permit for as much as ten percent, but in no way more than that. This gives you the capability to endure market fluctuations in forex, and if the trade goes poor, you yet have money to try again. You must never function under the hypothesis, which you would profit from each trade. You must as well plan for losses. Therefore, most forex traders would tell you that the most excellent thing to do is to keep your gains big and your losses less. Develop your forex trading strategy around this idea. Keep a proper track of your gains and losses. Keeping correct and detailed records of your forex account commotion would permit you to see whether or not the forex trading strategy is working, or if it requires being rebuilt. Never go blindly into trading without a means to keep follow of results. You would surely lose all of your money and never know why it happened.
Finally, it is extremely advisable that you first carry out a strategy on a forex demo account. Nearly all forex brokers provide a virtual demo account upon which you make trades in real-time, but with fantasy money, so nothing is risked. This is the most excellent way to test a strategy before you put your real money on the line.
By: Rajamuma
Article Directory: http://www.articledashboard.com
Uma is a Copywriter of Forex Currency Trading . She written many articles in various topics such as forex day trading,forex trading system. For more information : contact her at 1worldforex1@gmail.com
Friday, January 4, 2008
An Introduction To Forex Money Management
Day Trading Signals
Day Trading Signals
With the help of day trading signals, day traders sell all long positions and cover all short positions at the end of a working, trading day. In day trading, you usually finish the day with cash in hand, to avoid holding any risks. One of the benefits of day trading is that since the positions are closed at the end of the trading day, any sudden news of events doesn't affect the opening prices of trading.
In day trading, different shares are bound to undergo different resistance and support levels. As the name indicates, resistance is basically a price level of a stock or perhaps an average that finds it difficult to break through. The support is a price level where the stock or average tends to hold above. The day trading signals are the signals obtained when stocks bounce off of support levels or sometimes even off resistance, if required.
These day trading signals are created watching the moving averages of shares. These moving averages, have trend lines similar to moving averages. A day trading signal depends on the number of times a stock tends to hit a particular trend line. The more faith there is in the trend line, the better it acts as a support for you. The longer the stock stays at a particular level; the better is the day trading signal of support.
The Internet boasts of many websites having bulletins where day trading signals are broadcast the whole day through. With these continuous day trading signals, it makes it rather easy for the day trader to predict how the share market will move. So day trading signals play an integral part in making profits in the share market and in having an interesting day of trading.
Martin's Review of Easy-Forex
Martin's Review of Easy-Forex
With the emerging of Internet-based currency trading, more and more people become appealed and interested in this area. They are looking to explore the benefits of investing in foreign currency. They want to receive up-to-the-minute information on foreign currency exchange rates and interact with their invested fund first hand everywhere, anywhere.
Easy Forex has made the process of investing in foreign currency as simple as possible so that practically anyone can try their hand at it. You can easily fund your trading account since Easy Forex allows and encourages small investors to try their service as low as $25.
There are also tutorials to help you understand the trading process for those new to this form of investment. Forex people new to foreign exchange trading find this will be a good way to start. That's one reason why Easy Forex has quickly become one of the biggest players in the Internet-based currency trading market.
What is Easy Forex?
Easy Forex offers a proprietary trading platform providing 24/7 access to the Forex markets. The idea that stands behind Easy Forex is using the internet in order to give common traders the most advanced and competitive the ability to trade likes the "big dogs". They claimed that their revolutionary online trading platform is the first online Forex trading system that allows clients to deal Forex as a consumer product.
Easy Forex was founded by a group of bankers and Forex experts and offers Forex traders direct access to the global currency markets. The company opened its door for business in 1998.
The principals of Easy Forex are Ofer Komem (CEO), Zelig Shalgi (Active Director), Miki Ishai (COO), Joab Kirsch (CFO), Thomas Keane (Legal Advisor), Gadi Hadar (managing director of Asia Pacific), and Polyvios Polyviou (Internal Advisor).
Easy Forex is regulated by the Australian Securities & Investments Commission (AFS 246566) to provide worldwide financial services under the supervision of the EU financial commission through Cyprus. Their headquarters are located in Limassol, Cyprus. They also have international branches in Warsaw, Tel-Aviv, Switzerland, Sydney, Manila and they say that more are on the way.
Trading Platform
Unlike other players in the Internet-based currency trading market, Easy Forex didn't require you to download any annoying software as their online trading platform is web based. No matter what kind of operating systems you use, it is definitely no problem at all.
There are also Java charts supplied, with all the usual indicators, timescales, and drawing tools. These can be detached from the browser, letting you keep an eye on them at the same time as the trading screen itself. You can have up to four charts open at the same time, watching different currency pairs, or the same pair in different timeframes.
They also offer charts (Netdania software that has been modified--can see up to twelve tiled screen shots at a time), a daily "Forex Outlook" which consists of a market summary, economic data releases, upcoming economic releases and technical analysis. In addition, they offer currency rates, interest rates, financial calendar, and a Forex glossary at no additional cost.
Features
Easy Forex has managed to maintain its impressive position in the currency trading market by offering its customers the best options available. Web-based trading, no commission costs, live-real-time quotes and a stop loss guarantee are only a few of the things that Easy Forex presents to individuals looking to speculate on foreign currency. Easy Forex also offers the opportunity to invest in gold and silver in addition to foreign currency, further broadening its appeal to both seasoned and budding investors.
Basically, Easy Forex offers three different account types: (1) Mini account: $25 margin, 10 pip spread, (2) Gold account: $500 margin, 7 pip spread, and (3) Platinum account: $2500 margin, 5 pip spread via Internet, 3 pip spread via Dealing Room.
Easy Forex's products are day-trading, limit orders, forward, and optional. The day-trading zone allows a client to perform daily currency rate deals. The deals renew automatically, every night at 22:00 (GMT time), until the deal ends, and are charged with a daily rolling fee.
A limit order deal allows a client to reserve a day-trading deal, which is executed when and if the client's desired exchange rate exists in the market.
Easy Forex watches for the appearance of the client's pre-defined rate, during the period the client defined. If and when such a rate does appear in the market--a day-trading deal is reached.
According to their website, you will get the following unique features:
Select the account type that suits your trading style or create your own custom account.
Start trading immediately with a deposit as little as $25. Lowest margin ever.
Freeze rate option. You can freeze the rate you wish to buy/ sell as the market is changing.
No commissions and no bank charges on trading, depositing or withdrawing funds.
Possibly the highest leverage in the industry.
No download required - Unique web based platform. Including live streaming quotes.
Guaranteed stop-loss rate.
Special terms for frequent traders.
Easy Forex Pros
Simplicity and ease of use is the biggest advantage of Easy Forex. The sign up process at Easy Forex is indeed very quick; you just create an account, deposit some funds and then start trading as well as send off copies of your ID card to verify your identity. No need even, to provide any bank details.
The minimum deposit is only $25 while the minimum transaction size is 2,500. Easy Forex accepts deposits by credit card as well as American Express, wire transfers, and even PayPal. Add your credit card details to your account, and hey presto, you can send margin whenever you need it.
By not relying on computer software installed on your own computer, you may also simply login to your account from anywhere the Internet is available. Anyone who's had their fair share of setup problems and program glitches can appreciate this aspect of the service.
As they claim, you do not need to pay commissions for the deals you make. By using a competitive spread, the company eliminates the need for commissions by making its money through the spreads already figured into the currency rates. In the "day-trading" zone you may roll over your positions and then you pay a renewal fee.
Easy Forex doesn't collect Tax for any authority in and form or manner. The obligation to calculate and to pay taxes is the client's responsibility. Phone dealing is also available. After hour trading is available but the spread could be higher. Unfortunately all of these offers are not available to US residents.
Easy Forex Cons
Although of this sounds so great, caution should be advised. Making it easy to open and fund an account is a nice idea, and a welcome one. But on the other side, it makes it a little too easy to start losing money. Low deposits come without its drawbacks, as their spreads are high however frequent traders get narrower spreads.
Easy Forex also do not offer a free demo account arguing that with such a low minimum deposit they don't need to as free demo account doesn't always allow you to really practice your trades as you are never risking real money.
Another disadvantage of Easy Forex is that I thought the spread is too wide. Short or long positions any cross, it's the same: you pay rollover. They seem too much after your money for my liking.
When there are not enough funds in your account to pay for the rolling fee, your card is also charged with the minimum possible amount from a credit card which is $3. This happens when all the money in your account is used by you as margin in open position.
Note also that if you deposit cash using a credit card they also require photocopies of the front and back of your credit card. At the present, the website's only method of withdrawal is the wire transfer form.
Concluding Remarks
Easy Forex is indeed for those starting out; it represents probably the quickest, simplest route to start trading. I have rated the very impressive Easy Forex platform as one of my best Forex broker. The platform is incredibly easy to use so you will not waste time or money trying to figure out how to make your trades.
Remember, Forex trading can be very profitable if you invest wisely, however, it can also be a risky and daunting prospect. Make sure you choose the right platform so that you can start enjoying the life of luxury as a professional currency trader.
I hope you enjoy trading with Easy Forex and will start making money with Easy Forex. If you decide to give it a try, please take a look at this link.
About the Author
Martin Chandra has over years experience in marketing. Hooked on potential of the Internet since '97. Good at seeing the big picture with an eye to detail.
Forex Charts Use This Combination And Watch Your Profits Soar
Forex Charts Use This Combination And Watch Your Profits Soar
If you are using technical analysis and forex Charts, then using the simple combination below, will help you catch the really big trends that yield the big profits and make your profits soar. Let s look at this combination on Forex charts and how to turn it into profit. We are going to look at a 3 step process that anyone can incorporate in their forex strategy that can make it more successful. 1. The weekly trend Very few forex traders look at the weekly charts, but the weekly chart shows you the longer term trends and effectively separates out the wood from the trees , so you can see the important trends. When looking at the weekly chart you simply need to look for valid support and resistance. By valid we mean areas of support that are considered important by the market and have been tested several times in different time frames.2. The daily chart Look for the points above, to be in synch with the daily chart, so the same important price levels are lining up on both charts.Note: If you have support and resistance that is valid then chances are there are stops behind these levels and trend following systems waiting to kick in if these levels are broken, so the break will continue and a new trend develop.When these breaks occur they tend to move quickly and they don t retrace much, so you need to be prepared to buy the break and miss the first part of the move. Don t try and anticipate and get in anyway this won t work!A breakout is only valid after it occurs and if a level has been tested then of course it can hold as well, so you need to trade on confirmation only.3. Getting confirmationThe way to see if a break is going to continue or reverse is to look at price momentum. There are lots of momentum indicators to look at but two that work well in combination are the Relative Strength Index RSI and the stochastic. Watch for a rising RSI and for the stochastic lines to pointing in the direction of the break if they have crossed with bullish or bearish divergence just before, all the better. If you don t know how to use these indicators they are an essential part of your forex education! There easy to learn and apply, so check our other articles. The biggest profits from the really big movesIf you follow the above tips you will tap into the really big profits from the big moves they don t occur often just a few times a year, but these are the trends that yield the biggest profits and the lowest risk. Most traders don t do this and most traders don t win!Most traders hate buying breakouts, as they think they have missed the first part of the move and want to wait for the pullback to get a better price but on valid breaks prices move quickly and you need to be inas prices wont come back quickly and you will never get a better price.If you can buy or sell breakouts, keep in mind they normally pile up bigprofits so the fact you have missed a little bit of the intial move is fine there is plenty more to come and of course it is missing this bit that gives you the odds in your favor. Watch your profits soarThe majority of currency traders can t psychologically buy or sell breakouts, but the majority don t win so dont let that worry you - join the winning elite who can and do make huge profits.
If you incorporate the above in your forex trading, it can lead you to currency trading success and really help your profits soar.
By: kelly Price
Article Directory: http://www.articledashboard.com
GRAB 3 X FREE TRADER & FREE TRADER PROFITS NEWSLETTER On all aspects of becoming a profitable trader including features, downloads and some critical FREE Trader PDF's and more FREE Forex Education visit our website at www.net-planet.org/index.html
Forex Trading - 10 Essential Tips You Must Do And 10 Errors To Avoid
Forex Trading - 10 Essential Tips You Must Do And 10 Errors To Avoid
Here are ten things you must do and 10 things to avoid when formulating and executing your forex trading strategy. If you want to be successful at forex trading then read and understand the points below there essential to achieve currency trading success1. Don t day trade It doesn t work! All short term volatility is random so you have no chance of winning longer term. 2. Don t buy a Currency trading system with..A hypothetical track record. These are done in hindsight knowing the closing prices so avoid them. In forex trading its more difficult, you have to make money going forward! 3. Don t trade off news stories News is discounted by the markets instantly and is impossible to trade so don t try. 4. Don t mix fundamentals and technical There separate, you are either a technical or fundamental trader - you can t combine both. 5. Don t use scientific theories The king of these is Elliot wave and it doesn t work. It s supposed to be objective but everything about it requires subjective judgement. If markets moved to a scientific theory we would all know the prices in advance and there would be no market! 6. Be Objective Use objective criteria to execute trading signals. Avoid subjective theories (like Elliot wave mentioned above) or cycles, these are subjective and mean your emotions can get involved7. Don t chase your tail Gets a currency trading system you are confident in and stick with it. Don t chop and change it!8. Don t forget to place stops immediately Always place it as soon as you have entered a trade. Never use a mental stop or you will be tempted to run losses. 9. Don t have an ego Many traders like to see that market as they want to and not as they really are. Leave you ego behind and accept the market price is the RIGHT price.10. Don t work to hard Many forex traders think the more they put in the more they will get out. While this is true in many professions, it is not true in the forex markets you only get rewarded for being right.Successful forex trading is all about working smart not hard. Now ten things you must do: 1. Get a simple system you understand Simple systems work best and you only need a few rules or indicators in it. Don t complicate it, the more rules and the more parameters, the more likely it is to break or lose in trading.2. Make sure you have confidence & discipline Develop it yourself and you will get confidence that leads to discipline. If you try and follow someone else s system you will lack both and fail. 3. Use a technical approach Takes less time and also takes into account human psychology which moves all forex prices. 4. Be patient Only execute your trading system in line with your trading signals and don t be tempted to chase profits. 5. Always look for confirmation Never hope a support or resistance level will hold, get the odds on your side by using momentum indicators to confirm first, this will dramatically increase the odds of success. 6. Ignore others Trade in isolation and ignore others. Don t discuss what you are doing, this will keep your emotions out of your trading. 7. Have goals & a plan Have a realistic plan and profit goals. Sure people get rich overnight but their a minority! If you can make 50 100% per annum your up there with the best traders. 8. Take risks Forget restricting risk to much, when you see an opportunity go for it and take calculated risks this is not being rash, it s the reality of trading FX. 9. Know your edge If you don t know your edge i.e. why you should win at forex trading while 95% lose you don t have one so you will be joining them! Get the right forex education and know your edge before you begin. 10. Enjoy what you doIf you sweat about positions, feel edgy, or worry about trading it s not for you. You should view trading as enjoyable and a challenge, if you don t forget it and do something else. We have expanded on all the points in our other articles so check them out.
Keep in mind forex trading is not easy very few win and most lose. The good news is, if you understand and apply the above, you could soon be making big forex profits.
By: Monica Hendrix
Article Directory: http://www.articledashboard.com
GRAB 3 X FREE TRADER & FREE TRADER PROFITS NEWSLETTER On all aspects of becoming a profitable trader including features, downloads and some critical FREE Trader PDF's and more FREE Forex Education visit our website at www.net-planet.org/index.html
An Introduction To Forex Money Management
An Introduction To Forex Money Management
Forex trading money management is one of the most imperative things you must learn before you really start up with live trades. The Forex money management principles discussed here would further teach you how to keep yourself away from the expensive mistakes many fresh forex traders make, frequently to the degree that they lose their full investment on the first few trades. Psychology is actually the most key factor to money management when it comes to forex trading. You have to be clever to separate yourself from any touching affection you might have got to your money. This is not extremely simple to do, but it works and it could be really done.First and foremost, you have to mull over leverage and risk. It is sensible that you by no means risk more than two percent of your account stability on any forex trade. However, some go beyond and permit for as much as ten percent, but in no way more than that. This gives you the capability to endure market fluctuations in forex, and if the trade goes poor, you yet have money to try again. You must never function under the hypothesis, which you would profit from each trade. You must as well plan for losses. Therefore, most forex traders would tell you that the most excellent thing to do is to keep your gains big and your losses less. Develop your forex trading strategy around this idea.
Keep a proper track of your gains and losses. Keeping correct and detailed records of your forex account commotion would permit you to see whether or not the forex trading strategy is working, or if it requires being rebuilt. Never go blindly into trading without a means to keep follow of results. You would surely lose all of your money and never know why it happened.
Finally, it is extremely advisable that you first carry out a strategy on a forex demo account. Nearly all forex brokers provide a virtual demo account upon which you make trades in real-time, but with fantasy money, so nothing is risked. This is the most excellent way to test a strategy before you put your real money on the line.
By: Rajamuma
Article Directory: http://www.articledashboard.com
Uma is a Copywriter of Forex Currency Trading . She written many articles in various topics such as forex day trading,forex trading system. For more information : contact her at 1worldforex1@gmail.com
Currency ETFs Simplify Forex Trades
Investing in any market can be volatile. Minimizing risk while retaining upside potential is paramount for most investors - that's why an increasing number of traders and investors are diversifying and hedging with currencies. Different currencies benefit from some of the same things that may hurt stock indexes, bonds or commodities and can be a great way to diversify a portfolio. However, digging into currencies as a trader or investor can be daunting.
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New currency exchange-traded funds (ETFs) make it simpler to understand the forex market (the largest, most liquid market on the planet), and use it to diversify risk. Now, you can have General Electric (NYSE:GE) and the British pound in your portfolio by holding the CurrencyShares British Pound ETF (PSE:FXB) in the same account. Have an IRA? Sprinkle some euros in there by holding the CurrencyShares Euro ETF (PSE:FXE), and offset some downside risk of your S&P 500 holdings. Read on to learn more about this unique way of using currencies to diversify your holdings. (For more on ETFs, see Introduction To Exchange-Traded Funds and Advantages Of Exchange-Traded Funds.)Hedging Against RiskEvery investor is exposed to two types of risk: idiosyncratic risk and systemic risk. Idiosyncratic risk is the risk that an individual stock's price will fall, causing you to accumulate massive losses on that stock. Rooting this kind of risk out of your portfolio is quite simple. All you have to do is diversify your account across a broad range of stocks or stock-based ETFs, thus reducing your exposure to a particular stock. (To learn more, read The Importance Of Diversification and Do You Understand Investment Risk?)However, diversifying across a broad range of stocks only addresses idiosyncratic risk. You still have to face your account's systemic risk. Systemic risk is the exposure you have to the entire stock market falling, causing you to accumulate losses across your entire diversified portfolio. Minimizing the exposure of your portfolio to a bear market used to be difficult. You had to open a futures account or a forex account and try to manage both it and your stock accounts at the same time. While opening a forex account and trading it can be extremely profitable if you apply yourself, many investors aren't ready to take that step. Instead, they decide to leave all of their eggs in their stock market basket and hope the bulls win. Don't let that be you. (Want to give currencies a shot? Read Wading Into The Currency Market.)Currency ETFs are opening doors for investors to diversify. You can now easily mitigate systematic risk in your account and take advantage of large macroeconomic trends around the world by putting your money not only into the stock market but also in the forex market through these funds. (For more see, A Beginner's Guide To Hedging.)How Currency ETFs WorkETF management firms buy and hold currencies in a fund. They then sell shares of that fund to the public. You can buy and sell ETF shares just like you buy and sell stock shares. Investors value the shares of the ETF at 100 times the current exchange rate for the currency being held. For example, let's assume that the CurrencyShares Euro Trust (PSE:FXE) is currently priced at $136.80 per share because the underlying exchange rate for the euro versus the U.S. dollar (EUR/USD) is 1.3680 (1.3680 × 100 = $136.80).You can use ETFs to profit from the exchange rate of the dollar versus the euro, the British pound, the Canadian dollar, the Japanese yen, the Swiss franc, the Australian dollar and a few other major currencies. (For more on this market, see Common Questions About Currency Trading.)What makes currencies move?Unlike the stock market, which has a long-term propensity to rise in value, currencies will often channel in the very long term. Stocks are driven by economic and business growth and tend to trend. Conversely, inflation and issues around monetary policy may prevent a currency from growing in value indefinitely. Currency pairs may trend as well, and there are simple factors that influence their value and movement. These factors include interest rates, stock market yields, economic growth and government policy. Most of these can be forecasted and used to guide traders as they hedge risk in the rest of the market and make profits in the forex. Economic Factors and Currency TrendsHere are two examples of economic factors and the currency trends they inspire.Oil and the Canadian DollarEach currency represents an individual economy. If an economy is a commodity producer and exporter, commodity prices will drive currency values. There are three major currencies that are known as "commodity" currencies that exhibit very strong correlations with oil, gold and other raw materials. The Canadian dollar (CAD) is one of these. (For more on how this works, read Commodity Prices And Currency Movements.)One ETF that can be traded to profit from the moves in the CAD/USD pair is CurrencyShares Canadian (PSE:FXC). Because the Canadian dollar is on the base side of this currency pair, it will pull the ETF up when oil prices are rising and it will fall when oil prices are declining. Of course, there are other factors at play in that currency's value but energy prices are a major influence, and can be surprisingly predictive of the trend.This is especially useful for stock traders because of the effect that higher energy prices can have on stock values. Additionally, it provides another way for stock traders to speculate on rising commodity prices without having to venture into the futures market. (For on this topic, check out Currency Moves Highlight Equity Opportunities.) In Figures 1 and 2, you can see 18 months of prices for the Canadian dollar compared to oil prices over the same period.
Figure 1: Crude oil (continuous)
Source: MetaStock Pro FX
Figure 2: Canadian dollar
Source: MetaStock Pro FXAs you can see, there is a strong positive correlation between these two markets. This is helpful as a hedge against stock volatility as well as the real day-to-day costs of higher energy prices. Short-term traders may look for a breakout in oil prices that is not reflected in the value of the Canadian dollar immediately. When these imbalances occur, there is opportunity to take advantage of the move the market will make as it "catches up" with oil. Long-term traders can use this as a way to diversify their holdings and speculate on rising energy prices. It is also possible to short the ETF to take advantage of falling oil prices.Interest Rates and the Swiss FrancThere are several forex relationships that are impacted by interest rates, but a dramatic correlation exists between bond yields and the Swiss franc. One ETF that can be used to profit from the Swiss franc, or "Swissie", is the CurrencyShares Swiss Franc Trust (PSE:FXF). The currency pair is notated as CHF/USD. When the Swissie is rising in value, the ETF rises as well, as it costs more U.S. dollars to buy a Swiss franc.
FREE REPORT: The Five Things That Move the Currency Market
Year after year, key players in the Forex market make a killing by picking the right currencies – now it’s your turn. Access industry gurus Boris and Kathy’s exclusive FREE report, The Five Things That Move the Currency Market – And How to Profit From Them, right now! The correlation described here involves the 10-year bond yield. You will notice in Figures 3 and 4 that when bond yields are rising, the Swissie falls, and vice versa. Depending on interest rates, the value of the Swissie will frequently rise and fall with bond yields.
Figure 3: 10-Year Bond Yields (TNX)
Source: MetaStock Pro FX
Figure 4: Swiss franc
Source: MetaStock Pro FXThis relationship is useful not only as a way to find new trading opportunities but as a hedge against falling stock prices. The stock market has a positive correlation with bond yields; therefore, if yields are falling, the stock market should be falling as well. A savvy investor who is long the Swissie ETF can offset some of those losses. ConclusionCurrency ETFs have opened the forex market to investors focused on stocks. They adds an additional layer of diversification and can also be used effectively by shorter term traders for quick profits. There are even options available for most of these ETFs.
by John Jagerson (Email Biography)John Jagerson has worked in the capital markets and private equity for most of his career, including investing, writing and money-management. He currently manages a registered CTA and contributes to www.pfxglobal.com, the companion site to the book Profiting With Forex by John Jagerson and S. Wade Hansen.
Get To Know The Major Central Banks
The one factor that is sure to move the currency markets is interest rates. Interest rates give international investors a reason to shift money from one country to another in search of the highest and safest yields. For years now, growing interest rate spreads between countries have been the main focus of professional investors, but what most individual traders do not know is that the absolute value of interest rates is not what's important - what really matters are the expectations of where interest rates are headed in the future. Familiarizing yourself with what makes the central banks tick will give you a leg up when it comes to predicting their next moves, as well as the future direction of a given currency pair. In this article, we look at the structure and primary focus of each of the major central banks, and give you the scoop on the major players within these banks. We also explain how to combine the relative monetary policies of each central bank to predict where the interest rate spread between a currency pair is headed.ExamplesTake the performance of the NZD/JPY currency pair between 2002 and 2005, for example. During that time, the central bank of New Zealand increased interest rates from 4.75% to 7.25%. Japan, on the other hand, kept its interest rates at 0%, which meant that the interest rate spread between the New Zealand dollar and the Japanese yen widened a full 250 basis points. This contributed to the NZD/JPY's 58% rally during the same period.
Figure 1On the flip side, we see that throughout 2005, the British pound fell more than 8% against the U.S. dollar. Even though the United Kingdom had higher interest rates than the United States throughout those 12 months, the pound suffered as the interest rate spread narrowed from 250 basis points in the pound's favor to a premium of a mere 25 basis points. This confirms that it is the future direction of interest rates that matters most, not which country has a higher interest rate.
Figure 2The Eight Major Central BanksU.S. Federal Reserve System (The Fed)Structure - The Federal Reserve is probably the most influential central bank in the world. With the U.S. dollar being on the other side of approximately 90% of all currency transactions, the Fed's sway has a sweeping effect on the valuation of many currencies. The group within the Fed that decides on interest rates is the Federal Open Market Committee (FOMC), which consists of seven governors of the Federal Reserve Board plus five presidents of the 12 district reserve banks. Mandate - Long-term price stability and sustainable growthFrequency of Meeting - Eight times a yearKey Policy Official - Ben Bernanke, Chairman of the Federal Reserve. Following former chairman Alan Greenspan's retirement in January 2006, U.S. President George W. Bush tapped Bernanke to head the Federal Reserve, given his four years of experience on the Fed board of governors. His views differ from Greenspan's in that he believes in inflation targeting and printing money to avoid deflation. The historic change of power at the U.S. central bank marks the first time in two decades that an academic, who may focus more on mathematical and econometric models, is chairing the Fed.European Central Bank (ECB)Structure - The European Central Bank was established in 1999. The governing council of the ECB is the group that decides on changes to monetary policy. The council consists of the six members of the executive board of the ECB, plus the governors of all the national central banks from the 12 euro area countries. As a central bank, the ECB does not like surprises. Therefore, whenever it plans on making a change to interest rates, it will generally give the market ample notice by warning of an impending move through comments to the press. Mandate - Price stability and sustainable growth. However, unlike the Fed, the ECB strives to maintain the annual growth in consumer prices below 2%. As an export dependent economy, the ECB also has a vested interest in preventing against excess strength in its currency because this poses a risk to its export market.Frequency of Meeting - Bi-weekly, but policy decisions are generally only made at meetings where there is an accompanying press conference, and those happen 11 times a year.Key Policy Official - Jean-Claude Trichet, president of the European Central Bank. Prior to succeeding Wim Duisenberg as ECB president in November 2003, Trichet was the president of Bank of France. He has a reputation for being a cautious and forthright banker, though many criticize his slow response to European economic stagnation and high unemployment. Typically seen as a hawk with a bias toward making preemptive moves to ward off inflation, Trichet has the huge responsibility of managing the monetary policy of 12 nations. Bank of England (BoE)Structure - The monetary policy committee of the Bank of England is a nine-member committee consisting of a governor, two deputy governors, two executive directors and four outside experts. The BoE, under the leadership of Mervyn King, is frequently touted as one of the most effective central banks.Mandate - To maintain monetary and financial stability. The BoE's monetary policy mandate is to keep prices stable and to maintain confidence in the currency. To accomplish this, the central bank has an inflation target of 2%. If prices breach that level, the central bank will look to curb inflation, while a level far below 2% will prompt the central bank to take measures to boost inflation.Frequency of Meeting - Monthly Key Policy Official - Mervyn A. King, governor of the Bank of England. Prior to assuming the role of BoE governor on June 30, 2003, King was a professor at the London School of Economics. Initially joining the BoE in 1990, he became an executive director and chief economist in March 1991 and was promoted to deputy governor in 1997. King's "Goldilocks" monetary policy, which is neither too restrictive nor too accommodative, has propelled the U.K.'s economy into its longest streak of uninterrupted growth in 200 years.Bank of Japan (BoJ)Structure - The Bank of Japan's monetary policy committee consists of the BoJ governor, two deputy governors and six other members. Because Japan is very dependent on exports, the BoJ has an even more active interest than the ECB does in preventing an excessively strong currency. The central bank has been known to come into the open market to artificially weaken its currency by selling it against U.S. dollars and euros. The BoJ is also extremely vocal when it feels concerned about excess currency volatility and strength.Mandate - To maintain price stability and to ensure stability of the financial system, which makes inflation the central bank's top focus.Frequency of Meeting - Once or twice a monthKey Policy Official - Toshihiko Fukui, governor of Bank of Japan. A lifelong bureaucrat, Fukui joined the bank of Japan in 1958 and held various posts before succeeding Masaru Hayami as governor on March 19, 2003. Although Fukui has a reputation for being conservative, he has implemented new policies geared toward greater transparency, such as publishing BoJ economic outlooks and detailed minutes of policy meetings. On March 9, 2006, he ended the five-year-old ultra-loose monetary policy and prepared for a return to conventional rate targeting.Swiss National Bank (SNB)Structure - The Swiss National Bank has a three-person committee that makes decisions on interest rates. Unlike most other central banks, the SNB determines the interest rate band rather than a specific target rate. Like Japan and the euro zone, Switzerland is also very export dependent, which means that the SNB also does not have an interest in seeing its currency become too strong. Therefore, its general bias is to be more conservative with rate hikes. Mandate - To ensure price stability while taking the economic situation into account Frequency of Meeting - QuarterlyKey Policy Official - Jean-Pierre Roth, chairman of the Swiss National Bank. Roth has spent most of his professional career at the SNB, starting in 1979; he assumed the role of chairman of the governing board in 2001. Roth is also a member of the board of directors of the Bank for International Settlements and is governor of the International Monetary Fund for Switzerland. Bank of Canada (BoC)Structure - Monetary policy decisions within the Bank of Canada are made by a consensus vote by Governing Council, which consists of the Bank of Canada governor, the senior deputy governor and four deputy governors.Mandate - Maintaining the integrity and value of the currency. The central bank has an inflation target of 1-3%, and it has done a good job of keeping inflation within that band since 1998.Frequency of Meeting - Eight times a yearKey Policy Official - David Dodge, governor of the Bank of Canada. Princeton-educated Dodge held various public offices and taught at a few universities throughout the U.S. and Canada before taking office as the central bank governor in 2001. He is known for being frank and open about his beliefs, and has also been credited for carefully balancing inflation with currency appreciation. Mark Carney is set to replace Dodge in February 2008.Reserve Bank of Australia (RBA)Structure - The Reserve Bank of Australia's monetary policy committee consists of the central bank governor, the deputy governor, the secretary to the treasurer and six independent members appointed by the government.Mandate - To ensure stability of currency, maintenance of full employment and economic prosperity and welfare of the people of Australia. The central bank has an inflation target of 2-3% per year.Frequency of Meeting - Eleven times a year, usually on the first Tuesday of each month (with the exception of January)Key Policy Official - Glenn Stevens, governor of the Reserve Bank of Australia. Stevens has been with the RBA since 1980. Prior to succeeding Ian Macfarlane, Stevens held a variety of positions at the RBA, from head of the Economic Analysis Department to deputy governor in December 2001. As with his predecessor, he is expected to keep a close eye on inflation, which is expected to be a challenge as the Australian economy continues to boom.Reserve Bank of New Zealand (RBNZ)Structure - Unlike other central banks, decision-making power on monetary policy ultimately rests with the central bank governor.Mandate - To maintain price stability and to avoid instability in output, interest rates and exchange rates. The RBNZ has an inflation target of 1.5%. It focuses hard on this target, because failure to meet it could result in the dismissal of the governor of the RBNZ.Frequency of Meeting - Eight times a yearKey Policy Official - Alan Bollard, governor of the Reserve Bank of New Zealand. Before his appointment as governor of the RBNZ in September 2002, Bollard served as secretary of the treasury, chairman of the NZ Commerce Commission and director of the NZ Institute of Economic Research. Known as a strong inflation hawk with extensive economic training, Bollard has condemned large current account deficits and raised New Zealand interest rates to a high level of 8.25%. (For further reading, see Current Account Deficits and Understanding The Current Account In The Balance Of Payments.)
FREE REPORT: The Five Things That Move the Currency Market
Year after year, key players in the Forex market make a killing by picking the right currencies – now it’s your turn. Access industry gurus Boris and Kathy’s exclusive FREE report, The Five Things That Move the Currency Market – And How to Profit From Them, right now! Putting It All TogetherNow that you know a little more about the structure, mandate and power players behind each of the major central banks, you are on your way to being able to better predict the moves these central banks may make. For many central banks, the inflation target is key. If inflation, which is generally measured by the consumer price index, is above the central bank's target, then you know that it will have a bias toward tighter monetary policy. By the same token, if inflation is far below the target, the central bank will be looking to loosen monetary policy. Combining the relative monetary policies of two central banks is a solid way to predict where a currency pair may be headed. If one central bank is raising interest rates while another is sticking to the status quo, the currency pair is expected to move in the direction of the interest rate spread (barring any unforeseen circumstances). A perfect example is EUR/GBP in 2006. The euro broke out of its traditional range-trading mode to accelerate against the British pound. With consumer prices above the European Central Bank's 2% target, the ECB was clearly looking to raise rates a few more times. The Bank of England, on the other hand, had inflation slightly below its own target and its economy was just beginning to show signs of recovery, preventing it from making any changes to interest rates. In fact, throughout the first three months of 2006, the BoE was leaning more toward lowering interest rates than raising them. This led to a 200-pip rally in EUR/GBP, which is pretty big for a currency pair that rarely moves.
Figure 3Curious to learn more about central banks and monetary policy? Check out What Are Central Banks?, Formulating Monetary Policy and the Federal Reserve Tutorial.
by Kathy Lien, Chief Strategist, FXCM Access Investopedia's FREE Forex Report - The 5 Things That Move The Currency Market (Email Biography)Kathy Lien is Chief Strategist at the world's largest retail forex market maker, Forex Capital Markets in New York. Her book "Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Swings" (2005, Wiley), written for both the novice and expert, has won much acclaim. Easy to read and easy to apply, this book shows traders how to enter the currency market with confidence - and create long-term success! Kathy has taught currency trading seminars across the U.S. and has also written for CBS MarketWatch, Active Trader, Futures Magazine and SFO Magazine. Follow her blog at www.kathylien.com
Euro Economic News Release Trading Strategies
The Euro responds very well to US economic news releases. There is at least one US news release each week when the market moves very fast and is an excellent (although stressful) way to make some quick big pips. One way to capture these large moves is to use ENTRY STOP ORDERS. Entry stop orders are an excellent way to get into a trade long or short AUTOMATICALLY. Often if the market is moving extremely fast (due to an economic news release or geopolitical event) and you want to get into a trade, it is extremely difficult to get the price you click (live market order) because the exchange rate is moving up or down so fast. It is like trying to jump on a train that is moving at full speed. An entry stop buy or sell order places an order with the dealing desk of your Forex clearing house to execute your order when the exchange rate touches the level you set the order at. The only time I wouldn't set an entry order would be on a Friday afternoon before the market closes for the weekend. When it re-opens on Sunday evening, the price may gap open and miss your entry order. Nevertheless, we don't recommend holding a trade open over the weekend anyway....too much can happen on a world level that can affect the price when the market re-opens....and not always in your favor!The following Yahoo page outlines the economic news releases for the week. I find it very helpful because it rates every release in terms of importance on a grading scale of A-D. A denotes very important down to D with little significance to the markets. It even lists what the market expects to happen with the briefing.com forecast. I take the time on the weekend to make a note of the day and hour of the major US news releases scheduled for the next week. 1. Check the biz.yahoo.com/c/e/html economic Calendar 2. Set your entry stop buy or sell at a key level 15-30 minutes before the announcement is released. Set your stop and limit on your order by right clicking the order when it appears on your VT platform. 3. You can also "straddle" the price movement by placing a long and short entry stop or sell order (and subsequent stops) if you aren't sure which direction the news release will send the price. In actuality, "straddling" a trade is the most risk-free and stress-free way of trading the news. You have to practice it in a demo account to get good at it because very quickly, you'll be closing out the losing leg.Another trading technique would be to simply wait 5 or 10 minutes before putting on a trade after a major news release. Wait for the smoke to clear and the way to see the direction. The volatility will move the market for 30 minutes to a few hours in one direction. Put on your trade in a fast 5 min chart but then switch to a 15 minute chart to stay in the trend longer without prematurely exiting. An easy way to trade is to only trade the major US news releases....the rest of the trading week can pretty dull, in comparison!Remember, under all trade circumstances, trade with a stop. And keep moving it in your trade direction by about 15 pips at a time, to lock in ever-increasing pip profits! This stop trailing technique is taught in our Advanced forex course.The above report was taken from the Euro Fractal Trading system, written by Erol Bortucene of the Day Trade Forex Team. This unique approach to day trading the EUR/USD involves using financial Fractals and no other technical indicators, as outlined in the Euro Fractal Trading System. Byline: Erol Bortucene and Cynthia Macy are co-authors of 'The Day Trade Forex System: The Ultimate Step-By-Step Guide To Online Currency Trading'.
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Cynthia Macy is a trader with 12 years experience trading stock options and forex. She has co-authored 3 popular forex training ebooks. Day Trade Forex Trading Systemswww.1000tradingwords.com/
Forex Currency Trading Made Easy!
Forex is a stock market that is based on the trade of Liquid currencies. Liquid currencies are the currencies of countries which have the stability to back up their currency with commodities such as gold and silver. Forex currency trading has become the working man’s stock choice because you are able to trade at your convenience 24 hours a day.Forex currency trading has become popular because it is backed by the world’s leading financial institution and you are playing the stock market based on cash and not just supply and demand, your placing your money in the market hoping the exchange rate you are buying into will come out in the end with the most profit. For example If you are placing your money being USD into the forex currency trading market and your currency of choice for the trade gains backing and increases in exchange rate, you make profit.Forex currency trading is effected by many different variables which change day to day. Some of these variables include economic and political conditions in each respective country offering their currency on the Forex market. If the economy takes a hit on any given day, you can be sure you will see a drop in the currency exchange rate and you will experience a greater loss. During war, if a specific country is at war with another country you can also guarantee there may be a greater loss due to the fluctuation of the exchange rate of the currency being traded.If a country sees an increase in economical gain, such as the opening of new trade routes or new commodities being traded internationally, then you would expect that the cost of the currency exchange for their currency would increase, making their currency worth more than the previous day. In turn, inflation in the currency exchange rate would prove profitable if the trader sold their shares high. As they say in the stock markets you want to buy low and sell high. If conditions become poor in a country whose currency is traded in the forex market then you may risk losing money. This is why forex currency trading has become a widely popular practice.Because of the ever-changing world we live in most people who participate in forex currency trading are doing so on a short trading timeline. Because of things that may happen with any one particular economy on any given day and even people believing some rumors about a countries prosper or demise, it is most common for forex currency trading participants to sell their shares in a more quick manner than they would do so in a standard stock market situation.If you place your money in the forex currency trading on the Japanese Yen, and then you hear that Japan just launched a new brand of electronics that will be popular all over the globe, or if you hear of 2 Japanese electronics companies completing a merger to provide consumers with a better product, you would assume by the rumor mill that the exchange rate of the Yen will be set to increase, and you will want to hold your place in that market, only to find out the exact opposite. For example, a automotive plant has decided to shut down production and lay off many of their employees, which would cause the exchange rate of the Yen to drop. Since you decided to hold on a rumor, and the opposite occurred, you would lose more money instead of reducing your risk by selling based on major trend and fact instead of rumor.
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Sandra Stammberger is the editor ofCouk9. An online firectory focusing on finance, forex.
Forex Trading an Overlooked But Very Lucrative Market
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To get more information about the opportunities of forex trading please visit www.ultimateforextrading.com
Forex Day Trading Versus Position Trading - The Pros and Cons
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Erol Bortucene and Cynthia Macy are co-authors of The Day Trade Forex System: The Ultimate Step-By-Step Guide To Online Currency Trading: The Day Trade Forex Trading Systems
Unbreakable Forex Trading Rules Guaranteed To Increase Profits
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A Look Back At Forex Trading
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Eddie has trained traders for 10 years. His Forex trading course, or Forex seminar, is the only Forex trading education you need.
Forex: Online Trading Safety: Why Some Trading Experts Risk Their Own Money When Teaching This Impor
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Who Else Wants To Learn A Simple, Step-By-Step System For Generating Quick & Easy Profits, Trading Forex? - FREE FOR A LIMITED TIME - www.forexcurrencytradingsystems.com/index.php
A Look Back At Forex Trading
Although hindsight is 20/20, there’s still a lot to be learned by looking back at Forex trading. This article was written at around midnight, March 24, 2006. By the time you read this the trading activity which we’re discussing will have already taken place.For those of you not familiar with article submission, it takes several days for your article to be published. None of the information that you are reading has been written after the fact.OK, now that that's out of the way let’s get to trading.We are firmly in a downtrend from 1.7593, and longer term from 1.7933. We have been breaking through support all week, and until we get signs or indications otherwise, the market should continue it's downward move. The next area of support is minor around the 1.7280 swing low, followed by the cluster around 1.7230 and more around 1.7147 heading down towards a complete retracements of the 1.7048 to 1.7933 move @ 1.7048. This current move could certainly continue even beyond the 1.7048 level and become a continuation of the overall down trend from 1.9549. We have further confirmation via Technical indicators. The Daily MACD has joined the 4-hour MACD in crossing to the sell side of the signal line, with what appears to be a significant crossing angle.Our resistance levels were just a little off last night, which is not to say they were bad, but we have gotten spoiled, hitting our entry levels every night this week within a couple of pips.The first area of resistance, many of our traders’ uses for a possible entry was around 1.7460 last night. The market went as high as 1.7449. When you look at the fact that a majority of our traders use about a 10 pip cushion, we were right there. Currently, we are trading around the 1.7345 level. It appears the down move is fully in place, and should continue towards the previous lows at 1.7280. If this should not hold, and we have no indication it should, we would be looking towards the next cluster of support at 1.7230 and 1.7048. If a bounce back up should occur, it would be testing the resistance cluster around 1.7600. Due to the lack of volatility, this is a very tough market to make money in. Even with these conditions, however, if you adhere to your risk vs. reward and money management rules, and you follow what he charts are telling you as far as trend direction and support and resistance, you can be very successful.Remember, taking no trade while waiting for your perfect entry is much better than taking a bad trade.Finding good support and resistance levels could be done in as little as 30 minutes per day, once you have become comfortable we’ve whatever indicators and analysis you use The easiest way to attain the knowledge necessary to find an exploit these trading levels is through an elite Forex trading course. There is no better way to reach the goals have set out in your Forex trading career that began with the quality Forex trading education.
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Eddie has trained traders for 10 years. His Forex trading course, or Forex seminar, is the only Forex trading education you need