Forex Training Center

This Site Is For Sale

Forex Training - A Crash Course For Beginners!
Success rates in forex currency market have been recorded to as low as 5% This figure has been solely regarded to one major reason and that is the inability of traders to have the appropriate advanced knowledge to come up with a favorable outcome

Forex Training - Which One Of These Should You Choose?
Forex training, well there's much to choose from - how do you know what's good and where do you start Do you surf the net for hours - if so, who do you trust

Forex Training Courses - Do You Want to Be a Successful Forex Trader?
Coaching and training is critical in order to succeed at anything you do, especially Forex trading It establishes focus and self-discipline as well as helping you eradicate bad habits and improve your trading skills

Forex Trading Education: Preparing Yourself For Profit and Risks Involved
Many Americans or even other foreign nationalities are interested in getting involved on Forex trading Who on Earth will decline to the wealth offered by the Forex market, which is the largest market around the worldýa whooping $2 trillion U

Forex Artificial Intelligence, Free Forex Training and 100% Accurate Currency Trading Signals
I recall very visibly when I first launched my inquiries for free Forex training on the internet and I got so excited when I went concluded the online learning modules because I was actually learning information that was justifiably going to generate me some money on the internet without having to call people and hustle some meaningless products and services

AVAFX

 

 

Forex Training Center

Your Source for Quality Forex Trading Education

 

The Forex Training Center provides prospective currency traders with information and links to 

quality Forex trading education sites, free ebooks, Forex articles, Forex books and hints on 

selecting a reputable broker.  Adequate Forex training is essential to a currency trader's 

success.

 

 

Learn Forex Trading

If you're looking for a career change that gives you independence and unlimited earning potential, or just 

wish to supplement your current income, then becoming a currency trader on the Foreign Exchange 

(Forex or FX) might be what you're looking for.

With the proper Forex trading education, you can work from home as a currency trader, and 

because the Forex market is open 24 hours a day from Sunday afternoon through Friday afternoon 

(EST),  you also have the option of choosing your own trading hours and not be tied down to a specific 

schedule.  You can trade short-term for income, or long-term for investment, or do both if you wish.  If 

your funds are limited, you can open a Forex trading account and deposit as little as $300 to start on a 

part-time basis.   Online Forex trading has exploded in popularity in the last few years, so now is the time 

to explore the possibilities.  Quality Forex training is the key to your success, so learn currency 

trading now.

 

Quality Forex Training is the Key to Success

 

Currency trading has a tremendous amount of income potential, but along with that goes an equal 

amount of risk (see Disclosure/Disclaimer).  The bottom line is you can lose everything in a short amount 

of time if you are not properly prepared.  Being properly prepared means getting quality Forex training 

in the following areas:

How the Forex market works (currency pairs, trading rules)

Technical Analysis (indicators, overbought, oversold, etc.)

Fundamental Analysis (economic and political news)

Risk Management (preserving your account)

Controlling Your Emotions (emotions and trading don't mix)

It's a fact that without the proper Forex trading education, you will fail, probably within the first 

few months.   Statistics indicate that well over 90% of all traders go out of business in the first year.  In all 

probability, most of these people are not properly trained, do not have a good trading plan, and don't 

manage their money properly ... the perfect recipe for failure!!  Conversely, successful currency traders 

are well-trained, use a systematic, emotion-free trading plan, and consider the protection of their trading 

capital their highest priority.  Keep in mind that  there are no guarantees of success, but preparing 

yourself properly with the right Forex training gives you the highest probability of success as a currency 

trader.

Forex Training Resources

 

There are numerous sources of Forex training on the Internet, many of which are not worth your time 

and money.  In the last  few years, I've investigated many of them and discounted nearly all of them.  One 

of the best all-round Forex sites I've seen is ForexInterBank.  Not only does ForexInterBank have 

excellent, professionally prepared Forex trading education courses, they also have many other useful 

products and services, including a live trading room, currency trading simulator, pivot point calculator and 

a live Forex charting package. If you're serious about learning Forex trading, and possibly making a 

career change or supplementing your current income, then go to our ForexInterBank page, and take a 

look at what they have to offer in more detail.  I definitely recommend their suite of Forex trading 

education packages as some of the best you'll find on the Internet.

Once you learn the theory of currency trading by taking ForexInterBank's Complete Forex Training 

Course (the basic course) followed by  ForexInterBank's Advanced Strategies Course, my advice is to 

enhance your knowledge by investigating Peter Bain's ForexMentor web site for a technically sound 

trading system based on Pivot Points and various technical indicators such as MACD (Moving Average 

Convergence/Divergence) and standalone Moving Averages.  I've been on Peter's email list for some 

time, and I've also viewed all of his sample videos.  I can definitely see merit in what he teaches about 

currency trading, plus he provides ongoing support, and there is an extensive network of ForexMentor 

students as well.  For more details on the ForexMentor system, visit ForexMentor's Forex Course and 

Mentorship Program web site.   You'll find that this is an excellent Forex training program.

 

 

Introduction to Forex

by Mark McRae

www.wizardoftrading.com

A Little History

 

The purpose of this ebook is to introduce the forex market to you. As with many markets there are many 

derivative of the central market such as futures, options and forwards. For the purpose of this book we will only 

be discussing the main market sometime referred to as the Spot or Cash market.

 

The word FOREX is derived from Foreign Exchange and is the largest financial market in the world. Unlike many 

markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day. This 

tremendous turnover is more than the combined turnover of all the world's' stock markets on any given day. This 

tends to lead to a very liquid market and thus a desirable market to trade.

 

Unlike many other securities (any financial instrument that can be traded) the FX market does not have a fixed 

exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. 

Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the 

smaller investor has been able to gain access to this market. Previously the large amounts of deposits required 

precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the 

reach of most investors.

 

You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies was 

simply banks and large institutions exchanging information about the current rate at which their clients or 

themselves were prepared to buy or sell a currency. INTER meaning between and Bank meaning deposit taking 

institutions normally made up of banks, large institution, brokers or even the government. The market has 

moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a 

currency. It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will 

however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes 

for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 

or so large institutions. This insures that if they place an order on your behalf that the institutions they have 

placed the order with is capable of fulfilling the order.

 

Now although we have spoken about orders being fulfilled, it is estimated that anywhere from 70%-90% of the 

FX market is speculative. In other words the person or institution that bought or sold the currency has no 

intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of 

that particular currency.

 

Source: Bank For International Settlements http://www.bis.org

Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity.

 

Currency        1989    1992    1995    1998    2001

US Dollar           90       82.0     83.3     87.3     90.4

Euro                                                         . . . . 37.6  

Japanese Yen   27       23.4      24.1    20.2     22.7

Pound Sterling  15       13.6      9.4      11.0     13.2

Swiss Franc      10        8.4       7.3      7.1        6.1

 

 

As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next 

most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc(CHF). 

As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are 

exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority 

of the market and are called major currencies or the majors.

 

Market Mechanics

 

So now we know that the FX market is the largest in the world and that your broker or institution that you are 

trading with is collecting quotes from a centralized feed or individual quotes comprising of interbank rates. So 

how are these quotes made up. Well, as we previously mentioned currencies are traded in pairs and are each 

assigned a symbol. For the Japanese Yen it is JPY, for the Pounds Sterling it is GBP, for Euro it is EUR and for 

the Swiss Frank it is CHF. So, EUR/USD would be Euro-Dollar pair. GBP/USD would be pounds Sterling-Dollar 

pair and USD/CHF would be Dollar-Swiss Franc pair and so on. You will always see the USD quoted first with few 

exceptions such as Pounds Sterling, EuroDollar, Australia Dollar and New Zealand Dollar. The first currency 

quoted is called the base currency. Have a look below for some example.

 

Currency Symbol         Currency Pair

EUR/USD                         Euro / US Dollar

GBP/USD                         Pounds Sterling/ US Dollar

USD/JPY                          US Dollar / Japanese Yen  

USD/CHF                         US Dollar / Swiss Franc  

USD/CAD                         US Dollar / Canadian Dollar  

AUD/USD                         Australian Dollar / US Dollar  

NZD/USD                         New Zealand Dollar / US Dollar  

 

When you see FX quotes you will actually see two numbers. The first number is called the bid and the second 

number is called the offer (sometimes called the ASK). If we use the EUR/USD as an example you might see 

0.9950/0.9955 the first number 0.9950 is the bid price and is the price traders are prepared to buy Euros 

against the USD Dollar. The second number 0.9955 is the offer price and is the price traders are prepared to 

sell the Euro against the US Dollar. These quotes are sometimes abbreviated to the last two digits of the 

currency such as 50/55. Each broker has its own convention and some will quote the full number and others will 

show only the last two. You will also notice that there is a difference between the bid and the offer price and that 

is called the spread. For the four major currencies the spread is normally 5 give or take a pip (will explain pips 

later)

 

To carry on from the symbol conventions and using our previous EUR quote of 0.9950 bid, that means that 1 

Euro = 0.9950 US Dollars. In another example if we used the USD/CAD 1.4500 that would mean that 1 US Dollar 

= 1.4500 Canadian Dollars.

 

The most common increment of currencies is the PIP. If the EUR/USD moves from 0.9550 to 0.9551 that is one 

Pip. A pip is the last decimal place of a quotation. The Pip or POINT as it is sometimes referred to depending on 

context is how we will measure our profit or loss.

 

As each currency has its own value it is necessary to calculate the value of a pip for that particular currency. We 

also want a constant so we will assume that we want to convert everything to US Dollars. In currencies where the 

US Dollar is quoted first the calculation would be as follows.

 

Example JPY rate of 116.73 (notice the JPY only goes to two decimal places, most of the other currencies have 

four decimal places)

 

In the case of the JPY 1 pip would be .01 therefore

 

USD/JPY: (.01 divided by exchange rate = pip value) so .01/116.73=0.0000856 it looks like a big number but 

later we will discuss lot (contract) size.

 

USD/CHF: (.0001 divided by exchange rate = pip value) so .0001/1.4840 = 0.0000673

 

USD/CAD: (.0001 divided by exchange rate = pip value) so .0001/1.5223 = 0.0001522

 

In the case where the US Dollar is not quoted first and we want to get to the US Dollar value we have to add one 

more step.

 

EUR/USD: (0.0001 divided by exchange rate = pip value) so .0001/0.9887 = EUR 0.0001011 but we want to get 

back to US Dollars so we add another little calculation which is EUR X Exchange rate so 0.0001011 X 0.9887 = 

0.0000999 when rounded up it would be 0.0001.

 

GBP/USD: (0.0001 divided by exchange rate = pip value) so 0.0001/1.5506 = GBP 0.0000644 but we want to 

get back to US Dollars so we add another little calculation which is GBP X Exchange rate so 0.0000644 X 1.5506 

= 0.0000998 when rounded up it would be 0.0001.

 

By this time you might be rolling your eyes back and thinking do I really need to work all this out and the answer 

is no. Nearly all the brokers you will deal with will work all this out for you. They may have slightly different 

conventions but it is all done automatically. It is good however for you to know how they work it out. In the next 

section we will be discussing how these seemingly insignificant amounts can add up.

 

More On Market Mechanics

 

Spot Forex is traditionally traded in lots also referred to as contracts. The standard size for a lot is $100,000. In 

the last few years a mini lot size has been introduced of $10,000 and this again may change in the years to 

come. As we mentioned on the previous page currencies are measured in pips, which is the smallest increment 

of that currency. To take advantage of these tiny increments it is desirable to trade large amounts of a particular 

currency in order to see any significant profit or loss. We shall cover leverage later but for the time being let's 

assume we will be using $100,000 lot size. We will now recalculate some examples to see how it effects the pip 

value.

 

USD/JPY at an exchange rate of 116.73

 

(.01/116.73) X $100,000 = $8.56 per pip

 

USD/CHF at an exchange rate of 1.4840

 

(0.0001/1.4840) X $100,000 = $6.73 per pip

 

In cases where the US Dollar is not quoted first the formula is slightly different.

 

EUR/USD at an exchange rate of 0.9887

 

(0.0001/ 0.9887) X EUR 100,000 = EUR 10.11 to get back to US Dollars we add a further step

 

EUR 10.11 X Exchange rate which looks like EUR 10.11 X 0.9887 = $9.9957 rounded up will be $10 per pip.

 

GBP/USD at an exchange rate of 1.5506

 

(0.0001/1.5506) X GBP 100,000 = GBP 6.44 to get back to US Dollars we add a further step

 

GBP 6.44 X Exchange rate which looks like GBP 6.44 X 1.5506 = $9.9858864 rounded up will be $10 per pip.

 

As we said earlier your broker may have a different convention for calculating pip value relative to lot size but 

however they do it they will be able to tell you what the pip value for the currency you are trading is at that 

particular time. Remember that as the market moves so will the pip value depending on what currency you trade.

 

So now we know how to calculate pip value lets have a look at how you work out your profit or loss. Let's assume 

you want to buy US Dollars and Sell Japanese Yen. The rate you are quoted is 116.70/116.75 because you are 

buying the US you will be working on the 116.75, the rate at which traders are prepared to sell. So you buy 1 lot 

of $100,000 at 116.75. A few hours later the price moves to 116.95 and you decide to close your trade. You ask 

for a new quote and are quoted 116.95/117.00 as you are now closing your trade and you initially bought to 

enter the trade you now sell in order to close the trade and you take 116.95 the price traders are prepared to 

buy at. The difference between 116.75 and 116.95 is .20 or 20 pips. Using our formula from before, we now 

have (.01/116.95) X $100,000 = $8.55 per pip X 20 pips =$171

 

In the case of the EUR/USD you decide to sell the EUR and are quoted 0.9885/0.9890 you take 0.9885. Now 

don't get confused here. Remember you are now selling and you need a buyer. The buyer is biding 0.9885 and 

that is what you take. A few hours later the EUR moves to 0.9805 and you ask for a quote. You are quoted 

0.9805/0.9810 and you take 0.9810. You originally sold EUR to open the trade and now to close the trade you 

must buy back your position. In order to buy back your position you take the price traders are prepared to sell at 

which is 0.9810. The difference between 0.9810 and 0.9885 is 0.0075 or 75 pips. Using the formula from before, 

we now have (.0001/0.9810) X EUR 100,000 = EUR10.19: EUR 10.19 X Exchange rate 0.9810 =$9.99($10) so 

75 X $10 = $750.

 

To reiterate what has gone before, when you enter or exit a trade at some point your are subject to the spread in 

the bid/offer quote. As a rule of thumb when you buy a currency you will use the offer price and when you sell 

you will use the bid price. So when you buy a currency you pay the spread as you enter the trade but not as you 

exit and when you sell a currency you pay no spread when you enter but only when you exit.

 

Leverage

 

Leverage financed with credit, such as that purchased on a margin account is very common in Forex. A 

margined account is a leverageable account in which Forex can be purchased for a combination of cash or 

collateral depending what your brokers will accept. The loan(leverage) in the margined account is collateralized 

by your initial margin (deposit), if the value of the trade (position) drops sufficiently, the broker will ask you to 

either put in more cash, or sell a portion of your position or even close your position. Margin rules may be 

regulated in some countries, but margin requirements and interest vary among broker/dealers so always check 

with the company you are dealing with to ensure you understand their policy.

 

Up until this point you are probably wondering how a small investor can trade such large amounts of money 

(positions). The amount of leverage you use will depend on your broker and what you feel comfortable with. 

There was a time when it was difficult to find companies prepared to offer margined accounts but nowadays you 

can get leverage from a high as 1% with some brokerages. This means you could control $100,000 with only 

$1,000.

 

Typically the broker will have a minimum account size also known as account margin or initial margin e.g. 

$10,000. Once you have deposited your money you will then be able to trade. The broker will also stipulate how 

much they require per position (lot) traded. In the example above for every $1,000 you have you can take a lot 

of $100,000 so if you have $5,000 they may allow you to trade up to $500,00 of forex.

 

The minimum security (Margin) for each lot will very from broker to broker. In the example above the broker 

required a one percent margin. This means that for every $100,000 traded the broker wanted $1,000 as security 

on the position. Margin call is also something that you will have to be aware of. If for any reason the broker thinks 

that your position is in danger e.g. you have a position of $100,000 with a margin of one percent ($1,000) and 

your losses are approaching your margin ($1,000). He will call you and either ask you to deposit more money, or 

close your position to limit your risk and his risk. If you are going to trade on a margin account it is imperative 

that you talk with your broker first to find out what their polices are on this type of accounts.

 

Variation Margin is also very important. Variation margin is the amount of profit or loss your account is showing 

on open positions. Let's say you have just deposited $10,000 with your broker. You take 5 lots of USD/JPY which 

is $500,000. To secure this the broker needs $5,000 (1%). The trade goes bad and your losses equal $5001, 

your broker may do a margin call. The reason he may do a margin call is that even though you still have $4,999 

in your account the broker needs that as security and allowing you to use it could endanger yourself and him. 

Another way to look at it is this, if you have an account of $10,000 and you have a 1 lot ($100,000) position. 

That's $1,000 assuming a (1% margin) is no longer available for you to trade. The money still belongs to you but 

for the time you are margined the broker needs that as security. Another point of note is that some brokers may 

require a higher margin at the weekends. This may take the form of 1% margin during the week and if you intend 

to hold the position over the weekend it may rise to 2% or higher. Also in the example we have used a 1% 

margin. This is by no means standard. I have seen as high as 0.5% and many between 3%-5% margin. It all 

depends on your broker.

 

There have been many discussions on the topic of margin and some argue that too much margin is dangerous. 

This is a point for the individual concerned. The important thing to remember as with all trading is that you 

thoroughly understand your brokers policies on the subject and you are comfortable with and understand your 

risk.

 

Rollovers

 

Even though the mighty US dominates many markets most of Spot Forex is still traded through London in Great 

Britain. So for our next description we shall use London time. Most deals in Forex are done as Spot deals. Spot 

deals are nearly always due for settlement two business days day later. This is referred to as the value date or 

delivery date. On that date the counterparties take delivery of the currency they have sold or bought.

 

In Spot FX the majority of the time the end of the business day is 21:59 (London time). Any positions still open at 

this time are automatically rolled over to the next business day, which again finishes at 21:59. This is necessary 

to avoid the actual delivery of the currency. As Spot FX is predominantly speculative most of the time the trades 

never wish to actually take delivery of the actual currency. They will instruct the brokerage to always rollover 

their position. Many of the brokers nowadays do this automatically and it will be in their polices and procedures. 

The act of rolling the currency pair over is known as tom.next which, stands for tomorrow and the next day. Just 

to go over this again, your broker will automatically rollover your position unless you instruct him that you actually 

want delivery of the currency. Another point noting is that most leveraged accounts are unable to actual deliver 

of the currency as there is insufficient capital there to cover the transaction.

 

Remember that if you are trading on margin, you have in effect got a loan from your broker for the amount you 

are trading. If you had a 1 lot position you broker has advanced you the $100,000 even though you did not 

actually have $100,000. The broker will normally charge you the interest differential between the two currencies 

if you rollover your position. This normally only happens if you have rolled over the position and not if you open 

and close the position within the same business day.

 

To calculate the broker's interest he will normally close your position at the end of the business day and again 

reopen a new position almost simultaneously. You open a 1 lot ($100,000) EUR/USD position on Monday 15th at 

11:00 at an exchange rate of 0.9950. During the day the rate fluctuates and at 22:00 the rate is 0.9975. The 

broker closes your position and reopens a new position with a different value date. The new position was opened 

at 0.9976 a 1 pip difference. The 1 pip deference reflects the difference in interest rates between the US Dollar 

and the Euro. In our example your are long Euro and short US Dollar. As the US Dollar in the example has a 

higher interest rate than the Euro you pay the premium of 1 pip.

 

Now the good news. If you had the reverse position and you were short Euros and long US Dollars you would 

gain the interest differential of 1 pip. If the first named currency has an overnight interest rate lower than the 

second currency then you will pay that interest differential if you bought that currency. If the first named currency 

has a higher interest rate than the second currency then you will gain the interest differential.

 

To simplify the above. If you are long (bought) a particular currency and that currency has a higher overnight 

interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will 

lose the difference.

 

I would like to emphasis here that although we are going a little in-depth to explain how all this works, your broker 

will calculate all this for you. The purpose of this book is just to give you an overview of how the forex market 

works.

 

Accounts

 

Although the movement today is towards all transaction eventually finishing in a profit and loss in US Dollars it is 

important to realize that your profit or loss may not actually be in US Dollars. From my observation the trend is 

more pronounced in the US as you would expect. Most US based traders assume they will see their balance at 

the end of each day in US Dollars. I have even spoken with some traders who are oblivious to the fact the their 

profit might have actually been in Japanese Yen.

 

Let me explain a little more. You sell (go short) USD/JPY and as such are short USD and Long (bought) JPY. You 

enter the trade at 116.10 and exit 116.90. You in fact made 80,000 Japanese Yen (1 lot traded) not US Dollars. 

If you traded all four major currencies against the US Dollar you would in fact have made or lose in EUR, GBP, 

JPY and CHF. This might give you a ledger balance at the end of the day or month with four different currencies. 

This is common in London. They will stay in that currency until you instruct the broker to exchange the currency 

you have a profit or loss into your own base currency. This actually happened to me. After dealing with mainly 

US based brokers it had never occurred to me that my statement would be in anything other than US Dollars. 

This can work for you or against you depending on the rate of exchange when you change back into your home 

currency. Once I knew the convention I simply instructed the broker to change my profit or loss into US Dollars 

when I closed my position. It is worth checking how your broker approaches this and simply ask them how they 

handle it. A small point but worth noting.

 

It's a sad fact that for many years the forex market largely remained unregulated. Even today there are many 

countries that still don't regulate companies that trade forex. London has been regulated for many years and the 

US is now getting its act together and has also started regulating companies dealing forex. It was only recently in 

the US you could with no more than an Internet site and a few thousand dollars set up your own forex operation 

and give the impression that you were larger than you are. I am all for the entrepreneurial flair and everyone 

need to start somewhere but when dealing with people's money it is imperative that the company you choose is 

solid.

 

Preferably you want a company that is regulated in the country that it operates, insured or bonded and has 

some kind of track recorded. I cannot advise you on which broker you should use as there are just to many 

variables to each person, but as a rule of thumb, nearly all countries have some kind of regulatory authority who 

will be able to advise you. Most of the regulatory authorities will have a list of brokers that fall with their 

jurisdiction and will give you a list. They probably wont tell whom to use but at least if the list came from them you 

can have some confidence in those companies. Once you have a list give a few of them a call, see who you feel 

comfortable with, ask for them to send you their polices and procedures. If you live near where your broker is 

based, go spend the day with him. I have been to many brokerages just to check them out. It will give you a 

chance to see their operation and meet their team.

 

This brings up another interesting point. When you open an account with a broker you will have to fill in some 

forms basically stating your acceptance of their polices. This can range from a 1 page document to something 

resembling a book. Take the time to read through these documents and make a list of things you don't 

understand or want explained. Most reputable companies will be happy to spend some time with you on this. 

Your involvement with your broker is largely up to you. As a forex trader you will probably spend long hours 

staring at the screen without talking to anyone. You may be the sort of person who likes this or you may be the 

sort of person who likes to chat with the dealer in the trading room. You will normally get a call once a week or 

once a month from someone in the brokerage asking if everything is OK.

 

 

Statements

 

Before we move on to account statements I just want to touch on segregation of funds. In times past there was a 

danger that traders who deposited money with their broker who did not segregate their clients money from their 

own companies money were at some risk. The problem arose if the broker misused the deposited funds to either 

reinvest or otherwise manipulated these deposits to enhance their own standing. There were also instances 

were the broker became insolvent and many complications ensued as to what was the clients money and what 

was the broker's money. With the advent of regulation most broker now segregate their clients funds from the 

brokerage funds. Deposits are normally held with banks or other large financial institution that are also regulated 

and bonded or insured. This protects you money should anything happen to your broker. The deposit taking 

institution is normally aware that these deposits are client's funds. Depending on regulation in the particular 

country you live, each client may have their own segregated account or for smaller depositors they may be 

pooled. The point is that segregation of funds is a safeguard. Ask your broker if your funds are segregated and 

who actually has your money.

 

Just as with a bank you should are entitled to interest on the money you have on deposit. Some broker may 

stipulate that interest is only payable on accounts over a certain amount but the trend today is that you will earn 

interest on any amount you have that is not being used to cover your margin. Your broker is probably not the 

most competitive place to earn interest but that should not be the point of having your money with him in the first 

place. Payment on your account that is not being used and segregation of funds all go to show the reputability 

of the company you are dealing with.

 

In this section I will discuss briefly the basic account statement. I have to keep this basic as there are as many 

flavours of account statements as you can imagine. Just about every broker has their own way of presenting 

this. The most important thing is to know where you stand at the end of each day or week. Just because your 

broker is Internet based and has all the bells and whistles does not mean they are infallible. Many of the actions 

taken before information is imputed are still done by hand and if humans are involved there will be a mistake at 

some point. The responsibility lies with you. It is your money so make sure that all the transactions are correct.

 

FX Some Company New York Statement for: Mr. Joe Bloggs Statement Date: 16th July 2002 Account No: 

123456 Summary Of All Trades From: 15/07/02-17/07/02

 

Ticket No      Time        Trade Date     Value Date         B/S        Symbol         Quantity         Rate         Debit         Credit         Balance

123458         09:05      15/07/2002       17/07/02             B         EUR/USD       100,000         0.9850                                         $10,000

123459         13:01      15/07/2002       17/07/02             S         EUR/USD       100,000         0.9870                      $200.00      $10,200

123460         14:05      16/07/2002       18/07/02             S         USD/JPY        100,000        116.85                                          $10,200

 

Total Equity                 $10,200

Margin Available         $9,200

Margin Requirements  $1,000  

Current Position Short USD/JPY  

 

Normally there is a ticket or docket number to help identify the trade. You will nearly always find the time and 

date of the trade. The value date if the currency were to be delivered. You should always see the direction of 

the trade, buy or sell (Long or Short). The amount and rate you bought or sold. Balance to let you know if you 

made a profit or a loss. You should also see any open positions you may have and the margin requirements for 

that position. A lot of the more modern systems will show your open position as though it has been closed just to 

give you an up to the minute balance.

 

The Main Players

 

Central Banks And Governments

 

Policies that are implemented by governments and central banks can play a major roll in the FX market. Central 

banks can play an important part in controlling the country's money supply to insure financial stability.

 

Banks

 

A large part of FX turnover is from banks. Large banks can literally trade billions of dollars daily. This can take 

the form of a service to their customers or they themselves speculate on the FX market.

 

Hedge Funds

 

As we know the FX market can be extremely liquid which is why it can be desirable to trade. Hedge Funds have 

increasingly allocated portions of their portfolios to speculate on the FX market. Another advantage Hedge 

Funds can utilize is a much higher degree of leverage than would typically be found in the equity markets.

 

Corporate Businesses

 

The FX market mainstay is that of international trade. Many companies have to import or exports goods to 

different countries all around the world. Payment for these goods and services may be made and received in 

different currencies. Many billions of dollars are exchanges daily to facilitate trade. The timing of those 

transactions can dramatically affect a company's balance sheet.

 

The Man In The Street

 

Although you may not think it the man in the street also plays a part in toady's FX world. Every time he goes on 

holiday overseas he normally need to purchase that country's currency and again change it back into his own 

currency once he returns. Unwittingly he is in fact trading currencies. He may also purchase goods and services 

whilst overseas and his credit card company has to convert those sales back into his base currency in order to 

charge him.

 

Speculators And Investors

 

We shall differentiate speculator from investors here with the definition that an investor has a much longer time 

horizon in which he expects his investment to yield a profit. Regardless of the difference both speculators and 

investors will approach the FX market to exploit the movement in currency pairs. They both will have their reason 

for believing a particular currency will perform better or worse as the case may be and will buy or sell 

accordingly. They may decide that the Euro will appreciate against the US Dollar and take what is called a long 

position in Euro. If the Euro does in fact gain ground against the US Dollar they will have made a profit.

 

What Next

 

Well now we have a basic understanding of how the FX market works and who the main players are, what next? 

You are now going to have to decide the best way to trade the market. The two most common approaches are 

that of fundamental analysis and technical analysis.

 

Fundamental analysis concentrates on the forces of supply and demand for a given security. This approach 

examines all the factors that determine the price of a security and the real value of that security. This is referred 

to as the intrinsic value. If the intrinsic value is below the market price then there is an opportunity to buy and if 

the market is above the intrinsic price then there is an opportunity to sell.

 

Technical analysis is the study of market action, mainly through the use of charts and indicators to forecast the 

future price of a security. There are three main points that a technical analyst applies. A. Market action 

discounts everything. Regardless of what the fundamentals are saying, the price you see is the price you get. B. 

The price of a given security moves in trends. C. The historical trend of a security will tend to repeat.

 

Of all of the above things the most important of them is point A. The tools of the technical analyst are indicators, 

patterns and systems. These tools are applied to charts. Moving averages, support and resistance lines, 

envelopes, Bollinger bands and momentum are all examples of indicators.

 

There are many ways to skin a cat as the saying goes but fundamental and technical analysis are the two most 

popular ways of trading FX.

 

My own preferred approach is that of technical analysis. It is beyond the scope if this little book to cover all the 

finer points of trading and if you would like to learn more then I would suggest your first book should be ''Trading 

For Beginners'' which you can find at www.tradingforbeginners.com. It is specifically designed for the novice 

trader wishing to learn more about trading and technical analysis.

 

 

 

 

Major Currencies

 

The U.S. Dollar

The United States dollar is the world's main currency. All currencies are generally quoted in U.S. dollar terms. 

Under conditions of international economic and political unrest, the U.S. dollar is the main safe-haven currency 

which was proven particularly well during the Southeast Asian crisis of 1997-1998.  The U.S. dollar became the 

leading currency toward the end of the Second World War and was at the center of the Bretton Woods Accord, 

as the other currencies were virtually pegged against it. The introduction of the euro in 1999 reduced the dollar's 

importance only marginally.  The major currencies traded against the U.S. dollar are the euro, Japanese yen, 

British pound, and Swiss franc.

 

The Euro

The euro was designed to become the premier currency in trading by simply being quoted in American terms. 

Like the U.S. dollar, the euro has a strong international presence stemming from members of the European

Monetary Union. The currency remains plagued by unequal growth, high unemployment, and government 

resistance to structural changes. The pair was also weighed in 1999 and 2000 by outflows from foreign 

investors, particularly Japanese, who were forced to liquidate their losing investments in euro-denominated

assets. Moreover, European money managers rebalanced their portfolios and reduced their euro exposure as 

their needs for hedging currency risk in Europe declined.

 

The Japanese Yen

The Japanese yen is the third most traded currency in the world; it has a much smaller international presence 

than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock. The natural 

demand to trade the yen concentrated mostly among the Japanese keiretsu, the economic and financial 

conglomerates.  The yen is much more sensitive to the fortunes of the Nikkei index, the Japanese stock market, 

and the real estate market. The attempt of the Bank of Japan to deflate the double bubble in these two markets 

had a negative effect on the Japanese yen, although the impact was short-lived.

 

The British Pound

Until the end of World War II, the pound was the currency of reference. Its nickname, cable, is derived from the 

telex machine, which was used to trade it in its heyday. The currency is heavily traded against the euro and the 

U.S. dollar, but has a spotty presence against other currencies. The two-year bout with the Exchange Rate 

Mechanism, between 1990 and 1992, had a soothing effect on the British pound, as it generally had to follow the 

deutsche mark's fluctuations, but the crisis conditions that precipitated the pound's withdrawal from the ERM had 

a psychological effect on the currency.  Prior to the introduction of the euro, both the pound benefited from any 

doubts about the currency convergence. After the introduction of the euro, Bank of England is attempting to 

bring the high U.K. rates closer to the lower rates in the euro zone. The pound could join the euro in the early 

2000s, provided that the U.K. referendum is positive.

 

The Swiss Franc

The Swiss franc is the only currency of a major European country that belongs neither to the European 

Monetary Union nor to the G-7 countries.  Although the Swiss economy is relatively small, the Swiss franc is one 

of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance. 

Switzerland has a very close economic relationship with Germany, and thus to the euro zone. Therefore, in terms 

of political uncertainty in the East, the Swiss franc is favored generally over the euro.  Typically, it is believed that 

the Swiss franc is a stable currency.  Actually, from a foreign exchange point of view, the Swiss franc closely 

resembles the patterns of the euro, but lacks its liquidity. As the demand for it exceeds supply, the Swiss franc 

can be more volatile than the euro. 

 

 

Kinds of Foreign Exchange Systems

 

Trading with Brokers

Foreign exchange brokers, unlike equity brokers, do not take positions for themselves; they only service banks. 

Their roles are:

 

• bringing together buyers and sellers in the market;

• optimizing the price they show to their customers;

• quickly, accurately, and faithfully executing the traders' orders.

 

The majority of the foreign exchange brokers execute business via phone.  The phone lines between brokers 

and banks are dedicated, or direct, and are usually in-stalled free of charge by the broker. A foreign exchange 

brokerage firm has direct lines to banks around the world. Most foreign exchange is executed through an open 

box system—a microphone in front of the broker that continuously transmits everything he or she says on the 

direct phone lines to the speaker boxes in the banks. This way, all banks can hear all the deals being executed. 

Because of the open box system used by brokers, a trader is able to hear all prices quoted; whether the bid was 

hit or the offer taken; and the following price. What the trader will not be able to hear is the amounts of

particular bids and offers and the names of the banks showing the prices. Prices are anonymous the anonymity 

of the banks that are trading in the market ensures the market's efficiency, as all banks have a fair chance to 

trade.  Brokers charge a commission that is paid equally by the buyer and the seller. The fees are negotiated on 

an individual basis by the bank and the brokerage firm.  Brokers show their customers the prices made by other 

customers either two-way (bid and offer) prices or one way (bid or offer) prices from his or her customers. 

Traders show different prices because they "read" the market differently; they have different expectations and 

different interests. A broker who has more than one price on one or both sides will automatically optimize the 

price. In other words, the broker will always show the highest bid and the lowest offer. Therefore, the market has 

access to the narrowest spread possible.  Fundamental and technical analyses are used for forecasting the 

future direction of the currency. A trader might test the market by hitting a bid for a small amount to see if there 

is any reaction.  Brokers cannot be forced into taking a principal's role if the name switch takes longer than 

anticipated.  Another advantage of the brokers' market is that brokers might provide a broader selection of 

banks to their customers. Some European and Asian banks have overnight desks so their orders are usually 

placed with brokers who can deal with the American banks, adding to the liquidity of the market.

 

Direct Dealing

Direct dealing is based on trading reciprocity. A market maker—the bank making or quoting a price—expects the 

bank that is calling to reciprocate with respect to making a price when called upon. Direct dealing provides more 

trading discretion, as compared to dealing in the brokers' market. Sometimes traders take advantage of this 

characteristic.  Direct dealing used to be conducted mostly on the phone. Dealing errors were difficult to prove 

and even more difficult to settle. In order to increase dealing safety, most banks tapped the phone lines on 

which trading was conducted. This measure was helpful in recording all the transaction details and enabling the 

dealers to allocate the responsibility for errors fairly. But tape recorders were unable to prevent trading errors. 

Direct dealing was forever changed in the mid - 1980s, by the introduction of dealing systems.  Dealing Systems

Dealing systems are on-line computers that link the contributing banks around the world on a one-on-one basis. 

The performance of dealing systems is characterized by speed, reliability, and safety. Accessing a bank through 

a dealing system is much faster than making a phone call. Dealing systems are continuously being improved in 

order to offer maximum support to the dealer's main function: trading. The software is very reliable in picking up 

the big figure of the exchange rates and the standard value dates. In addition, it is extremely precise and fast in 

contacting other parties, switching among conversations, and accessing the database. The trader is in 

continuous visual contact with the information exchanged on the monitor. It is easier to see than hear this 

information, especially when switching among conversations.  Most banks use a combination of brokers and 

direct dealing systems. Both approaches reach the same banks, but not the same parties, because 

corporations, for instance, cannot deal in the brokers' market. Traders develop personal relationships with both 

brokers and traders in the markets, but select their trading medium based on price quality, not on personal 

feelings. The market share between dealing systems and brokers fluctuates based on market conditions. Fast 

market conditions are beneficial to dealing systems, whereas regular market conditions are more beneficial to 

brokers.

 

Matching Systems

Unlike dealing systems, on which trading is not anonymous and is conducted on a one-on-one basis, matching 

systems are anonymous and individual traders deal against the rest of the market, similar to dealing in the

brokers' market. However, unlike the brokers' market, there are no individuals to bring the prices to the market, 

and liquidity may be limited at times. Matching systems are well-suited for trading smaller amounts as well.

The dealing systems characteristics of speed, reliability, and safety are replicated in the matching systems. In 

addition, credit lines are automatically  managed by the systems. Traders input the total credit line for each 

counter party. When the credit line has been reached, the system automatically disallows dealing with the 

particular party by displaying credit restrictions, or shows the trader only the price made by banks that have 

open lines of credit. As soon as the credit line is restored, the system allows the bank to deal again. In the

interbank market, traders deal directly with dealing systems, matching systems, and brokers in a complementary 

fashion.

 

The Fundamentals Of Technical Analysis

 

Technical analysis is appointed to analyze market movement (the movement of prices, volumes and open 

interests) using the information obtained for a past time. Mainly, it is the chart study of past behavior of

currencies prices in order to forecast their future performance. It is one of the most significant tools available for 

the forecasting of financial markets. Such analysis has been an increasingly utilized forecasting tool over the 

last two centuries.

 

The main strength of technical analysis is the flexibility with regard to the underlying instrument, regarding the 

markets and regarding the time frame. A trader who deals several currencies but specializes in one may easily

apply the same technical expertise to trading another currency. A trader who specializes in spot trading can 

make a smooth transition to dealing currency futures by using chart studies, because the same technical 

principles apply over and over again, regardless of the market. Finally, different players have different trading 

styles, objectives, and time frames.  

 

Technical analysis is easy to compute what is important while the technical services are becoming increasingly 

sophisticated and reasonably priced.

 

Prior to this historic open market intervention, technical analysis provided ample selling signals.

 

Price

The Fundamental Principles of Technical Analysis are based on the Dow Theory with the following main thesis:

 

1. The price is a comprehensive reflection of all the market forces. At any given time, all market information and 

forces are reflected in the currency prices.

 

2. Price movements are historically repetitive.

 

3. Price movements are trend followers.

 

4. The market has three trends: primary, secondary, and minor. The primary trend has three phases: 

accumulation, run-up/run-down, and distribution. In the accumulation phase the shrewdest traders enter new

positions. In the run-up/run-down phase, the majority of the market finally "sees" the move and jumps on the 

bandwagon. Finally, in the distribution phase, the keenest traders take their profits and close their positions 

while the general trading interest slows down in an overshooting market. The secondary trend is a correction to 

the primary trend and may retrace one-third, one-half or two-thirds from the primary trend.  

 

5. Volume must confirm the trend.

 

6. Trends exist until their reversals are confirmed.  Figure 1 shows an example of reversals in a bearish 

currency market. The buying signals occur at points A and B when the currency exceeds the previous highs.

 

Cycles of currency price change are the propensity for events to repeat themselves at roughly the same time 

and are an important ground to justify Dow Theory.  

 

Cycle identification is a powerful tool that can be used in both the long the short term. The longer the term, the 

more significance a cycle has.  Figure 2 shows a series of three cycles. The top of the cycle (C) is called

crest and the bottom (T) is known as trough. Analysts measure cycles from trough to trough.

 

Cycles are gauged in terms of amplitude, period, and phase. The amplitude shows the height of the cycle, the 

period shows the length of cycle, the phase shows the location of a wave trough.

 

Volume and Open Interest

Volume consists of the total amount of currency traded within a period of time, usually one day. For example, by 

year 2000, the total foreign currency daily trading volume was $1.4 trillion. But traders are naturally more

interested in the volume of specific instruments for specific trading periods, because large trading volume 

suggests that there is interest and liquidity in a certain market, and low volume warns the trader to veer away 

from that market.

 

The risks of a low-volume market are usually very difficult to quantify or hedge. In addition, certain chart 

formations require heavy trading volume for successful development.  An example is the head-and-shoulder 

formation.  Therefore, despite its obvious importance, volume is not easy to quantify in all foreign exchange 

markets.  

 

One method to estimate volume is to extrapolate the figures from the futures market. Another is "feeling" the 

size of volume based on the number of calls on the dealing systems or phones, and the "noise" from the 

brokers' market.

 

Open interest is the total exposure, or outstanding position, in a certain instrument. The same problems that 

affect volume are also present here. As it was already mentioned, figures for volume and open interest are 

available for currency futures. If you have access to printed or electronic charts on futures, you will be able to 

see these numbers plotted at the bottom of the futures charts.

 

Volume and open interest figures are available from different sources, although one day late such as the 

newswires (Bridge Information Systems, Reuters, Bloomberg), newspapers (the Wall Street Journal, the Journal 

of Commerce), Weekly printed charts (Commodity Perspective, Commodity Trend Service).

 

 

The Forex Market And Its Three Distinctive Elements

By: David Mclauchlan

 

Although there are many distinctive elements of the Forex market, there are three that can be highlighted as 

helping new traders learn exactly what the foreign exchange market is all about. These distinctive elements are 

those that every new trader should know long before they make their first trade. The Forex system is one that is 

made to encompass the entire globe. It can be difficult to interpret and even more difficult to successfully trade 

within. The first step to being a successful trader is knowing how the system works. Before you even think about 

opening a Forex account, be sure

Forex Training - Which One Of These Should You Choose?
Forex training, well there's much to choose from - how do you know what's good and where do you start Do you surf the net for hours - if so, who do you trust

The Importance of Even the Most Basic Forex Trading Education For Budding Traders
The title of this article points to a very disturbing trend that has been going on in the world today More and more people are turning towards the Forex market as a means to make either a secondary income or to open up a revenue stream that would soon be the main source of income for them

Forex Artificial Intelligence, Free Forex Training and 100% Accurate Currency Trading Signals
I recall very visibly when I first launched my inquiries for free Forex training on the internet and I got so excited when I went concluded the online learning modules because I was actually learning information that was justifiably going to generate me some money on the internet without having to call people and hustle some meaningless products and services


| Site Map | Home


Privacy Policy | Copyright/Trademark Notification