Lesson 1: What You Need to Know About Forex Trading
Lesson 1: What You Need to Know About Forex Trading
In our last lesson we finished up the InformedTrades.com Trading Basics course with a look at the 20 components that every trader’s business plan should have. Now that we have a sound foundation in the basics of trading I am excited to be moving forward towards the next phase of the InformedTrades.com trading courses, which will be lessons on the basics of each of the major markets that Individuals trade, beginning with the Forex Market.
There are many interesting things that can be pointed out about the foreign exchange market, however there are a few major things that really separate this market from the equities and futures markets.
24 Hour Liquidity
Probably the biggest advantages that traders of the forex market will cite is that the market is by far the largest market in the world, and that main currencies can be traded actively 24 hours a day. The huge amount of volume traded in the world’s main currencies each day, dwarfs the volume traded in the equities and the futures markets many times over. This combined with the 24 hour trading day gives traders the ability to determine their own trading hours instead of having to trade within set hours as they would have to when trading stocks and/or futures. More importantly than this however is that as the market is more liquid than the futures and equities markets, price slippage (the difference between where you click to enter or exit a trade and where you actually get in or out) in the forex market is normally much smaller than in the stock and futures market.
The disadvantage here is that real market junkies sometimes cannot pull themselves away from the screen while the market is trading and need the finite trading hours of futures and/or stocks to force them to step away from the market. As my background is in forex I have seen many stock and futures traders burn out when trying to trade forex for this reason.
There is more leverage provided to traders by most forex trading firms than any other market in the world. Many firms offer you up to 200 to 1 leverage which if fully used would essentially take a .5% move in the market and turn it into a 100% gain or loss on the value of the account.
As the most highly traded currencies rarely move more than a couple of percent in a day, this allows traders to tailor the forex market to their needs, making it a conservative instrument when traded without leverage or the crack cocaine of financial instruments when making full use of the leverage available.
While the availability of leverage is normally seen as an advantage in the above sense, it is also one of the places where forex gets its bad name. Many times new traders are lured to the market after seeing the ability to amplify their returns by making use of all that leverage. What these traders do not fully understand however is that leverage is a double edged sword causing greater losses just as quickly as it can cause greater profits. As a result of this lack of understanding and jackpot mentality, many beginning forex traders loose their money very quickly as a result.
Only Macro Events Affect the Forex Market
Unlike stocks where individual company events have a huge affect on price movements the most highly traded currencies are only affected by macro events like the capital flows between countries, and changes in government or central bank policies. This is often pointed to as an advantage by Forex Traders who feel that this brings less uncertainty to their trades than stock trades which can be thrown way off track if a surprise happens such as a CEO quitting or something similar in the micro picture.
This combined with the fact that there is so much liquidity in the market also makes it a much harder market for someone to come in and manipulate the price to their advantage and to the detriment of others.
The disadvantage here is that this also means less opportunities to gain an informational edge and to profit from that edge as well.
No Upward Bias
Over the long term the US stock market has always gone up giving stocks in the US an upward bias when trading. As currencies are traded in pairs when the value of one currency is falling this automatically means that the value of another currency is rising. This is an advantage from the standpoint of there is equal opportunity for profit from both long and short trades. This is a disadvantage from the standpoint of not having that upward bias working for you when you are in a long trade.
The last characteristic that we will cover is how the fact that the forex market is an over the counter market affects us as traders. As this is a fairly in depth topic we are going to devote a full lesson to it which will be our next topic of discussion so we hope to see you then.
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WEEKLY Forex Economic Calendar: 24 Feb Fri
13:30 CA- CPI
15:00 US- New Homes Sales
15:00 US- final Univ of Mich Survey
13 Feb Mon
No Major Data 27 Feb Mon
13:30 US- Durable Goods 28 Feb Tues
07:00 DE- Retail Sales
10:00 EZ- flash HICP
13:30 US- GDP
15:00 US- CB Consumer Confidence
15:30 US- EIA Crude 1 Mar Wed
All Day- final Mfg PMIs
08:55 DE- Jobless
13:30 US- PCE Deflator
15:00 CA- Bank of Canada Decision
15:30 US- EIA Crude
19:00 US- Beige Book 2 Mar Thu
13:30 US- Weekly Jobless
23:30 JP- CPI 3 Mar Fri
All-Day SVC PMIs
Markets are heading into the weekend with a risk-off posture. Worries about European elections over the next several weeks appear to be fading for the moment. On the other hand, all the hysteria about the Trump Presidency has begun to abate. The new administration is starting to learn that the U.S. political system with its checcks and balances is designed constitutionally to be slow to change.
Some have been pushing the date for a Fed rate hike back to May. I don't see much of asentiment shift in Fed Funds futures. I still feel the Fed hikes in March barring a significantly weaker than expected February jobs report on March 10. The FOMC Minutes left open the door to the RISK of a Rate hike as early as the March 15 FOMC ("fairly soon"). No clear signal was sent. The Fed would like to embark on a policy "normalization". Some have trouble believing they have the courage to go through with a rate hike. For Yellen to build market credibility, she should hike rates soon. Fed Funds futures odds for a March Fed rate hike are only 38% (34%), suggesting they are skeptical. Markets now place the odds for rate hikes by June at 112% (116%).
On top of the Fed muddle, investors have begun to worry about the risk from key leadership elections in Europe over the rest of the year. Many worry about the possibility of a swing to right as has been seen in the U.K. (Brexit) and U.S. (Trump). Such could be a challenge to the status quo in the EU.
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The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
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