Thursday, December 17, 2009

Do You Know When to Bail Out?

As much as you have probably heard how lots of people struck it big in the foreign exchange market, you'd also definitely have come across the numerous horror stories from people who lost a lot of cash very fast.

Depending on how doubtful you are you could either take these horror stories very seriously, or not seriously enough. Either way the fact of the matter is that many folks do end up losing cash in the foreign exchange for a particularly simple reason: they don't know when to quit.

To illustrate what we mean, let's go over a fast example. Say you have US$ 100,000 that you need to invest in the forex market. That's no small amount, and you figure that if you pick the right investment, you could really make money.

So you glance at the market, and feel that using your US$ 100,000 to buy Aus$, which is at present being sold at 1.4244 Aus$ per US$, would be an excellent idea since it seems to be rather high and the Australian Dollar will probably pick up shortly.

With that, you purchase into that currency, and you presently have Aus$ 142,440. Great!

Unfortunately, this is where things begin to go wrong. Instead of the exchange rate improving, it actually does the opposite, and after 24 hours you find that it is now 1.4544 Aus$ per US$. At about that point, if you were to sell you'd end up losing a ton.

instead of selling and ending up losing, you decide to wait and hope that it improves. Come the day after though, you find that the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$.

At this stage you figure that it isn't going to get far worse, and so you choose to hold for a bit more. But what if it gets worse? What if it hits an all time low and you're stuck with the possibility of losing over half your investment if you sell your Aus$? How long are you going to hold on to that currency though?

See, this is the issue with not knowing when to quit. Ideally, a savvy investor would have defined a stop order right at the start, potentially for $1.4344 Aus$ per US$. That way, the second the market commenced going the wrong way, you'd sell and be out of it.

Sure, you'd still lose some money, but it's far better than losing more than you ever expected.

unfortunately, many still finish up doing exactly what we just discussed in that example, and hold on for far too long, with far not enough reason to do so. End of the day, the choice is yours, but knowing when to give up is certainly one characteristic that may serve you well.

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Friday, December 11, 2009

Getting the most out of the currency market is something that will take time. Some of the best in the business have been at it for years , and years, and they are still learning things along the way. In other words, if you hoped to sit down and conquer the foreign exchange market in one hour think again!

That said , today there are lots of tools out there that may help you to smooth out the process along. Granted, not one of them are going to offer you an immediate recipe of success, but they are fairly necessary if you'd like to make the most out of your foray into currency exchange.

What are these tools that we've been talking about? Well, what about we have a look, shall we?

1. Forex Charts

put simply foreign exchange charts are merely charts that record the progress of exchange rates over time . Finding them on the internet is a piece of cake, and various finance internet sites have records freely available that you can take virtue of. Other sites even let you generate your own custom charts.

equipped with these charts, you may learn how to spot trends, and be ready to come to terms with 'predicting' fluctuations before they occur. End of the day, that is exactly what it takes to be successful in the foreign exchange market.

2. Foreign exchange Software

Except for charts, nowadays there are numerous pieces of software to help you with your efforts in foreign exchange. A number of these are totally automated, others are just semi-automated, but what they all share in common is that they'll help smooth your experience and make a large amount of the facets of forex appear a ton simpler.

To be honest, having an automatic forex software that you've tweaked and configured is a massive advantage seeing as you cannot be predicted to be constantly at your PC keeping a lookout for when to place orders for currencies, right?

three. Fast web Connection

Surprised this made the list? Well, you shouldn't be. Having a fast ( and stable ) web connection could be make-or-break so far as your foreign exchange investments are concerned . Every 2nd counts, and if you book an order only for it to be recognized mins ( rather than seconds ) later, you could find that you have just let a wonderful opportunity slip through your fingers.

No automated software will help you if your web winks out at an inopportune moment.

If you can arm yourself with these tools, you'll find that some of the more complex sides of the forex market seem a whole lot simpler. Also, they'll give you practically everything that you need to achieve success.

So from that point on, your success or failure will be determined only by your calls and how cleverly you make them. Try to learn as much as you can about the currency market, because invariably that data is going to prove to be useful in the not so far off future.

And it'll help you to use these learn forex tools to their total potential.

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Monday, December 7, 2009

Know Your Broker!

Forex (Foreign Currency Exchange) traders invest a great deal of time worrying and discussing their various concerns regarding the retail brokers they use to handle their money. It's natural to presume that to make money in forex simply means to 'beat the market' by finding and making top quality trading opportunities. In truth, there is a lot more to it; the broker which is honoring your trade will greatly impact how successful you are.

Most people stay away from so-called Bucketshops; retail brokers which quote questionable prices, seem to manipulate prices for their own gain, and actually trade to the detriment of their clients. This practice (although many say they don't do such a thing) creates an ethical conundrum that naturally benefits them and against the traders. The term 'Market Makers' as well is often used to describe those companies that in fact take the opposite side of their own clients' positions. Because they present their own version of prices and fill the clients' trades directly from the company's own portfolio, they are truly creating the market. A hard look at the environment of currency, however, shows us that such a practice is in fact vital to making it possible for small retail trades to occur, and although it can be.

The reason this is true is because there is no actual 'Forex market', in the way that there is for other types of investment. As an example, company stocks are traded primarily through official stock exchanges -- the NASDAQ being among the most prestigious. All trades executed by way of an exchange such as the New York Stock Exchange is cleared through that exchange, traded according to the standards of that exchange and moved through brokers who are overseen by the exchange. Stock exchanges set the hours of business and have the ability to determine if any stock or brokerage needs to be expelled or suspended as the result of practices that run the risk of harming the overall market. These exchanges have known brick and mortar offices and are in turn regulated by government offices.

The Foreign Exchange market, by contrast, is constituted largely of huge institutions that need to exchange capital with other nations. They are important institutions; banks and giant conglomerates which have to transfer capital from a specific currency to a different one so that they are able to do business from one economy to a different one. If a Japanese company sells products to an American company, it will probably be paid in the form of $US, but it have to pay its internal bills in the form of Japanese Yen, therefore it must be able to convert massive amounts of currency on a consistent basis. This is the true Forex market; corporations and banking institutions that shift trillions of dollars worth of currency back and forth every day. Retail traders like us could never participate in that market -- we obviously don't have that much capital.

Because of this a Forex broker must have the ability to trade currency directly with their clients. The brokers create manageable trade opportunities for the under capitalized players (that's us) who might otherwise never be able to get into the Forex market. They, in turn, perform much bigger trades with their 'Liquidity Provider'; a financial institution able to trade with brokers for the purpose of making some profit from the retail traders. On our own we'd never be able to catch the attention of the big time banks. It simply would not be feasible for them.

Because of this, a trader must rely on his broker to offer their own currency prices rather than getting a guaranteed price from a central exchange. Each broker has to use prices provided to it by its bank(s) which are not assured to be the same as those published by other liquidity providers. Those disparities are seen in the disparity between broker quotes. It is not an attempt to screw the customers (although some unscrupulous brokers undoubtedly do) it's simply a necessity of making the market for you to participate in. A broker may be ethical and still have the need to trade opposite its customers, even though they're not trying to misquote prices and make those clients lose.

So you see, for most trades a retail brokerage will be forced to 'trade against' their customers, though they are constrained by legal and ethical conventions not to do so in a way that harms those clients. This makes for a serious situation of 'caveat emptor' - that is, let the buyer be careful. All speculators and those trying to learn forex must thoughtfully select their brokerage and should actively watch the trade and price activities to make sure that they are being handled equitably. It would be improper, after all, to infer that a broker who takes the other side of a client's trades is doing so to screw them. It may sound bizarre and also a little unsettling, but it's a necessary and crucial aspect of the retail foreign exchange business model.