Forex Recipe

Just like technical and fundamental indicators, economic indicators influence the forex market quite strongly. The most influential technical indicators are the gross domestic product (GDP), purchasing managers index (PMI), producer price index (PPI), industrial production, consumer price index (CPI), durable goods, employment cost index (ECI), retail sales, and housing starts report.

Now you can imagine how important it is to follow this bunch of economic indicators to earn a good grasp of forex. The GDP is the sum of all goods and services produced either by domestic or foreign companies. It indicates the growth of a country’s economy and directly gets reflected on the price of the currency of the country. When the GDP is reflected to be high, the exchange rate of the currency goes up as more people become interested in buying that particular currency.

Industrial production indirectly measures the change in the production of a nation’s factories, mines, etc., and also measures their industrial capacity. As the manufacturing sector accounts for one-quarter of the economy, it directly affects the forex market.

PMI released by Institute for Supply Management every month indicates national manufacturing conditions from various data. Up and down of this index for a specific country also influences the forex rates.

PPI measures price changes in the manufacturing sector and again indirectly reflects the state of economy of the country.

CPI is a measure of the average price level paid by urban consumers. It reports price changes in over 200 categories. It also includes various user fees and taxes associated with the prices of specific goods and services. This is a major factor influencing many other economic parameters and therefore considered to be a major parameter responsible for affecting the forex market.

Orders for durable goods measures new orders placed with domestic manufacturers and somewhat indirectly reflects the future growth of the domestic industry, which gets translated in terms of overall growth of the economy.

ECI is a measure of the number of jobs in more than 500 sectors and it estimates businesses volumes. It also reflects the nation’s economic growth. When the unemployment goes up, it reflects slower economic development and in turn brings down the demand for the currency in international market.

Retail sales report is a measure of volume of business in retail trade throughout the nation. It includes durable and nondurable merchandise sold and services and excise taxes.

Housing starts report measures the number of residential units coming up each month. This sector is very sensitive to interest rates changes, which signals major economic chain of actions. The current US economic condition is largely influenced by this change in rates, which in turn influenced the global economic situation and affected the forex market in a large way.

Technical indicators are for predicting future market or price movement. They are highly technical and mathematical tool that analyze past data to obtain future prices. The moving average is one of the most basic technical indicators for forex. It can help you in identifying trends, when it smoothes price action into a single line. It generates the basic trading signals when price crosses the single line.

The moving average is one of the most widely used and popular technical indicators because of its versatile nature. The indicators can be constructed easily. With moving average, you can follow trends in the movement of a currency quite meticulously. It can identify a new trend, a sustained movement, either up or down, in the currency and can generate signal for a trader. The signals generated by a moving average has a lag to market conditions, therefore it is a trend that follows the indicator.

The moving average, as implicated by the name, is an average. You can choose the time periods in minutes, hours, days, or weeks. The most common of all is the 21-day moving average. Moving averages with shorter and longer durations are used and they have their own advantages and disadvantages.

Some analysts prefer to add more weight to the most recent data. In a 10-day moving average, the data from the 10th day, which is the most recent, would be multiplied by 10, the 9th day’s data by 9, and so on. Analysts also consider exponentially smoothed moving average to be better than the simple or linear averaging methods.

The main function of moving average is to identify the trend. You can simply examine the direction of the moving average for significant up or downward movements. You can also observe the price location. If the price is located above the moving average than the currency is in upward trend, but if the price is below the moving average, the currency is in a downward trend.

Trading currencies on margin lets you increase your purchasing power. It lets you buy currencies worth much more than you have actually deposited. For example, if you have $1,000 cash in a margin your account and if your broker allows 400:1 leverage, you could purchase up to $400,000 worth of currency, because you only have to post 0.25% of the purchase price as collateral. So, now you have the purchase power higher by 400 times than your actual buying power.

Margin or leverage can be considered a double-edged sword. You need to have a proper risk management system at place to avoid high degree of loss with margin trading. You must remember that high leverage can lead to large losses as well as gains.

Benefits of margin trading are therefore quite evident. With more purchasing power, you can increase your total return on investment with less investment. With an initial investment of say $250.00, your return on investment can be as high as above 250%. But, it is better that you understand how your margin account works. Always read carefully the margin agreement between you and your broker firm.

You should never forget that the positions in your account could be partially or totally liquidated if the available margin in your account falls below a predetermined threshold level. You may not receive a margin call before your positions are liquidated and therefore should always keep a tab on your margin balance on a regular basis and utilize the stop-loss orders on every open position to limit the risk.

If you trade forex with an automated trading platform, it calculates the margin requirements and checks your available funds before allowing you to successfully enter a new position. If you do not have adequate funds, you receive an “insufficient margin funds” message while attempting to enter a position. More is the leverage, more the opportunity, and more the risk.

Forex signals are well-researched data generated by professional experts in the field of Forex trading to help Forex traders. These services are presented by the forex dealers or independent forex analysts for certain amount of charges or subscription. They examine the market movement and provide forex signals through e-mail, SMS, or desktop alerts.

The Forex signals are formed after analyzing several factors responsible for the price movement. Both the fundamental as well as the technical analyses are performed to analyze the market conditions. Several technical or economic indicators are used for identifying trends, entry and exit points, stop-loss points, etc. Indicators like moving average, Elliott waves, Bollinger bands, Fibonacci series, candlesticks, etc. are widely used for generating specific signals. But you should never depend on the forex signal that uses only one indicator to generate the signals. Some Forex signal service providers even claim to use over 40 technical indicators to analyze market opportunities.

There are certain Forex signal services that provide signals along with the charts so that the forex traders can understand the trade and can take their own decisions. Generally the forex signal services generate signals for the major currency pairs like USD/JPY, USD/CHF, GBP/USD, and EUR/USD. Forex signal for lesser-known currency pairs are not very common and the charges for such signals are quite high.

A good forex signal service can help a forex trader who is comparatively new to forex market. With a keen sense of trading you can develop the strategy behind the signals and then you can identify the situations that may generate a good trade. There are momentums signals, which remain the same even if the trading goes against the direction. You should know when to place the stop limits or exit the particular trades even if the signals fails to show the exact situation.

If you do not have time to analyze the market, these ready to use signals prove to be quite handy. Credibility of the forex signal service is to be judged quite rigorously. The way a good forex signal service helps you in your trading, a bad forex signal service can mislead you, which finally results in bad trades and huge losses.

If you decide trading Forex online you must first decide which type of account would be just the right one for you. There are basically two types of accounts you can choose – Forex mini account and a full size 100K account. Demo accounts are not operational accounts, in true sense.

Demo or practice account, however, is a great way to learn the fact, features, and working procedures of the Forex market. It gives you the best way to learn and practice trading for free, with no risk of losing money because you do not invest money. For the beginners this is the best method to get the feel of the real currency trading.

The small or mini accounts are very popular because of the lower capital requirement to get started. However, to open a mini account you will need a broker. Different brokers charge different amount to set up a mini account. Initial deposit to open a Forex mini account is often $500 or less. Some may offer as low as $50 to open a mini account. You obviously won’t be able to trade much with it!

When you trade Forex, the instrument traded is called a lot. The size of a mini account lot is 10,000 units of whatever the base currency is. If the US Dollar is the base currency, then with a mini account when you buy or sell one lot, you are actually buying or selling $10,000.00.

Live or actual account is for those who are ready to explore and experiment with the real world of currency trading. Once a live account is open, you can start trading. Depending on your broker’s policy the initial sum varies for opening the live account.

Bottom line for opening any account would be to make sure the broker you choose has the right leverage, tools, and services with honest, transparent operations. The broker should not charge commissions for any accounts and should offer tight 3 to 4 pip spreads.

As you know, the Forex market operates round the clock. It is open 24 hours, 5 ½ days a week. It is also well known that the more time we spend on forex trading, we maximize our profit. But, what you must not forget is that not every single hour of the day is a good time to trade.

Generally, it is advisable to enter into trades when the liquidity is high in the market. It helps to reduce slippage and also provides better opportunities for large market moves. These large moves definitely ensure larger profits. On the other hand, when the liquidity is low, there are relatively few active trades and the market prices are usually flat. It reduces your chances of making profit since you need market movement for that.

There are some set time patterns when the market reaches its highest liquidity. For example, during London session when the market opens at 8 a.m. GMT and closes at 4 p.m. GMT, the market experiences high liquidity. Currencies that are most actively traded during these hours are the USD, EUR, GBP, CHF, and JPY.

On the other hand, the New York session opens at 1 p m GMT and closes at 8 p.m. GMT. This is the second largest trading session in terms of volumes of transaction. The third is the Asian session that opens in Tokyo at 1 a.m. GMT and closes at 8 a.m. GMT.

Compared to the London and New York sessions, the Asian session usually has less volatility. The absolute best time to trade is from 8 a.m. GMT to 4 p.m. GMT when more than two major markets overlap.

The New York and London trading sessions overlap between 7 and 11 am (EST). The volatility is high and trading opportunities are huge with frequent bigger price movements.

So, now you know how to maximize your profits with forex trading with the most rewarding time slots!

To know the advantages of day trading in forex, we must understand what exactly Day trading is.

Day trading involves taking a position in the markets and squaring that position before the end of the trading day. So, a day trader typically trades several times a day looking for earning fractions of a pip to a few pips per trade, but sum of which can turn out to be really huge.

So the target of a day trader is to capitalize on price movement within a trading day. However, as the forex market is open 24-hours a day, there is no such thing as “overnight” trading in forex. Thus, you can have open positions for longer than a day with employing active stop losses that can be activated at any time.
 
Unlike an investor, a day trader may hold the positions for only a few seconds or minutes, but never overnight. According to veteran traders, it is really the safest way to do forex trading because you are not exposed to the potential losses that may occur due to sudden drop in price.

The first advantage of day trading is – it has no overnight risk. The second, you enjoy increased leverage because of low margin requirements as the trades are closed in the same market day. This increased leverage can increase your profits, if you use it wisely. Third, you earn profit in any market direction. You often utilize short-selling to take advantage of declining currency prices. The ability to lock in profits even when the markets fall is extremely useful during bearish market conditions.

Day trading is not illegal or unethical, but at times, it is very precarious. The bottom line should be not to risk money that you cannot afford to lose.

 The Forex market is open 24 hours a day for 5 and ½ days a week continuously with a daily trade of nearly $ 2 trillion. The most common currencies that are traded are US Dollars (USD), Euro (EUR), Swiss Franc (CHF), British Pound (GBP), and Japanese Yen (JPY). These are known as “majors” by the traders. They account for over 85% of the daily Forex transactions. All of these currencies rank highly in their activity and popularity.  Other currencies that are traded, though not as frequently as these majors are New Zealand dollar (NZD), Australian dollar (AUD), the ZAR (the south African rand), Canadian dollar (CAD), and the French franc (XPF). These are known as minor currencies and account for between 3% and 7% of the total market volume. All the major and minor currencies taken together represents hard currencies that are currently being traded in the forex market. There is one more term “exotic currency” which is defined as a currency with little liquidity and limited dealing. They are neither a minor nor a major currency. Exotic currencies play a very vital role in the forex market and are almost equally important as all the major currencies. Cross currencies are types of currency pairs in which none of the pair is USD. For example, the pair GBP/JPY, is example of a cross. If it is worth 84.50, it means that one British pound is equal to 84.50 Japanese yen.

The phrase stock trading is commonly associated with overall activity of the market of buying and selling stocks. So there are certain physical locations of the stock markets in each and every city and in each and every country. Most of the countries have many different stock exchanges, which exist throughout the world. Stock exchanges exist throughout the world. Here lies the first major difference between a stock market and Forex market. As opposed to stock market, there is no physical marketplace for Forex and it is a virtual market. 

It is possible for you to buy or sell any stocks if you have trading accounts with some stockbrokers. You get information on the prices of a certain stock from stock exchanges, much like you get to know the rates of foreign exchange. But the next major difference the stock market has with foreign exchange market is that stock market has time restrictions. It opens at a certain time of the day and closes at a time for that particular business day. For example, NYSE (New York Stock Exchange) and NASDAQ allow stock trading operations during 9:30 a.m. to 4:00 p.m. Other markets around the world have similar opening hours based on their local time. But as we all know, the Forex market is open round the clock for 5 and ½ day in every week. 

The economy of a country affects stock trading. If the economy is doing well, the market is bullish, when economic production is high, rate of unemployment is low, and inflation is moving downward. Fluctuations in stock prices are also driven by supply and demand, just like it is for forex as it largely depends on investor psychology. The stock exchange is only of the most opportunistic market. Foreign Exchange or FOREX, Futures Market, and the Options Markets are few other examples. 

But forex is the most liquid economic market. That means you can take back or realize you investment most quickly. Here you buy a foreign exchange against selling of another. The market is affected by global events rather than national events. It is basically implemented between government central banks and commercial and investment banks. Forex offers huge profit potentials, as the movement between the currencies is always there. Small changes can churn out high return as huge amount of money is involved in every transaction.

Forex, as we all know, is the largest financial market in terms of transaction, which is amounting to more than $2 trillion each day. It is also the most liquid of all investment markets. And if you know the tricks of this trade, Forex trading presents huge profit opportunities. Until recently, however, the market was not open to small investors, but, a small or medium investor can now trade Forex with a minimal amount of capital.

The first thing you would need to start investing in Forex market is the knowledge of the basics of forex trading like how the market operates, what are the factors affecting the currency exchange rate, and also there are some terms that you need to know for day to day forex operations.

You must know that the market is not easily manipulated. Although, this is one of the major advantages, it can confuse the new investor as well. Some authentic resource may help you in dispelling your confusion and fear. To me, CDs and DVDs are one of the most effective resources for a newcomer into forex market. The prime advantage is the dynamism of graphical representations, which has much more impact than a drab, text-based description.

Log on to the Internet and search for forex resource on CDs and DVDs, it will throw you innumerable results. There are CDs/DVDs for beginners, for medium-level investors, and even for experienced investors. Depending on your level of expertise select one which will take you through the learning steps. Go through the independent reviews to get an unbiased opinion on the quality of the tutorial. Order online, and the CDs/DVDs will be delivered at your doorstep.

Go through the outline of the tutorial and try to formulate a strategy of your own on how will you go through the lessons and practice them. The course will be divided into segments depending on the complexities. If you are a beginner, start with the level 1. Go through the text, which is almost always supported by audios and video clips. For example, when it discusses technical analysis, each and every methods of analysis will be described with text, three-dimensional bars, charts, and graphs, and multimedia presentations. The most wonderful factor is, you can run them again and again till the time you master the trick.

Most of these CDs/DVDs are researched by professional traders or brokers. They have the facility of online help desk, where you can put your quires, which will be answered by veteran traders or trade experts. You can have online seminars, live chat sessions, forums, and many more such extended services. CDs/DVDs therefore can work out to be the one-stop solution for your Forex education.