Forex Recipe

Last week we discussed some forex orders like Market orders, Entry orders, Stop orders, Limit orders, and OCO orders. There are few other orders that we plan to discuss now.

There is one type of subsidiary or condition-driven orders known as If Done Order. This order is placed in the market owing to the contingency situation on the execution of the associated. This depends largely on combination. Two steps of limit orders or stop loss orders are associated with it. When the first order is filled, the other order is executed as well. This means the second order becomes valid only when the first one is executed. Therefore, it is just the opposite case of OCO orders.

The next is Position order, which is directly related to individual positions. These are active till the time the positions are open, and it can be either a stop loss or a limit order.

We have discussed Stop Loss order already. With stop loss order open positions are automatically liquidated at a pre-defined specific price. It becomes a market order when sold at or below the stop price. It is used to protect a trader against potential downward slip in a security. This also minimizes the exposure to losses if the market moves against the trader’s position.

Stop Market orders are placed when currency price reaches or passes through a specific price for buying and selling. It is mostly used by traders having a long or short position and when he or she wishes to close the position while the market moving against them. This is also applied when the trader wishes to open a new position when the currency price attains a specific level. The stop price on a sell stop is always below the current bid and the stop price on buy stop is always above the current offer.

Forex brokers may use different names or terminology for these common order types, but the working procedure is same. As a trader you must know their basic functionality to exploit their powers fully. Your profit and loss greatly depends on the orders you place.

Forex market has some basic order types like Market Orders, Stop Losses, Limit Orders, etc. Depending on a particular broker they may vary slightly retaining the basics. Some automated orders are generated at pre-determined exchange rates that are placed to control the downside or to consolidate the upside. It is extremely important for the investors to know about different Forex orders to protect themselves and to earn more profits from the forex market.

Market Order is the one with which you can buy or sell a currency pair at the prevailing market price the moment the order is processed. Customers using some automated trading platform can simply click on the buy or sell option after specifying the size of the deal. The order gets executed instantly. You can place market order by phone as well, which may take few seconds more.

The next type is the Entry order, which you use while buying or selling a currency pair at a certain price. All you have to do is to place an entry order for either the low price the high price of a time period.

Stop Orders can be defined as a market order for a currency pair when it attains a specific price level. The order is placed below the current market price for the currency. Stop orders are placed to limit the loss for a particular transaction, whereas limit orders are placed to enter the market.

So, Limit Orders can be defined as a market order when the currency pair reaches a specific price level. Limit orders can be of two types, buy limit and sell limit. Buy limit order is executed to limit price or lower and a sell limit order is for limiting price or higher. A limit order is always placed above the current market value of the currency. Limit orders will have two variables, price and duration. The trader may define the price for buying and selling a certain currency pair and may also specify the time for which the order will remain valid.

OCO Order is placed for taking advantage of market price movement comprising stop and limit price. Once the first level is achieved, half of the order is executed and the balance order is canceled (in both the cases, either stop or limit). This ensures that your position is locked in case of the market moved toward either the stop rate or the limit rate. This will close the trade with canceling the other entry order.

We will discuss some more orders in future!!

Leverage means borrowing some amount for investing. In forex you can borrow the money from your broker. Leverage is quite high in forex trading with margin requirement. The margin-based leverage can be calculated dividing the total value of the transaction by the margin.

If you need to deposit, say, 1% of the transaction value as margin and you wish to trade one standard lot of USD/CHF, which is equivalent to $100,000, the margin would be $1,000. You are offered a leverage of 100:1 (100,000/1,000). (more…)

Forex is a virtual, global market and it is open round the clock! This allows investors and traders to work during their normal business hours and long after the working hours, even during midnight. However, all the market hours are not equally lucrative. At times, the currency rates are constantly volatile and at times it is hushed. This variation is also observed in the behaviors of the currencies as well. At certain hours some currencies are traded actively. This is because of the difference in time zones.

There are three major trading sessions in which the level of activity heightens. This makes the life easy for the trader too. A trader can attend the market when it is typically volatile and can develop a strategy depending on the market timings. (more…)

You would need a forex managed account if you do not have time to watch the market personally. You can authorize your broker to operate your account on your behalf with the full and exclusive right to withdraw money from your Forex Managed Account. You are also free to obtain the information pertaining to the relative performance on daily basis.

On completion of a month, you will receive the statements of account. The transaction fees of the accounts generally vary depending on the amount of investment.

But, you have to pay a penalty of some percentage of the amount invested in case you withdraw money prior to the completion of the commitment period. In such cases you will lose the right of receiving the profits generated on the account. (more…)

Forex trading is quite complicated and often delicately balanced on movement and influence of several factors. Trading without knowing the basics of the market and a solid strategy at place can lead to devastating results. In those cases one can only expect more losses than profits. But, when you have a system of trading, the win to loss ratio will be much better than other traders.

Win to loss ratio in forex can be defined as number of winning trades to losing trades. It is the ratio of average profit to the average loss per trade. Say, you expected a profit of $1000 and expected loss is $200 for one particular trade, then the profit to loss ratio is 10:2. (more…)

If you are into forex, you must have heard of pips and lots. To understand what is pip, we should start with the expansion of pip, which is percentage in point. It is important to know as much as possible about pip as with pip values you calculate your profit and loss.

Pip is the most common increment of currencies. If, for example, the EUR/USD moves from 1.2250 to 1.2251 it is said to be moved by 1 pip. So, it is the last decimal place of a currency quotation.

As every currency is unique pip is to be calculated on the basis of the value of that particular currency. For example, for currency pairs with US Dollar quoted first, the process to calculate pip would be the following (more…)

Forex trading plan is perhaps as important as having knowledge about forex trading and market basics. A good trading plan and the agreement to stick to it – both are needed if you want to be a profitable forex trader.

A forex trading plan shows you the right direction. As we know that it is important to know how you are fairing as a forex trader, you also need to follow a system to evaluate your performance. Your trading plan helps you on focusing on the target. As it is said that a well beginning is half done, a well-structured plan keeps you ready for the various market situations.

A workable trading plan should have a trading system, a system that is thoroughly back tested, and you have traded on it at least two months with a demo account. You should have all necessary details at place like the time frames you are going to use for your forex trading, how you are going to take your entries and exits, what would be the risk during each trade, currency pairs you would trade, what would be the lot size, etc.

Trading routine is an important component of your trading plan. This would help you in analyzing the market trend and when to start trading. Your attitude toward forex trading should also be considered while developing a trading plan. Keeping out the psychological component from trading is important for your success as a forex trader. Knowing your weaknesses is helpful because now you know what you need to improve. It is important to be aware while trading forex. For example if you identify that you tend to exit early on your trades, you know ways and means to improve it.

Have a realistic goal. They can be either trade related or personal. Keep a trading journal. It helps you in becoming a better trader.

Cross Rate in Forex trading is the exchange rate between any two currencies that are not of the country in which the currency pair is quoted. For example, if you are in the U.K., a quote involving USD/JPY would be considered a cross rate. But this would not be a cross rate if you are either in U.S. or in Japan.

Cross rates can be calculated if major exchange rates for involved pairs are known. The formula for calculating is the Pip = lot size ´ tick size ´ base quote / current rate. For example, if 100,000 EUR/GBP is currently traded at .6750, and EUR/USD at 1.1840, then 1 pip = 100,000 ´ .0001 ´ 1.1840 / .6750, which is $17.54.

Another way of expressing the cross rate, for example, for GBP/JPY is: GBP/USD = 1.7464 and USD/JPY = 112.29, so the cross will be GBP/JPY = 112.29 ´ 1.7464 = 196.10.

For all the online trading platforms and online brokers you get to know the cross rates almost instantly. They update the streaming prices periodically for investors to know the market trend. You can also download small free online applications for calculating the cross rates for any given pairs.

These applications continuously download data feed to auto-update the currency rates. So, you get real-time quotes. You can customize any currencies that the feed can provide. You would need a browser that supports Java. Before buying or downloading you can also have a live demo of the application.

If you are new to Forex trading, taking the first step is important. If you start with winning, congrats! This is going to boost your self-confidence. But if the market move is against your investment, you would be rather uncomfortable to decide on the next trade. If you opt for automated trading, you have to option of testing the waters, either to open a demo account or a mini account.

Although the concepts of forex trading are quite simple to understand, the actual trading methods are to be grasped fully and a demo account is the best for it. This account you can open with any broker that works exactly like any other accounts without the involvement of real money. You will be able to understand how, why, and when trades are to be executed. If you are going through some forex trading tutorial side by side, you can check those concepts as well in your demo account.

Demo accounts are also excellent for developing a sound trading strategy and to learn various methods of risk management. As no real investment is involved, you can continue experimenting with different features of the trading. You can also evaluate the performance of the trading system offered by your broker.

But, a mini forex account has its own advantages as well. You cannot ignore the need of hands on trading. In a demo account you will probably be able to trade standard size accounts only. Because of the low margin, you will not be able to make huge profit but you will not loose big money too. You will get the feel of the actual market. With a little risk involved you will be more responsible to develop your trading practices. In demo account you need not to restrict the emotional trading aspects. In mini account, ideally, as you learn to trade, you also learn how to manage your risks most successfully.