Gross domestic product GDP: one of the most important economic indicators that impact directly on the economy of the State and thus on its currency and economic position, which in turn affects the strength and movement of currency in circulation, GDP is a measure of the State’s economic situation reflects the value of goods and services produced in a given time period. A positive relationship between the GDP and the level of improvement in the economy of the country, the higher the value of GDP, that would be in the interest of the country and the economy improves, and vice versa if I said the value of gross domestic product.
Inflation: inflation reflects a rise in the general price level and weak purchasing power of the currency and increase the price of a given product is worth purchasing less and affects inflation mainly on the economy and, of course, will affect the exchange market for its close link with the value of the currency.
CPI: consumer price index is the index measures the price of goods consumed by individuals including major consumer dependence treatment necessary. A positive relationship between the consumer price index and the currency value, the higher the value of the consumer price index has increased with the value of the currency and thus may change value against other currencies in the trading markets.
Interest rate: the interest rate or the amount of interest on funds for investors and is an important tool, but the Central Bank to control the value of the currency in addition to the forces of supply and demand the President to control interest rates, the Central Bank used sometimes to raise or lower the interest to attract or abandoned investors buy or sell currency by rate its usefulness, so a positive relationship between the value of the currency if the interest rate is less demand for the currency and value.
The balance of trade is the difference between exports and imports of a country, in the case of exports, imports, there was a trade surplus have if imports to exports, there is a trade deficit has. A positive relationship between trade and the currency value, the higher the trade balance has improved the economy and thus increased the value of the currency and vice versa if the weakened value of the balance of trade in that country.
Unemployment rate: theratioof unemployedtothe total populationin thecountry.Index and the unemployment rate is a sensitive indicator of the President and in turn the economy of that country, an inverse relationship between the unemployment rate and the value of the currency of that country, the higher the rate of unemployment was bad for the economy and said the value of the currency and of course will be reflected on the movement of the currency pairs in the Forex market if the change in the unemployment rate of output.
That it’s better to invest with The flow of the market, the more experience you gain, the more you’ll want to try and Predict future trends – simply because that’s where the big money is.
One way to do this is by studying the relationship between economic indicators and news events for forex trading, Or, between currency pairs and commodity values. Most asset prices are influenced by supply And demand, politics, economy, and so forth.The two classic examples are oil and gold. Both are priced by their major producers and consumers.
With gold, the vast majority of its production is in one place – Australia. As a result The correlation between the price of gold and that of the Australian dollar is nearly rigid This can be good for anyone trying to predict movements in the Australian dollar Ahead of time. Simply look at gold first, then watch it reflect in the Aussie dollar Shortly after. And since most brokers offer lower spreads and commissions on currency Pairs than on commodities, you can trade on gold cheaper by simply trading on the Australian Dollar in its stead. Oil is another example, but not like you’d think. Since the US is the world’s major oil consumer, oil prices are quoted in dollars. Also, more money to spend by US consumers means more spent on fuel.
As a result, the Relationship between oil and the US dollar is tight; but it certainly isn’t fixed. In fact, oil is a rather combustible asset and its price versus the US Dollar has been Known to double in the space of two years. Once again, if we’re looking for currencies That are immediately influenced by oil, we need to look to the producers. And no relationship Is tighter than oil’s to Canada. Canada’s oil reserves are second only to Saudi Arabia.
What makes it even better is Canada’s proximity to the US and China – also a major oil consumers. And since Canada is politically stabler than the Middle East and Russia, here again, like The Aussie-Gold brotherhood, we have a currency that reacts quite faithfully to the rise and Fall of oil demand and oil option prices. Now consider that gold in its ingot form is Almost inert, whereas oil’s volatility is ruled by wars, the global economy and a host More. You now realize why finding a proxy to oil isn’t simply a matter of getting Better trading terms.
Today’s topic is Forex pairs, that basic unit That enables us to trade in global currencies, the forex market is huge it’s Worth over five trillion dollars in daily turnover In Forex we invest in options to exchange currencies The two currencies we exchanged for one another are called a Forex pair And each pair is designated by two sets of currency abbreviations One on the left.
The base currency and one on the right Account currency, the value of the pair equals the amount of units of counter currency you need Or get for one unit of base currency to, profit we could take a loan in Low-interest currency and invested in a high-interest one.
By the end of the term we would be paying interest where we took the lone and Getting more interest where we invested it, in Forex we’re not really taking on making a loan but Investing in the opportunity to do that, that opportunities value can rise or fall And we can profit either way.
Trends in Forex markets can be quite easy to identify and Even predict if one does one’s homework and combines both Technical and fundamental indicators The simplest technical indicator to use his support and resistance The Lines on the chart that showed the values above and below which assets.
Price will not usually deviate These are the values that represent a assets true worth in the eyes of Most investors, too high above that and buyers will soon stop buying Too far below it and investors realize that others will soon want to get in on The action as assets price Starts rising again towards its realistic value.
The second most popular technical Indicator is the moving average Moving averages are computed over a specific time frame That way they can filter out moment deviations from a trend and reveal Those trends more clearly The length of the time frame selected determines how strong the filter is By imposing a long-term moving average with the short term one You should be able to predict how stable a price trend is Or even if its about to reverse.
Fundamental indicators are Easier to understand, since they take there input from real-world events that Influence economy Thus for example, improvements in the country’s economic growth Or a rise in interest rates, usually drive investors toward the country’s currency Geopolitical instability on the other hand will drive most investors away Whereas most technical information maybe derived from charts, with fundamental Indicators one has to simply listen to the news Determine to what extent the country’s economy is influenced by current affairs and official announcements And then translate that into market predictions, that’s why Fundamental analysis might seem Easier to understand, but is often much more difficult to apply.
Candlestick charts are very popular Forex traders because they provide more Information then simple line can They provide data during a certain time period, each candle shows its own Opening closing, maximum and minimum prices And you can usually determine the time scale by selecting on the platforms Toolbar seconds, minutes, hours anything up to a month.
The candles themselves have weeks both above and below The two-sided candle, the top week is called the shadow And the bottom week is called the tail, the middle part is the body Candles are green if the assets price rose during the time period described And red if it dropped, the shadow reaches up to the highest price during the period and the tail reaches down to the lowest, toll a shadow The stronger the support, the longer the tail,
The stronger the resistance But candlestick charts don’t only provide information They can sometimes be used to identify trends and even predict them Just for example, a candle stick with no tail but a tall shadow Suggests that the market is shifting from bearish to bullish One with no shadow, but the long tail might be hinting at a shift From bullish to bearish.
It’s interesting to note that although are correct in most of there Trading predictions they often end up losing more than a gain The reason is simple: make less on the winning positions and they lose more on the losing one’s That’s why, when investing in any kind of channel you want To keep a eye on the bottom line, is it worth your while And are you actually making any money, we do this on two levels.
Overall monitoring and controlling each specific trade In short you profit loss ratio, in Forex it’s quite easy To determine your win-loss ratio both in general And for each trade, see how your Forex account is treating you Simply divide your total gained over a certain period by the total number of Winning position you place during that same time Then divide your total losses by the number of losing positions The ratio between your average wins per trade and your average Losses per trade is your overall profit loss ratio.
Now when it comes to placing a trade you should set your profit loss ratio as well You do that by setting take profit and stop Loss orders, the distance of each one of these from your strike prices That positions profit loss ratio lets take a look at the following chart: The support level at the moment is down here and the resistance is up here Your base price is your strike price that’s the value of which you opened your position Minus the spread, your stop loss and take profit borders should be somewhere near the Support and resistance levels Respectively now you have to decide at
What price you want to open the position If you do so here equidistant from your orders You profit loss ratio will be one to one, put it up here Two-thirds of the way from your potential loss and one-third of the way From your potential profit and the ratio is two to one not brilliant For every pip of profit you could get you stand to lose two now move it down Here where it’s closer to the stop loss and to the take profit And you have altered your ratio to one to two for every two pips of potential profit You might lose one, a vast improvement.
Forex trading is a way of speculating on the future value of a currency pair.
Trading is buy low, sell high. For short selling, we do exactly that, but in reverse sequence, i.e. we sell high and then buy low. People have difficulty understanding how this works and end up asking the question “how can you sell something you don’t own?”.
I’ve several responses to that, so take your pick. The accurate answer is that we never own anything, it is pure speculation on the future value of something. By short selling, I am speculating the value will be lower at a future time and I make the commitment to buy it at that time. It is the way business runs. If you want to spend your profits from trading on a new car and that car is not in the dealer’s stock, it does not stop the dealer selling you the car.
They are expecting to buy the car for you at a later time. There is no guarantee they will be able to source the car at the exact same list price as they could today, so they too take on some risk. But the principle applies, sell first and buy it later, in effect, fulfilling the delivery. In the other video covering trading, “What is a Forex account”, you saw how dealing in currencies always involves selling and buying at the same time. Suppose I am trading Cable, and evidence suggests that the exchange rate is going to fall.
I can see the prices at which I can buy and sell this currency, buy at 1.5851 and sell at 1.5848. The price is fluid as the market is open as I take the trade. Suppose I were to go short on Cable, that means selling Cable at £8 per pip. Remember, a pip is the fourth decimal place on this currency pair. As I sell the currency, my position is shown along with the price I took the trade. My exit price is shown, which is the price I can currently buy at. A running profit and loss is shown too. Let’s watch this as the price changes.
Notice as the price increases, my P&L position has got worse. I have traded for a future value to be lower, so price rising is not what I want. I want the price to fall. Like that. But I am still losing money, as the spread of 3 pips has not been covered yet. Each pip of price movement is worth £8.00, as that was my initial stake. As the price continues to move in my favour, we reach break-even. It’s only 1 pip, but at least we’ve moved into profit. That’s better, 9 pips so far. Now up to 16 pips of profit. Up to 23 pips. This is my target on the trade, 25 pips. Let’s close the trade now, buying the currency at 1.5822 and bank £200 profit.
Let’s run through the trade. When I closed the trade, there was 25 pips of profit, the price having fallen in my favour as I’d sold the currency. This comes to £200 as my stake was £8 per pip. Had I staked £20, my profit would have been £500, 20 multiplied by 25. And so forth. It is possible to make losses using spread betting when prices move against you.
If the price had risen, my losses would have accrued at the same rate, so a 25 pip rise equates to a loss of £200. You need to understand risk management fully coupled with the use of stop losses. In this example, I used UK pounds to trade the British Pound and the US Dollar and did not have to do anything other than open and close the trade. The equivalent trade in a Forex account would involve selling a specific amount of currency.
The spread is an inevitable part of trading and is the profit taken by the broker. When trading Forex, whether through a Forex account or using spread betting, the broker does not charge you a fixed or monthly fee for operating the account. The broker does not take any direct transaction charges for taking a trade either. Instead, the broker offers two different prices for a currency trade, often referred to as the bid price and the offer price. These are the brokers prices, describe what the broker is doing, the broker is bidding and offering. You buy at the offer price and sell at the bid price. The difference is called the spread and is the brokers profit margin.
These are the prices at which I can buy and sell Eurodollar, the currency pairing of the Euro and the US Dollar. The price you can sell them to the broker is 1.2612. This is the bid price, or what the broker is bidding to buy your currency. When looking at Forex charts, it is most common to have the bid price displayed. If you wanted to buy this currency from the broker, you would have to pay 1.2614. This price is called the offer price, or ask price, or the price the broker is offering to sell you the currency.
There is another price called the mid price. The mid price, as it’s name suggests, is the middle point between the two prices. Take the bid and offer price, add them together and divide by two to obtain the mid price. The mid price is not often used, as you can’t actually trade at this price. It may be useful when the market is very slow or volatile. Currency movements are measured in pips. The spread is the difference between the bid and offer prices and is expressed as a number of pips.
To calculate the spread, move the decimal point four places to the right and simply deduct the bid price from the offer price. In this example, Eurodollar is trading with the spread of 2 pips. When you look at a price chart based on the bid price, you need to add the spread to the bid price whenever you are contemplating buying the currency to find your true cost. Spreads on different currency pairs vary. The calculation is the same, so move the decimal point four places to the right and deduct the bid price from the offer price to obtain the spread. Cable is trading here with the spread of 3 pips.
On some of the less commonly traded currency pairs, it is normal to see spreads a lot higher. Here, the Kiwi Dollar and the Swiss Franc are trading with the spread of 7 pips. You might decide this is too high for you to trade. Your might restrict the currency pairs you trade on certain strategies as a result of the spread. When it comes to trades involving the Japanese Yen, the decimal place is moved two places to the right to calculate the spread. In this case, the Aussie Dollar is trading against the Japanese Yen with a 4 pip spread. Competition amongst brokers is fierce and often seen in their advertising by the spreads they quote.
Eurodollar is the most heavily traded currency pair and usually has the tightest spreads. Brokers are keen to let you know how tight (or narrow) their spreads are on Eurodollar. From 2 pips, there are not many steps down to zero, so many brokers have moved to pricing at 5 decimal places. To calculate the spread still means moving the decimal point 4 places to the right. In this example, the spread is 1.3 pips. The equivalent for pricing the Japanese Yen is to quote the price to three decimal places. The decimal place is still moved two places to the right to calculate the spread, which at this moment is 2.8 pips.
Most brokers now use variable spreads. This means the broker can change the spread at will. During periods of normal trading, this leads to very competitive spreads. When trading is “thin” , which means not very much activity, brokers often widen their spreads. This can sometimes be seen at the beginning of the week when the market is opening and at the end of the week when it is about to close. Given spreads are variable, it can mean the bid and offer price moving quite independently of each other. This can also happen at times of high market volatility. Although the spread is the brokers cut, it is not generally seen as a transaction cost.
When trading, the focus is on the bid and offer prices at the moment in time when the trade is executed. You can see the impact of the spread at the precise moment you take the trade. For example, trading Eurodollar at £2 per pip with the spread of 1.1 pips results in a cost of £2.20. Rather than focus on this cost, you will be looking at the P&L as the trade progresses and either the net profit to you, or the total cost.
A quick recap on spreads. Spreads on currency pairs vary by currency pair. Most traders focus on the major currency pairs for trading, as the spreads are more competitive. Competition amongst brokers is fierce. Don’t assume all brokers give the same bid and offer prices, or the same spread. If you have multiple trading accounts, shop around. Market conditions can affect spreads. Most brokers use variable spreads allowing them to take advantage of slow markets.
This is a kind of “how long is a piece of string” question. If you’re serious about starting trading, then here are some things to consider. The first is why do you want to trade? How serious are you about trading? Are you looking to create a lump sum in the future, or looking for an income? Or both? If you give a higher priority to income, it is likely you will need a larger sum of money.
This doesn’t have to be and probably shouldn’t be on your first day of trading, but do take this into account when deciding your trading fund. How much can you afford? It is generally said that you should only trade with money you can afford to lose. That doesn’t mean you ARE going to lose it. Are you planning to be trained? Do you already have trading experience in a different market? As a rule of thumb, a large pot of money and no education is not a winning combination. Better to start with less money and a whole heap of education. The next consideration is risk. Both your own attitude to risk and the risk you will take in the market trading.
You will be taught to trade with a maximum risk of 1% of your account on any one trade and frequently, just a fraction of this amount to limit the potential for losses. In numbers terms, 1% means you will risk no more than £20 on a single trade assuming you start with £2000 in your trading account. Low risk is the best approach to trading. Of course, overall, the lower the risk, the lower the return.
The old saying “Rome wasn’t built in a day” comes to mind. Trading is about get rich steadily, rather than get rich quickly. You’re learning and practising a new skill. Let’s get the learning and skills development accomplished at the lowest risk we can. As your skills and confidence build, we can look at gradually increasing the risk. Impatience can be a problem, particularly when looking for income rather than longer term capital growth. There will always be a temptation to chase profits. Don’t. Capital growth of 20% per annum is pretty good – it means just 1½% a month on average. Income of 1½% a month is less appealing, particularly on a smaller account.
Don’t be greedy. Think about it – where else can you achieve a return of 20% per annum? With a little more experience, doubling that figure to achieve a return of 3% each month is not unrealistic. If your partner asks “how are you doing”, always answer with a percentage. For example, a 3% return in a month is good when you struggle to get that in a year on your savings. But a return of £60 for a month’s work on a £2000 account doesn’t sound too exciting. Yet if you compound a return of 3% a month, you will be achieving about 50% in a year.
How will that look in a few years time? There’ll be some months when your returns exceed 10%. But expecting consistent returns of 10% or more each month creates pressure, which normally progresses into impatience and taking on far too much risk. Another factor to bear in mind is the time of day you will be trading and the strategies you will be using. If you are trading longer term strategies for a few minutes a day, you can achieve excellent returns. But you will normally need slightly more capital to allow for price fluctuation and risk. Some rules of thumb for the suggested MINIMUM amounts you should consider in a trading account. First of all, let’s consider Forex accounts. The amounts suggested here are the minimum to allow you to take most trades without breaking the rules on risk. In a mini account, which allows you to take trades of a tenth of a lot upwards, you should consider £6000 to be a realistic minimum. For a micro account, I suggest £2000 as a minimum.
You could start with half this amount, but for most people, the monetary return on investment starts to become inadequate as the capital drops from here. In a spread betting account, assuming you can trade with a minimum of 50p per pip, £5000 is a realistic starting account. Again, you could start with less than this, but the number of trades that you can take will start to reduce. If you could trade at just 10p per pip, your minimum account size drops proportionately to £1000. We are happy to recommend brokers who allow trading at 10p per pip. If you’re not sure of the difference between a spread betting account and a Forex account, Plan B have further FAQs describing the nature of the two types of account. Don’t get hung up about spread betting being tax free and Forex accounts being taxable.
The first few thousand pounds of profit each year is exempt from tax anyway. You can start with a micro Forex account and migrate to spread betting when you have a larger account, or choose a spread betting provider where the minimum trade size is less than 50p. Just to re-iterate, these amounts are suggested minimum. There is no issue with sums greater than these amounts. I know of organisations that say you can start with as little as £500. That doesn’t mean you should. Think about it, if you achieve an annual return of 50%, which by any measurement is pretty good, that equates to £250.
Psychologically, it makes progress very difficult and leaves no margin if you happen to hit a few losing trades, which should be considered when you are starting out.
And what time of the day is best for trading? The first thing to add to the mix is quality. By quality, it is not so much the amount of time you spend, but what you do during that time and the value you derive from that time. 20 minutes of good quality time to focus on the market and trading is better than a couple of hours with the television, kids, pets or partners in the background providing continual interruptions. Your experience also plays a part. When you are starting out, it makes sense to invest more time.
You’ll naturally be slower recognising patterns, charts and events and navigating around your trading terminal. Like most things, practise means you’ll get quicker and find it easier. The next thing to consider is your trading goals against your available time. Many people starting out trading are in full-time employment. This means unless you’re working shifts, your time to trade is likely to be in the evenings or early morning. There is no issue with trading in the evening. But strategies designed for the morning session are not going to help. Of course, your time zone plays a part too.
Trading in the evening in the UK is quite different to trading in the evening in Hong Kong or Chicago. Check which geographical markets are open at the time you are trading and which currencies are most likely to be traded. If you are working full-time, allocate 30 minutes or so each day and focus on strategies more suited to trading longer term. If you have a larger amount of time available during the day, then by all means allocate a couple of hours a day. But do it consistently to gain consistency. If you are going to be trading full time, do plan your day, for example, strategies, currency pairs, trading objectives, measurement and analysis. The Forex market is open for 24 hours a day, five days a week. You’ll need a awful lot of stamina to trade all of those hours each week.
The market opens at 5pm Eastern time on Sunday and closes at 5pm Eastern time on Friday. That is 10’o’clock Sunday evening in the UK and 11’o’clock in Europe. In Asia and Australasia, it’s from Monday morning to Saturday morning. Times in other parts of the world vary as daylight saving operates in some countries in the northern and southern hemispheres, but not in others. You’ll not be missing too much activity in the early hours on Sunday or late on Friday. In general, the markets follow the sun around the world, with the largest markets and highest volumes traded in the Tokyo, London and New York sessions.
In terms of money traded, the Forex market is the largest financial market in the world. It’s a global market. Liquidity in the market is unparalleled, with prices often more predictable as a result. With more than 4 trillion dollars traded every day, it is larger than all of the stock markets of the world combined. It is a 24 hour market, open 5 days a week – 120 hours in total.
That means you can trade the market at a time convenient to you, whichever time zone you live in. On a stock market, you may have several thousand shares to choose from. With many different stock markets around the world, this results in tens of thousands of companies. With currencies, you have a handful of currencies to trade. Volumes traded on each currency are huge and a single trader won’t influence the price. The Forex market has only been open for business for “at home” traders since widespread adoption of the internet and broadband. Your first decision is your level of participation.
Analysts analyse and report. Their involvement is based on knowledge and theories, for example, economics and global trade. It can be learned in an academic environment. Traders DO. They are practical. Traders involvement means making decisions, as opposed to providing choices. Traders are practical and learning has to take place against a practical backdrop,
Major banks are large players in the Forex market. The have analysts to review market data and professional traders at the sharp end, making trading decisions. Businesses are players in the Forex market too.
When BMW want to import parts for their factories, they need to arrange the currencies to pay for them. Some businesses have traders to provide hedging operations, which offer some degree of stability in pricing for the business. Central banks and governments play a role in the markets deciding currency strategies, through setting interest rates and economic policy. Speculators are the final group. These include the professional traders in hedge funds and retail and amateur traders taking FX trades in the market. In a market with many professional traders, it is important to align yourself alongside the professionals in the way you approach trading. As trading is a practical skill, it is not something to learn from a book.