Forex Technical Analysis

In forex trading there are two types of brokers. The market maker type of
broker and the ECN broker. Lets cover these individually.

Market Maker Broker:

Market maker brokers is a firm authorized to create and maintain a market in an instrument. They are
usually a brokerage firm or a bank who quotes both a buy and a sell price in a
financial instrument or commodity, hoping to make a profit on the turn or the
bid/offer spread. Market makers are very important for maintaining liquidity and
efficiency for the particular finanacial instrument, as they make markets by
taking a short or long position for a time, thus assuming some risk, in return
for hopefully making a small profit on the bid/ask/offer spread.

This type of broker usually takes the other side of the trade and usually widen the spread at times
especially in volatile times. These type of brokers usually advertise that they
charge no commission on trades but in fact make their commission on the spread
between the bid/ask ie 3-4 pips depending on the currency.

Although some of these brokers offering the market maker forex trading platform have wide spreads, some offer more narrower spreads as well as offer benefits such as extensive trading
resources, free trading platforms, news etc.

ECN Broker:

On the other side of the industry there are brokers that are ECN brokers. What
is ECN? ECN stands for Electronic Communications Network. These ECN brokers do
not have a dealing desk but offer a computerised market place consisting of
multiple market makers, banks. Traders can enter competing bids and offers into
the trading platform either inside and outside the spread thereby offering
better spreads, more liquidity. By trading through an ECN a currency trader
generally gets a better price than trading with a market maker. Therefore a
forex order is routed to the best bid/ask offer. The spreads are usually quite
small 0.5-2 pips. These type of brokers usually charge a small commission fee.
This small commission fee is how the ECN broker makes their commission, they
don’t take the other side of the order as the market maker does. They only match
and route your offer to the best bid/ask order in the electronic market place.

You become the market maker in using a ECN Forex broker. Place your order inside the spread or out and see if your order is taken up by one of the liquidity providers.

By: John Cas

Foreign exchange, most commonly called Forex, is an international network of brokerage firms and banks that communicate electronically in order to trade stocks and exchange currencies with one another. Forex is an increasingly popular form of trading due to the low costs associated with it, the leverage that is available and its liquidity. Considerable amounts of money can be made quickly by trading currencies through Forex, and as such, commercial, investment and central government banks dominate this trading ground.

The most commonly traded currencies are the Yen (Japan), Pound Sterling (UK), Franc (Switzerland) and the Canadian, Australian and US Dollars. Trading proceeds through the five-day working week, with traders communicating with each other across the entire globe. Forex trades are not centered on a particular geographic location or exchange. They occur between two individuals who are only connected electronically or by phone. These communications networks and systems allow constant access to other traders, wherever they are in the world.

Forex has become the largest and most important market in world finance, enabling currencies to grow by trillions in just a single day, and dealing in volumes that are far in excess of all US equities and future markets combined. The growth of Forex has been astronomical, and has even resulted in some countries postponing intended restrictions on the movement of capital. This has created independence within the market, allowing Forex to determine rates based on what is perceived to be the value of a currency rather than by regulation.

Currency exchange is an attractive form of investment for private individuals since the market can easily be accessed through the Internet. There is a wealth of information available online to assist those wanting to learn more, or try their hand at the market using demo trading accounts.

There are six main advantages to trading in the foreign exchange market:

1. Forex has more liquidity, meaning that it can handle an extraordinary volume of trade – often as much as 1.5 trillion in a single day. It doesn’t matter what currency a trader wants to exchange, or whether they are looking to buy it sell it, there will always be someone out there who will make the trade with them.

2. The Forex trading system has no insiders. It is fluctuations in the economies of nations that directly affect the market, and this information is readily available to all. Occasionally a certain trader may gain useful information first and be able to take advantage of this, but all information will quickly become available to everyone else.

3. Forex trades are readily available, operating over the full 24 hour period, five days a week.

4. Forex trades in more predictable events than other forms of investment, always shadowing the market.

5. Small investments can be made over Forex. Investors can open accounts with just a few dollars. The leverage is high, at about 100:1. This means that assets can be controlled 100 times over the invested amount.

6. There are no commissions to be paid with Forex. Brokers make their money by setting spreads when they manage the buying and selling of currencies.

Forex trading can generate huge profits very quickly, but it is also considered to be a high risk form of investment. Before any attempt to make money by trading currencies it is essential to thoroughly research how it all works. Investors should never restrict themselves to a single source, and should know what they are doing before they invest. Community forum boards can be a good source of recent information that is constantly being updated. There are a number of different trading platforms available to use, and each should be compared in order to find the one best suited for you.

By: Suzanne Bender

Foreign exchange markets are not the same as other financial assets traded commonly. The difference is the size of the market and the number of transactions (known as liquidity). In other markets such as share markets individual trades can influence which way the market will move. With a market with a size of trillions of dollars like the forex market even massive trades are just a drop in the ocean.

This article will explain what controls the forex market and will touch on how traders can predict where markets will go. There are no certainties with trading. Trades need to be opened when there is a high probability that the market will move in a certain distance either up or down. This article provides an insight into selecting which currencies to trade and when to make a trade.

So what moves the forex market?

Almost anything can move the foreign exchange market. A country’s exchange rate can be seen as a good guide to their economic fortunes. So the factors that effect the economy also effect the relative value of it’s currency. Some factors are much more important than others and should take priority. Here are the ones to ‘look out’ for.

The money supply

Central banks control the money supply using interest rates and other factors. Generally speaking if the supply of money increases the value of the currency falls and if the money supply decreases the value of the currency increases. This follows established principles of supply and demand. Interest rates are an important factor controlling money supply. Increasing interest rates reduces the supply of money into the economy and decreasing interest rates increases the supply of money.

A central bank sets the base lending rate for organizations who want to borrow money. Think banks, investment houses, and other financial institutions. Base lending rates end up effecting the man on the street through mortgages and unsecured loans, not to mention the price companies can set for goods and services. In simple terms if a country offers a higher interest rate than another country, demand for the currency will be stronger when compared to the other country’s currency. When an established position changes, such as the dominance of one country’s currency over another, the markets move which creates an opportunity to trade. See the example below.

The ‘carry trade’ so called because money is borrowed in a low interest rate currency to ‘carry’ a trade in buying a currency with a higher interest rate. The difference in interest rates between the two currencies is pocketed by the traders. Traditionally the Japanese Yen has been used for this purpose which has fueled demand for higher interest rate currencies. If interests changes these carry trades can unwind and produce large moves in the market. This serves as a good example of markets that can produce big moves when interest rates move.

What is quantative easing?

Quantative easing (QE) is a type of monetary policy that is used vary rarely and is not used in normal circumstances. Recent history has shown that QE is used when interest rates are near zero and no longer stimulate the economy. Effectively QE is printing money (but not literally) and can be done slightly differently depending on the country. The effect is to add zeros to the amount of money in the economy. Increasing the amount of money without producing any extra value is a very strong factor that will decrease a currencies value.

Employment data

The number of people employed in an country is a key indicator to the health of the economy. Importantly it also gives and indication of where inflation will be headed in the future. Inflation of course is one of the main drivers for interest rates. The most important employment data is the US non-farm payrolls data. It shows the number of people hired and fired each month. If employment is rising it can indicate that the economy is improving and increases the chance that rates will go up and vice versa if unemployment is rising.

Watch out for dates when key economic data like US non-farm payroll is released. If there isn’t any other news that has more bearing on currency value this information can move the markets. This is the case especially if data ‘surprises’ the markets because it is different from what was predicted.

GDP data

Gross domestic product or GDP is a measure of a country’s wealth. Simply put it is the market value of good and services provided by the country. The most useful measure of GDP for currency traders is the GDP growth rate. Measured year on year is shows if the country’s growth is ticking up or going down.

Trade data

Countries generally fall into to camps. Net importers (they buy more goods and services than they sell) or net exports (the sell more goods and services than they buy). Factors that shift the relative strength of imports and exports are factors that effect the strength of currencies. If the demand for goods that a country produces increases other countries need to buy their currency in order to buy those goods. As such the value of the producing country’s currency increases.

All these factors effect one another. When traders study these economic factors it is called fundamental analysis. Fundamental analysis is good to indicate which currencies are worth trading. The best currencies to trades are those where it is possible to predict that there will be a long term shift in values. Currencies are always traded in pairs as an exchange rate is produced by one currency compared to another. Popular currencies pairs are the US Dollar traded against various other currencies such as the Japanese Yen, the Euro and the UK Pound. Other popular currency pairs include various combination of these.

The exact timing of trades as well as clues to which currency pairs to trade is revealed by technical analysis. Technical analysis involves studying price charts of currency pairs.

When to enter trades

The trend is your friend. A common saying, but is ‘rings’ true with currency trading. It take something very big to change a long term trend. If a trend is entrenched then it increases the probability that profitable moves will be in the direction of the trend. Currency pairs with strong trends are good to trade. If something big does happen, viz the economic facts described above, there will be large moves within the trends trading range. The trend may even reverse which can produce great opportunities to trade.

Here are the things that should be considered when doing technical analysis. Identify if the trend is up or down. Trends can be primary; over years; secondary; over months; or tertiary over days or minutes. The type of trend can be used to decide the length of the trade. Secondary and tertiary trends will produce big moves and trading opportunities.

Look at the trending or trading range. This is the upper-most and lower-most price points for a specific amount of time. Upper most points are called resistance and lower most price points are called support. On a chart draw a line through as many points of resistance and support as possible. This forms the price range. The longer a currency pair trades in a price range the stronger it is. If the trader expects economic factors to changes there is a high probability that the currency pair will move out of the trading range to the upside or down side. A trade should be set just above or below the trading range to profit from this move.

Look at charting patterns. Price charts tend to follow patterns. Similar loosely defined price patterns tend to repeat themselves (some what of a self fulfilling prophecy that helps traders make profitable trades). If the fundamental data confirms a moves either up or down a high probability trade can be opened based on expected a price pattern to complete itself. Price patterns can form over years, months, weeks, days or minutes, and all can be traded.

Add moving averages to charts of currencies pairs. A moving average can help decide when to open a trade an when to close a trade.

By: Will Webb

In today’s era, the forex market is always present when speaking about large trading markets. Thus, it is quite undeniable if ever the forex trading has hundreds and thousands of traders by now worldwide. If truth be told, most forex traders seem to have no difficulty at all when dealing with the forex market because of the existence of the automated forex trading system. This trading system is made possible by the advent of the innovations and development in the world of technology. Hence, it is now safe to say that anyone can engage in the forex trading and stocks industry by way of the automated forex system.

The automated system for forex trading market actually refers to a computer software program which allows anyone to trade anywhere and anytime he or she wants. After all, the forex market is now open online on weekdays for 24 hours. In addition, establishing a particular automated forex trading system is just so simple that anyone can set it up all by himself or herself. And once established, anyone can easily monitor all the important information happening in the forex trading market. In this way, he or she can be assured of any updates at all times.

Furthermore, there are various reasons on why most traders tend to utilize an automated system. Here are some of those many reasons:

• Fast Transaction

The automated system for forex trading can operate trading transactions faster and at real-times. This is due to the fact that an automated system can process hundreds and thousands of trades within a few seconds only. This is of course impossible with the use of a manual trading system. Hence, it is much more preferable nowadays to use an automated system for forex trading transaction rather than the conventional manual trading systems.

• Easy Conversion of Assets to Cash

Liquidity refers to the conversion of forex assets into cash. The liquidity process can be done quickly and with only less effort by way of the automated systems for forex trading. Thus, there is no wonder if why there are more traders now who use the automated system of foreign exchange for trades.

• Better Diversification

The automated foreign exchange trading system can lead to a better diversification. Thus, one can have the chance to trade in multiple trading markets with various time zones. Also, by utilizing the automated kind of system, a particular trader can predict if what will happen in the next few hours in the trading transactions.

Indeed, the automated system can bring lots of benefits to a particular forex trader. One just has to know how to utilize the said trading system’s benefits to its extent so that he or she can ensure success in the world of stocks and trading industry. Moreover, one can be assured to get paid while doing nothing with the help of the automated trading. Hence, it is actually safe to say that the very key to generating a constant sum of money everyday in the market is by way of using an established and reliable kind of trading system.

By: Elson C

Forex also known as foreign exchange market, current market or FX is an international decentralized over-the-counter or direct financial market aimed at currency trading. Fiscal establishments around the globe serve as initiators of trading over a wide variety of diverse types of seller and buyers 24 hours a day except on weekends. Forex is the one which give relative values for various currencies.

The foreign exchange market’s primary purpose is to aid international investment as well as trade by giving business an avenue to convert a currency to another to be able to buy and sell goods more conveniently. For instance, it allows for a British business to import American goods and transact in US dollars although the income of the business is in Pound Sterling. It likewise aids speculation and enables carry trade wherein investors invest in or lend high revenue currencies and borrow low revenue currencies and that some have asserted to result in loss of competitiveness in a number of countries.

In the usual set up of forex transaction one side buys a certain measure of a currency thru payment by a specific measure of another currency. Modern forex began in the 1970 as countries slowly switched from the exchange rate system to floating exchange that continued to be fixed according to the Bretton Woods system.

The forex or foreign exchange market is one-of-a-kind due to its system of:

-Massive volume of trade that results in high liquidity

-Geographical distribution or its being international

-Continuous operation, that is, round the clock except on weekends. Ex. Trading from 20:00 GMT+8 Sunday to 22:00 GMT+8 Friday

-The different factors which influence exchange rates

-Low measures of relative profit in contrast to other fixed income markets

-Leverage use to augment profit margins in accordance with the size of the account

-Accordingly, the foreign exchange market is denoted as the market in closest proximity to the concept of perfect competition apart from central banks’ manipulation of the market. As of April 2010, average daily forex turnover in the global arena is valued at $3.98 trillion according to BIS or Bank for International Settlements. Such figure has an approximate growth of 20% compared to the previous daily volume of $3.21 trillion measure on April 2007.

The ideal breakdown for the $3.21 value is as follows:

-$1.005T spot transactions

-$362B outright forwards

-$1.714T forex swaps

-$129B reporting gaps.

By: Richard Dean Fernandez Basa