The Forex Market

The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets while traders increase or decrease value of an investment upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events so it is also considered to be a highly volatile and fragile market too. Conditions of the market never remain the same and they change every second.

The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot transactions, followed by 32% in currency swap transactions. Forward outright transactions represent another 5% of this daily turnover, with options on ‘interbank’ transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.

For traders, Forex trading provides an alternative to stock market trading. While there are thousands of stocks to choose from, there are only a few major currencies to trade (the US Dollar, Japanese Yen, British Pound, Swiss Franc, and the Euro are the most popular). Currency trading also provides a lot more leverage than stock trading, and the minimum investment to get started is a lot lower. Add to that the ability to choose flexible trading hours and you have the reason why so many stock traders have flocked to day trade currencies.

Forex Rule

I’ve been in the FOREX trading market for a long long time, and I’ve managed to learn a thing or two about the world of trading. There are a few more important and a few less important rules, but there is a golden rule that I can’t emphasize enough its importance.

One important thing that every new trader must know before entering this highly profitable business is that life is not perfect, even in currency land, and you should always know one fact: you will have losing trades.

Every FOREX trader does. The key to being a consistent, predictable, reliable trader is to, at the end of the day or the month, depending on your way of trading), add up more wins than losses. And, when you know (based on your trading rules), without a shadow of a doubt, that indeed you are, in a losing trade, don't keep losing money (lowering your stop loss) just to prove you were right or your rules are wrong (however you want to look at it).

Let's face it - you can't turn a sow's ear into a silk purse. You can't change the spots of a leopard and you can't turn a pincher into a Great Dane. The best trades are usually "right" immediately (the techniques, rules, methods and strategies you can learn in our resources list will be your best indicator for just what a "right" trade really is).

Remember, people have been trading the FOREX market for more than 30 years. The smart traders know there's going to be another trade. Cut your loses short and compound those winning positions.

Pivot Point Trading

Hi, we’re here again with some more forex tips, and today I’ll put in a few words about Pivot Point trading.

You’ll love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.

You can understand by now that pivot point trading is used mostly by day-traders, and not by those who take positions for a long time, and stick to it.

The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to use pivot points.

The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day). It allows you to be completely certain about the daily trend in the forex market and the potential of the profit in any given day.

Forex market concept

I am about to try to introduce the forex market concepts through a real life example. In 1955 my father and my uncle (who lived in Greece) received $100 each from their aunt in NY. At the time one dollar was worth 11 Greek drachmas. My father decided that his 100 USD were not doing him any good in Greece so he exchanged them and got his 1100 DRM. My uncle kept the 100USD unchanged for a while.

Then, one morning, Greece suddenly woke up to the news that the government had devalued the drachma. Instead of one USD being worth 11DRM, it was now worth 31!. My uncle was ecstatic. His dollars had tripled in value. Instead of 1100 DRM he could now get 3100 with his 100USD. My father was inconsolable. He had sold his 100USD and now had 1100 drachmas in the bank instead of 3,100 DRM worth of USD.

This is the kind of exchange that comprises the forex market.

Now lets apply the market’s language to our example above. It actually means that my father did not sell his 100 dollars to buy 1100 drachmas. What he did was: “he sold the USD/DRM currency pair”. When you “sell a pair” it means that you exchange the first member of the pair for the second. When you “buy a pair” it means that you exchange the second member of the pair for the first member of the pair. When you buy the pair USD/DRM You give away your drachmas and hold dollars. That is what my uncle did. When you sell the USD/DRM pair you give up your dollars and hold drachmas, that is what my father did.

Want to be a forex trader?

Well, here are a few words from someone who knows he’s way in forex.

All the currency trading knowledge in the world is not enough, unless you are willing and have the mental ability to buy and sell currencies (forex trading) and put out your money. Trust me - the simple action of choosing long or short (terms from the trading world) is extremely difficult to do when it comes to risking your own money.

You might feel anxiety or fear, but it is, infect, the moment of truth: do you have what it takes to be afraid and deal anyway? When a cop rushes into a firing scene, I’m sure he is afraid but he does it anyway and stops the bad guys. If you can’t overcome your fears - you will not be a successful trader.

The second you learnt to control your fear - you get used to the feeling and there is a certain point in which the fear fades away. But hey, be careful, you don’t want to be over-confident; it may impair your focus and may end up taking to much risk.The key is to start by analyzing yourself. Can you honestly say that you are the type of person that can control their emotions and execute trades, many times under extremely stressful conditions, without blinking? Or maybe you are the overconfident type of person who’s likely to take more risk than they should. Before you get to the real thing, and start trading forex with real money, you need to look inside yourself and get the answers. It is important to get the answers ASAP, before they result in a catastrophe, because it takes only one big loss to impact you enough to stop trading (or at least delay your earnings ‘till you get an additional capital.