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Posts Tagged ‘forex trading’

Test-driving an online forex demo account is the preferred method of potential traders to minimize risk. A demo account readily allows a cautious person to go online and observe exactly how a paid account would work. Think of it like playing the popular wargame Command and Conquer: you send in the troops (gobs of fictitious money), make a few tactical maneuvers (invest in speculative exchanges) and conquer territories (reap profit).

It can be addictive. Without investing and risking any real money, the investor plays with ghost money in an account and initiates buys and sells the same way it would be done in reality. The software used for these demo accounts parallels what the real trading platform does. Real figures are pulled from exchanges, trend charts are generated, and profits are calculated from buy/sell maneuvers., A trader sees at the end of the day the net loss or gain should real money had been used in the transactions.

Even a novice can trade. Let’s assume an investor pretends to open a margin account with ten thousand dollars. He watches trends in the currency markets and believes that the dollar will go up in value against the British pound. The demo software empowers him to purchase at a ten to one margin; he then authorizes a buy of one hundred thousand dollars of dollars and sells one hundred thousand dollars of Pounds. There will be a spread, or difference, which accumulates to the gains, or “profit”.

Why invest time with demo accounts? Simple. It’s safe to learn the currency trade without having real money to lose.

Think of it like crashing your car in driving simulators or doing crazy rolls in an F-14 – on a Playstation. You stretch your creativity, test your reflexes and build your skills all behind the safety of a highly immersive computer screen. Your mind gets a full reflex workout without incurring damage to property and incurring lawsuits!

The same holds true for forex trading. Spending time with a demo account allows the potential trader to gain skills and learn the ins and outs of the game and the market place. A person is then able to see if they truly have the instincts necessary for the market and have sufficient knowledge to “play with the big boys.”

Almost all online companies involved in forex trading offer demo accounts, sometimes free and sometimes for a small fee. Even if a fee is paid, it is usually worth it because a forex trader can flex his skills and knowledge for vast profits after spending some time practicing with the forex demo software.
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The key to the FOREX market for the average investor is the margin. Without margin trading currency trading would be beyond most investors. I will explain what the margin is and how it works.
When you have a margin account you are able to control large amounts of currency with a relatively small cash deposit. When you have a margin account with a broker you are in effect borrowing money from the broker to control a larger lot of currency. Currency is normally sold in lots with a value of $100,000. A common term used when discussing margin accounts is leverage. Leverage is how much you can control with a certain amount of money. The leverage is usually displayed as a ration such as 1:100. That would allow you to control currency worth 100 times the amount of money you have invested.
To better explain this in a FOREX exchange with a 1% margin account you could control $100,000 worth of a currency while only investing $1000. Margin accounts can allow you to greatly increase your profit; they also allow you to increase your risk. With a margin account it is possible for a trader to lose more than their initial investment. With a little prudence though losses can be minimized. Most brokers will terminate a trade before the losses exceed the original deposit.

Benefits
As discussed before a margin account allows you to buy more with the money you have which can greatly increase your profit on successful trades. By controlling a $100,000 worth of currency for only $1000 the potential gain is greater. When dealing with large lots of currency even small changes can produce significant results.
Currency on the FOREX market is traded in far more precise units than actual cash is. As an example the American dollar is traded down to four decimal points. So when you were to quote the dollar against another currency you will see a price like $1.7834 instead of $1.78. A PIP is the smallest unit when trading currencies, when dealing with $100,000 lots then each pip is worth about $10.
If the price of the American dollar changes from $1.7834 to $1.7934, you have a net difference of 100 pips. If you have a lot of $100,000 then that 100 pips will translate to $1000 where as if you were not using the margin your original $1000 would only show a profit of $10. Hardly what most would consider a highly profitable trade?
In short the primary benefit of using a margin account is that it can greatly increase the profit margin of a trade.
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HOW TO predict the Future ?

by studying the Past (Technical Analysis):

1) The best traders don’t discount one or the other but understand that having an understanding how the fundamentals influence market sentiment gives him/her an edge over those traders who don’t.

2) In my opinion, TECHNICAL analysis is the easiest and most accurate way of trading the FOREX market.

3) “The number’s don’t lie” – all available information and its impact on the market, are already reflected in a currency’s price.

4) Prices move in trends – the foreign exchange market is mostly composed of trends and therefore a place where technical analysis can be very effective.

5) History repeats itself – over time, certain chart patterns become consistent, predictable and very reliable. The question is SEEING them.

PRICES MOVE IN TRENDS

The traders who don’t believe this obviously have no need to implement a trading methodology on technical analysis. But, research has shown that those who trade “with the trend”, greatly improve their changes of making a profitable trade.

Finding the prevailing trend will help you become aware of the overall market direction and offer you better visibility,especially when shorter-term movements tend to clutter the picture.
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How Currencies are quoted and what moves individual currencies?

ONE of the best advantages in FOREX Trading is

The amount of money you need to place a trade (known as “margin”) is all that can be lost !

You have to know, that despite the super-high leverage offered by some Forex brokers up to (400:1); meaning if you put up $ 1000 the broker will allow you to trade like you really have $400.000).

Forex trading is still less riskier than Stock or Futures Trading, where you can loose more than you have deposited in your account.

This type of LEVERAGE does NOT EXIST in the equities or futures market

In the Equities or Futures markets, very often, sudden and dramatic moves occur, against which you can’t protect yourself, even by having placed your protective stops.

Your position may be liquidated at a loss, and you’ll be liable for any resulting deficit in the account.

But because of the FX market’s deep liquidity and 24-hour, continuous trading, dangerous trading gaps and limit moves are almost eliminated.
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