For several years, more investors grew dissatisfied with the performance of markets relying on domestic stocks. Because of this, began to venture into other options for international investments. There are several opportunities for foreign markets but foreign exchange trading is becoming the most popular. One of the reasons why investors like Forex trades is quick trading with minimum hassle.

Normally, access to this kind of market has been only open to hedge funds, major corporations and several other institutional investors. Some of the worlds major banks have been involved in foreign exchange markets for years. Back then, the individual trader had no way to access Forex since there were no methods of competing with the big boys on an even playing field.

The foreign exchange market was finally able to open its doors to retail clients in the 1990’s. Makers of online Forex market even opened the gates and made a fortune by breaking huge trading positions into small-sized chunks that several individuals could buy and sell.

What this means is that individuals can now make trades alongside the largest banks in the world. More so, they can even use the same strategies and techniques that other professional traders use. The landscape of trading has changed suddenly and traders obtained a new alternative to future and stock markets.

The Big Money and Forex

The Forex market, or sometimes called FX, foreign exchange, currency market, and global market, may seem like the newest player on the trading world. However, it has been the choice of market for institutional investors and global hedge funds for several years. The big money has always traded Forex since the large size of the market permits these kinds of traders to enter and exit large trades without making price alterations and upsetting the exchange rates.

During the past few years, the popularity of foreign exchange has taken off. The daily volume of Forex market is estimated at about $1.9 trillion and still growing. This number is still unmatched by any kind of trading market available in the world.

Moreover, traders in Forex have the capability to utilize remarkable leverage, which can be bigger than 200-to-1. The leverage allows traders to expand their trading positions and may also serve to amplify gains and losses. Due to the superior leverage in Forex, the barriers for traders are very low. Traders in Forex markets can open account with as little as a few hundred dollars.

Making Money in the Forex Market

Traders of currency basically place an effort to profit from the changes in exchange rates. Since Forex markets have tremendous leverage, there is a small chance that the change in the exchange rate can cause a large profit or loss. Wealth can be made or lost rapidly in the Forex market; even a shift in the exchange rate that is equivalent to a few hundredths of a penny can be amplified into a significant loss or gain.

There are two kinds of traders in Forex markets: the technical and fundamental traders. The technical traders main focus is on technical analysis. Such analysis is mainly the study of charts and indicators. These kinds of traders believe that all the pertinent information required to put a trade is contained within a chart.

On the other hand, the fundamental traders employ fundamental analysis. This can be loosely described as the study of economics, focusing on interest rates. Such traders believe that the currencies will eventually gain or lose strength depending on their economic strength and weakness and because of the changes in monetary policy and interest rates.

Trading Currencies in Pairs

The subject of currency trading in pairs can be confusing for beginners at first. Whenever an individual enters a currency trade, it entails two currencies. However, even if there are two currencies involved in trading, there is only one exchange rate. Thus, every transaction or trade involves two currencies and one exchange rate.

The value of the currency itself does not change but its value relative to another currency can change. For instance, a single dollar you may have today would still be worth $1 dollar the next day; although, the value of that dollar constantly fluctuates relative to other currencies. This is the main reason why there is a need to trade currencies in pairs in the Forex market.

The 24-Hour Trading and Trading Sessions

Forex markets are synonymous to seamless and 24-hour trading markets; there are no rigid schedules. The market allows traders to decide for themselves when to trade regardless of the time of day. There are even part-time traders, with full-time jobs, who can trade Forex. More so, wherever the individual is located or whatever hours he or she keeps, the individual can still trade in the Forex market.

Since the market is open 24 hours each day, no one can really tell when the market opens and closes at a specific time of day. It is important for traders to designate a particular time of day as a benchmark.

Several traders begin trading at 5:00 p.m. Eastern U.S. or New York time, 10:00 p.m. London time. Since the Forex market trades 24 hours, the trading day also ends at the same mentioned times of the day.

During that time of the day, the three largest Forex trading centers, namely the United States, Great Britain and Japan, are quiet. However, the New Zealand and Australian dollars may witness some action during those hours.

The trading sessions for Asia starts a few hours later, at around 7:00 p.m. Eastern U.S. time, London midnight time. For the European session, the trading begins at around 3:00 a.m. Eastern U.S. time. Lastly, the U.S. session starts at 8:00 a.m. New York time, which is halfway through the trading session of London.

Whenever people travel outside their home country, there is good chance that they have performed currency transactions. Travelers, in many cases, are required to exchange their home country’s currency for the currency of the country they are visiting. Much like the Forex market, there are two currencies involved in such occasions but only one exchange rate.

The U.S. Dollar and the Canadian Dollar

Back in the year 2002, travelers would have received an estimated C$1.60 in Canadian currency for every U.S. dollar. It is safe to say that the exchange rate during that year for the U.S. dollar and Canadian dollar was about 1.60 Canadian dollars for each U.S. dollar.

Years that followed resulted in a dramatic change in the exchange rate and by the year 2006, the rate had fallen to 1.10. This only means that a traveler from the United States would only receive about C$1.10 in Canadian currency for every U.S. dollar exchanged.

The measurement of very small changes in this exchange rate can be expressed using 1.1000. If so, the U.S. dollar significantly depreciated against the Canadian dollar during the early part of the twenty-first century.

Eventually, the rate of the Canadian dollar approached parity with the U.S. dollar. U.S. citizens were also less likely to visit Canada, because if they did, they were more likely to spend more than they would have in the past, when the exchange rate was more favorable. On the other hand, travelers from Canada were more likely to visit the United States, since their currency bought more U.S. products than it had previously.

The U.S. dollar and the Euro

The rise of the Euro also created a similar situation to that of the Canadian dollar. In 2002, 2003 and 2004, the Euro created dramatic gains against the U.S. dollar. Additionally during those years, the value of the Euro rose from US$0.85 to above US$1.35. Because of this movement in the exchange rates, citizens from the United States found that vacationing in Europe became very expensive. This kind of change caused a huge influx of shoppers from Europe traveling to the United States, especially during the Christmas season.

There is no doubt that fortunes were made and lost on huge movements, such as those mentioned. However, it is important to remember that even the tiniest shift in the exchange rates can also result in substantial gains and losses.

Understanding the Exchange Rate

An easy way to understand the exchange rate is to think of the base currency as the number one. For instance, assume that the exchange rate for the EUR/USD pair is 1.2904. Since the base currency is Euro, that is also the first member of the pair. Thinking of Euro as the number one will only mean that one Euro would be worth approximately $1.29 U.S. dollars.

But how do these movements in the exchange rates translate to the Forex traders bottom line? With trading a pair, like the EUR/USD, the U.S.-based trader will note that the pair has a fixed value of $10 per pip. This is also true for all pairs that have USD as the second currency. Hence, in any currency pair containing USD as the second currency, a flattering movement in the exchange rate of 10 pips will make a gain of $100; unfavorable movement of 10 pips would cause a loss of $100. In the case of the EUR/USD pair, a gain or loss of 10 pips can happen easily since the pair moves about 100 pips each day on average.

Terminologies in Trading

A non-trader or a beginner can get easily confused around traders, since they mostly use their own language. This kind of language is easily synonymous to a secret handshake, which would let others know that they are a member of the group.

First trading terminology is going long. Whenever you hear this come out of a traders mouth, it only means that he or she is placing a trade that will only be profitable if there is an evident rise in the exchange rate. selling short, on the other hand, means that the trader will be placing a trade that will only be profitable if the exchange rate falls. Flat means that the trade is neither long nor short. More so, the trader saying this has no open positions in the market.

Another trading term is the pip.

By definition, the pip is the smallest increment of price in Forex markets. It is also an acronym for the phrase percentage in point. An example for this term would be when supposing the exchange rate for a pair rises from 1.1000 to 1.1001. It is safe to say that the rate rose by one pip.

Included within the trading terminologies are the major currencies, such as: EUR for Euro, GBP for Great Britain pound, JPY for Japanese yen, USD for U.S. dollar, CAD for Canadian dollar, CHF for Swiss franc, AUD for Australian dollar and NZD for New Zealand dollar.

Nicknames are also used in trading. These are slang terms that several traders like to use. Several examples of these nicknames are: cable or sterling for the British pound, greenback or buck for the U.S. dollar, single currency for the Euro, Swissy for the Swiss franc, kiwi for the New Zealand dollar, loonie for the Canadian dollar, and Aussie for the Australian dollar.

Basically, Forex, or currency market or foreign exchange market, is a market wherein one currency is traded for another. Additionally, Forex is one of the largest markets in the world. The goal of some participants in the Forex market is to seek an exchange of a foreign currency for their own. A large part of the market is made up of currency traders, who speculate movements in the exchange rates, similar to others who speculate movements of stock prices.

Learn Forex Trading

The investments placed on Forex markets normally deal with the four major pairs, namely EUR/USD, USD/JPY, GBP/USD, and the USD/CHF. These pairs are also considered as blue chips.

Additionally, the foreign exchange market is unique due to several aspects, such as: the trading volumes, extreme market liquidity, the large amount and variety of traders, geographical dispersion, 24-hour trading, the factors affecting the exchange rates, and the low margins of profit with other fixed income markets.

The exchange-traded foreign exchange future contracts were first introduced in the year 1972 at the Chicago Mercantile Exchange. Future volumes of Forex have grown rapidly in recent years, and accounts for about seven percent of the total Forex market volume.

From Stocks to Forex

Most traders in the United States are involved in stock trading. Within that environment, a trader who is following a trend for as long as possible would not have any difficulty in making money. The stock market is also a very forgiving market, which would bail out even poor traders. The only trick is to understand the difference between the good and the lucky. There are several talented traders who can falter when the conditions of trading become less then ideal.

Although both the stock and Forex markets involve risks, the latter is not conducted on a regulated exchange, thus there are additional risks correlated with Forex trading. However, traders previously involved in stock markets are transferring to Forex markets due to a number of benefits.

One is the greater leverage. Forex trading provides greater leverage compared to the traditional stock trading, which only allows traders to be in charge of larger positions with smaller amounts of capital. Greater leverage allows an individual to trade the same size positions that he or she might take with a stock broker, while leaving him or her with more available capital to trade more markets.

In Forex markets, there are no middlemen. When trading directly in Forex markets, the only players are the dealer and the primary market maker, or the trader and the buyer or seller of the currency pair; no extra parties are involved. On the other hand, the stock market involves the trader, broker and the exchange, who both charge commissions and fees.

Stock Market Headaches

There are a number of unpleasant events that a person must learn to deal with in life. After a while, these problems are no longer considered as a burden but instead a norm. As for traders, there are also unpleasant occasions that can be considered as normal or a part of the job.

One of these problems is the partial fill. The partial fill is a normal incident in stock trading. It occurs when a trader puts an order for a definite number of shares and instead receives only a portion of the order. The market will not be able to absorb an entire order if there are not enough shares available at a defined price. This can be frustrating for the trader, especially if he or she wants to pursue large orders. Still, this kind of event is considered as normal for equity traders.

Slippage is another problem that futures and stock traders encounter every day. By definition, slippage is the difference between the anticipated transaction costs and the amount actually paid. Slippage tends to cut into the traders profits and is a major headache for futures and stock traders.

Aside from those two, another hurdle that a trader must overcome is the specialist. A specialist is an individual who controls all the trading activity of a listed stock. More so, the specialist also controls the spread; he or she can widen or narrow the spread at his of her discretion. Hence, the specialist can either make your trade successful or make your life miserable.

The uptick rule is another frustrating obstacle that faces the success of an equity trader. Stock traders can place a trade that will become profitable if the stock rises whenever they wish. However, if they desire to place a trade that will become profitable if the stock falls, the traders must go through several machination processes that can be both costly and problematic.

Stock Market Headaches in Forex

Fortunately, the Forex market is less problematic compared to the stock market. The currency market is considered as highly liquid or thick. This is the reason why the partial fill headache evident in the stock market is extremely rare for all but the largest traders in the foreign exchange market.

Additionally, the slippage is also rare in the Forex market. Several foreign exchange market makers have a one slippage policy, thus giving currency traders a superior degree of certainty regarding the price.

As for the specialist, there are no specialists in the foreign exchange market. More so, the spread is often fixed in the currency market. This allows the trader to another greater degree of certainty.

Lastly, the Forex market has no uptick rule. The trader can buy or sell at his or her own will. Conversions, bullets or married puts are not required to be purchased.

I would assume many people will try to do scalping in your forex trade. Scalping here means, take small profit over and over again. Normally it happens in a ranging market or moving sideways.

After getting a series of winning trade or you scalp for a long time, as a human we tend to trade per our ego. Our entry rules might be relaxed and the forex signal not yet fully confirmed, we will jump into the trade.

and that’s what happen to me …

I reviewed some of the trades in my account and found that if I am applying the right strategy, my swap fee will be ZERO.

However, you see if I am paying the swipe fee, meaning I am holding it overnight or for certain duration. If my timing is right, I would have exit almost instantly when I enter the trade.

There are 2 trades which I do not follow the rule exactly, ran into trouble. I am having -30 to -40 pips losses in open trade. I could have lose more …

However, having a good forex strategies to model, you can still close the trade in profit. Lucky huh ?