EUR USD JPY

Quick overview of FX Bootcamp and forex trading on the Fox Business Television Network

Quick overview of FX Bootcamp and forex trading on the Fox Business Television Network

www.informedtrades.com — An introduction to Forex Capital Markets, a currency trading broker.

Greg Michalowski, Chief forex analyst for FXDD, describes how Fibonacci retracement levels can improve your forex trading using Metatrader.

Foreign currency exchange trading can be very rewarding, but can also be very intimidating to a beginner.  To get started, you will need to know some basics:

1. What is foreign currency exchange?
2. How is it traded?
3. What are the benefits?
4. What are the risks?
5. How can I get started?

What is Foreign Currency Exchange?

The Foreign currency exchange (FOREX) market is a cash (or “spot”) market for currency.  Unlike the stock exchange, the FOREX market is not located on a trading floor or centralized on an exchange.  Instead, it is entirely electronic within a network of banks and runs 24 hours per day Sunday evening (5:00 pm EST) through Friday evening (4:00 pm EST), excluding some holidays.  The fact that it is all electronic means that you can tap into it from your computer.

How is it traded?

FOREX is traded in currency pairs, for example EUR/USD is the Euro base currency and the US dollar counter (or quote) currency.  There are six major pairs: EUR/USD, GBP/USD (Great Britian pound vs. US dollar), USD/JPY (US dollar vs. Japanese yen), USD/CAD (US dollar vs. Canadian dollar), AUD/USD (Australian dollar vs. US dollar), and USD/CHF (US dollar vs. Swiss Franc).

Currencies are traded in dollar amounts called lots.  For a “standard” account, one lot (called a standard lot) is $1,000 and controls $100,000 in currency.  For example, when you place an order to buy one lot of EUR/USD, you are buying the EUR and simultaneously selling the USD.  The margin you must put up to place the order is $1000 (for a standard lot).  You are going long the EUR and expecting it to strengthen against the USD.  For every increase of $0.0001 in the EUR, you make one “pip” (price interest point) equivalent to $10 per lot traded.

Similarly, for a “mini-account” when you place an order to sell one mini-lot (one-tenth of a standard lot) of EUR/USD, you are selling the EUR and simultaneously buying the USD.  You are going short the EUR and expecting it to weaken against the USD.  The margin requirement is $100.00 per mini-lot.  For every decrease in the EUR of $0.0001 you make one pip equivalent to $1 per mini-lot traded.

Note that unlike trading stocks, there are absolutely no restrictions on short-selling in FOREX.  Short-selling is exactly like buying – except that you’re selling of course.

The pip value and amount per pip per lot differs when the USD is not the counter or quote currency.  For example, when buying the USD/JPY pair with a ask price of 109.00 (meaning 1 USD equals 109.00 yen), a change in the Japanese yen of 0.01 yen is equivalent to 1 pip or $9.17 per pip per lot traded ($9.17 = $100,000 x 0.01 / 109.00).

The broker makes money off the spread which is the difference in the quotation ask and bid prices.  You buy the base currency at the ask price and sell it at the bid price.  Generally, the major currency pairs have relatively low spreads.  The EUR/USD is commonly two to three pips and the GPD/USD is commonly four to five pips.  For example, the current bid/ask price for EUR/USD is quoted at 1.2322/1.2324.  This means that you can buy 1 EUR (the base currency) for $1.2324 USD (the counter-currency).  You buy at the ask price.  You can sell 1 EUR for $1.2322 USD (you sell at the bid price). You will pay the broker the spread or $1.2324 – $1.2322 = $0.0002 = 2 pips. For a standard lot, the broker fee (in this example) is $10 x 2 pips = $20 per standard lot for a roundtrip trade (1 buy and matching sell or 1 sell and matching buy).  For a mini-lot, the fee would be $1 x 2 pips = $2 per mini-lot for a roundtrip trade. The broker fee is automatically deducted from your account.

Obviously, if you buy (go long) a currency pair, you expect the base currency to increase in price.  Your objective is to sell later at a price higher than you purchased and make a profit.  On the flip side, if you sell (go short) a currency pair, you expect the base currency to decrease in price.  Your objective is to buy later at a price that is lower than the price you originally sold, and thus make a profit off the difference.

There’s more to it than can be explained in this overview, but you should get the basic idea.

What are the benefits?

1. With FOREX trading, there is no inventory, no employees, and no customers.  Your overhead can be as minimal as a home computer with internet access.

2. You can get started with a “mini-account” investing as little as $300.  

3. Currency prices tend to repeat in relatively predictable cycles creating strong trends. Once you learn how to trade properly, you can compound your money, and potentially turn a little into a lot.  

4. You can trade for a few hours per week, or much more if you want to. It’s all up to you.

5. The FOREX market is very liquid, with trillions of dollars traded every day.  On its slowest day, orders can usually be placed within a few seconds if you stay with the major currencies.  Instantaneous execution (1 to 2 seconds) is the norm during normal trade volume days (for the major currencies).

6. You can trade from just about anywhere as long as you have a computer with internet access to your account.

What are the risks?

1. The market can be very volatile, especially during times of major news releases, also known as “fundamental announcements.”  The time of these announcements is usually known in advance.  Many traders simply stay out of the market during these announcements and wait until market volatility has settled back down.

2. If you use too much margin or risk too much on any one trade, your account could suffer badly on a trade that doesn’t go your way.  Proper risk management, including sound placement of stops and not risking more than 2 percent of your account on any one trade, can alleviate this risk.  Do not risk more money than you can afford to lose.

3. A major world event could trigger a huge volatility swing that could wipe out your account (or even more).  However, some brokers limit the loss to the amount in your account.  (Of course, a major world event could also cause the trade to go your way.)

4. Trader psychology (fear and greed) can play a big role in your success or failure as a trader.  Trading education is one of the keys to overcoming these human flaws.

5. You could fail to place a stop loss with your order.  A change in price could force a liquidation of your trade if your account falls below the required margin maintenance.  To alleviate this risk, always set a stop loss when you place an order.

This list is not meant to be inclusive. There are other risks.  

How can I get started?

You can easily open an online account by selecting one from many available FOREX brokers.  You can, and should open a demo account to practice (and learn) for several months for free.  The practice account makes simulated trades using real-time data.  This is called “paper trading.” You should not trade your real account until you have proven to yourself that you can be profitable in your demo account.

Once you get started, you can trade currencies from just about anywhere.  About all you need is a computer with internet access to your trading account.  Many brokers also provide free charting software.

The Forex trading market is an around-the-clock cash market where the currencies of nations are bought and sold, typically via brokers. For example, you buy Euros, paying with U.S. Dollars, or you sell Canadian Dollars for Japanese Yen. Forex trading market conditions can change at any moment in response to real-time events, such as political unrest or the rate of inflation. The purpose of this article is to give you an introduction to common Forex trading terms and their definitions.

Ask Price: The ask price is the price you can buy at.

Base Currency: The currency to the left of the / in a Forex quote is the base currency. Its value is always 1. In the Forex quote, EUR/USD = 1.3489, EUR is the base currency.

Bid/Ask Spread: The bid/ask spread or simply spread is the “distance” between the bid and ask prices. This spread is usually expressed in pips.

Bid Price: The bid price is the price you can sell at.

Counter Currency: The currency to the right of the / in a Forex quote is the counter currency. In the Forex quote, EUR/USD = 1.3489, USD is the counter currency.

Forex Deal: The purchase or sale of a currency.

Forex Quote: Forex quotes are always expressed in pairs. In the following example, your “pair” of currencies are the U.S. Dollar (USD) and the Euro (EUR). The Forex quote, EUR/USD = 1.3489, means that one Euro is equal to 1.3489 U.S. dollars.

Fundamental Analysis: A fundamental analysis uses economic and political factors, such as housing starts, the unemployment rate, or inflation, as a means of predicting currency movements. Fundamental analysis is concerned with the reasons for currency movements.

Long Position: A long position is a market position that appreciates in value if the market price increases.

Lot: 1 lot is equal to 100,000 units of the base. Likewise, 2 lots are equal to 200,000 units of the base, 3 lots are equal to 300,000 units of the base, and so on.

Margin: Margin is referred to as the collateral needed to facilitate A Forex deal. Usually, this is a very small portion of the entire deal, say 1% or 1:100. However, margin is a “double-edged sword.” Without the proper use of risk management tools (that is, stop-loss and take-profit orders), you can experience substantial losses as well as gains.

Open Position: When your Forex deal is running, you hold an “open position.”

Pip: The spread between the bid and ask prices.

Short Position: A short position is a market position that appreciates in value if the market price decreases.

Stop Loss Order: A market order to close a Forex position if or when losses reach a pre-set threshold.

Take Profit Order: A market order to close a Forex position if or when profits reach a pre-set threshold.

Technical Analysis: A technical analysis uses historical data as a means of predicting currency movements. The technical analyst believes that history repeats itself over and over again. Technical analysis is not concerned with the reasons for currency movements (for example, interest rates or inflation). Instead, it believes that historical currency movements are a clear indication of future ones.

As with stocks and mutual funds, there is risk in Forex trading. The risk results from fluctuations in the currency exchange market. Investments with a low level of risk (for example, long-term government bonds) often have a low return. Investments with a higher level of risk (for example, Forex trading) can have a higher return. To achieve your short-term and long-term financial goals, you need to balance security and risk to the comfort level that works best for you.

How to choose a good forex siginal service and automated system is very important for people who cannot or don’t have the experience to trade themselves. Although there are tons of automated forex trading systems which claim to be succesful, chances are most of them are scams. I have tried several times for these so-called winners, and I have to say “thank God, I demoed it, instead of making it live.” However, even if you find a real good system, it does not mean it is suitable for your trading strategy. You could still blow up your account because of that. Let’s first look at the two main types of auto-systems: third party signal proviers and EAs on Metatrader 4.

Third-Party Signal Providers

Welcome to the world of monkeys. I cannot say most of them are scams, but definitely 90% of them are not as profitable as they claim. Just check the feedback on forexpeacearmy.com. So what they do is they build a website and post some stats and tell you how profitable they are. Don’t fall over their traps. I heard one trader said that the forex signals he got were losing trades, but the website either changed the entry prices afterwards to make it a winning trade, or simply don’t post them on web. I am not surprised if such things happen. It is totally not transparent. And some websites promise they win over 200 pips per month. Please, what is max drawdown? And honestly speaking 200 pips/month is defintely not a good performance for an experienced forex trader. You are overpaying them. You can make 200 pips per week yourself if you know how to do news trading. Enough said about the scams, let’s look at something better.

1. Zulutrade.com

It is a website that people can sign up as forex signal providers freely and send signals to the subscribers. The transactions are transparent, and they give a lot of stats like maximum drawdown, win ratio etc. And it is completely free. It is your broker who pays for the service. And of course your broker gets money from you in the beginning from spread and commissions. So if you are looking for a signal provider, I suggest you check this website and demo the signals that are suitable for you. However, there are some numerical traps you should be aware of:

-More winning pips do not mean it is profitable. What Zulutrade did is to multiply the pips by the position size. So for example, the provider finished a winning trade with 2 pips, but he traded 10 lots, so his winning pips was 20pips. But this is not a fair calculation. Because suppose some provider won 15 pips on 1 lot, then his winning pips was only 15 pips. The latter is definitely more profitable. So you really need to see the transaction history and check out the position size the signal provider is using. I see many followers for signals that trade big, but actully not so profitable. So be careful with this.

-”Many followers” do not really mean exactly the same number of people are running them live. Most of them are just testing them. Find the real number of people running them live on the “live followers” tab beside the graph.

-Maximum Drawdown of course is important. But big drawdown does not mean it is bad. For example swing trades usually have big drawdowns, but they can sometimes be more profitable than scalping. Scalping have smaller drawdown, but there is always a delay between you and the provider, the signal goes through a long process to you, even if is less than half a second, the price changes quickly. You will get a losing trade even if the signal provider gets a winning one. Again, demo it first!!

-Diversification: Some traders like to diversify and try to follow 3-5 signals at the same time. But the problem is his account is too small. So he limit the number of trade signals from each provider. However, this may seem a good strategy for scalping followers, because many scalpers like to open 10 positions on the same trade and close them at different times. But for swing trades, this is a bad idea. Swing traders keep losing trades because they know price will reverse. In the meantime they will open other trades that may be profitable. But if you limit the number of signals from the swing trader, you will not receive a winning signal afterwards, and instead end up with a losing trade. This is also why sometimes there is a huge difference between the performances of signal providers and the followers. Don’t be greedy, 3 is the max for a small account under 10,000 dollars.

-Manual Trading or Automated Trading? Some signal providers are real traders who do manual trading and send signals to you, some are people who possess a trading program like an EA. Both could be profitable or unprofitable. So I suggest you choose one for each type.

-Important: Get a broker that allows two-way hedging!! Now many US brokers under NFA regulations do not allow sell and buy the same pair at the same time anymore. So if you receive contradictory signals from two providers, one will cancel out the other.

-One last advice about Zulutrade: check out where the money flows, if a system has a lot of followers, there’s gotta be a reason for that.

2. Tradency Trading systems such as FXCM FSS and FXDD Auto-trade

You should check out their websites if you don’t know what they are. There are many brokers offer scuh service. You can check it out at here. Basically what they do is the same as zulutrade. But they don’t have as many signal providers. In the meantime, of course, it means that their signals have been filtered before they go live, so they should have better overall quality. This is one thing that it is better than Zulutrade.

A little Advertisement from me: My trading signals and the rebate program:)

I just started using both services and sending swing and news trading signals to both Zulutrade and Tradency. But they will not go live until mid Jan and Feb. So if you using one of these systems, you can check out my signals later in mid-January, and search for “swing pirate” on zulutrade.

Another piece of good news for those who don’t have Zulutrade accounts yet. If you are interested, you can sign up through my affiliate link. Zulutrade offers all affiliates 0.4 pips per trade for referral fee. I am willing to give you half of that money to you each month if you sign up through my website.

Finally it is my own blog http://sites.google.com/site/fxfountain, I updated daily strategy and real-time comments everday for free. I just started it, but it will gradually get better and better and feature more resources. Just come and check it out. You will also find into about the rebate program and my signal strategy update.

Back to the second automated trading system: Expert Advisors on MT4

Many people are using MT4, so for now EA (Expert Advisors) are the most popular programs sold on the internet. And for some people with big account, they sometimes get free API attached to their account. But since MT4 is more popular, let’s just focus on EA.

1. Where to buy an EA?

You can buy an EA from a lot of commercial websites. One of them that I know of is BJF Trading Group. They have a lot of EAs to choose from with different trading strategies. I only bought one EA from them, so I cannot make a generalization. But as far as my purchase is concerned, they have a pretty good service. They reply email fast and adjust the EA according your needs. And they occasionally offer discounts to buyers during holidays like now. And if you subscribe to their service, you will probably get additional discount. As to the EURGBP Scalping EA itself that I bought, it was OK last year. But time changes, and it is not profitable anymore.WHY? Last year, people thought EUR and GBP are similar, so the volality in this pair is not that high; but this year, the fundamental picture totally changed. So never think you do not need to do anything even if you bought a profitable EA. You could lose money next month.

I know there are some other websites that are selling EAs, but mostly they are individual programmer who claim they found a “gold rule blah blah” and post some statistics and testimonials. I never tried them,because some websites just looks like a downright scam. Just look for reviews from forexpeacearmy.com.

2. OK, I am seeing a lot of EAs.

Which one is for me? Never think that an expensive EA is a good one, but cheap EAs are usually bad ones. Most EAs are sold for hundreds of dollars. So I suggest you to buy an EA from a website that offers free adjustment after the purchse. Some websites are just selling them, they don’t offer technical support. This is important, because time changes, and the settings actually should be constantly adjusted, especially in such a volatile market.

The next is to consider what trading strategy you prefer. Some like swing trades, some like scalping. If you want to scalp 4-5 pips for each trade on an MT4 account, I suggest you forget it. Most brokers will do shady stuff to prevent you from making money. Either they increase the spreads, or delay your transaction until it becomes a losing trade. It happens a lot with MT4. What you see is not what you get.

The biggest question now is how much risk you can take and how much money you have. If you have a small account (below 2000 dollars), choosing a heavily trading system will blow up your account within a week. If you don’t like drawdown, you should choose systems that have small SL levels. And also think about diversification, whether that system trades on different pairs. Buy a portfolio of EAs if you have enough money and big account.

My advice for people who are looking to buy from BJF: better buy the EAs that are running live on the website owner’s own account. They offer account monitoring on both demo and live. But if the owner went live on a particular EA, it is more likely that this EA is more profitable.

Another important issue is whether this EA is too popular. If it is too popular and widespread, many others will send orders at the same time as you. If you happen to have slow internet speed and you are physically located farther from your broker’s server, you will get a worse entry. What happened with the EURGBP scalping EA is that, people rushed in to buy on low and sell on high, eventually you end up buying high and selling low. But if you are trading in the Euro and US sessions, such problems are minimized because the price action is mostly determined by the big banks and funds etc, not by the demand of the retail traders.

3. OK, I bought an EA, what now? Backtest on your demo of course. But bear in mind that the results are highly hypothetical. Sometimes your broker will intevene and keep you from making money. So backtest is not completely reliable. My suggestion is to run it on a demo account for at least a month. And then constantly monitor if it is profitble and if possible analyse why you got a losing trade. Did it happen often before? What fundamental picture changed? Was the price action weird? (Yah, some brokers manipulate prices to get your SL). Write to the seller immediately if you have questions. Try to find a forum where other people also bought the system, and discuss.

OK, I guess have concluded all you need to know if you are up for an automated trading system. Choosing a good system is no easier than trading yourself. In the stock market, it is more regulated, so you can buy some funds to trade for you. But the forex market is so underregulated that there are just simply too many scams. Be careful!

One of the most appealing ways to attain wealth is to play the stock market. With the advent of the Internet and on line brokers traders have seemingly unrestricted access to various trading products that just 10 years ago were reserved for big financial institutions. A trading product that has been overlooked by many traders is forex.

Forex is derived from the words FOReign EXchange and involves the trading of currencies. Until relatively recently trading forex has been the preserve of banks and other large financial institutions. In the last 5 years forex trading has literally exploded among ordinary traders. When the advantages of forex trading become apparent this is not surprising. The forex market is the largest financial market in the world with an estimated daily turnover of $1.5 trillion dollars. This is 30 times larger than all the US stock markets combined. Further more the forex market is open 24 hours a day 5 days a week.

The size of the forex market is one of its first benefits. The forex market is very liquid and has high volume. Liquidity is a great asset many traders look for because it means a deal can always be done. Forex is a continuous 24-hour market. This is very desirable if you wish to trade part-time as you can choose what time you trade unlike stock markets that are open only 8 hours a day. This 24-hour market almost removes the problem of gapping. Because most stock markets are only open 8 hours a day often-overnight events can cause stocks to gap up or down. Large gaps can especially cause large losses for people who trade derivative products like futures or options. In the forex market the problem of gapping is very much reduced.

Currencies are always traded in pairs. Usually currencies are traded in pairs against the US dollar. The main pairs are US dollar Vs EURO ( EUR), British Pound (GDP), Swiss Franc (CHF), Japanese yen (JPY), Australian Dollar (AUS), New Zealand Dollar (NZD) and the Canadian dollar(CAD). There are other currencies pairs but most traders prefer to trade the pairs above. These currency pairs are known as the majors. Currency traders have plenty of trading opportunities from these 7 major currency pairs. Compare this against the stock market where more than 8,000 stocks trade on the three primary US stock exchanges and currency traders can focus just on these 7 pairs and still make plenty of money.

Unlike the stock market there is never bullish or bearish market conditions. Currencies go up or down against each other according to how the world financial markets perceive the value of the currencies. You can sell a currency (go short) just as easy as you can buy a currency( go long). Currencies go up and down and you can trade either direction just as easily ensuring there is always plenty of trading opportunities.

Forex brokers don’t charge commission or brokerage. This can be quite a large overhead in other financial markets. Forex brokers make their money on the difference between the bid/ask spread of a currency pair. As the forex market is very liquid the spread between the bid/ask is very small. As many stock traders know brokerage can be a significant transaction cost.

You can start trading forex for as little as $300 dollars. There are two types of accounts a mini forex account and regular forex account. Most forex brokers offer 100: 1 leverage which means a in a mini account you can control $10,000 currency position with $100.

In a regular account $1000 controls a $100,000 currency position. This provides great leverage and an extremely efficient use of trading capitol.
Trading a mini account is a great way on how to learn to how to trade forex. When you paper trade you are having a comfortable armchair ride. You are trading without the emotions of putting real money on the table. When you trade a 1 mini currency lot you can set your stop loss so the most you lose is $100. This is a great way to learn how to trade effectively without risking much money. In most other trading products even when trading with the smallest trading lot possible you would have to risk much more. Forex provides trading opportunities for people without much trading capitol.

Many traders have overlooked forex trading. It has many benefits that all traders can use to their advantage. It offers the benefit of trading 24 hours a day in any country in the world. The forex market is a very lucrative market no trader can overlook it.

Single of the most recent Forex robots to approach on the prospect is the IvyBot. The trading robot was formed by the Ivy League’s students and alumnus. It has managed to secure an of great consequence place in the sphere of this aggressive industry and has managed to get hold of a following of enthusiastic traders.

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The IvyBot is able to trade in the sphere of the following currencies (USD/CHF, EUR/USD, EUR/JPY and USD/JPY). These are the key currencies with the aim of traders are interested in the sphere of. This robot is like a expert trader following the trends and making the trade whilst the occasion is real to progress to the trade.

If it is on the cards, at all times try dazed the instruct with a tape explanation or else you set out to trade. Practice with the software to see to it that if it workings well or else by the side of smallest amount the same as first-class the same as you poverty it to bring about. You check to see to it that if a tape of the instruct is to be had with the aim of you can examine in favor of functionality. At all times compare a robot to others to see to it that which could be present better. Execute not reach with recently the at the outset single with the aim of you approach across. Rebuff carry some weight how notable the instruct could sound, it is your money on the line. Prevent investing money with the aim of you cannot afford to lose. While all these systems are aimed to be present first-class, remember with the aim of this is investing and near is rebuff instruct so first-class with the aim of you could not lose your money. Be present cautious with your investing.

Many forex traders think they need to study news stories and the fundamentals to win on the other hand, forex chartists think that charts move to some hocus pocus theory that predicts the future but the most important variable is much simpler and learn how to gauge it and you can enjoy currency trading success.

Let’s start with a simple equation. Fundamentals (Supply and demand) + Investor Perception = Price

Nice and simple that’s the way any investment market moves and it’s obvious that the most important variable is investor perception or sentiment.

The person who simply acts on news has no chance of winning, as it’s discounted immediately and he is playing catch up. For evidence of this look at every major bull move and bear move and you will find that the fundamentals are almost always at their most bullish at an important market top and most bearish at an important market bottom.

The person who uses forex technical analysis will argue that as the fundamentals are immediately discounted in the price, so all you need to do is follow price action and this is by far the better way of trading – but it has one flaw.

You can’t see how far a move will go as greed and fear take hold of investor’s. Sure price spikes never last – but when are they going to end?

This is where you look at the fundamentals for clues to warn of technical tops i.e the sentiment.

You can do this by watching the news.

For example recently it was said the euro would gain on the dollar and make new highs because the US had cut interest rates – what happened?

The euro tried to get through an important resistance price and failed (we pointed this out in an article last week and the euro has plunged since) what was going on?

The news was discounted and bullish euro news didn’t push it higher.

This meant the sentiment was at a bullish extreme and prices recoiled back.

If ever you see bullish news that doesn’t push a market higher and bearish news that doesn’t push a market lower, combined with a price spike on the charts, chances are you are going to get a move the other way.

There is a famous saying:

“If you can hold your head when all around you everyone is losing theirs you probably haven’t heard the news”

In forex terms you have but you are drawing different conclusions – while the lemmings are blinded by greed and fear and never see a move ending, you are looking for a contrary trend.

If you look for price spikes and then look at the contrary view, then you can get some trading opportunities.

Are there any concrete indicators for judging investor sentiment?

Yes there are two great ones – % bullish and the Net Traders Positions report and we will look at these in the next article in this series.

If you want to maximize your profits and enjoy currency trading success you need to use market sentiment to anticipate forex price movement.