EUR USD JPY

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.

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.

  The foreign-exchange (”forex” or “FX”) market is the place where currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day.

  There is no central marketplace for currency exchange, rather, trade is conducted over-the-counter. The forex market is open 24 hours a day, five days a week, with currencies being traded worldwide among the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney – spanning most time zones.

Stock Exchange Market

  The stock market and shares trading and securities has been known for a long time, it is a place where short-and long-term speculation investors meet to achieve high earnings according to their expectations, where buying & selling stocks takes place.

  Stock exchange markets & capital markets are considered the largest & most active commercial markets in all the world, where companies are offering their stocks for population to start buying & speculation.

  There are different types of stock exchange markets for examples there are markets for company shares, international currencies, gold, silver, oil, & others, & the best is the foreign currency exchange market or Forex.

Margin System

  The margin trading system is not known to many people and is thought to be for the rich only! although it has long been widespread in all countries in the world, but unfortunately known for the few who were able to make millions!! may be due to ignorance of the youth to the sock exchange secrets because of the lack of teaching aids to disseminate this science for young people.

  Many believe that stock exchange markets are limited for large business men only, which is not true as any very ordinary person even with a low income can invade that world who can start with as low as 1$, this is true, you can start Forex trading in some companies with only 1$, you may also pay 5$, 10$, 50$, 0r 100$ according to your abilities & money budget, but it’s most preferred to start with 2000$ to be able to feel the large profits.

  There ate intermediate companies that accept a minimum deposit such as $ 5 Marketiva for financial intermediation in Forex.

  The majority of international stock exchange markets use the margin system in their trading, by which, any ordinary person with low income can trade with doubles of his capital.

  The margin is the amount of equity that must be maintained in a trading account to keep a position open. It acts as a good faith deposit by the trader to ensure against trading losses. A margin account allows customers to open positions with higher value than the amount of funds they have deposited in their account.

  The equity in excess of the margin requirement in a trading account acts as a cushion for the trader. If the trader loses on a position to the point that equity is below the minimum margin requirement, meaning the cushion has completely worn out, then a margin call will result. Generally, in online forex trading, the trader must deposit more funds before the margin call or the position will be closed. Since no calls are issued before the liquidation, the margin call is better known as margin out in this case. The account will be margined out, meaning all the positions will be closed, once the equity falls below the margin requirement.

An Example for a Forex Order

  Trading system is applied on currency pairs, so you sell or buy a currency for another one, suppose you want to start by buying the Euro US Dollar pair which is shown on this format EUR USD, where the Euro is the base currency & the Dollar is the currency used to buy the Euro, How come ??

  Suppose you have a capital of 10,000$ of which you will use 10% to start trading (we always advise not to exceed this percentage of your capital), this means you will spend 1000$ from your money as a margin which is the insurance fund according to which the intermediate company will give you 100,000$ for trading as the margin rate is always 100:1.

  This is what we call the margin system, & thereby you will benefit from every movement of the market, if you would buy while the price was 1.9000 then it raised to  1.9100, this means that you earned 100 points (a point = 1% of your capital used in a separate position) so here one point = 10$, this means that you earned 1000$ which will be added to your account with no delay whenever you close that position, you can make that profit in seconds & this is for buying which is the same for selling as in Forex you can do both buying & selling.

Why to trade in Stock Exchange markets specially Forex ??

  This new modern way for business has widely spread allover the world in the last years & became the most favorable with high liquidity market in the world, if you mastered this work you can provide yourself a constant significant income for you & your family.

  The core of the Forex trading is that you buy a currency at a low price and then sell it at a higher price when prices are rise and thus you had made a profit, and vice versa, this is the essence of the work in the Forex.

  You can achieve a very high earning during the minutes you spent during an opened deal, indicators & statistical & news now confirm the appearance of internet millionaires who started with a very insignificant capital amount & in a very short period of time.

  On the other side you should take care & be very careful as the Forex also includes losses, we can say that this trade is an opportunity for serious youth.

So .. What is Forex ??

  It’s trading in the international currency stock market particularly the currencies of major economies like the United States, Britain, Switzerland and Japan, the currencies of these countries is one of the most world currencies used in the market Forex.

  These currencies rose and fell influenced by political and economic events of the major economic countries, in addition to the possibility of trading in the precious metals market, oil, considering that technical analysis (Follow-up graphics) is an integral part of market analysis and it’s a very important tool in any stock exchange in the world.

Source : E-LearnGold

If you are new to the world of trading, forex quotes can be pretty confusing. However, it takes just a little know-how, to read them.

What does a foreign exchange quote look like? Look at the following example:

EUR/USD = 1.2526

The above formula shows the foreign exchange rate between the euro and the US dollar.

Remember that in any forex quote, two currencies will always be present. This is because with forex trading, you are buying one currency as you sell another currency.

The first currency listed in a foreign exchange quote is called the “base currency.” The second currency in the formula is the “quote currency.” Therefore, forex quotes show us the relationship between prices for the two currencies in the quote.

The exchange rate is made up by showing how many units of the quote currency you have to pay in order to buy one unit of the base currency.

The euro is the base currency, above, and US dollars are the quote currency. The quote shows how each currency trades relative to the other. If you want to buy one euro unit, therefore, you will have to sell 1.2526 US dollar units.

Next is the “bid/ask” spread. The bid/ask spread is the alternative to broker commissions in the forein exhange market. Brokers get paid for their work via the bid/ask spread.

With the bid/ask spread added to the above example, it looks like this:

EUR/USD = 1.2526/1.2528

Simplified, it looks like this:

EUR/USD = 1.2526/8

Brokers make their money when they sell currencies for slightly more than they buy them. This is legal and every broker does it. However, the spread can differ significantly between brokers.

When you trade forex, you buy at the bid price, the first price in the above example. You then sell at the ask price, which is the second price quoted. The difference between those two prices is called a “spread;” this is what the broker makes as his or her profit on the trade.

In the above example, you’ve bought at 1.2526 and sold at 1.2528. The 0.0002, or two pips, goes to the broker as payment for executing the trade. When you look at it this way, you can see that the bid/ask spread is relatively simple and straightforward; it is a relatively easy way to calculate trading fees and expenses.

Tip

When trading currencies I would recommend that you stick to the seven major currencies. They are as follows:

USD – US Dollar

EUR – the Euro

GBP – British Pound

JPY – Japanese Yen

CHF – Swiss Franc

AUD – Australian Dollar

CAD – Canadian Dollar

Forex traders have plenty of volatility to work with this year as the Fed continues to try to postpone the inevitable. By acting so aggressively to prevent a recession and Wall Street stock market sell off rather than to defend the US currency the Fed has placed itself in an uncomfortable position. Whatever action it takes from here forward will likely be harmful to the US economy.

For the short term the US Dollar continues to rebound against the Euro and to act like the Federal Reserve’s interest rate cutting spree is over, at least for now. With the actual inflation rate soaring the Fed is being forced to pay some attention to the inflation outlook for this year and next.

Against the Euro the dollar hit a low of just over 1.6000, then made a V reversal that quickly carried it to about 1.5350. Forex market traders noticed that at the May 28-29 FOMC meeting FOMC members expressed more concern about the inflation rate and came to the conclusion that further interest rate cuts, if any, would be quite small.

Of course with the Fed funds rate now at 2% the Fed has already used quite a lot of its interest rate cutting ammunition.

A bounce from the 1.5300 handle to just above 1.5500 was short lived and we are again trading in the 1.5300’s this morning. Against the Yen the dollar has made a similar comeback. From recent lows below 100.00 Dollar/Yen quotes are now above 105.00.

With many soft commodity prices and energy prices making record highs the Fed has to be concerned about the inflation rate getting totally out of control. I don’t think that oil above $120.00 a barrel was in any one’s playbook for the first half of 2008. With oil, wheat, corn , rice, and soybeans all at record or near record levels the two most sensitive inflation indicators for the public, food and gasoline, are racing to the upside.

While a dishonest government may exclude food and energy from its inflation index the public is not fooled with such visible pocketbook benchmarks being excluded from official statistics. But what a fix the Fed has placed itself in. To reduce rates further to continue to help out its undeserving rich whining Wall Street friends runs the risk of tanking the dollar and further accelerating the dollars long term decline. The stock market may benefit from such action but inflation would be further accelerated to truly dangerous levels.

However, to start increasing rates to fight inflation will likely tank the stock market and more than a few stock brokerage firms and banks that the Fed has been pulling out all of the stops to throw a lifeline to.

The most likely scenario is that the Fed will “pause” for awhile while inflationary events spiral further out of control. This would likely mean that for the short term the dollar will further gain strength, perhaps back to 1.5000 Euros, but will set the stage for a high powered Euro and Yen rally later this year as the US economy sinks further into recession.

It is highly likely that due to the uncertainly surrounding the US recession and the worldwide financial crisis that extreme volatility in the forex market will continue for a long, long, time.

Yes, yes, I know. The US government says that in official terms no recession exists but what does it feel like to you?

The foreign exchange market, sometimes called foreign exchange market and globally known as the FOREX (Foreign Exchange Market) is the second largest market in terms of volume traded, behind the market interest rates and far ahead of the award.

Every day, more than 2000 billion dollars that are exchanged. Indirectly, almost everyone plays a role in the Forex market. Simply buy or sell a product abroad. A product purchased in the United States by a Frenchman will be settled in dollars, then charged to his account by his bank in Euros. The bank will it bought dollars and sold euros. This operation has made changes at a rate set on the foreign exchange market, known as the FOREX. The fact that the French bank wants to buy dollars and sell the euro appreciates the value of the dollar. The dollar is requested. So, on the FOREX market, the exchange rate against USD EUR will increase. There is demand on the dollar, and a desire to get rid of the euro …

In practice, the previous transaction will not wriggle the FOREX. But the principle in the foreign exchange market is exactly the same with huge sums. Above all, unlike the exchange rates displayed in banks, on the FOREX, USD / EUR 18,000 times vary by day.

In this variation the permanent born speculation. For example, we can buy a dollar at a rate t. And later resell them at a different rate. If the dollar has risen, so we made a profit by the mere fact of converting one currency into another, and then converted the other in the first currency.These conversions are happening in the market for foreign currency or foreign exchange market called Forex.

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We looked at the B Pound recently and gave you areas to sell if you did you made a huge profit with low risk and we have done separate report on the BP – here we want to look at the Yen and Euro and low risk /high reward trading scenario.

Lets look at these currencies and what the week ahead holds.

Japanese Yen

The trend against the dollar is down and has been for years – the recent rally is simply un-winding of carry trades.

This means the JY should resume its down trend and the recent volatility is presenting a low risk high reward opportunity. Take a look at a good free chart service such as futuresource.com and you will see for yourself.

Prices have spiked and are outside the top Bollinger band and resistance lies at 0.85.50 and 86.00. The key to looking at the short side is a change in price momentum.

Pull up the Relative Strength Index which has peaked at just above 70.00 and is losing momentum and also check the Stochastic which is set to cross with bearish divergence.

Look for a reversal day and momentum to turn bearish target on both indicators – target is the mid Bollinger band.

Euro

The euro is in a long term uptrend against the dollar and the recent correction (like the one we looked at in the British Pound) is simply the huge speculative long position being washed out and this looks to be almost done.

The key near term support is 1.36 (bottom of Bollinger band and July Lows)

Again you need to look at the RSI and stochastic and watch for a change in price momentum.

At present there is NO signal to buy RSI continues to fall and the stochastics are deeply oversold.

In Both Currencies

Do not try and predict WAIT for the confirmation on the charts backed up by price momentum.

Trade the reality of price – NOT your opinion (or the opinions of others) stay focused on the charts and stay disciplined.

There are of course conflicting news stories about what happens next – by focusing on the charts and trading the reality of a shift in price momentum, you will be trading the odds and that’s what any currency trader needs to do.

The long term trend is down in the Yen and up in the euro and while we could see a major trend change, this looks like a correction in both currencies and the longer term trends up in Euro and down in Yen will re assert themselves.

Good luck and good trading!

Here we are going to give you a simple forex trading tip that is simple to learn, easy to use and can help you spot big trend changes in advance so here it is.

Its learning to spot bullish or bearish extremes in the market by using news stories – but your not going to be interested in the story itself just its influence on price.

Let’s look at it in more detail (and show you a live example of this tip in action) and start with a simple equation which is an essential part of any trader’s forex education:

Fundamentals + Investor Perception = Forex Prices

The fundamentals are there for everyone to see – but we all see them differently, drawing our own conclusions on what they mean and this huge mass of opinions equals the market price.

It’s a fact that as humans we are subject to our emotions when we trade.

The vast majority of traders are subject to greed and fear when buying or selling currencies. It is these emotions of greed and fear that always cause prices to spike to far away from fair value, as the investor psychology becomes to bullish or bearish.

Throughout history the most important market tops have formed when the news is most bullish and market bottoms when the news is most bearish.

What you need to look for in news stories is:

A bullish or bearish extreme in investor sentiment, then look for bullish or bearish news which does not rally the market when it’s bullish or see a sell off when it’s bearish.

Let’s look at a real life scenario and how this works.

For the last week the vast majority of traders ( around 90% ) have been expecting the Fed to cut US interest rates by 50 bps. On Thursday the Fed chairman spoke and seemed to confirm this – the vast majority of analysts then predicted a huge dollar sell off of the dollar against the euro – but it never came.

Why?

Because this news has been discounted earlier and the market hardly moved.

The euro hit a resistance level at 1.48 and this level is holding. This shows that the bearish dollar news is discounted and the Dollar has already absorbed the interest rate cut news in full.

So with the market stalling at a key resistance level, its time to look at the forex charts, for a turn down in price momentum and sell the euro.

While many in the news have been calling for a massive dollar sell off the charts are telling a different story.

Its time to buy the dollar has been pushed to far away from fair value.

We would expect the euro to trade below 1.40 in the next few months despite the vast majority of traders thinking it is going too sold into oblivion.

There is an old saying:

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

In trading terms you have – but you are seeing the news in a completely different way to the majority, by drawing conclusions based upon its impact on price.

This forex trading tip will put you opposite the majority most of the time but as the majority lose that’s no bad thing. Learn to step back from the crowd and draw different conclusions, this forex trading tip can make huge profits and help you enjoy currency trading success.

The true value is about 80.00 a barrel.

Every time sentiment has pushed it up toward the psychological $100.00 we have sold it – look at our other articles. If you would sold on the last two pops to this level, you will have seen the decline is $20,000 based upon 1 contract.

Its only sentiment that drove prices up – greed and fear drove the market NOT Supply and demand.

A CURRENCY TRADE EXAMPLE

Now let’s look at a currency that is overbought and a huge profit to be made.

The euro against the dollar is the trade.

Regular readers again will know that 1.50 is the psychological number that traders want to target.

1.50 is too high just like $100 in crude is. This is simply sentiment driving prices near these levels and the euro will not trade above this level in our view.

The last time it got up we sold (see our other articles) and said it would target 1.46 it did and that’s a tidy 600 pips profit.

It’s up testing the highs again – but the bad news for the dollar is discounted in the price and its now only greed and fear driving the euro.

All the arguments you here for dollar weakness are discounted:

A 50 bps rate cut, a housing market in trouble, sluggish growth etc and there is no more bad news that’s not known.

Now throw into the equation that the euro zone has problems of its own (which traders seem not to bothered about) and you could see a break in the dollars favour.

How far?

We expect the dollar to trade back to 1.46 and if this level gives way target 1.40

The majority don’t agree with us (they didn’t in crude either) but we won’t let that bother us, were sticking with our euro short view to give us another thumping profit.

When looking for extreme bullish or bearish news to break a price always get confirmation of weakening momentum on your forex charts, so you are trading the reality and not getting in to soon.

Will Rogers once said:

“I only believe what I read in the papers”

He was joking but many traders simply take it as gospel when a news story says the dollar is going to fall into oblivion.

Hold your head, look at the facts and if prices gone too far to soon, get ready to trade against the losing herd.

Can you do the above?

Of course you can – it simply means standing back, examining the facts and then looking for trading signals on your forex charts.

This article was written at 8AM Eastern time 15th January

So, you want to learn how to trade currency on the foreign exchange market? The process of trading currencies appears very straight-forward on the surface; but, there is more to it than meets the eye.

The currency trading tutorial you’re about to receive here will give you a basic idea of how things works. However, you must keep in mind that this tutorial is only scratching the surface. The Forex market is complex, fast-paced and requires serious further study if you wish to trade successfully.

Now that we have that disclaimer out of the way, let’s begin by looking at the fundamental unit involved in every trade: the ‘currency pair’.

What are currency pairs?

Currency pairs are units of 2 currencies involved in a foreign exchange trade. For example, if you want to sell U.S. dollars to buy Euros, you would look at the exchange rate quoted for the EUR/USD currency pair. Or, if you wanted to sell Euros to buy U.S. dollars, you would look at the exchange rate quoted for the USD/EUR currency pair.

You might thinking: “Aren’t they the same thing?” Well, they almost are, but you must look at the correct pair, in the correct order, based on the currency being purchased.

There are two reasons for doing this:

First, it is easier to calculate the results of your exchange in terms of how much of the base currency you can purchase with your ‘quote’ currency. Your base currency is the currency you intend to buy, and the quote currency is the currency you intend to sell in exchange for the base.

When quoting an exchange rate, your broker will list the base currency first in the pair, and the quote currency second.

This means that when you see a pair like EUR/USD, you are seeing the cost of 1 Euro in U.S. Dollars. An exchange rate quote of EUR/USD = 1.4436 means that 1 Euro costs $1.4436 in U.S. Dollars.

Likewise, the USD/EUR pair indicates the cost of 1 U.S. Dollar in terms of Euros. An exchange rate of USD/EUR = 0.6834 would mean that 1 U.S Dollar costs 0.6834 Euro.

The second reason for looking at the correct buy/sell ordered pair is that you’ll want to know the difference between the ‘bid price’ (exchange rate) and the ‘ask price’ (what the market makers want for the currency).

The difference between bid price and ask price make up what is known as ‘the spread’. Forex traders are subject to spreads when opening or closing trades in the buying position.

In other words, you are always subject to a spread when you buy, regardless of whether you are opening or closing the trade.

Open buy -> spread

Close sell -> no spread

Open sell -> no spread

Close buy -> spread

Let’s say that you want to buy the EUR/USD pair. The bid price is 1.4436. The ask price may be something like 1.4440. You must pay the spread of 0.0004 in order to do the trade.

Those are the basics of a currency trade, but there are other factors to take into consideration. In order to make a profit on currency exchanges, you must also know how

to calculate the cash value of exchange rate fluctuations in terms of ‘basis points’ – or, in Forex jargon – ‘pips value’.

This currency trading tutorial will not cover pips values, but it is a concept you should investigate further if you want to master the basics of trade on the foreign exchange.