Forex Platforms

Transparent and Fair Forex Pricing

Transparent and fair forex pricing

Foreign exchange has become one of the fastest growing investment asset classes for the retail investor, and over the past 10 years or so, there has been a proliferation of brokers and providers coming to market to meet the trading demands of this ever growing community.

One of the key considerations for anyone wanting to trade forex is the pricing offered by the broker. Retail forex traders should look to use a forex broker that not only provides world-class service, support and research, but one that also provides reliable, fair and transparent bid/ask spreads.  Traders should also be careful to look behind the advertised price, and clearly establish the actual or “typical” price, which is often not clear and different from the one advertised.

Spreads in forex are the difference between the bid and offer prices.  For example, if a EURUSD quote is 1.4064 to 1.4066, the spread is 2 pips.  So, as an investor, you can sell EURUSD at 1.4064 and buy EURUSD at 1.4066.

Spreads are affected by the amount of traders in the market at that time, also know as liquidity.  When there are more traders, the spreads should be narrower. Pricing fluctuates according to the time of day and liquidity in the market.  The tightest spreads are typically seen during London trading hours, during which Asia or New York traders are also active in the market.

The dbFX forex trading platform provides its clients with competitive currency spreads, as well as a number of other benefits.  All prices provided by dbFX are fully transparent, neutral and, as they are streamed from Deutsche Bank, one of the world’s largest liquidity providers*, prices are streamed directly from the heart of the foreign exchange market.  These prices will naturally fluctuate according to movements in the levels of volatility and liquidity.  Full anonymity in the market is also provided to all clients, with fully automated risk management.

For more information on forex trading with dbFX, please visit www.dbfx.com.

* Euromoney FX Poll 2005 – 2009.

Augmenting your Trading with Algorithms

There are a number of ways you can trade FX, but doing so through automated trading systems has become increasingly popular with sophisticated retail investors in recent months.  These systems, which use complex algorithms to produce automated trading signals, can be bought and uploaded over the internet by investors and plugged into a forex trading platform.

A key advantage of using automated trading systems is that they enable you to manage your forex portfolios according to a set of pre-determined rules. They therefore tend to be less time intensive than self-directed trading, because trades are executed automatically and emotion is removed from the equation.

However, before investing in FX through an automated system, there are a number of points you should bear in mind.

Most importantly, you should find out whether the overall forex trading strategy provided by that system matches your investment objectives.  For example, if you have a low risk strategy, your automated trading system should be less aggressive, allowing lower levels of leverage and consistently using stop loss orders to limit the downside risk.  On the other hand, a trader with more aggressive trading objectives may choose a system that uses higher leverage levels and trades more frequently.

Similarly, you should do comprehensive research to make sure the system suites the current market conditions.  For instance, a system that works well when carry trades are popular might not be suitable at a time when market movements are being created mostly by trading trending currency pairs – and vice versa.

Next, you should ask, is the system logical to me?  A relatively novice trader may look for a straight forward system that uses stock standard procedures, e.g. having two moving averages with trades executing when they cross. A more advanced trader may look for a system with complex algorithms, e.g. one that involves sophisticated time series for complementary currency pairs.

Once you have found an appropriate trading system, you should find out who developed the software, and research their background and experience before completing a thorough back testing.  The back testing should include an evaluation of the leverage used, the swings in profits and losses, consideration of the max draw downs and the profitability of the trading system after all costs including any commissions have been paid.

Once underway, it is important to continually evaluate your system to ensure it is delivering the results you are looking for within the current market conditions.  Indeed, the rules are the same: whether you are trading on your own or using an automated trading system to augment your trading, remember to keep within your investment objectives and risk tolerances at all time.

For more information on automated trading, as well as solutions offered by Deutsche Bank to sophisticated retail FX investors, please visit www.dbfx.com.

Tags: Algorithms

Forex Trading: Technical Analysis

Making decisions about forex trading strategies can be made a little easier when you have a method of analysis that can help you determine likely movements on the FX market. Technical analysis and fundamental analysis are the two main ways to analyze what you see happening on the foreign currency exchange. Technical analysis is mostly concerned with forex charts, however, and price action.

Technical analysis is mainly about looking at forex trading charts and making decisions based on the trends seen in the price. While some may look to a few outside factors that affect the foreign currency exchange, for the most part technical analysis is almost exclusively concerned with what is going on with the pure numbers that represent the exchange rate.

For the most part, a good FX trading platform will allow you access to forex charts so that you can see exactly what is happening. By looking at price trends over a set period of time (anywhere from hours to months), it is possible to get a feel for what a foreign currency may do next on the forex market. There are even different techniques to help you interpret what you are seeing and make your currency trading decisions.

There are primers that go into detail about different ways to read forex trading charts, and how you can use different methods to analyze the data. The two main methods, though, are Fibonacci and Elliott Wave. Both of these technical analysis tools require a bit of study to learn the knack of it. Luckily, it is likely that your forex trading platform has tools to help you make use of these types of technical analysis. (The forex platform from Deutsche Bank, dbFX, offers a number of technical analysis tools, including Fibonacci.)

While technical analysis can be very helpful, and while many forex traders (especially those interested in the short term) use technical analysis exclusively when developing forex strategies, it is important to remember that there are limitations. The FX market is volatile, and it is possible that sudden movements that defy usual analysis on forex charts can result in losses.

Tags: analysis, Elliott Wave, Fibonacci, Forex, Forex Trading, Technical Analysis

Forex Trading: Fundamental Analysis

When deciding on forex strategies, it is often helpful to have some method of analysis that you can use to help you determine what is most likely to happen in currency trading. You can either use fundamental analysis or technical analysis. Fundamental analysis is more of the “big picture” view of the forex market.

While you can use forex trading charts to help you get a more complete picture of foreign currency rates, fundamental analysis focuses more on the underlying factors affecting price movement. The idea is to look at the fundamentals that support a certain foreign currency, most often considering factors that have to do with the economy attached to that currency.

Fundamental analysis makes use of such items as economic policy, political currents, events and the state of the economy (with the help of economic data). In forex trading, these macro-events often influence the way traders view a currency. In foreign exchange trading, perception is important. If political unrest makes forex traders nervous about a certain country’s assets, then that currency is likely to be bid lower when it comes time to make an FX trade.

Economic data is also very important to fundamental analysis. A currency is most often supported well when its economy is growing. In the euro exchange, economic news coming out of Germany plays a big role. When expansion is seen, and when business confidence is high in Germany, the whole euro zone benefits. When the euro zone is perceived as having a stronger economic outlook than the U.S., then the euro currency does better in forex trading.

Another consideration in fundamental analysis is often commodities. With commodity currencies, the way that the commodities market moves is important. These currencies rely on exports – such as oil, timber and precious metals – to support their currency. When global trade is up, commodity currencies normally do well, and forex trading charts are not needed to see that things are going well for certain currencies.

Paying attention to price action is still somewhat important to fundamental analysis, but it is not the only thing. Fundamental analysis requires that some attention is paid to underlying factors when online forex trading decisions are made.

Tags: analysis, Fundamental Analysis