Forex Platforms

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

Common Currency Trading Terms

When FX trading, it is a good idea to have some familiarity with basic terms that you will come across. Whether reading about the foreign currency exchange, or just understanding the jargon used by forex brokers, it is a good idea to have a basic knowledge of what common currency trading terms mean. Here are some terms forex brokers and others sometimes use in association with foreign exchange:

Leverage: This is the amount of money you are borrowing from forex brokers to make your FX trade. If you have 200:1 leverage, you pay 0.5% of what you are using to control your position, and the rest of the money comes from the forex broker.

Spread: This is the difference between the bid price and the ask price. You make a profit in currency trading when you overcome the spread.

Support: The level at which a forex trend changes from bearish to bullish.

Resistance: The opposite of support: The FX trend switches from bullish to bearish.

Pip: A term that stands for “percentage in point.” This is the smallest change that can be made to a currency rate.

Scalping: A technique that helps you get between three and five points per trade by using foreign currency pairs with low spreads. Most scalping trades last only a few seconds to a few minutes.

Margin call: Forex brokers often monitor your margin requirements. When the equity of your forex trading account drops below your usable margin, your open positions on the foreign exchange market are closed to keep your losses from mounting.

Cable: This is the nickname for the Great Britain pound and U.S. dollar foreign currency pair on the FX market.

Greenback, buck: Nicknames indicating the U.S. dollar in online currency trading.

Sterling: A nickname used for the Great Britain pound.

Fiber: A nickname used to indicate the euro currency.

Loonie: The currency exchange nickname for the Canadian dollar.

Kiwi: The FX trading nickname for the New Zealand Dollar.

Tags: currency, Forex Trading

How the carry trade works

The carry trade is rather straightforward in theory. A currency often has an interest yield associated with it. This interest rate is called the overnight rate, and is set by a central bank. If a foreign currency is associated with a low rate, its assets yield lower returns. In the carry trade, a low yielding currency is borrowed. The borrowed currency is then used to purchase units of a higher yielding currency. A forex trader can make money on the difference in the yield.

Making money on the forex spot market works in this way because interest payments are made every day – at the end of the day – depending upon your position. Forex brokers close out all positions on the spot forex market at the end of every day. (If you hold your position into the next day, you get it reopened automatically.) At the time of the close out of the FX trading positions at the end of the day, you make money on the yield differences between the currency you borrowed and the currency you bought with the borrowed funds.

One of the most popular carry trade options in currency trading is the Japanese yen carry trade. The yen is traditionally one of the lowest yielding currencies (right now Japan’s benchmark rate is at 0.1%), and is quite popular as a funding currency. Often, yen is used to fund the purchase of the Australian dollar (the benchmark for the Reserve Bank of Australia is 3%). You can see how much of a difference there is between the two rates, and the kind of profit that is possible, depending on your position. The Swiss franc is also popular as a funding currency, due to its traditionally low yield. The New Zealand dollar and the U.K. pound are both popular as purchased currencies because of their usually higher rates.

It is important to be aware of the risks, however. It is possible to lose money quickly on the carry trade if circumstances on the volatile forex market change.

Tags: Forex Trading

Information for Newcomers to Forex Trading

The foreign exchange (Forex) market is perfect for international investors who like to use real-time information to make rapid investment decisions. In Forex, rapid communication through Internet and mobile technologies provides traders with information about the ups and downs of international currencies. Using the latest information, a trader can make a quick profit by trading funds in one country’s currency to funds in another country’s currency. For example, a U.S. trader might exchange U.S. dollars for German Deutschmarks after acting on real-time financial information.

On May 28, 2009, “Computer Weekly News” reported that Barchart.com, Inc., a company that provides real-time financial data, partnered with TraderBytes, Inc., to deliver the customers of TraderBytes a service of “real-time market data for futures, stocks, forex and indices.” This new service is affordable and offers data feeds that accommodate the 24-hour nature of Forex trading. For example, the basic data feed package begins at $15 per month. This new development from Barchart and TraderBytes suggests that Internet technologies will continue to change the way Forex traders make decisions.

A financial investor with a large pot of money to spend quickly can explore the advantages of Forex trading. If you watch the fluctuations in the global financial markets, you will see that trading on margin is an easy (and risky) way to turn a profit. Some Forex traders like the liquidity of Forex trading. Other investors will only make an occasional trade when the potential profit outweighs the financial risk of the trade. In Forex, you can win big and lose big. For information on Forex market regulation, visit the websites of the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). You can also read up on risk management models developed especially for Forex.

Newcomers to Forex trading need good investment advice before risking their capital in the exchange market. Easy-Forex.com recommends caution. “When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling.” There are various models for controlling the risk associated with exchanges in foreign currencies. Use well-respected websites for Forex traders and market information services from providers like TraderBytes to make better trading decisions.

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Tags: Forex Trading