Forex Platforms

Five reasons why forex markets will continue to grow in 2010

The retail forex market is expected to continue its growth in 2010 – primarily being driven by an increase in the number of experienced active traders moving to forex from asset classes, leading to a significant uptake in trading volumes.

The forex markets appeal to these investors for five key reasons.

Firstly, for sophisticated investors who are looking to put a proportion of their investments into a diversified asset class, forex offers significant advantages, particularly because of its 24-hour liquidity, tight spreads and easy and ready access.

Secondly, the fundamental principles of trading forex are similar to those required for other asset classes. For example, active traders who are following technical and fundamental analysis of the global markets should be well equipped to take a view on the direction of the forex markets. These traders are able to diversify their investment portfolios from traditional bond and equity assets to forex, thus spreading their risk more effectively.

Thirdly, advances in technology are improving and enhancing the client’s forex trading experience – whether that be the use of stop-losses, or trailing stops. Clients can execute their trading plans using combinations of orders to effectively manage their currency risk. Sophisticated investors are increasingly wanting to make their own financial and investment decisions, and are demanding fair and transparent pricing and access to the latest forex research like that which is provided to clients of dbFX, the online margin forex trading platform from Deutsche Bank.

Fourthly, the continuing demand for algorithmic trading systems will drive future growth. After accounting for less than one per cent of trades in January 2009, algorithmic trades accounted for 25% of all dbFX’s trading volume by January 2010 and will continue to attract new entrants to forex markets (although they should only be used to supplement trader’s existing investment strategy).  

Lastly, the growth in popularity of Managed Account programmes like those offered by dbFX.com are adding to the overall popularity of forex markets. Managed Accounts are targeted at investors who want to gain exposure to forex without actually having to trade themselves – but still ensuring they have full access and control over their capital.

Retail forex has a bright future, and the case for long-term and sustainable growth in the market is clear and compelling.  The key to taking advantage of this potential is to educate investors on the benefits of trading forex and provide them with a multitude of ways they can access the market.

Tags: Forex, Forex Markets, Forex Trading

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