Joined: 01 Mar 2003 Posts: 2 Location: AlloExpat.com Home Country: NULL
Posted: Fri Jun 23, 2006 3:55 am Post subject: FX Currency Trading / FX Forex Trading Online - Know More
Forex Trading – FX Trading
Foreign Exchange
This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online. There are also two scenarios describing the implications of trading in a bear as well as bull market to better acquaint you with some of the risks and opportunities in the largest and most liquid market in the world.
As an additional aid for those who are new to Forex, there is also a glossary at the bottom of this text which explains some of the terms used in connection with currency trading.
Overview Foreign exchange , forex or just Forex are all terms used to describe the trading of the world's many currencies. The forex market is the largest market in the world, with trades amounting to more than $1.5 trillion every day. This is more than one hundred times the daily trading on the NYSE (New York Stock Exchange) . Most forex trading is speculative , with only a few percent of market activity representing governments' and companies' fundamental currency conversion needs.
Unlike trading on the stock market, the forex market is not carried out by a central exchange, but on the "interbank" market , which is thought of as an OTC (over the counter ) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the forex market is a 24-hour market.
Trading Forex
A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a cross (for example, the Euro/US Dollar, or the GB Pound/Japanese Yen.). The most commonly traded currencies are the so-called "majors" - EURUSD, USDJPY, USDCHF and GBPUSD.
The most important forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled "immediately" or on the spot. In practice this means within two banking days.
Trading on Margin
Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually done with relatively little margin since currency exchange rate fluctuations tend to be less than one or two percent on any given day. To take an example, a margin of 2.0% means you can trade up to $500,000 even though you only have $10,000 in your account. In terms of leverage this corresponds to 50:1, because 50 times $10,000 is $500,000, or put another way, $10,000 is 2.0% of $500.000. Using this much leverage gives you the possibility to make profits very quickly, but there is also a greater risk of incurring large losses and even being completely wiped out. Therefore, it is inadvisable to maximise your leveraging as the risks can be very high. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled "Trading Conditions" found in the top right-hand corner of the Account Summary.
Why trade Forex?
24 hour trading
One of the major advantages of trading forex is the opportunity to trade 24 hours a day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique opportunity to react instantly to breaking news that is affecting the markets.
Superior liquidity
The forex market is so liquid that there are always buyers and sellers to trade with. The liquidity of this market, especially that of the major currencies, helps ensure price stability and low spreads . The liquidity comes mainly from large and smaller banks that provide liquidity to investors, companies, institutions and other currency market players.
No commissions
The fact that forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis. Trading the "majors" is also cheaper than trading other crosss because of the high level of liquidity. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled "Trading Conditions" found in the top right-hand corner of the Account Summary.
50:1 Leverage
With a minimum account of USD 10,000, for example, you can trade up to USD 500,000. The USD 10,000 is posted on margin as a guarantee for the future performance of your position.
Profit potential in falling markets
Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines, for example, it is because the U.S. dollar gets stronger against the Euro and vice versa. So, if you think the EURUSD will decline (that is, that the Euro will weaken versus the dollar), you would sell EUR now and then later you buy Euro back at a lower price and take your profits. The opposite trading scenario would occur if the EURUSD appreciates .
Important Forex Trading Terms
Spread
The spread is the difference between the price that you can sell currency at ( Bid ) and the price you can buy currency at ( Ask ). The spread on majors is usually 5 pips under normal market conditions. For more information on the trading conditions at Saxo Bank, go to the Account Summary on your Client Station and open the section entitled "Trading Conditions" found in the top right-hand corner of the Account Summary.
Pips
A pip is the smallest unit by which a cross price quote changes. When trading forex you will often hear that there is a 5-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9880. The difference is USD 0.0005, which is equal to 5 "pips". On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is the cancel-out the four zeros on the amount you trade and you will have one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.
Trading Scenario - Trading Rising Prices
If you believe that the Euro will strengthen against the dollar you'll want to buy Euro now and sell it back later at a higher price.
You buy Euro
We quote EURUSD at Bid 0.9875 and Ask 0.9880, which means that you can sell 1 Euro for 0.9875 USD or buy 1 Euro for 0.9880 USD. In this example you buy Euro 100,000, at the quote price of 0.9880 (ask price) per Euro.
The market turns
Later the market turns in favour of the Euro and the EURUSD is now quoted at Bid 0.9894 and Ask 0.9899.
Sell price-buy price x size of trade (0.9894 minus 0.9880) multiplied by 100.000 = $140 Profit (Note that the profit or loss is always expressed in the secondary currency )
Trading Scenario - Trading Falling Prices
If, on the other hand, you believe that the Euro will weaken against the dollar, you'll want to sell EURUSD.
You sell Euro
We quote EURUSD at a Bid price of 0.9875 and Ask price of 0.9880 and you decide to sellEuro 100,000 at a Bid price of 0.9875.
The market moves in your favour
The Euro weakens against the dollar and the EURUSD is now quoted at bid 0.9744 and ask 0.9749.
Sell price-buy price x size of trade (0.9875 minus 0.9749) multiplied by 100.000 = $ 1260 Profit
Remember that trading EUR 100,000 as we have done in our examples, does not mean that you have to put up Euro 100,000 yourself. It means that you have to deposit 2.0% of Euro 100,000, which is Euro 2,000 on margin as a guarantee for the future performance of your position.
Further Reading
To see how you can trade the forex market and benefit from our toolbox of information and live quotes, please proceed to our Forex Quick Start found under the Trading menu on the toolbar, under Forex.
Glossary
Appreciation
Anincrease in the value of a currency.
Ask
Theprice at which you can buy. Traders also speak of an ask price,the price requested. This usually indicates the lowest price aseller will accept.
Basecurrency
Thecurrency that the investor buys or sells (i.e. EUR in EURUSD).
Bear
Someonewho believes prices are heading down. A bear market is one inwhich there is a sustained fall in prices and which does not looklike it will recover quickly.
Bid
Theprice at which you can sell. Traders also speak of a bid price,the price offered. This usually indicates the top price apurchaser will pay.
Bid/Ask
TheBid rate is the rate at which you sell. The Ask (or offer) rate isthe rate at which you can buy.
Bull
Someonewho is optimistic about the market. A bull market is characterisedby enthusiastic and sustained buying.
cross
Whentrading currencies, the investor buys one currency againstanother. These two currencies form the cross: for example, EURUSD.
Crossrate
Anexchange rate that is calculated from two other exchange rates.
Depreciation/decline
Afall in the value of a currency.
Exchangerate
Whatone currency is worth in terms of another, for example the $Amight be worth 58 US cents or 70 yen. Currencies traded freely onforeign-exchange markets have a spot rate (applying to tradessettled 'spot', ie, two working days hence) and a forward rate.Countries can determine their exchange rates in a variety of ways:a floating exchange rate system where the currency finds its ownlevel in the market; a crawling or flexible peg system which is acombination of an officially fixed rate and frequent smalladjustments which in theory work against a build-up of speculationabout a revaluation or devaluation; a fixed exchange-rate systemwhere the value of the currency is set by the government and/orthe central bank.
EURUSD
Meansthat you trade EUR against dollars. If you buy Euro you pay indollars and if you sell Euro you receive dollars.
FX,Forex, Foreign Exchange
Allnames for the transaction of one currency for another, e.g. youbuy £100.00 with $150.25 or sell $150.25 for £100.00.
Interbank
Short-term(often overnight) borrowing and lending between banks, as distinctfrom banks' business with their corporate clients or otherfinancial institutions.
Interestrate differential
Theyield spread between two otherwise comparable debt instrumentsdenominated in different currencies.
Leverage(gearing)
Inthis case leverage means that the investor only funds part of theamount traded.
Long
Tobuy.
Longposition
Aposition that increases its value if market prices increase.
Liquid(-ity)
Thecapacity to be converted easily and with minimum loss into cash.Ultra-short-dated treasury notes are an example of a liquidinvestment. A liquid market is one in which there is enoughactivity to satisfy both buyers and sellers.
Margin
Theinitial amount or deposit required when entering into a position.Margin is a guarantee for future performance.
NYSE
Acomputerised system providing brokers with the prices of sharesand securities traded on the New York stock exchange and over thecounter. The quotes are published in real-time.
Openposition
Aposition in a currency that has not yet been offset. For example,if you have bought 100,000 USDJPY, you have an open position inUSDJPY until you offset it by selling 100,000 USDJPY.
"Overthe counter"
Whentrading takes place directly between two parties, rather than onan exchange.
Pips
Apip is the smallest unit by which a cross price quote changes. Soif EURUSD bid is now quoted at 0.9767 and it moves up 2 pips, itwill now be quoted at 0.9769.
Position
Money-market,futures, foreign-exchange and sharemarket traders talk of 'takinga position' which simply means buying or selling one currencycross. 'Position' can also refer to a trader'scash/securities/currencies balance, whether he or she is short ofcash, has money to lend, is overbought or oversold in a currency,etc.
Risk
Tryingto control outcomes to a known or predictable range of gains orlosses. Risk management involves a set of steps which begin with asound understanding of one's business and the exposures or risksthat have to be covered to protect the value of that business.Then an assessment should be made of the types of variables thatcan affect the business and how best to protect against unwelcomeoutcomes. Consideration must also be given to the preferred riskprofile - whether one is risk- averse or fairly aggressive inapproach. This also involves deciding which instruments to use tomanage risk, and whether a natural hedge exists that can be used.Once undertaken, a risk-management strategy should be continuallyassessed for effectiveness and cost.
Secondarycurrency (variable currency or counter currency)
Thecurrency that the investor trades the base currency against (i.e.USD in EURUSD).
Shortposition
Aposition that benefits from a decline in market prices.
Short
Tosell.
Speculative
Buyingand selling in the hope of making a profit, rather than doing sofor some fundamental business-related need.
Spot
ASpot rate is the current market price of an asset.
Spotmarket
Thepart of the market calling for spot settlement of transactions.The precise meaning of 'spot' will depend on local custom for acommodity, security or currency. In the UK, US and Australianforeign-exchange markets, 'spot' means delivery two working dayshence.
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Joined: 01 Mar 2003 Posts: 2 Location: AlloExpat.com Home Country: NULL
Posted: Fri Jun 23, 2006 3:56 am Post subject:
FX Currency trading Warning
COMMISSION ADVISORY
~~~~~ CONSUMER WARNING ~~~~
FOREIGN CURRENCY TRADING FRAUDS
Have you been solicited to trade foreign currency contracts? If so, you need to know the difference between fraudulent and legitimate trading opportunities.
Financial markets are booming, and unfortunately, this boom means a corresponding rise in the number and types of financial fraud. Consumers need to take special care to protect themselves from financial frauds. Among the schemes being used to defraud the public are those involving so-called "foreign currency trading." While much foreign currency trading is legitimate, a form of foreign currency trading has been employed in recent years to defraud members of the public. Currency trading scams often attract customers through advertisements in local newspapers or radio or on Internet sites. Those advertisements may tout highly-paid employment opportunities or high-return, low-risk investment opportunities in foreign currency trading.
The United States Commodity Futures Trading Commission (CFTC) investigates and brings actions against firms suspected of illegally offering or selling foreign currency futures contracts to the general public. Over the past several years, the CFTC has successfully brought actions against wrongdoers who lured customers by claims that one could earn large profits trading foreign currency contracts without much risk or by acting as a highly-paid "account executive" trading foreign currency for customers.
Distinguishing Between the Legitimate and Fraudulent Currency Markets
Foreign currency futures contracts may be legitimately traded either on a recognized futures exchange or in the "interbank market," which generally involves trading between large institutions such as banks and corporations, rather than individual or retail customers. Fraudulent currency trading firms often tell customers that their trading is done in the "interbank market." Be wary of any firm that claims that you can or should trade in the "interbank market" or that it can or will do so on your behalf. Your losses can be very large in a single day. Companies that tell you otherwise may well be engaged in illegal schemes.
Fraudulent Currency Trading Companies
If you are solicited by a company that claims to trade currencies and asks you to commit funds for those purposes, you should be very careful. Watch for the warning signs listed below, and take the following precautions before placing your funds with any currency trading company:
1. Stay Away From Opportunities That Sound Too Good to Be True
Always remember that there is no such thing as a "free lunch," and get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds. Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your [spam word detected] once it is gone can be difficult or impossible.
2. Avoid Any Company that Predicts or Guarantees Large Profits
Be wary of companies that guarantee profits or assure a certain percentage of profits.
The following are examples of statements made by fraudulent currency traders:
"Whether the market moves up or down, in the currency market you will make a profit."
"Expect returns of 35-76 percent."
"We guarantee you will make at least a 30-40% rate of return within two months."
3. Stay Away From Companies That Promise Little or No Financial Risk
Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government. The currency futures markets are volatile and contain substantial risks for unsophisticated customers. The currency futures markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures contracts. Therefore, beware of companies that make the following types of statements:
"You take only as much risk as you see fit."
"With a $10,000 deposit, the maximum you can lose is $200 to $250 per day."
4. Don?t Trade on Margin Unless You Understand What It Means
Many currency traders ask customers to give them money known as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers. You need to be aware of an important fact - margin trading can make you responsible for dollar losses that greatly exceed the margin amount you deposited. Don?t trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
Be Wary of Sending or Transferring Cash on the Internet, By Mail, or Otherwise
It costs an Internet advertiser just pennies per day to reach a potential audience of millions of persons, and phony currency trading firms have seized upon the Internet as an inexpensive and effective way of reaching a large pool of potential customers. Be especially alert to the dangers of trading on-line; it is very easy to transfer funds on-line, but can often be impossible to get them refunded. Many companies offering currency trading on-line are not located within the United States and may not display an address or any other information identifying their nationality on their Web site. Be aware that if you transfer funds to those foreign firms it may be very difficult or impossible to recover your funds.
Prior to Trading, Contact the Authorities
Prior to trading, you should check with law enforcement agencies, including your state?s Attorney General?s Office and Consumer Protection Bureau. Telephone numbers for these offices, or similarly named offices, are listed in the state listings of your telephone book. In addition, you should check with the state authorities and the Better Business Bureaus (BBB) in the community where the company is located. Keep in mind, though, that this is not a foolproof means of detecting fraud -- complaints often come in to these agencies months after a fraud has occurred, and it may be too soon for the company?s victims to understand that they have been defrauded or to register complaints with the BBB or other authorities.
Call the National Futures Association (NFA) at (800) 621-3570 and ask whether the company and the individuals who work for it are registered with the NFA or the CFTC and whether any of them has a disciplinary history or current or prior legal judgments. Persons and companies conducting currency frauds are often unregistered and will not necessarily appear in the NFA?s records.
If you encounter suspicious currency trading activity that may be harmful to the public, please call the NFA at the number above, or call, write or e-mail the CFTC at the number or addresses below.
Currency Scams Often Target Members of Ethnic Minorities
Some currency trading scams target potential customers in ethnic communities, most particularly persons in the Russian, Chinese, and Indian immigrant communities, through advertisements in ethnic newspapers and television "infomercials." Many such advertisements offer so-called "job opportunities" for "account executives" to trade foreign currencies. Be aware that all "account executives" they hire might be expected to use their own money for currency trading, as well as to recruit their family and friends to do likewise. What appears to be a promising job opportunity is actually another way many of these companies lure customers into parting with their cash.
Be Sure You Get the Company?s Performance Track Record
Get as much information as possible about the firm?s or individual?s performance record on behalf of other clients. It may be difficult to do this. While the firm or broker is not required to provide this information, you should be wary of any person who is not willing to do so or who provides you with incomplete information. However, keep in mind that, even if you do receive a glossy brochure or sophisticated-looking charts, the information they contain might be false.
Don?t Deal With Anyone Who Won?t Give You Their Background
Get the background of the persons running or promoting the company, if possible. Do not rely solely on oral statements or promises from the firm?s employees. Ask for all information in written form. Plan to do a lot of checking of any information you receive to be sure that the company is and does exactly what it says. If you cannot satisfy yourself that the persons with whom you are dealing are completely legitimate and above-board, the wisest course of action is to avoid trading foreign currencies through those companies.
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