Learn More About PaulForex....... the FOREX Minister.
About the Author
Since you may not know who I am, I thought it would be appropriate to introduce myself.
My name is PaulForex a.k.a Aggressive Trader, and I am a “Competent” Currency Trader.
The fact that you haven’t heard of me is no surprise. I have never been comfortable in the spotlight and have purposely remained “underground”.
I don’t write books…
I don’t try to get on successdigest Magazine, and…
I don’t go from city to city doing “dog seminars” so I can sell a room-full of people my overpriced, piece-of-crap, blinking-light, “black box” FOREX Trading Systems.
I’m a trader, a system developer, a single, and an amateur surfer.
Trading is what I love, and trading is what I DO as a PROFESSION.
I also enjoy teaching and helping other active traders get an edge. I know from personal experience that most trading systems and advice are 100% crap, and it’s my mission to provide something that actually works to independent traders just like me.
That’s why you’re reading this reports...I truly enjoy sharing what I know with traders who are just like me.
If you like what you are going to read here and you want to learn more about what I trade and how I trade, I invite you to send me an email to: newforexideas@gmail.com
with our forex trading you will for sure turn all your losing trade to winning
Thursday, November 12, 2009
Friday, October 9, 2009
My BEST Brain Work Trading Systems!
Over the years I have been fortunate enough to discover 4 Forex Trading weapons that have provided me with a lot of success in the Forex markets. Unfortunately this is not the case for over 95% of new Forex traders who end up learning the wrong systems and trading information. I decided it was time to give something back to the people who are still struggling to make consistent profits in the Forex markets by explaining exactly how I trade My 4 Forex Trading Systems.
NOTE: First let me point out that these systems like any other will not bring riches over night, you need practice and patience, the latter being the most important in my honest opinion. Demo trade for a while and get a good feel for the systems before ever trading live. Take things slow, the Forex markets will be here long after you so there is no rush.
Trading To Win Forex Market, HOW?
There are a few things I want to mention that are very important if you are
planning on really making money in this business.
1. Analyzing your results: If you don’t already keep a track of every trade you
make then start now, create a spread sheet ether on your computer or in a note book and if possible try to make a screen shot of the chart as you make the trade. After one month look at your results and go over every trade you made in that period, often you will find yourself taking bad trades just for the sake of being in the market. Doing this for several months alone will greatly improve your trading skills.
2. Stop trading to trade: New traders usually feel they have to be in the market all the time otherwise they are not trading and therefore will not make money. One thing you have to understand is every trade you take puts your capital at risk, often the most profitable position to be in is NO POSITION.
3. Never let a winner turn into a loser: Recently I have been focusing more
and more on this and it has had an incredible result on my trading, once the market gives me some profit I move my stop to break even and have a free ride. Yes I get stopped out at break even often but doing this almost eliminates large losses completely.
4. Only take the A+ Trades: I pass on almost 60% of the setups that I look for, some weeks I will not enter the market at all, I only consider taking a trade if I believe it is a perfect setup or an A+ trade. This takes a lot of patience and discipline but I often manage to keep my win % above 90% picking the very best setups.
5. Never bet the bank: Never risk more than 3% of your trading capital on
any single trade. I prefer to try and keep it below 2% if possible.
Follow these tips and you can’t go too far wrong as you are learning this
business. With that all out of the way let’s start looking at the Power band system.
make minimum of $200 weekly from our second to none forex signal
NOTE: First let me point out that these systems like any other will not bring riches over night, you need practice and patience, the latter being the most important in my honest opinion. Demo trade for a while and get a good feel for the systems before ever trading live. Take things slow, the Forex markets will be here long after you so there is no rush.
Trading To Win Forex Market, HOW?
There are a few things I want to mention that are very important if you are
planning on really making money in this business.
1. Analyzing your results: If you don’t already keep a track of every trade you
make then start now, create a spread sheet ether on your computer or in a note book and if possible try to make a screen shot of the chart as you make the trade. After one month look at your results and go over every trade you made in that period, often you will find yourself taking bad trades just for the sake of being in the market. Doing this for several months alone will greatly improve your trading skills.
2. Stop trading to trade: New traders usually feel they have to be in the market all the time otherwise they are not trading and therefore will not make money. One thing you have to understand is every trade you take puts your capital at risk, often the most profitable position to be in is NO POSITION.
3. Never let a winner turn into a loser: Recently I have been focusing more
and more on this and it has had an incredible result on my trading, once the market gives me some profit I move my stop to break even and have a free ride. Yes I get stopped out at break even often but doing this almost eliminates large losses completely.
4. Only take the A+ Trades: I pass on almost 60% of the setups that I look for, some weeks I will not enter the market at all, I only consider taking a trade if I believe it is a perfect setup or an A+ trade. This takes a lot of patience and discipline but I often manage to keep my win % above 90% picking the very best setups.
5. Never bet the bank: Never risk more than 3% of your trading capital on
any single trade. I prefer to try and keep it below 2% if possible.
Follow these tips and you can’t go too far wrong as you are learning this
business. With that all out of the way let’s start looking at the Power band system.
make minimum of $200 weekly from our second to none forex signal
#1. SYSTEM: Breakout Scalping System
Using breakouts to scalp the market is by far the most popular scalping method.
One reason is that it works, and the second is that it is the simplest.
When looking for breakouts to scalp, I’m only interested in the first-two hour the different global bank sessions. This includes the:
• Asian or Tokyo session open at 7:00 pm EST
• London session open at 3am EST
• New York session open at 8am EST
I will only discuss the BEST session that I and the Banks Love’s so much because it gives you A LOT more trading opportunities. Join Me as I welcome MR. London Session!
The Tokyo and London markets overlap for one hour between 2 am and 3 am EST. What that means, practically speaking, is that the London session can be seen as a sort of “continuation” of the Tokyo session, but with wildly increased volume and volatility.
As the comparatively slow Tokyo session prepares to go to bed, the wild London one is just waking up. At that moment, around 3 am EST, there is significant market acceleration with thousands of transactions.
As the different banks come online and start moving money, the odds of the
market moving and causing a sustained breakout go up.
And the more breakouts we get, the more opportunities we have to scalp some quick pips!
Trading Setup
• Enter Trade on 1hour Chart.
• Trade ONLY GBP/USD, GBP/JPY, EUR/USD, USD/JPY, USD/CHF, USD/CAD
• At 2:50am EST, setup Your BUY and SELL Entry point with the High and Low of Asian OR Tokyo Session. Add and Subtract 5pips to Both sides and use that as Your breakout point.
NOTE: You have to be fast in setting this system before 3am EST London Opening as the market will move fast.
Take a look at the example below. See how I setup Breakout Scalping System with the Asian OR Tokyo Session High and Low ready for Profit to breakout
Trading Rules
If the Price triggers or breaks Upward (BUY), delete Sell setup. Inversely if the Price triggers or breaks Downward (SELL), delete Buy setup.
If the breakout is not there, then delete Both BUY and SELL setup trade.
One of the biggest mistakes a trader can make is trying to wait for the market to breakout When there is NO Breakout.
StopLoss should be 20pips. Always move it to Break Even as soon as possible.
Never risk more than 2% of your account on any one trade at 2:2 ratio.
Take Profit should NOT exceed 20pips.
Take a look at this Great breakout Upside (BUY)
Take a look at this breakout Downside (SELL)
Take a Look at this NO Breakout Trade. Stay Away.
NOTE: You need a fairly tight stop-loss when scalping breakouts,
because the markets move quick on you (especially during session opens)
and you don’t want to be on the wrong side of a scalping trade when you’re
intended return is only 10 – 20 pips.
Have a Nice Pipis!
make minimum of $200 weekly from our second to none forex signal
One reason is that it works, and the second is that it is the simplest.
When looking for breakouts to scalp, I’m only interested in the first-two hour the different global bank sessions. This includes the:
• Asian or Tokyo session open at 7:00 pm EST
• London session open at 3am EST
• New York session open at 8am EST
I will only discuss the BEST session that I and the Banks Love’s so much because it gives you A LOT more trading opportunities. Join Me as I welcome MR. London Session!
The Tokyo and London markets overlap for one hour between 2 am and 3 am EST. What that means, practically speaking, is that the London session can be seen as a sort of “continuation” of the Tokyo session, but with wildly increased volume and volatility.
As the comparatively slow Tokyo session prepares to go to bed, the wild London one is just waking up. At that moment, around 3 am EST, there is significant market acceleration with thousands of transactions.
As the different banks come online and start moving money, the odds of the
market moving and causing a sustained breakout go up.
And the more breakouts we get, the more opportunities we have to scalp some quick pips!
Trading Setup
• Enter Trade on 1hour Chart.
• Trade ONLY GBP/USD, GBP/JPY, EUR/USD, USD/JPY, USD/CHF, USD/CAD
• At 2:50am EST, setup Your BUY and SELL Entry point with the High and Low of Asian OR Tokyo Session. Add and Subtract 5pips to Both sides and use that as Your breakout point.
NOTE: You have to be fast in setting this system before 3am EST London Opening as the market will move fast.
Take a look at the example below. See how I setup Breakout Scalping System with the Asian OR Tokyo Session High and Low ready for Profit to breakout
Trading Rules
If the Price triggers or breaks Upward (BUY), delete Sell setup. Inversely if the Price triggers or breaks Downward (SELL), delete Buy setup.
If the breakout is not there, then delete Both BUY and SELL setup trade.
One of the biggest mistakes a trader can make is trying to wait for the market to breakout When there is NO Breakout.
StopLoss should be 20pips. Always move it to Break Even as soon as possible.
Never risk more than 2% of your account on any one trade at 2:2 ratio.
Take Profit should NOT exceed 20pips.
Take a look at this Great breakout Upside (BUY)
Take a look at this breakout Downside (SELL)
Take a Look at this NO Breakout Trade. Stay Away.
NOTE: You need a fairly tight stop-loss when scalping breakouts,
because the markets move quick on you (especially during session opens)
and you don’t want to be on the wrong side of a scalping trade when you’re
intended return is only 10 – 20 pips.
Have a Nice Pipis!
make minimum of $200 weekly from our second to none forex signal
Forex trading examples
Example 1
An investor has a margin deposit with Saxo Bank of USD 100,000.
The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.
The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.
Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.
Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.
Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.
Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.
As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.
This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.
Example 2:
The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).
The dealer quotes 112.05-10. The investor sells EUR at 112.05.
Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.
He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.
Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.
The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.
This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.
Example 3
The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:
He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.
Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.
After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.
Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.
Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.
The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.
Forex Trading Basics
Forex Trading Basics
The global foreign exchange market is the biggest market in the world. The 3.2 trillion USD daily turnover dwarfs the combined turnover of all the world's stock and bond markets.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.
In the following article, we would like to introduce you to some of the basic concepts of foreign exchange trading. If you would like any further information, we suggest that you sign up for a FREE Membership on this website, where you will be able to exchange views with other Forex traders and get answers to any questions you might have.
Margin Trading
Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, Saxo Bank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.
In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed. Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions.
Base Currency and Variable Currency
When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell euro. Or buy euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.
The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against Singapore dollars, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of SGD credited and debited for the two transactions. In other words, your profit or loss will be denominated in SGD, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.
Dealing Spread, but No Commissions
When trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.
The dealing spread is typically 3-5 points in normal market conditions. This means that you can sell US dollars against the euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.
This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USDEUR presents price swings of 150-200 points.
Spot and forward trading
When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.
Interest Rate Differentials
Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.
Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 – disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar and an initial disadvantage of the same size by being short.
Please refer to our page Forex Rates & Conditions for current Spreads, Margins and Conditions!
Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.
Stop-loss discipline
As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.
Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.
But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.
For speculative trading, we always recommend the placement of protective stop-lossorders। With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.
Basic Elements Of Trading Forex Market.
- When to enter the market:
· Don’t enter sideways market.
· Don’t trade against Long term trend.
· Pay attention to signal strength of the market.
· Getting into the trade at the right time. Always jump in the trend as possible before the trend is finished.
- When to exit the market:
Exit is BETTER than ENTRY since exit determines your Profit or Loss. STOP using trailing stop it kills.
Basic Fundamental requirements for proper Exit strategy:
- Cut your losses short
- Take part of your profit
- Let your profit runs
- Take your profit when your trades run out of steam.
How To Recognize Sideways Market
It is recognize when within the last 2hours the Highest price differs by less Than 30pips
How To Identify A long Time Trend
We will use EMA 150 on a 5mins chart.
· The long term Trend is Bullish when EMA 150 is Rising.
· The Long term trend is Bearish when EMa 150 is Falling.
Getting An Entry Signal
An Entry signal is a point in time where there is the Highest possible probability that the trade will go into your desired direction.
Use MACD 12, 26, 9 on 5mins chart +3/-3 pips range.
Confirming With The Signal Strength
Use zig zag, Support/Resistance and RSI signals.
History Of Online Forex Trading.
Brief history of Forex trading
Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.
Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.
Introduction to Trading Forex
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 a bull market to better acquaint you with some of the risks and opportunities of 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 FX 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 USD 3 trillion every day. Most Forex trading is speculative, with only a low percentage of market activity representing governments' and companies' fundamental currency conversion needs.Unlike trading on the stock market, the Forex market is not conducted 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 two banking days.
Forward Outrights
For forward outrights, settlement on the value date selected in the trade means that even though the trade itself is carried out immediately, there is a small interest rate calculation left. The interest rate differential doesn't usually affect trade considerations unless you plan on holding a position with a large differential for a long period of time. The interest rate differential varies according to the cross you are trading. On the USDCHF, for example, the interest rate differential is quite small, whereas the differential on NOKJPY is large. This is because if you trade e.g. NOKJPY, you get almost 7% (annual) interest in Norway and close to 0% in Japan. So, if you borrow money in Japan, to finance the trade and buying NOK, you have a positive interest rate differential. This differential has to be calculated and added to your account. You can have both a positive and a negative interest rate differential, so it may work for or against you when you make a trade.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 conducted with relatively small margin deposits. This is useful since it permits investors to exploit currency exchange rate fluctuations which tend to be very small. A margin of 1.0% means you can trade up to USD 1,000,000 even though you only have USD 10,000 in your account. A margin of 1% corresponds to a 100:1 leverage (or “gearing”). (Because USD 10,000 is 1% of USD 1,000,000.) Using this much leverage enables you 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 of Saxo Bank, go to the Account Summary on your SaxoTrader 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 narrow spreads. The liquidity comes mainly from 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 cross because of the high level of liquidity. For more information on the trading conditions of Saxo Bank, go to the Account Summary on your SaxoTrader and open the section entitled “Trading Conditions” found in the top right-hand corner of the Account Summary. -
100:1 Leverage
Leverage (gearing) enables you to hold a position worth up to 100 times more than your margin deposit. For example, a USD 10,000 deposit can command positions of up to USD 1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to 100 times and additional collateral up to 50 times. -
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 US 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. In case that the EURUSD indeed declines, then you can take your profit. The opposite trading scenario would occur if the EURUSD appreciates.
Important Forex Trading Terms
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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 3 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 3-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 0.9878. The difference is USD 0.0003, which is equal to 3 “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 cancel out the four zeros on the amount you trade and you will have the value of 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 0.9878, which means that you can sell 1 euro for 0.9875 USD or buy 1 euro for 0.9878 USD. In this example you buy euro 100,000, at the quote price of 0.9878 (ask price) per euro. |
| • The market moves in your favor | Later the market turns in favour of the euro and the EURUSD is now quoted at Bid 0.9894 and Ask 0.9896. |
| • Now you sell your euro and get the profit | You sell euro at a Bid price of 0.9894. |
| • The profit is calculated as follows | Sell price-buy price x size of trade (0.9894 minus 0.9878) multiplied by 100.000 = USD 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 sell euro 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. |
| • Now you buy back your euro | You buy EUR at an ask price of 0.9749. |
| • Your profit/loss is then | Sell price-buy price x size of trade (0.9875 minus 0.9749) multiplied by 100.000 = USD 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. On a 2% margin 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 the Forex Quick Start found under the Trading menu of SaxoTrader.Glossary
| • Appreciation |  | An increase in the value of a currency. |
| • Ask | | The price requested by the trader. This usually indicates the lowest price a seller will accept. |
| • Base currency | | The currency that the investor buys or sells (i.e. EUR in EURUSD). |
| • Bear | | Someone who believes prices are heading down. A bear market is one in which there has been a sustained fall in prices and which does not look like it will recover quickly. |
| • Bid | | The price offered by the trader. This usually indicates the highest price a purchaser will pay. |
| • Bid/Ask | | The Bid rate is the rate at which you can sell. The Ask (or offer) rate is the rate at which you can buy. |
| • Bull | | Someone who is optimistic about the market. A bull market is characterised by enthusiastic and sustained buying. |
| • cross | | When trading with currencies, the investor buys one currency with another. These two currencies form the cross: for example, EURUSD. |
| • Cross rate | | An exchange rate that is calculated from two other exchange rates. |
| • Depreciation/decline | | A fall in the value of a currency. |
| • EURUSD | | Means that you trade EUR against dollars. If you buy euro you pay in dollars and if you sell euro you receive dollars. |
| • FX, Forex, Foreign Exchange | | All names for the transaction of one currency for another, e.g. you buy GBP 100.00 with USD 150.25 or sell USD 150.25 for GBP 100.00. |
| • Interbank | | Short-term (often overnight) borrowing and lending between banks, as distinct from a banks business with their corporate clients or other financial institutions. |
| • Interest rate differential | | The yield spread between two otherwise comparable debt instruments denominated in different currencies. |
| • Leverage (gearing) | | The investor only funds part of the amount traded. |
| • Long | | To buy. |
| • Long position | | A position that increases its value if market prices increase. |
| • Margin | | The deposit required when entering into a position as well as to hold an open position. Your margin status can be monitored in the Account Summary. |
| • NYSE | | The New York Stock Exchange. |
| • Pips | | A pip is the smallest unit by which a Forex cross price quote changes. So if EURUSD bid is now quoted at 0.9767 and it moves up 2 pips, it will be quoted at 0.9769. |
| • Secondary currency (variable currency or counter currency) | | The currency that the investor trades the base currency against (i.e. USD in EURUSD). |
| • Short position | | A position that benefits from a decline in market prices. |
| • Short | | To sell. |
| • Speculative | | Buying and selling in the hope of making a profit, rather than doing so for some fundamental business-related need. |
| • Spot | | A Spot rate is the current market price of an asset. |
| • Spread | | The difference between the bid and the ask rate. |
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