When you trade the forex markets, you’ve got a choice to make: whether to trade it technically or fundamentally (or both simultaneously). News usually moves the forex markets and often causes the currencies to gap or move really fast. Choosing to trade through news means you are trading fundamentals because the news release has information which impacts underlying fundamental economics of the money.
There are many forex traders just focus on the news and not on the trend. They find the date and time of these critical news releases and simply open a trade just before or right on the time of the economic data release. The advantage of such a strategy is that you don’t need to be up all night or be in the trade in the long term. The profits come in quickly an you are able to exit straight away with a profit (or loss – given that you have a proper trading plan with stop losses in place). There are a few disadvantages to this strategy. One big disadvantage is when there are rumours in the forex markets during the week that lead the actual move to being fully priced before the actual news release. Another disadvantage is that if your dealer doesn’t have a sufficient guaranteed stop (as Easy-Forex does), then you may be gapped out of your stop loss limit and find yourself out of more money than you put in as margin. Also some forex dealers ask for additional margin for these volatile times (Easy-Forex doesn’t do this).
The basic strategy to trading news that move the forex market is finding out the exact time and date of these news releases, then finding out where you can find out the news release the second it comes out (through newswires, government websites or Bloomberg) and finally making a decision on which way the news would lead the markets: would the market be bullish or bearish from the forex news result? Remember, you can’t make money from a news release if the market has already fully priced the circumstance. On the other hand, if the market has fully priced in one circumstance, but in actual fact the news release was totally opposite, then the market would go absolutely crazy and you would see a massive move in the currency in that occurrence.
So what news releases or economic news releases actually move the forex markets? You’ll have to come back for that. There are a few regular economic figures that come out monthly or quarterly that have the power to influence currency prices world-wide: and we will be examining each one as to what they are and why they have such a powerful impact on the supply and demand of forex.
Another brand spanking new forex blog? Why start yet another forex blog when there are many blogs on the same topic already? There are forex blogs about forex news and events, people’s forex trading results, forex trading signals, free trading ebook blogs and more!
So how is this new forex blog going to be any different? We’re going to be looking at forex trading in a number of ways.
For beginners we’re going to show you how to get started on trading. We are essentially going to equip you with the tools and the knowledge necessary to trade forex effectively; such as: How to get past that barrier of fear in making your first trade. How to survive in the long term in forex trading through sound money management. We’re going to develop your technical and fundamental analysis skills.
For intermediate to expert forex traders we’ll be looking at some of the major economic news results and also examine some trading strategies and systems people are using. We will also examine the emotional and psychological angle of trading forex for a living.
Forex (FOReign EXchange) is the worldwide exchange market system where currencies are bought and sold. The forex market began its life in the 1970’s, when free market exchange rates and international currencies were first floated. The prices in the forex market is purely driven by supply and demand for one currency or the other. The forex market itself is the biggest and most liquid trading markets in the world. The volume of trade can reach $2 trillion daily. The market is mostly free from external controls and because of its sheer size, cannot be overtly manipulated. The volume and the number of market participants gives the currency markets its liquidity – unlike certain stocks that are susceptible to gapping and slippage, forex traders are able to open and close their positions in an instant because there are always a buyer and a seller in the market.
The currency markets have a number of different participants with different motivations for forex trading. Hedge fund managers as well as large multinational corporations jump into the forex market to hedge their positions in certain currencies. Retail (public) investors join the market, often using a form of leverage through a forex broker utilise forex trading to make profits from the small daily fluctuations in individual currency prices.
Forex Trading for Retail Investors
Retail investors are the general public who aren’t affiliated with a bank or a brokerage firm. Since forex transactions are not centralized in one exchange, unlike stock exchanges like the NYSE and the ASX, they are taken place through an “inter-bank market”. The forex market opens when New Zealand wakes up for business on Monday and closes then the New Yorkers decide to knock off. Which is around 2200-2300GMT Sunday to about 2200GMT on Friday. If a retail trader would like to jump into the forex markets they can choose a forex dealer, deposit some money to trade through a credit card, cash or check (cheque) and trade the forex markets. These forex dealers who facilitate the retail clients often give some leverage, sometimes to the order of 400:1, but most dealers give 100:1 leverage because it is safer. This form of leverage trading is called trading with margin or marginal trading.
Forex Margin Trading
Margin trading is the term used to describe trading with borrowed capital to allow you to leverage your trade. A 100:1 leverage allows you to deposit only one percent of the overall investment in the trade, which gives you exposure to the overall currency movement. Through margin trading, the retail trader is able to trade large amounts of cash with a small amount of starting capital. So with a 100:1 leverage, you can deposit $1,000 (one thousand dollars) and have exposure to $100,000 or one standard lot.
What’s a “lot”? There are two types of “lots” in forex trading. You can either trade a standard lot or a mini-lot. A standard lot refers to $100,000 and a mini-lot is a tenth of that which is $10,000. When you trade forex, you decide how many lots or mini-lots you would like to trade. The more lots you decide to trade with, the more exposure you have to the currency price fluctuation.
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