Introduction to Forex?

Topic Covers | Introduction on Forex, Explanation of the World Forex Markets, Foreign Exchange


What is Forex?

Basic Explanation of the Worldwide Forex Markets
The Foreign Exchange Market is the place, where currencies are traded. Currencies are very important to most people around the world, whether they realize it or not. The reason is, that currencies need to be exchanged in order to conduct foreign trade and business. If somebody is living in the USA and wants to buy cheese from Switzerland, either the buyer or the company where he buys the cheese from has to pay the Swiss exporter for the cheese in Swiss Francs (CHF). This means that the US importer would have to exchange the equivalent value of US Dollars (USD) into Swiss Francs. The very same is valid for traveling. A German tourist in Egypt can not pay in Euros (EUR) to see the pyramids because it is not the locally accepted currency. Therefore the tourist has to exchange his Euros into the local currency, in this case the Egyptian Pound (EGP), at the current exchange rate.

This absolute need to exchange currencies is the basic reason why the Foreign Exchange Market is the largest and most liquid financial market in the world. For Facts and Figures of the worldwide Foreign Exchange Market please visit our market overview of the Bank for International Settlements (BIS).

One unique aspect of this international market is, that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange place. The market is open 24 hours a day, five days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across every time zone. This means that when the trading day in the USA ends, the Forex Market begins a new day in Australia, Tokyo and Hong Kong. As such, the FX market can be extremely active any time of the day specially when two major markets are overlapping, with price quotes changing constantly.

One of the main reasons for the immense attractiveness of Forex/4X/FX trading is the Leverage. That's why Forex trading is entirely different from stock trading or futures trading. Foreign Exchange Trading leverage can be enormous, from 1:50 (=invest $ 1, control $ 50) up to 1:1000 (=invest $ 1, control $ 1000), whatever the trader is choosing as risk level and whatever the Broker is offering.
Super high leverage is an important selling point for many Online Forex Brokers. How many times have you seen "control $ 100,000 with an investment of only $ 250"? Those numbers are correct, and the profit (and loss) potential of super high leverage is sometimes scaring, especially for beginners.


How does Foreign Exchange Trading work and how to trade in the Forex Market?

The whole system of quoting prices is quite simple. Currencies are always traded in pairs. All possible pairs have already been created and are available for trading. In other words, you will trade not a separate currency, but the pair and the quote is an exchange rate from one currency to another. The exchange rate is always defined as 1 unit of the first currency in a pair as value of the second currency in a pair.

For example: EUR/CHF=1.2050 means 1 EUR=1.2050 CHF or EUR/JPY=106.35 means 1 EUR=106.35 JPY

When an investor trades in the Foreign Exchange Market, he always trades a combination of two currencies (a cross-pair or currency-pair) in which one currency is bought (long) and the cross currency is sold (short). This means the investor is speculating on the prospect of one of the two currencies appreciating in value in relation to the other one.

If you are investing for example USD 1 with a leverage of 1:400 - you will be in control of USD 400 and the difference of the exchange rate of USD 400 to another currency (like EUR, JPY or CHF), between opening and closing the trade, is your win or loss...

Excerpt From Case Study

Anthony Bolton, Fidelity Investments

 'My ideal stock is one where things have gone wrong in the company, but it looks as if things are changing'
 

Case Study

Now pay attention and learn from my mistakes! I opened an internet sharedealing account about a year-and-a-half ago. As an internet journalist I thought I ought to test out the services I write about. I invested a relatively small amount in a couple of technology-related investment trusts. In about three months I'd doubled my money.

This investing lark was a piece of cake. Shares only seemed to go up, never down. So I invested some more and bought more technology stocks - companies I thought I knew about.

The internet is undoubtedly changing the way the world works and communicates. It is a major revolution and those companies that are making that revolution happen are going to be massive. That was the investment philosophy, anyway. Then came the first sharp correction in about March 2000. Technology companies both sides of the Atlantic had become ridiculously overvalued. The bubble was about to burst. But did I sell? Did I hell! Strange psychology comes into play. When prices are falling you always think they'll start rising again soon. When they're rising, you always think they'll continue doing so, even if you've already made a tidy paper profit.

I invested more - more than I could afford to lose, another classic investor mistake - and became addicted to the daily excitements of live share prices, sometimes swinging 20% throughout the day, and 'real-time' online dealing. And that's the potential problem with internet dealing. It can become addictive. It's there on your computer screen just a few mouse clicks away. And so you dabble when you should just leave well alone. You're tempted to think more and more short-term when novice investors like me should be thinking about investing for five years at least. Each time you deal, the stamp duty and dealing charges eat away at your capital. The sometimes very wide bid-offer spreads (the difference between the buying price and the selling price) leave you sitting on a loss as soon as you've bought. If the price than falls, your losses are instantly compounded. You panic and sell - you're capital is further eroded.

To cut a long story short, I broke every rule in the investment handbook, including not taking profits when I could. The result is that, along with the rest of the technology sector, my original capital has been decimated. After investing for a year-and-a-half I'm poorer, but hopefully wiser.
These are the lessons I've learned so far. They may seem obvious, but you'll be surprised how difficult it is to do the obvious:

•  Decide clearly whether you are a short-term, speculative trader or a long-term investor. Don't fall between two stools.
• Impose stop losses and stick to them rigidly - protect your capital at all costs.
• Never try to guess the bottom of a falling market.
• Don't be afraid to sell up completely and go to cash occasionally.
• Be patient and wait for investment opportunities. Don't dive in at the first opportunity without thinking.
• Take profits when you can and don't be too greedy.
• The trend is your friend - in other words, don't try to beat the market. If it's going down, you probably will, too.
• Don't become obsessed with your favourite stocks. There's not much room for sentiment in investing. Diversify your portfolio across different business sectors so that you're not putting all your eggs in one basket.
• Buying shares solely based tips reduces investing to the level of gambling. Do your own research and follow your own hunches.
• Consider other ways of investing, too, such as unit trusts.

Triple Screen Trading System - Part III

Topic Covers | Active Trading, Technical Analysis, Technical Indicators, Trading Software

TST System - Part III

A trader's chart is the foremost technical tool for making trading decisions with the triple screen trading system. For example, traders commonly use weekly moving average convergence divergence (MACD) histograms to ascertain their longer-term trend of interest. Deciding which stocks to trade on a daily basis, the trader looks for a single uptick or a downtick occurring on the weekly chart to identify a long-term change of trend. When an uptick occurs and the indicator turns up from below its center line, the best market tide buy signals are given. When the indicator turns down from above its center line, the best sell signals are issued.

By using the ocean metaphors that Robert Rhea developed (see Triple Screen Trading System - Part 2), we would label the daily market activity as a wave that goes against the longer-term weekly tide. When the weekly trend is up (uptick on the weekly chart), daily declines present buying opportunities. When the weekly trend is down (downtick on the weekly chart), daily rallies indicate shorting opportunities.

Second Screen – Market Wave

Daily deviations from the longer-term weekly trend are indicated not by trend-following indicators (such as the MACD histogram), but by oscillators. By their nature, oscillators issue buy signals when the markets are in decline and sell signals when the markets are rising. The beauty of the triple screen trading system is that it allows traders to concentrate only on those daily signals that point in the direction of the weekly trend.

For example, when the weekly trend is up, the triple screen trading system considers only buy signals from daily oscillators and eliminates sell signals from the oscillators. When the weekly trend is down, triple screen ignores any buy signals from oscillators and displays only shorting signals. Four possible oscillators that can easily be incorporated into this system are force index, Elder-Ray index, stochastic and Williams %R.

Force Index

A two-day exponential moving average (EMA) of force index can be used in conjunction with the weekly MACD histogram. Indeed, the sensitivity of the two-day EMA of force index makes it most appropriate to combine with other indicators such as the MACD histogram. Specifically, when the two-day EMA of force index swings above its center line, it shows that bulls are stronger than bears. When the two-day EMA of force index falls below its center line, this indicator shows that the bears are stronger.

More specifically, traders should buy when a two-day EMA of force index turns negative during an uptrend. When the weekly MACD histogram indicates an upward trend, the best time to buy is during a momentary pullback, indicated by a negative turn of the two-day EMA of force index.

When a two-day EMA of force index turns negative during a weekly uptrend (as indicated on the weekly MACD histogram), you should place a buy order above the high price of that particular day. If the uptrend is confirmed and prices rally, you will receive a stop order on the long side. If prices decline instead, your order will not be executed; however, you can then lower your buy order so it is within one tick of the high of the latest bar. Once the short-term trend reverses and your buy stop is triggered, you can further protect yourself with another stop below the low of the trade day or of the previous day, whichever low is lower. In a strong uptrend, your protective provision will not be triggered, but your trade will be exited early if the trend proves to be weak.

The same principles apply in reverse during a weekly downtrend. Traders should sell short when a two-day EMA of force index turns positive during the weekly downtrend. You may then place your order to sell short below the low of the latest price bar.

Similar in nature to the long position described above, the short position allows you to employ protective stops to guard your profits and avoid unnecessary losses. If the two-day EMA of force index continues to rally subsequent to the placement of your sell order, you can raise your sell order daily so it is within a single tick of the latest bar's low. When your short position is finally established by falling prices, you can then place a protective stop just above the high of the latest price bar or the previous bar if higher.

If your long or short positions have yet to be closed out, you can use a two-day EMA of force index to add to your positions. In a weekly uptrend, continue adding to longs whenever the force index turns negative; continually add to shorts in downtrends whenever the force index turns positive.
Further, the two-day EMA of force index will indicate the best time at which to close out a position. When trading on the basis of a longer-term weekly trend (as indicated by the weekly MACD histogram), the trader should exit a position only when the weekly trend changes or if there is a divergence between the two-day EMA of force index and the trend. When the divergence between two-day EMA of force index and price is bullish, a strong buy signal is issued. On this basis, a bullish divergence occurs when prices hit a new low but the force index makes a shallower bottom.
Sell signals are given by bearish divergences between two-day EMA of force index and price. A bearish divergence is realized when prices rally to a new high while the force index hits a lower secondary top.

The market wave is the second screen in the triple screen trading system, and the second screen is nicely illustrated by force index; however, others such as Elder-Ray, Stochastic, and Williams %R can also be employed as oscillators for the market wave screen.

To continue learning about the second screen in this system, go to Triple Screen Trading System - Part 4. For further reference, you can also revisit Part 1 and Part 2.

Triple Screen Trading System - Part II

Topic Covers |  Active Trading, Day Trading, Technical Analysis, Technical Indicators, Trading Software

TST System - Part II

Market Trends
The stock market is generally thought to follow three trends, which market analysts have identified throughout history and can assume will continue in the future. These trends are as follows: the long-term trend lasting several years, the intermediate trend of several months and the minor trend that is generally thought to be anything less than several months.

Robert Rhea, one of the market's first technical analysts, labeled these trends as tides (long-term trends), waves (intermediate-term trends) and ripples (short-term trends). Trading in the direction of the market tide is generally the best strategy. Waves offer opportunities to get in or out of trades, and ripples should usually be ignored. While the trading environment has become more complicated since these simplified concepts were articulated in the first half of the 20th century, their fundamental basis remains true. Traders can continue to trade on the basis of tides, waves and ripples, but the time frames to which these illustrations apply should be refined.

 Under the triple screen trading system, the time frame the trader wishes to target is labeled the intermediate time frame. The long-term time frame is one order of magnitude longer while the trader's short-term time frame is one order of magnitude shorter. If your comfort zone, or your intermediate time frame, calls for holding a position for several days or weeks, then you will concern yourself with the daily charts. Your long-term time frame will be one order of magnitude longer, and you will employ the weekly charts to begin your analysis. Your short-term time frame will be defined by the hourly charts.

If you are a day trader who holds a position for a matter of minutes or hours, you can employ the same principles. The intermediate time frame may be a ten-minute chart; an hourly chart corresponds to the long-term time frame, and a two-minute chart is the short-term time frame.

First Screen of the Triple Screen Trading System: Market Tide

The triple screen trading system identifies the long-term chart, or the market tide, as the basis for making trading decision. Traders must begin by analyzing their long-term chart, which is one order of magnitude greater than the time frame that the trader plans to trade. If you would normally start by analyzing the daily charts, try to adapt your thinking to a time frame magnified by five, and embark on your trading analysis by examining the weekly charts instead.

Using trend-following indicators, you can then identify long-term trends. The long-term trend (market tide) is indicated by the slope of the weekly moving average convergence divergence (MACD) histogram, or the relationship between the two latest bars on the chart. When the slope of the MACD histogram is up, the bulls are in control, and the best trading decision is to enter into a long position. When the slope is down, the bears are in control, and you should be thinking about shorting.

Any trend-following indicator that the trader prefers can realistically be used as the first screen of the triple screen trading system. Traders have often used the directional system as the first screen; or even a less complex indicator such as the slope of a 13-week exponential moving average can be employed. Regardless of the trend-following indicator that you opt to start with, the principles are the same: ensure that you analyze the trend using the weekly charts first and then look for ticks in the daily charts that move in the same direction as the weekly trend.

Of crucial importance in employing the market tide is developing your ability to identify the changing of a trend. A single uptick or a downtick of the chart (as in the example above, a single uptick or a downtick of the weekly MACD histogram) would be your means of identifying a long-term trend change. When the indicator turns up below its center line, the best market tide buy signals are given. When the indicator turns down from above its center line, the best sell signals are issued.
The model of seasons for illustrating market pricesfollows a concept developed by Martin Pring. Pring's model hails from a time when economic activity was based on agriculture: seeds were sown in spring, the harvest took place in summer and the fall was used to prepare for the cold spell in winter. In Pring’s model, traders use these parallels by preparing to buy in spring, sell in summer, short stocks in the fall and cover short positions in the winter.

Pring's model is applicable in the use of technical indicators. Indicator "seasons" allow you to determine exactly where you are in the market cycle and to buy when prices are low and short when they go higher. The exact season for any indicator is defined by its slope and its position above or below the center line. When the MACD histogram rises from below its center line, it is spring. When it rises above its center line, it is summer. When it falls from above its center line, it is autumn. When it falls below its center line, it is winter. Spring is the season for trading long, and fall is the best season for selling short.

Whether you prefer to illustrate your first screen of the triple screen trading system by using the ocean metaphor or the analogy of the changing of the seasons, the underlying principles remain the same.

To learn about the second screen in the triple screen system, read Triple Screen Trading System - Part III. For an introduction to this system, go back to Triple Screen Trading System - Part I.

Triple Screen Trading System - Part I

Topic Covers |  Active Trading, Technical Analysis, Technical Indicators, Trading Software

TST System - Part I

Sounding more like a medical diagnostic test, the triple screen trading system was developed by Dr. Alexander Elder in 1985. The medical allusion is no accident: Dr. Elder worked for many years as a psychiatrist in New York before becoming involved in financial trading. Since that time, he has written dozens of articles and books, including "Trading For A Living" (1993). He has also spoken at several major conferences.

Many traders adopt a single screen or indicator that they apply to each and every trade. In principle, there is nothing wrong with adopting and adhering to a single indicator for decision making. In fact, the discipline involved in maintaining a focus on a single measure is related to the personal discipline is, perhaps, one of the main determinants of achieving success as a trader.

What if your chosen indicator is fundamentally flawed?

What if conditions in the market change so that your single screen can no longer account for all of the eventualities operating outside of its measurement? The point is, because the market is very complex, even the most advanced indicators can't work all of the time and under every market condition. For example, in a market uptrend, trend-following indicators rise and issue "buy" signals while oscillators suggest that the market is overbought and issue "sell" signals. In downtrends, trend-following indicators suggest selling short, but oscillators become oversold and issue signals to buy. In a market moving strongly higher or lower, trend-following indicators are ideal, but they are prone to rapid and abrupt changes when markets trade in ranges. Within trading ranges, oscillators are the best choice, but when the markets begin to follow a trend, oscillators issue premature signals.

 To determine a balance of indicator opinion, some traders have tried to average the buy and sell signals issued by various indicators. But there is an inherent flaw to this practice. If the calculation of the number of trend-following indicators is greater than the number of oscillators used, then the result will naturally be skewed toward a trend-following result, and vice versa.

Dr. Elder developed a system to combat the problems of simple averaging while taking advantage of the best of both trend-following and oscillator techniques. Elder's system is meant to counteract the shortfalls of individual indicators at the same time as it serves to detect the market's inherent complexity. Like a triple screen marker in medical science, the triple screen trading system applies not one, not two, but three unique tests, or screens, to every trading decision, which form a combination of trend-following indicators and oscillators.

The Problem of time frames

There is, however, another problem with popular trend-following indicators that must be ironed out before they can be used. The same trend-following indicator may issue conflicting signals when applied to different time frames. For example, the same indicator may point to an uptrend in a daily chart and issue a sell signal and point to a downtrend in a weekly chart. The problem is magnified even further with intraday charts. On these short-term charts, trend-following indicators may fluctuate between buy and sell signals on an hourly or even more frequent basis.

In order to combat this problem, it is helpful to divide time frames into units of five. In dividing monthly charts into weekly charts, there are 4.5 weeks to a month. Moving from weekly charts to daily charts, there are exactly five trading days per week. Progressing one level further, from daily to hourly charts, there are between five to six hours in a trading day. For day traders, hourly charts can be reduced to 10-minute charts (denominator of six) and, finally, from 10-minute charts to two-minute charts (denominator of five).

The crux of this factor of five concept is that trading decisions should be analyzed in the context of at least two time frames. If you prefer to analyze your trading decisions using weekly charts, you should also employ monthly charts. If you day-trade using 10-minute charts, you should first analyze hourly charts.

Once the trader has decided on the time frame to use under the triple screen system, he or she labels this as the intermediate time frame. The long-term time frame is one order of five longer; and the short-term time frame is one order of magnitude shorter.

Traders who carry their trades for several days or weeks will use daily charts as their intermediate time frames. Their long-term time frames will be weekly charts; hourly charts will be their short-term time frame. Day traders who hold their positions for less than an hour will use a 10-minute chart as their intermediate time frame, an hourly chart as their long-term time frame and a two-minute chart as a short-term time frame.

The triple screen trading system requires that the chart for the long-term trend be examined first. This ensures that the trade follows the tide of the long-term trend while allowing for entrance into trades at times when the market moves briefly against the trend. The best buying opportunities occur when a rising market makes a briefer decline; the best shorting opportunities are indicated when a falling market rallies briefly. When the monthly trend is upward, weekly declines represent buying opportunities. Hourly rallies provide opportunities to short when the daily trend is downward.

New to FOREX Trading?

Topic Covers | New Trader, Forex Trading, Easy Demo

Don’t worry, getting started in FOREX trading is easy and you can always test your skills first in a demo account before you go live with real money. To get started in FOREX trading, we have to get to know what FOREX is. FOREX trading involves buying and selling the different currencies of the world. Buying one currency and selling another at the same time make a FOREX deal.

 FOREX market is the largest trading market in the world. It yields an average turnover of $1.9 trillion daily and the figure is nearly 30 times larger than the total volume of equity trades in United States.

Who are the major players in FOREX market?

Although FOREX trading involves such a big volume of trades nowadays, it is not made available for the publics until year 1998. In the past, the FOREX market was not offered to small speculators or individual traders due to the large minimum business sizes and extremely strict financial requirements. At that time, only banks, big multi-national cooperation and major currency dealers were able to take advantage of the currency exchange market's extraordinary liquidity and strong trending nature of world's main currency exchange rates. Only until the late 90s,

FOREX brokers are allowed to break huge sized inter-bank units into smaller units and offer these units to individual traders like you and me. As a fact in FOREX trading, FOREX is mainly traded in large international bank. According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades followed by UBS in the second and Citi Group in third taking 12.5% and 7.5% of the market. Other large financial cooperation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.

Dealer options can be Divided

Topic Covers | Dealer options,Division


Dealer options can be divided into two groups:

Options for selling on the retail market to meet the private speculative demand. Initially, obtaining such options was associated with increased risk, because in the second half of the the 70-ies in the USA there were a lot of cases of fraud involving options because of high market volatility. The reaction of authorities was to introduce new requirements to organization of trading dealers' options. Particularly, it was foreseen to deposit gold in the custodian bank and the option bonus for the dealer before the execution of the option or after the expiration of validity. Gold trading options. The subjects of the deals are gold miners, industrial customers and large-scale dealers.

Deals with such kind of options feature large volumes and longer period of validity. The purpose of such options is to smooth the price risk of producers and consumers of the metal, in other words, it is not the speculative motive, but hedging of the process participants. Unlike stock options characterized by possible transparency of information concerning its key parameters, dealers' options are sold either directly or through a dealer network. Anyway, all the deals with options must be accompanied by appropriate accounting which ensures fulfillment of the option contract terms and reduction of participants' risks.

The volumes of trading futures and options (paper gold) considerably exceed the turnover of buying and selling the noble metal (the latter amounts to only a few percent). At the same time, being the second to the economic meaning of physical gold market, industry of derivatives have recently had a huge impact on the underlying asset price dynamics, because of the superiority of volume. The participants of gold stock deals are interested in high market volatility, because it gives opportunities to maximize the profit. These actions of speculators often sharply increase the movement of the market.

Hence, there were the fantastic rise of gold price in 1980 and its rapid drop in 1997 – 1999.

Three Types Of Spot Operations

Topic Covers | Swap Opperations, Financial Swap, Buying, Selling

Swap operations
This term is frequently used in economic literature. When it comes to the gold market, it can be interpreted as buying or selling a metal followed by an immediate opposite operation. Such transactions’ volume is larger than that of spot transactions because gold swap does not have such influence on the precious metals market as “spot” operations. A standard operation includes 32 thousands troy ounces (1 ton).


There are three types of spot operations with gold:
Swap by time (financial swap)

It is a classic type of a swap operation. It corresponds to a combination of cash and fixed-date transactions: buying (selling) of one and the same metal amount on conditions of “swap” and selling (buying) on conditions of “forward”. The date of closer operation’s execution is called the date of valuation, and a further date of operation’s execution is known as the date of swap ending. An agreement can be concluded for any period of time: from 1 day to several months. Usual terms of a swap agreement is considered to be 1, 3, 6 months and 1 year. The essence of such operations consists in the possibility of converting gold into a currency with keeping the right to buy back gold after swap expiration. Before the contract expires, the parties can agree to extend the contract or eliminate the swap making opposite calculations. Swap operations have become popular. First of all, benefit from attraction of financial resources is obvious in comparison with USD deposits’ attraction, because rates of swaps' interest are lower. Moreover, the possibility of smooth gold attraction which can be used for remains of metal accounts managed by banks, for example. Finally, these operations are very popular among central banks. If they want to convert their own gold reserves, they can be sure that their activity will not seriously influence the gold market; instead of being sold directly on the market, gold moves between contractors.

Swap by metal quality

Sometimes, under certain conditions, a market participant needs gold of higher pureness than he actually has. This wish can be met using swap by metal quality. Such swap provides buying (selling) of one quality metal and against selling (buying) gold of another quality at the same time. The party that is selling metal of higher quality receives a reward depending on deal’s volume and risk related to substitution of one type of gold for another.

Swap by place
Such swap provides buying (selling) gold at one place against selling (buying) it at another place. One of the parties receives reward because gold price varies depending on location can be more expensive at one place.

Why I should trade FOREX?

Main Question raised in your mind might be: Why should you trade FOREX? There are lots of reasons why you should involve in FOREX trading. FOREX market is truly a global market where it opens 24 hours a day through out the whole week (weekends excluded). With the ease of Internet access, transaction in FOREX can be done in anytime regardless on your location. This gives you the convenience to work on any time, anywhere which in turns gives you the freedom you cannot have in investing other kind of trading.

More over, trading in FOREX gives you an equal prospective in rising and falling market. As trades are always done in pair of currency pairs, FOREX traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency. Also, FOREX trading offers incredibly high leverage rates to the traders. By trading currency in margin up to 200 to 1, you can start off your FOREX trade with minimum capital and huge ROI.


Bottom Line

Wrapping things up, I hope that the article gives you a better general understanding about FOREX trading. With the flexibility you can get, FOREX trading suits perfectly into most people investment plans. Like with any new form of trading you need to know what you are doing, especially as there is margin involved. If you are new to FOREX, take all the time you need to learn this new trading skill well -- practice everything you learn with a demo account before you consider going 'live' with your own money. Investors should read books, attend seminars, Forex traning course and do paper trade until they are comfortable with there strategy

Financial Markets of th World

Topic Covers | World Financial Markets, Stock Market, Forex Market

Stock market (market of securities, debentures etc.) is part of the capital market; a market of securities traded on any stock exchange as well as on the over-the-counter market (OTC Market). Stock market is an abstract notion defining the whole set of actions and mechanisms which make it possible to trade securities (stocks, bonds etc.). You should not mistake this term for the notion of stock exchange, which is aimed at providing a place for conducting trades and ensuring the cooperation between buyers and sellers of securities.


NYSE

New York Stock Exchange is the main stock exchange in the USA, the largest one in the world. It is the symbol of the US financial power and of the entire financial industry. In New York the worldwide known Dow Jones Industrial Average and the NYSE Composite Index are defined. The NYSE Composite Index is one of the most popular stock indices in the world. It reflects the rate changes of all stocks listed on the New York Stock Exchange, including over 1500 largest American companies with the total capitalization of more than $20 billion. That is why NYSE Composite can serve as a barometer of the US economy. The New York Stock Exchange was founded on the 17th of May, 1792. Since 1975 it has become a non-commercial corporation owned by 1336 members (this figure remains unchanged since 1953). The membership can be purchased; the price for it has reached $3 million. In early May of 2006 the NYSE merged with Archipelago Holdings, an electronic communications network, and for the first time offered its stocks to investors, thus becoming a commercial organization. The NYSE Group shares are traded on the stock exchange; at the beginning of March 2006 the NYSE Group market capitalization amounted to $12.5 billion. Operations with over a thousand of securities and shares are conducted here. Total capitalization of the NYSE-listed companies was $26.5 trillion at the end of 2006. Trading hours: 2:30 p.m. - 9:00 p.m. GMT from Monday through Friday.

NASDAQ

NASDAQ (National Association of Securities Dealers Automated Quotation) is an American off-exchange market specialized in shares of high-technology companies (electronics, software production etc.). This is one of three major US stock exchanges (together with the NYSE and the AMEX), a unit of the NASD regulated by the SEC. The owner of the stock exchange is the American company NASDAQ OMX Group. Apart from NASDAQ, it also owns 8 European stock exchanges. At the moment over 3200 companies, including Russian companies are listed by NASDAQ. A regular NASDAQ trading session starts at 9:30 a.m. and ends at 4:00 p.m. ET. Trading operations are held on the basis of such platforms as Super Montage and Primex. After the end of the regular session it is possible to continue the trade until 8:00 p.m. using the platform Select Net. The scheme according to which the trading is conducted on the NASDAQ stock exchange differs from a traditional one. Several market makers are competing for execution of the clients' orders. Currently there are about 600 market makers here. The main function of a market maker on the NASDAQ (as well as on the NYSE) is the uninterrupted quotations providing and maintaining liquidity of a certain shares group during the trading. A market maker must execute an order at its own cost in case there is no corresponding opposite order on the market. Some market makers support hundreds of shares, others - thousands. As a result, on average, some types of shares are supported by 14 market makers, other shares’ types - by up to 50. The NASDAQ quotations are the result of quotation correlation provided by market makers and alternative trading systems. Trading hours: 2:30 p.m. - 9:00 p.m. GMT from Monday through Friday.

NYMEX

The New York Mercantile Exchange (NYMEX) was founded in 1872; it takes the first place in the world in oil futures trading. Contracts for oil, gas, platinum, palladium, gold, silver, copper and aluminum are traded on this stock exchange. According to the data of the Futures Industry Association, in 2006 216 billion of trades were executed here. In 2006 the NYMEX profit was equal to $497.3 billion, the net profit - to $154.8 billion. The capitalization is $11.4 billion. Trading hours: 2:30 p.m. - 9:00 p.m. GMT from Monday through Friday.

LSE

The London Stock Exchange is one of the biggest and oldest European stock exchanges. Officially, it was established in 1801; however its history dates back to 1570, when the king's financial agent and adviser Thomas Gresham built the Royal Exchange at his own expense. The LSE is a joint stock company which trades its own shares as well. Trading hours: 08:00 a.m. - 04:30 p.m. GMT from Monday through Friday.

TSE

The Tokyo Stock Exchange accounts for 80% of the country's stock turnover. The main traders are institutional owners of securities. In Japan individual owners have only 20% of the shares involved in the stock market, and 80% belong to financial organizations, insurance companies and corporations. Placement owners reckon not on the dividends (in early 1990 they were 70 times cheaper than the market stock price), but on the stocks' value rate increase and on profiting from selling stocks at a higher price (the average annual profit from selling a stock issued in 1980 - 1994 was 34.7%). The main trading method is an open two-way auction. Up to 80% of all the stocks traded in the country are sold and purchased on the Tokyo Stock Exchange. 1517 organizations out of 1.3 - 1.5 million incorporated enterprises in Japan are registered here, but they produce over 25% of all the commodities and services. In 2005 the TSE was the second largest stock exchange in the world. It comprised 2.5 thousand companies bringing yearly profits of more than $3000 billion Trading hours: 00:00 a.m. - 06:00 a.m. GMT from Monday through Friday..

VSE

The Vienna Stock Exchange is one of the world's oldest stock exchanges and the only one in Austria. This Stock Exchange implements trading shares, obligations and derivatives. It was established in 1771 by the Empress Maria Teresa for trading Austrian government bonds. It is a privately owned company. Trading volume: $ 48 468 billion Listing: 110 companies Capitalization: $ 157 358 billion Profit: EUR 8.12 million Trading hours: 07:00 a.m. - 04:30 p.m. GMT from Monday through Friday.

FWB

The Frankfurt Stock Exchange is the largest one in Germany and one of the world's biggest stock exchanges. Its operator is Deutsche Boerse Group AG. The starting point of the existence of this stock exchange is considered to be 1585 - the year when unified exchange rates were accepted by merchants in Frankfurt am Main which had become a large European commercial centre by that time. The FBW has been in the leading position in Germany since 1949. It passed under control of the Deutsche Boerse Group in 1993 created on its basis. Its main index is DAX reflecting the prices for shares of 30 major German companies and is a barometer of the German economy. Trading hours: 08:00 a.m. - 07:00 p.m. GMT from Monday through Friday.

RTS

The Russian Trading System was established in mid-1995 for the purpose of unification of regional markets into a single organized securities market of Russia. It falls under the RTS Group. The RTS is a generally recognized centre where shares and obligations of a wide range of issuers are priced. The information about trading on the RTS is the most important source of data about a situation on the Russian securities market, because it is the RTS which serves a significant part of foreign and Russian portfolio investments in shares of the Russian companies. Trading hours: 06:00 a.m. - 07:50 p.m. GMT from Monday through Friday.

Foreign Exchange Markets

The term "forex" is derived from "foreign exchange". It is usually used for mutual exchange of freely convertible currencies, but not for the totality of foreign exchange transactions. On the basis of objectives, forex operations can be trading, speculative, hedging and regulating (central banks’ interventions in the foreign exchange market). In Russia Forex means solely speculative currency trading via commercial banks or dealing centers held with certain leverage, i.e. margin trading. Forex is an international inter bank market. Operations are carried out through such institutions as central banks, commercial banks, investment banks, brokers and dealing centers, retirement funds, insurance companies, transnational companies etc. The volume of one contract with a delivery of real currency on the second working day (spot market) usually amounts to approximately $ 5 million or the equivalent sum. The value of one conversion payment is ranged from 60 to 300 US dollars.

Moreover, around $ 6000 per month are spent on the inter bank informational trading terminal. Thus, the exchange of insignificant amounts is not conducted on Forex. For conversions of smaller amounts it is better to address a financial intermediary (a bank or an exchange broker) which executes the operations for a certain percent of the transaction amount. Intermediaries do not need to operate on the foreign exchange market if they have many clients and differently directed orders. Though, they always get commissions from their customers.

Due the fact that not all the clients' orders go to Forex, the intermediaries can offer lower charges to their clients than the cost of direct operations on Forex. At the same time, if the intermediaries are eliminated, the exchange costs for the clients will increase. The current quotations are used for a large number of operations which do not always get directly to Forex. For example, the changing of the national currency rate by the central bank that has to preserve the ratio of the international currencies in compliance with their proportions on Forex, even if the real supply/demand in a country does not correspond to the tendencies on Forex. For instance, if the supply of the euro is excessive on the domestic market, while the EUR/USD price is increasing on Forex, the central bank will have to increase the price, rather than reduce it, being pressurized by the excessive supply. Another vivid example is a margin speculative currency trading devoted to the fixation of current forex quotations. However it does not imply the real delivery. Almost all intermediaries offer direct exchange services as well as speculative trading with the leverage on the currency market. Generally, commissions for such operations are much lower than those for direct conversion, because the necessity in the real contracts for delivery concluding appears rather seldom due to large-scale involvement and fugacity of trades. Often such commissions are taken in the form of a spread – a fixed difference between Bid and Ask prices quoted at the same particular moment. Commonly, a chain of intermediaries exists between Forex and a speculator, with every intermediary taking its charge. Margin operations can lead (though not necessary do) to the real additional demand and supply formation on the currency market, especially within a short-term period. However they cannot develop the general trend of the currency rates’ movement. Trading hours: 24 hours a day except weekends

MICEX

The Moscow Inter bank Currency Exchange is one of the largest universal exchanges in the Russian Federation, the CIS countries and East Europe. It was established in 1992. The MICEX is a leading Russian stock exchange where trading stocks and bonds of approximately 600 Russian issuers with the total capitalization of almost 24 billion rubles is conducted every day. The entry list of the MICEX consists of about 650 organizations which are professional market makers with the number of clients amounting to over 490 investors. 98% of the Russian companies' stocks’ and ADRs of the total turnover on the Russian stock exchanges are traded on the MICEX; and approximately 70% of the world trading volume of these securities. During the period of 1992-1998 the foreign currency trading was carried out in the form of an auction on the MICEX where unified fixed rates of the ruble versus the US dollar and of the Deutsche Mark against the US dollar for all participants of the trading session were set up. In 1997 the System of Electronic Lot Trading (SELT) was launched; it was functioning along with the main trading (the auction) till the crisis of 1998 and became the major currency trading platform of Russia thereafter. At present, trading via SELT joins eight interbank currency exchanges within the framework of a single trading session. Here the deals for the US dollar, the euro, the Ukrainian hryvnia, the Kazakhstan tenge, the Belarusian ruble and the operations with currency swaps are carried out. The total volume of operations with foreign currency in 2006 equaled 25.9 billion rubles or 956 million US dollars (approximately half of the total MICEX group stock turnover). Currently, an effective system of risk management is established on the MICEX currency market, which guarantees timely discharge of obligations by all trading participants. Another element of the system is the "payment against payment" principle, according to which the MICEX settles accounts with a trading participant only after the participant has discharged its obligations. 540 credit organizations are members of the MICEX.
Trading hours: 06:30 a.m. - 02:45 p.m. GMT from Monday through Friday.
 

Starting in FOREX Trading

Topic Covers | Starting, with FOREX,  Trading

To start trading on FOREX, one must first learn how to read FOREX quotes. Foreign exchange quotes are always listed in pairs (e.g. USD/JPY 109.2): the first listed currency is known as the base currency with a constant value of 1 unit while the currency listed in the second is known as counter.

In our given example, USD/JPY 109.2 means a dollar of United States Dollar is equal to 109.2 Japanese Yen. In other words, the quote shows the relative value of one currency compare to the other. It means the value USD had been increased when USD/JPY quote goes up
However, a two-sided quote (e.g. EUR/USD 1.2435/1.2440) consisting of a 'bid' and ask is often seen. The bid price is the price at which you can sell the base currency while the ask price is where you can buy the base currency. The different of bid & ask price is commonly known as spread. In the example of EUR/USD 1.2435/1.2440, this means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435. Currency brokers make their profit through these differences of bid & ask price and this is how they manage to provide their services to individual investors without charging them commission fees. If you are new to trading it makes sense to deal in the more popular currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask prices is likely to be narrower, making it easier to make a profit.

Building up a Portfolio

Topic Covers | How to Build up, Profolio

So you've got your brokerage account and done exhaustive research on some companies you're interested in. Time to take the plunge. As a general rule, it's not a good idea to buy shares at the start of the trading day (currently 8.30am). Prices can be quite erratic owing to the way the big institutions buy and sell shares to each other.

You don't have to buy the shares all in one go. You can set up your phantom portfolio first and then gradually select stocks from the list, judging to see if the timing is right. It is an investment truism that you should buy on the dips and sell at the peaks. While this may seem obvious, share prices do tend to move in waves. After a period of rising prices, investors tend take some profits, and the share price can fall, even if there is nothing fundamentally wrong or changed about company. This is a good time to buy. The trend is still upwards, but you've managed to buy the shares when they were a little cheaper.

Of course, this theory only works when the markets are fairly stable. In volatile times, trying to time buying decisions correctly is almost impossible.

Income, growth or both?When building up a portfolio, it is also important to decide what you want from it. For example, if income is important to you, you should look for fairly stable shares that pay out high and growing dividends. The dividend yield figure (see earlier) is an important indicator of this. But really, if income is that important - if you're looking to supplement pension income, for example - you would probably be better off looking at alternative investments, such as gilts and corporate bonds. (These are explained in Part Nine.)

Investing in the stock market is really a capital growth game, whether you're a trader or an investor. What you have to decide is what level of risk you are prepared to take in return for what level of reward (These are explained in Part Eight.)

Monitoring your portfolio

In these days of computers and the internet, monitoring your portfolio has never been easier. Even if you don't have an internet dealing account, you can still see how your shares are performing on This is Money's portfolio service.Share prices are delayed by 15 minutes, but if you desperately want live prices, a number of other investment-related websites offer this, usually for a monthly fee.
Online portfolios will tell you how much your portfolio is worth, how much you've invested and how much profit or loss you've made. in many cases, portfolio valuations can be sent to you by e-mail or even fired to your mobile phone or personal organiser. In this way you can easily see which companies are performing well and which are doing badly. The difficult part is knowing is how to respond to the information you receive. This is dealt with in part 9.
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Where is the commission in forex trading?

Topic Cover | Learn Commission, Forex, Trading Guide


Investors who trade stocks, futures or options typically use a broker, who acts as an agent in the transaction. The broker takes the order to an exchange and attempts to execute it as per the customer's instructions. For providing this service, the broker is paid a commission when the customer buys and sells the tradable instrument. (For further reading, see our Brokers And Online Tradingtutorial.)
The FX market does not have commissions. Unlike exchange-based markets, FX is a principals-only market. FX firms are dealers, not brokers. This is a critical distinction that all investors must understand. Unlike brokers, dealers assume market risk by serving as a counterparty to the investor's trade. They do not charge commission; instead, they make their money through the bid-ask spread.
In FX, the investor cannot attempt to buy on the bid or sell at the offer like in exchange-based markets. On the other hand, once the price clears the cost of the spread, there are no additional fees or commissions. Every single penny gain is pure profit to the investor. Nevertheless, the fact that traders must always overcome the bid/ask spread makes scalping much more difficult in FX. (To learn more, see Scalping: Small Quick Profits Can Add Up.)


What is a pip?

Pip stands for "percentage in point" and is the smallest increment of trade in FX. In the FX market, prices are quoted to the fourth decimal point. For example, if a bar of soap in the drugstore was priced at $1.20, in the FX market the same bar of soap would be quoted at 1.2000. The change in that fourth decimal point is called 1 pip and is typically equal to 1/100th of 1%. Among the major currencies, the only exception to that rule is the Japanese yen. One Japanese yen is now worth approximately US$0.01; so, in the USD/JPY pair, the quotation is only taken out to two decimal points (i.e. to 1/100th of yen, as opposed to 1/1000th with other major currencies).


What are you really selling or buying in the currency market?

The short answer is "nothing". The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader's account.

The primary reason the FX market exists is to facilitate the exchange of one currency into another for multinational corporations that need to trade currencies continually (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity). However, these day-to-day corporate needs comprise only about 20% of the market volume. Fully 80% of trades in the currency market are speculative in nature, put on by large financial institutions, multibillion dollar hedge funds and even individuals who want to express their opinions on the economic and geopolitical events of the day.

Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, she would, in essence, have exchanged euros for dollars and would now be "short" euros and "long" dollars. To better understand this dynamic, let's use a concrete example. If you went into an electronics store and purchased a computer for $1,000, what would you be doing?

You would be exchanging your dollars for a computer. You would basically be "short" $1,000 and "long" one computer. The store would be "long" $1,000 but now "short" one computer in its inventory.

The exact same principle applies to the FX market, except that no physical exchange takes place. While all transactions are simply computer entries, the consequences are no less real.


Which currencies are traded in the forex market?

Although some retail dealers trade exotic currencies such as the Thai baht or the Czech koruna, the majority trade the seven most liquid currency pairs in the world, which are the four "majors":

•EUR/USD (euro/dollar)
•USD/JPY (dollar/Japanese yen)
•GBP/USD (British pound/dollar)
•USD/CHF (dollar/Swiss franc)
and the three commodity pairs:
•AUD/USD (Australian dollar/dollar)
•USD/CAD (dollar/Canadian dollar)
•NZD/USD (New Zealand dollar/dollar)

These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP), account for more than 95% of all speculative trading in FX. Given the small number of trading instruments - only 18 pairs and crosses are actively traded - the FX market is far more concentrated than the stock market. (To read more, check out Popular Forex Currencies.)


What is a currency carry trade?

Carry is the most popular trade in the currency market, practiced by both the largest hedge funds and the smallest retail speculators. The carry trade rests on the fact that every currency in the world has an interest rate attached to it. These short-term interest rates are set by the central banks of these countries: the Federal Reserve in the U.S., the Bank of Japan in Japan and the Bank of England in the U.K.

The idea behind the carry is quite straightforward. The trader goes long the currency with a high interest rate and finances that purchase with a currency with a low interest rate. For example, in 2005, one of the best pairings was the NZD/JPY cross. The New Zealand economy, spurred by huge commodity demand from China and a hot housing market, saw its rates rise to 7.25% and stay there, while Japanese rates remained at 0%. A trader going long the NZD/JPY could have harvested 725 basis points in yield alone. On a 10:1 leverage basis, the carry trade in NZD/JPY could have produced a 72.5% annual return from interest rate differentials, without any contribution from capital appreciation. Now you can understand why the carry trade is so popular!

But before you rush out and buy the next high-yield pair, be aware that when the carry trade is unwound, the declines can be rapid and severe. This process is known as carry trade liquidation and occurs when the majority of speculators decide that the carry trade may not have future potential. With every trader seeking to exit his or her position at once, bids disappear and the profits from interest rate differentials are not nearly enough to offset the capital losses. Anticipation is the key to success: the best time to position in the carry is at the beginning of the rate-tightening cycle, allowing the trader to ride the move as interest rate differentials increase. (To learn more about this type of trade, see Currency Carry Trades 101.)


Forex Market Jargon

Every discipline has its own jargon, and the currency market is no different. Here are some terms to know that will make you sound like a seasoned currency trader:
•Cable, sterling, pound - alternative names for the GBP
•Greenback, buck - nicknames for the U.S. dollar
•Swissie - nickname for the Swiss franc
•Aussie - nickname for the Australian dollar
•Kiwi - nickname for the New Zealand dollar
•Loonie, the little dollar - nicknames for the Canadian dollar
•Figure - FX term connoting a round number like 1.2000
•Yard - a billion units, as in "I sold a couple of yards of sterling."

Important Forex News & Tape Bombs

Topic Cover | Important, Forex News, Tape Bombs,

As the market began to crash in 2008 everything began to change. Through 2006-2008 we had some of the best most consistent price action in the forex market in and around financial news.

Not only did the brokers have no idea how to stop spike trading auto click software, but the overall reaction to market news was very consistent. More often than not it would spike, retrace 6.18% of the move which would give a great chance for an entry, and then continue off in the original direction of the spike. Trading forex news was extremely straight forward and quite frankly many made a small fortune. During this time I was using the original piece of spike trading software.

Brokers were completely caught off guard and really had no way to stop it. To fight back they began much more aggressively using the dirty tricks you see as common place today today. Until that time massive spreads, re quotes, and huge slippage was more of a rarity than a market standard. Now a days however those things are the market standard, with honest forex brokers being the rarity. We have moved from a much more “simpler” trading environment to a dynamic one that is always changing to say the least. How can you stay on top of forex news important to you?

First of all not all financial news is important, and just because ForexFactory labels it a “high impact” news release doesn’t mean it will necessarily move the marketplace. Times are changing and the impact financial news has on markets will change even faster. What’s important today will not necessarily be important 6 months from now. How can you keep an eye on a market changing so fast? One way is to keep up to date on the response you should expect with each release.

As we mentioned an important piece of financial news will not necessarily move the market, and therefore it is critical we understand how a specific piece of news will move the market, and what type of deviation does it take from the expected number to do it. We can do this by using tools such as ForexPeaceArmy News Calendar which is able to show you actual charts of all past releases. This is critical information as you can see how the market responds to the news.

Additionally the current days forex news is covered in the daily market commentary. What is nice about the commentary is how all the information is already boiled down for you. Hours of research go into each daily market review saving our 12,000+ monthly readers massive amounts of time they can spend elsewhere. Remember the second part of this sections heading….”tape bombs”. What is a tape bomb? A tape bomb is an unexpected major news release that was not scheduled.

 Often comments from influential financial leaders, or comments from a central bank can makes massive spikes in the market leaving traders more often than not frustrated. You will never be able to avoid every unexpected news release. With that being said you can however take certain steps to be as prepared each trading day as possible.

How so? Knowing what is happening in the financial world can keep you abreast of the potential for a tape bomb. More often than not meetings between financial heads cannot be found on news calendars. Not knowing when these meetings are to take place can be devastating as you are left not knowing the cause of the massive market move or major volatility increase. Because of this I always start my trading day by first reading through Chad’s commentary, and as a general rule of thumb the most important information I need to know is covered saving me a huge amount of time daily.

Can Regular Investors Beat The Market?

Topic Covers |  Day Trading, ETFs, Investing Basics, Investment, Portfolio Management, Stocks


We all invest with the hopes that one day we will have enough money to live off our investments. The question remains, can a regular investor like us really beat the market? Do we have what it takes to win over the middlemen and institutions that have millions or even billions invested in the market? According to Terrance Odean, a finance professor at the University of California, Berkley's Haas School of Business, "Many of the mistakes investors make come from a lack of any understanding of the innate disadvantages they face."

David and Goliath

The answer to this question is not an easy one, and the answers will vary depending on who you ask. By "beating the market" we're talking about everyday working Americans who try to obtain greater capital gains and income return than the S&P 500.

David E. Y. Sarna author of "History Of Greed," explains it this way, "We all have some larceny in us. We buy securities because we think we know someone or something others don't. I don't think anyone can consistently outperform the S&P 500 without assuming greater than market risk."
 Some of us might have the tools (and connections) required to make knowledgeable decisions that will lead us to a portfolio with higher returns, but others like stockbrokers, bankers and big corporations most likely have an advantage, right? While many people in the financial industry have insider information which they cannot legally trade on, they also possess the necessary financial statement analysis skills to develop a greater insight about a given company. Robert Laura, author of "Naked Retirement: A Stimulating Guide To A More Meaningful Retirement" and President of SYNERGOS Financial Group says, "The reality is there will always be a lure to try and beat the market, especially since those who have beat it consistently are revered so highly (Bill Miller, Peter Lynch) and/or are compensated well (hedge fund managers). I think the market can be beaten, but even a broken clock is right twice a day. Best way to describe it: It's possible but not probable."
According to Laura, the sad reality is, the average individual investor has little chance of beating the market. He says the common investor uses mutual funds, are stuck in 401(k) plans which essentially track the broader index, and pay higher fees as compared to stock, index funds or ETFs. Also many mutual fund type investments don't use stop loss order to protect gains and thus do not always provide the type of protection individualized portfolios can perform. As he puts it, "investors are set-up to fail from the get-go."

Investing in 401(k)s is no better. "Most 401(k)s aren't benchmarked and most companies don't have a good investment policy for selecting funds within the program. You can't even get some asset classes in many and most advisors are sales people, not fiduciaries and just taught how to sell funds," he adds.

The good thing is many more investors are taking responsibility and interest in their investments. They are taking the initiative to learn how their investments work and are less intimidated. Laura says investors are learning that individual stocks aren't as scary as everyone suggests and there is valuable information available to everyone if they know where to find it and how to apply it.

 He adds, "The advent of ETFs and Index investing allow people to mimic the market, instead of trying to beat it, which is a better, less expensive perspective to have."

A Lost Cause?

Founder of FinancialMentor.com, Todd R. Tresidder, said in 2010 "All the evidence supports the disappointing fact that regular investors as a whole underperform the market. As long as they try to 'beat the market' they actually underperform."

The best way for regular investors to achieve better risk-adjusted returns is by focusing not on out performance, says Tresidder, but instead by losing less. In other words, regular investors have one competitive advantage - liquidity. "Big investors are the market but the little guy is nimble and can buy or sell without affecting the market - something the big guy can't do. Systematic risk management can work to provide regular investors with similar or slightly improved investment performance relative to the market at substantially less risk," he says.

Helping the Odds

What can an investor do to increase their chances of "beating" the market? Laura says there are several things:

Use low cost funds and/or a low cost platform for trades. The best way to make money is to save money.

Establish and follow a discipline which translates into just doing what you said you are going to do.
Give every investment in your portfolio a buy price, hold price and sell price along with one or two reasons to buy, hold or sell at that value. This gives you specific criteria to act and provides your portfolio with purpose and specific direction.

Watch for headline risk. Set up email alerts for your investments so as new information comes out about them, you are aware of it in the early stages to consider changes. Mark your calendar for things to watch like earning dates, intellectual property timelines and industry reports like Federal Reserve meetings, unemployment numbers, new housing starts and other information that will affect the specific sector or security.

 Sarna suggests investing in what you know and understand, such as solid, profitable small-caps and even microcaps in niches you can monitor and understand. These can appreciate much more rapidly than equivalently-priced large-caps.

 The only way to get above market returns is to develop a competitive advantage says Tresidder. "It is either developed through knowledge and information flow, or it is developed through extensive research resulting in an investment strategy that exploits irregular market behavior."

According to Tresidder, the only way to outperform the markets is to develop a competitive advantage that exceeds transaction costs and passive market return.

The Bottom Line

The debate of whether an individual investor can beat the market is as old as the stock market itself. Those who have found fortune investing will often preach that they possess superior analytical skills which allowed them to predict the market. Those investors who suffer losses will tell a much different tale.

Invest Like A Professional

Topic Covers |  Active Trading, Asset Allocation, Bear Market, Day Trading, Financial Theory, Hedge Funds, Investing Basics, Personal Finance, Portfolio Management, Retirement, Risk Tolerance, Stocks, Warren Buffett

For those investors who have been lucky enough to have survived one or more major market downturns, some lessons have been learned. For example, there always seem to be some firms that not only survive those downturns, but profit handsomely from them. So why do certain investment companies do better than others and survive market waves? They have a long-term investment philosophy that they stick to; they have a strong investment strategy that they formalize within their products and understand that while taking some risk is part of the game, a steady, disciplined approach ensures long-term success. Once the key tools of successful investment firms are understood, they can easily be adopted by individual investors to become successful. By adopting some of their strategies, you can invest like the pros

Strength in Strategy

A strong investment philosophy should be outlined before any investment strategies are considered. An investment philosophy is the basis for investment policies and procedures and, ultimately, long-term plans. In a nutshell, an investment philosophy is a set of core beliefs from which all investment strategies are developed. In order for an investment philosophy to be sound, it must be based on reasonable expectations and assumptions of how historical information can serve as a tool for proper investment guidance.

 For example, the investment philosophy, "to beat the market every year," while a positive expectation, is too vague and does not incorporate sound principles. It's also important for a sound investment philosophy to define investment time horizons, asset classes in which to invest and guidance on how to respond to market volatility while adhering to your investment principles. A sound long-term investment philosophy also keeps successful firms on track with those guidelines, rather than chasing trends and temptations. Since each investment philosophy is developed to suit the investment firm, or perhaps the individual investor, there are no standard plans to write one.
If you are developing an investment philosophy for the first time, and you want to invest like a pro, it's important that you consider covering the following topics to make sure the philosophy is robust:

Define Your Core Beliefs

The most basic and fundamental beliefs are outlined regarding the reason and purpose of investment decisions.

Time Horizons

While investors should always plan on long-term horizons, a good philosophy should outline your unique time frame to set expectations.

Risk

Clearly define how you accept and measure risk. Contrary to investing in a savings account, the fundamental rule of investing is the risk/reward concept by increasing your expected returns with increased risk.

Asset Allocation and Diversification

Clearly define your core beliefs on asset allocation and diversification, whether they are active or passive, tactical or strategic, tightly focused or broadly diversified. This portion of your philosophy will be the driving force in developing your investment strategies and build a foundation to which to return when your strategies need redefining or tweaking.

The Secret of Success

Successful firms also implement product funds that reflect their investment philosophies and strategies. Since the philosophy drives the development of the strategies, core style investment strategies, for example, are usually the most common in most successful product lines and should also be part of an individual plan. Core holdings or strategies have multiple interpretations, but generally, core equity and bond strategies tend to be large cap, blue chip and investment grade types of funds that reflect the overall market.

 Successful firms also limit their abilities to take large sector bets in their core products. While this can limit the potential upside when making the right sector bet, directional bets, practiced by hedge funds, add significant volatility to a fund that is judged by not only its performance but its relative and absolute volatility.

When defining an investment strategy, it is very important to follow a strict discipline. For example, when defining a core strategy, restricting the temptation to follow or chase trends keeps the strategy grounded. This is not to say that one can't have additional momentum strategies with different goals, as these can be incorporated into the overall investment plan.

Outlining a Strategy

When outlining a sound investment strategy, the following issues, which are similar to those of creating a philosophy, should be considered:

Time Horizon

A common mistake for most individual investors is that their time horizon ends when they retire. In reality, it can go well beyond retirement, and even life, if you have been saving for the next generation. Investment strategies must focus on the long-term horizon of your investment career, as well as the time for specific investments.

Asset Allocation

This is when you clearly define what your target allocation will be. If this is a tactical strategy, ranges of allocations should be defined, if strategic in nature. On the other hand, hard lines need to be drawn with specific plans to rebalance when markets have moved in either direction. Successful investment firms follow strict guidelines when rebalancing, especially in strategic plans. Individuals, on the other hand, often make the mistake of straying from their strategies when markets move in sharp directions.

Risk Vs. Return

At this point you should clearly define your risk tolerance. This is one of the most important aspects of an investment strategy, since risk and return have a close relationship over long periods of time. Whether you measure it relative to a benchmark or a absolute portfolio standard deviation, just remember to stick to your predetermined limits.

Putting the Pieces Together

It's important to remember that investment strategies define specific pieces of an overall plan. Successful investors cannot beat the market 100% of the time, but they can evaluate their investment decisions based on their fit to the original investment strategy.

After you have survived a few market cycles, you can potentially start to see patterns of hot or popular investment companies gathering unprecedented gains. This was a phenomenon during the Internet technology investing boom. Shares of technology companies rose to rock star levels, and investors - institutional and personal - lined up at their gates to pile on funds. Unfortunately for some of those companies, success was short-lived, since these extraordinary gains were unjustified. Many investors deviated from their initial investment strategies in the hopes of chasing greater returns. Individuals can model themselves after successful investment companies by not trying to hit home runs, instead focusing on base hits.

That means trying to beat the market by long shots is not only difficult to do consistently, it leads to a level of volatility that does not sit well with investors over the long term. Individual investors often make mistakes such as shooting for the stars and using too much leverage when markets are moving up, and tend to shy away from markets as they are falling. Removing the human biases by sticking to a set approach and focusing on short-term victories is a great way to fashion your investment strategy like the pros.

The Bottom Line

Taking cues from successful professional investors is the easiest way to avoid common errors and keep on a focused track. Outlining a sound investment philosophy sets the stage for professional and individual investors, just like a strong foundation in a home. Building up from that foundation to form investment strategies creates strong directions, setting the paths to follow. Investing like the pros also means avoiding the temptation to drift from your investment philosophy and strategies, and trying to outperform by large margins. While this can be done occasionally, and some firms have done it in the past, it is nearly impossible to beat the markets by large margins consistently. If you can fashion your investment plans and goals like those successful investment companies, you too can invest like the pros.

Transaction Operations

Topic Cover |  Market, Deposit operations, Transaction

Being a financial asset, gold can yield revenue if lent. These operations are executed when it is necessary to attract a metal in the account or deposit it for a certain period of time. Gold deposit rates are usually lower than currency rates, which can be explained by high currency liquidity. Standard deposit periods are 1, 2, 3, 6 and 12 months, but they can be changed. Bank attracting precious metals within the framework of deposit contracts can use them for making profit during some time, for instance, financing gold mining or for arbitrage operations, etc. Owners of gold get income from invested gold and avoid expenses of storing a physical metal.

Forwards

Except for the operations mentioned above, other transactions can be executed on the world market. For instance, forward deals which provide for real metal delivery during more than two business days. Making such deal, a buyer ensures himself against gold price increases on the spot market in future. Insurance implies fixing the price which mutual settlement will be executed at. However such deal does not give the possibility to use more auspicious conjuncture. Forward cannot be cancelled. It can be only balanced (forward position is closed) by buying and selling of the stipulated by the deal amount of metal at the current price with future selling it at price the stipulated by the forward contract. Such transactions are made frequently on the interbank gold market. If selling a metal for exact period is necessary, a seller works it off under conditions of spot and then makes a swap deal: he buys a metal on conditions of spot and sells it on conditions of forward at the same time.

Transactions with CFDs

We were considering physical metal markets’ organization and functioning before. However, tehre is another point of trading virtual instruments that arouses interest.

There are hardly any events that had such influence on the financial markets as CFD introduction.

The era of unprecedented interest and exchange rates started in the 1970-ies and gave rise to the need for new financial instruments which could be used for managing increased risks. Prosperity of derivative financial instruments industry is connected with its possibility of fast and effective reacting to changing market tendencies. Eventually, a virtual section of the gold market became an independent field with huge turnover which was many times bigger than that of the physical market.

Future (futures contract) is a legal contract binding the parties; one party agrees to execute and the other – to accept delivery of goods in certain amount (and of ertain quality) at a definite time in future at the price set while contract concluding. In world practice, gold futures contracts are traded on several stock exchanges, and the biggest amount of gold contracts is concluded on COMEX in

 New York. Operations with gold have been executed since 1974 there. The main aims of futures
operations are hedging and speculation. Such deals are especially attractive as you do not need to have much money or many goods. Small investments can bring much profit provided the conditions are suitable.

Another popular form of fixed-term contracts is gold options introduced in 1976 and widely spread in 1982 after their execution in the USA.

Option is a fixed — term contract. The client can either buy a call option or sell a put option of a certain standard amount of goods at a fixed price on the exact date (European options) or during the whole specified period of time (American options). The seller of the option sells the right to the counterpart to execute the transaction or cancel the deal. The buyer of the option pays for this right to the seller – option money. The buyer has the right to exercise the option at a fixed price. Therefore, the active party in transactions with the options is the buyer, because this person makes a decision on fulfillment of conditions of the option contract.

Option transactions are often used for hedging. So, if the investor hedges against risks of increases in the gold price, he will be able to buy a call option or sell a put option; if the investor hedges against risks of decreases in prices, he will be able to sell a call option or buy a put option.Compared with other instruments of hedging, an option is attractive, because, besides fulfillment prices fixing to hedge against adverse changes in market conditions, it gives the opportunity to take advantage of favourable conditions. In addition, options promote development of speculative operations.

The maximum size of losses of the buyer is limited by the paid bonus, the gains are potentially unlimited. Consequently, the situation for the seller is vice versa.

Options can be involved in over – the – counter market. Such options are called dealer's options. Their main distinction is that they are not issued by an exchange, but an actual legal entity that guarantees the execution of the option

Gold Price Fluctuations

Topic Cover | Gold, Price, Fluctuations, Market

As a rule, the gold price depends on worldwide economic situation. Moreover, the gold price has always been an indicator of effectiveness or unprofitability of alternative investment instruments. Gold depreciated in the period of funds turnover and extensive use of different instruments of capital increase. On the contrary, in case of economic stagnation, downturn or recession, gold seemed to be the most stable and liquid instrument of capital fixation and its future saving.

The analogy can be drawn to the foreign exchange market: gold can be compared to the Swiss franc which is considered a safe-heaven asset to ride out high volatility.

In other words, when bulls are ruling the market, consumption is rising pulling all the economic sectors up, gold pales into insignificance. But it is temporary.... In August 1998 Russia was going through a tough period: treasury bills depreciation, oil crisis, and subsequent rouble devaluation hit everybody.

That time Russians trying to save their capital bought almost all gold at banks and did not regret it. Since August 1998 the price of one ounce has increased three times. Even though the 20% VAT was charged at that time, gold justified investor hopes. However, during that period individuals were able to buy gold only at Russian banks. Meanwhile, the price of one ounce formed on the internal market, and the price of gold was higher than on the world market due to a limited number of providers and high demand within Russia. Now there are possibilities for Russians regardless of crisis locality to buy gold on the world open market. It became possible not only because of financial and stock institutes’ development in Russia, but because numerous brokers appeared providing opportunities to enter the international markets.

As for the current crisis, it has fundamental features. It not only runs through the economic structure of different countries, but provokes recession as well. That is why buying gold is considered as one of the safest way of capital saving. Last year gold quotes surpassed the level of USD 1000. Prices of other precious metals are near the highs. First time for the last 30 years silver approached USD 21 for an ounce. Platinum and palladium rose in price up to USD 2,273 and USD 582 respectively.

However, later on prices of precious metals started declining, except for gold. Moreover, despite production downturn and persistent demand for gold among companies, gold hold steady at a high price due to its speculative and capital saving characteristics.

Other factors have influence upon the gold price. For example, the US dollar and the oil price. Meanwhile, the gold price movement is inversely related to the US Dollar and directly related to the oil price dynamics. It is explained by the fact that when the foreign exchange market volatility and the US Dollar rate are decreasing, gold appears to be an alternative investment harbour. While the price of an oil barrel is increasing, gold is the means of petrodollars accumulation.

Commodity Market

Topic Cover | Definition, Commodity, Market

A physical or virtual marketplace for buying, selling and trading raw or primary products. For investors' purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in nearly 100 primary commodities.

Commodities are split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)
FXCM-IGINDEX explains 'Commodity Market

There are numerous ways to invest in commodities. An investor can purchase stock in corporations whose business relies on commodities prices, or purchase mutual funds, index funds or exchange-traded funds (ETFs) that have a focus on commodities-related companies. The most direct way of investing in commodities is by buying into a futures contract.

Commodity Prices And Currency Movements

Topic Cover | Commodity Prices,Currency Movements, Trading

Find out which currencies are most affected by fluctuations in gold and oil prices, and improve your trading.

Predicting the next move in the markets is the key to making money in trading, but putting this simple concept into action is much harder than it sounds. Professional forex traders have long known that trading currencies requires looking beyond the world of FX.

The fact is that currencies are moved by many factors - supply and demand, politics, interest rates, economic growth, and so on. More specifically, since economic growth and exports are directly related to a country's domestic industry, it is natural for some currencies to be heavily correlated with commodity prices.

The top three currencies that have the tightest correlations with commodities are the Australian dollar, the Canadian dollar and the New Zealand dollar. Other currencies that are also impacted by commodity prices but have a weaker correlation are the Swiss franc and the Japanese yen. Knowing which currency is correlated with what commodity can help traders understand and predict certain market movements.

Here we look at currencies correlated with oil and gold and show you how you can use this information in your trading.

Why Trade in Currencies?

There are 10 major reasons why the currency market is a great place to trade:

1. You can trade to any style - strategies can be built on five-minute charts, hourly charts ,daily charts or even weekly charts.
2. There is a massive amount of information - charts, real-time news, top level research - all available for free.
3. All key information is public and disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot sizes can be customized, meaning that you can trade with as little as $500 dollars at nearly the same execution costs as accounts that trade $500 million.
6. Customizable leverage allows you to be as conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is cleanly accounted for in the P&L.
8. You can trade 24 hours a day with ample liquidity ($20 million up)
9. There is no discrimination between going short or long (no uptick rule).
10. You can't lose more capital than you put in (automatic margin call)

Forex Fair Warning

Topic Cover | Fair Warning, Forex, Exchange, Trading, Market

This tutorial is designed to help you develop a logical, intelligent approach to currency trading base on 10 key rules. The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. That is why we show you failures as well as successes - so that you may learn and understand the profit possibilities, as well as the potential pitfalls of each idea that we present.

The 10 Rules

1.   Never Let a Winner Turn Into a Loser
2.   Logic Wins, Impulse Kills
3.   Never Risk More Than 2% per Trade
4.   Trigger Fundamentally, Enter and Exit Technically
5.   Always Pair Strong With Weak
6.   Being Right but Being Early Simply Means That You Are Wrong
7.   Know the Difference Between Scaling In and Adding to a Loser
8.   What is Mathematically Optimal Is Psychologically Impossible
9.   Risk Can Be Predetermined, but Reward Is Unpredictable
10. No Excuses, Ever

The Basics of the Foreign Exchange Market

Topic Cover | Basics, Forex, Exchange, Trading, Market


At the completion of this lesson, you should understand:
The characteristics of foreign exchange and how it differs from other financial markets.
The driving forces behind today's foreign exchange market activity.
How the advent of online foreign exchange trading on margin has benefited the individual trader.

Overview:

•  What is Foreign Exchange?
•  A Short History of the Foreign Exchange Trading Market
•  Trading Margin FX
•  Margin FX - The New Frontier
•  Summary

Exercises

Test Your Knowledge

What is Foreign Exchange?Foreign exchange consists of trading one type of currency for another. Unlike other financial markets, the FX market has no physical location and no central exchange. It operates "over the counter" through a global network of banks, corporations and individuals trading one currency for another. The FX market is the world's largest financial market, operating 24 hours a day with enormous amounts of money traded on a daily basis.

Unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for exchanges to open. Access to modern news services, charting services, 24- hour dealing desks and sophisticated online electronic trading platforms has seen speculation in the FX market explode, particularly for the individual trader.

The currency markets are not new. They've been around for as long as banks have been doing business. What is relatively new is the accessibility of these markets to the individual speculator, particularly the small- to medium-sized trader

A Short History of the Foreign Exchange Trading Market

Topic Cover | A Short History, Forex, Exchange, Trading, Market

Foreign exchange consists of trading one type of currency for another. Unlike other financial markets, the FX market has no physical location and no central exchange. It operates "over the counter" through a global network of banks, corporations and individuals trading one currency for another.

The FX market is the world's largest financial market, operating 24 hours a day with enormous amounts of money traded on a daily basis.

Unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for exchanges to open. Access to modern news services, charting services, 24- hour dealing desks and sophisticated online electronic trading platforms has seen speculation in the FX market explode, particularly for the individual trader.

The currency markets are not new. They've been around for as long as banks have been doing business. What is relatively new is the accessibility of these markets to the individual speculator, particularly the small- to medium-sized trader

Foreign exchange markets originally developed to facilitate crossborder trade conducted in different currencies by governments, companies and individuals. While these markets primarily existed to provide for the international movement of money and capital, even the earliest markets had speculators.

Today, an enormous proportion of FX market activity is being driven by speculation, arbitrage and professional dealing, in which currencies are traded like any other commodity.

Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted in large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971.

From 1944 until 1971, most of the world's major currencies were pegged to the US dollar under an arrangement called the Bretton Woods Agreement. Participating countries agreed to try and maintain the value of their currency with a narrow margin against the US dollar and a corresponding rate of gold, as needed. These countries were prohibited from devaluing their currencies to gain a foreign trade advantage. Consequently, the foreign exchange market was relatively static.