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Learn How To Trade Currency

Refco FX enables you to trade the global currency markets if you trade using price momentum, this guide will help you identify which currency pairs have strong directional movement. Currency Futures 44 Currency hedge fund liquidates A successful currency hedge fund liquidates, and CTAs post net losses for August. Currency Trader Submit your editorial queries or comments to webmaster issue of Currency Trader.

Crossrate Currency Pairs

The currency pairs that derive their respective rates from their individual relationships with a third FOREX currency rate are called crosses or cross-rate pairs. All currency pairs that do not include the U.S. dollar fall into this group EUR GBP, EUR CHF, EUR AUD, GBP CHF, CHF JPY, CAD JPY, EUR JPY, and GBP JPY. They are usually very volatile owing to a lesser liquidity, and this causes the spread between bid and ask prices

Anatomy of a Currency Pair

More specifically, currencies are traded in pairs. When forex traders talk about trading the U.S. dollar, for example, they are really talking about trading the U.S. dollar 's relative value against another currency. This other currency could be the euro, the British pound, the Japanese yen, or even the Thai baht, among many others. The first currency in a currency pair is called the base currency, while the second currency is called the quote (or counter ) currency. It cannot be emphasized enough how important it is to keep in mind that there are two integral, opposing components of a traded currency pair, instead of the single component prevalent in trading stocks or futures. When forex traders initiate market positions, it is imperative that they take into consideration the relative value of both currencies. This means that a trader should not just consider whether a currency will go up or down in value. Rather, the trader must always take into account whether the currency 's value...

How A Currency Trade Works 1 Reading A Currency Quote

GBP USD, USD CHF etc. The first listed currency is called the base currency. The base currency is the basis for the buy or sell transaction. The second listed currency is called the counter or quote currency. As an example, if you place a buy GBP USD order with your broker what you have effectively done is sell US dollars and bought Great British pounds (GBP). By definition, the first currency is the stronger between the two. If you believe that the Canadian government is going to weaken its currency (Canadian dollar) in order to help its export industry you would BUY USD CAD (in trading terms GO LONG). Why Because you want to own US dollars while they appreciate against the Canadian dollar. There are many currency pairs in existence. However, the ones I consider important are those with the best market liquidity, i.e. the most heavily trade. They posses all the quality a good market has for trading purposes. The following is a list of these...

Currency Pair Checklist

The first section of your trading journal should consist of a spreadsheet that can be printed out and completed every day. This purpose of this checklist is to get a feel for the market and to identify trades. It should list all of the currency pairs that are offered for trading in the left column, followed by three columns for the current, high, and low prices and then a series of triggers laid out as a row on the right-hand side. Newer traders probably want to start off with following only the four major currency pairs, which are the EUR USD, USD JPY, USD CHF, and GBP USD, and then gradually add in the crosses. Although the checklist that I have created is fairly detailed, I find that it is a very useful daily exercise and should take no more than 20 minutes to complete once the appropriate indicators are saved on the charts. The purpose of this checklist is to get a clear visual of which currencies are trending and which are range trading. Comprehending the big picture is the first...

Foundation 3 Follow and understand the daily Forex News and Analysis of the professional currency analysts

Even though this system is based solely on technical analysis of charts, it is important to get a birds-eye view of the currency markets and the news that affects the prices. It is also important that you know and understand what the key technical 'support' and 'resistance' levels are in the currency pair that you want to trade. Support is a predicted level to buy (where currency pair should move up on the charts), resistance is a predicted level to sell (where the currency pair should move down on the charts). *While you are reading the daily news and technical analysis, write down on a piece of paper what direction the analysts are saying about the major currency pair you are following and the key support and resistance levels for the day. A. Go to and you will find 24hr news and analysis on the spot FX markets. The site will give you the big picture of how the economic calendar and central banks affect the currency markets. A great resource. B. Then go to...

Widely Traded Currency Pairs

The most widely traded currency pairs are In general, eur usd is by far the most traded currency pair and has captured approximately 30 of the global turnover. It is followed by usd jpy with 20 and gbp usd with 11 . Of course, most national currencies are represented in the foreign exchange market in one form or another.

By Currency Trader Staff

In the weeks following the U.S. presidential election, dollar bears appeared to build renewed zeal. The euro pushed above the 1.34 level in early December while the dollar yen dipped below Y102.00. In early December the dollar hit multi-year lows vs. several major currencies. By one trade-weighted measure from the Federal Reserve Banks, the dollar fell nearly 29 percent from February 2002 against liquid currency pairs, excluding China. As the dollar falls, the price of imported goods rises, says Sean Callow, currency strategist at Ideaglobal. The pressure builds up for importers to pass along higher costs to consumers. Foreigners must first buy U.S. dollars to invest in U.S. capital markets and a continued retreat in the currency could discourage new foreign investment or even trigger some investors to cash out of U.S. trades. Bonds and stocks are vulnerable, Callow warns. Because of the huge current account In recent weeks, rumblings about possible central bank intervention have...

Pips The Currency of Currency Trading

Up to this point, pips have been lightly touched upon but not properly defined. An extremely important concept in foreign exchange trading, a pip is simply the smallest unit of price movement in the exchange rate of a currency pair. Pip can stand for percentage in point or price interest point.' ' But regardless of the exact acronym definition, its practical meaning is clear. Traders trade foreign exchange in order to earn pips. Earned pips are the reward for a good trade, while lost pips are the punishment for a bad trade. Loosely akin to the tick found in other financial markets, a pip most often refers to the smallest change in the fourth decimal place of most major currencies. This would be the equivalent of 1 100th of one percent, or one basis point. The notable exception to this would be currency pairs denominated in Japanese yen, or JPY, in which a pip would constitute the smallest change in the second decimal place. So, for the vast majority of currency pairs like EUR USD or...

What Are The Best Times to Trade for Individual Currency Pairs

The foreign exchange market operates 24 hours a day and as a result it is impossible for a trader to track every single market movement and make an immediate response at all limes. Timing is everything in currency trading. In order to devise an effective and time-efficient investment strategy, it is important to note the amount of market activity around the clock in order to maximize the number of trading opportunities during a trader's own market hours. Besides liquidity, a currency pair's trading range is also heavily dependent, on geographical location and macroeconomic factors. Knowing what time of day a currency pair has the widest or narrowest trading range will undoubtedly help traders improve their investment utility due to better capital allocation. This chapter outlines the typical trading activity of major currency pairs in different time zones to see when they are the most volatile. Table 5.1 tabulates the average pip range for the different currency pairs during various...

Scalpable Currency Pairs EURUSD

Why only trade these currency pairs Allow me to explain. Later in this eBook I will elaborate upon stops used in these trading methods, but I'll simply state here that generally you will initially be using 10 pip stops. What this really means is that the market only has to move 10 pips less your spread against you to get you stopped out. EUR USD & EUR GBP has a 3 pip spread thus the market needs to only move 7 pips against your direction from point of entry for you to lose your full 10 pips. Thus the odds of you scoring a 10 pip gain are actually 30 against you from the start. The other currency pairs listed above have a 4 pip spread, thus the market needs only go 6 pips against you on a 10 pip stop for you to lose out (40 against you from the start). The currency pairs with a 5 pip spread can still be traded in special circumstances, but in general it is best to shy away from these for what should now be obvious reasons. All the other currency pairs with higher spreads are absolutely...

Does the Strategy Work for Other Currency Pairs

This strategy does work on other currency pairs, but it is important to realize that each currency is different. Although seven days is significant for the EUR USD, GBP USD, and USD JPY, eight days is more significant for currency pairs such as GBP JPY, CHF JPY, and GBP CHF. Different currency pairs have different characteristics because some are more trending than others. The following is an example of fading an extension in a currency cross such as EUR JPY. As indicated in Figure 9.40, EUR JPY rallied for seven consecutive trading days. According to our strategy rules, we go short the currency pair when the next day's candle begins at 5 p.m. New York time with a 30-pip money stop. The trade is executed at 164.54, with a stop of 164.84 (164.54 plus 30 pips). The first target is simply two times the amount risked, or 60 pips, which places our limit order to exit the first half of our position at 164.54 minus 60 pips or 163.94. This is reached the very next day, at which time we move...

Calculating Interest Rate Differentials and Following the Currency Pair Trends

The best way to use interest rate differentials for trading is by keeping track of one-month LIBOR rates or 10-year bond yields in Microsoft Excel. These rates are publicly available on web sites such as Interest rate differentials are then calculated by subtracting the yield of the second currency in the pair from the yield of the first. It is important to make sure that interest rate differentials are calculated in the order in which they appear for the pair. For instance, the interest rate differentials in GBP USD should be the 10-year gilt rate minus the 10-year U.S. Treasury note rate. For euro data, use data from the German 10-year bond. Form a table that looks similar to the one shown in Table 10.1. After sufficient data is gathered, you can graph currency pair values and yields using a graph with two axes to see any correlations or trends. The sample graphs in Figures 10.15, 10.16, and 10.17 use the date in the x-axis and currency pair price and interest rate...

Growth Of The Currency Option Market

Currency options are foreign exchange derivatives and they exhibit similar trends to those shown in the underlying foreign exchange markets. The most recent survey is the half yearly survey conducted by the Bank for International Settlements (BIS), Basel, where figures are available for the six-month period finishing end of June 2002. Currency options had shown a small decline of 1 (as at the end December 2001), however, activity in currency options surged by over 39 from end December to show a notional amount of USD 3.4 trillion. This activity is due to the increase in volatility of major currency pairs especially EUR USD. In the same period, interest rate derivatives showed a 16 rise. For more information please view the BIS website, Currency swaps OTC currency options continue to be very successful as more and more banks and corporations seek to hedge their currency exposures with derivative products as well as traditional spot and forward foreign exchange...

Mundo The Synthetic Global Spot Currency

The Mundo is a synthetic global spot currency invented by FOREX trader Michael Archer in 2001. It is analogous to the Standard & Poor's 500 and Dow Jones Industrial Average in securities. (See Figure 26.1.) To begin and for the sake of simplicity, we define the Mundo as the unweighted average of the four most heavily traded currency pairs 1. First, the USD must be the quote or second currency in the currency pair. Therefore, the reciprocals of both the USD JPY and the USD CHF must be calculated (divide the exchange rate into 1). This chapter is taken from Currency Codex ( 3. The JPY USD currency pair is special because of its wide parity rate. Multiply it by 1,000,000 The premise of the differential charts in Figures 26.2 to 26.5 is based on transitivity, the crucial element in arbitrage that relies on the equilibrium formula to keep all currency pairs in balance with each other. The simplest form of transitivity occurs in triangular arbitrage, which involves exactly...

Choosing a Currency Pair to Trade

When making a choice of a currency pair for a trade, no other reasons except the practical ones should be taken into consideration. It always surprises me when I see that some traders choose a currency pair for making a speculative trade, based on patriotic or geographical reasons. I have noticed that many traders from Australia, for example, basically trade an AUD against USD or NZD. New Zealanders, Canadians, Frenchmen and traders from many other countries frequently prefer to trade their national currencies also. They trade it against the American dollar, or against other national currencies of neighboring countries of the given geographical region. It seems to me, however, that our basic purpose of participation in this business is not to certify our patriotic feelings and pride but to receive the greatest possible profit. From the point of view of a speculative trader, the patriotically geographical approach to a choice of currency pairs for speculative operations on FOREX cannot...

Begin with One Currency

Most currency dealers offer over 50 currency pairs to trade, but if you aren't profitable trading one currency pair, what makes you think that trading 10 or 20 will make you a better trader When you are struggling to achieve consistency or are new to trading currency, I recommend selecting one base currency pair to trade and becoming a specialist in that currency. You should learn its fundamental drivers and spend time observing its personality. Each currency has different habits that you will gain an understanding of by focusing on one currency at a time. For example, the GBP USD and EUR USD both tend to test key areas near the London open, only to reverse direction based on supply and demand. The EUR USD and GBP USD tend to test breakouts that happened during the London session again during the New York session. The USD JPY tends to be sensitive to the action happening in the U.S. equity markets, while USD CAD and AUD USD tend to move on risk appetites bad news for the United States...

Looking At Currency Pairs

Most traders (myself included) tend to focus primarily on just a few pairs (my 4 favorites are EUR USD, GBP USD, USD CAD (I'm Canadian) and EUR GBP - I don't personally like trading USD JPY often, nothing against Asians as I like Asian people, I just don't like the personality of the currency pair. I find it erratic). It is a good idea to pick a couple of currency pairs and to get very familiar with them. Each pair has it's own personality, and when you develop a 'feel' for it you'll often have more success plucking out successful trades. Remember that you have several currencies you could be looking at and trading. You'll encounter times that your favorite currencies won't be doing much of interest (thus you won't trade). At such times I venture into looking at other currency pairs that I normally don't trade. Who knows, on a slow day you might spot a trading opportunity on one of those other pairs. Good luck Word to the wise - don't trade exotic currencies. Stick with the currency...

Major crosscurrency pairs

Although the vast majority of currency trading takes place in the dollar pairs, cross-currency pairs serve as an alternative to always trading the U.S. dollar. A cross-currency pair, or cross or crosses for short, is any currency pair that does not include the U.S. dollar. Cross rates are derived from the respective USD pairs but are quoted independently. For example, your analysis may suggest that the Japanese yen has the worst prospects of all the major currencies going forward, based on interest rates or the economic outlook. To take advantage of this, you'd be looking to sell JPY, but against which other currency You consider the USD, potentially buying USD JPY (buying USD selling JPY) but then you conclude that the USD's prospects are not much better than the JPY's. Further research on your part may point to another currency that has a much better outlook (such as high or rising interest rates or signs of a strengthening economy), say the Australian dollar (AUD). In this example,...

Currency Markets

Foreign exchange is the simultaneous buying of one currency and selling of another. Currencies are traded through a broker or dealer and are executed in pairs, for example, the Euro and the U.S. dollar (EUR USD) or the British pound and the Japanese yen (GBP JPY). Unlike other financial markets, the Forex spot market has no physical location, nor a central exchange. It operates through an electronic network of banks, corporations, and individuals trading one currency for another. The lack of a physical exchange enables the Forex to operate on a 24-hour basis, spanning from one time zone to another across the major financial centers. This fact has a number of ramifications that we will discuss throughout this book. CURRENCY PAIRS Every Forex trade involves the simultaneous buying of one currency and the selling of another currency. These two currencies are always referred to as the currency pair in a trade. BASE CURRENCY The base currency is the first currency in any currency pair. It...

Currency Pair

We wouldn't have a Forex market if we weren't able to compare the value of one currency with the value of another currency. It is this comparison that drives prices. Forex contracts are always quoted in pairs. The euro versus the U.S. dollar (EUR USD) is the most heavily traded currency pair. The U.S. dollar versus the Japanese yen (USD JPY) is another popular pair. Table 2.1 contains the most common currency pairs, their trading symbols, and their nicknames. One distinction you do need to make when looking at a currency pair is which currency is the base currency and which currency is the quote currency. The base currency is the first currency listed in the pairing. For example, the base currency in the EUR USD pair is the euro, which is listed first. The base currency represents the strength or weakness of a currency as shown in Figure 2.1. As the lines on the chart of the EUR USD move higher, it means the value of the euro in relation to the U.S. dollar is getting stronger.

Currency Pairs

Each currency pair is made up of two parts the base currency and the quote currency. For example, the U.S. dollar Canadian dollar example we just discussed is paired as USD CAD. The base currency is always to the left of the slash ( ) mark the quoted currency is always to the right of TABLE 1.4 Currency Pair Basics TABLE 1.4 Currency Pair Basics Currency the slash. It is the direction of the base currency you consider when deciding whether to buy a currency pair or sell it. If you believe the base currency will appreciate against the quoted currency, you will buy the currency pair. If you believe the base currency will depreciate against the quoted currency, you will sell the currency pair. This is an important distinction for new traders to remember because it is easy to buy by accident when you meant to sell. Currency pairs offered on the forex market are constructed using currency from both developed and emerging markets. Table 1.4 lists the most common currencies, their countries,...

Currency Rates

Currency Rate - is the price of monetary unit of one country, expressed in monetary units of the other country, at the sale and purchase transactions. Such price can be established proceeding from a parity of supply and demand of certain currency according to conditions of the free market, or to be strictly regulated by decision of the government or its main financial body, usually Central Bank. Quotation - It is a cost of one currency unit (named base currency), expressed in terms of another currency (named quoted or counter currency). The base currency enters the first, quoted -the second, in designation of quoted currency pairs (for example, USD CHF). The quotation will consist of two figures. The first figure - (Bid) - the price client can sell the base currency at the second - (Ask or Offer) - the price client can buy the base currency for quoted. The difference between these rates is known as (spread). The size of spread depends on the considered pair currencies, from the sum of...

Major currency pairs

The major currency pairs all involve the U.S. dollar on one side of the deal. The designations of the major currencies are expressed using International Standardization Organization (ISO) codes for each currency. Table 2-1 lists the most frequently traded currency pairs, what they're called in conventional terms, and what nicknames the market has given them. The Major U.S. Dollar Currency Pairs ISO Currency Pair * The Eurozone is made up of all the countries in the European Union that have adopted the euro as their currency. * The Eurozone is made up of all the countries in the European Union that have adopted the euro as their currency.

Currency Pair Choice

Above we listed the currency pairs you should limit yourself to scalping based on the criteria of their pip spreads. There are a few other factors that are worth looking at. In my other eBooks I have repeatedly alluded to the fact that each currency pair exhibits it's own personality. It is important to be familiar with the personality of the currency pair(s) you intend to trade so that you can develop an almost intuitive feel for how it tends to behave. The only way to cultivate this recognition is to study the charts of the currency pair for a while (at least a month). I can't stress enough to you the importance of keeping your eyes on the charts to become familiar with the pair's behavior. At the time of this writing (remember that when you read this the Brokers might have already changed the spreads) there are two currency pairs that have a 3 pip spread EUR USD and EUR GBP. Due to the fact that they have the lowest spread makes them the ideal candidate for scalp trading. There is...

Currency Movers

England's currency wilted in the late summer heat. It now remains to be seen whether it has successfully tested prior lows or is simply pausing before renewed selling. Although most major currency pairs traded listlessly as summer came to a close, the British pound managed to send a few sparks flying as it tumbled in value relative to other major currencies. Table 1 reveals the three largest percentage moves (on a closing-price basis) in the major currency pairs from Aug. 2 through Sept. 15 came at the pound's expense, with the pound trading around 1.78 U.S. in mid-September. Like most other currency pairs, the EUR GBP zigged and zagged during the late summer, but the rate had an identifiable uptrend.

Currency Futures

Currency futures come to Middle East The Dubai Gold and Commodities Exchange (DGCX) became home to the Middle East's first currency futures when euro U.S. dollar, Japanese yen U.S. dollar, and British pound U.S. dollar contracts began trading on June 12. The DGCX's Framroze Pochara says the exchange will see how the initial contracts do vs. spot forex trading before it decides to add more currency pairs.

Profit potential in both rising and falling markets

In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling FX market. The ability to sell currencies without any limitations is one distinct advantage over equity trading. It is much more difficult to establish a short position in the US equity markets, where the Uptick rule prevents investors from shorting stock unless the immediately preceding trade was equal to or lower than the price of the short sale. Currency pairs The currencies are always traded in pairs. For example, EUR USD, which means Euro over US dollars, would be a typical pair. In this case, the Euro, being the first currency can be called the base currency. The second currency, by default USD, is called the counter or quote currency. As mentioned, the first currency is the base, therefore in a pair you can refer the amount of...

Read and understand a Forex Quote

A Forex quote is always a two-sided quote with a 'bid' and 'offer'. The 'bid' is the price at which you can sell the base currency (i.e. buy the second currency). The 'offer' is the price at which you can buy the base currency (i.e. sell the second currency). As mentioned before, the first currency listed is the base currency. In the major currency pairs the US dollar is traditionally treated as the base currency this includes USD JPY, USD CHF and USD CAD. In this case 1 USD (the base currency) is quoted in terms of the second currency. For example, a quote of USD JPY 112.25 means that one US dollar is equal to 112.25 Japanese Yen. Among the major currency pairs there are three exceptions where the US dollar is not quoted as the base currency, the Euro (EUR), the British Pound (GBP), and the Australian Dollar (AUD). In these cases, you might see a quote such as GBP USD 1.8455, which means that one British Pound equals 1.8455 US dollars. In both of the above examples the base currency...

Selecting Markets to Trade

We recommend that the novice trader begin by trading the major USD currency pairs only. These pairs usually require a lower bid ask pip spread, which increases your profit potential while reducing your transaction costs. In addition to the transaction costs, you must also examine the current volatility of each candidate currency pair. Statistically, volatility is usually defined as the standard deviation of a data sample. However, this is a somewhat laborious process since it entails summing all the elements in the data sample. In Table 12.2 we use the lazy man's method for calculating two relatives of volatility, called the absolute range and the relative range of the data sample. Absolute range is converted from a decimal value to number of pips by multiplying by 1,000 (or 10 in some cases) and expressed as pips in the quote (second) currency. The time period used in Table 12.3 is July 1, 2003, through December 31, 2003. The table is divided into three groups USD major currency...

Getting Started

Foreign exchange is the simultaneous buying of one currency and selling of another. Currencies are traded through a broker or dealer and are executed in currency pairs for example, the Euro dollar and the US dollar (EUR USD) or the British pound and the Japanese yen (GBP JPY). Unlike other financial markets, the FOREX spot market has neither a physical location nor a central exchange. It operates through an electronic network of banks, corporations, and individuals trading one currency for another. The lack of a physical exchange enables the FOREX market to operate on a 24hour basis, spanning from one time zone to another across the major financial centers. This fact that there is no centralized exchange is important to keep in mind as it permeates all aspects of the FOREX experience. Currency

Broker Policies

Available Currency Pairs The new trader should confirm that the prospective broker offers the seven major currencies (AUD, CAD, CHF, EUR, GBP, JPY, and USD). Certain cross currency pairs (a pair in which neither currency is USD) may not be available, since this entails extra risk. As described earlier, transaction costs are calculated in terms of pips. The lower the number of pips required per trade by the broker, the greater the profit that the trader makes. Comparing pip spreads of a half dozen brokers or so will reveal different transaction costs. One arbitrary rule of thumb is that the bid ask spread for EUR USD (the most frequently traded currency pair) should never exceed three or four pips, and a two-pip transaction cost is highly preferable. Rollover charges are determined by the difference between U.S. interest rates and the interest rates in the corresponding country. The greater the interest rate differential between the two currencies in the currency pair, the greater the...

Account Types

Many brokers offer managed accounts in which the dealer makes all the decisions on which currency pairs to buy and sell and which trade sizes to transact. This is equivalent to depositing equities into some form of investment instrument (such as mutual funds) but with a higher risk factor. It also removes the intrigue and emotional aspect of trading your private account.

Pip Values

A pip is the smallest price increment that any currency pair can move in either direction. In the FOREX markets, profits are calculated in terms of pips first, then dollars second. See Table 8.1. Approximate USD values for a one-pip move per contract in the major currency pairs are shown in Table 8.2, per 100,000 units of the base currency. On a typical day, actively traded currency pairs like EUR USD and USD JPY can fluctuate 100 pips or more. The above table is based upon a margin requirement of 100 percent (leverage 1 1). To calculate actual profit (or loss) in leveraged positions, multiply the pip value per 100k times the leverage ratio (margin percentage divided by 100). Note that the EUR GBP cross rate pair in Table 8.2 uses multiplication with the USD spot price instead of division. This is because the USD is the quote (second) currency in the spot conversion pair. USD Quote Currency USD Base Currency

Trading Strategies

The system was tested on seven currency pairs U.S. dollar Japanese yen (USD JPY), U.S. dollar Canadian dollar (USD CAD), U.S. dollar Swiss franc (USD CHF), Euro U.S. dollar (EUR USD), British pound U.S. dollar (GBP USD), Australian dollar U.S. dollar (AUD USD), and Euro Japanese yen (EUR JPY). These represent the most active dollar-linked currency pairs, as well as a major non-dollar cross rate. Figure 1 shows a few trades that occurred in the EUR USD pair.

Market Opening

Officially the FOREX market opens at 5 30 PM ET, though different brokers react differently in different time zones. Keep in mind that over the weekend all currency pairs carry an extra premium in transaction costs. A normal 3-pip bid ask spread during normal trading hours may increase to a 10-pip spread on weekends. Once the weekend transaction costs return to normal, many pairs exhibit high volatility due to economic influences that occurred over the weekend. Analyzing a set number of currency pairs enhances your profit opportunities. Frequently a trend emerges in one direction or the other and continues until the weekend influences have been satisfied. This may entail tracking several pairs until the early hours of Monday morning. When opportunity knocks


In general, arbitrage is the purchase or sale of any financial instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets. Essentially, arbitrage opportunities arise when currency prices go out of sync with each other. There are numerous forms of arbitrage involving multiple markets, future deliveries, options, and other complex derivatives. A less sophisticated example of a two-currency, two-location arbitrage transaction follows In the subsequent examples, we refer to the following tables of currency pairs consisting of the five most frequently traded pairs (USD, EUR, JPY, GBP, and CHF) with recent bid ask rates. See Table 15.1.


Three non-USD cross pairs Technically the arbitrage strategy can be performed on three non-USD currency pairs. In this example, we examine a straddle between the three European majors (EUR, GBP, CHF) while focusing on the EUR CHF pair in respect to the two GBP currency pairs (GBP CHF and EUR GBP). Assume the current rates of exchange are Thus the calculated value for the EUR CHF rate is 0.6915 x 2.2604 or 1.5631. The deviation from parity is -.0045 (1.5631 - 1.5676), or 45 CHF pips, since CHF is the pip currency in the EUR CHF pair. The trading strategy is

What Are the Best Times to ITade

For Individual Currency Pairs 63 Chapter 6 What Are Currency Correlations Currency Pair Checklist 78 Following the Currency Pair Trends 154 of Major Currency Pairs 169 Currency Profile U.S. Dollar (USD) 169 Currency Profile Euro (EUR) 179 Currency Profile British Pound (GBP) Monetary and Fiscal Policy Makers Bank of England Important Characteristics of the British Pound Important Economic Indicators for the United Kingdom Currency Profile Swiss Franc (CHF) Monetary and Fiscal Policy Makers Swiss National Bank Important Characteristics of the Swiss Franc Important Economic Indicators for Switzerland Currency Profile Japanese Yen (JPY) Monetary and Fiscal Policy Makers Bank of Japan Important Characteristics of the Japanese Yen Important Economic Indicators for Japan Currency Profile Australian Dollar (AUD) Important Characteristics of the Australian Dollar Important Economic Indicators for Australia Currency Profile New Zealand Dollar (NZD) Important Characteristics of the New Zealand...

For Whom Is This Book Written

What do we really mean by trading forex Trading is the final act of putting on an order to buy or sell a currency pair. But the trade is also the result of a process of analysis that combines fundamentals and assessment of charts, as well as one's own psychology. To truly understand how to trade forex, you must take a step back and understand yourself, as well as what the trade is really about. This makes forex trading one of the most interesting and challenging endeavors. Chapter 7 - Currency Pairs - Key Characteristics What you need to know about each currency pair. Also reviewed are important cross pairs. Appendix - Currency Trading Terminology - The Most Important Terms

How this book is structured

When currency prices break out of certain price levels, a large sustained move in the direction of the breakout may occur, giving rise to a situation whereby big profits could potentially be captured in the least amount of time. The main problem with trading breakouts is that many of these breakout attempts fail. In this chapter I walk you through several guidelines of how you can better identify potential breakout opportunities for this strategy. The forex market is extremely sensitive to economic and geopolitical news from around the world, especially those which relate to the industrialised countries. The underlying reason why news is so important to forex trading is that each new piece of information can potentially change the trader's perceptions of the current and or future situation relating to the outlook of certain currency pairs. Find out how you can trade news releases with a higher probability of success.

The Australian Dollar

The Australian dollar (AUD) is the base or quote currency with the following FOREX major and crossed-rate currency pairs AUD USD, AUD JPY, AUD CHF, AUD NZD, EUR AUD, GBP AUD, and AUD CAD. It is also the base currency in some exotic pairs. The AUD is the official currency of the Commonwealth of Australia. It is also familiarly called the Aussie, which nickname also extends to the AUD USD currency pair. It is the sixth most traded currency in the FOREX market and accounts for about 5 percent of worldwide foreign exchange transactions. Its popularity stems from the almost inexistent intervention of Australia's government in the FOREX market, with the add benefit of

Forex The Greatest Game In Town

I kept on trading the forex market gradually adding new currency pairs, eventually over 90 of my trades were in the forex spot market. Today most of my trades are in the GBP USD, EUR USD and USD CHF markets since they provide the best opportunities (in terms of liquidity and volatility). The advanced trading strategies you will learn in this course are best traded with these pairs.

The New Zealand Dollar

The New Zealand dollar (NZD) is the base or quote currency with the following FOREX major and crossed-rate currency pairs NZD USD, NZD JPY, GBP NZD, EUR NZD, NZD CHF, and NZD CAD. The NZD is the official currency of New Zealand and some of the islands on the Pacific Ocean. The currency is informally called the kiwi because of the image of a kiwi bird that appears on its 1 coin, and the term also designates most particularly the NZD USD pair. The volatility of the NZD in the FOREX market is low to medium.

Unique Characteristics of the Forex Market

When you hear someone talking about the forex market , the chances are that he or she is referring to the spot forex market. The spot forex market is where a trader buys or sells a currency at the current price on the date of the contract for delivery within two business days. Of course, for most speculators, there is no real delivery of actual cash, and the way this is done is through rolling over of positions more of this will be explained under Warming Up later in this chapter . By contrast, with the stock and futures markets, one would need access to electronic communication networks (ECN) for pre-market trading, or would have to wait till the markets open - and open sometimes with a gap if there has been news while the markets are closed. Since the Asian session is usually quiet for currencies like the Euro or Swiss Franc, I use this time to do market research, calculate and set up my trades for the afternoon when the European markets open. This gives me ample time to digest the...

Helpful Information for all Forex Trading Systems

Foundation 1 I highly recommend that you follow 1 or maybe 2 major currency pairs. It gets far too complicated to keep tabs on all four. I also recommend that traders choose one of the majors because the spread is the best and they are the most liquid. I personally follow only USD CHF because it moves the most every day. Foundation 2 Follow and understand the daily Forex News and Analysis of the professional currency analysts. Even though this system is based solely on technical analysis of charts, it is important to get a birds-eye view of the currency markets and the news that affects the prices. It is also important that you know and understand what the key technical 'support' and 'resistance' levels are in the currency pair that you want to trade. Support is a predicted level to buy (where currency pair should move up on the charts), resistance is a predicted level to sell (where the currency pair should move down on the charts). *While you are reading the daily news and technical...

Is There Going To Be A New Kid In Town

Yes, there is going to be a new kid and by the time this book is published, the name and place will be FXMarketSpace. This entity represents a collaborative effort between two foreign currency industry leaders Reuters and the Chicago Mercantile Exchange (CME). This venture is expected to launch in 2007. What it will do is facilitate spot trading transactions on six major currencies against the U.S. dollar the euro, the Japanese yen, the British pound, the Australian dollar, the Swiss franc, and the Canadian dollar. Four cross-currency pairs will also be supported. FXMarketSpace intends to add more products in forwards and options at a later date. Since the forex market has changed dramatically over the past few years, many players, such as hedge funds and commodity trading advisors who manage money, have entered the market with a new set of needs, one of which is order anonymity.

Playing in the Majors

Just because there is price movement in a given currency does not necessarily mean that the currency is liquid and heavily traded. On the contrary although the number of currencies in regular use around the world comes close to the number of countries in existence, only a very small handful of these currencies make up the vast majority of forex trading volume. This is yet another unique characteristic of According to the BIS, the most-traded currency, by far, is the U.S. dollar, with consistently greater than 85 of the average daily turnover in foreign exchange trading. The distant second place currency is the Eurozone 's euro, with around a 37 share. Rounding out the top currencies are the Japanese yen with approximately 16 , and the British pound with 15 (because there are two currencies in each traded pair, the percentages of all the currencies combined, including the top- traded currencies cited above, will equal 200 instead of 100 .). The structure of currency pairs as they are...

New Broker Instructions

Some other brokers offer you a more competitive pip spread on currency pairs. If you are utilizing tiny-stop trades that are better suited for currency pairs with smaller spreads then you'll have more currency pairs available to you to trade with. For example, one of my favorite pairs to trade is GBP USD, however I get a 3 pip spread with other brokers whereas FXCM currently gives a 5 pip spread on this

Understanding Trends and Tendencies

Trending currency pairs have a definite direction (Figure 6.1). 2. Range-bound currency pairs bounce between support and resistance levels (Figure 6.2). 3. Consolidating currency pairs are trapped in a narrow, tightening area (Figure 6.3). FIGURE 6.1 EUR USD currency pair in a downtrend on the daily chart. Source FXtrek IntelliChart . Copyright 2001-2006, Inc. FIGURE 6.1 EUR USD currency pair in a downtrend on the daily chart. Source FXtrek IntelliChart . Copyright 2001-2006, Inc. Here is the one thing that you must realize markets change. A currency pair that is trending now will eventually begin trading in a range or move into a consolidation phase. Traders have to be nimble and adapt to this changing environment by using the right strategy at the right time. As a trader, you don't have the luxury of falling in love with a technique, or an indicator, or a currency pair. Understand that markets are not static, and it is up to the trader to identify and adapt to...

Trading Tip Charting Economic Surprises

Consensus forecasts, while the dark line traces price action for the period during which the data was released the white line is a simple price regression line. This charting can be done for all of the major currency pairs, providing a visual guide to understanding whether price action has been in line with economic fundamentals and helping to forecast future price action. This data is provided on a monthly basis on, listed under Charting Economic Fundamentals. and the advent of new technologies, the influence of technical trading on the FX market has increased significantly. The availability of high leverage has led to an increased number of momentum or model funds, which have become important participants in the FX market with the ability to influence currency prices. Technical analysis focuses on the study of price movements. Technical analysts use historical currency data to forecast the direction of future prices. The premise of technical analysis is that all...

Trading in the Asia Pacific session

Currency trading volumes in the Asia-Pacific session account for about 21 percent of total daily global volume, according to a 2004 survey. The principal financial trading centers are Wellington, New Zealand Sydney, Australia Tokyo, Japan Hong Kong and Singapore. In terms of the most actively traded currency pairs, that means news and data reports from New Zealand, Australia, and Japan are going to be hitting the market during this session

Going Long and Selling Short

The foreign exchange market, in contrast, treats long and short in a significantly different manner. To be long EUR USD, for example, is to simultaneously buy euro and sell dollar. To be short EUR USD, on the other hand, is to simultaneously sell euro and buy dollar. So whether one is long or short any given currency pair, one is always long one of the currencies in the pair, and short the other. This concept may seem foreign to traders used to dealing with stocks and or futures, but it essentially means that no matter what position a trader takes in the currency markets, that trader is always both bullish (financially optimistic) on one currency while simultaneously bearish (financially pessimistic) on another. Now that the structure of currency pairs has been established, the all-important topics of order type and trade placement can be discussed. Stock indexes are expressions of share values in terms of some currency. For example, the Dow Jones Industrial Average is the ratio of an...

Trading in the European London session

News and data events from the Eurozone (and individual countries like Germany and France), Switzerland, and the United Kingdom are typically released in the early-morning hours of the European session. As a result, some of the biggest moves and most active trading takes place in the European currencies (EUR, GBP, and CHF) and the euro cross-currency pairs (EUR CHF and EUR GBP).

Guarantee Of Prices And Fills

Quotes on currency pairs should be guaranteed, as well as the fills on your stop-loss and limit orders. This is usually expressed as a no slippage policy, where the price offered should be the same as that at which your market or pending order will be transacted on entry as well as on exit. If there are no clear rules on this subject, keep searching further. A good broker should have enough financial strength to meet these requirements and guarantee the quoted prices, at least in normal market conditions.

Fundamental News Drives the Markets

Traders who are new to forex can take comfort in knowing that analyzing and forecasting exchange rate movements does not rely solely on macro-economic factors, the big picture issues. These are concepts for which information is readily available but that are not so intuitively grasped by the masses. Currency traders who are looking to capture big moves in exchange-rate movement definitely should focus on the fundamentals and the understanding of what drives interest rate differentials between various countries. The currency pairs are traded especially when attempting to assess the value of currencies. Traders need to be aware of several key elements and events that can cause currency values to move. For one, the adjusting of interest rates by central banks is a major factor that moves markets. These decisions are based on many concerns, such as international trade flows, investment flows, the health of individual country's economies, and inflation worries. The opposite concern, as has...

Why is the End2End Argument Important

The end-2-end principle is a large part of the design philosophy behind the Internet 1 . According to the end-2-end principle, networks should provide only the simplest of services. The end systems should have responsibility for all applications and any state information required for these applications. By providing the basic building blocks instead of complex network services, the network infrastructure will not constrain future applications. These arguments started in the 70s in the context of how to encode and send secret encrypted messages with secure and efficient processing then other applications such as transaction processing used them to justify their design. Later, the end-2-end principle became a more general rule guiding the design of the Internet's infrastructure. The changing nature of the Internet has caused a renewed interest in this old argument.

Rollovers and Interest

Rollover charges are determined by the difference between U.S. interest rates and the interest rates of the corresponding pair country. The greater the interest rate differential between the two countries in the currency pair or cross, the greater will be the rollover charge. For example, if the British Pound (GBP) has the greater differential with the U.S. Dollar (USD), then the rollover charge for holding the GBP positions would be the most expensive. Conversely if the Swiss Franc (CHF) were to have the smallest interest rate differential to the U.S. Dollar, then the session carryover ( overnight ) charges for the USD CHF would be the least expensive of the currency pairs. You may download this form at in the Currency Codex section. The online version is updated from time to time as services expand and evolve.

Trading in the North American session

There's a fair amount of noise and misinformation about the supposed interrelationship among these markets and currencies or individual currency pairs. To be sure, you can always find a correlation between two different markets over some period of time, even if it's only zero (meaning, the two markets aren't correlated at all).

Trading Rules About Profits

Different traders have different philosophies about how many pips to go after. (1) Some traders go after large pip targets - from 50 to 500 (or more). They are often position traders (leaving trades over night - often for days). Usually they trade one or two lots, and use stops of around 50 to 100 pips. (2) You then have other traders that focus on day trading (within one day, usually within hours) to get 20 to 30 pips trading one to a few lots. (3) You also have another breed of trader that will trade multiple lots to catch just 5 to 10 pips, usually within minutes (i.e. trading 10 lots for 10 pips is an equal profit to someone trading 1 lot for 100 pips, both would equal 1,000 profit). Let's say you have a job (one of those things you hope to quit) and can only trade part-time. If you could achieve CONSISTENTLY 200 pips per month then you'd be doing well. This could be easily accomplished part-time if you catch 10 trades (over all) in a month for 20 pips. Is this realistic Yes Think...

Nzdusd Nzdcad Eurusd Eurcad Nzdjpy Gbpusd Audusd Gbpcad Audcad Chfjpy Euraud Eurjpy Eurgbp Nzdchf Gbpaud Gbpjpy Usdcad

FIGURE 4.2 Kiwi-related currency pairs dominated foreign exchange in 2002 as the greenback was sold across the board. 2002 Bilateral Currency Returns 2002 Bilateral Currency Returns FIGURE 4.2 Kiwi-related currency pairs dominated foreign exchange in 2002 as the greenback was sold across the board.

How the OTC Structure Affects Self Directed Traders

For example, while the exchange rate of EUR USD may show 1.2500 1.2503 on Broker X, the EUR USD exchange rate on Broker Y may be 1.2505 1.2508 at the same time. There isn't a universal absolute exchange rate of any currency pair at any given time. Some independent traders are not even aware of this peculiar aspect of OTC dealings. Since there can be a few different prices for a currency pair at any one time, you may not be able to see what is the best available price if you trade through only one market maker. Generally, though, the rates provided by market makers to retail traders are quite close to the pricing quoted in the interbank market. Spreads on currency pairs vary from broker to broker, with some market makers setting fixed spreads, while ECNs will have varying (usually tighter) spreads in each currency pair, depending on market liquidity. Spreads and or commissions should preferably be calculated in advance before each trade so that you can decide where your breakeven price...

The Interventions that did not happen

As the year 2004 came to an end, the EUR USD was reaching all time highs. As a result, a great deal of speculation occurred about potential government intervention to stop the fall of the dollar. It did not happen. The currency markets responded to the fear of too strong a Euro and too weak a dollar and fell off its all-time highs. Know when the G7 Group is Meeting It's statements impact currency trading after its meeting on the global economy. In January 2005 the U.S. dollar once again tested 5-year lows against the Yen. This brought forth rumors of intervention by the Bank of Japan. Too strong a Yen fundamentally slows down the potential to grow the Japanese economy. However, intervention is now viewed as a last resort, and global finance policy is promoting allowing the market to set the prices of the currency pairs.

Spreading the Wealth Spreads or Commissions

A spread is simply the difference in pips between the bid price (exchange rate at which a trader can sell a currency pair) and the ask price (exchange rate at which a trader can buy a currency pair). Often, one may view an exchange rate quoted much like the following 1.5850 53. This type of quote provides first the bid price and then the ask price as a variation of the bid. In this case, the two prices are separated by three pips. Most spreads on the major currency pairs, including EUR USD, USD JPY, GBP USD, and USD CHF, are usually in the vicinity of two to five pips wide. Looking back to the previous section on pip values, we can easily extrapolate the spread cost per trade.

Nzdusd Eurusd Gbpusd Nzdjpy Chfjpy Euraud Gbpaud Audusd Cadjpy Eurjpy Gbpjpy Nzdcad Nzdchf Eurgbp Eurcad Gbpcad Cadchf

2004 Bilateral Currency Returns 2004 Bilateral Currency Returns three years, while the European Central Bank held rates unchanged after cutting them in each of the previous three years. The Reserve Bank of Australia held interest rates unchanged for the first time since 1995, opting not to join the global tightening due to the broad decline in house prices following a decade-long housing bubble. Figure 4.10 shows the currency pairs trading results for 2004.

What do you think your volume is on a daily basis

Historically traders have focused on specific currency pairs by looking after a specific currency. We would have had a desk of up to 50 traders with dealing assistants and other support staff. As markets have evolved and technology has changed the process, the need to have so many traders has vanished. On the spot G10 desk would be six senior traders and six junior traders. There is still a currency specialization. Traders are individually tasked with market-making certain currency pairs, so I will have a trader whose job is to call euro USD prices. He is not limited to the risk he takes in just euros. He is not necessarily tied to only that currency pair and in fact can trade other currency pairs and products around that. So our specialization has evolved from a jack of all trades to hopefully master of more than none. Even if you were a euro USD trader, I wouldn't be surprised to see you have risk in seven to eight other pairs as well. Therefore, the broker has a market in euros....

Strategy Rules Long

Locate a currency pair whose 14-period ADX is less than 35. Ideally the ADX should also be trending downward, indicating that the trend is weakening further. 1. Locate a currency pair whose 14-period ADX is less than 35. Ideally the ADX should also be trending downward, indicating that the trend is weakening further. The false breakout strategy works best when there are no significant economic data scheduled for release that could trigger sharp unexpected movements. For example, prices often consolidate ahead of the U.S. nonfarm payrolls release. Generally speaking, they are consolidating for a reason and that reason is because the market is undecided and is either positioned already or wants to wait to react following that release. Either way, there is a higher likelihood that any breakout on the back of the release would be a real one and not one that you want to fade. This strategy works best with currency pairs that are less volatile and have narrower trading ranges.

Voialfitty European ssioii

GBP JPY and GBP CHF are apt for the risk lovers. These two pairs have an average daily range of more than 140 pips and can be used to generate a huge amount of profits in a short period of time. Such high volatility for the two pairs reflects the peak of daily trade activity as large participants are about to complete their cycle of currency conversion around the world. London hours are directly connected to both the U.S. and the Asian sessions as soon as large banks and institutional investors are finished repositioning their portfolios, they will need to start converting the European assets into dollar-denominated ones again in anticipation of the opening of the U.S. market. The combination of the two reconversions by the big players is the major reason for the extremely high volatility in the pairs. The FX markets lend to be most active when the hours of the world's two largest trading centers overlap. (See Figure 5.4.) The range of trading between 8 a.m. and noon EST constitutes...

Further Optimization

Son and that reason is because the market is undecided and is either positioned already or wants to wait to react following that release. Either way, there is a higher likelihood that any breakout on the back of the release would be a real one and not one that you want to fade. This strategy works best with currency pairs that are less volatile and have narrower trading ranges.

Selecting a Forex Broker

The best way to assimilate the information in this book is by practicing on a free demo account. This allows you to see how the various calculations interrelate and how prices of the various pairs and crosses move over time. You can also explore different types of charts, indicators, and order types. Perhaps most important, you will get a feel for the rhythm and pace of the real-time currency markets. Watch for how much prices typically move on different chart scales (5-minute, 15-minute, 1-hour, 1-day) in both pips and dollars. Observe the interrelationships between the various chart time scales. Note that trends of significance do take time to develop and prices very seldom move either straight up or straight down without corrections and consolidations. See if you can spot specific characteristics of different currency pairs.

Step 1 Choose an online Forex Firm

In Forex Trading the 'spread' is the difference between the buy and sell price of any given currency pair. The lower the spread saves the trader money. Most firms offer 4-5 pip spreads in the Major Currency pairs. The best firms offer clients 3-5 pips. You want the flexibility of opening positions on the same currency pair in opposite directions without them eliminating each other and without margin increase ACM Advanced Currency Markets

Calculating Correlations Yourself

Because correlations have the tendency to shift over lime, the best way to keep current on the direction and strength of your pairings is to calculate them yourself. Although it might seem like a tricky concept, the actual process can be made quite easy. The simplest way to calculate the numbers is to use Microsoft Excel. In Excel, you can take the currency pairs that you want to derive a correlation from over a specific time period and just use the correlation function. The one-year, six-month, three-month, one-month, and six-month-trailing reading gives the most comprehensive view of the similarities and differences between pairs however, you can decide which or how many of these readings you want to analyze. Breaking down the process step-by-step, we'll find the correlation between the GBP USD and the USD CHF. First you'll need to get the pricing data for the two pairings. To keep organized, label one column GBP and the other CHF and then put in the weekly values of these...

Canadian Dollar 88 percent

The Canadian dollar attained a cumulative 88 percent increase against the seven major currencies in 2005, its highest return during 1999. A 41 percent increase in oil prices boosted Canada's oil exports to a 19 percent share of total exports in 2005, from a 16 percent and 15 percent share in the prior two years, providing the overall economy and the currency with significant windfall. The combination of an external-led expansion and strong domestic demand fed into rising inflation, which reached 2.2 percent from 1.8 percent, driving the Bank of Canada to raise rates by 75 bps to a two-year high of 3.25 percent. 2005 Bilateral Currency Returns FIGURE 4.13 The Canadian dollar prevailed throughout the top-performing currency pairs of 2005. Although Canadian interest rates were lower than in the United States, United Kingdom, Australia, and New Zealand, the CAD delivered the better performance against those currencies due to its benefiting from rising oil. The currency rose from 12-year...

Definitions and Terminology

A foreign exchange spot or forward transaction creates a symmetrical exposure, so that one party contracts to deliver to another a specified amount of one currency on a specified value date and receive a specified amount of another currency in exchange. A currency option trade, however, is an asymmetrical transaction, in that the buyer of the option has the right, and the option writer (seller) the obligation, to make or take delivery of a specified amount of currency in exchange for another on (or up to) a particular date. A foreign exchange option will simultaneously be a call option on one currency (the right to buy that currency) and a put option on another currency (the right to sell that currency). There is an active option market between the major currencies and their crosses of the world and other minor currencies may be possible provided there is a liquid forward foreign exchange market for the period required with no restrictions. Options periods are typically from one day...

What Happens If the Move Continues for More Than Seven Days

According to Table 9.4, if we trade two lots and the seven-day fade trade fails and the currency pair continues to move in the same direction for an eighth day, we lose 60 pips on the trade. However, if we take the trade again at the beginning of the ninth trading day and both target 1 and target 2 are achieved, we bank 180 pips. The net return on the two trades would be +120 pips. And on the rare occasion that the move extends for the eleventh trading day and we decide to attempt the trade again on the twelfth trading day, we would be starting off with a loss of -240 pips on four trades. If we end up being right on the fourth trade, we would reduce our loss to -60 pips. A sequence of 12 consecutive trading days of strength is very rare of the three major currency pairs, a move has extended to the twelfth trading day only once in the past 10 years, and that was in the GBP USD. The returns, of course, are not as good if the first target or limit is hit and the second lot is closed out...

Cross Pairs Dont Forget Them

Although most traders pay attention to the EUR USD and the big 4 currency pairs, the cross pairs are very useful. They should not be forgotten as part of your scanning of the market. They provide frequent sideways ranging behavior that offers trading opportunities in either direction. See our website for updates on many more cross pairs. This cross pair places the EUR against the GBP. These two currencies often are in the same trend direction, but at times one currency is moving faster in one direction than the other. When viewed as a cross, the pattern that is common is a zigzag sideways action. When you observe the prices in this pattern, you have opportunities to trade bounce off the sides. One of the favorite crospairs among forex traders is the EUR JPY known as the EuroYen. This currency pair often develops enduring patterns that traders can project into the near future.

Searching for the Right Platform

A trading platform is, in simple terms, the mechanism you use to trade Forex over the Internet. Because of the limited information available, Forex trading platforms share similar features. The most basic transactions are buy, sell, and settle currency pairs (see Figure 8.2). However, not all trading platforms are created equal. Some lack features that I believe are very important. Others have features that suit a specific style of trading (see Figure 8.3).

Financial Market Reforms

In reforming the foreign exchange market, China introduced advanced trading systems, new foreign exchange products, and widened the band that its currency can float. Those are summarized in Table 7.7. Allowed banks to trade non-RMB spot currency pairs in China on Reuters system and Chinese banks are allowed to act as market makers

Step 2 Open a Visual Trading Demo Account

The first step to trading the currency markets is to open a demo account. It is important that you learn how to buy and sell the currency pairs, set stop losses, set profit limits, and understand how leveraged margin works when you trade. I found the best way to learn this is by experience.

Opportunity 2 Trading Session Moves

CLOSE ALL ON FRIDAYS - DANGER DANGER This point is huge. Never, and I mean NEVER leave a trade open through the weekend. During the weekend the markets are closed, but world events still happen that affect the price of a currency pair. When the markets reopen on Monday morning (Asian times), Sunday evening in North America, the price usually gaps meaning your stops could be completely missed resulting in huge losses. So never ever EVER leave a trade open through a weekend. If you have any open trades simply close them manually around noon or 1pm (EST) on Friday. Yes, following this advice may result in lost profit opportunities, but it far more than compensates for lost money in your account if you are on the wrong side of a big move. (The only exception with this is if your broker guarantees your stop without slippage over the weekend. Most brokers don't, though there are a few that do, but generally it is a best practice to avoid leaving trades open through a weekend.) It is best to...

Step One Profile Trading Environment

There are many different ways that traders can determine whether a currency pair is range trading or trending. Of course, many people do it visually, but having set rules will help to keep traders out of trends that may be fading or to prevent traders from getting into a range trade in the midst of a possible breakout. Table 7.2 outlines some of rules that I look for in order to classify a currency pairs trading environment.

Australian Dollar 22 percent

The aussie surged against the USD, GBP, and EUR to the highest levels in 23 years, 10 years, and 7 years, respectively, as interest rates hit 11-year highs at 6.75 percent and GDP growth matched 8-year highs at 4.4 percent. The combination of high growth and relatively low inflation of 2.3 percent offered high real interest rates (nominal rates less inflation), an attractive combination to investors. Much of the growing GDP rate emerged from soaring prices of Australia's best-selling commodities. Prices of wheat doubled for the year to hit a record high of 10 per bushel, while copper prices rose 30 percent due to surging demand from China. With the unemployment rate falling to 33-year lows at 4.2 percent and GDP growth at decade highs, traders found proof of a surging economy in the face of protracted currency strength, thereby further bidding up the currency to multidecade highs. FIGURE 4.20 Increased market volatility triggered sharp fluctuations in carry trade currency pairs such...

Can you talk about some of the features

A good charting package is essential for successful trading and is a standard feature with most Forex accounts. Like any investment chart, it visually represents historical price data. In addition, it lets investors manipulate data by timescale and period, by currency pairs, and by technical indicators. Because of the lack of information in Forex (such as market depth and trade size), charts become your eyes and ears on the currency market.

Tweezers Tops and Bottoms

Forex traders take note These equal-and-opposite patterns show up frequently in the currency pairs as well as in cross-currency markets. We see periods of low volatility between the European and the U.S. sessions and, as a result, sideways channels form, otherwise known as a longer-term in-traday consolidation period. Figure 3.22 is a 60-minute chart on the euro currency versus the U.S. dollar on July 19, 2006. The exact low occurred at 9 00 a.m. (EST) and was not prompted by any special report. That morning the German Producer Price Index (PPI) came out, but at 2 00 a.m. (EST). Two U.S. economic numbers housing starts and real earnings were released but those re-

Interest Rate Differentials Leading Indicator Coincident Indicator or Lagging Indicator

Since most currency traders consider present and future interest rate differentials when making investment decisions, there should theoretically be some correlation between yield differences and currency pair prices. However, do currency pair prices predict rate decisions, or do rate decisions affect currency pair prices Leading indicators are economic indicators that predict future events coincident indicators are economic indicators that vary with economic events lagging indicators are economic indicators that follow an economic event. For instance, if interest rate differentials predict future currency pair prices, interest rate differentials are said to be leading indicators of currency pair prices. Whether interest rate differentials are a leading, coincident, or lagging indicator of currency pair prices depends on how much traders care about future rates versus current rates. Assuming efficient markets, if currency traders care only about current interest rates and not about...

Features Of The Listed Market

Open and orderly marketplace - prices in the crowd may be given by market makers (also referred to as registered options traders), specialists or floor brokers representing customer orders. A specialist, designated by the Exchange to represent a particular currency, is responsible for maintaining fair and orderly markets and disseminating the best-quoted prices for each series in standardised options. In addition, specialists are responsible for the proper execution of orders entrusted to them. Customised options do not have a specialist. Instead, market makers are assigned to particular currency pairs and are responsible for making two-sided markets. While standardised options are quoted continuously, customised options are only quoted upon request. Both standardised and customised options are marked-to-market daily. Regulation - for instance with the PHLX, a self-regulatory organisation under the jurisdiction of the US Securities and Exchange Commission (SEC) sets and enforces rules...

AUDUSD vs Interest Rate Differential

These figures show three examples of currency pairs where bond spreads have the clearest leading-edge correlation. As one would expect from the fact that traders trade on a variety of information and not just interest rates, the correlation, though good, is not perfect. In general, interest rate differential analysis seems to work better over a longer period of time. However, shifts in sentiment for the outlook for the path of interest rates over the shorter term can still be a leading indicator for currency prices.

Time Frames of Trends

Sometimes, people ask me for my opinion on the current trend for certain currency pairs, I reply with another question in return, According to the past 5 mins, 5 hours, 5 days or 5 weeks Some traders are not aware that different trends exist in different time frames. The question of what kind of trend is in place cannot be separated from the time frame that a trend is in. Trends are, after all, used to determine the relative direction of prices in a market over different time periods. A primary trend lasts the longest period of time, and its lifespan may range between eight months and two years. This is the major trend that can be spotted easily on longer term charts such as the daily, weekly or monthly charts. Long-term traders who trade according to the primary trend are the most concerned about the fundamental picture of the currency pairs that they are trading, since fundamental factors will provide these traders with an idea of supply and demand on a bigger scale. A short-term...

Mindy Teaches Me Her Onepip Ways

She only trades currency. Look at my screen, she said, pointing to the quotes in front of her. She had at least seven currency pairs open at once, and they were flashing quickly enough to make it very confusing if I stared at it for long. I was used to seeing the currency pairs quoted like this With only the last two digits below the rest of the quote, I had a hard time telling where the currency pair was really trading. Right. That's why most short-term bank traders think that trading currency from home is a fool's game. Because the spreads are so high. It's why Harvey is probably going to teach you to look at the longer term charts. A standard lot is one hundred thousand dollars in currency.

New Zealand Dollar Kiwi

The New Zealand dollar, also known as the kiwi, should get more of the attention of forex traders. New Zealand is almost a classic example of how fundamentals can drive currency movements. The New Zealand economy is small. It exports about 2.8 billion and imports 3.4 billion. Since its consumer economy is small, the fundamental characteristic that affects its economy is whether its exports can grow. Therefore, interest rates and the resulting currency valuation are key to its future economic vitality. The fact is that 151 companies generate 78 percent of New Zealand's exports. Data show only 4 percent of the New Zealand firms do any exporting. New Zealand's interest rates are now at 8.0 percent and, as a result, the currency has risen substantially in strength. New Zealand's unemployment rate has been at a low level of 4.6 percent however, its inflation rate is high, at 3.6 percent. New Zealand's central bank is in a difficult position. At current interest rate levels, New Zealand's...

Tracking Volatilities on Your

The next step is to start compiling a list of data for date, currency pair price, implied one-month volatility, and implied three-month volatility for the currency pairs you care about. The best way to generate this list is through a spreadsheet program such as Microsoft Excel, which makes graphing trends much easier. It might also be beneficial to find the difference between the one-month and three-month volatilities to look for large differentials or to calculate one-month volatility as a percentage of three-month volatility.

Friendly Trend Fractals

In the June 2005 issue of Stocks & Commodities magazine in an interview about Following Trends with Michael W. Covel he stated, Historically, trend-followers have made more money off currencies than any other market . Obviously this is a good thing for us currency traders. I recommend that every weekend you review the Monthly and Weekly charts of the currency pairs you like to trade. The weekend is a good time to do your big picture analysis since you can't be doing any trading then, and it is important to be aware of these perspective to watch for trading opportunities as they happen (i.e. trend reversals or Fibonacci swings). Obviously the conditions of those charts will gradually change, but very slowly.

What Currencies Will You Trade

The second step is to determine which currency pairs you want to trade, because not all currencies are created equal. In FX, there are generally two types of trading strategies trend following or range trading. Most hedge funds are trend following because of the one-way directional bias of the currency market, but many people are contrarians by nature and may choose to range trade instead. There is no wrong or right choice, but in order to increase the probability of success, many hedge fund managers will narrow the currency pairs that the system will trade. Rarely have I seen professional traders apply the same strategy to every single currency pair. They will almost always have currency pairs that they trade often and currency pairs that they never trade. For example, if your trading strategy calls for a risk of no more than 100 pips on each trade, currency pairs with wide ranges like the GBP JPY and the EUR CAD should be avoided and probably not traded, because even if the currency...

Opportunity 8 Inside Consolidations

Sooner or later the price should cross the blue line on it's way to the other end of the consolidation (assuming you remain in the consolidation pattern). This is a nice High Probability trade. Once you've entered the market and set your stop and limit then leave your computer (or trade on other currency pairs) as it will usually take a while for your trade to get limited out.

Variation Blue To Blue Daily

Very, very often you'll see that prices on many currency pairs (virtually daily) enter into a small consolidation pattern between 1pm and 11pm (New York time). Most often the consolidation is very small, but you can frequently score some small trades (say between 5 to 15 pips). The trick to making it worth your while is to trade multiple lots to get the profits you would like. Remember though, if the blue to blue doesn't give you at least a 5 pip profit (preferably more) after you factor in your brokers spreads then just pass on the trade.

Position Trading Settling in for the Long Term

Unlike swing trading and day trading, which will both be discussed later in this chapter, position trading usually relies substantially on fundamental analysis, along with longer-term technical analysis. Other than in the realm of ultra-short-term news trading, which will also be discussed later in this chapter, fundamental analysis is usually geared toward longer-term price forecasts rather than toward the short-term swing-to-swing movements that are primarily the domain of technical analysis. As discussed in Chapter 4, fundamental analysis concerns itself with the economic conditions that drive the major market movements. These economic conditions, which include interest rates, inflation, and economic growth, help to determine the value of a national currency over time. The general direction of change in this currency value over the long run is what interests position traders the most. How exactly does a position trader in the foreign exchange market decide which position(s) to take...

Monika Korzec Session Trendlines called MKS trendlines or MKS system

Drawing Trendline

I have discovered that four of them work extremely well. Some of the minor ones are not as good, so those will not be discussed. I checked the behavior of these trendlines using the following currency pairs GBP USD, EUR USD, CHF USD, USD CAD and USD JPY. Based on the fact that they work on the above-mentioned pairs, I believe that they will also work with other pairs. The discovery of these trendlines happened when I was researching the price behavior around the times when major news is released and around the times when the main currency markets open. These trendlines should be used on the 15-minute charts, as they are good for day trading strategies only. MKS trendlines can be used to create visual representation of the trend happening during current trading session. We need to watch them at specific times of the day to see on which side of the trendline price will close and then we need to follow the price in the direction.

The FXEd Trend Technique

Another reason to consider is that since each currency pair contains two currencies, we are sometimes faced with an imbalance in the perception of the economies of those two countries. Perhaps one economy is perceived as strong, and traders perceive that it will become even stronger. This strength, or perceived strength, will be reflected in the currency of that country. As a result, the currency of that country rallies. At the same time, the opposite may be true for the opposing currency traders may believe that the economy is weak and perhaps it will grow weaker. This perceived weakness would be reflected in the currency of that country, and as a result the latter currency would suffer in comparison to the former currency. If we observe past situations where currency pairs have launched into strong trends, we can find some common denominators. One of these is the tendency for the exchange rate to pull back to a key moving average before resuming the trend. For example, here we see...

Check News And Market Announcements

Some news will affect the market very quickly and very drastically. Other events, such as wars, government elections, holidays, and even bad weather, may have significant impacts that may be unique to each currency pair in the FOREX. Getting to know the behavior of currency pairs is very important. The U.S. dollar, for instance, is directly related to the price of gold or oil. The Japanese yen is sometimes controlled partially by the Bank of Japan (BOJ) to stay within a certain range to promote Japan's large export industry. Such examples can be found on almost all the major currencies, and owing to the differences in behavior of currency pairs, I recommend that you get to know several of them in depth and trade only those. Knowing how and why certain currency pairs act the way they do will give you insight and possibly increase your profits.

Support Breakdown Or Resistance Breakout

Understanding support and resistance is a very important part of charting to save losses, hold on for gains, and preserve capital. Support refers to the price level at which a security tends to stop falling because there is more demand than supply. Technical analysts identify support levels as prices at which a particular currency pair has bottomed in the past. When a currency pair is falling toward its support level, it is said to be testing its support, meaning that the currency pair should rebound as soon as it hits the support price. if the currency pair continues to drop through the support level, its outlook is considered very bearish. When support is broken, it often defines a new resistance point. A support breakdown refers to a currency pair's previous level of support. once this level is broken, the currency pair typically will fall to its Resistance refers to the price ceiling at which currency pairs reach persistent selling. It is significant when a currency pair breaks...

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