How To Acquire Wealth in Currency Trading
August 28, 2009
Is it possible to acquire great wealth in online forex trading? Do you need to be a great genius to achieve the spectacular results boasted by some traders past and present? What kind of attitude is necessary for ensuring that you don’t get caught in market panics and euphoria, and suffer severe losses as a result?
These questions busy the minds of many beginning traders who come to forex believing that it is possible to achieve financial independence in trading without losing one’s emotional health and physical well-being while doing so. In spite of the bad press that forex trading has had over the years, it is indeed possible to achieve significant profits in currency trading, provided that you apply, and not just know, some simple rules. Here is a brief selection of these important guidelines that most successful traders follow.
Moderate profits, minimal losses
You don’t need great profits in forex trading. But you do need consistency. Volatile returns comprising of exceptional gains and severe losses over time may seem like a reasonable way of getting rich to some, but the emotional tensions, and the lack of future visibility make planning and execution a lot harder than they would be if you had attained consistency in trade results.
Add to this the possibility that your trade sizes change over time, and planning for the future becomes an exceptionally difficult task.
Conservative expectations
A good way of being successful in forex trading is not expecting it. Even though it is possible to scale any mountain, it is better to concern ourselves with the next step, rather than with how much effort would be necessary to reach the top. Planning for the long time, and formulating strategies for unexpected outcomes is of course sensible and advisable, but doing so with the expectation that you’ll get rich may lead you to irrational decisions, rashness in risk taking. Instead, by being conservative, and consistent you will have a real chance of acquiring great riches in forex.
Persistence
Don’t risk too much, but don’t give up too fast because of small, immaterial losses. Persistence and patience are crucial to gaining wealth in trading. While some already possess the necessary mental and emotional requirements, and others will have to work to acquire them, there’s always a learning process. Being persistent in this process will ensure that you have the survivability and the resilience to help you outlast the early disappointments.
Adaptability and Improvement
Times change, and we change with them. At least we ought to. This rule is no less valid in forex. Be disciplined and consistent in the application of your strategies, but adapt and improve them to suit market developments.
It is your responsibility to improve yourself. Forex trading brokers only give you the tools, but it is your task to learn how you can use them most efficiently. Make sure that you devote enough energy to developing your intellectual skills, and bettering your emotional control. And after that, what remains is but details.
The Candy Man
September 21, 2008
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By cutting interest rates to the bone and pumping the markets full of liquidity, Ben Bernanke may have saved the U.S. financial system from incurring even greater damage than it has already suffered. In the process, the U.S. Dollar has been degraded to levels that have not been seen in decades. After all the damage that has been done, last week’s action has traders wondering if the man who has been feeding candy to the markets is now about to sing a different tune. At least that’s the hope of the many analysts who believe that the weak U.S. Dollar is generating high energy prices and global inflation. In Barcelona on June 3rd, Fed Chairman Bernanke shocked the currency markets by indicating that the weak greenback is damaging, not helping, the U.S. economy. The U.S. Dollar shot higher in response to his comments, and commodities prices fell sharply (see figure 1).
Figure 1: Euro falls nearly 200 pips vs. USD after Bernanke comments. Source: Saxo Bank “We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,” said Bernanke. Maybe this doesn’t sound like much, but coming from Helicopter Ben, a man with a reputation for easy money who has overseen a 10% decline in the US Dollar, these comments are absolutely stunning. First, let’s take a look at the context of his remarks; it is extremely rare for any Fed representative to comment directly on the U.S. Dollar, other than to repeat the empty phrase, “we support a strong dollar policy” (something that has not been true for years). Actually, the U.S. has supported a weak dollar policy for some time now. While this has benefited U.S. exporters, it has hurt individuals, who now must pay for food and gas with devalued dollars. Because the dollars have been devalued, we need more of them to buy a tank of gas or a meal at our favorite restaurant. Voices in the Wind It’s not as if voices haven’t been crying out for years against this weak dollar policy. Readers of this column might recall the recent article Coincidence? I Think Not, which examines the past ten years of Fed-created bubbles – first in the stock markets, then in housing, and now in commodities. Luminaries such as Warren Buffet, Malcolm Forbes, Jim Rogers and Ron Paul have been shouting from the mountaintops about the damage the U.S. weak dollar policy is causing. Here are a few quotes: Warren Buffet: “If we have the same policies, the dollar will go down.” (Forbes, Jan. 2005) Jim Rogers: “There are serious problems in the U.S. with the U.S. dollar. I wouldn’t own U.S. dollars if I were you.” (Stock Interview, 2007) Malcolm Forbes: “I want to hear that Bernanke and Paulson are going to shore up the dollar. Eventually the markets will force them to.” (World Economic Forum in Davos, Switzerland, Jan. 2008) Ron Paul: “The fact that our money supply is rising significantly cannot be hidden from the markets. The response in time will drive the dollar down, while driving interest rates and commodity prices up.” (Before the U.S. House of Representatives, April 25, 2006) It’s interesting to note that hours after Bernanke’s comments hit the newswire, oil dropped to a three week low and copper fell to its lowest point in more than two months. What a shock! I guess there’s a link between the U.S. Dollar and commodities prices after all. But only actions, not words, will cause a sustained dip in prices. Bernanke has just begun to talk the talk; the question in the mind of every trader is this – will he walk the walk? Props for Volcker! The following day, I saw Bernanke giving a speech at Harvard to an audience adorned in plastic raincoats. Ben talked at length about the effects of the oil shock in the 1970’s, and how U.S. monetary policy had been ineffective in dealing with the resulting inflation until Paul Volcker became the Fed Chairman. What’s that? Bernanke is praising Volcker??? But…Volcker is the guy who raised interest rates into double digits in the early ’80s…he fought inflation, even at the expense of growth…meaning that he was the EXACT OPPOSITE OF BEN BERNANKE!!! OH MY GOD!!! WHAT’S HAPPENING??? This can’t really be Ben Bernanke, I thought. Conspiracy theories crept into my mind, and the room began to spin. As he neared the end of his speech, Bernanke said to the students: “At this point, you may be asking yourself, “Is it too late to book Ali G?” That was the last straw. Now the imposter was cracking jokes. Who is this guy, and what has he done with the real Ben Bernanke? The New Guy But in the end, it doesn’t matter. See, I like this guy, the new Ben Bernanke. I just hope he’s the real Ben Bernanke. I wasn’t fond of the old Bernanke, with his bubble-causing, inflation-stoking low interest rates. I much prefer the new Bernanke, who publicly praises a man who raised the Fed Funds Rate well into double digits. This is a guy I can trust to fix the weak US dollar and tame inflation, even if the medicine is bitter. Not like the other guy, who like his predecessor Alan Greenspan seemed to exist on a treadmill that consisted of creating bubbles and then cleaning up the resulting mess when the bubbles finally burst. The cure that Alan and the Old Ben came up with was often worse than the disease, as each bubble sprouted a successive, more dangerous bubble. The Nasdaq bubble injured stock traders and investors, people who at least had enough excess money to be involved in the markets. When that bubble burst, and Greenspan subsequently lowered the Fed Funds Rate to 1%, we saw the creation of a new, more harmful bubble in housing. More harmful because when it finally popped, people were not losing their investment portfolios, they were losing the roof above their heads. Now we’re experiencing a commodity bubble that, through higher energy and food costs, has already deprived some people of their ability to eat on a regular basis. The New Ben seems to understand this, and even shows a willingness to put a stop to this nonsense. Too bad he’s only been around for one week. Eat Your Veggies The moral of the story is this – eat your vegetables. Remember when you were a kid, and you wanted chocolate cake and candy for every meal? Sure seemed like a good idea at the time, right? But what happens to children who try to exist on such a diet? Well, the situation with interest rates and excess liquidity is similar. The Old Ben would shout, “Candy for everyone!” and toss cakes and sweets to the markets. The sweets took the form of low interest rates and excess liquidity, and no matter how much Old Ben threw their way, the markets always seemed to need more. Then one day, Old Ben was gone and suddenly New Ben was telling the markets, “No more candy for you! Eat your vegetables!” The stock market fell, because it loves candy, but the weak, battered US Dollar rose up, anticipating the badly needed vitamins and minerals from the vegetables. The stock market doesn’t realize it yet, but it too will benefit from better nutrition – but for now it is sulking, because like a child, all it knows is that it wants candy. Don’t give it to them, Ben! Have a question about Forex trading? Send an email to eponsi@tradingacademy.com and we may use your question in an upcoming newsletter. Until next time, best of luck to you in trading. Ed Ponsi is a globally recognized name as a lecturer and teacher and is the former Chief Trading Instructor for Forex Capital Markets. An experienced professional trader and money manager, Ed has advised hedge funds, institutional traders, and individuals of all levels of skill and experience. Ed has appeared on CNBC, CNN International and TheStreet.com, and has recently written his first book for Wiley Finance. You will gain an excellent perspective of the Forex markets and how to trade them, and a bonus education in using Fibonacci methods in your trading. This article is contributed by Online Trading Academy |
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Choosing the Right Broker: The First Step To Forex Success
July 30, 2008
As the online Forex trading market becomes increasingly saturated and the choice of brokers becomes wider, the decision of which broker to run with becomes increasingly important for the trader. Although the majority of brokers provide the same basic trading platform, there can be a vast difference in what they offer their clients, both in terms of trading conditions as well as customer support. By simply visiting a company’s homepage it may be hard to separate the second-rate firms from the professionals, therefore this article will examine the main parameters that should be taken into consideration before creating an account and depositing.
Account type
The decision of which type of account to open will most likely depend on the amount of capital you have to invest. Most brokerages offer two main account types: a “Mini” ($100-$200 minimum deposit) and a “standard” account ($1,000-$2,000 minimum deposit). Mini accounts are best suited to new or amateur traders looking to gain market experience and confidence with a smaller investment, and offer higher leverage, which you’ll need in order to make money with such a small amount of initial capital. “Standard” account holders can expect to enjoy a wider variety of leverage options, but will have to invest a greater sum of money for the privilege. Although not as commonly advertised, many brokers provide a premium service for large investors (perhaps $100,000 – $250,000+), including additional VIP services, such as a dedicated fund manager and tailor made conditions.
Common to nearly all online brokers is the offer of a demo account, which allows users to get a feel for the software and gain trading experience without the risk of market exposure. Such simulations are undoubtedly beneficial to potential clients wishing to test the waters, but caveat emptor: they are not always representative of real-market, real-platform conditions, despite claims of full functionality. Do not be afraid to question a brokerage on this matter – an honest, reliable broker will admit the downfalls of a demo account.
Software Considerations
The foreign currency market can move at a fast pace and will often require you to make quick decisions and executions, regardless of where you happen to be. Depending on your level and frequency of trading as well as travel habits, it may be wise to choose a brokerage that offers a web-based Java trading platform, which requires no download and enables you to trade from any location worldwide.
Payment Options
Look for brokers that allow you to pay with credit card, as this is the easiest option by far and does not involve the necessity of transferring funds from online e-account. Other payment options typically offered include wire transfer, which is equally as secure as credit card, but expect to wait a number of days for it to clear and to have access to your funds.
Support
Perhaps one of the most crucial considerations and one that may potentially have a significant effect on your trading success is the issue of customer support. Whether you are a first time forex amateur or a FX vet, having the support and advice of a reliable, dedicated customer service team is undoubtedly invaluable, so it would prudent to do your homework on this one. The only way to gauge the quality of a support team is to contact them and see how they deal with your inquiries: are they fast, do they give reliable technical and market advice; do you get the sense that they know the industry well enough to advise others, or are they simply good sales people? This might not be so easy to find out, but as the only point of contact between yourself and the brokerage, it is important to do so. As with any business, pre-sale service might be more satisfactory than post-sale, so again, try to judge whether or not you are being helped or simply pitched.
Platform, Tools & Analysis
In the present online market place it is rare to find a company which does not offer real-time tools such as charting and price updates, but predictably the quality and availability of such applications will vary from broker to broker. Ideally you should have access to a wide range of tools, enabling you to assess the market 24 hours a day, making your trading decisions accordingly, and in addition your broker should also provide you with daily market reports, prepared in-house by professional analysts. These reports should cover the basics: economic news relevant to the major currencies, technical movements and general commentary. The better known, more reputable analysts have their reports published on a number of the larger online forex portals and forums, which is an indication that their data is considered accurate and reliable, which in turn tells you a little more about the reliability of the brokerage itself.
As previously mentioned, many trading platforms offer the same basic functions, but not all brokers cover all areas of the forex market, so before committing make sure your chosen platform will let you trade the currency pairs you require.
Spreads
Spreads are an important factor to consider before investment and will certainly require some shopping around in order to find the best offer to suit your trading habits. The spread is the difference between the price at which currency can be bought and the price at which it can be sold at any given point in time. FX brokers don’t charge “commissions”, so this difference is how they make their money; therefore, the lower the spread, the lower the commission, and unlike stocks, currencies are not traded through a central exchange, so the spread may differ from broker to broker. Spreads differ according to account type, with mini accounts offering spreads between 1.5-2 times higher than those offered for Standard accounts, which in turn are higher than those offered to large volume traders with VIP status.
“Fixed” spreads remain the same day or night, and despite market conditions, and although they are usually somewhat wider than the narrowest of variable spreads, they can be safer over the long term by providing a slightly higher level of predictability and a slightly lower level of risk. “Variable” spreads change according to market conditions (which may initially be attractive during a calm period, but once the market becomes busy, they are likely to widen considerably, meaning that the market will then have to move significantly in your favor before a profit is turned).
Leverage
Unless you intend to invest a six-figure sum of capital, the use of leverage will be essential in order to make decent profits in forex. Generally speaking, the sum of money made during a successful trade amounts to just fractions of a single cent per unit, so if you are buying lots worth just a few thousand dollars or less, your profits will be minimal. This is where leverage comes into play: in effect by “borrowing” your broker’s funds temporarily you will be able to make larger trades, which, if all goes according to plan, will lead to larger profits. Obviously, this practice involves an inherent risk: if the market takes a turn for the worse you risk losing a substantial sum of money, depending on the amount of leverage taken. For this reason it is advisable to do some further reading on leverage and margins prior to using leverage, so that you are fully informed before exposing yourself to the open market. Under normal market conditions, some common currency pairs are generally less volatile, and may warrant a higher level of risk taking, while more exotic currencies may not be predictable enough and traders would be advised to use less leverage when getting involved with such pairs. Mini accounts provide the highest levels of leverage, with some brokers offering up to x 400.
Education
While practicing on a demo account may help you improve somewhat and trading with real money might teach you some hard-learned lessons, the best way to improve your trading ability and provide yourself with a solid knowledge base is to educate yourself. To this effect, more and more online brokers are offering trading courses or tutorials, ranging from free five minute “introductions to forex” to curricula covering the smallest of details and costing thousands of dollars. Well established educational centers, such as the Online Trading Academy (OTA), with years of technical training experience are your best bet, providing solid instruction that will not only teach you the basics of the market, but also the technical side of the business (advanced technical analysis, charting, chart reading, Fibonacci calculations etc.). Some brokerages produce their own courses in conjunction with such trading centers, such as the course offered by Forexyard.com. Without educating oneself, the vast majority of built in market tools offered by trading platforms will be wasted on the amateur forex trader.
In summary, there are numerous factors to consider before choosing the right online forex broker, all of which should be researched to ensure that your trading account and broker will allow you to get the most from your investment. You must be aware that some brokers do not have your best interests at heart, but do not despair, as there are many reputable and reliable companies eager and capable of providing a professional service. As part of your research, be sure to visit the many online trader forums, where you can discuss any of the issues raised in this article with other traders, many of whom will already have been through the process of choosing a broker and will be able to advise you from their own experiences.
Investing in Oil
July 30, 2008
A FOREXYARD special report
Crude Oil has been a dominant factor in the increasingly volatile global markets lately, as the commodity makes historic climbs toward $100 a barrel. It is important for traders and investors to understand the causes involved in the changing oil prices and how they correlate with today’s economy. We must identify the indicators that go into defining price levels and how economic, political and environmental news events affect actual prices.
Breaking the $100 barrier
Oil has been traded over the last several days at record highs of just over $98 per barrel and at lows of just under $94. These prices are at a near 100% premium as compared to the same point last year, when oil was traded for just above $50 per barrel. Movement in price is largely due to the growing demand for the commodity in comparison with its dwindling supply. Developing economic powers like China and India have greatly increased intake as their respective industrial sectors continue to blossom. The International Energy Agency (IEA) released a report Wednesday which stated that the growth of the aforementioned nations will increase the world’s oil demands by more than 50% by 2030. When discussing demand it is imperative to touch upon the issue of supply, as prices have suffered from the continuing depletion of the world’s oil reserves. In another report released this week by the IEA, supply numbers fell less that initially expected but could not prevent Oil prices from rising.
Political Factors
As economic indicators are essential in determining any commodity price, it is the role of political events on prices that makes Crude Oil unique. With the lion’s share of oil reserves coming from the Middle East, the ongoing conflicts in the region have contributed greatly to the volatile rise of oil. The Associated Press reported earlier this week that an oil pipeline was blown up in Yemen by a “group of saboteurs”. As the incident is currently being investigated, investors speculate that any involvement by “terror groups” will send oil prices even higher than their current levels. In the greater global picture, rising political tensions between Iran, and to a lesser degree Venezuela (both of which have considerable reserves of crude) may push the price per barrel to a new record high. If for whatever reason potential political turmoil is avoided, the likelihood of a drop in prices is to be expected. For example, Monday saw a $2 drop in prices after the release of eight Turkish soldiers by Kurdish forces. This curtailed any likely action by Turkish forces in Northern Iraq, allowing production in the region to continue as normal. Political events are what make Oil an attractive investment for novice and intermediate level investors as a deep knowledge of economic indicators is not crucial.
Environmental Factors
Another pertinent factor in determining the movement of oil prices, are environmental events. Such events are arguably the most important factors as oil is in its most basic form is a natural resource. Tuesday saw a rise to record prices of $97 a barrel as storms produced torrential conditions in the North Seas, forcing major oil producers to cut production. Both Conoco Phillips and BP were left with no choice but to evacuate workers from major pumping rigs, severely depleting the use of what has become one of the world’s most influential oil-heavy areas. The North Sea accounts for close to 4.5 million barrels daily and can be deemed useless under harsh weather conditions. The growing change in world climate, coupled with the deflating oil reserves will continue to be a significant factor in oil prices.
The effect of oil prices on the Forex market is huge, as it correlates heavily to the behavior of the major currencies traded on a daily basis. As winter approaches, Crude Oil looks to be a lucrative commodity to keep an eye on, as is indicative by the trending price line towards levels in and around $100 per barrel.
Trading Oil with FOREXYARD
In line with growing demand, FOREXYARD offers Oil trading to its clients, as well as spot gold and silver. These items are traded in much the same way as foreign currency pairs are traded over the standard FOREXYARD platform (no extra downloads needed), however due to the minimum lot sizes involved, you must hold a Standard account. Trades are executed against the dollar and as with currencies, we offer our clients highly competitive spreads and margins. Due to the nature of trading such items, you will notice a number of small differences including market hours as well as denomination and minimum contract sizes.
To find out more about trading oil with FOREXYARD, please do not hesitate to call our support team today, toll-free: 1-888-266-9696.
Is the UK Headed for a Recession?
July 26, 2008
GDP growth slowed in the second quarter, but the British pound managed to rally. The pace of growth has fallen from an annualized rate of 2.3 to 1.6 percent,…
