Once a trader has traded on a demo account for some time and it becomes time to trade with real money, such a trader has to decide which currency pair(s) to trade in. Although this is largely a matter of personal preference, a few guidelines might aid the decision.
As a general rule, the more volatile a currency is, the harder it becomes to predict its future movements and hence to trade it profitably. In this regard it might be a better solution to concentrate on the bigger currency pairs, such as the USD/GBP and the USD/EURO, than on currency pairs involving developing currencies such as the Indian rupee. This rule is not, of course, set in stone - third world currencies often present unequalled opportunities for the more experienced trader.
Certain currency pairs tend to display fairly easily discernible patterns over time. The AUD, for example, has been appreciating fairly steadily against the USD over the past decade – forming an excellent longer term trading opportunity. This is where the trader’s timeframe plays an important role. Traders with a longer trading horizon can make use of such longer term trends, while short-term traders have to concentrate on opportunities that arise during brief market fluctuations. As a rule, these are much more difficult to predict.
Certain currencies are directly influenced by commodity prices. The Canadian dollar is an example here. Canada is a major oil exporter, and a drop or increase in the price of oil can serve as a leading indicator for the USD/CAD exchange rate. This presents great opportunities for astute traders.
You will never have a problem with liquidity with major currency pairs such as the EURO/USD. If you trade in obscure third world currencies, liquidity might sometimes become a problem.
Whichever currency pair you decide to trade in, a service such as tradestream could prove to be invaluable.
Most forex robots are built around the Metatrader platform, which was specifically developed for trading futures, options and forex. The key role of a forex robot is to help traders automate specific actions. This tool is appropriate for running mechanical forex strategies that occur without human intervention.
How to use a robot
A quick search of the internet will reveal a wide selection of forex robots. Before downloading a specific product, the trader should check the reputation of the company selling the software. This is important, because many companies that spring up overnight propose incredible deals only to disappear within a matter of weeks. If possible, use a selection of robots, for a trial period, on a demo account. Having located a reliable company, the individual simply has to purchase and download the product. As soon as the software is installed it is ready for use.
To begin, the trader should open the robot, drag it to a chart, click ‘Allow Live Trading’ and activate the software by going to the ‘Expert Advisors’ section. The robot will then start to perform a variety of online currency trading activities right away.
Top advantages of using a robot
A trader who uses a robot correctly can often achieve great results. This is because the robot trades according to pre-set rules, even when the investor is not around. Additionally, it is able to perform objective online trades that are more effective than many subjective activities completed by human traders.
Another benefit of using a robot relates to the forex trading signal. Multiple forex platforms are ready to buy these signals and sell them to their subscribers. This can help the trader maximise the performance of his or her robot.
A trader will only become successful if his or her robot delivers profits most of the time. Unfortunately, there are many poor-quality forex robots around, which prevent traders from achieving the results they should.
Most investors are aware of the fact that having a really good forex broker will help them succeed in the forex market and make consistent profits. However, finding the best forex broker can be difficult. Today, there are literally hundreds of brokers offering their services on the internet.
Locating a good broker
A novice trader, looking for someone to help him or her start trading will find many a forex brokerage promising effortless and inexpensive forex currency trading accounts. Although most of them are legitimate, some will be fraudulent.
To avoid falling victim to scams, the first thing a newcomer to the forex market should do is contact the Financial Services Authority (FSA). Monitoring forex brokerage firms and individual brokers, this institution provides critical information about its members, including contact details, reviews, complaints and disciplinary actions. In fact, a trader looking for a reputable broker should be aware that all brokerages and professional brokers must be authorised by the FSA in order to perform specific forex trading tasks.
Investors who already trade in other markets should ask their current brokers if they have any experience with forex. If they do not, they may recommend a fellow broker who has a good reputation. The investor should always be sure that the prospective broker really does know how to trade forex. This can be done by simply asking for references from existing clients or looking for feedback on one of the forex forums.
Since the relationship with a broker involves constant contact and financial commitment, investors should never take the decision of hiring a broker lightly. Failure to do so may result in serious repercussions, such as becoming the victim of a scam. In conclusion, if a broker does not have FSA authorisation the investor should look for an alternative service provider.
When it comes to currency trading, forex is one of the most liquid exchange markets available today. The market is huge and traders who are involved are looking to achieve profitable results consistently; in order to do so they must develop a complex strategy. Unfortunately, recent reports indicate that about 95 per cent of traders are unable to achieve consistently positive results. That is largely because most of them focus on unreliable information, which means they make the worst possible trading decisions.
Understanding the basic essentials
To develop a lucrative forex currency trading strategy, an investor must consider a number of key elements, such as technical indicators, trading systems and money management techniques. All trading decisions must be made based on certain technical indicators, such as price fluctuations. For example, a broker can make a massive profit by following a simple day trading strategy, which consists in buying when the currency is low and selling when its price goes up.
To get the best out of using a certain strategy; for example, day trading, the individual should develop his or her personal forex day trading system, one that fits their specific needs and goals. This means each trader has to make an ongoing effort to develop a system that works perfectly for him or her.
In addition, multiple money management techniques can help traders make profit without risking too much. A good rule of thumb is to invest around one per cent of the money deposited in their forex account. Although this is likely to result in only small returns on investment, it leads to exponential profit growth over time.
After creating a particular trading strategy, traders should try it on a forex demo account. Once a particular strategy delivers consistent results, it can be transferred to a ‘live’ forex account.
Forex day trading is a very specialised strategy. It involves opening and closing market positions within the same day. With this form of trading, no positions are ever held overnight.
Day trading allows traders in the forex currency market to try and benefit from the fast-fluctuating forex rates. There are also different strategies which can be used within this form of trading. One is called scalping, where positions are opened and closed during very short periods of time, such as within minutes or seconds. Another option is keep the position open for hours before closing. A competent FX day trader may well switch from one strategy to the other during the hours of trading.
The main advantage of day trading, particularly for experienced professionals, is that a profit can be turned very quickly. There can, however, be pitfalls for the unwary.
Anyone intending to undertake forex day trading will need to be prepared to stay in front of the computer screen throughout the entire trading session. Where automated trading is being used there will have to be absolute faith in the forex software being used.
In currency day trading traders need to be skilful and have a comprehensive understanding of the forex market. A thorough grounding in forex and a wide knowledge of how the market operates is absolutely essential if anyone is going to make a success of it. This makes a day trading strategy unsuitable for most novices or those unable to dedicate enough time to it. Indeed, most day traders are industry professionals who have the time required to concentrate fully on this form of forex trading.
Forex, however, is the biggest financial market in the world and for those traders with the skill and competence, as well as the confidence to take the risks, day trading can be a very rewarding occupation.
The chosen forex broker is likely to have a big influence on trading style. The broker can have a crucial role to play in deciding whether an individual is successful or not. When looking for a broker, it is important to find one that can cater for all your needs and offer the tools required to make money effectively.
Before signing up for a live account with a company, it is well worth trying out the various software and trading platforms available. Most will give access to a full or sample version of their trading platform, at least for a limited amount time. Be aware of companies that offer different spreads between their live and practice platforms.
When testing, you should spend some time investigating whether the information and forex charts you need are easy to find and whether opening and closing orders and positions is easy. It is important to be able to rely on the broker to act as soon as possible on your decisions.
The best forex brokers offer customers easy ways to get in contact with them. It is useful to be able to discuss any issues or problems immediately when investing real money and many traders acknowledge this by offering a range of communication options, including live chat and telephone services.
They also provide helpful tools like tradestream to analyse trends in the market, as well as advice and information from industry experts. Some major forex brokers also offer optimised smartphone apps that can be incredibly useful for those who like to trade on the go.
Having attended an introductory seminar on the possibilities offered by online forex trading, many novices are eager to get involved in this potentially lucrative industry. Once they realise how much homework has to be done before becoming a successful trader, however, many of them develop uncertainties. Learning to interpret a multitude of fundamental and technical indicators and charts, not to mention becoming familiar with concepts such as money management and trading systems, may suddenly seem overwhelming.
This is when many of them turn to professional money managers to carry out online currency trading on their behalf. With a managed forex account it is not necessary to know anything about the intricacies of the marketplace yourself, you simply employ an expert to trade on your behalf.
Benefits of managed accounts
Arguably the biggest single benefit of a managed fx trading account is the fact that it is possible to benefit from the experience of someone who has been in the industry for many years. There is no quick way to become a master trader and for individuals who do not have the time to acquire the necessary skills, a managed account might be the perfect solution.
Managed accounts are also ideal for people who simply cannot handle the stress involved in dealing with trades that start to go the ‘wrong’ way.
Dangers of managed accounts
Perhaps the biggest danger involved in using a managed forex account is that the person who handles your trading funds might misrepresent his or her track record, experience or qualifications. The services of these money managers come at a price and it is up to the individual to do the necessary research to ensure that a particular individual or organisation does indeed have the necessary qualifications, experience and skills required.
Forex is a decentralised worldwide market, but most traders still require the services of a broker. The role of the forex broker is to act as an intermediary and provide services such as trading strategy advice, technical analysis and research.
Newcomers to the world of forex trading are strongly advised to check out a selection of brokerage sites. Websites such as forexloft.com are packed with advice and tips for both experienced and novice traders.
Any brokerage house should be registered with the relevant regulatory body. Before signing up with a particular broker it is also advisable to check whether a help desk is available 24-hours a day, seven days a week. This is because foreign exchange dealing continues round the clock, so if they are trading at 3am in the morning he or she needs to be confident that there will be help available should a problem arise.
The vast majority of brokers recognise the importance of novice traders and gear a range of online services towards them. They usually provide instruction, demo accounts or simulated trading, which enable the newcomer to practice trading without risking any actual money. Of course, when the trader feels confident enough he or she will begin trading for real.
For the experienced forex trader online, brokers concentrate more on detailed advice rather than instruction.
Another important aspect provided by forex brokers is the trading tools they provide online. When looking for a suitable broker it is a good idea to check how these tools operate and if they meet the trader’s personal requirements. This can easily be done by checking out a demo account. Even an experienced trader should do this when moving to a new broker as it will allow him or her to decide whether the trading tools and other essential facilities being offered are suitable.
For best forex trading, an investor new to currency trading will want to seek out the best advice available. This is where a forex forum can help. A forex forum, such as forex factory, is an internet-based platform offering advice and assistance on all aspects of forex online. Posts to a forex forum typically come from fellow investors, so anyone using one knows that they are receiving advice from similar-minded people, whether they are just starting out with currency exchange trading or whether they are more experienced. Some forums will provide charts and analysis, as well as links to educational resources for new investors. Once an investor becomes more experienced in currency trading, they can post their own advice on a forum for the benefit of fellow investors.
Discussions cover a range of issues, from forex broker recommendations and forex software advice to day trading tips and different types of trading systems.
A search online will return any number of forex forums, which users can search to find the information most appropriate to their needs. Free forex advice is invaluable to new investors as they discover the ins and outs of currency trading. Registering for a forum tends to be very straightforward. Just choose a username and password and have an e-mail address for verification purposes. Most forums allow guests to view posts before making a commitment to signing up, so investors can see if a particular forum has the kind of advice they are looking for. Active forums will have posts updated on a regular basis so they are best ones to look for.
Rather than opening an ordinary forex account and trading one or more currency pairs, there is another great alternative to trading in the forex market. That alternative is trading forex options.
A forex option is simply the right, but not the obligation, to buy (call option) or sell (put option) a given currency at an agreed exchange rate (the strike price), on a certain future date (the expiration date).
There are two types of options: call options and put options. The strike price of a call option is normally above the current market price, and the strike price of a put option below the current market price, but that does not necessarily have to be the case.
With a call option the trader wants the price of the currency to move above the strike price at expiration, because then he or she has the right to buy it at the (lower) strike price and sell it again at the higher market price.
With a put option, a trader wants the price of the currency to drop below the strike price, because then they can buy the currency at the lower market price and sell it again at the higher strike price.
Buying call options is attractive because the option only costs a fraction of what buying the actual currency would have cost and, if you are right about the market, you will get the full benefit of the amount by which the market price moves beyond the strike price.
The same is true for put options, but in this case the profit for the trader would be the amount by which the price drops below the strike price.
Another reason why forex traders love options is because what you pay for the option is the maximum you can lose on the deal. The risk, therefore, is lower than with a straight currency deal.