Online trading and the Martingale method
Many investors who become involved in trading forex are perpetually looking for the holy grail of trading; a single technique or system that will guarantee a quick way to riches. In their search they often stumble across the Martingale system.
This system originated in the world of gambling. What it basically boils down to is that you start betting small and if you are wrong, you place exactly the same bet again, but this time doubling the bet size. If playing roulette, for example, you keep on betting on one colour, red or black and every time you are wrong, you double your bet. Statistically, the argument goes, you have to be right sooner or later, in which case you will have a guaranteed profit.
Applying this method to forex trading implies that you start off by going long or short on a particular currency with a relatively small short term trade; for example, five minutes. If you go long and the price of the currency goes down during the next five minutes, double the money on your next trade and go long again. If the theory works as it should, you will eventually be right and hence make a guaranteed profit.
If all of this sounds too good to be true, it probably is. It requires virtually unlimited funds to ensure an eventual ‘win’. For instance, if you go long and the market suddenly nosedives, it can keep on going the wrong way for a very long time. It is likely that by that time you will be placing very large trades and you might eventually wipe out your entire trading account before the market turns around.
The Martingale method, when used as a forex trading system, is one that looks very good on paper, but in real life has probably wiped out more gamblers and most likely traders as well, than any other ‘system’ we know of.
Trading on the move
Noticing and acting on signals in a timely fashion is one of the most important elements of forex trading. Most traders work during a set period of time each day. As the market is constantly open during the week, traders inevitably miss out on some excellent opportunities.
It seems foolish to forgo valuable market movements, simply because they occur at an inconvenient time. Many forex brokers now offer the opportunity to trade using portable devices. Their apps offer enjoyable and profitable ways to make money on the move. For many, this has expanded the time during which they can make money on the forex markets.
Train, bus and taxi journeys can now serve as opportunities to trade, meaning individuals never need to miss out on uptrends again.
Smartphones and tablets also have an advantage over PCs and laptops in that they turn on immediately. This allows traders to act instantly if they receive a signal from websites like forexloft.com.
While mobile applications cannot provide all the functionality of full trading platforms, they make trading on the go simple and extend the period of time during which traders can work.
The opportunities and pitfalls of trading on margin
Someone who wishes to travel overseas and who needs foreign currency would go to his or her local exchange office, pay in the required amount of local money and then receive the amount of foreign currency which corresponds to the current exchange rate.
In the world of Forex trading this does not happen. This is because of the principle called ‘leverage’ which is also known as ‘trading on margin’. Let us explain.
With a Forex transaction which is leveraged at 50:1, the trader only has to put down 1,000 GBP to trade an account worth 50,000 GBP. If the same trade is leveraged 100:1, the trader can trade with 100,000 GBP by only depositing 1,000 GBP. Some online Forex brokers even offer trades with a margin of 400:1, which means that with 1,000 GBP the trader can manage a Forex trade of 400,000 GBP.
This sounds wonderful, doesn’t it? Take the example of a trade leveraged at 100:1. If the price of the currency only moves 1% in the right direction, the trader will make a profit of 1,000 GBP.
However, what many novice traders forget is that it works both ways. With the same trade leveraged at 100:1, if the price of the currency moves 1% against the trader, he or she would make a loss of 1,000 GBP. Another way to put this is that this trader would lose 100% of the initial deposit.
The higher the leverage, therefore, the less adverse movement in the price of the currency is required in order to wipe out the trader’s initial deposit. Of course, if the price goes in the right direction, the profits would also be much higher with a high-leverage trade.
For novice traders, it is probably wise to steer clear of very highly leveraged trades. These traders are more likely to make mistakes and with higher leverage these mistakes will cost them much more than with lower leverage trades.
Forex software and information
At a time when electronic trading is ubiquitous, investors require the necessary tools to help them analyse a plethora of market information, and to respond to the information in a profitable way. forex trading software facilitates timely and effective currency trading.
A quick search of the internet shows all of the various online forex systems available for investors to download.
Many platforms provide access to a forex demo, so investors can actually try out the software system for themselves before committing to it. Investors should ask themselves, before they sign up for a particular platform, what their exact needs are, and at what the level of expertise and experience they consider themselves.
In terms of forex indicators or charting software, installing one system alone is generally not enough for an investor seeking to analyse all market indicators. In an overall sense, software allows the forex trader to conduct timely trades in response to changes in the market. The software facilitates both timing and precision efficiency. Using the online trading platforms, a trader is able to combine charts and indicators to help in creating strategies. The forex signals on each chart meet at a point at which they agree on a potentially profitable trade.
Software also helps a trader conduct a detailed analysis of winning and losing trades for future reference.
The best forex software incorporates robust security features to protect accounts from unauthorized access, and therefore, providing investors with peace of mind.
How to use forex charts for forex trading
Once a would-be trader has opened a demo forex currency trading account with a forex broker, also often referred to as a forex brokerage, they should start to develop a system to guide their trading activities, something to help make trading decisions easier.
Fortunately, most forex brokers will have trading software such as the well-known Metatrader, which offers built-in forex charts. Once a trader has learned how to interpret forex charts, the whole business of trading becomes much easier to understand.
The secret of being successful in using charts in forex currency trading is not to overdo it. Do not try to become a master of all the different techniques in as short a time as possible. Instead, concentrate on one type of chart; for example candlestick charts and learn a selection of patterns that consistently work for you.
It will also be necessary to decide the timeframe in which to trade. This can vary from being a day trader, concentrating on very short-term market movements, to being a long-term trader who only follows trends lasting a few months or even years.
Automated forex trading
Automated forex trading is a system for currency trading in which orders to purchase or sell currencies are made automatically, using an underlying program. Once a pre-determined set of criteria have been met, the order to buy or sell is put in place.
The two major methods of automated forex trading are fully automated trading and signal-based autotrading. With fully automated trading, also known as robotic forex, a computer algorithm is deployed to determine such things as price, timing and quantity of the trade. It is possible to work around the edges of a forex robot and tweak it to suit a particular user’s needs from a technical point of view but control is largely given over to the program.
A system that uses forex signals works differently, in that orders are placed using a trading system. This might work, for example, using a system whereby traders would make the strategies they have used readily available by way of signals to anyone who might want to use them. Investors can then use of any of these signals to carry out trades on their own accounts. For inexperienced investors, a forex signals system can be useful in the sense that they can replicate previously successful methods for their own benefit.
In an overall sense, a key advantage of an automated forex system is that a greater number of trades per market can be generated compared to a human trader acting on his/her own initiative. It is a widely held view that automated trading has the effect of removing the vagaries of human psychology from the currency trading markets.
A forex glossary: the key terms
The world of forex can be a confusing one for the first time trader, with many unique terms and phrases that can be a little intimidating. Here are some of the key terms that you will need to understand.
Ask and bid price
The ask, or offer price is the price at which you buy at. The bid price is the price you sell at.
Base currency and counter currency
The base is the first currency in a pair, the currency with which you buy. The counter is the second currency, the currency you are buying. In forex, currency values are always written in pairs, one currency against another. For example, EUR/USD 1.2902 means 1 euro will buy 1.2902 US dollars.
Broker
A broker is an individual or company that you use to access a market, allowing you to buy and sell.
PIPs
Pip is the percentage in point, and is the smallest unit by which a currency pair can move. Most currencies are measured to 4 decimal places, and 1 pip is that last decimal, so 1/100th. For example, for EUR/USD 1.2903 a 1 pip increase would equal EUR/USD 1.2904. When trading, it’s the pips you keep your eye on, and while 1 pip seems small when you’re trading big, they really add up.
Platform
A computer programme provided by a broker to allow you to trade. As the interface with which you will trade on, it’s important to ensure you’re using one that will aid you in every way possible to trade successfully. A quick visit to ispyforex.com is a must for reviews of all the best trading platforms.
Spread
This is the difference between the ask and bid price. In order to make a profit, the exchange rate needs to move in a positive direction greater than the spread.
Forex trading – sell short or long?
Forex traders tend to fall into two strategic categories, those who go short or short sell and those who go long. Both techniques have their pros and cons; long sellers tend to use larger amounts of money and make better returns, but the risk is higher. Short sellers enjoy more regular winning investments at a lower risk, but the rewards are not as bountiful.
Short selling
Short sellers trade regularly, taking a position on a currency pair and then cashing in or cashing out shortly after the position is taken. Short selling with big money is highly risky, but can be carried out successfully by the astute trader; an example of an extremely successful short seller is forex grand-master, George Soros.
Long selling
Long selling or ‘going long’, is an approach that requires more patience and the trader will have to keep a close eye on charts and data feeds to find the right opportunity to strike.
Both types of strategy require the trader to keep informed by accessing data feeds; examples of which can be found on sites such as bestforexfeed.com.
Trading Forex the easy way
Trading Forex has never been easier. Forex has quickly become the largest known financial market in the world and is now bigger than the US stock market, with an average daily turnover of 4 trillion dollars. Forex, sometimes known as the Foreign Exchange, is the biggest, most liquid financial marketplace.
Trading Forex is fun and exciting and the rewards are handsome for those who are educated and play the game astutely. It is only over the course of the last 12 years, and through the advent of the internet, that regular individuals have been able to compete on the Forex markets. Before this it was only huge multi-national companies worth millions of dollars who could participate. Now, everyone can open a trading account with just a few hundred dollars at their disposal.
Trading Forex is a 24 hour a day game and trading never ceases, except for some possible gaps in trading at the weekend. If you live in the UK, trading commences at 8am, the New York market opens at 1pm and the Japanese market at 10pm. Before starting to trade on the market, it is important to determine whether you are going to be a day time trader or a night time trader.
Before deciding to start trading Forex, it is advisable to educate yourself on the dynamics of the markets, such as who the major players are and which markets are buoyant.
Advantages of forex trading
The benefits of currency trading on the forex are different to other forms of financial investments. Forex currency trading does involve a degree of risk, but there are possibilities of making good profits and it can be an enjoyable way of investing, especially as you have control over your trading rather than having your investment managed by others. You will probably use a broker to assist in your currency trading, but the ultimate decisions on buying and selling currency are yours alone.
Benefits include being able to trade foreign currencies 24 hours a day, five days a week. The liquidity of the forex market is much greater than with any of the stock exchanges, which helps with maintaining price stability. There is also substantial leverage compared with what is on offer from equity brokers.
Currency trading using forex is cheaper than trading via brokers on the stock exchange, who typically charge a commission per entry or exit of trade. In forex currency trading, the trade period is generally short-term, so the costs are about paying for holding a given position on the market for a certain period of time.