BASIC INTRODUCTION TO FOREX MARKET

Interbank Market :

the wholesale market for foreign currencies in which the major banks trade.Accounts for 95% of all currency transactions.

In the Interbank Market:

Spot Market : where currencies are traded for immediate delivery (40%).
Forward Market: where currencies are traded for future delivery (9%).
Swap Market: a bundle of a spot and forward contract (51%).
FX Market: a network of banks, currency brokers, and dealers linked by computer terminal of phone.
Commercial Banks
Commercial Customers
FX Brokers
Central Banks
Transactions clear through the Clearing House Interbank Payments System.CHIPS handles an average of 105,000 transfers per day worth $350 billion.90% of all interbank transactions in U.S.

THE FORWARD MARKET:
Forward Contract:
    An agreement between a bank and a customer to exchange predetermined amounts of currency at a specified future date thus locking in a future exchange rate.

Purpose of Forward Contract:
    To hedge against future losses due to changes in exchange rates.
CALCULATING THE FORWARD    PREMIUM OR DISCOUNT
        
        =  F-S   x   12   x   100
               S        n
    where     F =     the forward rate of exchange
                  S =     the spot rate of  exchange
                  n =     the number of months in the forward contract

The Forex Trading Basics

The Forex Trading Basics:

Trading is probably as old as mankind itself. It's been there since man learned that he could trade his extra stone knife and five arrow heads for somebody else's nice warm fur blanket. 

These days we call it bartering, but it's the same process.

And these days we've gotten more sophisticated with our trading. Now we use something called money to stand in for the blankets and the knives, but we're still trading our ability to work and produce something useful in exchange for somebody else's goods that we want.

But now, trading is not only about goods or services, it has grown into something much more than that.

Now we're trading one region's money for another region's money because we've learned that their relative values can vary, sometimes significantly. The first enterprising souls to notice this were the world's first currency traders, taking their profits from the buying and selling of actual banknotes and coins.

But today the whole process has been formalized into what we call the Foreign Exchange (or Forex) market. And it has attracted a lot of action. Up to $3 trillion a day worth of action, in fact.

Forex trading simply involves the buying and/or selling of different foreign currencies in the global market. Many investors today don't consider it enough to have a portfolio stuffed only with bonds, mutual funds and stocks.

One of the strongest appeals of the Forex market is its 24-hour open door. On the world clock, a trading day starts in Sydney, Australia and steps from time zone to time zone around the world until it reaches New York city, the last market to open each day. And it does this five days a week, closing only on the weekend.

Almost every country has its own currency, but on the Forex market, it's mostly the so-called "major" currencies that are traded. These currencies are highly regarded because their issuing countries are politically and economically more stable than most other currencies (most of the time).

The major currencies that are traded in the FX market are the Euro, the British Pound, the Japanese Yen and the Swiss Franc, as well as the dollars of Canada, Australia and the USA.

Most people, when they first learn of Forex trading, find it all a bit strange. Typically, money is used to buy goods and services, not other types of money. However, it's not really all that hard to understand. Just think of traveling to another country. Once you arrive, you go to a currency exchange or a bank and trade your dollars or Euros to buy ringits or yen. Then when you return home, you do the same in reverse. Sometimes the value has changed between the two exchanges, and you make a small profit or lose a bit.

Well, that's exactly what a Forex trader does, but he does it much more often, and usually with much larger sums of money. Also, he's not doing it because of travel but because he believes he foresees a coming shift in the exchange rate. In other words, he sees an opportunity to make a profit and seizes it. If he knows what he's doing, the profits can be both big and consistent.

So how do you get into the Forex market?

It's surprisingly easy to enter, although it's not quite as easy to rack up steady profits.

You'll need a computer and fast Internet connection. You'll also need seed money to cover your first trades. Minimum deposit requirements vary, but considering the opportunities available, even the higher entry fees are surprisingly low.

You can choose from among many software programs available for logging in to your account and placing your trades. The software also allows you to receive alerts on market conditions, rates, and other important information. The more sophisticated software can recommend when to buy or sell.

Forex trading can be an exciting way to make money, but when done in the wrong way, it can get very expensive. Learning what you're doing before you start trading is crucial. Do your research and your due diligence. Learn what the business is about. Set up a dummy account with a broker and do lots of paper trades so that you fully understand the entire process. Stay with this long enough to become comfortable.

In addition, read comments and advice from other traders... many other traders. It's important to have a strong grasp of the strategies you'll need day-in and day-out. This is a business, and it's important that you treat it with the respect that a sophisticated, highly profitable business deserves.

This mindset of professionalism and responsibility are fundamental to any success you expect to build. Without such a mindset, you're nothing but another gambler and you'll lose more than you win.

Forex trading is more risky than stocks and bonds. But it also holds out the promise of much higher returns. Lightning can strike within seconds or minutes sometimes.

Don't ever forget, ordinary mortals can take part in Forex trading. Just because 98% of all trading is done by huge financial institutions and multinationals, don't think there won't be any "left-overs" for you. People from all walks of life are involved in that other 2% of Forex trading. Consider - just 2% of Forex's daily $3 trillion volume leaves some very large chunks of opportunity up for grabs.

When you go looking for a system or strategy to guide your trades, don't just seize the first one you find. Do your homework. Take advantage of free trial versions of software. Look for customer testimonials. And after carefully considering all the factors involved, you can choose a system for your trading.

Another important factor - check out the brokers and choose one who can effectively help you devise a trading strategy that fits your goals and your personality.

If you truly want to make it big in the Forex market, use all available resources to learn your new business well. The average newcomer to Forex trading is impatient and wants to go straight to the "good stuff." Their impatience assures they'll never get to the good stuff and instead suffer mainly losses and disappointment.

Be determined. Be disciplined. Take the long-term view always. This will instantly set you apart from the losers. Once you have a good, solid knowledge of Forex trading basics, coupled with a well-tested strategy, you have a much better than average chance of making consistent profits in currency trading. After all, isn't that exactly what you're aiming for?

How To Make Money On The Forex Market

How To Make Money On The Forex Market

Forex trading is trading the currency of a country for the currency of a different country at their current exchange rate. Futures trading, which is based on a currency's future value is different all together but many people get the two confused. You may also see Forex referred to as FORX, FourX, or even 4X when you perform a search on the internet. All Forex trading is conducted through brokers or market makers so it is important to do your research before funding a margin account which is required for trading.

If you are interested in trading on the Forex, it is important that you do your research. Read what others are saying and if they have made or lost money trading on the Forex. Learn the language of trading on the Forex. You need to know the language that is used so that you won't be confused by the information that you read. Traders try to capture points or pips. A pip is a point in the currency trading community. Forex trading is also called Spot trading or trading on the Spot market.

Don't invest more than you can afford to risk! Funding your margin account should only be done with funds that, if lost, will not significantly impact your financial well being. Trading on the Forex involves a certain amount of risk as does investing in the stock market. Don't invest your life savings on the Forex, especially if you are a beginner to currency trading. A good rule for beginners is to only invest an amount that you can afford to and then build upon that as you make successful trades. You should not invest money that you must have to live on in either the stock market or Forex.

You finance your trading with your margin account which guarantees other traders that you can pay them if you lose on the Forex. A margin account is a bond account, a place to deposit your money and an account to withdraw money from when necessary. Forex trading is performed in lots and you use your margin account to buy the right to trade lots of currency on the foreign exchange. These lots of currency are equal to differing amounts of USD which depends on their trading value versus the dollar. You purchase the right to trade lots of currency with the funds held in your margin account.

Choose your trading firm sensibly when you decide to invest in currency trading on the Foreign Exchange Market. Current Federal regulations don't allow Forex trading firms to guarantee the performance of any Forex currency trading system. Look for a reputable Forex trader that has the credentials to back up their claims of performance. A professional Forex trader is educated and disciplined to follow their method of trading using good judgment to lessen the risk of currency trading. Don't let greed get in the way of good sense when considering an investment in Forex although there is money to be made trading currency.

Basics Tips of Forex Trading

Some basic tips for getting richer, the Forex market.

* You should be able to perfect equilibrium of the type of return you and your investments, how much money can you invest and how much time you can not wait to leave.
* Apply good money management techniques is crucial. Your money management strategy should never risk more than 2% of your account per trade. Your account will not explode when the trade goes wrong.
Get Best Forex Automatic Trading Robots

* Did you not panic if something goes wrong and you let your emotions take over your business sense.
* Open an Excel spreadsheet and do some simple calculations. Put less money at first. Slowly increase your investment area, such as your account grows.
* Never too much greed. Try to get a good risk-reward ratio.
* Start slowly and cautiously to grow your account over time. Slowly try to improve the risk / reward ratio to make bigger and bigger.
* In general, the exchange rate of one currency against other currencies is a reflection on the state of the economy of this country, compared to the economies of other countries.
* So try to make your decision based on political factors such as recession, depression, war, political unrest, etc.
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* Initially, almost every trader faces failure, you have enough experience and knowledge to succeed in winning the coveted kingdom with the other 5% successful traders.
* If you have a large trade balance and a conservative lot size, then you can be sure a good percentage of time that your trading eventually will bounce back, especially when it consistent with the H4 or Daily trend.
* Try to trade development, with the LRC and a few indicators very closely and have found a special talent for turning points.
* Finally, remember slow and study wins the race.
* Forex robots are always welcome because they help you pips you could not earn merit without the aid of a robot.

Rules Of Forex Trading Discipline (3)

17)NEVER TAKE A BIG LOSS. ONLY A BIG LOSS CAN HURT YOU:
Please review rules #5, #8, #10, #11 and #15. If you follow any one of these rules you will never violate rule #17. Big losses prevent you from having a winning day. They wipe out too many small winners that you have worked so hard to achieve. Big losses also .kill you. from a psychological and emotional standpoint. It takes a long time to get your confidence back after taking a big loss on a trade.
18)MAKE A LITTLE BIT EVERYDAY. DIG YOUR DITCHES. DON’T FILL THEM IN:
When I was a young bond trader, my goal every day was to make 10 bond tics. A tic is $31.25, so if I made 10 tics on the day, I would be up $312.50.It may not sound like a lot of money to you, but it surely was to me. My mentor, David Goldberg, told me that if I could make 10 bond tics every trading day of the year, at the end of the year I would be up $72,500 in my trading account. Not bad for a 23-year old kid in 1982. It is amazing how quickly your trading account will build up over time just by making a little bit every day. If you are a new e-Mini S&P trader try to make just 5 or 6 points per day. If you can do that you.ll have that $72,000 at the end of the year.


19)HIT SINGLES NOT HOME RUNS:

Just as I don.t know of any successful speculators, I don.t know of any trader who goes into a trade expecting to hit a home run and then actually having it happen. You should never approach a trade with the idea that it.s going to be a huge winner. Sometimes they turn out that way, but the times that I have a hit a home run on a position is most definitely luck, not skill. My intent on the trade was to produce a small winner but, because I had the trade on, and at the same time (as luck would have it), the Fed unexpectedly entered the market, I unwittingly had a huge winner. This probably has happened to me less than five times in 20 years.

20)CONSISTENCY BUILDS CONFIDENCE AND CONTROL:

How nice is it to be able to turn on your PC in the morning knowing that if you play by the Rules, trade with discipline and stick to your methodology, the probability of a successful day is high. I.ve had years where I could count on one hand the number of losing days that I had. Don.t you think that this consistency allowed me to be extremely confident? I knew that I was going to make money on any given day. Why would I think otherwise? Making a little bit everyday (Rules #18 and #19) will allow you to trade throughout the trading session with confidence and control. Remember Rule #9: If you make a little bit every day, then you have earned the right to trade bigger. Thus, by following the Rules of Discipline, your .little bit. can soon turn into much more profitable days.

21)LEARN TO SWEAT OUT (SCALE OUT) YOUR WINNERS:
The net effect of scaling out of your winners will be an increased average win per trade while keeping your losses to your pre-defined risk parameters. You should never scale out of your losers. If your trade size is more than a one lot and your trade is a loser, you must exit the entire position en masse. If your trade size is more than a one lot and your trade is winner,
it is best to exit one-half of your position at your first price target. If you trade with protective stop-loss orders, you should amend the order to reflect the change in trade size (remember you have exited one half of your position) and raise or lower the stop price, depending on whether it.s a long or short position, to your original initiating trade entry price. You now are essentially .playing with the house.s money.. You can.t lose on the remaining position, and that.s obviously a fantastic position in which to put yourself. Place a limit order a few tics above or below the market, depending on your position, sit back and relax.

22)MAKE THE SAME TYPE OF TRADES OVER AND OVER AGAIN – BE A BRICKLAYER:

A bricklayer shows up for work every day of his working life and executes with the same methodology. brick by brick by brick. The same consistency applies to traders, as well. Please review Rules #6 and #20. I have not changed my trading methodology and execution strategy in 20 years.

23)DON’T OVER-ANALYZE. DON’T PROCRASTINATE. DON’T HESITATE. IF YOU DO,YOU WILL LOSE:
I can.t tell you how many times traders have come into my office terribly depressed because they .knew. the market was going one way or another; however, they failed to put a position on. When I ask them why they did not put the trade on, their responses are always the same: they did not want to chase the market. They were waiting to be filled at the absolute best possible price (and never got filled), or only two out of three of their market indicators were present and they were waiting for the third. The net result of all this procrastination and hesitation is the trader was correct in deducing market direction but his profit on the trade was zero. We don.t get paid in this business unless we put the trade on. Don.t overanalyze the trade. Place the trade and then manage it. If you.re wrong, get out. But you.ll never be right unless you actually make the trade.

24)ALL TRADERS ARE CREATED EQUAL IN THE EYES OF THE MARKET:

We all start out the day the same. We all start out at zero. Once the bell rings and trading begins, it.s how we conduct ourselves from a behavioral standpoint that will dictate whether or not we will make money on the day. If you follow the 25 Rules, you should do well. If you do not, you will do poorly.


25)IT’S THE MARKET ITSELF THAT WIELDS THE ULTIMATE SCALE OF JUSTICE:
The market moves wherever it wants to go. It does not care about you or me. It does not play favorites. It does not discriminate. It does not intentionally harm any one individual. The market is always right. You must learn to respect the market. The market will mercilessly punish you if you do not play by the Rules. Learn to condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded.

Rules Of Forex Trading Discipline (2)

5)YOUR BIGGEST LOSER CAN’T EXCEED YOUR BIGGEST WINNER:
Keep a trade log of all your trades throughout the session. If, for example, you know that, so far, your biggest winner on the day is five e-Mini S&P points, then do not allow a losing trade to exceed those five points. If you do allow a loss to exceed your biggest gain then, effectively, what you have when you net out the biggest winner and biggest loss is a net loss on the two trades. Not good.

6)DEVELOP A METHODOLOGY AND STICK WITH IT. DON’T CHANGE METHODOLOGIES FROM DAY TO DAY:
I require my .students. to actually write down the specific market prerequisites (setups) that must take place in order for them to make a trade. I don.t necessarily care what the methodology is, but I do want them to make sure that they have a set of rules, market setups or price action that must appear in order for them to take the trade. You must have a game plan. If you have a proven methodology but it doesn.t seem to be working in a given trading session, don.t go home that night and try to devise another one. If your methodology works more than one-half of the trading sessions, then stick with it.

7)BE YOURSELF. DON’T TRY TO BE SOMEONE ELSE:
In all of my years as a trader I never traded more than a50 lot on any individual trade. Sure, I would have liked to be able to trade like colleagues in the pit who were regularly trading 100 or 200 lots per trade. However, I didn.t possess the emotional or psychological skill set necessary to trade such big size. That.s OK. I knew that my comfort zone was somewhere between 10 and 20 lots per trade. Typically, if I traded more than 20 lots, I would .butcher. the trade. Emotionally I could not handle that size. The trade would inevitably turn into a loser because I could not trade with the same talent level that I possessed with a 10 lot. Learn to accept your comfort zone as it relates to trade size. You are who you are.

8)YOU ALWAYS WANT TO BE ABLE TO COME BACK AND PLAY THE NEXT DAY:
Never put yourself in the precarious position of losing more money than you can afford. The worst feeling in the world is wanting to trade and not being able to do so because the equity in your account is too low and your brokerage firm will not allow you to continue unless you submit more funds. I require my students to place daily downside limits on their performance. For example, your daily loss limit can never exceed $500. Once you reach the $500 loss limit, you must turn your PC off and call it a day. You can always come back tomorrow.

9)EARN THE RIGHT TO TRADE BIGGER:

Too many new traders think that because they have $25,000 equity in their trading account that they somehow have the right to trade five or ten e-Mini S&P contracts. This cannot be further from the truth. If you can.t trade a one lot successfully, what makes you think that you have the right to trade a 10 lot? I demand that my students show me a trading profit over the course of te consecutive trading days trading a one lot only. When they have achieved a profitable ten-day period, in my eyes, they have earned the right to trade a two lot for the next ten trading sessions. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.

10)GET OUT OF YOUR LOSERS:
You are not a .loser. because you have a losing trade on. You are, however, a loser if you do not get out of the losing trade once you recognize that the trade is no good. It.s amazing to me how accurate your gut is as a market indicator. If, in your gut, you have the idea that the trade is no good then it.s probably no good. Time to exit. Every trader has losing trades throughout the session. A typical trade day for me consists of 33 percent losing trades, 33 percent scratches and 33 percent winners. I exit my losers very quickly. They don.t cost me much. So, although I have either lost or scratched over two-thirds of my trades for the day, I still go home a winner.

11)THE FIRST LOSS IS THE BEST LOSS:
Once you come to the realization that your trade is no good it.s best to exit immediately. .It.s never a loser until you get out. and .Not to worry, it.ll come back. are often said tongue in cheek, by traders in the pit. Once the phrase is stated, it is an affirmation that the trader realizes that the trade is no good, it is not coming back and it is time to exit.

12)DON’T HOPE AND PRAY. IF YOU DO, YOU WILL LOSE:
When I was a new and undisciplined trader, I can.t tell you how many times that I prayed to the .Bond god.. My prayers were a plea to help me out of a less-than-pleasant trade position. I would pray for some sort of divine intervention that, by the
way, never materialized. I soon realized that praying to the .Bond god. or any other .futures god. was a wasted exercise. Just get out!

13)DON’T WORRY ABOUT NEWS. IT’S HISTORY :
I have never understood why so many electronic traders listen to or watch CNBC, MSNBC, Bloom berg News or FNN all day long. The .talking heads. on these programs know very little about market dynamics and market price action. Very few, if any, have ever even traded a one lot in any pit on any exchange. Yet they claim to be experts on everything. Before becoming a .trading and markets expert,. the guy on CNBC reporting hourly from the Bond Pit, was a phone clerk on the trading floor. Obviously this qualifies him to be an expert! He, and others, can provide no utility to you. Treat it for what it really is.. entertainment. The fact is: The reporting that you hear on the business programs is .old news.. The story has already been dissected and consumed by the professional market participants long before the .news. has been disseminated. Do not trade off of the reporting. It.s too late.

14)DON’T SPECULATE. IF YOU DO,YOU WILL LOSE:
In all of the years that I have been a trader and associated with traders, I have never met a successful speculator. It is impossible to speculate and consistently print large winners. Don.t be a speculator. Be a trader. Short-term scalping of the markets is the answer. The probability of a winning day or week is greatly increased if you trade short term: small winners and even smaller losses.
15)LOVE TO LOSE MONEY:
This rule is the one that I get the most questions and feedback on by traders from all over the world. Traders ask, .What do you mean, love to lose money. Are you crazy?. No, I.m not crazy. What I mean is to accept the fact that you are going to have losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.

16)IF YOUR TRADE IS NOT GOING ANYWHERE IN A GIVEN TIME FRAME, IT’S TIME TO EXIT:

This rule relates to the theory of capital flow. It is trading capital that pushes a market one way or another. An oversupply or imbalance of buy orders will push the market up. An oversupply of sell orders will push the market lower. When price stagnation is present (as typically happens many times throughout the trading session), the market and its participants are
telling us that, at the present time, they are happy or satisfied with the prevailing bid and offer. You don.t want to be in the market at these times. The market is not going anywhere. It is a waste of time, capital and emotional energy. It.s much better to wait for the market to heat up a little and then place your trade.

Rules Of Forex Trading Discipline (1)

There are three spokes that make up, what I call the Wheel of Success as it relates to trading. The first spoke is content. Content consists of all the external and internal market information that traders utilize to make their trading decisions. All traders must purchase value-added content that provides utility in making their trading decisions. The most important type of content is internal market information (IMI). IMI simply is time and price information as disseminated by the exchanges. After all, we all make our trading decisions in the present tense based on time and price. In order to scalp the markets effectively, we must have the most live and up-to-date time and price information seamlessly delivered to our PCs through a reliable execution platform and/or charting package. Without instantaneous time and price information, we would be trading in the dark. The second spoke is mechanics. Mechanics is how you access the markets and the methodology that you employ to enter/exit your trades. You must master mechanics before you can enjoy any success as a trader. A simple keystroke error can result in aloss of thousands of dollars. A trader can ruin his entire day with an inadvertent trade entry error. Once you have mastered order execution, though, it is like riding a bike. The process of entering and exiting trades becomes seamless and mindless. Fast and efficient trade execution, especially if you are trading with a scalping methodology, will enable you to hit a bid or take an offer before your competitors do. Remember, the fastest survive. The third and most important spoke in the Wheel of Success is discipline. You must attain discipline if you ever hope to achieve any level of trading success. Trading discipline is practiced 100 percent of the time, every trade, every day. Review the following 25 Rules of Trading Discipline. You must condition yourself to behave with discipline over and over again. Many of my traders and clients read through the rules every day (believe it or not) before the trading session begins. It doesn.t take more than three minutes to read through them. Think of the exercise as praying . reminding you how to conduct yourself throughout the trading session.


1) THE MARKET PAYS YOU TO BE DISCIPLINED:
Trading with discipline will put more money in your pocket and take less money out. The one constant truth concerning the markets is that discipline = increased profits.

2) BE DISCIPLINED EVERY DAY, IN EVERY TRADE, AND THE MARKET WILL REWARD YOU. BUT DON’T CLAIM TO BE DISCIPLINED IF YOU ARE NOT 100 PERCENT OF THE TIME:
Being disciplined is of the utmost importance, but it.s not a sometimes thing, like claiming you quit a bad habit, such as
smoking. If you claim to quit smoking but you sneak a cigarette every once in a while, then you clearly have not quit smoking. If you trade with discipline nine out of ten trades, then you can.t claim to be a disciplined trader. It is the one undisciplined trade that will really hurt your overall performance for the day. Discipline must be practiced on every trade.
When I state that .the market will reward you,. typically it is in recognizing less of a loss on a losing trade than if you were stubborn and held on too long to a bad trade. Thus, if I lose $200 on a trade, but I would have lost $1,000 if I had remained in that losing trade, I can claim that I .saved. myself $800 in additional losses by exiting the bad trade with haste.

3) ALWAYS LOWER YOUR TRADE SIZE WHEN YOU’RE TRADING POORLY:
All good traders follow this rule. Why continue to lose on five lots (contracts) per trade when you could save yourself a lot of money by lowering your trade size down to a one lot on your next trade? If I have two losing trades in a row, I always lower my trade size down to a one lot. If my next two trades are profitable, then I move my trade size back up to my original lot size. It.s like a batter in baseball who has struck out his last two times at bat. The next time up he will choke up on the bat, shorten his swing and try to make contact. Trading is the same: lower your trade size, try to make a tick or two . or even scratch the trade . and then raise your trade size after two consecutive winning trades.

4) NEVER TURN A WINNER INTO A LOSER:
We have all violated this rule. However, it should be our goal to try harder not to violate it in the future. What we are really talking about here is the greed factor. The market has rewarded you by moving in the direction of your position, however, you are not satisfied with a small winner. Thus you hold onto the trade in the hopes of a larger gain, only to watch the market turn and move against you. Of course, inevitably you now hesitate and the trade further deteriorates into a substantial loss. There.s no need to be greedy. It.s only one trade. You.ll make many more trades throughout the session and many more throughout the next trading sessions. Opportunity exists in the marketplace all of the time. Remember: No one trade should make or break your performance for the day. Don.t be greedy.

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