How to trade FOREX

Step One
The step 1 explains the notion behind the FOREX trading by defining certian concepts and terms.

The foreign exchange trading is always done in terms of quotes and understanding these quotes might not be very easy in the first place. In order to get a hold on the foreign exchange quotes, a person needs to remember two things [4] i.e.


a) ''The currency listed first in the quote is the base currency and
b) The base currency has always the value 1.''

For instance, GBP/JPY has the base currency as GBP. The quotes are generally expressed in terms of pair currencies e.g. if quote states that GBP/JPY is equal to value 221.91 that means 1 GBP values to 221.91 Japanese yen. So, if this value increases then GBP has appreciated in value in comparison to Japanese yen. The prices in these quotes are expressed in terms of pips which stand for “percentage in points”. These are basically the fourth decimal point i.e. 1/100th of 1%. The example of a quote which involves 10pips increase could be USD/CAD = 1.1355/1.1365 (note the last two digits). In this case, an increase in pips means weakening of Canadian dollar. As per [2], ''the smallest move that a currency pair can make is one basis point or 0.00001.''
The quotes also use two important terms known as bid and ask which makes it as a two-sided quote. ''The bid is the price at which the base currency can be sold simultaneously buying the counter currency. The ask is the price at which the base currency can be bought at the same time selling the counter currency'' [2].

Step Two
The second step describes the powerful features of the FOREX trading system.

The leverage & margin are the major features helpful in drawing the attention of the traders because these increase the buying power of the traders. ''The leverage allows the trader to expect high returns on investment (ROI) on even small market movements and it also utilizes less money to trade'' [4].

On the other hand, margin in forex allows the investor not to pay any interest to the amount lender on the amount borrowed for the trade. In forex, margin is the minimum amount needed to place the trade. This can be the initial amount with which the forex trading account was opened.
The example below helps in explaining the concept in detail:-

Supposedly,

The balance in the account (trader’s) is = $10000 and the US dollar measured to be as undervalued against the JPY. Now, to place a trade investor has to buy USD by selling JPY and wait till the rate increases. Assuming the current bid/ask price for USD/JPY = 119.30/119.40. This means that the trader can buy $1 US for 119.40 JPY and/or sell it at 119.30 JPY. On leverage 100:1 or 1%, the trader starts buying a lot of 100, 000 USD for 119, 4000 JPY which means that the initial margin deposit for this trade would be = $1000 USD. As expected, the rate now increases by 30 pips making USD/JPY = 119.60/70. The deal is closed by selling the US Dollars at the rate of 119.60 JPY yielding 119, 6000 JPY thus making a total profit of 2000 JPY.

=>P&L (in terms of USD) = 2000/ current USD/JPY rate
= 2000/ 119.60

=>Return on Investment = $16.72

Step Three

This step allows user to get familiar with the e-trading using FOREX softwares. The explanatin is provided by using one such software called FX'x GTS.
The self-explanatory figure explains a practical knowledge of some terms discussed earliers. The currency pair which has to be bought or sold can can done simply by a click on the sell or buy button in front of that currency. On selection, a quote is prepared and dislplayed in the bottom section for the user to keep a track on. The software also provides some attractive powerful features which allows to add stop/limit and Hedge actions thus making trader constantly aware of his trade.

Step Four

This step is furter explanation to the G.T.S software. The trader can select various other currency pairs upon which the trade can be made. The left middle section shows the account details of the account holder i.e. balance, leverage, equity,margins and used margins. The other features which can be seen in the software are session activity, G.T.S charting and latest news that makes the trader aware of latest happenings.

Step Five
References:

[1] http://www.proedgefx.com/tutorial/intro.asp
[2] http://www.investopedia.com
[3] https://us.etrade.com/e/t/home
[4] www.forex.com
[5] http://www.forexcentral.net/forex-tutorials

by Angad Bhat

Trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is not a single dollar rate but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. A joint venture of the Chicago Mercantile Exchange and Reuters, called FXMarketSpace opened in 2007 and aspires to the role of a central market clearing mechanism.

The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.3045 dollar. Out of convention, the first currency in the pair, the base currency, was the stronger currency at the creation of the pair. The second currency, counter currency, was the weaker currency at the creation of the pair.

The factors affecting XXX will affect both XXX/YYY and XXX/ZZZ. This causes positive currency correlation between XXX/YYY and XXX/ZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

• EUR/USD: 28 %
  
• USD/JPY: 18 %
• GBP/USD: 14 %

and the US currency was involved in 88.7% of transactions, followed by the euro (37.2%), the yen (20.3%), and the sterling (16.9%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.

Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus far still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

Affiliate marketing

Affiliate marketing is a method of promoting web businesses (merchants/advertisers) in which an affiliate (publisher) is rewarded for every visitor, subscriber, customer, and/or sale provided through his/her efforts.

Affiliate marketing is also the name of the industry where a number of different types of companies and individuals are performing this form of internet marketing, including affiliate networks, affiliate management companies and in-house affiliate managers, specialized 3rd party vendors and various types of affiliates/publishers who utilize a number of different methods to advertise the products and services of their merchant/advertiser partners.

Affiliate marketing overlaps with other internet marketing methods to some degree, because affiliates are using the same methods as most of the merchants themselves do. Those methods include organic search engine optimization, paid search engine marketing, email marketing and to some degree display advertising.

Affiliate marketing - using one site to drive traffic to another - is the stepchild of online marketing. While search engines, e-mail and RSS capture much of the attention of online retailers, affiliate marketing, despite lineage that goes back almost to the beginning of online retailing, carries a much lower profile. Yet affiliates continue to play a fundamental role in e-retailers' marketing strategies.[1]

History of Money (Part 3)

Representative money




The system of commodity money in many instances evolved into a system of representative money. This occurred because banks would issue a paper receipt to their depositors, indicating that the receipt was redeemable for whatever precious goods were being stored (usually gold or silver money). It didn't take long before the receipts were traded as money, because everyone knew they were "as good as gold". Representative paper money made possible the practice of fractional reserve banking, in which bankers would print receipts above and beyond the amount of actual precious metal on deposit.

So in this system, paper currency and non-precious coinage had very little intrinsic value, but achieved significant market value by being backed by a promise to redeem it for a given weight of precious metal, such as silver. This is the origin of the term "British Pound" for instance; it was a unit of money backed by a Tower pound of sterling silver, hence the currency Pound Sterling. For much of the nineteenth and twentieth centuries, many currencies were based on representative money through use of the gold standard.

HIstory of Money (Part 2)

Standardized coinage


It was the discovery of the touchstone which led the way for metal-based commodity money and coinage. Any soft metal can be tested for purity on a touchstone, allowing one to quickly calculate the total content of a particular metal in a lump. Gold is a soft metal, which is also hard to come by, dense, and storable. As a result, monetary gold spread very quickly from Asia Minor, where it first gained wide usage, to the entire world.

Using such a system still required several steps and mathematical calculation. The touchstone allows one to estimate the amount of gold in an alloy, which is then multiplied by the weight to find the amount of gold alone in a lump.

To make this process easier, the concept of standard coinage was introduced. Coins were pre-weighed and pre-alloyed, so as long as the manufacturer was aware of the origin of the coin, no use of the touchstone was required. Coins were typically minted by governments in a carefully protected process, and then stamped with an emblem that guaranteed the weight and value of the metal. It was, however, extremely common for governments to assert the value of such money lay in its emblem and thus to subsequently debase the currency by lowering the content of valuable metal.


Although gold and silver were commonly used to mint coins, other metals could be used. For instance, Ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade. In the early seventeenth century Sweden lacked more precious metal and so produced "plate money," which were large slabs of copper approximately 50 cm or more in length and width, appropriately stamped with indications of their value.

Metal based coins had the advantage of carrying their value within the coins themselves — on the other hand, they induced manipulations: the clipping of coins in the attempt to get and recycle the precious metal. A greater problem was the simultaneous co-existence of gold, silver and copper coins in Europe. English and Spanish traders valued gold coins more than silver coins, as many of their neighbors did, with the effect that the English gold-based guinea coin began to rise against the English silver based crown in the 1670s and 1680s. Consequently, silver was ultimately pulled out of England for dubious amounts of gold coming into the country at a rate no other European nation would share. The effect was worsened with Asian traders not sharing the European appreciation of gold altogether — gold left Asia and silver left Europe in quantities European observers like Isaac Newton, Master of the Royal Mint observed with unease.

Stability came into the system with national Banks guaranteeing to change money into gold at a promised rate; it did, however, not come easily. The Bank of England risked a national financial catastrophe in the 1730s when customers demanded their money be changed into gold in a moment of crisis. Eventually London's merchants saved the bank and the nation with financial guarantees.