?The Top Currencies to Watch in the Forex Trading Game

The prices of currency are influenced by a number of reasons, like political and economic conditions in the issuing country. Interest rates, inflation and political stability are all factors in the prices of any currency. Although governments can try to control their currency prices by lowering the price, this is also called flooding the market, or by raising the price and buying on a large-scale. Although the volume of forex is sizable, it’s still impossible to have any control of a market for any length time and because market forces normally prevail in the long run, forex has become one of the fairest investment opportunities made available.

In the world of forex, each currency is given its own three letter code that is used in the forex quotes. The most common and widely used currencies used in the forex market are USD (U.S. dollars), GBP (United Kingdom pounds), JPY (Japanese yen), CAD (Canadian dollars), EUR (European euros), AUD (Australian dollars) and CHF (Swiss francs). These currencies have been the top foreign currencies to watch in the forex trading game. The prices of the foreign currency exchanges are specified in pairs by the forex quotes. By using a currency pair of U.S. dollars and European euros in the example below, the first currency is called the base (which is always at 1) and the second currency is called the quote (which shows how much it costs to buy one unit of the USD, or base currency):

USD/EUR = 0.8419

When reversed, this is the cost of USD to buy one euro:

EUR/USD = 1.1882

The base currency is growing stronger when the price of the quote currency goes up, therefore only one unit of the base currency can buy more of the quote currency. However, if the quote currency begins to fall then the base currency will become weaker. All forex quotes are perceived as a “ask” or a “bid” price. The ask price is what sellers will sell the base currency at, while at the same time be buying the quote currency. The bid price is what the buyers will pay for the base currency, also while selling the quote currency. For example, a symbol bid ask of:

USD/CAD 1.2392 1.2397

This shows that you can buy one U.S. dollar for 1.2397 Canadian dollars, or you can also sell one U.S. dollar for 1.2392 Canadian dollars. You can find the exchange rates in cross country charts that list numerous types of currencies with their values against one another. There are also currency conversion calculators, all of which are readily available online.

Along with the U.S. dollar, United Kingdom pound, Japanese yen, Canadian dollars, European euros, Australian dollars and Swiss francs as some of the top currencies to watch in the forex trading game; some new currencies have been emerging. Be sure to keep an eye out on these emerging currencies: CNY (China yuan), CZK (Czech koruna), HKD (Hong Kong dollar), HUF (Hungarian Forint), INR (Indian Rupee), KRW (Korean Won), MXN (Mexican Peso), PLN (Polish Zloty), SGD (Singapore dollar), ZAR (South African Rand), and THB (Thai Baht). These currencies may not be one of the top currencies now, but they can make for some good investments. Taking two examples out of all of the emerging currencies:

The China yuan is only limited to financial institutions and onshore companies and is not liquid. Currently the USD/CNY rate is about 8.2770 and is being closely managed by the central bank (PBOC). The Chinese government has resisted all calls for them to revalue their currency; but as the Chinese government continues to strengthen their banking systems and make reforms in their economic policies, there is likely to be a possible call for opening spot trading. The interbank money market does not go beyond four months.

The Czech koruna is a convertible, yet free floating currency that has been floating around since May 1997. All foreign investors have unrestricted access to these local markets. London banks continue to be very active in currency trading and accounts for nearly 60% of the daily turnover. This market is liquid for about five years. The Interest Rate Swaps, or the IRS, is mainly driven by offshore banks.

?How to Use a Relative Strength Analysis in Forex Trading

The relative strength analysis is a technical report that allows investors and brokers to make informed decisions about trading on the Forex. The Forex, also known as the FX or foreign exchange market is the most liquid of all markets in the world. Over two trillion dollars changes hands everyday through the foreign exchange market. There are many factors that affect both the stock market and the foreign exchange market.

When investors and brokers look at the relative strength analysis, they are getting a picture of how the trends in the Forex should go. This analysis allows brokers to see current trends in the foreign exchange market and allows them to know if they are interested in buying or selling currency at any given time. This can help an investor or financial institution make educated decisions on which markets are gaining and which ones are losing.

There are many factors that affect the exchange rate in the Forex. These factors can include political events, governmental policies, inflation, and current trends in the importing and exporting business, consumer opinions and even natural disasters all over the world. The relative strength analysis looks at all of these factors. The past trends in the Forex are also taken into consideration, but are not the only thing that is looked at when forecasting this type of market.

The relative strength analysis compares all foreign currency and the exchange rates every day. The report will then be sorted by their strength rating and ranked according the previous week’s rating. This report relies on at least 45 weeks of data so that sustained growth can be seen with ease. Using this analysis promises to be one of the most valuable tools of forecast the trends in the Forex. In addition, it can show the rating of stocks and rate them into which ones are the strongest. The stock market has a direct relation to the foreign exchange market because it reflects current trends in buying and selling, which will increase or decrease the value of currency.

The current trend in predicting the trends in the Forex is to use not only the relative strength analysis, but to also look at other factors such as the stock market barometers and economic factors. When investors and brokers look into all of these factors when forecasting the Forex, it makes for a highly reliable means of predicting trends. This can be the vital difference between making money and losing money on the foreign exchange market.

It is generally agreed that for a currency trader, it is important to understand how the methods and tools are used in both the Forex and the stock market. All currencies are different and the currency rate reflects the value of one currency in relation to another. When there is a noticeable change in the value of currency, one or both values will be affected. Using these methods of comparing the relative strength analysis to the Forex can offer currency traders with an opportunity to better forecast their trades.

There are several benefits to using the relative strength analysis when attempting to forecast the Forex. When an investor looks at the relative strength of a certain stock, it affects the foreign exchange rate. One with a strong relative strength is ideal, but the value on these will not be low. Investors can look at a stock that is increasing in values and used the relative strength to measure whether or not this particular stock is moving up because it has a history of increasing or if it has a sustained high value. Stocks with a good relative strength over a constant, steady time period are good performers in the Forex market.

When using the relative strength analysis in relation to the foreign currency exchange, it is possible to tell which markets are performing well and which ones are not. The key is finding the markets and currency that are moving up on the ranking scale. It is important to remember that like stocks, the Forex is affected by a variety of factors. The relative strength analysis can help investors find which ones are good investments. This report is based mostly on a stock’s closing price and the relative strength analysis is based on gains and losses. The report can calculate the markets report for any period in time.

Introduction to FOREX

The Foreign Exchange Market – better known as FOREX – is a world wide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at ‘floating’ rates determined by supply and demand. The FOREX grew steadily throughout the 1970’s, but with the technological advances of the 80’s FOREX grew from trading levels of $70 billion a day to the current level of $1.5 trillion.

The FOREX is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange. There is no centralized location of FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.

Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through ‘leverage’ – loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.

There are many advantages to trading in FOREX.

? Liquidity – Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.
? Accessibility – The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.
? Open Market – Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no ‘insider trading’ in FOREX.
? No commission – Brokers earn money by setting a ’spread’ – the difference between what a currency can be bought at and what it can be sold at.

How does it work?

Currencies are always traded in pairs – the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.

The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.

?Popular Investment Myths in the Forex Markets

Many new Forex market traders have misconceptions about the entire system. They see people making money trading with the Forex market and automatically assume they can easily do the same. What they tend to forget it that there is strategy and research done in order to make successful trades and profits from trading. If you are new to the Forex market system, don’t get caught up in popular investment myths. Be sure that you know exactly what to expect and be realistic when trading.

Protection of Your Investments

When you are trading and investing in any market, including the Forex, you must have the discipline needed to be successful. Although the system is enormous and there is a lot going on that you won’t be involved within, you must actively protect your investments. Your investments will not be protected just because they are in the market. A lot can change throughout a day, so you have to always be aware of what is going on in order to be fully protected to your best ability. You should always make logical and researched decisions when trading. It is not a system to use to “get rich quick”. It is a serious financial system that can break your pocket if you are not careful.

One thing to remember when trading and trying to protect your investments however will be that you must take risks to gain. Along with taking a large risk, can come a large success or large loss. You have to be prepared for the worst. You can do this by educating yourself as much as possible on the trading system and your investments. The more you know, the better prepared you will be to make successful decisions. If you are unsure about a system of trading, like the Forex, be sure to take classes and read about the system before you begin trading. Only trade when you are certain you are ready to begin. Even after you learn what you need to know about the system and are a seasoned trader, there are times when you will have losses. The system is not one that protects your investments or your money in general. So, be prepared and aware of this issue. Being realistic can really help you gain more success.

Leverage

Leverage is something that is both great when it comes to the Forex and possibly dangerous. Trading currencies offers a high level of leverage. Those who don’t have a lot of money to begin with can use leverage to gain more money. When used correctly, you can often do this in short amounts of time. Most people think however that this is something that can be done easily. Those who use leverage to their potential are often those with years of experience in trading. Some people tend to follow the myth that anyone will be able to easily use leverage to get rich fast. This is simply not true. You must be a trader with an excellent knowledge of the system in order to make leverage work to your maximum advantage.

Another thing to keep in mind is that just because you are trading with a minimum marginal deposit does not mean you should trade at levels above your portfolio. The myth that you can get away with this every time is not true. You should not over leverage yourself. By trading in small amounts, you will be able to make safe investments that will not result in huge losses. You will win some and lose some, especially when you are first starting out.

When it comes to the Forex market, you should know that what you assume to be true may not be true at all. You may think that you can use the Forex market to protect your investments. You have learned from reading this however that the Forex may not protect your investments, and one should be diligent in watching their investments in order to avoid anything catastrophic. You may also think that you can get rich quickly using the Forex market. The truth is that short term trading, which is notorious for turning profits quickly, is not for the beginner. Those who have traded for years may try short term investing, but it is very risky indeed. Lastly, you may think that leverage will help you “play with the big boys” and still stay safe. This can be a horrible assumption and many people will over leverage themselves if they are not careful. So, do research, be smart, and think before you act when dealing with the Forex.

?Pivot Points in Forex ??” What They Are and How to Use Them

You may hear that one of the handier tools in a forex trader’s toolbox is a pivot point calculator. Pivot points are one of the commonly used triggers for trading systems. If you’re new to the forex market, though, you may be foggy on exactly what pivot points are and what they can mean to your trading.

In a nutshell, pivot points are exactly what they sound like ??” the point at which the market is expected to turn ??” if it’s been going down, a pivot point is the value at which it will reverse the trend and begin to climb. If it’s been rising, then the pivot point is where the sentiment of the traders will turn and begin a downward trend. Obviously, being able to predict major movements in the money market is a valuable skill, since it hints at the where the market is moving and whether or not this is the time to trade or stick.

Pivot point trading is an especially popular method of mapping out a trading strategy. It was originally used by floor traders in the stock market who liked it because it allowed them to gauge where the market was heading with just a few simple bits of information and calculations. By knowing the high, low, opening and closing points from the previous day, they could calculate a point at which the market had ‘turned’ to head upward or downward. Pivot points can help predict where the market is going ??” and coupled with the resistance and support points, give you an idea how far in that direction it will go.

There are a number of ways to calculate the pivot points for the day, but the most common ??” and easiest ??” is to average the opening, closing and high points for the last day’s trading. There are other pivot points that can be calculated from those numbers as well. Before we talk about how to calculate them and what they mean, let’s define a few terms:

Pivot point ??” the point where the market reverses a current trend

Resistance ??” A high point in a market chart that recurs regularly. Generally, it’s the point where the market (or currency) will begin a downturn

Support ??” A low point in the market chart that recurs regularly. Generally, it’s the point where the market (or currency) will begin to climb back up.

Traditionally, support and resistance points are difficult to break through. Most of the time as the numbers approach that level; there will be a slight rebound in the other direction. An interesting phenomenon is that once a resistance or support point is broken, it tends to switch sides ??” a broken resistance will often become a support for prices on the other side of the line.

The most common calculation for arriving at a pivot point is:

Pivot: (High + Close + Low)/3

Resistance: 2 * Pivot ??” Low

Support : 2 * Pivot ??” High

USD/EUR Date:02/03/06 14:40 O=0.83174 H=0.83188 L=0.83167 C=0.83188

Given this data for Feb 3, 2006, the pivot points for Feb 4, 2006 would look like this:

Pivot: 0.83180

Resistance: 0.83193

Support: 0.83172

Those numbers give me some points on which to base my strategy for the day. If the market opens above the pivot point, it’s a bull market, and most advisors would go for long trades, since the direction of the market is up. If it opens below pivot, it’s time to favor short trades and quick sales.

There are two common sales strategies using pivot, resistance and support points.

Breakout Trade: When a currency pair breaks through a resistance or support point, there’s usually a surge of activity around it. Buy if the charts show a break through a resistance, sell if the rate drops below a support point.

Pullback Trade: When the exchange rate drops back from a high, most traders will buy, based on other information that’s available. It’s a tricky move, though, since the pullback could just be a temporary pause in the upward momentum, or the beginning of a downward rebound.

Using pivot points to inform your strategy in day trading is a complex subject. You’ll find a great deal written about it by various gurus and experts. These basics can help you understand what you’re reading from them.