Forex Trading: How Leverage Works

Forex MarketThe concept of leverage is very profitable in forex trading, but also can be dangerous if you are not careful in using it, especially if you are using very high leverage (over leverage). High leverage will cause the minimum margin or minimum guarantees that you pay each time fewer and fewer transactions. This will psychologically affect your trading.

One character successful forex traders are those who can eliminate the influence of emotions when trading. When people talk about the advantages of forex trading, the first time they put forward is usually a high leverage facility, or even very high. With certain leverage, you can open the tens or even hundreds of positions with relatively little capital. This can be done only by a relatively small margin collateral, and that makes one of the charms of forex trading. Nowadays many brokers that offer leverage of 1: 100, 1: 200, 1: 400 and even 1: 1000.

If you are trading on a broker with facilities leverage 1: 1000, then for a contract value of USD 10,000 (commonly called a mini lot) you only pay a margin of (USD 10,000 / 1000) = $ 10 for each transaction (0.1 lot for mini lot ), with the value per pip (pip value) as determined by the value of the contract mini lots (eg for EUR / USD with a contract value of USD 10,000, its value per pip is $ 1). Thus if your capital USD 500 and you open 30 positions (each 0.1 lot) with leverage 1: 1000, the total margin that you need only $ 10 x 30 = $ 300.

If for any position you derive profit of 10 pips, then your total profit is $ 10 x 30 = $ 300, or 60% of your capital. Conversely, if you are experiencing an average loss of 10 pips, then your loss is also 60% of your capital, and in the forex markets such events can take place in a matter of minutes, even if your broker spreads given is zero (no spread).

Psychologically, the higher the leverage you use, then you will be more brave (a lot) in open trading positions, because the value of the minimum margin that you will pay less. Just as if you are driving a car, driving with a speed of 60 km / h and 200 km / h is certainly very different in anticipation if anything happens. Semaki speed you drive, the greater the risk you face when things are not profitable. In many cases, accidents due to driving at a very high speed end in death.

Trading forex with very high leverage can be likened to driving with a very high speed. The risk is big enough. As you know that the brokers lend to you for the rest of the contract value which should be reduced to the minimum margin that you pay. In case you are trading mini lots with leverage 1: 1000, the broker lends USD 10,000 – USD 10 = USD 9.990 for every 0.1 lot (for mini lot) that you open. Have you ever wondered why the brokers do not charge interest on loans to you even if such trading position you hold for days or even weeks?

Oil Price linked with Forex

Forex MarketPredicting where the direction of movement of the market is the key to be able to get profit in forex trading, but it is not an easy thing. Professional forex traders understand that the forex trading world has a broad scope is not limited to the world of forex.

In fact, the movement of currencies is affected by many factors: supply and demand, politics, interest rates, economic growth, and so on. More specifically, the growth ekonomomi and exports of a country is closely connected with the country’s domestic industry, then its currency to a particular country has a high correlation with commodity prices.

Three major currencies that have strong relationships with commodity prices is the Australian dollar, Canadian dollar and New Zealand dollar. Other currencies are affected by commodity prices but have a weaker correlation are the Swiss franc and Japanese yen. By knowing the currency which has a close correlation with the price movement of a particular commodity can help traders predict market movements. In this discussion we will see the correlation between oil prices and the currency that you can use the following information in forex trading.
Oil and the Canadian Dollar

In recent years, commodity prices fluctuate quite large. Oil is at $ 60 per barrel in 2006 and jumped to $ 147.27 per barrel in 2008 before falling to $ 40 per barrel in the first quarter of 2009 and then increased to more than $ 80 in 2011.

With the many countries in the world are experiencing a recession, trends in commodity prices may be a factor that distinguishes between further deterioration or improvement in the economy faster.
Oil is a major requirement in the world, at least for the moment, many people in the developed world is in dire need of this commodity. In February 2009, the price of oil is 70% below the highest number of $ 147.12 in July 2008.

The decline in oil prices negatively impacted the oil producers, while consumers benefit in purchasing power. The opposite occurred in early 2008 when oil prices reached record highs, oil producers got many advantages while declining consumer purchasing power.

There are several reasons that may explain the decline in oil prices, which are the increase in the value of the dollar (oil is still much that is valued in dollars) and weaker demand. As the oil-exporting countries, Canada was devastated by the decline in demand, while Japan as a major oil importer benefit.

Between 2006 – 2009, the correlation between the Canadian dollar and oil prices of approximately 80%. In everyday correlations are not too visible, but in the long-term correlation is quite strong stretcher, thus the value of the Canadian dollar is quite influenced by the price of oil.

Canada is the 7th country’s largest producer of crude oil, and continue to climb. In 2000, Canada surpassed Saudi Arabia as an oil supplier to the United States. That is not too much common knowledge, Canada is a country that has the 2nd largest oil reserves, under Saudi Arabia. Location closer and uncertain political conditions in the Middle East and South America make Canada a country of interest for the supply of oil to the United States. Canada does not only serve the demand of oil for the United States, but also from China and other countries.

Diagram 1 shows the positive correlation between oil and the Canadian dollar. It is not surprising that many investors using oil prices as a leading indicator for the price movement of CAD / USD. Keep in mind that based on historical data are negative correlation, when the price of oil increases, the movement of the USD / CAD down, and when oil prices are declining, the movement of the USD / CAD will go up.

Diagram 1: The correlation of oil prices and the movement of the CAD / USD from January 2005 until March 2009.

Some Forex brokers allow you to trade oil, gold, and other commodities, so you can use the diagram provided in the trading platform. You can monitor the price of oil on the Bloomberg website.
Oil and Japan’s economy

On the other side of Japan which imports almost all its oil needs (compare with the United States imported approximately 50%). Until 2011, Japan is the third largest oil importer under the United States and China. Japan’s lack of natural resources, thus requiring the import of crude oil, natural gas, and other energy sources, making the country highly affected by changes in oil prices. Japan also lacks the ability to switch to nuclear power source because it requires a lot of imported uranium as a resource for nuclear reactors. By 2008, the country’s dependence on imported energy sources exceeds 84%. Oil covers 49% of its energy needs, 20% coal, 13% nuclear, 14% natural gas, hydroelectric power 3%, renewable resources 1%. Thus, when oil prices soared, the Japanese economy will have trouble.

The influence of oil prices on the CAD / JPY
From the point of view of exports and imports of oil, the currency pair is deeply influenced by the movement of oil prices is the Canadian dollar against the Japanese yen (CAD / JPY).

Diagram 2 illustrates the close correlation between oil prices and CAD / JPY. Often, the oil price is the leading indicator (as with USD / CAD) for the movement of CAD / JPY. With oil prices continued to decline during this period, CAD / JPY broke through the level of 100 to 76.


Diagram 2: The correlation between oil prices and the movement of the CAD / JPY from January 2005 until March 2009.

The best way to use commodity in forex trading is to pay attention to oil price movements and observe how quickly the forex market will react, although in general there will be a slight lag (time difference) in the forex market response to commodity price movements. Not hurt you follow the development of the oil commodity prices when you are trading currency of the country is strongly influenced by oil import-export activities.

Forex trading strategies

Bullish  Trend For U.S. DollarAnyone who wants to seriously in the Forex business needs to have a Forex trading system that suits them, but do not have to always start this business to build your own Forex trading system.

Why try and build your own Forex trading strategy when you can benefit from other traders and imitate ideas or concepts other traders trading system that has been experienced?

It is very easy to do and there are some pretty good Forex strategies out there for your example. Some of the Forex strategies are free and some are very expensive, but the price tag does not always reflect the true value of a Forex trading system. However, many of these systems that will not really work for you.

What are the talk here is your ability to effectively use trading system that you get from other traders. You must use a system that fits your lifestyle and personality. If you have a job (not trading Forex), Forex trading system that requires you to check your screen all day will not be appropriate for you. You will be distracted at work and will miss the opportunity to make money, or even worse, you will not be able to close the trade effectively and could lose money.

Some Forex trading system has the potential to lose 20, 30 or 40% of your capital before it could be profitable. Can you handle a system that could be detrimental to half of your trading capital before it can make a profit? Or, are you ready to get 8 to 10 trading loss in a row before you have a trading profit? Some of the best traders in the world lose more money than 50% of the total trade they make. These are all important things to consider when you want to follow the trading systems of other traders. Select different systems out there that fit your trading style, and then trying to build your own Forex trading system.

There is a very good trading method and famous by Richard Dennis and William Eckhardt and sometimes referred to as “Turtle Trading” is one of the Forex trading system is excellent. They benefit more than 20 to 100% per year by using this system. But, if other traders can use their trading system? No way! Dennis and Eckhardt also lost more than 60% of the total trade they make.

Once you know what type of Forex trading system that will work for you, check the components that make it work. If you are a new trader, or even experienced, how likely you are to receive an entirely new concept? There are some traders who are very smart and successful out there. Why not use their ideas? Consider back Dennis and Eckhardt, their system is based on the method of “breakout”. I know most traders can not trade using the exact same method with them, but other traders can take the example of their system to confirm the trend.
All good Forex trading system has three basic:

1. Rules Log in
2. Money Management
3. Rule Out

Learn from Forex trading systems out there, wearing their concepts, and take their ideas. It will put you on the path that will make you a successful trader.

Retracement And Reversal That You Should Know in Forex

Retracement and ReversalHave you ever been in a situation where it looks like prices are likely to continue to move upwards (uptrend / uptrend) and you are getting ready to install a long position (buy orders), but what happens then is the price rebounded down and getting down?

This Situation may occur when the trader is not aware of the difference between retracement and reversal. Instead be patient and follow the downtrend (a downtrend) as a whole, traders believe that the case is a condition retracement so put a buy order.

In this article, you will learn the characteristics of a retracement and a reversal in forex trading, how to recognize it, so it is not wrong in determining the real market conditions.
What is Fibonacci?

Fibonacci price movement can be defined as the reverse direction for a while against the trend. Another way to see this is to look at the price movement area that moves against the trend but then returned to continue the trend.

What Is a Reversal?

Reversal is defined as the change in the price of the reversal of the overall trend. When turning to the uptrend downtrend, reversal occurs. When downtrend turned into an uptrend, a reversal also occurred. Using the same example above, the form of reversal can be described as follows:

What Should You Do?

When faced with the possibility of retracement or reversal, you have three choices:

When you have put the position, you can continue to hang on to your position. This can cause you to lose (loss) if retracements turned out to be a long-term reversal.
You can close your position and re-enter when the price starts to move in the direction of the overall trend again. Of course there is the possibility of loss of trading opportunities when the price suddenly moves sharply in one direction while you do not have time to install position. If you decide to re-enter, you will be charged a spread of more than one time.
You can close your position permanently. This could lead to a loss (if the price moves against you) or large gains (if you cover when the price is at the level of the top or bottom).

Since reversal can occur anytime, determine which is best is not always easy. That is why using a trailing stop loss can be a good way to manage risk when you use a trading strategy to follow the trend.

You can use a trailing stop loss to ensure profits stay where you can always get the number of pips though the situation is a long-term reversal.

Best Time To Trade Forex

Often novice traders assume that any time is a good time for trading, but this is not right. The movement of the forex market is strongly influenced by forex trading hours in the global financial markets, namely:
– Tokyo session
– London session
– New York session

Trading activity on the forex market hours in the London session more than the other sessions. In addition, there are certain days where the activity of market movements will occur more.

From the following table we can see moving average pips every day of the week:
Currency Sunday Monday Tuesday Wednesday Thursday Friday
Best Trading Time

We can see from the table above, that in those days in the mid-week movement occurs more frequently, then the day is what is the best day for forex trading.

When you look at the schedule on the forex market, we see that Friday was a pretty busy day until at 12:00 ET (00:00 pm or Saturday), after which the activity will drop dramatically until the close of the New York market hours at 5 : 00 pm.

The days where there is a high market movement this is the best time for forex trading because it is likely to get into a bigger profit.

Pick The Right Time To Trading

Although the forex market is open 24 hours a day does not mean that an activity transaction (price movements) in a non-stop at any time. Therefore, it is important for traders to wisely manage and choose the best forex trading hours.

It is not possible for a trader to trade every day in every session forex. Everyone needs a break, as it is for the trader.

In addition to learning about the forex trading strategies and ways, each trader must understand exactly WHEN the hours of the best forex trading, or vice versa can also be said: Every trader must understand WHEN schedule forex market is not appropriate for trading.

By knowing and running the trading activities at the right time will help increase opportunities for profit / profit in trading.

Considerations Choosing the Best Forex Trading Hours:

The time when the two trading sessions take place at the same time (overlap). Usually at this time of financial news broadcast anyway and the result would be the movement of the market in a particular direction. You can easily search for information on the opening hours of the forex market.

European Session (London) tend to be more active than the other sessions.

On the days in the middle of the week usually occur more market movement, where the difference in the price difference will be large enough for couples major currencies.

Schedule Missing Forex Trading Right For:

Sunday where most people rest and not work

Friday afternoon American time (ranging on Saturday 1: 00-5: 00 pm), which decreases market liquidity due to a transition period to the end of the week.

Feasts where many people enjoying a day off

The days where there are certain major events

You can use this information to set up and choosing the right forex hours for you to undertake trading activities, but if you do not have time during the hours recommended, do not be discouraged. There are other ways that can be used, for example using the strategy as ‘swing trader’ or ‘position trader’.

After you determine when the best time for forex trading, there are also other things that you should know, that the effect of the news on the forex market. Use the forex calendar for information on economic news broadcast because often this will lead to currency price movements is very large in a short time. In addition, also learn what the most influential forex news on the market.