Tag Archives: Factors

Forex Trading Articles

Factors That Can Influence The FX Markets

If we had a complete list of all the factors that influence the FX markets and could assign the correct weight to every factor in every given situation, it would be easy to make money with FX trades.

As things stand, however, something often happens, like the tsunami in Japan, which nobody expected and which throws forex markets into complete disarray for some time. Having said that, there are some factors which consistently affect the forex markets.

If everything else were equal, the country with the highest interest rate would enjoy an inflow of investment money as investors could expect a higher return on their capital.

Countries with high inflation rates will often try to counter them by increasing their interest rates. As stated above, local currencies of countries with high interest rates are often attractive.

As a result, higher interest rates strengthen the demand for its currency which can push up its price or exchange rate compared to other currencies. This can often happen in the market even if there is the expectation of an interest rate hike.

If America should import a lot of products from Europe, for example, it would strengthen the demand for the Euro as Americans are converting Dollars into Euros to pay for the goods. Eventually the exchange rate of the Euro against the Dollar will start to increase.

If, as mentioned in the previous paragraph, the Euro strengthens significantly against the Dollar and the American Central Bank, the Federal Reserve, doesn’t want this, the bank can interfere in the market by buying Dollars or selling Euros.

This will tend to strengthen the value of the Dollar and/or weaken the Euro and restore the balance that existed earlier.

It is not only imports and exports that drive the forex markets. There are also a huge number of speculators in the market who simply trade in the forex markets through financial spread betting, margined forex and CFDs.

Some industry analysts even claim that speculators have become the strongest force in the forex markets.

If a large investor such as George Soros should suddenly buy a vast amount of Paraguayan Guaranis, the price of this small currency could jump through the roof overnight. If he sells the same amount the following day, the price would probably drop to where it was before or perhaps even lower.

Political instability is one of the biggest enemies of any currency. If a military coup should take place in a country in the Middle East then it’s likely that the country’s currency will drop. This is because people are more willing to invest in stable countries. Conversely, a long period of political stability usually leads to a stable currency.

High unemployment figures are usually a sign that something is wrong with the economy of a particular country.

This means the GDP may also be contracting and exports falling. If so the currency in question might also drop as speculators expect the government to weaken the currency in order to help boost exports.

Financial spread betting is a leveraged product, it involves a high degree of risk to your capital and can result in losses that exceed your investment. It might not be appropriate for all types of investor. Before trading, ensure that you are fully aware of the risk. Only spread bet with money that you can afford to lose. If required seek independent financial advice.

Forex Trading Articles

Factors that Influence the Forex Markets

The Size of the Market

Successfully determining the future price movements of a currency pair in forex can be difficult, due to the size and nature of the market.

The forex market is a 24-hour market that is decentralised in nature, meaning that it has no central exchange. Given its global scope and unlimited opening time, forex is the largest market in the world in terms of total funds traded on a daily basis. What this means is that the range of factors that can influence a currency pair can itself be global, unlimited in time or be driven by any number of financial market players.

An Overview of the Most Commonly Cited Factors

Of course, this high level view of forex can be, to some extent, misleading. You may be trading a currency pair in a very limited time scale and with a clear understanding of the immediate historical and market contexts. Your belief in the future price movements of your traded currency pair can turn out to be correct; as well as, of course, incorrect.

Some of the most commonly cited factors influencing forex include interest rate increases/decreases, ‘expected’ interest rate increases/decreases, inflation rates and central bank interventions.

Supply & Demand

Currencies are always traded in pairs. For example, you may sell or buy the US dollar against the pound as the prices between the two currencies diverge. Demand for a currency can exceed its available supply, typically making it more valuable. Demand, importantly, can be actual or speculative; in the case of the latter, you might speculate that a currency is likely to be in greater demand than it currently is and you can trade to that effect.

Note that demand is often based on interest rates where higher interest rates often, but not always, make a currency more attractive.

Central Bank Interventions

Central Banks, commonly involved in setting or helping to set interest rates, also have a major influence on forex. National currency prices can be actively boosted or devalued by large-scale central bank interventions. A government could supply or ‘flood’ forex with its domestic currency in an attempt to devalue it, Quantitative Easing is an example of this. Conversely, large-scale government buying of its national currency can boost its value.

Political Events Political instability can occur anywhere around the world, depending on local factors and historical context. It is not impossible for political instability to occur in historically very stable countries. When a country becomes politically unstable, its national currency can devalue as investors lose confidence in the national governments’ ability to effectively support a prosperous business climate. Conversely, countries recovering from a period of political instability can become more attractive to investors, thus boosting its national currency. Rising or falling unemployment rates can similarly affect national economies.

Market Sentiment

Note that the Forex markets can also be influenced by raw market sentiment. This essentially means that forex traders can be more or less optimistic, with the sentiment spreading to such an extent it starts to influence buying/selling decisions. If an investor is looking to speculate in this way then one of the simplest ways to access the markets is through FX spread betting.

If you are trading the forex markets then note that margined forex and financial spread betting do carry a high level of risk to your trading capital and can result in you losing more than your initial stake. Ensure that spread betting fits your investment needs as it might not be appropriate for all investors. Only speculate with money that you can afford to lose. Before trading, please ensure you fully appreciate the risks involved and if required request independent advice.

Forex Trading Articles

10 Factors You Must Understand Before You Opt In For An ECN Account

There are two basic types of brokers in forex market; one is the market makers and the other is ECN Broker. ECN stands for Electronic Communication Network. In simple words ECN is a financial expert who provide a direct route to its customers so that they can interact with other market participants. ECN is a type of computer software that facilitates the trading outside the market so ECN broker only acts as a middle man between your trades, not as market maker.

We are sharing some advantages and disadvantages of using an ECN broker. These points will help you in taking right decision in choosing a forex broker.

Advantages of using an ECN broker:

By using an ECN broker you can claim a number of benefits such as:

Privacy of your trades:

The role of an ECN broker in trades is only as a middleman. So when you make a trade on ECN network, you are completely secured and you account cannot be distinguished and not traced. You can protect your trade strategy by using an ECN broker because you are using the name of broker for your trades.

You are your own market maker:

You are autonomous to set your trade limits and spreads by using an ECN broker. The ECN will match your bid with the other participants and through this you can gain some extra pips. There are no restrictions and limitations about placing and canceling an order. In this way you can perform as your own market maker.

Continuous trading:

ECN provide you the liberty to trade during news and events. Continuous trading increase the price volatility and at ECN, trading always remain continuous, so you can get the benefit of price volatility.

Enhance the execution of orders:

Always keep it in mind that you are trading with ECN actually you are placing your order by using ECN. The ECN is only matching your order with the other market participant on the ECN as quickly as possible. With the help of ECN, you can easily compare your orders and also check the best price level of a currency pair offered in the market. Through this you can improve the execution of your orders.

Price volatility:

In ECN prices are not constant and change can occur too quickly. Quick changes increase the price volatility. In this situation the scalpers and the short term traders can quickly claims large profits. ECN brokers are fit for scalpers.

Greater liquidity:

ECN has eliminated the geographical distances, now different parties can trade across the world without any geographical limits. This leads to greater liquidity (i.e. there are more buyers and sellers) which increases the efficiency of the markets.

Disadvantages:

Few negative point of using an ECN brokers are:

Commission:

ECN charged commission on every trade. Sometimes due to low spread the traders have to bear loss because their earning is less than the commission they paid.

High capital:

ECN allows you to act as a market maker. High capital is needed to influence the market parameters. ECN is not a perfect place for small investors and traders.

Corrupt market makers:

Every person is acting as his market maker on ECN. So there are chances that some dishonest persons can easily influence the market by introducing a great volume of trade. Some people are also giving deceive to others by showing them the ECN broker but in fact they are not.

Conclusion:

An ECN forex broker is a financial expert who acts as middle man between buyer and seller in their trade. The advantages of using ECN forex brokers are low spread, greater volatility and high privacy. But the disadvantages attach with it are high capital and commission. Have a look at your trading strategies and financial status, then choose properly.

Forex Trading Articles

Ideal Factors About Forex Trading

Forex trading is the name presented for the buying and selling of many foreign currencies. The goal of Forex trading is to maximize their wealth. Forex trading is no key to any aspiring or seasoned investor. It’s got also been built available to nearly absolutely everyone through cyberspace. You could be made available with “secrets” to be thriving in forex trading. But like any other varieties of investments and company, Forex trading also desires expertise, competencies and tough do the job. It’s essential to educate all by yourself instantly even prior to you make any move.

The market:

Forex trading market place may be the most significant and the quickest developing marketplace on earth. Its daily turnover is much more than 2.5 trillion dollars, and that is one hundred days better than the NASDAQ everyday turnover.

How does one profit in Forex:

The big question is; how does one profit in Forex trading. Pretty uncomplicated reply to this question is; buy low-priced and promote for a lot more! The profit is produced from the fluctuations (alterations) from the forex exchange industry.
The wonderful point concerning the Forex trading is common each day fluctuations, say – all around 1%, are multiplied by 100! If, for example, the trade price of “your” pair of currencies greater by 0.6% in the last four hrs, your profit will probably be 60% on your expense!

Furthermore, you can’t shed extra than your “margin”! It’s possible you’ll profit unrestricted amounts, however, you under no circumstances get rid of far more than what you initially risked and invested. This is the main benefit of Forex trading.

It is possible to put into action your choice beneath any course to which the market is relocating, and however make revenue. It doesn’t make a difference no matter whether the exchange rate is heading up or down: you could often come to a decision to obtain Euro and offer dollar, or vice versa – obtain dollar and offer Euro. You don’t really need to physically have specific currencies as a way to conduct “buy” or “sell” with them.

Tips on how to start off:

Beginning Forex trading just isn’t a tough practice. Register, deposit your initially buying and selling “margin” total and begin investing. It can not be easier than that.

The way to trade Forex:

Previous to you ultimately activate the offer, you are able to nonetheless “freeze” it for the number of seconds. That enables you to possibly improve the phrases, or acknowledge it as is, or altogether regret the whole plan. Whenever your Forex deal is managing, you could keep an eye on its status and look at scenarios on-line, whenever you would like. Chances are you’ll improve some terms within the deal, or close it i-e dollars the profit, if any, or minimize the damage, if any.

Forex Trading Articles

Key Factors in Forex Day Trading That You Must Know

In the world of Forex Trading, day trading is not always a sure thing. However, your success will solely depend on the information that you have, especially when it comes to the basics of day trading. To help you with learning the basics, here are some strategies that you can consider:

Practice liquidity and volatility – Being liquid simply means that you could get in or get out with a relatively good price, since a liquid currency pair is usually something that most investors are willing to buy and sell at the same time. This could also mean that there will be a smaller spread, and that there will be a little difference between the bids to the asking price. On the other hand, be very volatile when it comes to measuring how far the currency pair could fall or rise in a certain day.

Know your entry points – When determining what would be the best time to get in to a trade, three things must be considered. First, is by knowing the candlestick patterns display and the reversal trends in the price. Next is to look for the volume, on whether the buyers were supporting the currency pair on this certain level, and finally, consider the prior price support, which is the level where the price usually bottoms before it reverse back.

Decide for the best strategies – Scalping and fading are two of the best approaches when it comes to the day trading. Scalping is the most preferred strategy among the two which involves closing the position when it becomes profitable. On the other hand, fading is the practice of getting out of the trade as soon as the price begins to rise.

Apply the “stop-loss” – Setting up a stop-loss is the best way of avoiding to lose a big amount of money when it comes to the day trading. As soon as the trade takes a turn for the worse, which you are not expecting at all, it is best that you get out while you still can. Applying the stop-loss simply means that you should discontinue trading for that certain day, instead of taking more risks in trying to make up for your losses.

Focus on your chosen strategy – Instead of focusing on earning more, shift your focus towards your strategies instead. Be open to the idea of tweaking your strategy if something is not right with it. Never be afraid if anything goes wrong, because you still have good chances of becoming successful in the coming days.

Bear in mind that there are people who don’t get much profit with day trading, and as a matter of fact, more than fifty percent of day traders actually fail. The best thing to do in order to learn the basics of day trading is to do more practice while re-evaluating your strategies at the same time. More importantly, be dedicated and be patient so that all your hardships will pay-off.