|
|
FOREX MARKET
The currency exchange market is the largest market in the world with
transactions worth $1.5 trillion taking place in a single day. Forex
trading is the selling of a currency and simultaneously buying another
currency. Trading is done in currency pairs such as Euro to the dollar
or dollar to the yen. The most frequently traded currencies in the foreign
exchange market are the US Dollar, the British pound, the Japanese Yen
and the Euro.
Unlike stocks and futures, forex trading is not conducted in a centralized
exchange. It is considered as an over-the-counter (OTC) market as transactions
are executed between two parties telephonically or via the electronic
network. The forex market is frequently referred to as the inter-bank
market because banks dominate it. However, in recent years the number
of other market participants such as multinational corporations, money
managers, and speculators has increased significantly, particularly
so with the advent of the internet permitting trading on a 24 hour basis.
Common terms used in forex trading:
1. Bid: It is the price at which a buyer has offered to buy the currency.
2. Ask: It is the price at which a seller has offered to sell the currency.
3. Spread: It is the difference between the bid price and the ask price.
4. Intraday: Refers to all positions that are opened and closed at anytime
during a normal trading day.
5. Overnight position: Refers to all positions that are active at the
end of the trading day and are carried over to the next day for trading.
6. Long position: In a long position, the trader buys a currency at
a particular price with the intention of selling for a higher price
at a later date.
7. Short position: In a short position, the trader sells a currency
anticipating that it will depreciate.
8. Limit order: A limit order is an order with restrictions in regard
to the maximum price to be paid or the minimum price to be received.
9. Stop loss order: In a stop loss, an open position is automatically
liquidated at a specified price. This strategy is used to limit losses
Unlike many major equities and futures markets, the structure of the
FX market is highly decentralized. This means that there is no central
location where trades occur. The New York Stock Exchange, for example,
is a totally centralized exchange. All orders pertaining to the purchase
or sale of a stock listed on the NYSE are routed to the same dealer
and pass through the hands of a single clearing firm. This structure
requires buyers and sellers to meet at the NYSE in order to trade a
stock that is listed on this exchange. It is for this reason that there
is one universally quoted price for a stock at any given time.
In the FX market there are multiple dealers whose business is to unite
buyers and sellers. Each dealer has the ability and the authority to
execute trades independently of each other. This structure is inherently
competitive as traders are faced with a choice between a variety of
firms with an equal ability to execute their trades. The firm that offers
the best services and execution will capitalize on this market efficiency
by attracting the most traders. In the equities markets, the execution
of trades is monopolized and there is no incentive for a clearing firm
to offer competitive prices, to innovate, or to improve the quality
of their service
Using Stop-Loss Orders to Manage Risk
Due to the importance of money management to long-term successful trading,
the use of a stop-loss order is imperative for any trader who wishes
to succeed in the currency market. The stop-loss order allows traders
to specify the maximum loss they are willing to accept on any given
trade. If the market reaches the rate the trader specifies in his/her
stop-loss order, then the trade will be closed immediately. As a result,
the use of stop-loss orders allows you to quantify your risk every time
you enter a trade.
What is market cycle?
In forex markets, a cycle is loosely defined as price movement of a
market from a local bottom to a local top and back again. Cycles, just
like price trends, can be long, short or intermediate in length. A specific
market may have a 20 day, 52 week and 5 year cycle, all acting together
to describe price activity. By adding the cycles together, the actual
price activity can be forecast.
Recomended reading: Beat
the Odds in Forex Trading: How to Identify and Profit from High Percentage
Market Patterns 
Add certainty and systematization into Forex trading with this practical
approach. Author and industry professional Igor Toshchakov shows how
recurring market patterns--which can be recognized on a simple bar chart--can
be successfully used to trade the Forex market. Written for traders
at every level, this valuable resource discusses the challenges of developing
a trading method, while revealing the Toshchakov's approach to the market--both
from a philosophical and tactical point of view. You'll discover specific
trading strategies based on recognizable market patterns, get detailed
information on entry and exit points, profit targets, stop losses, risk
evaluation, and much more.
|
