Foreign Currency Trading

Posted by James Cavalier on December 10, 2008 under Forex Currency | Be the First to Comment

by Gary Pearson

Do you want to get into foreign currency trading, but aren't sure how it can benefit you? There are many advantages to foreign currency trading. First, in the last few years, the spread rates have tightened a lot. Most of the online FOREX brokers today will offer you a five pips spread on EUR/USD. This is the most widely traded currency pair.

Another wonderful advantage is that the currency trading market is open 24 hours a day. There is no limit up or down on how many transactions a trader can make. This allows the currency trader to implement his trading strategy to the fullest. Also, the trader can control the volatility of the market by protecting his position with stop-loss orders.

Currency traders sell before they buy, since you are always trading one currency for another. So when you choose to buy another currency you are first selling the currency that you are trading from, effectively you are never spending more money than you have.

Currency traders can short sell currencies as much as they like without restrictions as there is equal opportunity to make a profit regardless of the direction that currency is trading. You never have to worry about being stuck in the lurch if a currency drops dramatically.

All of these advantages make investing in currency trading a very lucrative investment. With all of these advantages, how can you not invest in foreign currency trading? What are you waiting for? Begin trading currency today.

About the Author:

Gary Pearson is an accomplished author. For more about Forex 101 - Foreign Currency Exchange Tradingvisit Foreign Exchange Stock Trading for current articles and discussions.

Foreign Currency Trading.

Tags: currency, option, short sell, stop-loss orders, trading, trading strategy

Trading Currencies Signals are Reversed

Posted by Dave Nettles on November 13, 2008 under Forex Currency | Be the First to Comment

The Signals are Reversed

Making trading currencies a little different at the time of buying the cross currency or USD in the GBP/USD pair, the signals are reversed. This will result in reduction of the currency pair price. As the seller, your interest is in a decrease in the price of the currency pair you sold, so that you are able to make a profit when you buy them back.

You have to calculate the number of pips you earn in a short trade as the same as those you would earn in a long trade. What is a pip? Pip stands for "percentage in point" and is the smallest increment of trade in the foreign exchange. It is not the purchase or sale price that matters; you must figure the difference between the higher number and the lower currency to get the gain.

How is the Foreign Exchange Different?

The foreign exchange market is different from other markets in some ways that will confuse you. Think that the GBP/USD is going to come crashing down? It is acceptable to short the pair at whenever you like. It is not the uptick rule in the foreign exchange like there is in stocks. You do not have limits on the size of your position (like there are in futures markets); so, you can sell $100 billion worth of currency if you had the capital to do so. If your biggest client, who also happens to play golf with the leader of the banking industry, tells you on the golf course that they are planning on raising their rates at their next meeting, you could go buy as much currency as you like. You would never get in trouble for insider trading by speculating your bet would pay off. Insider trading does not exist in the foreign exchange market.

Difference Between Bid and Ask

You will find the ask prices always exceed bid prices. The arbitrage or difference in the price is called the spread. The arbitrage is what the broker will earn as his commission. Brokers make their money based on the volume of trades accomplished and not through individual large commissions so no need to hustle you for a sale.

Why is the Spread so Competitive?

The reason for this because the smaller the spread, the more money you can make. It is a tactic used by brokers; they try to keep their spreads small to attract more customers. The commonly traded currency pairs are usually smaller than some of the others. Trading the commonly traded pairs is what is known as “Sticking with the majors.” These are the majors: