the risk in Forex trading?

The risks of losing money in Forex trading is high, but it is controllable via proper education and trading system. Trading system is a must in Forex trading. Charts, graphs, or pivot points are handful to indicate the right time to enter or exit the market. An 'automated system', such as make your easierAs in any trade market, discipline, control of emotion, and money management are the traits needed to be succeed in Forex trading. 

Rewards in Forex trading can be very lucrative if traders manage their risk nicely. One benefit to using our recommended brokerage firm is that they guarantee fills at your Limit and Stop-Loss order prices with no slippage. 

This means you can have total control over the amount you risk on each trade. But remember, FOREX Trading is speculative and any capital used should be risk capital. In fact, we recommend that you trade on a demo account until you have shown profit for at least three consecutive months before trading real money.

the major players in Forex trading?

According to Wall Street Journal Europe, 73% of the trade volume is covered by Deutsche Bank, who covered 17% of the total currency trades; followed by UBS, Citi Group, HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.

How Forex trading works?

Forex is often traded in pairs, for example USD/Euro, USD/JPY, Euro/JPY, GBP/CHF, and CAD/USD. You get 'short' in one currency and you will get 'long' in the other one. Unlike conventional stocks market, Forex trading does not have a centralized trade market. 

It is considered as Over-the-Counter or Inter-bank as trades are done between two counterparts via electronic network or telephone connections. Forex works truly as a 24-hour market. 

Everyday Forex trade begins when the financial centers in Sydney start their day, and moves around the globe to Tokyo, London, and then New York. Traders can always response to the market regardless of the local time.

Currency Markets in forex

Currency markets are basically the basis for UK companies trading abroad, and foreign companies trading in the UK. These rates can have a major impact on local currency denominated profits when UK companies convert back to sterling and overseas companies convert back their own currency.

While the majority of figures which are announced in the UK press refer to the UK economy, overseas inward and outward investment is vital to the success of the domestic UK economy. It is therefore vital the currency rates are supported in order to arrive at the “correct” optimum level. The level which allows UK companies to be competitive overseas, and also encourages foreign investment into the UK.

Just like the money markets, the currency markets are also very sensitive to actual and potential changes in UK base rates, and currency rates are often prone to movement ahead of changes - offering another useful indication.

To the naked eye it may seem that interest rate changes are decided at each monthly meeting, when in fact they have probably been materialising for months, only requiring final confirmation. The transparency of economic data now a days has allowed a number of market observers to develop an understanding of the signs associated with interest rate changes.

undamental analysis and Technical analysis in Forex

Fundamental Analysis refers to the study of the core underlying elements that influence the economy of a particular entity. As in Forex trading, government policies, bank policies, natural disasters, and speculators mood are some of the fundamentals considered to predict the currency market trends. Fundamental FOREX traders will review a country economy's situation base on these fundamental elements and respond accordingly. To gain max, fundamentalists often apply precise method to convert study's results into accurate entry/exit price indicator.

Technical Analysis, on the other hand, is a completely different story. Instead of reviewing on the fundamental issues, traders from the technical side define market movement according to data purely generated from the market. The term 'Technical' is applied in all trading fields, from commodity stocks exchange to option trading, from Forex to futures.

Generally, the purpose of technical analysis is to find potential price reversal or pivotal points. These points basically refer the change of market trends, which then indicates when to enter or exit from the market. It is important to know that as with any other techniques in your trading system, these technical analysis indicators could be used alone or with other indicators. Traders are always recommended to learn more different technical methods to analyze different market data because none of these techniques are 100% accurate and 100% foolproof. Taking example of the 'price' data and the 'time' data, which are widely used by FOREX trader.

There are some techniques consider solely on the 'price' factor, while some solely rely on the 'time' factor. The fact is if you know both technical methods, you can take both price and time into consideration during estimating market future trends. This will of course then reduce the risks of losing money in Forex market. Also, it would be wise if traders combine both technical and fundamental techniques when trading Forex, as a country currency value depends a lot on fundamental variables such as war, change of national leaders, terrorism attacks, as well as natural disasters.

Facts about Forex market

As a matter of fact, large international banks are still the major traders in currency exchange market. Deutsche Bank is one of the top currency traders; along with other major banks like UBS, Citi Group, HSBC, Barclays, J. P. Morgan Chase, Coldman Sachs, ABN Amro, Morgan Stanley, and Merril Lynch; these banks are said to be responsible for more than 70% trades in currency market.

When you are trading Forex with currency dealer, the Forex quotes might look a bit different from our previous example. Often, a two-sided quote, consisting of 'bid' and 'ask' price, is listed when dealing with currency brokers. For example, EUR/USD 1.2385/1.2390: 1.2385 is known as the 'bid' price while 1.2390 is commonly known as the 'ask' or 'buy' price. The 'bid' is the price at which you can sell the base currency; while the 'ask' is the price at which you can buy the base currency. As you study the numbers, you might realize that the two-sided currency price is quoted against you.

Traders are forced to buy the currency in a higher price than the selling one. This is done because FOREX trades are done without any commission chargers. Thru quoting currency 'bid & ask' price differently in this way, the currency brokers are manage to make profit without charging their client commission fees directly.

Avoid Forex trader's common mistakes.

Avoid trading with your emotions, avoid over trading your account, avoid over-staying at your positions, avoid bad money management, avoid risking what you cannot afford in Forex trading ...Forex trading involved a lot of risks and traders are always advise to trade and learn in the same time.

Get aware of common mistakes done by most Forex traders and set your own rules during trading in FX market. Trade with discipline and always prepare to learn new concepts from others.

Selecting a Forex broker

here are many Forex brokers to choose from, just as in any other market. When you are browsing for Forex, ask questions below:

• Does the FX broker offers low spread value?
• Is the FX broker registered with related authorizations such as FCM?
• What kind of tools does the FX broker provides?
• What kind of margin options are there?
• Does the FX broker provides live customer supports?
• Does the FX broker offers demo account for beginner traders?
• If you do not have sufficient capital, check whether the FX broker offers mini account that requires low startup funds.

How does a faulty Forex dealer cheat your money?

Forex market is a non-centralized market. There is no common market place for Forex traders and there is no so-call ‘standard’ in foreign currency exchange price. Different Forex dealers offer very different deals to their customers.

As an individual FX trader, you depends solely on the dealer to make a transaction in your trades, thus picking up the right dealer is extremely crucial in your risk.

You may wonder how does a faulty dealer can cheat on your money as all investment call have to go thru your decisions.

Well, here's a typical example:

Often a bad dealer is not totally scams.

They are smart persons that trick money from traders that are not well-aware. These dealers, often known as retail market makers, will often encourage their clients to trade on margin and set stop loss orders, which allow the market makers to close out trades almost at will during busy markets at prices they have set. If the market maker does not offset the trader's position, the loss generated when a stop loss is triggered becomes the market maker's gain.

Trade prices are easily skewed one way or the other depending on the retail trader's position, which is known by the market maker.

Traders can be encouraged to take risky positions just before major economic announcements. If all else fails, the market maker can quote extreme prices (known as spiking) to trigger stop loss orders while the client is at work or asleep.

The vast majority of retail FX traders are not profitable. For those losing retail speculators, much of the funds they had on deposit will be, in some form or another, transferred to the market maker.

Understanding the risks in forex trading.

Picking up the right Forex dealer

One of the best methods to avoid unnecessary risks is avoid fraud dealer.

Forex is a special trading business with no centralized market. Thus, unlike regulated futures exchanges, there is no central market place for Forex buyers or sellers therefore the price offered by different Forex dealers may vary a lot. When you are trading in Forex market, you are totally relying on the dealer’s integrity for a fair deal.

Further more, you need to select a right Forex dealer to avoid scams. There may be Forex dealers that are not regulated legally and there maybe investment scams, especially on the Internet. Be very careful on who you are dealing with in Forex and always check cautiously on the investment offer

Stop loss order

The Forex market could move against you. No one can predict with certainty which way exchange rates will go, and the Forex market is volatile. Fluctuations in the foreign exchange rate between the time you place the trade and the time you attempt to liquidate it will affect the price of your Forex contract and the potential profit and losses relating to it. To avoid losing all of your investment capital, you should have a pre-arrangement on your risk profile. A solid risk profile will limit the Forex dealer not to overtake risk that you cannot handle. For example, if you have 100,000 to invest, you can say that you are willing to risk 10,000 of that capital with the potential to gain another 100,000. This can be easily implemented by a fund manager, so your losses can be limited to 10% or 5% of invested capital.

Avoid too high margin trade

Another way to manage your risks well in Forex market is to trade without overleveraged. Forex dealers want you to trade with high leverage values as this means more spread income for them. Also, trading in high leverage may increase your profit or your losing. There are high possibilities that one lose money more than he or she can afford in margin trading.

Forex can be extraordinarily beneficial to a variety of people. It gives huge leverage rates, it gives incompatible liquidity to your money, it gives convenience to trade on the Internet, and it can definitely give you a lot of money if you trade smartly. Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your ‘wings’. Seminars, eBooks, Internet, papers, video courses – all these are handy to get yourself ready. You can also try out your skill on the demo account provided free. After all, Forex trades 24hours a day and there is always money to make in the market, so why not be patience until you are fully ready for it?

Diversification in Forex trading

Diversification is another way to manage risks in Forex market. Trading one currency pair will generate few entry signals. If you wish to lower your risk in Forex market, it would be better to diversify your trades between several currencies.

Try simultaneously trade on different pair of currency. Say you have capital of $1,000, instead of putting all your money to long EUR/USD, you can split the money half to long EUR/USD and GBD/USD ($500 each) as these two currencies are highly correlated and tends to move in the same directions.

Conclusion

Needless to say, knowledge is another key of handling your risks well. Before you get into Forex market, the best thing you should do is educate yourself. What drives currency price movement? How to read analysis data? How to read chart indicators? Learn detail about how currency price move and how to trade foreign currency exchange in order to avoid unnecessary risks.

You come to this article probably because of you are new to FOREX and were looking for some readings on the Internet. To be frank, Forex can be very profitable but the risk lie beneath is equally great. But what else in life does not involve risk? You can be fired from your job, factory may malfunctions, stock market may collapse, your boss may runaway with your wages, and hey! These are all risk. Learning in risk management is the key to handle your life.

Trade smartly, and gain the maximum out of Forex – good luck!

For forex Beginners.

Invest in your brain first

If you are serious about investing in Forex market, building up your trading skills and knowledge is the very first step that you must take. Seminars, workshops, video tutorials, online learning, or even books are handful to help us learn from the professional.

Learn to implement technical charting into your trades; learn using indicators to determine the right time to enter/exit the market; brush up your experience by trading with a demo account… all these are effective to ensure your smooth starts and it will definitely reduce your chances of losing money.

Getting the right trading system

It is wise to research very well and consider all the various brokers' system available to you before making your choice. By applying certain level of computer automations (such like charting and doing auto trades), trading; a well-designed trading system will reduce your work dramatically. This in turns give you more time to focus on studying the market and plotting your strategy. Also, using auto-trading system will avoid you from doing emotional-trades.

Have a trading plan

As the old says: “Fail to plan is plan to fail”. Trading is like sailing boat middle in the sea; you will not be going anywhere without compass and navigator.

What is the detail objective of the trades? How much profit to expect from the trade? When to get into the market? How much to invest? What price to exit the market? If things do not work out, when do execute the stop loss order? How high is the affordable risk? A good trading plan should at least answers the above questions. Further more, if your trading plan fails, review and modify your trading plan.

Money management

Money management is controlling your risk through the use of protective stops, while balancing your potential for profit against your potential for loss. For example, good money management means you know your profit objective and the odds of being right or wrong, and controlling your risk with protective stops. You are better off with a trade where you might lose $1000 if you are wrong and make $500 if you are right, that would work eight times out of ten, than to take a trade where you would make $1000 if you are right and lose only $500 if you are wrong, but works only one time out of three.

If you are investing using your savings, it's even more important that you manage your money in your trading and in your personal expenses. Chances are high that you miss a good investing chance because of you are lack of capital.

Tips for your success in forex.

 Implement a trading plan.

“If you fail to plan, you plan to fail”. A trading plan is especially crucial in Forex trading to stay ‘in-control’ against the emotional stress in speculative situation.

Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized operation has to be predetermined and strictly followed.

 Trade within your means

If you cannot afford to lose, you cannot afford to win. Losing is a not a must but it is the natural in any trading market. Trading should be always done using excess money in your savings.

Before you start to trade in Forex, we suggest you to put aside some of your income to set up your own investment funds and trade only using that funds.

Avoid emotion trading

If you do not have a trading plan, make one. If you have a trading plan, follows it strictly! Never ever attempt to hold your weakened position and hope the market will turn back in your favor direction. You might end up losing all your capital if you keep holding. Move on, stay within your trading plan, and admit your mistakes if things do not turn as you want.

Ride on a win and cut your losses

Forex trader should always ride till the market turns around whenever a profit is show; while during losing, never hesitate to admit your mistakes and exit the market. It is human nature to stay long on loses and satisfy with small profits – this is why as we mentioned earlier that a strictly followed trading plan is a must-have.

Stop looking for leading indicators

There aren't any in the Forex market. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be giving the secret away

Avoid trading in a thin market

Trade on popular currency pairs and avoid thin market. The lack of public participation will cause difficulties in liquidate your positions. If you are beginners, we suggest the big five: USD/EUR, USD/JPY, USD/GBD, USD/CHF, and EUR/JPY.

Avoid trading in too many markets

Do not confuse yourself by overtrading in too many markets especially if you are a beginner. Go for the major currency pairs and drill down your studies in it.

Keep learning

The best investment is always the investment on your brain. Without a doubt, Forex trading needs much more than just a few guidelines or tips to be successful. Experience, knowledge, capital, fortitude, and even some help of luck are all crucial in one’s success in the FX market. if you lose in a trade, do not lose the experience in it. Learn from your mistakes and regain your position in the next trade.

Knowing the Currency Symbol

When starting in Forex trading, it would be wise to start trading with the major seven. It is also recommended to start with your own country currency if you are living in one of the major seven country as you are in a better position to judge the value of the currency.

You should be aware that currencies are normally stated in a three-alphabate symbol in FX market.

For the major seven, currency symbol are as below:

Currency	Symbol	Nickname
Australian Dollar	AUD	Aussie
Canadian Dollar	CAD	Loonie
Euro	EUR	Fiber
Japanese Yen	JPY	Yen
British Pound	GBP	Cable
Swiss Franc	CHF	Swissy
United States Dollars	USD	Buck

Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

Japanese Yen (JPY)

The yen or en is the currency of Japan. It is also widely used as a reserve currency after the United States dollar, the euro and the pound sterling. The ISO 4217 codes for the yen are JPY and 392. The Latinised symbol is ¥ while in Japanese it is also written with the kanji 円.

While not a usage specific to currency, large quantities of yen are often counted in multiples of 10,000 in the same way as values in the United States are often quoted or rounded off to hundreds or thousands.

The yen was introduced by the Meiji government in 1870 as a system resembling those in Europe. The yen replaced the complex monetary system of the Edo period, based The New Currency Act of 1871 stipulated the adoption of the decimal accounting system of yen, sen, and rin, with the coins being round and cast as in the West.

The yen was legally defined as 0.78 troy ounces (24.26 g) of pure silver, or 1.5 grams of pure gold. The same amount of silver is worth about 1181 modern yen while the same amount of gold is worth about 3572 yen. The Act also moved Japan onto the gold standard. (The sen and the rin were eventually taken out of circulation at the end of 1953.)

Euro (eur)

The euro (currency sign: €; banking code: EUR) is the official currency of the Eurozone (also known as the Euro Area), which consists of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain, and will extend to include Cyprus and Malta from 1 January 2008.

It is the single currency for more than 317 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects more than 480 million people worldwide.

With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro surpasses the U.S. dollar in terms of combined value of cash in circulation.

While all European Union (EU) member states are eligible to join if they comply with certain monetary requirements, not all EU members have chosen to adopt the currency. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty have pledged to adopt the euro in due course. Maastricht obliged current members to join the euro; however, the United Kingdom and Denmark negotiated exemptions from that requirement for themselves. Sweden turned down the euro in a 2003 referendum, and has circumvented the requirement to join the euro area by not meeting the membership criteria.

Several small European states (The Vatican, Monaco, and San Marino), although not EU members, have adopted the euro due to currency unions with member states. Andorra, Montenegro, and Kosovo 

Pound Sterling (GBP)

The pound (symbol: £; ISO code: GBP), divided into 100 pence, is the official currency of the United Kingdom and the Crown dependencies.

The slang term "quid" is commonly used in place of "pound(s)". The official full name pound sterling (plural: pounds sterling) is used mainly in formal contexts and also when it is necessary to distinguish the currency used within the United Kingdom from others that have the same name.

The currency name — but not the names of its units — is sometimes abbreviated to just "sterling", particularly in the wholesale financial markets; so "payment accepted in sterling", but never "that costs five sterling". The abbreviations "ster." or "stg." are sometimes used. The term British pound is commonly used in less formal contexts, although it is not an official name of the currency.

The pound was originally the value of one pound Tower weight of sterling silver (hence "pound sterling"). The currency sign is the pound sign, originally ₤ with two cross-bars, then later more commonly £ with a single cross-bar. The pound sign derives from the black-letter "L", from the abbreviation LSD – librae, solidi, denarii – used for the pounds, shillings and pence of the original duodecimal currency system. Libra was the basic Roman unit of weight, which in turn derived from the Latin word for scales or balance.

The ISO 4217 currency code is GBP (Great Britain pound). Occasionally the abbreviation UKP is seen, but this is incorrect. The Crown dependencies use their own (non-ISO) codes. Stocks are often traded in pence, so traders may refer to Pence sterling, GBX (sometimes GBp), when listing stock prices.

Major Currencies Traded in Forex Market.

The most traded currency in Forex market (the major seven) are United States dollar, Eurozone Euro , Japanese Yen , British Pound Sterling, Swiss Franc, Australian dollar , and Canadian Dollars.

United States Dollar (USD)

The U.S. dollar uses the decimal system, consisting of 100 (equal) cents (symbol ¢).

In another division, there are 1,000 mills or ten dimes to a dollar; additionally, the term eagle was used in the Coinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins. In the second half of the 19th century there were occasional discussions of creating a $50 gold coin, which was referred to as a "Half Union," thus implying a denomination of 1 Union = $100.

However, only cents are in everyday use as divisions of the dollar; "dime" is used solely as the name of the coin with the value of 10¢, while "eagle" and "mill" are largely unknown to the general public, though mills are sometimes used in matters of tax levies and gasoline prices.

When currently issued in circulating form, denominations equal to or less than a dollar are emitted as U.S. coins while denominations equal to or greater than a dollar are emitted as Federal Reserve notes (with the exception of gold, silver and platinum coins valued up to $100 as legal tender, but worth far more as bullion). (Both one-dollar coins and notes are produced today, although the note form is significantly more common.)

In the past, paper money was occasionally issued in denominations less than a dollar (fractional currency) and gold coins were issued for circulation up to the value of 20 dollars.

Managing a Margin Forex Account.

Although the example given is much simpler than what's happening in real market situation.

But it cleary illustrates that trading in can easily magnify trade's ROI in a dramatic way. Although trading on margin sounds extremely easy to gain profits, but it is important that traders understand well the risks they are undertaking.

Traders should be very aware of the margin call and should always avoid them at all cost. Note that in the event that money in your account falls below predetermined threshold (Margin Call), the positions in the account could be partially or totally liquidated, even it's in a highly volatile, fast moving market. Also, traders should always monitor own margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.

In most cases, you might need a computer aided trading tools to determine the entry point as well as stop loss order.

Forex trading with Margin.

Margin trading refers to the leverage amount given to the traders to trade in the market.

One of the best features in Forex trading is that traders are able to trade foreign currencies with high margin.

You get 1:1 margin for stock exchanges, 2:1 margin for equity trading, 15:1 margin for futures market; but in Forex, normal trade margins are 100:1 and 150:1, or even 200:1 trade margins.

Typically the broker will require a minimum account size, also known as account margin or initial margin. Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.

For example, for every $1,000 you have, you can trade 1 lot of $100,000. So if you have $5,000 they may allow you to trade up to $500,000 of Forex.

The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every $100,000 traded, the broker wants $1,000 as a deposit on the position.

Trading Forex in huge margin with allows traders to control a large sum of money with little cash put on the tables. This in turns magnify the ROI dramatically.

Examples of Forex Quotes.

Confused about the quotes? Don't worry too much about it, you'll get used to them as soon as you move on and start your trades.

For the beginners, here are some quick examples. Try not look at the answer and determine the value of bid price, ask price, spread value, and the pip value.

EUR/USD 1.2385/1.2390

• Base currency= Eur
• Bid price= 1.2385; Ask price= 1.2390
• When selling Euros, 1 Euro = USD$1.2385; when buying Euros, USD$1.2390 = 1 Euro.
• Spread = | 1.2385 - 1.2390 | = 0.0005
• Pip value= 0.0001

EUR/JPY 127.95/128.00

• Base currency= Eur
• Bid price= 127.95; Ask price= 128.00
• When selling Euros, 1 Euro = JPY127.95; when buying Euros, JPY128.00 = 1 Euro.
• Spread = | 127.95 - 128.00 | = 0.05
• Pip value= 0.01

GBP/USD 1.7400/10

• Base currency= GBP
• Bid price= 1.7400; Ask price= 1.7410
• When selling Pound, 1 Pound = USD$1.7400; when buying Pound, USD$1.7410 = 1 Pound.
• Spread = | 1.7400 - 1.7410 | = 0.001
• Pip value= 0.0001

USD/JPY 119.8

• Base currency= USD
• No bid-ask price is displayed, spread value not available.
• Pip value= 0.1