Sunday, April 5, 2009

Being a Forex beginner

We all were beginners one day... This article is for everyone who decides to step on a path of Forex trading career. An overwhelming amount of information about Forex can leave an average newbie quite discouraged: What to do first? Where to start? Will I ever be able to comprehend everything about Forex trading?

Those and many other questions will be answered here in our tutorials and lessons.
A step-by-step solution offered should leave no questions about successful starting of a Forex journey. But if you do have questions left, just any questions about Forex trading, you are very welcome to ask it here: Newbie questions and Answers board. No stones will be leaved unturned!

And for the end of this introduction, let us encourage you, first of all to be persistent in day to day learning, and most importantly, enjoy discovering Forex; you would need those two qualities in order to complete at least 2 years(!) of Forex beginner journey... Why at least 2 years? Because there is so much to learn in Forex and even much more to practice upon. Imagine, that you are studying to get a profession in finance at university, how long would it take to graduate?

Taking Forex career seriously means being ready to study and practice for several years without a second thought. And while some university subjects are boring, Forex isn't, it is rather exiting! Welcome and happy Forex learning!

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Tuesday, March 31, 2009

Ask and Answer for Beginer forex trader about Timing

Ask : How to calculate the est timings?

Answer : EST = GMT - 5. You should find out your local time zone. To do this either look at your PC time zone, or better go to and in the search field type in the country you live in. Then calculate the correspondent EST hours for your local area. Also the timing tool at: Forex market hours can help at some point.

Ask : I heard that one should not trade on Mondays because it has more down days. But if that is true then it would seem that one should not trade long on Mondays, but trading short (assuming the trend is down) on Mondays would be a good thing. Did I misunderstand whats wrong with Mondays for trading?

Answer : It appears that you have misunderstood the statement. When they say that Mondays have more down days, they mean that on Mondays traders have a higher rate of unsuccessful trading. On Mondays the market is often unstable, deciding on which direction to pull this week, what market levels to obey and what to disregard. Unless there is a crystal clear trend imprinted in the price, traders try to avoid trading on Mondays to lower the percentage of losing trades.

Ask : I live in UK, what time on monday or sunday would I use for the start of the week for trading. Also once the week has began what is the daily time for my calculation.

Answer : Use GMT - your local time zone. Start trading on Monday, around 6-7am GMT if the trend is obvious and trading signals are clear, otherwise it is suggested to wait till Monday shake-up occurs in the market as it looks for its trend options. If you want to calculate Pivot points, New York time (EST) is recommended. EST = GMT - 5. Also majority of breakout methods are tailored to EST time. In all other cases you can confidently take GMT time - and base your calculations around 00:01am - 11:59pm GMT.

Ask : What is M15 timeframe?

Answer : M15 stands for 15 minute time frame.
Other examples:
4h - 4 hour time frame, or you can also say - 4 hour chart.
1d - daily time frame, 1 day chart.
5m - 5 minute chart.

Ask : Im abit confused about the openning time for london forex market. Is it at 5:00am or 8:00am ? And how about the timing of the platform of those Meta4 trader, are they GMT ? Are they all auto adjusted to day light saving ? ( what is the duration of day light saving ).

Answer : London market opens at 8am GMT. Different Forex brokers have different default timing settings for the Metatrader Platform offered. Those settings cannot be changed. You should ask your broker what timing their trading platform uses. All platforms are auto adjusted to daylight savings. Here is additional information on the calendar and duration of daylight saving periods in the world.

Ask : If I traded before daylight savings time fall 2007 and up to end of feb 2008 at 5:00 pm mountain time, which is 0:00 GMT time. Would I still trade the same time or do I need to adjust my strategy back 1 hour as we moved our clocks forward 1 hour? I noticed today that 0:00 is now at 6pm mountain time?

Answer : Yes, as we switch to daylight saving time and back you adjust your strategy time accordingly.

Ask : Please i need your help about the timing because am in Nigeria and we are an hour ahead of GMT (GMT+1). Kindly help with the best time for me to calculate my pivots for both London and America market on 15 minutes chart.

Answer : Ok, let's use the time from 00:00 Eastern time to 00:00 next day Eastern time to calculate Pivot points. Let's not just do it one time, but learn how to do it each time when we require to perform similar time matching tasks.

1. Go to
2. Choose your local time zone in the window application. Press "Go!". Note the time in the green box next to it.
3. Now choose "GMT - 5 Eastern Time (USD, Canada)" in the same application. Press "Go!". Note the time in the green box again.
4. Find the difference in hours.

Using the rules above, for you time zone currently we have 5 hours difference (its daylight saving time in US). Therefore, since we want to Calculate pivots from 00:00 to 00:00 EST, in your local Nigeria time it will be from 5:00 am to 5:00 am EST. Same way we find the difference for London hours. Because of daylight savings your Local time now is the same as in London. No additional calculations required.

Ask : hello, am very new to in forex trading and will want to get myself fortified before activating my live act. the issue now is I will to know how daylight savings affect different forex market opening hours thank you

Answer : During the 2 weeks period when daylight savings is activated in different countries across the globe, it does confuses traders as to what hours to use. We suggest monitoring the time with Eastern Time time zone (New York time). Some traders may find useful switching their PC local time to Eastern Time to monitor hours effectively. Also will always tell you what markets are currently open regarding your local time zone and according to daylight savings adjustments.

Friday, March 27, 2009

Beginners Forex Trader - What is drawdown?

A DRAWDOWN is a percentage of an account which could be lost in the case when there is a streak of losing trades. It is a measure of the largest loss that a trader's account can expect to have at any given moment or period of time. Streak of losing trades or a LOSING STREAK - a period of consecutive losses with no profitable trades.)

You'll see the term "drawdown" being used when describing a trading system. Before trusting any particular system, a trader wants to know what is the largest loss he can face when he starts taking losses due to changes on the market that would lead to a temporary worsening of a performance of a trading system. For example, if a trader put $5000 to trade with and later he has lost $2500. This would be 50% drawdown.

Another example: you may hear that a trading system is 80% profitable, (which would logically mean that the remaining 20% of the time will produce losses). What a trader cannot predict is in what sequence the profits and losses will come... Will it be 8 consecutive profitable and 2 losing trades every time? Will it be 10 consecutive losing trades and then 3 profitable, and then 5 losing and then 15 profitable? It is impossible to tell in advance. However, by testing a system, a trader can look back ad find the largest period of losing trades - the largest losing streak - this is what would be called a MAXIMUM DRAWDOWN for a particular system, and this is what a trader should be prepared to.

Tuesday, March 24, 2009

Forex Trading Tips and Info for Beginners

Beginners can make money trading forex or currency cross rates. There is no special secret that expert traders used or insider information that a beginner forex trader needs in order to profit consistently. Believe it or not, the strategies used by many so called expert traders are actually simple basic forex trading strategies that are available from your community libraries or online forums. You can become a consistent trader by following a basic trading system and manage your trade using an optimal risk/reward ratio. It is that simple. Sorry to disappoint but there is no $3000 program to sign up or $97 ebook to buy.

The Holy Grail of Trading Systems. Many of us started out learning to trade by searching for a trading system that will yield perfect results. We are always looking for the holy grail and when we get frustrated with the not so perfect results of each trading system, we start the vicious cycle of testing another system. There is no perfect trading system and almost every system can be profitable with the correct simple risk management techniques.

The trading system that you choose to use must be suitable to your trading personality. If you oriented to short term results and gains, a scalping or day trading strategy would be suitable. Whereas if you are into the long haul and like to see bigger gains and can handle overnight risks, swing trading or long term trading would be your choice.

After deciding on a trading timeframe, you will have to decide on how you approach the markets. There are many traders who tend to trade the market based on a discretionary approach with news and fundamental analysis, while others tend to trade the markets based on technical indicators. For myself, I am more of a technical trader in the short term timeframe. I may enter and manage trades for a couple of minutes to even a couple of days, but I have seldom run trades for over 2 weeks.

Managing Risks While Trading Forex Markets. How do you manage risk in forex trading? The first principle in minimizing risks while trading forex is to assume that the trading system that you are using is not a predictor of the future direction of the market. For that matter, no trading systems or trading indicators can predict the direction of the currency markets. Sellers of black box trading systems and trading newsletters may differ but when you stop trying to predict the markets, you will start to actually trade the markets.

When trading the forex markets, you can manage risks in each individual trade and your entire trading system by using an optimal risk/reward ratio. The concept of an optimal risk/reward ratio is easy to understand. Basically for every trade that you take, you should be targeting a pre-determined amount of gain with a stop-loss limit that is suitably lower. A good risk/reward ratio is to seek a reward/return that is 2 to 3 times more than the potential risk/loss. Why not set it at 10 times the return to loss? Does this mean that if we set the target profits to be a high multiple of the potential risk, the trading system will become a profitable system? That would be ideal but we need to also take into consideration the winning probability of the trading system before we can decide on the optimal risk/reward ratio and whether we should employ each particular trading system. Perhaps an example would help to explain clearer:

Take for example, a dual moving averages cross-over system that yields a winning probability of 55% i.e. out of every 20 trades, 11 are winning trades while the rest of the 9 trades are either breakeven or losses. In this case, we will assume the 9 trades are losing trades. Using a risk/reward ratio of 2:1 would result in an expected profitability = 0.55*2 – 0.45 = $0.65. This suggests that over a long period, the trading system will yield a profit of $0.65 for every dollar invested. Definitely a winner here! But note that there is a inverse relationship between the risk/reward ratio and the winning probability, which I will explain in a subsequent post.

There you have it. Successful Forex trading can be possible for even beginners. Selecting a trading system that is suitable for your lifestyle and putting in proper risk management, forex trading can be extremely profitable. Of course, there are many advanced techniques you should learn but as a beginner, you should approach forex trading or currency trading with a winning mindset as the risks involved in forex trading are not insurmountable and can be overcome by simply following a set system. Good Trading!

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Thursday, March 19, 2009

MultiCharts - Forex Automated Trading Software Review

The Power of Flexibility! Technical Analysis, Charting, and Trading Software for Stocks, Futures, and Options Markets MultiCharts is a professional technical analysis and automated strategy trading platform for futures, forex, and stock trading, featuring professional charting, advanced analytics, trading strategy optimization, and backtesting.

Multiple data series, of different timeframes and symbols, and from different data feeds, can be plotted in the same chart window. Time-based and Count-based, as well as Bid, Ask, or Trade-based data series can be mixed within the same chart. MultiCharts is compatible with the industry-standard TradeStation EasyLanguage and the vast existing library of EasyLanguage studies that can easily be customized into your own trading system. And automated trade execution lets you apply the power of an algorithmic trading system directly to online stock trading.

Sunday, March 15, 2009

MCFX - Great Forex Automated Trading Software

The Power of Simplicity!Charting, Technical Analysis, and Automated Trading Software for Forex Trading MCFX is specifically designed for Forex strategy trading. We believe that such an efficient combination of the unparalleled simplicity of use with the advanced technical analysis and strategy trading features has never been as affordable with traditional Forex trading software.

Whether you are a seasoned Forex trader or just starting with the currency trading, MCFX propels you to become a more confident trader with the full array of powerful features:
user-friendly Forex charts with high-end capabilities, full seven years of historical data for the 24 key currency pairs, in a range of resolutions, thousands of ready indicators as well as support for writing your own trading system, and Forex trading strategy optimization and back-testing.

High performance and reliability consistently bring MCFX to the top of the Forex trading software.

Thursday, March 12, 2009

Forex Strategy Builder -

Forex Strategy Builder is a visual forex strategy back tester. It uses combinations of technical indicators and logic rules to simulate a trading process employing historical forex rates. An included automatic strategy generator enables you to compose a profitable strategy. An optimizer, an intraday scanner, a bar explorer and an interpolation methods comparator are included to guarantee the maximum quality of your forex strategy development.

Forex Strategy Builder screenshot

Forex Strategy Builder is to provide a reliable free tool for testing trading strategies based on actual historical data. In doing so we want to incorporate the most common methods of technical analysis and great variety of technical indicators in just one user friendly program. In the last few years we've extended the list of indicators to almost 100 and we are working on the possibility of enabling the users to test their trading strategies on the stock market as well as on the forex market.

The reason we have been developing so rapidly is that we receive constant feedback from the Forex Strategy Builder users whose suggestions have been used to direct all future development of the software.

It is possible a trading system to show excellent results in the historical test and after that to lead to a catastrophic outcome. Some reasons could be faulty back test, over-optimization or tricky indicators. Forex Strategy Builder can help you in this situation. It easily recognizes the pitfalls of testing trading systems. It notices all ambiguous bars in the back test. The program can find the average balance line between all possible market scenarios. It also has techniques for recognizing the curve fitting.

It is advantageous that Forex Strategy Builder is being continually updated and you can partake in its shaping in the way you prefer. So, feel free to share with us the things you believe can be improved. Be certain that we will follow your recommendations in the next versions. This program aims at making the process of creating profitable strategies, based on technical analysis, an easier task.

While you are not on the real market, do not hesitate to test all strategies or combinations of technical indicators you can think of. You will gain more experience and understanding of how the different logic rules and parameters influence the foreign exchange trading.

This program is absolutely free. It is not necessary to pay money or to make any registration. You can start testing your trading system with historical market data right now. Step into the world of Forex Strategy Builder. It is 100% Free forex software.
Visit our forex download page. You can find installation hints, download links, system requirements and other useful information there.

Sunday, March 1, 2009

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Sunday, February 15, 2009

Common Sense Guidelines for the Average Trader

Look for a reputable broker

  • Ability to trade effectively depends on consistent spreads and ample liquidity
  • Anyone can establish a position
  • Ability to close out a position at a fair market price is more important

Live to trade another day

  • Apply prudent money management skills
  • Avoid using excessive leverage that puts your investment capital at risk
  • Always trade with a stop!

Don’t trade emotionally, stick to your plan and maintain discipline

  • Establish a trading plan before initiating a trade
  • Set reasonable risk/reward parameters
  • Don’t override your stops for emotional reasons
  • Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade

Don’t punt

  • Don't punt( Punting is trading for trading sake without a view)

Don’t leave stops at obvious levels such as “big figures” (e.g. eur/usd 1.20, usd/jpy 110)

  • i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered

Don’t add to a losing position in unless it is part of a strategy to scale into a position

  • In other words, don’t double up in the hope of recouping losses unless it is part of a broader trading strategy

Trading with and against the trend

  • When trading with a trend, consider the use of trailing stops.
  • When trading against the trend, be disciplined taking profits and don’t hold out for the last pip

Treat trading as a continuum

  • Don’t base success on one trade
  • Avoid emotional highs or lows on individual trades
  • Consistency should be an objective

Forex trading is multi-currency

  • Watch crosses as they are key influences on spot trading
  • Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
  • Crosses can be used as clues for direction for spot currencies even if you are not trading them

Be cognizant of what news is coming out each day so you don’t get blindsided

  • Be cognizant of what news is coming out each day so you don’t get blindsided
  • Beware of trading just ahead of an economic number and be wary of volatility following key releases

Beware of illiquid markets

  • Beware of illiquid markets
  • Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
  • Beware of central bank intervention in illiquid markets

Jay Meisler, a partner in, says one problem of trading with too-high leverage is that one piece of surprise news can wipe out one's capital. "Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas," he says, adding: "If you treat forex trading like a business, including proper money management, you have a better chance of success." …Newsweek International, March 15, 2004

Treat this business as a marathon and not a sprint so you avoid burnout and maintain stamina for the long haul.

Tuesday, February 10, 2009


Although every investment involves some risk, the risk of loss in trading off-exchange forex contracts can be substantial. Therefore, if you are considering participating in this market, you should understand some of the risks associated with this product so you may make an informed decision before investing.

Forex dealers are not all regulated the same way. Only regulated entities, such as banks, insurance companies, broker-dealers or futures commission merchants, and affiliates of regulated entities may enter into off-exchange forex trades with retail customers. Therefore, you should make sure the dealer is regulated and check out the dealer's registration status and background with its regulator.

Although forex dealers must be regulated, firms and individuals can solicit retail accounts for forex dealers and manage those accounts without being regulated. Therefore, you should find out if these persons are regulated. If they are not, you may be exposed to additional risks.

You can verify Commodity Futures Trading Commission (CFTC) registration and NFA membership status of a particular firm or individual and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) of NFA's Web site at You may also contact the other organizations listed at the end of this Alert.

You should protect yourself from fraud. Beware of investment schemes that promise significant returns with little risk. Carefully check out the firms and individuals you are dealing with. You should also take a close and cautious look at the investment offer itself and continue to monitor any investment you do make.

The 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.

You could lose more money than you initially invest. You will be required to deposit an amount of money (often referred to as "margin") with your forex dealer in order to buy or sell an off-exchange forex contract. Only a relatively small amount of money can enable you to hold a forex position for much more than the account value. This is referred to leverage or gearing. The smaller the deposit in relation to the underlying value of the contract, the greater the leverage.

If the price moves in an unfavorable direction, high leverage can produce large losses in relation to your initial deposit. In fact, even a small move against your position may result in a large loss, including the loss of your entire initial deposit and the liability for additional losses.

Buying and selling forex options present additional risks. Many of these risks are similar to those inherent in buying options on futures contracts. Therefore, you should consult NFA's brochure, Buying Options on Futures Contracts: A Guide to Uses and Risks.

You are relying on the creditworthiness and reputation of the other party to the transaction. Retail off-exchange forex trades are not guaranteed by a clearing organization. Furthermore, funds that you have deposited to trade forex contracts are not insured and do not receive a priority in bankruptcy. Therefore, you should know who you are dealing with.

There is no central marketplace. Unlike regulated futures exchanges, in the retail off-exchange forex market, there is no central marketplace with many buyers and sellers. The forex dealer determines the execution price, so you are relying on the dealer's integrity for a fair price.

The trading system could break down. If you are using an Internet-based or other electronic system to place trades, some part of the system could fail. In the event of a system failure, it is possible that, for a certain time period, you may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. A system failure may also result in loss of orders or order priority.

* * *

Hopefully, this information has provided you with a better understanding of the risks involved in retail off-exchange forex trading. As mentioned above, retail off-exchange forex trading carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose all of your initial investment and be liable for additional losses. Therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with forex trading and make an informed decision after consulting with your financial advisor and considering your own financial situation and objectives. If you suspect any wrongdoing or improper business conduct by a forex dealer firm, you may contact or file a complaint with NFA by telephone at (800) 621-3570 or online at

For further information, you should also consult the following resources:

Commodity Futures Trading Commission

In an effort to educate customers about the risks of forex trading, the CFTC issued a Forex Consumer Advisory in February 2001 cautioning the public to be skeptical of newspaper advertisements, radio and television promotions, and Internet Web sites that tout high-return, low-risk investment opportunities in forex trading. The CFTC also issued an Advisory in March 2002 on how firms may lawfully offer forex futures and option trading opportunities to the retail public. For more information on the CFTC's forex initiatives, visit the CFTC's forex Web page at

Saturday, February 7, 2009

How to Read a Chart & Act Effectively

by Jimmy Young of EURUSDTrader


This is a guide that tells you, in simple understandable language, how to choose the right charts, read them correctly, and act effectively in the market from what you see on them. Probably most of you have taken a course or studied the use of charts in the past. This should add to that knowledge.


There are several good charting packages available free. Netdania is what I use.

Using charts effectively

The default number of periods on these charts is 300. This is a good starting point;

  • Hourly chart that’s about 12 days of data.
  • 15 minute chart its 3 days of data.
  • 5-minute chart it’s slightly more than 24 hours of data.

You can create multiple "tabs" or "layouts" so that it’s easy to quickly switch between charts or sets of charts.

What to look at first

1. Glance at hourly chart to see the big picture. Note significant support and resistance levels within 2% of today’s opening rate.

2. Study the 15 minute chart in great detail noting the following:

  • Prevailing trend
  • Current price in relation to the 60 period simple moving average.
  • High and low since GMT 00:00
  • Tops and bottoms during full 3 day time period.

How to use the information gathered so far

1. Determine the big picture (for intraday trading).

Glancing at the hourly chart will give you the big picture – up or down. If it’s not clear immediately then you’re in a trading range. Lets assume the trend is down.

2. Determine if the 15 minute chart confirms the downtrend indicated by big picture:

Current price on 15-minute chart should be below 60 period moving average and the moving average line should be sloping down. If this is so then you have established the direction of the prevailing trend to be down.

There are always two trends – a prevailing (major) trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. Minor trends are clearly spotted on 5-minute charts.

3. Determine the current trend (major or minor) from the 5 minute chart:

Current price on 5-minute chart is below 60 period moving average and the moving average line is sloping downward – major trend.

Current price on 5-minute chart is above 60 period moving average and the moving average line is sloping upward – minor trend.

How to trade the information gathered so far

At this point you know the following:

  • Direction of the prevailing trend.
  • Whether we are currently trading in the direction of the prevailing (major) trend or experiencing a minor trend (reaction to major trend).

Possible trade scenarios:

1) Lets assume prevailing (major) trend is down and we are in a minor up-trend. Strategy would be to sell when the current price on 5-minute chart falls below the 60 period moving average and the 60 period moving average line is sloping downward. Why? Because the prevailing trend is reasserting itself and the next move is likely to be down. Is there more we can do? Yes. Look for further confirmation. For example, if the minor trend had stalled for a while and the lows of the past half hour or hour are very close to the 5 minute moving average then selling just below the lows of the past half hour is a better place to enter the market then just below the moving average line.

2) Lets assume prevailing (major) trend is down and 5-minute chart confirms downtrend. Strategy would be to wait for a minor (up trend) trend to appear and reverse before entering the market. The reason for this is that the move is too “mature” at this point and a correction is likely. Since you trade with tight stops you will be stopped out on a reaction. Exception: If market trades through today’s low and/ or low of past three days (these levels will be apparent on the 15 minute chart) further quick downward price action is likely and a short position would be correct.

3) A better strategy assuming prevailing trend down, 5-minute chart down, and just above days lows is to BUY with a tight stop below the day’s low. Your risk is limited and defined and the technical condition (overdone?) is in your favor. Confirmation would be if today’s low was a bit higher than yesterday’s low and the price action indicated a very short-term trading range (1 minute chart) just above today’s low. The thinking here is that buyers are not waiting for a break of today’s or yesterday’s low to buy cheaper; they are concerned they may not see the level.

4) Generally speaking, the safest place to buy is after a sustained significant decline when the bottoms are getting higher. Preferably these bottoms will be hours apart. By the third or forth higher bottom it is clear a bottom is in place and an up-move is coming. As in the example above your risk is limited and defined – a low lower than the last low.

5) The reverse is true in major up-trends.

Other chart ideas

  • There are always two trends to consider – a major trend and a minor trend. The minor trend is a reversal of the major trend, which generally lasts for a short period of time.
  • Buying above old tops and selling below old bottoms can be excellent entry levels; assuming the move is not overly mature and a nearby reaction unlikely.
  • When a strong up move is occurring the market should make both higher tops and higher bottoms. The reverse is true for down moves- lower bottoms and lower tops.
  • Reactions (minor reversals) are smaller when a strong move is occurring. As the reactions begin to increase that is a clear warning signal that the move is losing momentum. When the last reaction exceeds the prior reaction you can assume the trend has changed, at least temporarily.
  • Higher bottoms always indicate strength, and an up move usually starts from the third or fourth higher bottom. Reverse this rule in a rising market; lower tops…
  • You will always make the most money by following the major trend although to say you will never trade against the trend means that you will miss a lot of opportunities to make big profits. The rule is: When you are trading against the trend wait until you have a definite indication of a selling or buying point near the top or bottom, where you can place a close stop loss order (risk small amount of capital). The profit target can be a short-term gain to nearby resistance or more.
  • Consider the normal or average daily range, average price change from open to high and average price change from open to low, in determining your intra-day price targets.
  • Do not overlook the fact that it requires time for a market to get ready at the bottom before it advances and for selling pressure to work it’s way through at top before a decline. Smaller loses and sideways trading are a sign the trend may be waning in a downtrend. Smaller gains and sideways trading in an up trend.
  • Fourth time at bottom or top is crucial; next phase of move will soon become clear… be ready.
  • Oftentimes, when an important support or resistance level is broken a quick move occurs followed by a reaction back to or slightly above support or below resistance. This is a great opportunity to play the break on the “rebound”. Your stop can be super tight. For example, EURUSD important resistance 1.0840 is broken and a quick move to 1.0860, followed by a decline to 1.0835. Buy with a 1.0820 stop. The move back down is natural and takes nothing away from the importance of the breakout. However, EURUSD should not decline significantly below the breakout (breakout 1.0840; EURUSD should not go below 1.0825.
  • After a prolonged up move when a top has been made there is usually a trading range, followed by a sharp decline. After that, a secondary reaction back near the old highs often occurs. This is because the market gets ahead of itself and a short squeeze occurs. Selling near the old top with a stop above the old top is the safest place to sell.
  • The third lower top is also a great place to sell.
  • The same is true in reverse for down moves.
  • Be careful not to buy near top or sell near bottom within trading ranges. Wait for breakaway (huge profit potential) or play the range.
  • Whether the market is very active or in a trading range, all indications are more accurate and trustworthier when the market is actively trading.

Limitations of charts

Scheduled economic announcements that are complete surprises render nearby short-term support and resistance levels meaningless because the basis (all available information) has changed significantly, requiring a price adjustment to reflect the new information. Other support and resistance levels within the normal daily trading range remain valid. For example, on Friday the unemployment number missed the mark by roughly 120,000 jobs. That’s a huge disparity and rendered all nearby resistance levels in the EURUSD meaningless. However, resistance level 200 points or more from the day’s opening were still meaningful because they represented resistance to a big up move on a given day.

Unscheduled or unexpected statements by government officials may render all charts points on a short-term chart meaningless, depending upon the severity of what was said or implied. For example, when Treasury Secretary John Snow hinted that the U.S. had abandoned its strong U.S. dollar policy.

Thursday, February 5, 2009

Essential Elements of a Successful Trader

by Jimmy Young

Courage Under Stressful Conditions When the Outcome is Uncertain

All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.

You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.

However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.

Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.

Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.

The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.

For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.

The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).

So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.

Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?

If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.

Patience to Gain Knowledge through Study and Focus

Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.

To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

Tuesday, February 3, 2009

How to Taking Profits in Forex Trading

This lesson is provided by Neal Hughes at FibMaster.

So much time is spent on entering a trade. Today I want to focus on some exit strategies. This is not a full Fibonacci course, so if you don't understand the basics I suggest that you visit my website for help with those aspects.

Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you're sitting on the sidelines while the market continues well beyond your exit.

In this lesson I'll show you how to bank those profits before they turn against you.

First look at this FOREX chart (JPY hourly chart).

Let's imagine that you were clever (or lucky) enough to enter long near point "A". You're feeling pretty good when price reaches "B". So good that you don't want to exit, because the up-thrust just before "B" give the impression that this market wants to go further.

Before you know it, the market reverses and heads towards "C". Right at "C" you get scared and bail out with a little profit. Not much profit compared to exiting at point "D" or even at "F".

You exit near "C", and feel relieved until you see the market heading (thrusting) up to point "D". You stop kicking yourself long enough to enter when it breaks above "B", just a little before the high at "D".

Soon after your entry near "D", the market retraces to "E", and on the way breaks below the high of "B". Breaking below the high of "B" feels scary because you're thinking this chart could be back at "A" in a flash. So you exit at "E" licking your wounds with a loss in this trade.

You start to notice more frustration now, when you enter somewhere between "E" and "F". You're feeling good near "F", but then the chart dives to "G" and you're stunned! This is a losing day for your account, and it's beginning to hurt.

By this time you feel like the whole market is watching your trades, and they're doing exactly the opposite of what you are doing. You start thinking that they wait for you to enter before they slam you and empty your account..

You have wasted your emotional capital, you don't want to trade any more. You don't have the stomach to consider shorting the rally after "G" to take profits at "H".

There must be a better way!

Banking those profits.

You should seriously consider using profit targets to improve your trading performance. There are several ways to do this, my preference is to use Fibonacci techniques.

On the following chart, I have added a Fibonacci expansion using points "A, B, C". This provides us with three profit targets. They are at 116.52, 116.93, and 117.59, see the blue arrows.

If I add another Fibonacci expansion using points "C, D, E", then two more profit targets are added, at 116.87 and at 117.22 . I have not added those studies to the chart, in order to keep things simple for now. You will notice the 116.87 target is quite close to the profit target at 116.93 in the above paragraph. And the 117.22 target is remarkably close to the swing high at 117.32 which is between E and F. We'll ignore those for simplicity, just remember that Fibonacci is excellent at predicting probable turning points.

The trick with Fibonacci is that the market sometimes blows right through a profit target. So what do you do then? Simple - you stay in the trade! But sometimes the market reverses shortly after a profit target.

Sometimes the market respects a certain Fibonacci level, sometimes not. Some Fibonacci levels are "stronger" than others. Advanced Fibonacci techniques are able to help determine which have more validity, but that is beyond the scope of this lesson. What mechanism could you use to exit the trade?

One practical method of timing a trade is to use an oscillator. Another is to use a moving average. When an oscillator shows a decline of momentum, or when price crosses a moving average, you could exit the trade. Let's explore the "oscillator" option in the following chart.

In that chart, I have removed the Fibonacci studies (less clutter), leaving the blue arrows for profit targets. At the bottom I have added the default Stochastic per E*Signal charting software. I have added a red vertical line whenever the Stochastic "fast" blue line crosses the "slow" red line just after price rises above the Fibonacci target. If you exited when price reached those vertical red lines, you'd be a happy trader!

Already you can see the potential of using profit targets with an exit trigger.

You may want to research the following:

  • Possibly exiting a partial position at each profit target.
  • Consider entering long again on the dips, when the chart begins to rally again.
  • Consider using multiple time-frames, perhaps Fibonacci studies on the hourly chart, and exit triggers on 5 minute charts.

If you would like to become an expert at trading with Fibonacci, see my trading seminars at my website.

- Neal Hughes

Saturday, January 31, 2009

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Wednesday, January 28, 2009

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Friday, January 23, 2009

Forex Market Snapshot


The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.

Excerpt from the BIS:

"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS


  • Decentralised 'interbank' market
  • Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
  • The free-floating currency system arose from the collapse of the Bretton Woods agreement in 1971
  • Online trading began in the mid to late 1990's

Source: BIS Triennial Survey 2007

Trading Hours

  • 24 hour market
  • Sunday 5pm EST through Friday 4pm EST.
  • Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America


  • One of the largest financial markets in the world
  • $3.2 trillion average daily turnover, equivalent to:
    • More than 10 times the average daily turnover of global equity markets1
    • More than 35 times the average daily turnover of the NYSE2
    • Nearly $500 a day for every man, woman, and child on earth3
    • An annual turnover more than 10 times world GDP4

  • The spot market accounts for just under one-third of daily turnover

1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.

Source: BIS Triennial Survey 2007

Major Markets

  • The US & UK markets account for just over 50% of turnover
  • Major markets: London, New York, Tokyo
  • Trading activity is heaviest when major markets overlap5
  • Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location

Source: BIS Triennial Survey 2007

Concentration in the Banking Industry

  • 12 banks account for 75% of turnover in the U.K.
  • 10 banks account for 75% of turnover in the U.S.
  • 3 banks account for 75% of turnover in Switzerland
  • 9 banks account for 75% of turnover in Japan

Source: BIS Triennial Survey 2007

Technical Analysis

Commonly used technical indicators:

  • Moving averages
  • RSI
  • Fibonacci retracements
  • Stochastics
  • MACD
  • Momentum
  • Bollinger bands
  • Pivot point
  • Elliott Wave


  • The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day

Currency Codes

  • USD = US Dollar
  • EUR = Euro
  • JPY = Japanese Yen
  • GBP = British Pound
  • CHF = Swiss Franc
  • CAD = Canadian Dollar (Sometimes referred to as the "Loonie")
  • AUD = Australian Dollar
  • NZD = New Zealand Dollar

Average Daily Turnover by Currency

N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2007

Currency Pairs

  • Majors: EUR/USD (Euro-Dollar), USD/JPY, GBP/USD - (commonly referred to as the "Cable"), USD/CHF
  • Dollar bloc: USD/CAD, AUD/USD, NZD/USD - (commonly referred to as the "Kiwi")
  • Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Source: BIS Triennial Survey 2007

Tuesday, January 20, 2009

Forex market and System

Foreign Exchange Market
From Wikipedia

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. Retail traders (small speculators) are a small part of this market. They may only participate indirectly through brokers or banks and may be targets of forex scams.

Market size and liquidity

The foreign exchange market is unique because of:

* its trading volume,
* the extreme liquidity of the market,
* the large number of, and variety of, traders in the market,
* its geographical dispersion,
* its long trading hours - 24 hours a day (except on weekends).
* the variety of factors that affect exchange rates,

Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study Triennial Central Bank Survey 2004

* $600 billion spot
* $1,300 billion in derivatives, ie
o $200 billion in outright forwards
o $1,000 billion in forex swaps
o $100 billion in FX options.

Exchange-traded forex futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Forex futures volume has grown rapidly in recent years, but only accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 Currency Traders % of overall volume, May 2005 Rank Name % of volume
1 Deutsche Bank 17.0
2 UBS 12.5
3 Citigroup 7.5
4 HSBC 6.4
5 Barclays 5.9
6 Merrill Lynch 5.7
7 J.P. Morgan Chase 5.3
8 Goldman Sachs 4.4
9 ABN AMRO 4.2
10 Morgan Stanley 3.9

The ten most active traders account for almost 73% of trading volume, according to The Wall Street Journal Europe, (2/9/06 p. 20). These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually only 1-3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203. Minimum trading size for most deals is usually $1,000,000.

These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100 / 1.2300 for transfers, or say 1.2000 / 1.2400 for banknotes or travelers' cheques. Spot prices at market makers vary, but on EUR/USD are usually no more than 5 pips wide (i.e. 0.0005). Competition has greatly increased with pip spreads shrinking on the majors to as little as 1 to 1.5 pips.

Trading characteristics

There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
Top 6 Most Traded Currencies Rank Currency ISO 4217 Code Symbol
1 United States dollar USD $
2 Eurozone euro EUR €
3 Japanese yen JPY ¥
4 British pound sterling GBP £
5-6 Swiss franc CHF -
5-6 Australian dollar AUD $

The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.

There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers order flow. Trading legend Richard Dennis has accused central bankers of leaking information to hedge funds.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

On the spot market, according to the BIS study, the most heavily traded products were:

* EUR/USD - 28 %
* USD/JPY - 17 %
* GBP/USD (also called cable) - 14 %

and the US currency was involved in 89% of transactions, followed by the euro (37%), the yen (20%) and sterling (17%). (Note that volume percentages should add up to 200% - 100% for all the sellers, and 100% for all the buyers). Although trading in the euro has grown considerably since the currency's creation in January 1999, the foreign exchange market is thus still largely dollar-centered. For instance, trading the euro versus a non-European currency ZZZ will usually involve two trades: EUR/USD and USD/ZZZ. The only exception to this is EUR/JPY, which is an established traded currency pair in the interbank spot market.

Market participants

According to the BIS study Triennial Central Bank Survey 2004

* 53% of transactions were strictly interdealer (ie interbank);
* 33% involved a dealer (ie a bank) and a fund manager or some other non-bank financial institution;
* and only 14% were between a dealer and a non-financial company.


The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.

Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems, such as EBS, Reuters Dealing 3000 Matching (D2), the Chicago Mercantile Exchange, Bloomberg and TradeBook(R). The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial Companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central Banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves, to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high - that is, to trade for a profit. Nevertheless, central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives, however. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 ERM collapse, and in more recent times in South East Asia.

Investment Management Firms

Investment Management firms (who typically manage large accounts on behalf of customers such as pension funds, endowments etc.) use the Foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager with an international equity portfolio will need to buy and sell foreign currencies in the spot market in order to pay for purchases of foreign equities. Since the forex transactions are secondary to the actual investment decision, they are not seen as speculative or aimed at profit-maximisation.

Some investment management firms also have more speculative specialist currency overlay units, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. The number of this type of specialist is quite small, their large assets under management (AUM) can lead to large trades.

Hedge Funds

Hedge funds, such as George Soros's Quantum fund have gained a reputation for aggressive currency speculation since 1990. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Retail Forex Brokers

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically."

All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers.

In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk").

Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money, so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky.

The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades.

A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.

The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker).

According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' "

In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission . Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, many economists (e.g. Milton Friedman) argue that speculators perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists (e.g. Joseph Stiglitz) however, may consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators.

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not, according to this view. It is simply gambling, that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 150% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and forex speculators only made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.


Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, New York, 1995.

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