Forex Trading 'Must Do': Instant Guide For Forex Beginners
It is believed that more than 50% of Forex traders are losing money long term in the foreign currency exchange market. Yet, there are still a lot of Forex traders who jump into the market, trade blindly and lose their money. Trade after trade, it's surprising to see that 'normally-losing' traders keep betting (not investing!) their money into the Forex market without reviewing their trading strategy. No matter if you are the experienced or the beginners, there are certain 'must-dos' when trading Forex to manage the risk wisely and to increase your possibility of making profits.
Forex traders must-do 1: 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 can help us learn from the professionals. Learn to implement technical charting into your trades; learn using indicators to determine the right time to enter/exit the market; brush up on your experience by trading with a demo account… all these are effective to ensure a smooth start to your forex trading and will also definitely reduce your chances of losing money.
Forex traders must-do 2: Getting the right trading system
It is wise to research very well and consider all the various brokers' systems available to you before making your choice. By applying a certain level of computer automation (like charting and doing auto trades) 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 an auto-trading system can help you to avoid doing emotional-trades.
Forex traders must-do 3: Have a trading plan
As the old saying says: “Failing to plan is a plan to fail”. Trading is like sailing a boat in the middle of the sea; you will not be going anywhere without a compass and a 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 to execute the stop loss order? How high is the affordable risk? A good trading plan should at least answers the above questions. Furthermore, if your trading plan fails, review and modify your trading plan. Find out your mistakes and learn from them.
Forex traders must-do 4: 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. You are better off with a trade where you might lose $1000 if you are wrong and make $500 if you are right that works eight times out of ten, than to make 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. Chances are high that you may miss a good investing chance due to a lack of capital.
Forex traders must-do 5: Disciplined trading
Trading Forex with discipline is important. Success in Forex trading is not achieved solely by plotting out the best trading plan. It is also depends on implementing the trading plan. Be disciplined, trade according to your plan and never trade with your emotion whether you are losing money or winning money. Greed will stop you from taking profits at predetermined levels; while fear will stop you from making the nice kill when it presents itself.
Without a doubt, Forex is gaining in popularity fast against other kinds of trading. No limited market access, no liquidity issues, after market hours, zero commission fees, low capital requirements with high leverage rates, and no restrictions on short selling. Forex can be very beneficial. Always remember to plan your investment wisely by investing first on yourself. You shall get your reward at the end of the road.
The Forex market comes with its very own set of terms and jargon. So, before you go any deeper into learning how to trade the Fx market, it’s important you understand some of the basic Forex terminologies that you will encounter on your trading journey… BASIC FOREX TERMS: Cross rate – The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in. For example, if an exchange rate between the British pound and the Japanese yen was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the pound or the yen is the standard currency of the U.S. However, if the exchange rate between the pound and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency. Exchange Rate – The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200. Pip – The smallest increment of price movement a currency can make. Also called point or points. For example, 1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01. Leverage – Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses. To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). Margin – The deposit required to open or maintain a position. Margin can be either “free” or “used”. Used margin is the amount that is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader’s account falls below the minimum amount required to maintain an open position, he will receive a “margin call” requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade. Spread – The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread. THE MAJOR FOREX PAIRS AND THEIR NICKNAMES: UNDERSTANDING FOREX CURRENCY PAIR QUOTES: You will need to understand how to properly read a currency pair quote before you start trading them. So, let’s get started with this: The exchange rate of two currencies is quoted in a pair, such as the EURUSD or the USDJPY. The reason for this is because in any foreign exchange transaction you are simultaneously buying one currency and selling another. If you were to buy the EURUSD and the euro strengthened against the dollar, you would then be in a profitable trade. Here’s an example of a Forex quote for the euro vs. the U.S. dollar: The first currency in the pair that is located to the left of the slash mark is called the base currency, and the second currency of the pair that’s located to the right of the slash market is called the counter or quote currency. If you buy the EUR/USD (or any other currency pair), the exchange rate tells you how much you need to pay in terms of the quote currency to buy one unit of the base currency. In other words, in the example above, you have to pay 1.32105 U.S. dollars to buy 1 euro. If you sell the EUR/USD (or any other currency pair), the exchange rate tells you how much of the quote currency you receive for selling one unit of the base currency. In other words, in the example above, you will receive 1.32105 U.S. dollars if you sell 1 euro. An easy way to think about it is like this: the BASE currency is the BASIS for the trade. So, if you buy the EURUSD you are buying euro’s (base currency) and selling dollars (quote currency), if you sell the EURUSD you are selling euro’s (base currency) and buying dollars (quote currency). So, whether you buy or sell a currency pair, it is always based upon the first currency in the pair; the base currency. The basic point of Forex trading is to buy a currency pair if you think its base currency will appreciate (increase in value) relative to the quote currency. If you think the base currency will depreciate (lose value) relative to the quote currency you would sell the pair. BID AND ASK PRICE Bid Price – The bid is the price at which the market (or your broker) will buy a specific currency pair from you. Thus, at the bid price, a trader can sell the base currency to their broker. Ask Price – The ask price is the price at which the market (or your broker) will sell a specific currency pair to you. Thus, at the ask price you can buy the base currency from your broker. Bid/Ask Spread – The spread of a currency pair varies between brokers and it is the difference between the bid and ask the price.
The United States nonfarm payrolls report is probably one of the most important economic releases every month. The nonfarm payrolls or NFP for short has a strong influence on the markets, even if it's just short-term. Released every month on the first Friday at 0830 EST, the nonfarm payrolls report that accounts for the number of jobs. In particular, the NFP accounts for jobs in the goods, services, construction and manufacturing sectors.Farming jobs and not for profit organizations are exempt from the report.The Nonfarm payroll report is released the US Bureau of Labor Statistics (BLS). The report helps statisticians, economists and monetary policy makers to determine the state of the economy. The data is also used to predict the future levels of the economy.Did you know? The Bureau of Labor Statistics was created by the US Congress with the Bureau of Labor Act, in 1884.If you want to learn more about the Bureau of Labor Statistics, read here.The BLS is also responsible for collecting other key statistics including the Consumer price index (CPI), Producer price index (PPI), and so on.The nonfarm payrolls report shows the sectors that are creating employment and the sectors that are losing jobs.What are the components of the nonfarm payrolls?The official name of the jobs report is called the Employment Situation.The primary components of the nonfarm payrolls report are:* The number of jobs created during the month* The monthly unemployment rate* The average hours worked during the week* The average wages earned per hour* The labor force participation rateWhile the number of subpoints in the Employment Situation report might seem a bit too overwhelming, there are only two key data points of interest. The markets mostly react to the headline numbers, which is the number of jobs created and the prevailing unemployment rate.The BLS also revises the numbers for the past payrolls as well, and this also tends to influence the markets.Below is a sample of how the official release of the Employment Situation looks like. The Employment Situation report. Source: U.S. Bureau of Labor StatisticsThe rather lengthy report covers all aspects of the labor market. It also goes into much deeper details such as the major worker groups, long-term unemployed and so on.In the main jobs report, however, there are only three categories.* Employed (People who are working)* Unemployed (People who were laid off or looking for a job)* Not in labor force (people who are not looking for a job)How is the Nonfarm payrolls report used by traders?The nonfarm payrolls report can begin to get more complex when you dig deeper. However, for the markets, the main headline numbers are the ones that matter.That said, traders should also bear in mind on what the Fed officials are concerned about. For example, despite a strong jobs numbers, if wage growth stagnation is a risk flagged by officials, then that data point matters to the markets.Therefore, at times you will see that despite a blockbuster report, the markets fall.For traders, the nonfarm payrolls report is important because it brings a lot of volatility and trading opportunities.There are many high-frequency trading algorithms dedicated to tracking the NFP release. While this may be frowned upon by some, it brings more liquidity to the markets. Nonfarm payrolls report - Something for everyone!What's interesting to note is that the NFP report influences all types of traders.From the retail forex day traders to stock traders as well. There is always something for everyone watching the NFP report.For example, a forex day trader will probably look at the NFP report to trade currency pairs such as the EURUSD, USDJPY or GBPUSD. A futures day trader, on the other hand, would be able to trade futures contracts such as the dollar futures, or even interest rate futures.Stock traders also look to the payrolls report to see which sectors in the stock market are performing the most, by looking at the job creation data.Finally, bonds traders can assess the economic situation based on the payrolls report and can trade the 10-year, or the Fed funds rate futures accordingly.To conclude this brief of what is the nonfarm payrolls report; it is one of the monthly occurring events that is important for the markets across all assets. The nonfarm payrolls report released by the US Bureau of Labor statistics shows the number of jobs created during the month as well as the unemployment rate and wage statistics.The nonfarm payrolls report is important to all, from the retail trader to central bank policymakers.
Day Trading describes the process whereby an investor trades a given security or financial instrument within a single business day. Closing their position in that period rather than holding it open overnight. This type of trading became particularly popular among individual investors largely thanks to the growth in the availability of the internet and home computers, that was seen in the late 1990’s and early 2000’s. The ability to trade from home or other remote locations encouraged many investors to take up trading full time. They choose Day Trading as style for its specific advantages and to limit their overnight risk exposure. As the demand for access to Day Trading (and trading in general) grew specialist brokerages such Blackwell Global and its peers commenced operations to satisfy and service that investor demand. Day Trading became most popular amongst investors in two specific markets. Which were Foreign exchange and US stocks and stock indices. More recently, since the advent of Smartphones and Tablets, the ability to trade from a mobile device has created a second wave of demand for Day Trading and many of these new entrants choose to focus on Day Trading Foreign Exchange. Why Day Trade Foreign Exchange or CFDs Flexibility Forex or Foreign Exchange trading and trading CFDs appeals to Day Traders because of the flexibility that these products and their providers offer to them. The Foreign Exchange market operates on a global basis, 24 hours per day 5 days per week for example. Providing Day Traders with the opportunity to trade at a time and a place that’s convenient to them. Liquidity What’s more the daily turnover in the global forex markets, which runs into trillions of US dollars, means that Day Traders are able to open and close positions almost instantaneously, under normal market conditions. Though it’s important to note that liquidity can be reduced and spreads widen over important economic data releases or during unexpected “force majeure” type events. Simplicity CFDs or Contracts For Differences allow Day Traders to speculate on commodities such as Oil and Gold and a range of international equity indices, across Asia, Europe and the USA. Without having to make or take delivery of the underlying assets,unlike dealing in physical shares or commodities. Day Traders in Forex and CFDs can trade long (buy) or short (sell) with equal ease allowing them to benefit from both rising and falling markets and do this from either a desktop PC a Tablet, Smartphone or other mobile device. Leverage Finally Forex and CFD day traders can trade larger positions than their accounts might otherwise allow, through the use of leverage or margin trading. In effect their broker magnifies the size or their initial deposit lending the Day Trader the additional funds to allow them to control a larger position than they could otherwise afford.The broker charges its clients a rate of interest for this facility. However if the client’s positions are opened and closed within the same the business day then no interest charges will be levied* The use of leverage can magnify Day Trading profits but it can also do the same for losses. *For further details about leverage and rollover interest charges please see our products pages Forex, CFDs and Precious Metals Day Trading Strategies Day Traders can use a wide range of trading strategies. Though most of these can be classified as either Scalping or Swing Trading. Scalpers are frequent traders who look to regularly capture small profits from the normal fluctuations in prices within Forex pairs and CFDs. Scalpers trade quickly and can be in a position for just a few moments. They close any trades that move against them for flat or as smaller loss as possible to protect their capital. Swing Traders take a longer term view and are looking to identify and capture clear trends in the price action of an FX pair or CFD. They will trade far less frequently than their scalping colleagues but will look to capture a much bigger return per trade. They will use stop losses to limit their downside on a trade. But will also look to move this behind a trade to lock in a profit on the trade if they can. Trading Software Day Traders are well catered for at Blackwell Global which offers its clients access to Blackwell Trader MT4. A state of the art dealing platform that is perfectly suited to Day Trading. The platform contains a high quality customisable charting package. Charts can be drawn within 6 intraday time frames that range from 1 minute to 4 hours. Users can choose from line, candle or bar charts and apply a wide range of indicators and Technical Analysis studies. Swapping between instruments via a simple drag and drop functionality. Day Traders can also track their exposure and trade history within the platform. The Blackwell Trader MT4 platform can be accessed from a desktop PC or an Android or iOS mobile device. Users can trade seamlessly across devices and be logged into their account from each device simultaneously. Blackwell also provides its clients with access to its bespoke Infinitum back office platform as well as market reports and analysis from both internal and external analysts alongside an economic calendar that allows traders to plan ahead and track key data releases.