FOREX: Introduction and Recommendations from professional FX Trader

The word "FOREX" is an English abbreviation of "Foreign Exchange Operations". This kind of business operations constitute a significant part of the global financial market. The circulation of the US stock exchange with the total volume of 300 billion dollars is less than the one of FOREX by three times. According to The Wall Street Journal, only in September, 1992 this volume totalled around 1 trillion dollars per day. The present-day image of FOREX is a direct result of the 1973 events when European countries switched to floating rates of their currencies. This historical event has provided an opportunity to estimate the real value of currencies of the leading world's countries. In other words, demand for currencies was suggested to correct their supply.

It is not difficult to guess what the dominating currencies which constitute the main value of FOREX are. These currencies are serve as a "business card" of their countries, dictating "the rules of the game" to the rest of the world. They are British Pound, Swiss Frank, Japanese Yen, Euro (which has recently substituted German Mark), and, of course, American Dollar. Actually, FOREX is not a market in the traditional meaning of this word. It doesn't have an actual physical location - as opposite to, let's say, currency futures. All trading is conducted by telephone and via computer terminals at the same time all over the world. Another significant difference is based on the fact that this market never closes - it functions 24 hours per day, 7 days per week throghout the entire year. There are always dealers in any of the five time zones (London, New York, Tokyo, Hong Kong, and Sydney), willing to exchage currencies. Another plus of FOREX is the ability to use the concept of marginal trade. For instance, to conduct an operation with US $100,000 all you need to do is to deposit the amount of money equivalent to 1-10% of the contracted amount. This principle is known as "marginal leverage". Nowadays, the most popular marginal leverage among FOREX traders is 1:100.

The cast of FOREX traders is extremely diverse: banks, international corporations, brokerage companies, small firms, and private investors. A huge number and variety of financial institutions allows to choose the most convenient way of conducting operations and to pick the optimal conditions - such as sum of your deposit, minimal transaction amount, marginal leverage, commission etc. In order to realize the forces ruling FOREX, careful attention has to be paid to the countries it was created by and whose currencies are now traded on it. As we have pointed out above, a country's currency plays the role of its "business card" - hence, the actions of countries determine the value of their currencies on FOREX. The key factors of these actions are economy, internal and external politics, and central banks. The high liquidity of FOREX is the aspect which attracts investors to it - however, everyone should keep in mind that the risks being involved are extremely high as well. To make it simple: you can make a fortune out of practically nothing within seconds, but you can also lose your entire deposit in the blink of an eye.

There's no racial or sexual discrimination on stock exchange and currency markets. New York Stock Exchange (NYSE) will always remember Muriel Zaberth - the first woman to obtain her own portal on NYSE who later became a multi-millionaire and funded a large brokerage company in the United States. The main task of any currency trader is the purchase of currencies at low rates and reselling them at higher rates.

Let's say you are purchasing Japanise Yen at the rate of 109.7 to 1,000 US Dollars. The result is multiplied by the value of your marginal leverage (1:100): 109.7*100 = 10,970 Yen. Let's say, after this the rate of USD falls to 109.3 Yens per 1,000 USD (to make it simple: Yen has become more expensive). In order to complete the operation, you re-purchase your initial US $1000 and keep the difference in Yens as your pure profit.

To sum it up: when Yen was cheap, we purchased a certain amount of this currency for USD. As it has grown in price, we re-purchased the initial amount of USD we had spent, and kept the difference in Yens. Such situations occur on FOREX practically every second. To gain some parctical knowledge and practice in this plan, we encourage our clients to open a demo account with one of online dealing centers, and start learning in conditions similar to the ones of FOREX.

But how do we know when and what currency we should purchase and when we should sell it? Your decision should be based on a number of factors. For this purpose, we have invited a member of HyipDiscussion.com under the username "hyi-center.net" to share his knowledge and experience of a professional FOREX trader with our subscribers.

1. Money Management: Money management is a critical point that shows

difference between winners and losers. If 100 traders start trading using

a system with 60% winning odds, only 5 traders will be in profit at the

end of the year.

95% of traders will lose because of their poor money management. Money

management is the most significant part of any trading system. Most of the

traders these days don't understand how important it is, their emotions

and greed get the better of them resulting in a depleted account.

It's important to understand the concept of money management and

understand the difference between it and trading decisions. Money

management represents the amount of money you are going to put on one

trade and the risk your going to accept for this trade.

As with HYIP's, never spend any more than you are willing to afford to

lose, adopting a similar strategy via forex proves to be beneficial over

time.

For instance; Your starting capital may be $1,000.00, risking 10% of your

balance on one currency pair or HYI Program leaves you with $900.00 to

recover if this Trade, or HYI Program goes against you - choosing to go

any higher than this you face problems later as it's much harder to regain

what was lost with a smaller balance. Trading 10% of your balance is not

recommended on a single trade, 1-5% is surfice (depending on balance

size), especially when your account is on one of the higher leverages your

broker offers you . A small gain here and there soon adds up over a period

of a year.

2. Risk Managment/Leverage: Risk Management & Choosing which Leverage to

take on is another form of Money Management. Before taking on the Currency

Exchange Markets obviously you need to Open a live account first, unless

of course you're a beginner a Demo Account is highly advisable to get a

feel of what you're actually letting yourself in for. A majority of FX

Brokers let you start at 100:1 leverage and work up to 400:1. For any

beginner I advise not to choose these brokers and consider choosing Oanda

(http://www.oanda.com). Oanda offers 10:1 to 50:1 leverage.

As your experience grows choose another broker and opt for 100:1 leverage

with a tighter risk management to compensate for the higher risks involved

and increase the risk ratio as you feel more confident, but never go over

board, consistancy is the key here and in keeping in check of your

emotions regardless if you win or lose big.

10:1 leverage on a $1,000 opening balance is equivalent of controlling

$10,000. 100:1 leverage means you control $100,000.00 worth of open

positions which in general terms means you can earn a whole lot more for

less of the purchase price of the trade. The lower the leverage the more

the Trade will cost, for instance: 10:1 leveraged account for one lot may

cost $10,000 for a $10 per pip. 100:1 leveraged account for one lot may

only cost $1,000 for $10.00 per pip. Huge difference eh? This is why it's

so important to practice money management first as it's easily to get

really greedy from this point on. Most traders when they start out for the

first time will opt for the highest leverage they can obtain and do

something silly like opening a trade for $10,000 cost for $100 per pip not

realising the disadvantage it has should the trade go against them. They

may only have $15,000 in their account leaving $5,000 left as margin (50

pips @ $100 per pip) as room to breath in before being cleaned out. Once

this is used up 1% or less of the cost of the price of the trade is given

to breath (1 or 2 pips) before you're margin called.

So by using Oanda to learn from, you can be something like 100 or 200 pips

down with no margin left and still be ok with a 10:1 leveraged account.

It's like a little insurance policy on the trade, lower the leverage more

you pay insurance on to protect your initial balance/equity.

I've actually traded 400:1 leveraged accounts and still do but only for

NFP Trading (Non-farm payrolls) and earn anything from 20-50% on that

single day alone (once a month), compounded on balance which equates to

around 200-400% profit each month on the Net deposit.

What is Risk Management? Risk Management is actually setting your limit

and never going against it, it takes a lot of self discipline. Trading 1%

to 5% on a single trade of your balance size is advisable and diversifying

your trades with 2 open positions at any one time. Counter balancing with

diversfication on another currency pair that moves in the opposite

direction. Some have adopted the Correlation Technique, closing one at a

loss while closing the other at a higher gain to leave an overall profit

no matter how large or small. Limit your losses and maximise your gains.

Lock in your profits via stop losses or "trail your stop losses" to book

in more profits as they are made, there is nothing worse that seeing

50-100 pip gains to find later you've got yourself some lunch or a cup of

tea to notice this has all gone in the time it took to get yourself some

lunch.

Here's a good site to see this in action to choose which pairs to take on

before hand: http://www.mataf.net/en/analysis-correlation_id.htm

3. Forex Signal Providers: I've seen a lot of places that offer these type

of services and 9 out of 10 of them never keep up the consistancy of

profitable trades. My only advice here is if you start to notice a

provider of such service and not performing as advertised, try not to be

dismayed by the bad results. Actually stay with them if they are really

bad and do the opposite of what they predict.

4. Fibonanacci Laws: This is one of my favorites and comes in very handy

with Elliot Wave Trend Analysis to predict what will happen next. However

the Fibo Laws are a good tool to use to find entry and exit points.

It's a little difficult to explain in full in writing, but if you were to

check the charts and notice the lows and the highs of previous moves on

any currency pair, you will see they all retrace back to a lower level if

the pair was in an uptrend, or visa versa. These moves equate to about

40-70% of it's previous move. So if you seen a pair becoming exhausted and

fails to head higher it's a good sign of a full reversal or a temporay

one.

To create a Fibo line, draw a trend line from the most extreme high to the

most extreme low, then right click to execute a fibo tool, this may vary

from fx platform to fx platform although this works with Oanda trading

stations. Others may ask you to hold the mouse at the extreme high and

drag it down to the most extreme low then let go of the mouse button to

lay the fibo tool on the chart.

Leonardo Fibonacci was a mathematician who was born in Italy around the

year 1170. It's believed that Mr. Fibonacci discovered the relationship of

what is now referred to as Fibonacci numbers while studying the Great

Pyramid of Gizeh in Egypt.

Fibonacci numbers are a sequence of numbers in which each successive

number is the sum of the two previous numbers:

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 610, etc.

These numbers possess an intriguing number of interrelationships, such as

the fact that any given number is approximately 1.618 times the preceding

number and any given number is approximately 0.618 times the following

number. Just like TV's, Doors, Credit cards, PC Tower Case, etc.

Everything today is governed by the Fibo 1.618 Law - actually this is

where the Elliot Wave Trend was dervied from but laid out in such a way to

predict future prices, where Fibo is to predict retracements.

There are actually four popular Fibonacci studies: arcs, fans,

retracements, and time zones. The interpretation of these studies involves

anticipating changes in trends as prices near the lines created by the

Fibonacci studies. But for now I'll explain the retracements:

Fibonacci Retracements are displayed by first drawing a trendline between

two extreme points as previously mention, for example, a trough and

opposing peak. A series of nine horizontal lines are drawn intersecting

the trendline at the Fibonacci levels of 0.0%, 23.6%, 38.2%, 50%, 61.8%,

100%, 161.8%, 261.8%, and 423.6%. (Some of the lines will probably not be

visable because they will be off the scale.)

After a significant price move (either up or down), prices will often

retrace a significant portion (if not all) of the original move. As prices

retrace, support and resistance levels often occur at or near the

Fibonacci Retracement levels.

So keep a look out for trades that have reached 61.8% fibo of it's

previous move, it's 99% guaranteed that it'll head back the other way,

unless a Head & Shoulders Double Bottom is formed via retracement

failures.

5. Finding entry and exit points via EMA's: EMA is an Expotential Moving

Average to compare the relationship between a moving average of the

currency's price with the currency's price itself. A buy signal is

generated when the currency's price rises above its moving average and a

sell signal is generated when the currency's price falls below its moving

average. By placing two of these at different intervals, for example. EMA

10 & EMA 25, when the two cross over it's a buy or sell signal depending

on the current trend it's in; down or uptrend. Over the course of the

weeks ahead I'll be laying out some images to explain various Indicators

that can be used to determine entry and exit points on its own, or via

several indicators together to pin point when to open or close a trade.

6. I'll save the best till last; Hedging: Hedging is actually going with

and against a trade at the same time without one trade cancelling out the

other. This type of trading works extremely well with pivot point trading

and as much as 100% per week can be made via this method alone, but it

does have its set backs if we see extreme movements like we've witnessed

over the weeks where there's been 300-700 pip gain movements within a week

that can take about 3-6 or so weeks to retrace, but again should one adopt

strict money management and risk studies to stay within the confinments of

being margin called.

This is just a snippet of what to look out for, there's going to be a

larger and more indepth way to trade showing you more or less everything I

have taught myself via google.com with images. I've choosen to teach

myself due to the simple reason that it costs way way too much to take on

a course and have someone teach me - you will find that if you pay for

courses you don't exactly get everything you paid for and still need to do

a lot of research afterwards before perfecting a strategy that works for

you.