As any accurate brochure or legitimate broker will inform you, Forex is a risky business. You are taking a risk with every trade you place; it’s a calculated risk, and since nothing in life is certain, this isn’t an unreasonable way to make a living. You’ve probably heard people say that investors are gamblers. Many are—but a few aren’t, and it’s the few who aren’t who succeed. The difference between a gambler and a real investor comes down to risk management.
There are three main components of risk management in Forex: money management, a trading method, and psychology. There is no trading method which is invulnerable to the changes in the market, and no trading system which is foolproof. At the same time though, it’s extremely important that you have some kind of a method, and that you test that method and prove its efficacy before you trade real money. This keeps your trades from being random—up to a point. Your system isn’t all you need to test. You also need to test yourself.
How do you handle risk in Forex? There is no one single best approach to dealing with risk in Forex or any other pursuit, since everyone is different. Most people will err on the side of either caution or recklessness. Before you trade with real money in Forex, it is essential for you to figure out which you tend toward—caution or recklessness. It’s fairly obvious why reckless trading can blow your account; overly cautious trading can be just as destructive, though. Erring on the side of caution may lead you to exit (or simply not take) all the best trades before they become profitable—while still suffering substantial losses.
Whether you tend to trade too often and exit too late, or trade too seldom and exit too early, the failure is in not trusting your methodology. If this is because you haven’t done enough testing, then it’s back to demo until you feel more confident. If you’ve tested your trading method and you have excellent results, then you will need to examine why you aren’t confident. It may have nothing at all to do with the Forex system you’ve developed—you may exhibit the same patterns in other parts of your life. If so, you will need to learn to adjust for those behavioral patterns in your Forex trading.
Finally, managing risk involves managing money. You should never trade more than a tiny percentage of your account at any point in time. Most successful Forex traders only trade 2.5% of their accounts on any given trade. If you do add on when a trade goes in your favor, you’ll need to create a systematic way of doing so with discipline.
You’ve probably read or heard that you need to learn to trade Forex without emotion. While you can control your emotions to some degree, the reality is that all of us are going to feel some emotional response to risk now and again while trading Forex. The key is to learn how best to integrate those emotions into your trading or remove your trading from your emotions—depending on the person. The only way you can do that is to study yourself, not just the market.
If you have any questions or want to share your opinion on the role of proper risk handling in Forex trading, please feel free to reply using the commentary form below.
Material taken from http://www.forexnewbies.com/risk-management-in-forex/
неделя, 13 май 2012 г.
неделя, 6 май 2012 г.
What Weekly Return Can You Expect in Forex?
Many traders are drawn to the foreign exchange market when they see promises of massive returns. Have you seen advertisements for systems which can double your account in a week? Or give you returns of 1000 percent? The people who promote these systems say that they work because with Forex you’re allowed to trade using leverage — meaning you can control substantially more money than you actually have, and collect the profits from those massive trades. Of course, what these so-called Forex traders neglect to mention is that you can also take massive losses, the kind which can shut you down overnight — or even in minutes or seconds.
The reality of Forex is that while leverage is available, most successful traders use it sparingly or not at all. The majority of traders who actually make it will only invest something like 2.5 to 5 percent of their accounts on any given trade. That’s a pretty small percentage of their bankrolls. How many trades you take in a given week or month and how successful those trades are will determine how much money you can actually make in a given time period. Most really good Forex traders are pleased if they can pull in 5 to 10 percent returns per month!
Does that mean you can’t make more than that? It doesn’t, but you have to be careful how you go about it. You could bring in 1000 percent returns in a week with a lucky gamble after all — and then lose 1000 percent the next week and be out of the game. Would you rather make huge returns for a week or two and then go broke, or make smaller but consistent profits which will add up over a long time frame? You can’t build a living on wild speculation, but you can build a living off of consistency in Forex.
So how can you increase your earnings without gambling? One way would be to take more trades. You cannot compromise on the integrity of those trades, however — they need to all be A-trades, the very best trades you can find. You may be able to find more Forex trades to take by examining more currency pairs than you do already, or you might be able to find more trades if you look at a faster timeframe. Use caution when trading faster timeframes, however; it is a completely different experience and most (but not all) beginners are more profitable with slower timeframes.
Forex takes a great deal of patience, unless you’re coming into it with a massive bankroll already, in which case you should be perfectly happy with 5 to 10 percent anyway. Remember that there is theoretically an exponential growth curve if you can stick with this for the long term, but only if you can pull in consistent profits. So work on that 5 to 10 percent, and know that your patience and diligence are going to pay off for you in the long run. If you feel the need to accelerate things, then concentrate on funding your account — not compromising your discipline.
Material taken from http://www.forexnewbies.com/what-weekly-return-can-you-expect-in-forex/
The reality of Forex is that while leverage is available, most successful traders use it sparingly or not at all. The majority of traders who actually make it will only invest something like 2.5 to 5 percent of their accounts on any given trade. That’s a pretty small percentage of their bankrolls. How many trades you take in a given week or month and how successful those trades are will determine how much money you can actually make in a given time period. Most really good Forex traders are pleased if they can pull in 5 to 10 percent returns per month!
Does that mean you can’t make more than that? It doesn’t, but you have to be careful how you go about it. You could bring in 1000 percent returns in a week with a lucky gamble after all — and then lose 1000 percent the next week and be out of the game. Would you rather make huge returns for a week or two and then go broke, or make smaller but consistent profits which will add up over a long time frame? You can’t build a living on wild speculation, but you can build a living off of consistency in Forex.
So how can you increase your earnings without gambling? One way would be to take more trades. You cannot compromise on the integrity of those trades, however — they need to all be A-trades, the very best trades you can find. You may be able to find more Forex trades to take by examining more currency pairs than you do already, or you might be able to find more trades if you look at a faster timeframe. Use caution when trading faster timeframes, however; it is a completely different experience and most (but not all) beginners are more profitable with slower timeframes.
Forex takes a great deal of patience, unless you’re coming into it with a massive bankroll already, in which case you should be perfectly happy with 5 to 10 percent anyway. Remember that there is theoretically an exponential growth curve if you can stick with this for the long term, but only if you can pull in consistent profits. So work on that 5 to 10 percent, and know that your patience and diligence are going to pay off for you in the long run. If you feel the need to accelerate things, then concentrate on funding your account — not compromising your discipline.
Material taken from http://www.forexnewbies.com/what-weekly-return-can-you-expect-in-forex/
понеделник, 30 април 2012 г.
Forex With a Small Budget?
In recent times there have been wide ranging changes in the markets that have led many investors to try and find alternatives to the normal stocks and shares options. Gold was the first port of call for many investors who saw it as a safe haven for their investments until the economic situation calmed down. With a smaller budget, gold could potentially be out of your reach now, but are there any other options? Considering Forex and choosing Forex accounts is exciting, but is it viable if you only have a small amount of capital to begin with?
Research is Vital
Forex does not require you to invest huge amounts of capital to enter the market; the only problem with this is that your profits will be linked to the amount of money you originally invest. As will your losses, but you need to make sure you constantly monitor them. As with investments such as spread betting, the losses can exceed your original investment so you need to be sure you understand exactly what you are getting into. Once you have researched Forex effectively, and believe it to be a valid option, then you need to pick the currency that you believe will give you the greatest return in investment. With a small budget you may find this a challenge, as currency changes are rarely extreme. Ensure that you are investing in a safe currency though; currencies that have dramatic shifts in profit or loss are not advisable for those with a small budget.
Prepare to Wait
With a safe investment in a currency like the US dollar or GBP you can see your small investment grow and it is possible that with investment over an extended period of time to make a significant profit. When you’re working with a smaller budget the vital step is your next move. If you have entered the Forex market, you have entered it with one reason, to make money. Improving your budget with sensible investments will mean that you can take more risks. This means that you will be able to invest in currencies that expose your investment to a higher risk, but also potentially increase profits dramatically. You need to be sure that you are investing in the right area; a wrong move could wipe out any profit from your original investment.
In short, Forex is a valid option for those with a small budget if they are prepared to play the waiting game. Your initial investment will have to improve dramatically, and with Forex you need to be sure of the risk. The riskier currencies will give you a better chance of making large amounts of money, but you need a high amount of capital to do this. If you are prepared to wait for your investment to increase, and monitor it at the same time then you can use Forex as an effective tool of investment. It is down to the individual to decide as to whether or not they are happy with a long-term investment, rather than the short term gains that a Forex investor with a large budget can make.
Material taken from http://www.forexnewbies.com/forex-with-a-small-budget/
Research is Vital
Forex does not require you to invest huge amounts of capital to enter the market; the only problem with this is that your profits will be linked to the amount of money you originally invest. As will your losses, but you need to make sure you constantly monitor them. As with investments such as spread betting, the losses can exceed your original investment so you need to be sure you understand exactly what you are getting into. Once you have researched Forex effectively, and believe it to be a valid option, then you need to pick the currency that you believe will give you the greatest return in investment. With a small budget you may find this a challenge, as currency changes are rarely extreme. Ensure that you are investing in a safe currency though; currencies that have dramatic shifts in profit or loss are not advisable for those with a small budget.
Prepare to Wait
With a safe investment in a currency like the US dollar or GBP you can see your small investment grow and it is possible that with investment over an extended period of time to make a significant profit. When you’re working with a smaller budget the vital step is your next move. If you have entered the Forex market, you have entered it with one reason, to make money. Improving your budget with sensible investments will mean that you can take more risks. This means that you will be able to invest in currencies that expose your investment to a higher risk, but also potentially increase profits dramatically. You need to be sure that you are investing in the right area; a wrong move could wipe out any profit from your original investment.
In short, Forex is a valid option for those with a small budget if they are prepared to play the waiting game. Your initial investment will have to improve dramatically, and with Forex you need to be sure of the risk. The riskier currencies will give you a better chance of making large amounts of money, but you need a high amount of capital to do this. If you are prepared to wait for your investment to increase, and monitor it at the same time then you can use Forex as an effective tool of investment. It is down to the individual to decide as to whether or not they are happy with a long-term investment, rather than the short term gains that a Forex investor with a large budget can make.
Material taken from http://www.forexnewbies.com/forex-with-a-small-budget/
сряда, 25 април 2012 г.
Realistic Expectations in Forex Trading
If you’re just getting into Forex, you probably have seen a lot of websites promising to teach you how to turn a thousand dollars into a million within a year. You’ve seen advertisements telling you that you can quit your full-time(or part-time) job elsewhere and trade for a living NOW. You’ve heard about the huge leverage which many Forex brokers allow you to use and think that leverage could be the key to making it overnight. Can Forex get you from rags to riches?
All these claims are grounded in something real — but they aren’t healthy, intelligent claims, and they don’t promote realistic expectations. A lot of people who are attracted to Forex are part of a get-rich-quick crowd. Naturally there’s nothing wrong with wanting to get rich quick, but the fact is, “quick” in real life rarely means a year. You’re lucky if it means ten years.
Trading Forex is a full-time business — even if you’re doing another full-time job on top of it, and chances are that you will be. Unless you’re already ridiculously wealthy and just sitting on investment capital, you’ll have to do another job in order to pay your bills, since you won’t be able to live off of the money you’re making with Forex in the beginning. Indeed, even if you could, you might not be able to grow your account if you have to keep withdrawing from it to pay your rent or buy your groceries or gas.
So no, you won’t be quitting your job just yet. As to using leverage, leverage is a powerful tool, but it’s more likely to break you than to make you, especially at the beginning stage of your Forex career. In fact, by the time you can feel confident using leverage in Forex, you’ll probably lose interest in doing so, because you’ll have figured out that responsible trading means investing only a small portion of the money you already have — not more money than you have.
Can you turn a thousand dollars into a million in year by trading Forex? It’s possible. It’s just not likely, and it is likely that the more you rush, the more mistakes you’ll make. Those mistakes will cost you, and that means in terms of real money. You can make a lot of money in Forex, but only by being patient, setting realistic goals, and taking your time. There’s no thing that will get you down faster than finding out that your hopes were unrealistic and being constantly disappointed. So start out with the right, patient attitude, and approach Forex with discipline. That is the best route to success, even though it won’t happen overnight. If you want to trade for a living, make trading for a living your goal — not making X amount of money in X amount of time. Make it your goal to place only the best trades based on the best setups, and you’ll be far more likely to succeed at your financial goals.
Material taken from http://www.forexnewbies.com/realistic-expectations-in-forex-trading/
All these claims are grounded in something real — but they aren’t healthy, intelligent claims, and they don’t promote realistic expectations. A lot of people who are attracted to Forex are part of a get-rich-quick crowd. Naturally there’s nothing wrong with wanting to get rich quick, but the fact is, “quick” in real life rarely means a year. You’re lucky if it means ten years.
Trading Forex is a full-time business — even if you’re doing another full-time job on top of it, and chances are that you will be. Unless you’re already ridiculously wealthy and just sitting on investment capital, you’ll have to do another job in order to pay your bills, since you won’t be able to live off of the money you’re making with Forex in the beginning. Indeed, even if you could, you might not be able to grow your account if you have to keep withdrawing from it to pay your rent or buy your groceries or gas.
So no, you won’t be quitting your job just yet. As to using leverage, leverage is a powerful tool, but it’s more likely to break you than to make you, especially at the beginning stage of your Forex career. In fact, by the time you can feel confident using leverage in Forex, you’ll probably lose interest in doing so, because you’ll have figured out that responsible trading means investing only a small portion of the money you already have — not more money than you have.
Can you turn a thousand dollars into a million in year by trading Forex? It’s possible. It’s just not likely, and it is likely that the more you rush, the more mistakes you’ll make. Those mistakes will cost you, and that means in terms of real money. You can make a lot of money in Forex, but only by being patient, setting realistic goals, and taking your time. There’s no thing that will get you down faster than finding out that your hopes were unrealistic and being constantly disappointed. So start out with the right, patient attitude, and approach Forex with discipline. That is the best route to success, even though it won’t happen overnight. If you want to trade for a living, make trading for a living your goal — not making X amount of money in X amount of time. Make it your goal to place only the best trades based on the best setups, and you’ll be far more likely to succeed at your financial goals.
Material taken from http://www.forexnewbies.com/realistic-expectations-in-forex-trading/
понеделник, 9 април 2012 г.
Analyzing Your Forex Trades
When you’re putting together your Forex trading plan, you’ll need to plan a time to watch the market, a time to place your trades, rules for placing those trades and exiting them—and also set some time aside each day or week to analyze your trades. It’s good to analyze your trades after you make them, but it’s also a good idea to set aside some time to routinely review your progress (or regress) on a regular basis after your mind has had some time to settle. Sometimes you can’t see a trade clearly right after you’ve taken it, and you’ll have a clearer perspective if you go back and analyze it later. What should you look at when analyzing your Forex trades?
It’s not enough to win trades—you have to know why you won them. And if you lose a trade, you need to figure out why you lost that trade so that you don’t repeat the same mistake twice. Some losses are inevitable—even if you’re following a trading method—and that is something you’ll have to accept. But many losses are avoidable, and only in analyzing your losses will you find ways you can adjust your system (or yourself) to avoid future losses. Likewise, a Forex trade won for the wrong reasons is really a trade you lost—if you won a trade through chance, that isn’t something you want to repeat in the future. You want to win your trades through following your method and not through abandoning it—or you will end up losing everything.
So when you look at your trades, ask yourself whether you were following your method when you took the trade. If you did, then ask yourself why the trade was a good trade, or why it was a bad trade. You don’t want to adjust your system for every loss, but you may notice patterns over time which may lead you to long term adjustments in either your method or your behavior. If you discover that you didn’t follow your Forex method, then you will need to ask yourself why. Did you get nervous and cut out of a trade early? Did you keep waiting around for the trade to “come back” and turn a small loss into a large loss?
What are some examples of mistakes that could call for adjustment? If you find out you’ve been losing trades you would otherwise have won because you became impatient and exited your trades early, you can become conscious of your lack of self discipline and correct it during future trades. If you discover that your method is causing you to lose trades because you’re entering setups with a poor context, you can adjust your entry rules to account for the context in a more inclusive way. The market evolves, so your system will need to evolve with it—as will you. Analyzing your Forex trades is the key to keeping up with those changes and growing with them.
It’s not enough to win trades—you have to know why you won them. And if you lose a trade, you need to figure out why you lost that trade so that you don’t repeat the same mistake twice. Some losses are inevitable—even if you’re following a trading method—and that is something you’ll have to accept. But many losses are avoidable, and only in analyzing your losses will you find ways you can adjust your system (or yourself) to avoid future losses. Likewise, a Forex trade won for the wrong reasons is really a trade you lost—if you won a trade through chance, that isn’t something you want to repeat in the future. You want to win your trades through following your method and not through abandoning it—or you will end up losing everything.
So when you look at your trades, ask yourself whether you were following your method when you took the trade. If you did, then ask yourself why the trade was a good trade, or why it was a bad trade. You don’t want to adjust your system for every loss, but you may notice patterns over time which may lead you to long term adjustments in either your method or your behavior. If you discover that you didn’t follow your Forex method, then you will need to ask yourself why. Did you get nervous and cut out of a trade early? Did you keep waiting around for the trade to “come back” and turn a small loss into a large loss?
What are some examples of mistakes that could call for adjustment? If you find out you’ve been losing trades you would otherwise have won because you became impatient and exited your trades early, you can become conscious of your lack of self discipline and correct it during future trades. If you discover that your method is causing you to lose trades because you’re entering setups with a poor context, you can adjust your entry rules to account for the context in a more inclusive way. The market evolves, so your system will need to evolve with it—as will you. Analyzing your Forex trades is the key to keeping up with those changes and growing with them.
Material taken from http://www.forexnewbies.com/analyzing-your-forex-trades/
събота, 17 март 2012 г.
Interest Rate Charges
The costs associated with holding a position for several days are determined by the short term interest rates of the currencies involved in the trade. This 'cost of carry' can mean that interest is paid to you or taken from you, depending on which currencies have the higher interest rate.
This cost can be built into a new rate for the new business day (represented in points), can be credited or debited to your account along with the previous days profit or loss (where the broker closes and reopens the trade much like a futures contract), or can simply appear as a cost on your statement.
(The formula for this has been previously posted, but here it is again)
The official (ACI) method of calculating this is as follows:
"pips = (spot-(((1+quoted currency interest rate)x days/days basis x 100)/((1+base currency interest rate x days)/days basis x100))) x spot)) x -10000
For example, EUR/USD spot is 1.21, the USD interest rate is 4.5% and the EUR interest rate is 2.5%. There is one day to the next business day. Therefore the pip difference is .67 pips. Therefore, if you were short EUR, long USD you should have a trade whereby your position would be established .67 of a pip higher than previously.
Alternatively, the broker may credit or debit you account accordingly. In this case, on a €100,000 trade, you would get $15.12 interest on your USD (100,000 x 1.21 x 4.5 x 1 /360 x 100) and pay away $8.40 on the EUR (100,000 x 1.21 x 2.5 x 1 /360 x 100), so you should have $6.71 in your favour "
Oanda does not charge overnight interest. They charge interest in 'real time', that is, for the exact period of holding a position. This may be a fairer method or not, depending on your point of view. They have a calculator on their web site to allow you to calculate this cost.
http://www.oanda.com/products/fxmath/interest.shtml
This cost can be built into a new rate for the new business day (represented in points), can be credited or debited to your account along with the previous days profit or loss (where the broker closes and reopens the trade much like a futures contract), or can simply appear as a cost on your statement.
(The formula for this has been previously posted, but here it is again)
The official (ACI) method of calculating this is as follows:
"pips = (spot-(((1+quoted currency interest rate)x days/days basis x 100)/((1+base currency interest rate x days)/days basis x100))) x spot)) x -10000
For example, EUR/USD spot is 1.21, the USD interest rate is 4.5% and the EUR interest rate is 2.5%. There is one day to the next business day. Therefore the pip difference is .67 pips. Therefore, if you were short EUR, long USD you should have a trade whereby your position would be established .67 of a pip higher than previously.
Alternatively, the broker may credit or debit you account accordingly. In this case, on a €100,000 trade, you would get $15.12 interest on your USD (100,000 x 1.21 x 4.5 x 1 /360 x 100) and pay away $8.40 on the EUR (100,000 x 1.21 x 2.5 x 1 /360 x 100), so you should have $6.71 in your favour "
Oanda does not charge overnight interest. They charge interest in 'real time', that is, for the exact period of holding a position. This may be a fairer method or not, depending on your point of view. They have a calculator on their web site to allow you to calculate this cost.
http://www.oanda.com/products/fxmath/interest.shtml
Material taken from http://www.goforex.net/forum/showthread.php?p=106#post106
четвъртък, 2 февруари 2012 г.
Margin and Leverage
Margin
The deposit required to open or maintain a position. Margin can be either "free" or "used". Used margin is that amount which 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.
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).
Matterial is taken from http://www.goforex.net/forex-basics.htm
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