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Monday, June 25, 2012

Successful Trading Tips

There is no doubt that trading requires more than a few quick tips for success. You need experience, fortitude, capital and, above all, a solid trading system.

However, for the average beginner and those who perhaps are losing their focus because of significant draw-downs, keeping things simple can help to introduce much needed focus into your trading.

To that end, here are some tips that you can use for trading that can help you get a handle on these exciting markets.

1. Never add to a position that is losing.

2. Always determine a stop and a profit objective before you start entering a trade. Place stops that are based on market information, and not your account balance. If a "proper" stop is too expensive, it isn’t worth it to make the trade.

3. Remember the power of a position. You should never make a market judgment when you have a position.

4. Your decision to exit a trade means that you are able to perceive changing circumstances. You shouldn’t think you can pick a price, exit at the market.

5. In a Bull market, you never want to sell a dull market, in Bear market, you should certainly never buy a dull market.

6. There are times, due to a lack of liquidity, or excessive volatility, when you should not trade at all.

7. Trading systems that work in an up market may not work in a down market. It is good to know this and remember it.

8. There are at least three types of markets like up trending, range bound, and down trading, and you should have a different trading strategy for each.

9. Up market and down market patterns are ALWAYS there, and it is only that one is always more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped repeatedly. Select trades that move along with the trend.

10. A buy signal that fails is really just a sell signal. A sell signal that fails is a buy signal.

11. It's always easier to enter a losing trade.

12. During the blowout stage of the market, up or down, the risk managers are usually issuing margin call position liquidation orders. They don't generally check the screen for overbought or oversold; they just keep issuing liquidation orders. It is best to make sure that you don't stand in the way.

13. It’s good to be superstitious; in that you shouldn’t trade if something bothers you.

14. Buy the news that you hear, sell the factual news.

15. News is only important when the market doesn't react in the direction of the news.

16. It helps for you to read today's paper tomorrow. When you read yesterday's paper each day with the knowledge of what the market already did, it will remind you that what happened yesterday has nothing to do with what will happen today.

17. You should never enter a new trade in the direction of a gap. Never let the market make you make a trade.

18. The first and last tick are always the most expensive. Get in late and out early.

19. When everyone else is in, it's time for you to get out.

20. Never trade when you are sick.

21. You should only change your unit of trading under a plan of attained goals. You should also have a plan for reducing size when your trading is cold or market volume is down.

22. Confidence is a bad thing. Remember, you really don't know anything unless you are a broker. You need to expect the unexpected. Always know your position and exit your trade immediately whenever you feel uneasy.

23. Measure yourself by profitable consecutive days and not by individual trades.

24. The best way to break a streak of consecutive loses is to not trade for a day.
25. Don't stop trading when you’re on a winning streak.

26. Don't turn three losing trades in a row into six in a row. When you’re off, turn off the screen, do something else. Sticking in when you are loosing is just silly.

27. Scalpers reduce the number of variables effecting market risk by being in a position only for a few seconds. Day traders reduce market risk by being in trades for minutes.

28. If you convert a scalp or day trade into a position trade, technically you did not consider the risks of the trade properly.

29. You should not worry about a missed opportunity. There is always another one just around the corner.

30. If you look for secrets in the market you will only find things that no one cares about. It is better to use the tools, which will be covered in the next section.

31. Never ask for someone else's opinion, they probably did not do as much homework as you did anyways.

32. When the market is going up, you should say it aloud. When the market is going down, you want to say that aloud too. The reason for this is that you’d be amazed at how hard it is to say what is literally going on in front of you when your mind is full of preconceived opinions.

33. Successful day trading requires flexibility. You have to do your homework so that you can understand the full potential for both sides of the market. This will allow you to make your trades based on what the market is doing at the time of the trade.

34. Here is a quote that would be good for you to remember: “When you wake up, your instincts are wrong.”  

35. When you make a mistake of discipline, whine like a fool to anyone that will listen. Any errors that are made in discipline are mistakes you will keep on making for many years. Wearing ashes and sack cloth may help you to extend the time before you do it again.

36. If you whined or got fidgety while you read this list, then you share two obvious characteristics with many other traders:

A. You have traded long enough to recognize that you (not the market) make mistakes, and you try to overcome them.

B. This fact is awkward, you have become part of the market and you can never leave. No matter where life takes you, you will always check the market and you will also always want to continue being a part of it.

  1. For small accounts ($25,000 and under), like I said before you need to trade with the trend. Many beginners look for trades that flow in any direction. While forex trading easily permits bi-directional trading, trading in the direction of the trend improves your odds over the long run.

  1. You should have at least two accounts. One real account and the other a demo account. Learning doesn't stop when trading real dollars begins. Keep the demo account and use it to test any alternative trades etc. For example, you can shadow your real trades with identical ones in your demo account, but you will want to widen your stops in the demo in an effort to see if you're being too conservative.

  1. You have to stop looking for leading indicators because there aren't any. While some firms make a lot of money selling software that predicts the future, the reality is that if those products really worked, they wouldn't be telling you about it.

  1. Examine the daily charts, the four-hour charts and one-hour charts are there to assist you in timing your trades. While you are trading at 30- and 15-minute time increments, it takes a great deal of dexterity.

  1. Don't trade the time frame that is offered. Trade the pattern instead. Reversal patterns, hesitation patterns and breakout patterns show up a lot. Learn to look for the pattern in any time frame.

  1. If you have the right amount of money, trading two lots is safer than just trading one. Trading three lots is safer than two etc. Trading is a big pile of emotions, technical analysis and money management. One lot alone makes it difficult to weigh these elements in deciding to enter or exit.

  1. Extreme trading can be the most conservative trading when you think about it. Trading at the extremes ­increases the odds that you have chosen the right direction.

  1. You should fully check the Big Five ­ the dollar/yen, euro/dollar, Swiss franc/dollar, euro/yen and pound/dollar ­ before you decide to take a position in any one of them. There might be something obvious that you’ve missed.

  1. Follow the Upside Down Rule. If you can turn a chart upside down and it still looks the same, avoid it all together.

  1. Don't keep count of your profits in your first 20 trades. Keep track of the percentage of wins instead. Once you know you can pick direction, profits can be increased with multi-plot trading and by using variations in your stops. In other words, now is the time to get serious about your personal money management. 

Trade Forex - Non-stop Reason

The cash/spot FOREX markets possess certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother? The answer to that is very simple. It boasts:

A 24-hour market: A trader has the chance to take advantage of all of the profitable market conditions at any time which means that there is no waiting for the 'opening bell' like the exchange.

Highest liquidity: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition minimal execution barriers or risk and no daily trading limit.

High leverage: A leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 (50% margin requirement) in the equity markets. Of course, this makes trading in the cash/spot forex market awkward a swell because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.

Low transaction cost: The retail transaction cost (the bid/ask spread) is actually less than 0.1% (10 pips) under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.

Always a bull market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies. However, if the outlook is negative, we have a bull market for other currencies and a trader profits being forced to selling the currency against other currencies.

In either case, there is always a bull market trading opportunity for a trader.

Inter-bank market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.

The FOREX market actually works a lot like the way the NASDAQ market in the United States operates, and because of this, it is also referred to as an over the counter or OTC market.

No one can corner the market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time. Even when interventions are conducted by mighty central banks are getting to be increasingly ineffectual and short-lived. This means that central banks are becoming less and less inclined to intervene to manipulate market prices.

It is Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.

The daily operations of retail FOREX brokerages are not regulated under any laws or regulations that are specific to the FOREX market, and in fact, many of these types of establishments in the United States do not even report to the Internal Revenue Service.

The currency futures and options that are actually traded on exchanges like Chicago Mercantile Exchange (CME) are under the regulation in the same manner that other exchange-traded derivatives are regulated.

There are many different advantages to         trading forex instead of futures or stocks, such as:

1. Lower Margin
Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%.  For example, margin required to trade foreign exchange is $1000 for every $100,000.

What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.

When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well.

You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.

The positions that you have in your account could be partially or completely liquidated on the chance that the available margin in your account falls below a predetermined amount.

You may not actually get a margin call before your positions are liquidated.
Because of this, you should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.

2. No Commission and No Exchange Fees
When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant.

Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures.

For example, if you are trading a Japanese Yen/US Dollar pair, forex trade would have about a 3 point spread (worth $30). Trading a JY futures trade would most likely have a spread of 1 point (worth $10) but you would also be charged the broker's commission on top of that. This price could be as low as $10 in-and-out for self-directed online trading, or as high as $50 for full-service trading. It is however, all inclusive pricing though.

You are going to have to compare both online forex and your specific futures commission charge to see which commission is the greater one.
3. Limited Risk and Guaranteed Stops
When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for Live Cattle were going to continue their upward trend in December 2003, just before the discovery of Mad Cow Disease found in US cattle.

The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. As the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.

4. Rollover of Positions
When futures contracts expire, you have to plan ahead if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.

5. 24-Hour Marketplace
With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away.

Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australia and back to the US again. You can trade any time you like Monday-Friday.

6. Free market place
Foreign exchange is perhaps the largest market in the world with an average daily volume of US$1.4 trillion. That is 46 times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.

Forex trading is simply a great alternative to futures and commodities trading. Unless you are a broker, you will likely want to get some help in forex trading to help ensure that your venture is successful. As with all trading, there are always some risks involved, but if you follow this comprehensive to successful forex trading, the whole process should be much easier. Let’s get started!

Trading - Quiz And Test

1. (p. 61) ____________ is the selling of products to another country.
A. In-trading
B. Exporting
C. Importing
D. Dumping

2. (p. 60) _____________ is buying products from another country.
A. Importing
B. Outsourcing
C. Retailing
D. Exporting

3. (p. 60) The largest importer in the global market today is:
A. Japan.
B. Russia.
C. Germany.
D. The United States.

4. (p. 62) __________ occurs when a country has a monopoly on producing a product or is able to produce it at a cost well below that of all other countries.
A. Comparative advantage
B. Absolute advantage
C. Complete advantage
D. Dumping advantage

5. (p. 61) The concept of free trade means:
A. buyers and sellers contract with each other and offer some goods at no cost.
B. goods and services can be traded freely across borders without political and/or economic barriers.
C. there is no exchange of currency for these products.
D. there is no exchange of currency, but the trading partners determine the value of the product and perform a bartering process to exchange goods.

6. (p. 61 - 62) Many of the toy products sold in the United States are imported from Taiwan because the Taiwanese can produce these products more efficiently than U.S. companies. This is an example of:
A. Bilateral advantage.
B. Comparative advantage.
C. Absolute advantage.
D. Unilateral advantage.
The theory of comparative advantage states that a nation should buy from other countries those products it cannot produce as effectively or efficiently as do those other countries.

7. (p. 60) After finishing college, Nathan joined his uncle's company in Miami, FL, a(n) _______ of bauxite, copper, and other minerals from the Chile. Everyday, he brokers trades with mines in Chile to buy and transport these minerals into the U.S.
A. exporter
B. quota manager
C. importer
D. domestic trader

8. (p. 64) A favorable balance of trade occurs when the value of:
A. imports equal the value of exports.
B. the cash inflows equal the value of the cash outflows.
C. the value of imports is less than the value of exports.
D. the value of the dollar is greater than the value of the Euro.

9. (p. 64) An unfavorable balance of trade occurs when the value of:
A. Imports equal the value of exports.
B. Imports exceed the value of exports.
C. Cash inflows are equal to the value of cash outflows.
D. Exports exceed the value of imports.

10. (p. 64) The __________ is the difference between money flowing into a country from exports, and money leaving the country for imports, plus money flows coming from other factors such as tourism, foreign aid, military expenditures, and foreign investment.
A. balance of payments
B. balance of trade surplus
C. balance of cash flows
D. balance of trade

11. (p. 64) __________ is the practice of selling a product in foreign countries for a lower price than the good is sold in the producing country.
A. Deflating
B. Countertrading
C. Inflating
D. Dumping

12. (p. 64) Current trade data indicates that the nation of Bogusland exports more to other nations than it imports. Bogusland has:
A. an unfavorable balance of trade.
B. a trade surplus.
C. a trade deficit.
D. a low balance of trade.
A favorable balance of trade, or trade surplus, occurs when the value of the country's exports exceeds that of its imports.

13. (p. 64) Last year, the nation of Kwansai reported that it had a favorable balance of trade even though it imported $11 billion worth of goods. This indicates that Kwansai:
A. exported $11 billion worth of goods.
B. exported more than $11 billion worth of goods.
C. overpriced the value of its exports.
D. exported less than $11 billion worth of goods.
A favorable balance of trade means exports exceed imports. If Kwansai had a favorable balance of trade and imported $11 billion worth of goods, it exported more than $11 billion worth of goods.

14. (p. 66) Granting a foreign company the right to manufacture your product or to use your firm's trademark in return for a fee is called:
A. A joint venture.
B. A foreign subsidiary.
C. Licensing.
D. Outsourcing.

15. (p. 68) __________ is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell the parent company's product or service to others in a given territory in a specified manner.
A. Franchising
B. Contract manufacturing
C. Import trading
D. Export trading

16. (p. 69) When a company's strategy is __________ the firm makes arrangements for a foreign manufacturer to produce the product. The domestic company's label and/or trademark are attached to the completed product.
A. franchising
B. contract manufacturing
C. import sourcing
D. export trading

17. (p. 70) A __________ is a partnership in which two or more companies (often from different countries) join together and share the risk and costs in order to undertake a major project.
A. multinational cooperative
B. joint venture
C. franchisee transfer
D. recruit affiliation

18. (p. 70) A __________ represents a long-term partnership between two or more companies established to help each firm build competitive market advantages, without sharing the cost of risk.
A. multinational cooperative
B. shared venture
C. global franchise
D. strategic alliance

19. (p. 70) A form of foreign direct investment, where a domestic company purchases a company in a foreign country to produce a similar product or service is a:
A. licensor.
B. joint venture.
C. foreign subsidiary.
D. host company.

20. (p. 70) When foreign firms build production facilities in the United States, they are engaging in:
A. exporting.
B. foreign direct investment.
C. importing.
D. countertrading.

21. (p. 70) A risk unique to firms with direct investment in a foreign county is the potential takeover of the firm's assets by the government of that country. This takeover is called a(n):
A. hostile takeover.
B. political bias.
C. appropriation.
D. expropriation.

22. (p. 71) The __________________ is a firm that has made sizeable investments and has a physical presence in several foreign countries as a manufacturer and marketer of products and services.
A. trade cartel
B. multinational corporation
C. host company
D. import trading company

23. (p. 72) ____________ describes an attitude held by some American business people that American culture is superior to all others.
A. Primary culture
B. Ethnocentricity
C. Cultural institutionalism
D. Social myopia

24. (p. 74) Which of the following represents the value of one nation's currency relative to the currencies of another country?
A. Euro rate
B. Currency rate
C. Exchange rate
D. Standard of living

25. (p. 74) __________ is the exchange of merchandise or services for other merchandise or services without the exchange of money.
A. Exporting
B. Bartering
C. Importing
D. Factoring

26. (p. 74) __________ is lowering the value of a nation's currency relative to other currencies.
A. Revaluation
B. Deflatation
C. Devaluation
D. Negative valuation

27. (p. 75) A major force that often impeded global trade occurs when government regulations limit the import of goods and services. We call this:
A. anti-trade concessions.
B. countertrading.
C. de-facto trading.
D. trade protectionism.

28. (p. 75) _________________ differences such as insufficient electrical power and transportation systems can present special problems for U.S. firms when attempting to enter global markets.
A. Physical and environmental
B. Legal and regulatory
C. Economic
D. Governmental
Technological and infrastructure differences and other physical environmental challenges impact the type of products that can be successfully exported to various regions of the world. Many less developed countries do not have adequate electricity, while other countries do not use the U.S. standard of 110 volts. Inadequate transportation systems can cause distribution problems for perishable food items.

29. (p. 74) When studying abroad last year, Blake found that his U.S. dollars did not stretch as far as he had hoped. Each time he exchanged U.S. dollars for euros, he gave up more U.S. dollars in exchange for less euros. The exchange rate indicates:
A. the dollar has gained strength against the euro.
B. the euro is weak against the U.S. dollar.
C. the euro has gained strength against the dollar.
D. the demand for dollars is stronger than the demand for euros.
A low value of the dollar means a dollar is traded for less foreign currency. This is the case here. A high value of the dollar means a dollar is trading for more foreign currency.

30. (p. 74) If global trade experts predict that the value of the dollar will soon fall, it will result in:
A. Both the prices of imported goods rising and prices of U.S. goods sold overseas rising, as well.
B. Prices of imported goods rising, but prices of U.S. goods sold overseas falling.
C. Prices of imported goods are falling and prices of U.S. goods sold overseas falling, as well.
D. Prices of imported goods falling, but prices of U.S. goods sold overseas rising.
A fall in the value of the dollar means that American consumers will need more dollars to buy foreign goods, so imports would become more expensive. However, a falling dollar would mean U.S. goods would appear less expensive to foreign purchasers since it would take less foreign currency to purchase them.

31. (p. 75-76) ___________ is the use of government regulations to limit the import of goods and services.
A. Trade protectionism
B. Fiscal policy
C. Countertrade policy
D. Monetary policy

32. (p. 76) In an effort to protect domestic jobs, some countries will place a limit on the number of certain types of products that can be imported. These limits are called:
A. revenue tariffs.
B. protective tariffs.
C. import quotas.
D. tariffs.

33. (p. 76) A(n) __________ refers to a complete ban on importing or exporting of products from a specific country.
A. absolute tariff
B. health quarantine
C. quota
D. embargo

34. (p. 77) A _____________ is a regional group of countries that have no internal tariffs among participants, a common external tariff, and the coordination of laws to facilitate exchange among the member countries.
A. trade cartel
B. mutual trade association
C. common market
D. joint venture

35. (p. 77) The European Union created a single monetary unit to replace the national currencies of twelve member nations. This common currency is known as the:
A. e-dollar.
B. pound.
C. mercosur.
D. euro.

36. (p. 76) The U.S. government has announced a 5 million-pound annual limit on beef imported from Argentina. This type of trade restriction is called a(n):
A. embargo.
B. revenue tariff.
C. import quota.
D. export cap.
Import quotas limit the number of products in certain categories that can be imported.

37. (p. 80) Many business experts contend that __________ will likely be the growth market of the future.
A. Asia
B. Africa
C. South America
D. the Middle East

38. (p. 81) When U.S. firms choose to hire skilled and unskilled workers in other countries to produce goods and services, rather than producing them in the United States, we refer to this as __________.
A. offshore procurement
B. domestic outsourcing
C. foreign distribution
D. offshore outsourcing

39. (p. 66) When entering a foreign market, Mountain Stream Brewery entered into an agreement with a local firm to brew and market Mountain Stream's beer. This is an example of:
A. licensing.
B. franchising.
C. foreign direct investment.
D. foreign subsidiaries.
Licensing reduces the risk of entering foreign markets. In this case, Mountain Stream spends little money to produce and market its product in foreign markets. The foreign-based licensee incurs these costs.

40. (p. 66 - 67) Licensing is a popular strategy because:
A. It boosts domestic market revenues.
B. The licensee has incentive to work hard and succeed because he/she has borne the cost.
C. Licensees spend little or no money to produce and market their products.
D. There are seldom any long-term contractual requirements.
Global licensing agreements have several advantages. Through licensing, an organization can gain additional revenues it normally would not have generated in its home market. Foreign licensees often must purchase start-up supplies, component materials, and consulting services from the licensing firm. Licensors spend little or no money to produce and market their products.

41. (p. 68) Firms such as McDonald's, Pizza Hut, and KFC, have entered the global market by offering investors the opportunity to buy:
A. licensed trade offices.
B. independent exporting houses.
C. multinational subsidiaries.
D. franchises.
A franchise is a contractual arrangement whereby one business buys the rights to use the name and sell the product or service of another business. Many U.S. retail firms have sold franchises as a strategy to reach global markets.

42. (p. 70) Companies may have several reasons for creating joint ventures. Which of the following statements is one reason why firms may decide to form a joint venture?
A. They may wish to contract manufacture with each other.
B. They will save time to market if they pool their technological know-how.
C. These arrangements are always less risky than strategic alliances.
D. These arrangements avoid the temptation to tap into marketing and management expertise of the parent companies.
Benefits of international joint ventures are shared technology and shared risk.

43. (p. 71) For a firm to be considered a multinational corporation, which of the following conditions must be true?
A. It must have manufacturing facilities and a physical presence in several countries.
B. Its marketing arm must be based at the company's world corporate headquarters.
C. Stock ownership must be domestic.
D. All transactions must be financed by the International Monetary Fund.
A multinational corporation is an organization that does manufacturing and marketing in many different countries; it has multinational stock ownership and multinational management.

44. (p. 70) McHugh Corporation of Ireland and Enomoto Enterprises based in Japan recently produced a new electric car with rechargeable batteries that can be driven at high speeds for long distances. They have shared the investment, each contributing important technological expertise to the effort. These firms entered into a(n) ____ to build this car.
A. Joint venture
B. Multinational cartel
C. Industrial countertrade agreement
D. Multinational limited partnership
A joint venture is a partnership in which two or more companies (often from different countries) join to undertake a major project.

45. (p. 69) Nike _________________ its products in foreign countries, where labor is cheap and production sites are owned by other companies. This strategy allows Nike to experiment in new markets without incurring large start-up costs involved with building their own production facilities.
A. contract franchises
B. pays governments to market
C. globally licenses
D. contract manufactures
Contract manufacturing involves the production of private-label goods by a foreign company to which a domestic company then attaches its own brand name or trademark.

Why Trade Foreign Currencies?

There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market:
  • No commissions.
    No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread.
  • No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
  • No fixed lot size.
    In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea).
  • Low transaction costs.
    The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.
  • A 24-hour market.
    There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.
  • No one can corner the market.
    The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
  • Leverage.
    In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
  • High Liquidity.
    Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
  • Free “Demo” Accounts, News, Charts, and Analysis. Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
  • “Mini” and “Micro” Trading:
    You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital. 

The Skinny on Forex Trading

What is FOREX?

The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "Retail forex" or "FX" or "Spot FX" or just "Spot" is the largest financial market in the world, with a volume of over $4 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex rocks!

What is traded on the Foreign Exchange market?

The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).
Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.
Until the late 1990's, only the "big guys" could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions - and not by us "little guys". However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us.
All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site.
BabyPips.com was created to introduce novice or beginner traders to all the essential aspects of foreign exchange, in a fun and easy-to-understand manner.

What is a Spot Market?
A spot market is any market that deals in the current price of a financial instrument.

Which Currencies Are Traded?

The most popular currencies along with their symbols are shown below:
United States
Euro members
Great Britain
New Zealand

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

When Can Currencies Be Traded?

The spot FX market is unique within the world markets. It’s like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.
The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market - you might get the worm but a bigger, nastier bird of prey can sneak up and eat you too…

Time Zone
New York
Tokyo Open
7:00 pm
Tokyo Close
4:00 am
London Open
3:00 am
London Close
12:00 pm
New York Open
8:00 am
New York Close
5:00 pm

The Forex market (OTC)

The Forex OTC market is by far the biggest and most popular financial market in the world, traded globally by a large number of individuals and organizations. In the OTC market, participants determine who they want to trade with depending on trading conditions, attractiveness of prices and reputation of the trading counterpart.
The chart below shows global foreign exchange activity. The dollar is the most traded currency, being on one side of 86% of all transactions. The euro’s share is second at 37%, while that of the yen is third at 16.5%.