Forex Trading Online 1.0
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Forex Trading Online 1.0 offers a great tool which can allow you to make forex trading easy and profitable. Attaches to your Google Desktop to bring you the latest news, tips, and advice.
Forex trading, to those who are not aware of it yet, is the buying, selling, and exchanging of foreign currencies with an aim to get profit from it. Profit comes from the difference between the value of the currency when you bought it and the value when you sold it. Of course, it also goes both ways. Foreign currencies do not just go up in value; they also go down. This is the reason why some people are reluctant to put their money in this kind of investment options. They just cannot figure out how it works.
Forex trading may sound simple. You are going to buy foreign currency and then sell it at a higher price. What is complicated about that? But what makes forex trading hard to understand is not actually the process of trading but the process of appreciation and depreciation of the moneys values. Foreign currencies are affected by a lot of factors, from something as simple as political woes of a country to something vastly complicated and technical as trade balance. These jargons are often used in business news and ordinary people can't seem to make heads or tails about it.
The Different Factors That Affect Forex Trading
You must look deeply into this if you want to embark on a successful trading career. Study the economic policy that comes from government agencies as well as the central banks. You must know what the condition of the economy is. You can gauge that by looking into economic reports. And you can also find other economic indicators.
There are actually a lot of other venues that you have to be aware of in terms of the economy. First, you have to look into the surpluses and budget deficits of the government. If it is narrowing, the market will react positively. And the opposite will happen if it is widening. As a result, the value of the currency is affected by such impressions.
You must also seek out the balance of the trade levels with the trends. Look at the trade flow for the country of the currency you are eyeing. If the demands for services and products are good, then the economy of that country will be competitive.
Now that you are serious about trading in foreign exchange, you must also involve yourself with the inflation levels, economic growth and other factors concerning the economy of the different countries around the world.
This also plays an important role on how the markets will move. Any destabilization must be noted. This way, you can do certain moves to be able to strategize better. An upheaval or continuous protest in a certain country will greatly affect its economy.
The political and economic scene is deeply related. In trading, you also have to look at both in order to gauge how you are going to move.
It may sound like you have so many things to do once you start on forex trading. But all these will be beneficial to you in the end. All the information that you gain from your own research will definitely help you come up with better plans and execute good decisions when it comes to your trading schemes.
- Evening out the Odds
- The world of forex trading is much like the European roulette. The zero pockets represent the spread and the odds are forever going to be at least somewhat supportive of the house, which in forex is the market maker. Similar to when each additional zero packets lower the players chances of success, every additional pip in the spread can also lessen the chances of success of the trader.
- The house always determines the spread and the traders have no control over it; it is only determined by the market maker alone. However, in the world of foreign exchange trading, the traders can increase the size of the playing field, thereby improving their chances of success in trading. This can be done by using exits and stops, longer time frames, and trying for larger gains.
- Do the Math
- Assume that a trader is trading a currency pair that has a 3-pip spread, which is also a very common size of the spread in the forex market. If the trader just wants to gain 10 pips, it is understood that he or she can lose the spread upon entering the trade. And so, in order to turn a profit of 10 pips, the trader actually requires the exchange rate to move 13 pips in his or her favor, thus 10 plus 3 equals 13.
- Knowing what is required to create a winning trade can help traders know what would have to happen to create an equivalent loss. This is also the method on how traders can determine the odds of success or failure.
- To create a loss of 10 pips, the trader would only require an adverse move of 7 pips. This is for the reason that a loss of 3 pips is acquired automatically upon entering the trade, again due to the 3-pip spread.
- It was also determined that the trader needs a positive move of 13 pips in order to gain 10 pips, but a move of just 7 pips can result in an equivalent of 10 pips. The so-called raw odds of the 10-pip win versus the 10-pip loss for such a trade can be expressed by: 13/7=1.857:1.
- As thus, the odds of the success in this example are 1.857:1. This only shows that trying to make money trading for small gains is difficult, not to mention that the playing field is too small. However, traders can improve the odds of any trade by utilizing good strategies and solid risk management.
- Changing the Equation
- The traders can rearrange the odds, in order to attain a better chance to win at currency trading, by making the playing field larger. If the traders are aiming for larger gains, the spread becomes less essential part of the trade.
- Once again, suppose a spread of 3 pips, only this time the trader will be hoping to gain 100 pips as a replacement for just 10 pips. To turn a profit of 100 pips, the trader actually needs the exchange rate to move 103 pips in his or her favor, thus 100+3=103.
- More so, to generate a loss of 100 pips, the trader would need an adverse move of only 97 pips since a loss of 3 pips is incurred instantly upon trade entry. The raw odds for this situation, which is a 100-pip win against a 100-pip loss, can be expressed by: 103/97=1.06:1.
- Noticeably, the odds are better because they are close to 50-50. However, if the trader is using good trading techniques and risk management, he or she can overcome these slightly negative odds.
- The point of changing the equation is to understand that when the playing field is larger, the odds of success also improve significantly. More so, traders who are trying to achieve greater gains have the tendency to hold their trades longer and consequently enter trades less frequently.
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