Archive for May, 2008
Basic Concepts V: Spreads
What is a spread?
In margin forex trading, there are two prices for each currency pair, a “bid” (or sell) price and an “ask” (or buy) price. The bid price is the rate at which traders can sell to the executing firm, while the ask price is the rate at which traders can buy from the executing firm.
Bid/Ask
For example, when you see the price quote of EUR/USD is 1.2881/1.2884 as in the above picture, the bid is 1.2881 whereas the ask is 1.2884. That means traders looking to sell must do so at 1.2881, those looking to buy must do so at 1.2884.
Popularity: 8% [?]
Basic Concepts IV: Comparison of Various Financial Markets
The table presents the comparison of various financial markets and
some of their basic features.
| Equities | Futures | Forex | |
|---|---|---|---|
| Market Structure | Over the Counter (OTC) or Exchanged Traded, with Electronic Communication Network (ECN) routing available for both. | Exchanged Traded through open outcry in trading pits; some contracts are traded by ECN after hours. | Over the Counter (OTC) market with access to price determined by the market maker. |
| Spreads | Spreads fluctuate according to demand and supply. | Spreads fluctuate according to demand and supply. | Spreads fluctuates on Inter-bank market, many online market makers have fix spread. |
| Execution | Orders on listed stocks are placed with a specialist, who matches buyers and sellers, providing liquidity from his own account as well. OTC orders can be sent to market makers who take the opposite side of the trade at their quoted side. | Orders are executed via open outcry at the exchange pit for each future contract. Orders entered electronically are routed to the pits to be executed. | Orders on the Inter-bank market are sent directly to the counter party via Reuters or EBS. Orders executed with online market makers are executed at the market maker with the market maker as the counter party. |
| Order Types | Market, Limit, Stop, Fill or Kill, All or None, Opening Price Guaranteed, Market on Close, Stop-limit, Market if Touched, Good Until Cancelled, Day Order | Market, Limit, Stop, Fill or Kill, All or None, Market on Open, Market on Close, Stop-limit, Market if Touched, Good Until Cancelled, Day Order | Market, Stop, Stop-limit, Limit |
| Trading Hours | Typically 9:30am to 4:00pm local time. Off-hours trading can occur through ECN’s but it is illiquid. | Vary by product, usually starts from 9:00am to 3:00pm local time. Off-hours trading is possible but illiquid. | 24 hours during weekdays. |
| Volume | Available | Available | Not Available |
| Market Size | 100-200 billion USD daily volume in the US. | 300-500 billion USD daily volume in the US. | 1.5 trillition daily volume worldwide. |
| Transaction Cost | Spread and commission/service charge. | Spread and commission/service charge. | Spread only. |
Popularity: 4% [?]
The recently technology advancement has broken down the barriers that used to stand between retail clients of FX market and the inter-bank market. The online forex trading revolution was originated in the late 90’s, which opened its doors to retail clients by connecting the market makers to the end users. With the high-speed Internet access and powerful central processing unit, the online trading platform at home user’s personal computer now serves as a gateway to the liquid FX market. Retail clients can now trade together with the biggest banks in the world, with similar pricing and execution. What used to be a game dominated and controlled by major inter-banks is becoming a common field where individuals can take the same opportunities as big banks do.
Popularity: 4% [?]
Basic Concepts II: Nature of the Foreign Exchange Market
The Foreign Exchange Market is an over-the-counter (OTC) market, which means that there is no central exchange and clearing house where orders are matched. With different levels of access, currencies are traded in different market makers:
The Inter-bank Market - Large commercial banks trade with each other through the Electronic Brokerage System (EBS). Banks will make their quotes available in this market only to those banks with which they trade. This market is not directly accessible to retail traders.
Popularity: 5% [?]
Basic Concepts I: Introduction
The Foreign Exchange (often abbreviated as Forex or FX) market is the largest market in the world with daily trading volume of over 1.9 $trillion in September 2004*. With its high liquidity, low transaction cost and low entry barrier, the 24-hour market has attracted investors around the world.
The following articles aim to introduce the key concepts in forex trading, the terminologies and the characteristics of the FX market.
The articles first introduced the concept ’spread’, which is the most important transaction cost in forex trading, how the spread is presented in the price quotes, what is the significance of it and what is the trick behind it. As most of the retail customers choose to trade forex with margin account, the articles then introduced what is margin trading, what is the significance of margin, how to trade a margin account and how to choose the correct leverage ratio.
Popularity: 5% [?]
Our newly designed tutorial is the most comprehensive introduction to the Elliott Wave Principle available in cyberspace. All ten lessons have been adapted from Prechter and Frost’s Wall Street bestseller, Elliott Wave Principle – Key to Market Behavior.
After taking the Basic Tutorial, you will know:
- The 3 rules and 3 guidelines that will set you apart from 99% of investors.
- The fundamental wave formations and how you can identify them.
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The Basic Tutorial is just one of the many resources Elliott Wave International offers Club EWI - the world’s largest Elliott Wave community.
Popularity: 4% [?]
What is “Scalping”?
“Scalping” can have various descriptions depending on whom you ask. Some folks would say that some “Forex Surfing” techniques are considered “scalps” due to the small size and duration of the trades. Different traders have different techniques for scalping, but one thing that can be universally agreed upon is that scalping involves tiny trades (both in amplitude and duration).
Typically, “scalping” is a specialized technique that involves making a tiny trade to capture a very small movement in the market. Whereas a “position trader” may engage in trades that are intended to last for multiple days to months (aiming for targets of hundreds to thousands of pips), and a “day trader” typically engages in trades that are intended to last for less than a day (aiming for targets ranging from 20 to 100 pips), a “scalper” engages in trades that might only last a few minutes aiming for targets of 5+ pips.
A scalper typically trades multiple Forex lots (mini or regular lots depending on the size of the account and risk tolerance), often more lots than one would normally trade if trading as either a “day trader” or a “position trader” (simply due to the fact that those styles typically require larger stops thus shrinking the amount of lots one can safely trade according to equity management principles). By trading more lots a scalper can achieve significant gains comparable to the gains expected by day & position traders in the same time span even though the scalper engages in much smaller individual trades. For example, a scalper that succeeds in capturing just 5 pips could have made $500 in under a minute if he traded 10 regular lots. In some circumstances (that you’ll learn later in this eBook) the scalper could successfully capture 10, 20, 30 or even more pips that (assuming he traded 10 regular lots) would result in profits of $1,000, $2,000, or even $3,000 in a very short amount of time. Some scalp attempts can occasionally yield over 100 pips (over $10,000 trading 10 lots) – and YES, set ups like that happen several times each month!
Scalping is often considered to be an advanced trading style. Though scalping is quite simple in concept many consider it to be advanced because it requires very quick decision making, very quick reflexes to react when set ups are spotted, and the scalper must be skilled at quickly executing a trade. The keyword for the scalper is “speed”. What makes “scalping” an advanced skill isn’t that it’s complicated; it is just that one must be both skillful and fast. Drinking coffee or energy drinks while scalping is a good idea. This style of trading certainly isn’t for slow minded or slow moving people (please don’t interpret this comment as being insulting for certain groups of people).
Popularity: 18% [?]
What is FOREX?
The Foreign Exchange, also referred to as the “FOREX” or “Forex” or “FX” or “Spot FX”
market is the largest financial market in the world, with a volume over $1.95 trillion a
day. If you compare that to the $25 billion a day volume that the New York Stock
Exchange trades, you see how giant the Foreign Exchange really is. It’s actually more
than three times the total amount of the stocks and futures markets combined!
What is traded on the Foreign Exchange?
The answer is money. Forex trading is the
simultaneous buying of one currency and selling of another. Currencies are traded
through a broker or dealer and are traded in pairs; for example the Euro dollar and the
US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).
This kind of trading is often very confusing to people because they are not buying
anything physical. 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 country’s economy.
Popularity: 4% [?]
Here are the TOP SECRET ingredients needed to create the ultimate
business:
1. You
2. Computer
3. Internet connection
4. Desk (or sofa)
That’s it! No employees. No advertising. No cold calling. No inventory.
properly trained Forex trader can potentially earn BIG PROFITS in every single month,
week, or day! (Off course a poorly trained Forex trader can suffer big losses as well.)
Let’s continue on the with the TOP SECRET directions for creating the
ultimate business:
Popularity: 4% [?]
Here is where you begin your illustrious forex trading career.
Our Quickstart guide is a series of Forex lessons created to
quickly familiarize the clueless or kinda-clueless with the Forex
world.
Every industry has its own collection of jargon, and Forex is no
exception. You have to grasp Forex gobbledygook before you can
start trading. The lessons are designed to help you gain a better
understanding of what the Forex market actually is, who
participates in this foxy market, and how you can make money
trading Forex.
Popularity: 4% [?]
