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April
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- The Basics of Forex Technical Analysis
- The Value of Trade Balance to Local Economy
- How Interest Rates Play a Role in the Currency Mar...
- Forex Analyzing Tools
- Learn Forex Trading
- BENEFITS OF FOREX TRADING
- Trading Forex
- Overview
- Introduction to Trading Forex
- What is Gross Domestic Product and What is Its Fun...
- THEMES TO WATCH – UPCOMING SESSION
- MAJOR HEADLINES – PREVIOUS SESSION
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April
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Tuesday, May 5, 2009
What is a Stop Order and How to Perform It?
In a stop order, your trade will be carried out once the security you want to buy or sell reaches a specified price (stop price). If this happens, a stop order essentially becomes a market order and is packed. And once the order is turned on, the investor is guaranteed an execution, but execution prices do not. This order is used by investors to control the loss that they might have or to lock in a profit on a stock. They may issue this order to their stock broker to automatically sell the stock if the price of stock would fall down to a particular price.
There are also instances that these stop orders are not always executed at the stop price. If an incident happens that the stock falls down suddenly by a huge amount, the stop order may be triggered and the stock could be sold. On the other hand, since stocks are always sold at a market price, the price might be below the stop price. This type of order is usually entered into a computer trading system and is automatically carried out whenever the price is at or below the stop price.
The use of this order is more common for stocks that trade on an exchange than the over the counter (OTC) market. Moreover, your broker-dealer would not permit you to lay this order on some securities nor accept a stop order for OTC stocks. Before entering into this type or order, consult first your broker or financial advisor about how this order works.
It is advantageous to investors to use the stop order because they can monitor their stocks for a period of time or on a daily basis and brokers may even position this order for no charge. Since investors commonly use this type of order, this allows them to have a quick and automatic response to stock price movements.
Buy and hold investors are doubtful to use this type of investment strategy. One disadvantage of this order is that the stop price could be activated by a short term variation in a stock’s price. Once your stop price is attained, this order becomes a market order and the price you had may be different from the stop price primarily in a fast moving market where stock prices vary swiftly.
The price of an order could be lower than the specified price by this order. In addition, investors must be careful about where they set a stop order for it may be harsh if it is turned on by a short term fluctuation in the stock’s price.
Why Forex Trading
The best way to clarify the advantages of the Forex market is through a real example. In 1929, the stock market collapsed, causing many people and businesses from around the world to go broke. This also happened when the high tech bubble burst. The fear of a market crash is a concern that constantly dwells in the minds of investors, both professional and beginner ones.
In the online Forex trading market, There is no way for the market to crash. If you have read about what is the Forex trading market, then you know that when you buy a certain currency, you are at the same time selling another currency. When some currencies' price false, others' price rise.
So this is the most important advantage of Forex day trading. Unlike other markets, where in some cases all traders lose money, with Forex trading there are always traders that make a profit, at any given time.
Here are some other advantages of the Forex trading market:
No commissions. Only in the Forex trading market are there no government fees, brokerage commissions, exchange fees and other unnecessary losses of cash. There are also low transaction costs between the bid and ask price.
No middlemen. In this market there are no investors that take a percentage of the investment or the profit, and you transact directly with the pricing market agent.
You can choose the size of your investment. The Forex trading lot is dynamic, and is set according to your preference. This lot can vary between large lots worth $10,000 to mini lots worth $25.
High liquidity. In the Forex trading market you can buy and sell your currency at any time and place, regardless of the currency position, when the trade itself is done almost instantaneously.
Trading in the margin. Forex trading consists of margin investments that increase your chances for higher profits by increasing your money's worth.
Opened 24 hours a day. Because it's worldwide and operates in several time zones, the Forex trading market is the only market that you can trade in 24 hours a day.
With all of these wonderful advantages, there is no wonder more and more investors choose Forex trading as there main fund for investment. Because all transactions can be done online, you don't even have to leave your house!
Forex trading History Explained
The first currency coins were used at the times of the pharos, and the first paper notes were then introduced by the Babylonians. Later on, the roman coin called aureus was used, which was followed by the denarius. Both coins had worldwide use, making them the first global foreign currency coins.
The Bretton Woods System (1944-1973), came after the great instability of World War II. England and other European countries were left in ruins, after the war ended, while the US's economy was left relatively stable and strong.
The USD became the prominent currency after WWII, mainly because of the war. The Dollar also became the new global reserve currency, and remained so throughout the rest of the Forex history. This was agreed upon in the Bretton Woods conference, when all of the other foreign currencies were pegged to the USD, and a new international financial network was formed.
In 1971, the Smithsonian Agreement was signed by ten of the major financial powers, but it's attempt to improve stability to the current Forex history failed.
Free Floating exchange rates came into use when the Bretton Woods agreement ended. This occurred after this international financial system was in operation for three decades in the Forex history.
During 1973, the UK, facing financial problems, floated it's currency. Other currencies began to lose value, and this led the European economies to also float their currencies.
1994 saw the first online currency trading introduced to Forex history. This had a large impact on the development of the Euro currency, and introduced a new major contender to the control of the USD in the Forex history. By 2002 the Euro became the official currency for 12 European nations, and in the past few years more nations have joined this agreement. The modern online forex history offered new options for the online trader, such as the use of margin account to leverage investments, and this is all thanks to the contribution of the internet to the forex history.
Online Forex Trading Introduction
Even tough we are talking about a huge market, Forex trading is quite simply - the buying of one currency while at the same time selling of another currency. If the trader can predict correctly which currencies will drop and which will rise - he will benefit from his investment.
There are a lot of benefits in Forex investing over other investment markets.
Why is Online Forex Trading Profitable?
The online Forex market has existed since the early 70's. Only in the past few years though, it has become accessible to millions of people through the development of the internet. Because the Forex market is available 24 hours a day, it's the only market that allows you to trade at your convenient time.
Today, because the economy is much more dynamic than it used to be, and the world has become a global village, economic conditions in various countries are also constantly changing, according to such factors as production rate, inflation and unemployment.
As a result, the rate of a specific currency changes and moves up and down in comparison to other currencies. This is the main reason of the process of rate fluctuations in the online Forex market.
In order to evaluate and predict these Forex market changes a trader can use fundamental analysis or technical analysis as a tool for investment. Where as fundamental analysis is a more broad exploration into the economic factors influencing the online Forex, technical analysis uses charts and other indicators to asses price patterns taht re-occur over time and can help predict the forex market.
Foreign Currency exchange rate
Currency exchange rate is the ratio of one currency valued against another. For example, "EUR/USD exchange rate is 1.2505" means that one euro is traded for 1.2505 dollars. If you've already invested in other markets before, you'll find the Forex trading system quite similar, and the transaction to online Forex trading smooth. An example of a Forex trade: During October 2006 you buy 10,000 BRP when the BRP/USD rate was 0.56. A month later, the exchange rate grew to 0.58. This means a profit of $350 in less than a month time.
Online Forex Trading Profits
Another example of an online Forex trade: If you buy EUR/USD, this means you are buying euros, and simultaneously are selling dollars. Your expectation therefore is that the euro will appreciate (go up) relative to the US dollar.
If you believe that the US economy will weaken and this will hurt the US dollar, you would execute a buy EUR/USD order. By doing so you will buy euros in the expectation that the currency will appreciate against the US dollar. If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a sell EUR/USD order. By doing so you have sold euros in the expectation that they will depreciate against the US dollar.
Saturday, April 18, 2009
The Basics of Forex Technical Analysis

Technical analysis is a method of forecasting price movements and future market trends through the study of past market action which take into account price of instruments, volume of trading and open interest in the instruments. Unlike fundamental analysis, technical analysis is focused with what has actually happened in the Forex market, rather than what should happen. There are certain technical analysis tools such as the relative strength index (RSI), which is a price-following oscillator that ranges between 0 and 100; the Elliott waves method, which deals in the prediction of the market movement by the study of wave patterns over a period of time; the parabolic SAR methodology, in which the prices are examined and compared to stop and reversal numbers which are an indication of entry points and exit points for any Forex trade; the stochastic oscillator, which shows the over bought or oversold currencies on a scale of 0- 100%; and gaps, which denotes the spaces on the bar chart that none of the trading takes place.
Technical analysts are confident that historical performance of stocks and markets denote future performance. They use charts and other tools to identify patterns that can suggest future activity. They do not attempt to measure a security's intrinsic value. They study the price and volume movements. And they create charts from that data. A technical analyst would rather sit on a bench in a certain mall and watch people going into the store. He decides basing on the activity of people going into each store. But if he is a fundamental analyst, he would rather go to each store and study the products on sale. Later he decides whether to buy or not. In other words, technical analysts disregard the intrinsic value of the products in the store. From the point of view of technical analyst, anyone can gain the profit by posing himself in the trend direction. Consequently, they use different patterns in order to create the price chart that will suit the future market and the price would follow the pattern.
In summary, Forex technical analysis focuses on what actually happens in the market. The charts are based on market action involving price, volume and open interest. It is always focused with the pricing and time factors rather than the factors affecting the market. Thus technical analysts study the effects, not the cause of market movement.
The Value of Trade Balance to Local Economy

Imports, domestic spending, foreign aid, and investment abroad are called debit items while credit items includes exports, foreign investments in domestic economy and foreign spending in domestic economy.
A trade surplus is a positive balance of trade which is consists of more exporting than importing. A trade deficit is the negative balance of trade or sometimes called a trade gap. The trade balance can sometimes be divided as services balance and goods balance just like in the United Kingdom which they use the terms invisible and visible balance.
The balance of trade is a part of current account which includes transactions that includes income derived from international investment and international aid. Thus, if the current account comes as a surplus then the nation’s international net asset increases also while deficit will decrease the international net asset.
A good trade surplus is achieved when a country exports products more than buying imported goods. A trade deficit is eventually experience as a result of the opposite of a trade surplus. The trade balance is alike to the difference of a country's output and the domestic demand. These factors may affect the trade balance: prices of goods manufactured, taxes and tariffs, trade agreements, business cycle (home or abroad), and exchange rates.
The trade balance is different in many business cycles. For instance, export growth like oil and industrial goods which improves when there is economic expansion.
In developed countries like; Japan, China and Germany usually run at trade surpluses in which they experience a higher savings rate. Around the world there are different natural resources which a country may have for instance, countries from the coastal regions are major producers of fish, Canada can be a major producer of lumber because of its huge forests while in the Middle East, has the most oil reserves.
International trade is important so in order to sustain the balance of trade. A country should be totally self sufficient without international trade. Through international trades, each country will have the opportunity to produce specialize goods efficiently. In relation, when a nation specializes in producing these goods, the total production increases instead of trying to be self sufficient. Nations will benefit from international trades and also meets their needs. Generally, nations will trade to other nations when they gain from the trade. But the gains are not usually equal in terms of benefits and profit.
How Interest Rates Play a Role in the Currency Markets

Interest rates play the foremost important role in moving the prices of currencies in the Forex market. As the institutions that set interest rates, central banks are therefore the most influential factors. Interest rates dictate flows of investment. Since the currencies are representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the Forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader's chances for a successful trade.
An increase in interest rates encourages traders to invest within that market and causes the demand for the currency to rise. As demand rises, the currency becomes scarcer and consequently more valuable. Investors are drawn to the currency, causing it to appreciate, because they will gain a higher yield on their investments, as in the Jane example. In order to purchase the country's assets (stocks or bonds), Jane will have to convert her domestic currency to the target country's currency also increasing demand. Conversely, a fall in interest rates discourage investors from purchasing assets in that particular economy, as the return on their investment is now smaller. The economy's currency will depreciate as a result of the weaker demand.
Forex Analyzing Tools
We have found that there is no single, all-encompassing or best Forex analyzing tool. Rather, different traders favor different tools and find them useful at different times. With that in mind, we’ve take the liberty to provide you with enough tools and indicators to let you choose.
Learn Forex Trading

BENEFITS OF FOREX TRADING

Trading Forex

Overview
Unlike trading on the stock market, the Forex market is not conducted by a central exchange, but on the “interbank” market, which is thought of as an OTC (over the counter) market. Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the Forex market is a 24-hour market
Introduction to Trading Forex

Foreign Exchange
What is Gross Domestic Product and What is Its Function?
In a country or territory, the GDP or Gross Domestic Product is the market value of all the goods and services produce by labor and property in that country/region in one year and it is the monetary value of a region’s/country’s goods and services in a span of a particular period of time, such as a year. Usually, increase in GDP also equates to increase in standard of living but not necessarily in increase of purchasing power of its people, if the reason for growth in GDP is increase or high inflation or population growth. Stable increase of Gross Domestic Product is a good example of stability and reliability of the region economy. Positive GDP is determined by growth of labor force and the capital stock, which is in pace with the technological advancement. On the other hand a negative GDP implies that the country has a higher unemployment and lower standard of living of its people. Gross Domestic Product is usually a big factor in assessing the country’s economy, is used by investors, financial institution and other institution.There are 3 approaches in calculating Gross Domestic Product GDP. Expenditure approach- GDP is the sum of the consumption and investment plus the country’s spending plus the output in export(less the imports).
Product approach or the market value of the goods and services produced in a year.
Income approach or the total of all the income collected by all the producers in a year: This equates to the compensation of employees (wages, salaries including the contribution to social security) plus the profits (gross operating surplus) plus the Gross mixed income (small business).
These 3 are all equivalent, each having the same result. World top 10 –Gross Domestic Product 2003-2004
1. U.S.A- with a 10,082 billion US dollar Composition by sector on GDP of USA Agriculture: 0.9% industry: 20.5% services: 78.5%
2. China- with a 6,000 billion US dollar Composition by sector on GDP of China Agriculture: 11.3% industry: 48.6% services: 40.1%
3. Japan- with a 3,550 billion US dollar Composition by sector on GDP of Japan Agriculture: 1.4% industry: 26.5% services: 72%
4. India- with a 2,660 billion dollars Composition by sector on GDP of India Agriculture: 17.6% industry: 29.4% services: 52.9%
5. Germany- with a 2,184 billion dollars Composition by sector on GDP of Germany Agriculture: 0.8% industry: 29% services: 70.1%
6. France- with a 1,540 billion dollars Composition by sector on GDP of France Agriculture: 2.2% industry: 21% services: 76.7%
7. United kingdom- with a 1,520 billion dollars Composition by sector on GDP of United Kingdom Agriculture: 0.9% industry: 23.4% services: 75.7%
8. Italy- with a 1,438 billion dollars Composition by sector on GDP of Italy Agriculture: 1.9% industry: 28.9% services: 69.2%
9. Brazil- with a 1,340 billion dollars Composition by sector on GDP of Brazil Agriculture: 5.5% industry: 28.7% services: 65.8%
10. Russia- with a 1,270 billion dollars Composition by sector on GDP of Russia Agriculture: 4.7% industry: 39.1% services: 56.2%
THEMES TO WATCH – UPCOMING SESSION
US Fed's Bernanke to Speak (1630)
EuroZone ECB's Trichet to Speak in Tokyo (Sat 0330)
US Fed's Kohn, Dudley, Stern and Lockhart to speak in Nashville (Saturday)
UK Apr. Rightmove House Prices (Sun 2301)
Australia Q1 PPI (Mon 0130)
Japan BoJ's Shirakawa to Speak (Mon 0600)
Market Comment:
SNB president Roth was out again speaking in defense of the central bank's use of direct intervention in the currency market to maintain a weak franc and to keep deflation from taking hold in the Swiss economy. He promised to continue to "pursue this strategy" (buying currencies) "for as long as the risk remains". The market read Roth's message loud and clear and EURCHF jumped more than 100 pips higher. If we ignore the fundamental fact of the SNB's potential presence in the market and the nervousness it generates and look at EURCHF based on pure technicals, it seems the pair may be ready for a move higher to test those post-intervention highs around 1.5450.
CAD has been on a tear of late, with USDCAD challenging the symbolic 1.2000 level yesterday before finding support and the likes of EURCAD tumbling more than 1000 pips in recent weeks. The trajectory of CAD reaches a possible inflection point at next Tuesday's Bank of Canada meeting. There may be enough uncertainty ahead of this meeting on the BoC's QE intentions (everyone assumes the bank keeps the lowly 0.50% rate unchanged) to generate further consolidation here in CAD strength. Somewhat supportive for CAD was the higher than expected reading on core inflation, which doesn't seem to be showing any threat of deflation just yet. The larger drive in CAD strength of late is more likely related to risk appetite in general and the China buying commodities theme that has also boosted AUD in recent weeks. Watch not only equities, but also the likes of copper (and of course oil) for support on any AUD or CAD trade decision.
Recent Nobel prize laureate Paul Krugman is out with a piece in the NY Times with a simple, if convincing editorial describing why he thinks the "green shoots" and glimmers of hope" that politicians (and the market itself, it seems) are touting are not particularly green nor glimmering. He lists four points that are certainly worth consideration. We have touched on two of these before: his points 2 and 4. Point 2 is that "Some of the good news isn't convincing" and he particularly focuses on banks here. Today, Citibank, a laughable extreme case of a credit bubble-bloated failed enterprise, announcing huge profits for the first quarter today. Equity and risk optimists need to focus more on consumer demand and real companies' bottom lines rather than the state of play in creative accounting at banks. Point 4 is that "even when it's over, it won't be over". This refers to the lagging rise in unemployment, which will continue to rise even after the economy stabilizes if we are to use previous recessions as models.
Krugman's two other important points are first: "Things are still getting worse." Everyone is touting the decline in the "second derivative" (that the worsening is decelerating). Since dismal scientists' favorite exercise is playing connect the dots and projecting those dots in the future, this probably has many hoping for a smoother transition to better and better news. The fact remains that things are bad and getting worse. Finally, Krugman points out that "There may be other shoes yet to drop". For this point, Krugman mentions the implosion in commercial real estate and consumer-related debt. This is a very key point that goes to the heart of the whole situation. Yes, maybe the massive expansions of the Fed's balance sheet are stabilizing the financial sector enough for them to cobble together positive "earnings" reports, but the consumer's position seems to be worsening by the day and the real economy continues to suffer mightily. As long as the demand function in the economy continues to suffer, credit availability and financial stability are irrelevant. After all, the possibility looms that the last eighteen month's upheaval has triggered a permanent behavior change as old assumptions about ever rising home equity and stock prices have been permanently shattered. As Krugman aptly ends his article: Don't count your recoveries before they're hatched."
EURUSD closed below that 100-day moving average and could be set for further declines, especially, as usual, if risk appetite finally begins to wane, as the potential further risks in the EuroZone far outweigh those in the US. The 1.3100/50 area is now the key resistance.
MAJOR HEADLINES – PREVIOUS SESSION
Australia Q1 Import/Export Price Index fell -2.8%/-4.6% vs. -0.4%/-3.5% expected, respectively
New Zealand Mar. Non-resident Bond Holdings fell to 73.2% vs. 74.3% in Feb.
Japan Mar. Consumer Confidence out at 29.6 vs. 30.0 expected and 27.6 in Feb.
Japan Mar. Nationwide Department Store Sales fell -13.1% YoY vs. -11.5% in Feb.
Switzerland Feb. Retail Sales fell -3.8% vs. -0.2% expected
Norway Mar. Trade Balance out at +30.3B vs. +29.5B in Feb.
Sweden Mar. AMV Unemployment Rate out at 4.8% as expected and vs. 4.7% in Feb.
EuroZone Feb. Trade Balance out at -2.0B vs. -5.0B expected
Canada Mar. CPI out at 0.2% MoM and Core CPI out at 0.3% MoM vs. 0.3%/0.2% expected, respectively


