Do You Have A Forex Trading Strategy? Start Foreign Currency Trading Now

Do You Have A Forex Trading Strategy? Start Foreign Currency Trading Now

If you are new to the world of Forex trading then, before you even think about making your first trade, you need to sit down and draw up a Forex trading strategy. The foreign currency market is one of the most exciting and lucrative markets in the world, but it is also extremely fast moving and volatile and, while you can make tremendous profits, you can also make substantial losses if you don not have a very clearly defined game plan.


There are a number of different strategies which you can adopt for trading in the currency markets and you will need to come up with a strategy that suits you. At the end of the day exactly what strategy you decide to adopt is largely immaterial but, what is important, is that have you a strategy before you start to trade.


Many traders today choose to base their strategy on a technical approach to trading while others prefer to follow a fundamental approach. Both approaches are fine but the truly successful traders will tell you that the real secret lies in not selecting one or the other but in combining the two.


Technical analysis holds that prices follow trends and that markets possess clearly identifiable patterns which can be recognized if you know what you are looking for. Both knowledge and experience play an important role in technical analysis but here it is a case of knowledge and experience of not just the patterns in the market but of working with the barrage of tools which are know available to the technical analyst.


Within technical analysis many traders like to work with what are called support and resistance levels. In this case a support price is a low price to which a currency repeatedly returns, effectively representing the bottom of the market or the price at which it supports the market. By contrast, a resistance price is the high price which a currency reaches from time to time but above which it tends to resist rising.


The importance of these two levels is that once a currency price drops below its support level it will commonly continue to fall and, similarly, once the price exceeds its resistance level it will continue to climb.


It is also common for technical analysts to make use of moving averages which show the average price of a currency over a given period of time within a longer period. This is extremely useful for eliminating short term fluctuations in a currency price and producing a clearer picture of the movement of a currency over time.


These of course are just two of the many tools available to Forex traders who are following a technical approach and there is a wide range of far more complex and powerful tools available today.


In addition to technical analysis, many traders also believe strongly in fundamental analysis which holds that currencies move in response to a wide range of factors including political events, changes in trade agreements and trading patterns, economic numbers, interest rates, employment figures and much more.


Fundamental analysis is clearly a complex area which requires considerably knowledge and experience to master, which is probably one reason why many new traders are fairly easily drawn towards technical analysis and tend to use fundamental analysis to a limited degree at first while they acquire the necessary knowledge and skills to put it to work effectively.


Both technical and fundamental analyses are of course not in themselves trading strategies but are the foundation on which you will need to build your trading strategy. Your starting point should be to decide upon the basis on which you are going to analyze the market and thus make your trading decisions. Once this has been done you then need to look carefully at the mechanics of your trading and it is detailing just how you intend to trade that forms your trading strategy.
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The Major Differences Between CFD Trading and Spreadbetting

The Major Differences Between CFD Trading and Spreadbetting

The Modern Way to Trade the Stockmarket

The rise of CFDs (contracts for difference) and spreadbetting over the last decade has naturally impacted on the amount of trading in physical shares using a traditional stockbroker. There is no doubt that the internet has altered the share trading process to the benefit of private clients in terms of cost and access toinformation and markets, and with broadband and efficient streaming this really is a boost for those looking to capture real time movements using online trading. The first part of this paper discusses why CFDs and spreadbets are now so popular, and then the subtle differences between the two will be explained.

CFDs and Spreadbetting - the best way to trade the stockmarket

In the old days, what now looks a very cumbersome system involved phone based dealing with the client having to wait for a dealing report from the broker, and this would be followed up with a paper based settlement and certification system. The introduction of nominee accounts and the crestsettlement system was a great step forward, and in terms of deals carried out for investment, rather than trading, the system works well.

But for traders, this reduction in certification has gone hand in hand with the biggest change in the industry, the explosive growth of CFDs and spreadbetting, which have principally three main benefits over traditional share dealing:

First, there is no stamp duty to pay under current tax laws, so there is an immediate pick up of 0.5% on all UK based trades. The reason is simply that with a CFD, the client is contracting to pay the difference between the opening and closing prices of the position taken – essentially the profit or loss. Delivery never takes place and there is no time limit on the CFD, therefore there is nostamp duty. Spreadbets are treated as bets and are not currently subject to duty likewise.

Second, clients have the ability to take long or short positions on the underlying share, commodity or index. This is an option that many traditional stockbrokers still prohibit, and is useful both as a speculation and for hedging purposes. CFDs offer a simple and effective way to protect against a potential fall in the stockmarket or for that matter any instrument, without having to sell shares in a portfolio and then buy them back.

Third, traders can utilise generous margin rates, which by using leverage, enable large position sizes to be opened using a relatively small amount of deposit. It goes without saying that there is an associated risk which mirrors the amount of leverage, but for experienced traders this to some extent bears some similarity to traditional physical trading for extended settlement. For CFD traders, margin rates of as low as 1% are available, which again is very attractive for hedging purposes.

For share trading it is usual for clients to place funds on margin, but positionshave to be closed within the trading settlement period, or the full cost of the purchase has to be made. The client usually pays a premium for not having to settle for up to 25 working days. Again this option is not allowed universally by brokers, and CFDs solve this problem, as they have no time limit, which makes them far more flexible. Spreadbets can be taken out with a wide range of expiry dates, so again it increases the choice for clients.

With these benefits, and the undoubted cost advantages, the natural question is why clients would wish to use a traditional stockbroker. The answer of course lies in the added value services offered by a broker, which include portfolio analysis and management, advice on collective investments, taxation and other financial products. For clients seeking perhaps a longer term perspective on investments, and for buying and selling shares on a longer term view, stockbrokers have an important role to play.

Buying shares outright also gives clients the benefit of shareholder voting rights, which is not the case for CFDs and spreadbet positions, although holders of long CFD positions do receive corporate dividends, and short CFDpositions are debited with dividend payments on the ex-dividend date.

It is for shorter term trading and longer term hedging that CFDs and spreadbets have a clear edge, and they are both beneficial for those who wish to ‘go it alone’ in terms of costs. This benefit can be quantified in terms of the length of time each trade is open.

With CFDs, the additional cost of holding a long CFD position over a traditional purchase is only the interest cost. The interest charged on a long CFD is usually at a premium to LIBOR (London InterBank Offered Rate), typically LIBOR plus 2%, but it should be noted that if a client takes a short position, then interest is actually credited to the CFD position at a comparative discount to LIBOR. The amount the client lodges by way of margin is held to secure the performance of the contract and is not available to be set off against the Contract Value.

Conversely, a traditional share purchase incurs stamp duty at 0.5%. The crossover will occur at the time that the interest charged on the long CFD matches the saving made against stamp duty, and this point is usually reached on or around 28 days after the position is opened. Consequently, for trades outstanding for less than this period it is economically more viable to trade the CFD rather than the underlying stock, working on current interest rates. For those going short of a stock or index, there are clear benefits as interest is received each day while the position is open, so time is not a factor.

CFDs against spreadbetting

The terminology is slightly different for CFDs and spreadbets, but both offer the same degree of leverage and potential risk/reward for online trading. If a client wishes to open a CFD position, this is quoted in the same way as if a normal share purchase/sale was being made i.e. ‘buy 1000 Lloyds TSB CFDs’. With spreadbetting one is technically betting on the price movement of a share, index, commodity or whatever measured in pounds per point of movement. So the equivalent trade here would be ‘buy Lloyds TSB at £10 a point’, but the exposure is essentially the same. In both cases, you simply 'buy' if you think that the price is set to rise, or vice versa.

In spreadbets, all profits are free from UK capital gains and income tax, which is not currently the case for CFDs. (Tax law can change or may differ if you pay tax in a jurisdiction other than the UK). The other main difference is that for spreadbet long positions there is no daily funding but as each bet has a defined expiry date the interest cost to the broker is built into the spread in the same way as a futures price might be constructed.

In terms of use, CFDs have the edge for stockmarket trading, accounting for 40% of LSE volumes, and many investment banks tend to use CFDs simply because they tend to track the underlying price more than spreadbets.

There is no question that CFDs and spreadbets have revolutionised short term and online trading if one does not aim to hold any long position for more than a month, and they are valuable for longer term hedging.

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Do You Know How to Trade Currencies Online (Forex)?

Do You Know How to Trade Currencies Online (Forex)?

Foreign Exchange or Forex means the buying and selling of one currency for another. As of today, currency trading is the biggest and most liquidated market in the world and deals for an average of $1.5 trillion everyday. It works through the whole world and eclipses the stock market in many orders. Therefore, online currency trading is the most advocated form of wise investment.


The most important advantage of online currency trading is that you can perform your business from any part of the world. To do online currency trading, all you need is a computer and an internet connection. It is a virtual world of forex trading! There are transactions going in practically in every time zone, allowing you to choose the time for your trade. 


There is no need of monitoring your trading continuously or sit in front of the terminal. On your trading platform you can preset the bid for buy or sell values and your trade will be executed automatically, once the market reaches the set point. It is the system that will do the rest for you. So you can engage yourself in some other work and work as a day trader at the same time.


The first step is to identify an online broker or a firm and then open an account with them. These brokers offer many services like the facility to operate a demo account through which you understand the basics of currencies trading before getting into the actual forex market. Through this service, you can also verify the quality of services offered by the broker.


The forex market responds to the global as well as local issues, news, and information and, therefore, plays a very important role in your online trading decisions. You have to be really aware of your environment. You have to have the knowledge of your market, your economy, and of course of the global scenario. This will help you in understanding the market and to make an intelligent speculation. Your online forex broker plays a very important role in this. They supply you with information, tips, and trading guidelines, which ensure your profit in the trading.


Choosing an online currency trading broker is perhaps as important as your investment decision. Once you know the basics of the trading, you must find out that your online forex broker is offering you leverage, facility of margin trading, or permitting you to operate a mini account. You can search internet to make a comparison between the brokers on basis of the services they offer.


On the internet, you can also find out various websites, forums, help lines, e-magazines, and articles which prove to be extremely helpful in educating you on the online trade currency. You will find many sites exclusively dedicated for developing online trading strategy.


Many websites will offer studies, tutorials and online guides on mastering the technical analysis and studies after which you will be able to judge the market more correctly. So take the advantages of online currency trading and maximize your profit.

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All The Best Forex Trading Styles and Tactics

All The Best Forex Trading Styles and Tactics 

Forex trading style comprises of a set of formalized rules, which directs the process of your trading. Without a pre-designed trading style, your trading is like a ship without a destination. A fully formulated forex trading style turns your trade into a profitable business.


In general, forex trading styles are based on two main fields of studies: technical analysis and fundamental analysis. You must know the basic differences between these two trading styles as both of them have their own characteristics.


To be a good Forex trader you have to find out the advantages and disadvantages of both these trading styles. From the study and research, you will have to decide which of these two trading styles matches with your method of trading and will help you in maximizing your profit and more importantly, will have some inherent factors of risk management.


When developing your own forex trading style based on some technical analysis, the best will be to develop a hybrid method comprising more than one technical indicator. For example if your forex trading style is based on the Candlesticks, you must watch out for a hammer, doji, head and shoulders pattern, 1-2-3 formation, double top or bottom etc.


Trend lines across the highs in a downtrend or lows in an uptrend prove to be extremely helpful for formulating a full proof trading style. On a forex trading style based on MACD, watch for a difference between the highs and lows of MACD and the price. When there is divergence, watch closely for the right entry point, once price has shifted in the direction of the divergence.


200 EMA is an all time favorite for traders who love to formulate their own tailor made forex trading style. On higher time frames, for example, 1 hour, 4 hour, daily, they take a note whether price is above or below the 200 EMA to decide on their price direction.


Pivot points, which take note of previous support and resistance lines or the Fibonacci, are few other methods of technical analysis which blends trading styles and risk management features within them.


The other style of forex trading, which is based on fundamental analysis involves key economic data, political condition, sudden situation of emergencies, natural calamities etc. So your forex trading style must help you in identifying these conditions when the market responds to them dynamically.


You can search websites for e-books, forums, online newsletters, to have more knowledge of different forex trading styles. In some forums, veteran traders and investors share their trading style, which you can adopt for developing a style of your own. Perform frequent back testing of your forex trading styles. Always pay attention to your win/loss ratios, and bring changes to suite specific conditions. So what are you waiting for? Choose your trading style today and fulfill your dream!


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