Archive for the "Trading" Category

26.12.2011 Post in Trading

After the gold standard was cancelled, the world economy switched to the floating exchange rates. Since then every currency price is the result of the free interaction between its demand and supply. The demand for the currency is formed under the influence of such factors as the necessity for goods import, investment attractiveness of the country, currency reliability, etc. The supply is determined by the national export volume, loans, etc. intervencia

However, it does not mean that there are no exchange rate regulation measures. Each country government is interested in maintaining their currency price on the acceptable level (to avoid the negative influence on the national economy). Previously IMF watched over exchange rate policy of counties in order to maintain the economy stability and consider common interests. Now this supervision has become less strict, so, when carrying out any intervention, counties should follow only several principles developed by IMF.

Currency intervention is a strong instrument of central banks. It is interference in operations on the exchange market in order to influence national currency exchange rate. It is usually a result of currency selling or purchasing. There are also coordinated interventions when banks are operating together.

Reasons and consequences of intervention can be absolutely different. Currencies are traded in pairs, so everything is interconnected on the market. When some currency appreciably loses or strengthens its position it influences other currencies. Sometimes sudden movements happen on the market because of some circumstances. In that case carrying out gradual adjustment is impossible and banks must give quick response to the market circumstances by making currency intervention.

Traders should take in account such events because interventions can contribute both to the investment capital growth and reduction. If there is a probability of intervention skilful traders can be ready for profitable positions opening and taking considerable profit.

When waiting for an intervention, sometimes it is necessary to act against the trend, and it is always a risk. That is why it is better to use a low leverage, put stops and remember capital management rules.

Very often interventions are sudden or hidden. Not always central banks divulge information about interference in Forex, sometimes such information is delayed. However, a trader has several instruments which help forecast intervention probability. The fundamental analysis and news tracking are necessary to be aware of the world economy events. Secondly, often international leaders hint at intervention possibility, so it is very useful to pay attention to their declarations. Thirdly, read analytical reviews and forecasts of professional analysts who represent large banks and companies. Finally, experts note that often banks vary out interventions when the price reaches the level of the previous intervention.

By the way, intervention can be carried out to curb or strengthen the trend. Interventions against the trend are not always successful because sometimes even banks cannot resist the market.

Added by Daniel Shchagin,

InstaForex Clients’ relationship manager

20.12.2011 Post in Trading

Volumes of Forex trading exceed 4 trillion dollars a day. Forex brokers can help to invest in foreign exchange market almost anyone willing to obtain benefits. Hot-eyed and hot-blooded beginners often rush into trading in an eager for a desirable piece of cake. The purpose is quite understandable, though difficult to reach if you are unaware of basic rules. These rules are related to the art of money management.

You will increase your chances for successful trading by using well-checked trading algorithms, calculating possible results and trying not only enrich but also save your money. For a couple of loss-making trades may deprive you of the whole deposit, a size of losses is often more important than of profits. Beginning traders often watch their expected profits turning to substantial losses. The reason is that they cannot get to close positions ahead of a good deal of money. If they use a margin, they face even worse disaster. Self-confidence and market’s favour are questionable training wheels. It is better to aim at small but constant profits and work out a strategy and follow it.

You will definitely need some time to elaborate a strategy. Who says it would be an easy score? Start with demo and then try a cent account. Go to a classic live account after that. I would not recommend you to begin with a margin for any misfortune may deprive you of the whole deposit. money

Trading with fixed volume is an easy way to manage your money. Set a fixed limit (e.g. 0.5 or 1 lot) and trade within it. Do not open numerous positions at a time. Even if this strategy will not give you extra profits, you will save most of your money and get a foot in the door to solid profits. Always analyze results: make some calculations, monitor charts and study the market. Find mistakes and try to fix them. If the results are positive, you may increase the volume of trade and use a minimum margin.

Another method of money management is to choose a part of deposit you are ready to risk. For example, 5 per cent for a trade. An advantage is that you will have the same risk portion for all trades. By increasing your deposit, you will be able to raise a volume of trades and reinvest the money including profits. However, it is not recommended to invest more than a half of your deposit.

Contrary to self-confidence, self-discipline is essential for Forex trading. You should know exactly where to enter and exit the market. Set up stop loss levels and move them if the market favours you. Close positions if you got the profits you expected. Close positions if your losses reached the limit. Control your emotions. If you failed and suffered from stress, take a time out and have a rest for a few days.

Later you will know how to diversify risks and elaborate the most appropriate trading and money management strategy.

Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department

14.12.2011 Post in Trading

keyOptions represent one of six investment instruments of Forex trading. Option is a contract to buy or sell an asset at a specific price within a specific time period. However, the contract gives the right and not the obligation. An option holder is entitled to repudiate the contract if it will bring him no profits. The option’s nature lies in its name which implies “choice” and means that traders have almost absolute freedom in setting contract’s conditions.

There are different types of options: exchange and off-exchange, exotic and common, call and put, and American and European. Forex is well-known to be off-exchange market. Forex options are called currency options.

Call and put options are major types of options. Call options give the right to buy an asset, while put options give the right to sell it. If traders expect the option’s cost basis to rise, they buy the first type of options. If they expect it to fall, they buy the second type.

American option gives its holder the right to buy or sell an asset of a specific volume at a specific price within a specific time period. European option can be only executed at its expiration date.

Although currency options may have rather long life, short-time option contracts are of bigger interest to us. Experts describe option trading as a rapidly developing sector of exchange market. Previously, options had been primarily used by exporting and importing companies to hedge risks, and today they have revealed new opportunities for investors and attracted more traders. However, not all traders fully understand exact principles of option trading and the results it may lead to. Some consider options to be highly profitable with no danger of huge losses while the others think that they are too risky.

Today’s brokers provide traders with various types of options. Experienced investors and specialists have developed multiple strategies for option trading. Undoubtedly, options are a very flexible instrument that can minimize risks and shortly maximize profits provided that it is handled ably. Options are on your side in both low and highly market volatility and bring profits at even a slight price fluctuation.

Beginners in option trading are usually recommended to start with small amounts of money and simple strategies. First, choose a type of options. Then study the theoretical basis and compare trading conditions provided by brokers. And always work out trading process. Developed analytical skills would be an asset as option trading is based on technical and fundamental analyses as well.

Binary options, another type of exotic options, have recently gained popularity among traders. These options are usually called “all or nothing”. It means that a trader will get either known profits or nothing and the debited option value. The only prerequisite for successful binary option trading is to forecast accurately the price direction. Will it rise or fall? Option will win if your choice proves to be correct. Although binary options are quite a clear and simple trading method, thoughtless actions may perceptibly affect your budget. Always remember to plan carefully before act and do not rely on luck.

Added by Roman Tsepelev,
InstaForex development manager

01.12.2011 Post in Trading

Studying basic trading and browsing multiple Forex resources, Forex beginners may conclude that the technical analysis is wedded to indicators and expert advisers. Although most traders surely use them in everyday trading, there are those who consider indicators to be nothing else but obstacles to gaining profits. They prefer trading without indicators, or the Price Action trading.

pricePrice Action fans are confident that trading will become really effective only if any additional software, economic calendars and news feeds are dismissed and traders fully pore over price charts.

Have you ever heard a phrase: “the price discounts everything”? It means that anything besides it is just factors which may directly or indirectly influence the market. In other words, the price is the final result which should lead a trader in his decisions.

The price is the key Forex element; the Price Action method enables a trader to concentrate on the price and do not squander his energies on minor elements.

This approach seems quite sound: charts reflect the reality that has already happened. You will not be misled by contradictory signals or continuous news feeds. If you know how to read a price chart, it looks very simple.

Price Action traders are certain that the price gives hints to forecast its direction. If you learn to analyze price fluctuations, you will have a base for making efficient decisions, improving your strategy and finding your sea legs in trading. Certainly, you will not need to exclude other analysis methods from your strategy. However, advantages of mastery in price charts would be hard to argue.

Price Action simplifies many aspects of trading and enables easing emotional tension; you will not need to decode indicators or analyze economic news.

Being a private Forex investor, you should monitor major market makers to gain profits. Although market fluctuations come in zigzags, there is always a trend. Furthermore, history tends to repeat itself. Therefore, if you base your strategy on specific patterns, your chances to profits will increase. The Price Action method has a number of such patterns called price patterns, which Forex experts consider to be extremely informative. According to them, beginners should start with daily charts that better reveal trends and facilitate analysis.

The main principle of Price Action is that indicators provide inaccurate or outdated information while price charts give comprehensive and credible data. If you learn to monitor price movements, you will understand market principles and find the tight time for entering or quitting the market.

Added by Svetlana Milyushko,
InstaForex Clients’ relationship manager

29.11.2011 Post in Trading

Different macroeconomic factors influence financial markets. Fundamental analysis experts examine these factors and base their forecast of currency directions on economic indicators, statistics, reports and news.

Being quite a controversial type of trading, news trading is a popular way of earning on Forex market.

Although news definitely forces the market, it may cause unpredictable consequences.Снимок

New trading has certain drawbacks:

  • information overload;
  • necessity to select right news from the news feed;
  • unexpected changes (events seemed minor at first glance may develop crucial importance, and conversely);
  • changes in data importance depending on global economic situation.

A trader addicted to fundamental analysis face lots of new information every day: planned reports, statements of policymakers, research notes, announcements of political events and rumors…

Anyone who chooses to trade on news should learn to analyze links between economic events, consider psychology of the market and be very careful. Trading on news may easily lead to a trap. The market may move in one direction on the back of expected data and suddenly jump to the contrary after its release.

Information overload is another reason for a headache even to an experienced trader. To select useful information from a mix of different and sometimes contradictory facts is not that simple. Two mistakes are common: a trader either tries to embrace the boundless, or focuses on a particular news aspect and forgets about the others.

Which data should be based on? According to experts, the most important data is information related to unemployment, inflations, GDPs, percentage rates, indexes of consumer and producer prices, production output and retail sales.

Intraday traders are definitely interested in news trading. Normally, the release of important economic or political data cause well-marked short-term price movements. Market volatility may increase and bring profits to short-time traders. Experienced traders say that knowing when regular releases are made and which of them are most important may lead to a success.

However, to avoid risks, many traders prefer to suspend trading at the moment when the data is published. Major traders reputedly know about oncoming market reactions in advance and reap benefits while ordinary traders are able analyze news only post factum…

In any case, it is better not to ignore news. Firstly, there are investors who successfully combine techniques of fundamental and technical analyses (still there are some who repudiate both), and secondly, economic news fosters intellectual development.

Added by Alexey Skachilov,
Clients’ relationship manager