Trading Currency Online
Trading currency online requires that you know about the basics involving the currency market, also known as the forex market. In today’s article we discuss general concepts that you must know and understand before you commit to trading currency in order to make a profit.
This market is different from other markets. For starters, currency trading does not occur on a regulated exchange like the trading of futures, or trading stocks or options. There is no central governing body and all forex traders practice trading currency online based upon credit agreements. The currency market is however the most liquid and the largest market in the world.
The FX market does not have commissions that are paid to brokers like in the stock market. The actual forex brokers are actually dealers and not brokers and they assume market risk by serving as a third party to the investor’s forex trade. The make their money through the bid-ask-spread. (This is explained below). This is unlike stock trading where the broker makes commissions when the customer buys and sells the financial instruments.
When you are trading currency online, you are really buying and selling nothing. There is no physical exchange of currencies and al trades exist simply as a computer entry. These entries are netted out depending upon the market price. This FX market is purely speculative, in other words.
There are numerous currencies that are traded on the currency exchange but we will only list some of the major currencies. These major currencies are listed in currency pairs and are seven of the most liquid currency pairs in the world. The EUR/USD (Euro/dollar), the USD/JPY (dollar/Japanese yen), the GBP/USD (British pound/dollar), and the USD/CHF (dollar/Swiss franc) are the four major currency pairs. The three commodity pairs include the AUD/USD (Australian dollar/dollar), the USD/CAD (dollar/Canadian dollar), and the NZD/USD (New Zealand dollar/dollar).
It is also important to know some of the forex lingo when trading currency online. Knowing these terms will help you to adapt faster to the forex market.
Kiwi – nickname for the New Zealand dollar
Aussie - nickname for the Australian dollar
Cable, pound, sterling – alternative name for the British pound
Greenback, buck – nicknames for the U.S. dollar
Yard – a billion units
Loonie, the little dollar – nicknames for the Canadian dollar.
There is obviously a lot more to the currency market in addition to the lingo and the above information. Continue your foreign currency education and decide if trading currency is right for you.
Market Direction: Candlestick analysis allows for the correct portfolio positioning. It also creates a clear visual playing field for adding the appropriate option trading strategies. Having the ability to recognize when a pullback might occur is important whether trading short-term or long-term. As seen in the Dow chart, the 50 day moving average had the opportunity to act as a support level. A Doji formed at that level in both the Dow and the NASDAQ last Friday. An indecisive trading day, such as a Doji, makes for a good prepared trading strategy.
The recent downtrend called for some profit taking in long positions and setting up some short positions. It also created the opportunity to write some calls against existing positions. The benefit created by the visual clarity of candlestick signals permits an investor to apply the appropriate option trading strategy to the appropriate situation. A longer-term investor may not necessarily want to close out a position if the prospect was more upside potential after a pullback. Writing calls against that position has some low risk benefits. The makeup of a call option price is the intrinsic value of the option and/or the time premium. Holding the stock position and selling calls against the position has added benefits.
The premiums received when selling the call positions offsets the equity loss as a stock price pulled back. As the price does pullback, the price of the options diminish on a twofold basis. The intrinsic value, the actual value of the option over the strike price, will move down as the price moves lower. Additionally, the time premium will diminish also as the expiration date gets closer. This is a relatively safe strategy that adds additional income into an investors portfolio. Simple options strategies provide a tremendous source of income when the right trading strategy is applied to the correct price move. These simple trading techniques will be demonstrated thoroughly during the Candlestick Forum Option Trading program on October 17 and 18th. If you would like to learn how to dramatically increase your income while at the same time reducing your risk, take advantage of the trading knowledge that has been applied to over 20 years of candlestick application. Click here for more information.
When the markets have strong pullbacks, it makes identifying the strong potential price moves much more pronounced. As illustrated in the recent recommendation of WCRX, the Fry Pan Bottom pattern was consistently showing strength during a time when the market was in an observed downtrend. The visual aspects of candlestick analysis reduces the reliance upon technical methods that do not necessarily prove profitable. For example, "relative strength indexing" can be used to indentify strong stocks in market trends, but the visual aspects of candlestick signals/patterns reveal the relative strength as well as high profit potential breakout situations.
Each aspect of candlestick analysis allows for the fine-tuning of the probabilities. The elements of investor sentiment put into a graphic depiction makes investment decisions, whether buying or selling, done with much more conviction. Applying that information to basic investment rules dramatically improves an investors mental perception. It is extremely beneficial to understand the implications of the candlestick signals and patterns. When you add that on top of the viable trading rules and procedures, you get much closer to being a professional investor versus a part-time hit or miss trader.
Tonight, the Candlestick Forum will be presenting Tina Logan as a guest speaker. Her presentations and educational material provides a common sense and logical trading platform. It is advisable to learn a number of investing perspectives and then apply what is most useful for your own trading nature. Join us tonight at 8 p.m. ET, the session is open to everybody. Click here for instructions.
The Candlestick Forum Team