Forex psychology

Tuesday, August 11, 2009

A trading psychology, based upon how well you know yourself and are able to profit from your strong points, as well as control you weak ones, has a lot to do with how successful of a trader you will be. When you truly know yourself, then you are aware of how you are going to react under certain circumstances and you can protect yourself from self-damaging actions or decisions when it comes to managing a trade.

The overlap between trading and psychology is complex. Psychological factors, such as performance anxiety, can interfere with clear-headed decision-making about markets. Similarly, poor trading practices - such as taking on too much risk with excessive size - can magnify the normal stresses of the marketplace. Sometimes it is difficult to separate chicken and egg. Many traders put their money at risk without a demonstrable edge. It is difficult to imagine such trading *not* generating frustration over time. Other traders ground themselves in solid methods, but these may not fit their talents, skills, or personalities. A very short-term, aggressive method of scalping markets, for instance, may work fine on paper, but prove completely unworkable - and stressful - for a highly analytical, risk-averse trader.

Sometimes, however, trading psychology problems have nothing to do with trading. They are the results of pre-existing problems that will not be solved by different trading methods. Nor will they go away with simple coaching advice to control emotions and build discipline.

Your biggest enemy when trading is YOU. It's not the market, or the market makers, or world events. It's You! If you do not have a professional psychology then you will make the wrong decisions and lose money on a consistent basis. Here are the keywords, and concepts that you need for developing a professional trading psychology:

Trading psychology's rules:

• Trade with a DISCIPLINED Plan: The problem with many traders is that they take shopping more seriously than trading. The average shopper would not spend $400 without serious research and examination of the product he is about to purchase, yet the average trader would make a trade that could easily cost him $400 based on little more than a "feeling" or "hunch." The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected upside.
• Examine all of the facts carefully before you make a trade. Don't let excitement, fear, or someone else's influence cause you to enter or exit a position before the circumstances match YOUR guidelines.
• What goes up must come down and what goes down should eventually come back up. A good trader understands that there are times when it's better to be in an all cash position and watching the market from the sidelines.
• Don't let temporary circumstances erode your convictions. You know that you should take steps to protect your profits when a trend is weakening, so do it. Likewise, you know what to do when the stock resumes trading up, so do that to.
• Don't fall in love (or hate) with your stocks. The stocks don't care that you own them, and they are not your friends. Your only friend is your trading psychology. Pay attention to the technical aspects and do the right thing based upon your own system. Do not marry your trades: The reason trading with a plan is the #1 tip is because most objective analysis is done before the trade is executed. Once a trader is in a position he/she tends to analyze the market differently in the "hopes" that the market will move in a favorable direction rather than objectively looking at the changing factors that may have turned against your original analysis. Traders with a losing position tend to marry their position, which causes them to disregard the fact that all signs point towards continued losses.
• Remain emotionally detached from the market and the excitement that its movement creates. Don't constantly check your share prices all day long (unless you're day trading). If you get caught up in "tick" watching then you are going to make wrong decisions based upon greed or panic. There is no valid psychology that includes greed or panic.
• Unless you are a day or swing trader, the day-to-day prices of your stock are not that important. Stay focused on the large trends and do not try to react to every market move.
• Unexpected things, both good and bad. Understand these events, be prepared for them, and take the appropriate actions. A good psychology takes into consideration that you can not predict what is going to happen in the market.
• Unless you're trading in short positions, only increase your position when prices goes up, not down. Generally, when a price starts to move it usually continues in that direction for a while.

Forex options

Sunday, August 9, 2009

Forex options have a lot in common with the stock market business. They are more reliable in limiting risks and raising profit during market trading. An investor can choose between two main options, the first of which is traditional. It lets the buyer the right purchase currency at preconcerted price and time but doesn't make him do that. If a trader seizes the opportunity of Forex options and during the agreed time the currency being bought appreciates, the trader can sell this currency with advantage. Forex options give investors another tool which helps to minimize losses and to raise profits, they are extremely popular at periods of economic reporting. But if the currency underrates the loses of a trader they pay the premium for this option.

The second type of Forex options is called SPOT (Single Payment Options Trading). This type depends on the Forex trader; it is a forecast from the trader on what they predict is going to happen in the Forex market. If the trader is successful possible profit can be unlimited and if the SPOT is unsuccessful the trader loses only the premium.

Transactions in options on FOREX are extremely risky. The options' sellers and purchasers should get acquainted with the type of option which they intend to trade and the connected risks with it. It's worth figuring out the extent to which the value of the options must go up for the position to stay beneficial, taking into consideration all transaction costs and, of course, the premium.

The options' buyer may either offset or exercise the options or let the options expire. The exercise of an option results in a cash settlement or in the purchaser getting or giving the basic interest. If the options you bought expire worthless, you lose the investment which consists of the option premium. If the option is on a leveraged position, the buyer receives a FOREX open position with associated margin responsibilities. You should remember that transaction costs on FOREX are usually zero with no commission. If you intend to buy deep-out-of-the-money options, you should realize that the chance of getting profit from such options is usually rather far-off.

As a rule, selling, "granting" or "writing" an option is more risky than buying options. The seller may uphold a loss in excess of that amount even though there's a fixed premium level acquainted by the seller. The seller is responsible for an extra-margin to keep the position at the same level if the market moves unsuccessfully. The seller also meets a risk of the buyer using the option and the seller will have to either settle the option in cash, to get or deliver the basic interest. If the option is "covered" by the seller of a corresponding position in the basic interest or a future or another option the risk may be less. If the option is on a leveraged position the seller receives an open FOREX position with associated margin responsibilities. If the option isn't covered the risk of loss is unlimited.

In some authorities brokers let postponed payment of the option premium, bringing the purchaser to responsibility for margin payments isn't more then the premium amount. It's still possible that the buyer loses the premium and transaction costs. The buyer is liable for any unpaid premium which is already overdue when the option is exercised or expires. The stock market is often associated with options; still the foreign exchange (FOREX) market also lets trade these sole derivatives. Retail traders many opportunities to minimize risk and increase profit thanks to options.

Forex broker strategy

Saturday, August 8, 2009

Some broker strategies will be described in this section:

• "Kitchen"
• "Brokerage"
• "Fixing losses"
• "Pseudo-brokerage"
• "Clearing-house"

There are a variety of things that are similar in the Forex as well as in the equity markets. However, there are major differences as well.

Choosing a Broker

As there are in any other markets, you will have many Forex brokers to choose from. Following are some things you should look for:

Low spreads - The spread is calculated in "pips". A currency is usually purchased in pips and it can also be sold in pips at any time. The Forex broker does not charge a commission. Therefore, this is the way that the broker makes his or her money. Here is a tip: Lower spreads will definitely save you money.

Quality Institution - Due to the large amount of capital that is required, Forex brokers usually hook up with large banks and lending institutions. The Forex broker should usually be registered with the Futures Commission Merchant as well as being regulated by the CFTC or Commodity Futures Trading Commission. You must be sure that the broker you choose has the backing of a reliable institution.

Extensive Tools and Research - A variety of different trading platforms are offered to a Forex broker's clients. Before you make a commitment to any broker, always request free trials so that you can try out the various trading platforms. Here is the bottom line: Find a Forex broker who is concerned with your success.

Wide Range of Leverage Options - In the Forex leverage is necessary due to the fact that the price deviations are only fractions of a cent. This is the amount of money you will receive from your broker for trading. You should remember this: Lower leverage will means lower risk for you. You can also consider that you are getting a lower bang for your buck.

Account types - Two or more account types are offered by many brokers. If you do not have that much money to invest, you can settle for a mini account for about $250. The standard accounts allow you to trade with various leverages but you must begin with the initial capital of $2,000. The premium account requires that you put down a large amount of capital, but it allows you to use various amounts of leverage. You will also be offered additional services and tools. The bottom line is this: Make sure you choose a broker who has the proper amount of leverage, services and tools that are relative to your amount of capital.

Forex hedging

Friday, August 7, 2009

Forex hedging has emerged as one of the colloquial rescuing strategies for forex investors, individual investors, portfolio managers and corporations for protecting capitals. It is simply the purchase of insurance policy with respect to the currency position. Some real time incidents of rise and fall of forex trading are as follows

• The Canadian dollar faces a heavy fall against the US dollar since March 2007 due to the drastic decreases in the cost of crude oil.
• Even the value of Indian Rupees faces a heavy cut after huge capital was pulled way from the market by the foreign investors due to the global financial crunch.
• In spite of the recent highs attained by the Japanese yen, it falls against other currencies. This was basically caused due to the massive cutting of the rates.

Thus, hedging has emerged as the urgent need for forex traders, with such rampant rises and falls in forex industry.

A derivative, a reliable investment instrument, provides deeper insight to the forex traders regarding the capacity of the backup plans.

The two major kinds of derivatives used in forex hedging are:

• Futures
• Options

1. Futures contract is one of the derivatives used by the forex traders for hedging. This follows the exchange agreement in which currencies are exchanged on a particular day, depending solely on the last second value of the closing date just like stocks, the currency futures are thereby sold in any market.

Example: If a forex trader chooses to use dollars for the respective longer position of euros in the current market (say 1.2700). What if the price drops? He then decides to have a short position of 1.2650. He believes that this hot would compensate the loss faced by the longer position. But then, there is no guarantee that the market would witness a rise after the short has been decided by the investor. Thus, to avoid the risk, the investor should go for short(USD/CHF) and long trading with EUR/USD. This creates the currency pairing of EUR/CHF with the 2 different pairs.

2. Internationally dealt businesses employ the other form of forex hedging.

For example, any company with higher number of customers in Europe will definitely be troubled if euro weakens. Obviously, then the earlier conversion rate of euros to dollars wont be applicable. But then it adopts a longer position in rates of dollars, when with respect to euros, it might recoup all the losses. In case, the fall in the rates of dollars is considered, the increased value of euros would cause increase in the profits. Thus, any kind of threat which the company might have faced gets neutralized.

At the same time, it's clever to stick to long for a particular currency pair, offering higher interests. After it, the pair which does not demand interest can be kept for short. Thus, creation of hedge in between the two currencies can be done through options.

Let's imagine, the investor takes the long at 116.00 of USD/JPY. Then, a further long for a put option of strike price is taken at 115.50. For break even, the price needs to go at least 20 pips. At the same time, if the price does not sink lesser than the 115.50, option cost would be lost. Put options would turn quite worthy enough the price goes down than 114. So subtracting the profit on options and loss on position, the investor faces a only loss of 70 pips. Thus, he is hedged, saving himself from stupendous loss.

Though hedging might sound as fool proof, it does not reduce the concept of risk return takeoff. Thus, hedging is not utilized for making money but to lessen the potential losses which might be caused. Thus, it should be adopted with concern.

Forex trading platforms

Thursday, August 6, 2009

Different types of forex trading platforms

There are several different forex trading platforms established at the web space. This makes it a bit problematic for the traders to select the right kind of forex trading platform for them. But eventually, what matters is the flawless and evident training received from the forex platforms, with the incorporation of the real time experiences. At the same time, the forex trading platform is also necessary for the new traders to get the entire idea of the trading without risking a single penny. Thus, the more competent the forex platform is, the more competent the trader turns out to be.

The Finotec trading platform

One of the important features of the Finotec trading platform is the usage of the charting module, which in a very comprehensive manner. The other features which are linked with the advanced tools are like commodities, options, futures and CFDs. Some of the other features of this trading platform are the various other resources and features like the desktop version, web based version, the spread betting platform and the spread betting charts. Some of the advantages of the platform are that one can easily place the orders, view the charts, see the alerts, view the latest forex new etc.

The Dukascopy trading platform

This brokerage house offers 2 trading platforms which are based on JAVA and web. They donot need any kind of software for downloading. Thus, it makes it easier for the trader to trade according to his need. Both these platforms are based directly on the proprietary software. Due to this reason, the platforms are very flexible and are not depending on the different suppliers.

At the same time, the platforms are also very suitable for different traders and their trading styles. At the same time, some of the features which are included in the trading platforms are the real time news, the Dow jones, the AFX, the studies and the chartings.

The MT4 based platform of the Multiple Banks Clearing

The features which make MT4 one of the best forex platforms is the free chartings, the news and more than fifty studies. At the same time, in this platform, the trader can trade in almost thirty different currencies. The platform also exposes the traders with the instantaneous trading executions.

Different ranges of orders which are available and apart from that the trying of orders within the specified spread etc are some of the real time situations of the forex market which the MT4 makes the forex traders aware with.

Trading platform of ACM -USA

One unique feature that makes ACM-USA different from other trading platforms is that over here, the traders are, at no point of time, pulled out from the trading process. At the same time, the platform also encourages the trading costs, the forex scalping and the swings. This makes the platform suitable for both the classes of forex traders.

The trading accounts which are available are of three types, like the standard, the mini account and the institutional account. The fusing of the trading accounts which the live wires and credit transfers is another advantage which is provided by the ACM USA. At the same time, the platform is also backed with twenty four hours of customer support system which makes it very competent in all spheres.

Thus, all these types of forex trading platforms tend to be competent and bustling with different features which enhance their utility and forth coming attribute for the different types of forex trades. Thus, it's advisable for the trader to research about the various different types of forex trading platforms before making the right decision.

Forex fraud and scams

Wednesday, August 5, 2009

The mediators such as brokers and dealers often use of fraud and scams in Forex market. There is a special organization - The United States Commodity Futures Trading Commission (CFTC). This agency regulates the trading of Forex currency, commodity futures and options contracts in the US and fights against companies involved in illegal or fraudulent sell of currency, commodity futures and options.

There are some dishonest and disrespectable Forex broker's or dealer's strategies. Any victim of such a broker should put the broker's review. The "kitchen" method makes management of the dealing center sure from the very start that the most part of their clients will once lose their capital because the cores are the lowest vocational training of the client, aggression is overwhelming. Besides they don't know any foreign languages. These market players are very seldom aware of the main information streams.

If you become a victim of such a broker you may put your broker's review.

What is brokerage? It's so-called overlapping of all client transactions during the performance. "Brokerage" turns out to be beneficial in case if many clients take part in it and they are active at transactions' performance. Sometimes brokers earn capitals moving of the market against clients. Market can be shifted in different ways. As all the clients' transactions pass through dealers or dealing centers, the dealer forms the quotation and passes it by to the market player.

Dealing center doesn't use brokerage as the main technology. Profit is gained from the client's losses. This is the main point of the broker strategy. Usually the client's transactions performed during one day don't bring to dealing center greater profits or big losses. On the whole, these transactions bring small profit, and real profit is gained when positions open in current of several bank days and the client faces bigger losses. At the so-called "pseudo-brokerage" any position sometimes makes a client to suffer losses, and dealing center, correspondingly, gains profit on this position if this position is not blocked at the foreign broker. Some dealers provide you with a guarantee that you'll never lose more money than you invest including the initial deposit and following deposits for keep the position open.

Let's examine two main distinctions between buying off-exchange Forex currency options and buying options on futures contracts. First, NFA's options brochure describes only American-style options, and they can be exercised at any time until they expire. Nevertheless, many Forex options are of European-style, and they can be exercised merely on or near the date of expiration. One should keep in mind which kind of option to purchase.

Unlike adjusted futures exchanges in the retail off-exchange there is no central marketplace. Forex currency market there is also no main marketplace with lots of buyers and sellers. You are relying on the dealer's honesty for a fair price as the Forex currency dealer says what the execution price is going to be. Second, when you exercise an option on an exchange-traded futures contract, as a rule, you get the basic exchange-traded futures contract. When you exercise an off-exchange Forex currency option, you are more likely to get either a cash payment or a position in the basic currency.

You should check with the dealer's regulator about the dealer's registration status and ask the dealer how it is regulated. Besides there's sense in finding out if the dealer's regulator has taken over rules for regulating its retail Forex activities.

Companies and individuals that demand retail accounts for currency dealers and manage those accounts don't have to be adjusted or combined with a regulated company, unlike Forex dealers. That's why you should know if the person's activities are regulated and by whom.

For noticing fraud be careful and watch the warning signs given below!:

1. Avoid any firm that gives guarantees of huge profits

2. Keep away from opportunities that seem too fantastic

3. Be suspicious of companies that demand to trade in the "Interbank Market"

4. Keep away from firms that guarantee the miracle of little or no financial risk at all

5. Never trade on margin if you don't know what it means

7. Currency frauds as a rule target members of ethnic minorities

8. Be careful about transferring cash on the Internet by mail or in other way

9. Make sure that you have the firm's performance track record

10. Never work with anyone who refuses to give you their background

11. Warning signs of commodity "Come-Ons"

Be aware that the majority of Forex and commodity fraud is exercised by firms from South Florida - in 2000 Boca Raton was considered by CNBC the world's telemarketing fraud capital, Southern California or countries outside the US. As a rule, Forex fraud is exercised by US companies which were once registered with the National Futures Association (800) 621-3570 and have had their licenses recalled, by their directors and brokers. Also never make a bank wire or check payable to someone but a FCM adjusted with the NFA.