Avoiding the Pitfalls in Currency Trading
February 24, 2009 by admin
Filed under Forex General
Avoiding the Pitfalls in Currency Trading
There are many pitfalls to be avoided when trading.
The first pitfall is to believe that every trade must be a winner. This isn’t true and will get you into trouble. It is fine to take losses on trades that are not going in the right direction. However, a trader with a must-win mentality who think that the trade must be converted into a win will hold onto a bad situation only to make it worse. It’s fine to let it go and get on with it. That way the next trade can be set up and readied. Holding on to a bad trade usually just ends up in bigger losses. Good traders know that even a system that only generates 60% positive trades can be very profitable if used in the right way.
Another pitfall is to believe that you must always be in the market. If you are basing a lot of your financial hopes on trading, there is a temptation to be constantly making trades and making profits. Instead of waiting it out for the ideal situation that will bring on the highest chances of success, these overactive traders feel that if they are on the sidelines then they are missing out on the action. Remember that even the best pro-athletes sit on the sidelines sometimes. That is because there are times when it is best for them not to be in the game. Traders who become overactive are likely to fumble and make poor trades just because they can’t stand being out of the market waiting until the next golden opportunity pops up.
As a trader, you also must be wary of "revenge trading". Revenge trading happens when things have been going well for some time and an unexpected loss occurs. Instead of taking the loss in stride and hoping to make it back later, the trader lets emotion overcome them. The stakes are just doubled and a new position is taken out. The mentality goes something like, "If I lost 10%, then I can double my investment and if it goes up 5% I will make it back". This is not a wise manner of thinking. What would be better is to take the losses, sit back and look for the next good trade. Revenge trading can be very dangerous, especially if it puts you into a highly leveraged situation where you could lose it all.
And that brings us to the last pitfall. Just because a broker offers 400 times leverage doesn’t mean that you should be borrowing that much money. Remember that the more leveraged you are, the easier it is to lose it all. So watch your leverage at all times and make sure that any leveraged trading is part of your strategy and not due to emotion.
Watching out for these pitfalls will help you stay in the black.
© GetForexHelp.com
Trading with ECN versus Market Maker
February 16, 2009 by admin
Filed under Forex Brokers
Trading with ECN versus Market Maker
If you are about to undertake the selection of a broker for Forex trading, then you will need to decide whether you want a Market Maker or ECN. Many of the firms out there are Market Makers and it was previously difficult to find ECNs, but that has changed with an increasing number of ECNs becoming available.
So what does Market Maker mean? And what is an ECN? A market maker "makes" prices available to you, the buyer. If you have ever gone to a foreign currency exchange booth at an airport or in a tourist area, you were essentially working with a market maker. The market maker offers you a buy price and a sell price, thus "making the market". There is a spread between the two prices meaning that the market maker will buy a currency for less than they will sell it. That spread is how market makers profit; they just buy low and sell high. ECNs are Electronic Communication Networks. They are basically networks of buyers and sellers who can intercommunicate. Instead of going to one broker who is buying and selling to everyone and operating as an intermediary, ECNs are connecting buyers and sellers together and just charge a commission for trades. They don’t worry about the spread because they aren’t actually holding currencies, but rather just connecting people who are interested in buying and selling.
There are advantages and disadvantages to both systems. Market makers will generally offer an easy to use integrated system for trading with a lot of charting and analysis software and that is nice to have. But there are problems. What happens if something devastating happens to a country and will negatively affect its currency. The market makers then aren’t going to be in a good position to buy, buy and buy that nation’s currency since traders are anticipating a decrease in prices. So problems result. Suddenly the market maker’s best interests are directly in conflict with the investors. Software glitches might occur or perhaps trading becomes unavailable. Sometimes the spreads suddenly grow larger. Frustrated traders accuse the market maker of causing losses and sometimes even lawsuit have been launched.
These problems with market makers led to the development of the ECNs where traders can interconnect directly with each other and don’t have to worry about depending on one broker. Traders don’t have to worry about big spreads but things are now more chaotic. If you place a market order in an ECN it can change so quickly that by the time your order has reached the ECNs computers the prices might have radically swung. Things happen much faster in a truly open market. Additionally, because the ECN isn’t operating in a closed environment the tools are more limited than what were available under the market maker’s system. Traders might enjoy the small spreads but then have problems because prices move so quickly that orders don’t occur at the prices that were intended. Each ECN will have a different size and different players and usually the ECN won’t reveal who they deal with, so it is up to the trader to investigate and decide which ECN is best.
It appears that many serious Forex traders are moving toward the ECN model of trading because dealing with many buyers and seller can be more profitable than working with just one. However, that doesn’t mean that Market Makers have lost their importance. If a trader is planning on trading on fundamental analysis then a spread might not be so important since the outlook is over a long term. The stable prices can be good for traders under some scenarios.
© GetForexHelp.com
Unbeatable Tactics on How to Protect Yourself from Forex Scams
February 8, 2009 by admin
Filed under Forex General
Unbeatable Tactics on How to Protect Yourself from Forex Scams
Because the forex market is the largest market in the world, it is open to everyone. Anyone with will and power can trade in forex. So, the forex is really a good place to invest your money. But since the forex market is crowded, scammers can be anywhere. So, the frequently asked question is – how can we prevent being scammed in this business?
Before getting yourself into this industry, you have to do and know the basics:
- Digest forex food for your thought. First step is to familiarize yourself with the forex basics. You have to take this seriously if you want the business to be serious with you. Be patient at this stage as learning is a never-ending process. If you have to do it more than a month, then do so. Knowledge is one of the keys to the many doors to success in forex. So with this in mind, it is safe to say that the more you know, the more chance you get to make money.
- Practice makes perfect. Practice trading as much as you can. You can do it with a demo or a real account as long as you put your moves into actuality. If you lose in the process, so what? Just take this as a lesson to improve your next move.
- Lastly, learn how to evade scams.
Anything online is very susceptible to scams. Similarly, online forex trading is full of scammers. Scams usually vary and they can range from the simplest, most obvious to the most concealing and complex scam ever. One common strategy of these scammers is that they will lure you into buying an affordable forex system which, as they claim, will surely rocket your earnings way up. A hundred dollars is not bad for the huge amount of cash that you will soon be earning if you buy their system. So, are you up for that?
On the other hand, if you think forex brokers are scam-free, think not. There are forex brokers who don’t play fairly. The role your broker does is very critical to your forex career. Usually, when a broker is a fraud, your trade doesn’t get into the forex market. Follow these useful tips on how you can prevent scams:
- Read and re-read all terms and conditions, information, reviews – everything about your forex broker.
- Deposit a small amount of money first. You do not make huge amount of money overnight anyway. A small amount won’t be so much of a worry if ever there will be complications in the future.
- If you can, withdraw your profits every once in a while. Some brokers offer interests if you lock your profit in them but you don’t want any hassles when it comes to withdrawing your money. So it will be a much better idea if you just withdraw them immediately. This shouldn’t be a problem if you chose a good forex broker.
© GetForexHelp.com
What is Forex Swing Trading?
February 2, 2009 by admin
Filed under Forex Systems
What is Forex Swing Trading?
Some Forex traders try to make quick profits within a few minutes in what is known as Scalp Trading. (See the getforexhelp.com article on Scalp Trading). In Scalp Trading, investors try to identify a quick trend and enter into and out of a trade position within a few minutes. Swing traders, on the other hand look for trends that will last a few days or a few weeks. Instead of trying to rack up a great deal of quick trades, swing traders will look for optimal conditions to take advantage of market volatility to make only a few trades and then exit after they’ve paid off.
There are a few advantages to swing trading. One is that profits can be ridden out. In scalp trading the idea is to make many small profits and let them add up. Even if the currency appears to be going in the right direction, the scalp trader exits quickly to ensure the quick profit. With swing trading, a position can be held longer and profits can be ridden out until they begin to trend in the other direction.
Another advantage to swing trading is that it is much easier to beat the spread between the buying and selling prices of the currency because over a period of days or weeks, the prices should move beyond the small difference in the spread. With scalp trading, the currency pairs have to move beyond the spread consistently to make any money.
One factor that is present in swing trading that isn’t present in scalp trading is that you have to be more conscious of fundamentals. If you are hoping to follow a trend for a few days or weeks, you’d better be betting with the fundamentals and not against them. Otherwise you will be taking a big risk. In scalp trading, this isn’t such a big deal and you can make a profit without being concerned about fundamentals.
So when should you swing trade as opposed to scalp trade? Swing trading is good when a market is going sideways and you can just follow the trends as a currency moves up and down. But if the currency is appreciating or declining swing trading becomes much more difficult because you can’t count on it staying within a specific range. The only problem is, you can only guess if a market is going up, down, or sideways and you may not know until after the fact.
© GetForexHelp.com