Traders on the Foreign Exchange market, Forex market for short, can potentially make thousands of dollars based on the volatility and fluctuations of a country’s currency. To better themselves and have a leading advantage over other traders, some Forex traders and investors participate in a practice known as news trading. The risks are very high, but the potential gains can be worth thousands of dollars and many traders and investors use this technique.
The technique of news trading is quite simple. It is the trading of foreign currency immediately before or after an important economic news announcement. After such announcements, there is a high possibility that market prices will fluctuate, either for the better or worse, depending on the announcement. For example, if the U. S. Federal Reserve announces another increase of the interest rate, many traders might invest in the U.S. dollar as it is expected that its value will appreciate. The main advantage of news trading is the potential for a country’s currency to make huge gains or losses in very little time. Within minutes of an economic announcement, a country’s currency can gain or lose one hundred points almost instantly. The potential of huge profits attracts Foreign Exchange traders and investors, however there are various risks associated with news trading.
Like any investment, there is always a risk, and news trading on the Forex market is no different. Though the potential profits are huge, the losses are also equally as large. The dangers of news trading come from the fact that a trade must be made quickly or else you are going to lose. If you are caught on the bad side of a trade, your money will be gone quicker than you can blink your eye. You will lose money so fast that there won’t even be time for you to manually close your trades, leaving you with nothing. Stop-loss orders are also potentially dangerous as there is a high probability of slippage because of the sudden price fluctuation.
Though some investors and traders might get lucky trading news, there is only a small probability that you will make a profit. Even if you are an expert news trader, you should still be very, very cautious when participating in this practice. Successful news trading depends solely on how you get your news. The most successful news traders are the ones with the fastest news feedand those that are able to quickly place their trades immediately after an announcement has been made. Even using other forms of news trading, such as placing orders above or below the market price is still a guessing game, and those traders in the market who base their trades on guesses, won’t have much money after a short time.
For many Forex traders and investors, their trades are dictated by technical indicators and price indexes. Hours are spent researching every indicator, taking every risk into account and then making a decision based on everything they have studied. However, for a Forex news trader, none of this matter, and the only thing they take into account is economical news announcements.
News trading is possible because the Forex market is always open, unlike many financial markets. In a financial market, securities trades of certain stocks are suspended when an important company announcement is being made. These announcements are usually made after the market has closed for the day. However, because the Foreign Exchange market is open 24 hours, any economic announcement will have direct affects on the currency of that country, and maybe others as well. In the Forex market, there are eight major currencies that are traded, as well as over seventeen derivatives to be traded as well. This means that on any given day, there will always be economic announcements from any of the major traded currencies. The major trader currencies are as follows:
U.S. Dollar (USD)
Great British Pound (GBP)
Euro (EUR)
Japanese Yen (JPY)
Australian Dollar (AUD)
Swiss Franc (CHF)
Canadian Dollar (CAD)
New Zealand Dollar (NZD)
Because of the availability of each currency, currency pairs, and its derivatives, such as USD/JPY, EUR/USD, AUD/USD, as well as several others, each currency can be traded at any given time because these currencies are globally traded.
Any Forex news trader or news investor will have to have the latest most up to the moment news announcements. Even if the news announcements are only a couple of minutes old, this can have devastating effects for any trader who has risked any sum of money. Most news traders like to keep an eagle eye on any news regarding economical activity, but most importantly news dealing with interest rates changes, FOMC rate decisions, retail sales figures, inflation indicators such as the consumer price index (CPI), producer price index (PPI), unemployment figures, industrial production announcements, boost in business and consumer confidence, as well as business sentiment surveys. Manufacturing sector surveys, trade balance release details, and foreign purchases of U.S. Treasuries may also prove useful for a news trader to better make decisions regarding when or when not to trade.
However, it should be remembered that these news announcements can have ranging impacts on a country’s currency, and after an announcement, the volatility of a currency may greatly fluctuate. It is important to take advantage of news that creates movements in volatility that will last for a few minutes or even hours. Trading on the Forex market based solely on news is a difficult and sometimes dangerous practice. However, there are some indicators that can make a news trader’s job easier, such as breakout indicators (Bollinger bands, breakout of a candlestick bar, or a price bar). Research has proved that news announcements can impact a currency’s value quite severely, in some cases it can gain or lose anywhere from 33 pips to 124 pips, opening up the ideal trading opportunity looked for by news traders. If a news trader is able to act quickly enough, even the smallest news release can be turned into a potential profit of thousands of dollars. However, it is important to remember the volatility of such announcements, and although the profits seem endless, the losses can happen too.
Friday, October 30, 2009
Top 10 Myths about Forex
Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.
Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:
Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
"I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
"I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
"I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
"I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
"I need to use a very complex strategy to be successful in Forex." It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
"I need to have a lot of starting capital to get profit in Forex." Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.
Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:
Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.
"I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
"I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.
"I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.
No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.
Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.
"I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.
"I need to use a very complex strategy to be successful in Forex." It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.
"I need to have a lot of starting capital to get profit in Forex." Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.
Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.
Japanese Yen Rises on Funds Repatriation Speculations
The Japanese yen grows against the U.S. dollar today after yesterday’s correction on USD/JPY pair, as the traders are speculating on the possible funds repatriation performed by the Japanese exporting companies.
The Bank of Japan left the reference interest rate unchanged at 0.1 percent. The institution also released a statement, showing that it may stop buying domestic corporate debt by the end of the year, showing a confidence in a stronger economy. The yen rose against all major currencies today because the policy of buying out the corporate debt is hurting the demand for yen.
The Japanese exporters sell their goods and services abroad for the foreign currency (the most popular of which is the U.S. dollar). They have to repatriate their foreign earnings by converting them to Japanese yen. The majority of the companies weren’t eager to convert when USD/JPY was below 90. As the rate grew to about 92 during last two weeks, the exporters began the conversion process.
The currency analysts believe that the present upward trend on the yen can’t last too long as the repatriation may end once the 90 dollar per yen level is broken again. There is also a danger of the currency intervention from the Bank of Japan at these levels. Such intervention, combined with the global economical uprise may spur another long-term yen-based carry trade.
The Bank of Japan left the reference interest rate unchanged at 0.1 percent. The institution also released a statement, showing that it may stop buying domestic corporate debt by the end of the year, showing a confidence in a stronger economy. The yen rose against all major currencies today because the policy of buying out the corporate debt is hurting the demand for yen.
The Japanese exporters sell their goods and services abroad for the foreign currency (the most popular of which is the U.S. dollar). They have to repatriate their foreign earnings by converting them to Japanese yen. The majority of the companies weren’t eager to convert when USD/JPY was below 90. As the rate grew to about 92 during last two weeks, the exporters began the conversion process.
The currency analysts believe that the present upward trend on the yen can’t last too long as the repatriation may end once the 90 dollar per yen level is broken again. There is also a danger of the currency intervention from the Bank of Japan at these levels. Such intervention, combined with the global economical uprise may spur another long-term yen-based carry trade.
GLOBAL MARKETS: European Stocks Seen Higher On US GDP
LONDON (Dow Jones)--European stocks are expected to open higher Friday, benefiting from stellar performances on Wall Street and Asian share markets overnight, after U.S. gross domestic product data surprised to the upside and showed that the world's largest economy returned to growth in the third quarter, recording an annualized growth rate of 3.5%.
With the Dow Jones Industrial Average closing 200 points higher Thursday, European markets are expected to find further support at the open, although once again there seems to be a degree of disbelief as to the extent of the confidence being shown right now, said Ben Potter, research analyst at IG Markets.
"There is plenty of scepticism about the GDP figure, as it has been boosted by the economic stimulus packages such as the 'cash-for-clunkers' program and the first home buyer's grants. Admittedly, the U.S. move out of recession yesterday came in at the top end of expectations, but there are still dark clouds looming with data points such as the U.S. weekly jobless claims coming in worse than expected after showing only a very modest improvement. Whether the pace of the rally can be sustained remains to be seen," Potter said.
Nevertheless, Potter expected London's FTSE 100 index to open 26 points higher at 5164, Frankfurt's DAX index up 19 points at 5606, and the CAC-40 index in Paris 16 points higher at 3730.
"The question everyone is asking is at what price do the institutions find this market too hard to resist? They're probably not going to buy just yet because they are nervous about further risks to the downside, having seen the amount of volume and conviction in the selling this week," added Potter.
On Wall Street Thursday, the DJIA closed up 2.0% to 9962.58, marking its biggest point gain since July 15 and its biggest percentage move since July 23. With the surge, the Dow is only 1.3% from its 2009 closing high of 10,092.19, hit on Oct. 19.
Among other measures, the Standard & Poor's 500 rose 2.2% to 1066.11, breaking a string of four straight losses. With one day left for October, the S&P 500 is up 0.8% for the month.
Earnings had little to do with the session's gains, as traders cheered the GDP figure. After early-week reports on housing, durable goods and consumer sentiment drove investors out of riskier assets, the GDP data helped drive traders back into stocks, commodities and other riskier assets.
"I don't think anyone was surprised it was a positive number, but it certainly took a little bit of this week's fear off the table as people were feeling pretty stressed," said Bernie McSherry, senior vice president with New York Stock Exchange floor broker Cuttone & Co.
The positive finish on Wall Street lent Asian markets support Friday, with the U.S. GDP data restoring some confidence in recovery prospects in the region following Thursday's losses.
Hong Kong's Hang Seng index was up 2.5% while China's Shanghai Composite was 1.2% higher. Japan's Nikkei 225 was up 1.4%.
"Still, some analysts were doubtful the gains would last. "The market doesn't seem convinced that today's recovery is the end of the downward correction," said Potter. "I wouldn't be surprised if we see further falls. The question will be what traders do in two or three days' time - will they continue to buy or sell the rally? My gut feeling is that they will sell it," Potter added.
In the European foreign exchanges, the increase in risk appetite continued to boost currencies like the euro early Friday. At 0720 GMT, the single currency was trading at $1.4827, up from $1.4822 late in New York. The dollar was slightly lower against the yen, down to Y91.06 from Y91.41.
Meanwhile, spot gold moved higher, trading at $1047.30 at 0720 GMT, up $15.92. In the oil market, crude oil remained steady after rising Thursday on hopes of a U.S. economic recovery. At 0720 GMT, Nymex December crude was down a cent from New York, at $79.86 per barrel.
Elsewhere, European bond markets opened steady, with little sign of the strength of the equity markets or the desire for risk resulting in more selling in the sovereign debt market. At 0720 GMT, the December bund contract stood at 121.26, up 0.05.
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary You can use this link on the day this article is published and the following day.
With the Dow Jones Industrial Average closing 200 points higher Thursday, European markets are expected to find further support at the open, although once again there seems to be a degree of disbelief as to the extent of the confidence being shown right now, said Ben Potter, research analyst at IG Markets.
"There is plenty of scepticism about the GDP figure, as it has been boosted by the economic stimulus packages such as the 'cash-for-clunkers' program and the first home buyer's grants. Admittedly, the U.S. move out of recession yesterday came in at the top end of expectations, but there are still dark clouds looming with data points such as the U.S. weekly jobless claims coming in worse than expected after showing only a very modest improvement. Whether the pace of the rally can be sustained remains to be seen," Potter said.
Nevertheless, Potter expected London's FTSE 100 index to open 26 points higher at 5164, Frankfurt's DAX index up 19 points at 5606, and the CAC-40 index in Paris 16 points higher at 3730.
"The question everyone is asking is at what price do the institutions find this market too hard to resist? They're probably not going to buy just yet because they are nervous about further risks to the downside, having seen the amount of volume and conviction in the selling this week," added Potter.
On Wall Street Thursday, the DJIA closed up 2.0% to 9962.58, marking its biggest point gain since July 15 and its biggest percentage move since July 23. With the surge, the Dow is only 1.3% from its 2009 closing high of 10,092.19, hit on Oct. 19.
Among other measures, the Standard & Poor's 500 rose 2.2% to 1066.11, breaking a string of four straight losses. With one day left for October, the S&P 500 is up 0.8% for the month.
Earnings had little to do with the session's gains, as traders cheered the GDP figure. After early-week reports on housing, durable goods and consumer sentiment drove investors out of riskier assets, the GDP data helped drive traders back into stocks, commodities and other riskier assets.
"I don't think anyone was surprised it was a positive number, but it certainly took a little bit of this week's fear off the table as people were feeling pretty stressed," said Bernie McSherry, senior vice president with New York Stock Exchange floor broker Cuttone & Co.
The positive finish on Wall Street lent Asian markets support Friday, with the U.S. GDP data restoring some confidence in recovery prospects in the region following Thursday's losses.
Hong Kong's Hang Seng index was up 2.5% while China's Shanghai Composite was 1.2% higher. Japan's Nikkei 225 was up 1.4%.
"Still, some analysts were doubtful the gains would last. "The market doesn't seem convinced that today's recovery is the end of the downward correction," said Potter. "I wouldn't be surprised if we see further falls. The question will be what traders do in two or three days' time - will they continue to buy or sell the rally? My gut feeling is that they will sell it," Potter added.
In the European foreign exchanges, the increase in risk appetite continued to boost currencies like the euro early Friday. At 0720 GMT, the single currency was trading at $1.4827, up from $1.4822 late in New York. The dollar was slightly lower against the yen, down to Y91.06 from Y91.41.
Meanwhile, spot gold moved higher, trading at $1047.30 at 0720 GMT, up $15.92. In the oil market, crude oil remained steady after rising Thursday on hopes of a U.S. economic recovery. At 0720 GMT, Nymex December crude was down a cent from New York, at $79.86 per barrel.
Elsewhere, European bond markets opened steady, with little sign of the strength of the equity markets or the desire for risk resulting in more selling in the sovereign debt market. At 0720 GMT, the December bund contract stood at 121.26, up 0.05.
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary You can use this link on the day this article is published and the following day.
Forex: EUR/USD: Below 1.4815 Euro could pull down to 1.4785/70 - Charmer Charts
(Barcelona) - The Euro is showing a mild downward attempt on early European morning and after having capped at 1.4855, the Euro is testing 1.4800/20 area which, according to Carlo Harmer, technical analyst at Charmer chars could be the entrance for a dip towards 1.4785/70 area.
Below 1.4815, sellers could bring the pair down to 1.4785/70 fist target, according to Harmer: a break of 1.4815 this morning would make the market weaker with 1.4785/70 then the short term objective. Here sellers will cover. They will look to re-instate shorts on a break of 1.4770 as this would lead the market lower for 1.4750/40."
Below 1.4815, sellers could bring the pair down to 1.4785/70 fist target, according to Harmer: a break of 1.4815 this morning would make the market weaker with 1.4785/70 then the short term objective. Here sellers will cover. They will look to re-instate shorts on a break of 1.4770 as this would lead the market lower for 1.4750/40."
Brazilian Real Rebounds on Domestic and Global Optimism
The Brazilian had one of the sharpest climbs versus the U.S. dollar today as both the domestic and international economic scenario set the risk appetite high increasing appeal for emergent market currencies, and setting the greenback down versus most of the 16 main traded currencies. After a report showing a growth for the past quarter in the world’s wealthiest nations, the United States, risk appetite surged in currency markets favoring the Brazilian real that also gained due to domestic speculations suggesting that the national central bank will not apply further measures to intervene on the real’s rally.
Pound Extends Gains on Mortgage Approvals
The pound has been recovering steadily this week and extended its gains this Thursday as mortgage approvals in the British Isles rose, adding investors’ confidence to inject capital in the U.K.’s financial sector, fueling attractiveness for the British currency. The pound rose today after mortgage approvals came better than expected, indicating that British real estate sector may be recovering, which coincided with a quarterly GDP reporter in the U.S. indicating the first growth in 2009, attracting traders to riskier options and favoring the pound in currency markets.
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