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forex/Oanda Review - A Review of the Oanda Forex Brokerage

2009-01-29T16:32:00.000-08:00

Best Features

No Minimum Opening Deposit
Custom Lot Sizes
Trade Directly on the charts
Custom News Feed
Demo Accounts Never Expire
Sub Accounts

Least liked features

no hedging

Demo Accounts

The Oanda demo account is virtually identical to the live account. The price feed is exactly the same as the live account and demo accounts never expire.

Customer Service

Oanda provides customer service by email, chat, and phone. Oanda seems to typically be responsive to request for service via any of the 3 methods. Emails sometimes take up to 24 hours to be returned depending on the issue.

Spreads

Oanda provides variable spreads, which means that spreads can change depending on market conditions. Most of Oanda’s spreads are extremely competitive during normal market conditions. The only time that the spread jumping will usually prove to be a problem is if you are trading directly around a major news release. For example, the EUR/USD typically trades with a spread of 0.9 – 1.9 pips under normal market conditions. During a news release the spread for the EUR/USD can go as high as 10 pips.

Leverage

Oanda only allows 50:1 leverage. Many traders might consider this a disadvantage, but I consider it to be like selling a gun with a safety on it. 50:1 leverage is sufficient for forex trading. Leverage set at 100:1 and higher can be dangerous and cause you to make oversized trades just because you can.

Currency Pairs

AUD/CAD
AUD/JPY
AUD/NZD
AUD/USD
CAD/JPY
CHF/JPY
EUR/AUD
EUR/CAD
EUR/CHF
EUR/CZK
EUR/DKK
EUR/GBP
EUR/HUF
EUR/JPY
EUR/NOK
EUR/NZD
EUR/PLN
EUR/SEK
EUR/TRY
EUR/USD
GBP/CAD
GBP/CHF
GBP/JPY
GBP/USD
NZD/CAD
NZD/JPY
NZD/USD
USD/CAD
USD/CHF
USD/CNY
USD/CZK
USD/DKK
USD/HKD
USD/HUF
USD/INR
USD/JPY
USD/MXN
USD/NOK
USD/PLN
USD/SAR
USD/SEK
USD/SGD
USD/TRY
USD/TWD
USD/ZAR

As an added bonus, Oanda also allows you to trade gold and silver against the dollar. The symbols are XAG/USD (silver) and XAU/USD (gold).

Charting

Oanda comes with a decent charting package. A reasonable amount of technical indicators are available and you can trade directly on the charts. Oanda allows you to set limit orders and move stops visually. This works extremely well for technical trading.

Opening an Account

Opening an account was simple. Oanda takes 1-2 business days to check your identity, but after that you are ready to go.

Overall Grade: A

Oanda provides good customer service, excellent reliability, and a reasonably good platform to trade with. They even provide a newsfeed service for free with your account. This is an excellent broker, particularly if you are just getting started.

forex/FXCM Review

2009-01-29T16:27:00.000-08:00

Top Features

Full Hedging
Funding by Credit Card
Microlot Trading (FXCM Micro)

Least Liked Features

No trading on US holidays

Demo Accounts

The FXCM demo account is very easy to open. It performs very much like the live account. It is sadly limited to only 30 days.

Customer Service

FXCM offers customer service by email, phone, and live chat. The customer service at FXCM has been a little slow the few times I have needed to contact them by email. Overall the customer service speed is fair, but not great.

Spreads

FXCM provides variable spreads, which means that spreads can change depending on market conditions. Spreads can widen without warning. In the case of FXCM, not all of their spreads are competitive and their spreads can expand widely depending on which markets are open and which currency pairs you are trading.

Leverage

FXCM allows 100:1 for standard accounts, 200:1 for mini accounts, and 400:1 for micro accounts

Currency Pairs

AUD/CAD
AUD/CHF
AUD/JPY
AUD/NZD
AUD/USD
CAD/JPY
CHF/JPY
EUR/AUD
EUR/CAD
EUR/CHF
EUR/GBP
EUR/JPY
EUR/NZD
EUR/TRY
EUR/USD
GBP/AUD
GBP/CAD
GBP/CHF
GBP/JPY
GBP/NZD
GBP/USD
NZD/JPY
NZD/USD
USD/CAD
USD/CHF
USD/HKD
USD/JPY
USD/SGD
USD/TRY
USD/ZAR

Charting Package

FXCM comes standard with a Marketscope charting system integrated into the trading platform. Marketscope comes with many technical indicators and is highly configurable in terms of colors and style. It has a nice feature that will allow you to open 3 charts of the same currency pair with different time frames and link them together. With the charts linked, you can change the currency pair on one chart and all the charts will also change.

Ease of Opening an Account

I have had two separate experiences with FXCM in regards to opening an account. On the first account, even though I had funded the account, there was a 5 day delay in the account becoming tradable. I lost a week of trading time. The second account was open and tradable within 24 hours. I even received a phone call from a representative within 10 minutes of submitting the application.

Overall Grade: B

FXCM is a reliable broker. The hedging feature allows great flexibility for scalpers in particular. The spreads are ok, not the greatest for all currency pairs, but reasonably tight spreads most of the time on the majors. Customer service seems dependable in most cases and the platform is very stable.

Intellichart Review – A Review of Intellichart Forex Charting Software

2009-01-29T16:22:00.000-08:00

Top Features

Features a chart of the USD Index
Allows Data Exporting
Back Testing Lab
Customizable Alerts

Least Liked Features

Price

Demo Accounts

FXTrek allows you to sign up for a 7 day fully functional trial.

Customer Service

Customer service is carried out by email. I had to use technical support several times when I had trouble logging in. Emails were returned within a reasonable time frame and problems were fixed quickly.

Currency Pairs

AUD/CAD
AUD/JPY
AUD/NZD
AUD/USD
CAD/CHF
CAD/JPY
CHF/JPY
EUR/AUD
EUR/CAD
EUR/CHF
EUR/CZK
EUR/GBP
EUR/JPY
EUR/PLN
EUR/USD
GBP/AUD
GBP/CHF
GBP/JPY
GBP/PLN
GBP/USD
JPY/CAD
NZD/JPY
NZD/USD
USD/CAD
USD/CHF
USD/JPY
USD/PLN

FXTrek’s Intellichart also has a chart of the USD Index.

Charting

Intellichart is a very sophisticated charting system. Along with all the currency pairs that it offers, it also has a wide selection of indicators and plotting tools. If you have any experience with setting up forex charts, you will not find it very difficult to find your way around.

Surviving a wild forex market

2009-01-29T16:20:00.000-08:00

Emotions can run very high during volatile trading. There are a few simple things you can keep in mind that will help you succeed and stay in the game when the markets are wild.

1. Avoid catching a falling knife

Trying to pick tops and bottoms is a number one mistake. In wild markets, a couple of “failed hits” can cost you tremendously in a very short period of time. Stick with the trends that are obvious, don’t try to predict the turns before they happen.

2. Trading Small is Better

It can be tempting to make a large trade to try to reel in the big score. The problem is when markets are crazy and lacking they can backfire or whipsaw without warning. If you are trading small, it will give you more tolerance for dealing with market noise.

3. Place stops cautiously

Stop placement in a wild market can be tricky. You don’t want to place your stop too close to the action and get stopped out too easily, but you don’t want to place it too far out and chance a heavy loss. Placing your stop is a personal decision depending on your trade size and risk tolerance. Give your trade some room to breathe initially and move your stop close to the action as it becomes appropriate. Never move your stop further away thinking price will turn shortly.

4. Stick with one direction

When trading is moving back and forth so furiously, it is tempting to try to trade both ways and make twice the profit. This can be really dangerous because you can end up stuck trading the wrong direction at the wrong time. Stick with the overall trend and don’t change directions until you are confident that the trend has changed.

5. Get out when the market is at extremes

When prices are crazy and reaching levels you never thought you would see, it is a good time to consider getting out of your trades and taking some profit off of the table. This is not to say that the market may not come back to this point, but it will allow you to collect your profit at a good point and it will give you a chance to step back and evaluate the situation.

Extreme Leverage

2009-01-29T16:19:00.000-08:00

What is Leverage?

Leverage is the ability to make large trades in the market with only a small amount of actual capital in your account. Forex brokers offer leverage as a way to make the market accessible to the average investor. Most traders don’t have 10k to get started with forex trading. If a forex broker provided a trader with leverage of $200 to every $1 deposited(200:1 leverage), it would only take a deposit of $50 to open and control a 10k trade.

How Can Leverage Hurt You?

Leverage can be a sharp double edged sword. It can work for you, or against you. If you make a trade with a mini trading lot of 10k, each pip would be worth around $1. If you gain 5 pips, everything is great, you used $50 and made a 10% return. If you lose 5 pips, you have a 10% loss just as fast.

While it is really nice to think about the money you can make, the money that can be lost is rarely discussed . Leverage can be very dangerous if used improperly. Brokers can offer heavy leverage, but that doesn’t mean that you are forced to use it all the time.

Using Extreme Leverage

While looking for a broker you will discover that there are brokers out there that offer extreme leverage. Some brokers will even offer you 400:1 leverage. This would allow you to open an account with $300, and use that same amount to control up to 120k worth of trades. The average pip size with a trade of 120k is $12.00. If your trade lost 25 pips, your entire account would be wiped out. Considering that most currency pairs can move 25 pips in less than 10 seconds, that sounds pretty dangerous doesn’t it?

Using Leverage as a Tool

The dangers of using too much leverage are rarely talked about, but are pretty obvious if you think about it. This doesn’t mean that you have to use the full amount of leverage just because it’s there. In fact, there are ways to use leverage in useful ways that will give you an advantage.

A good time to use leverage is when adding to a winning trade. If you have a trade that has progressed favorably and you want to add to it, this is a good use of leverage. This is called leveraging your profits.

Overall the best use of leverage is when position trading. It’s tempting to use extreme leverage to make a fast profit on single trades, but the risks are just not worth it.

Managing Risk on a Demo Account

2009-01-29T16:17:00.000-08:00

Forex brokers provide a nice large balance on a demo account by default. They know that this will encourage the notion of easy money and encourage beginning traders to bet big. This can result in the trader opening a live account and having the same notion that beating the market is easy with big bets.

1. Ask for a reduced account balance

Most traders are not going to start with $50,000. Email or call your forex broker and ask to have the demo account balance reduced to a more realistic amount for a beginner. $5,000 would be a reasonable amount to ask for.

2. Reduce leverage

Ask the broker if you can lower your leverage to a maximum of 20:1. This will force you to be more realistic with how big you can trade and how deep in the red you can allow yourself to go.

3. Limit the pairs you want to practice trading

While learning it is best to stick to 1 or 2 pairs that are not correlated. This will keep your focus sharp and keep you from getting into too much trouble.

4. Treat the money as real

Act as if the money in your trading account was in your checking account. Remember once you go live, the money is real, and it can disappear very quickly if proper risk management is not used.

Introduction to Risk Management

2009-01-29T16:13:00.000-08:00

Risk management can make the difference between your survival or sudden death with forex trading. You can have the best trading system in the world and still fail without proper risk management. Risk management is a combination of multiple ideas to control your trading risk. It can be limiting your trade lot size, hedging, trading only during certain hours or days, or knowing when to take losses.

Why is risk management important?

Risk management is one of the most key concepts to surviving as a forex trader. It is an easy concept to grasp for traders, but more difficult to actually apply. Brokers in the industry like to talk about the benefits of using leverage and keep the focus off of the drawbacks. This causes traders to come to the trading platform with the mindset that they should be taking large risk and aim for the big bucks. It seems all too easy for those that have done it with a demo account, but once real money and emotions come in, things change. This is where true risk management is important.

Controlling losses

One form of risk management is controlling your losses. Know when to cut your losses on a trade. You can use a hard stop or a mental stop. A hard stop is when you set your stop loss at a certain level as you initiate your trade. A mental stop is when you set a limit to how much pressure or drawdown you will take for the trade. Figuring out where to set your stop loss is a science all to itself, but the main thing is, it has to be in a way that reasonably limits your risk on a trade and makes good sense to you. Once your stop loss is set in your head, or on your trading platform, stick with it. It is easy to fall into the trap of moving your stop loss farther and farther out. If you do this, you are not cutting your losses effectively and it will ruin you in the end.

Using correct lot sizes

Broker’s advertising would have you think that it’s feasible to open an account with $300 and use 200:1 leverage to open mini lot trades of $10,000 dollars and double your money in one trade. Nothing could be further from the truth. There is no magic formula that will be exact when it comes to figuring out your lot size, but in the beginning, smaller is better. Each trader will have their own tolerance level for risk. The best rule of thumb is to be as conservative as you can. Not everyone has $5,000 to open an account with, but it is important to understand the risk of using larger lots with a small account balance. Keeping a smaller lot size will allow you to stay flexible and manage your trades with logic rather than emotions.

Tracking overall exposure

While using reduced lot size is a good thing, it will not help you very much if you open too many lots. It is also important to understand correlations between currency pairs. For example if you go short on EUR/USD and long on USD/CHF, you are exposed two times to the USD and in the same direction. It equates to being long 2 lots of USD. If the USD goes down, you have a double dose of pain. Keeping your overall exposure limited will reduce your risk and keep you in the game for the long haul.

The bottom line

Risk management is all about keeping your risk under control. The more controlled your risk is, the more flexible you can be when you need to be. Forex trading is about opportunity. Traders need to be able to act when those opportunities arise. By limiting your risk, you insure that you will be able to continue to trade when things do not go as planned and you will always be ready. Using proper risk management can be the difference between becoming a forex professional, or being a quick blip on the chart.

Introduction to Carry Trading

2009-01-26T15:24:00.000-08:00

Carry trading is one of the most simple strategies for currency trading that exists. A carry trade is when you buy a high interest currency against a low interest currency. For each day that you hold that trade, your broker will pay you the interest difference between the two currencies, as long as you are trading in the interest positive direction.

For example, if the Pound(GBP) has a 5 percent interest rate and the US Dollar(USD) has a 2 percent interest rate, and you buy or go long on the GBP/USD, you are making a carry trade. For every day that you have that trade on the market, the broker is going to pay you the difference between the interest rates of those two currencies, which would be 3 percent. This can really add up over time.

What is the carry trading advantage?

Trading in the direction of carry interest is an advantage because in addition to your trading gains, there are also interest gains. Carry trading also allows you to use leverage to your advantage. When the broker pays you the daily interest on your carry trade, the interest paid is on the leveraged amount. If you open a trade for one mini lot (10,000 USD), and you only have to use $250 of actual margin to open that trade, you would be paid daily interest on $10,000 not $250. This can add up to large yearly returns.

Why is carry trading risky?

There is a fair amount of risk to the carry trading strategy. The currency pairs that have the best conditions for using the carry trading method tend to be very volatile. For this reason, carry trading must be conducted with caution. Nervous markets can have a fast and heavy affect on currency pairs that are considered to be “carry pairs” and without proper risk management, traders can be drained by a surprising and brutal turn.

How does it all come together?

If you make an interest positive trade on a currency pair that pays high interest and the exchange rate stays the same or moves in your favor, you are a big winner. If the trade moves against you, the losses could be substantial. The daily interest payment to your account will lessen your risk, but it is not likely that it will be enough to really protect you from your trading loss. Carry interest should be viewed as “icing on the cake” rather than just an easy “no brainer” strategy.

Like any other trading strategy, use proper risk management, and use your head when making trades. It becomes tempting to reach out for that daily interest payment, but without some caution, that small payment could cost you a fortune in losses. It is best to combine carry trading with supportive fundamentals and market sentiment. Carry trades work best when the market is “feeling safe” and in a positive mood. Properly executed carry trading can add substantially to your overall returns.

Forex Scams

2009-01-26T15:17:00.000-08:00

Forex scams can take many forms. Some scams can be compelling or seem to be very legitimate. They take advantage of traders seeking the magic answer to winning in the forex markets. Unfortunately, there are no easy answers. Here is a quick list of some popular general forex scams.

1. Signal Sellers

It seems like a new company springs up every day that has the signal service to beat all signal services. They profess to be able to sell you information on which trades you should make. These signal sellers usually charge a daily/weekly/monthly fee for their service and usually do not offer anything that will help improve your trading. There is no such thing as having a magic key to the market and if there was, why would you sell it?

2. Phony Investment Funds

In the past few years, funds called HYIP(High Yield Investment Program) have popped up all over the place. Most of these(if not all) are scams. They promise you a high level of return for temporary use of your money in their forex fund. It is a type of Ponzi scheme where the investors of yesterday get paid back by the investors of tomorrow. Once the fund runs out of prospects, they usually close down and take whatever money they had with them.

3. Miracle Software

There is no software that will figure out the forex market for you. However, a quick google search will turn up plenty of software sellers that say otherwise. Some companies out there are selling their special “packages” for upwards of $5,000 and many times it turns out to be something that you can find on the internet for free. It is generally not advisable to buy any type of forex software that will tell you which trades to make.

Introduction to Fundamental Analysis

2008-12-31T13:10:00.000-08:00

What is fundamental Analysis?
Fundamental analysis is basing the valuation of an asset on important economic reports. In forex trading, we refer to these reports as economic indicators. Comparing the employment reports from two countries and making a trade based on that information would be an example of using fundamental analysis.
What is an Economic Indicator?
An economic indicator is an important piece of financial data in relation to the asset. In forex trading, the assets are the currencies of different countries. For countries, some important economic indicators are: interest rate announcements, employment numbers, Consumer Price Index, and Trade Balance numbers. While some reports are constantly valuable in fundamental analysis, others will sometimes be very important and other times, they will be much less important. For instance, if a country is having solid growth and experiencing inflation, the Consumer Price Index will be highly watched and considered important by the market.
Trading the News
Trading based on fundamental news can be a tricky matter. You can have a situation where the numbers come out very good for the asset that you want to buy, yet the asset will drop in value. This happens because the participants in the market have certain expectations of what numbers will be in the report. They will speculate on the outcome before the economic report comes out and place their trades early. If the report does not live up to their expectations, it won’t matter whether the news is good or not, the market can seemingly move in the wrong direction as the early speculators dump their positions. Trading the news is very risky and should only be done after several years of forex trading experience.
Summary
Fundamental analysis is an important part of learning to understand the markets. In the short run, the results are not always straight forward, they can even seem backwards. In the long run, currencies will always move along with fundamentals. Learning to use fundamental analysis will help you to understand the reasons behind trends and give you insight into currency movements.

Economic Indicators

2008-12-31T13:02:00.000-08:00

Economic indicators are pieces of data from important economic reports. Most of economic indicators are published by government agencies or select private groups. When taking multiple economic indicators into account for a country, traders can get a well rounded sense of a country's financial health.
Major Economic Indicators
Employment Reports
Reports on Inflation and Money Supply
Interest Rate Statements
Retail Sales Reports
Gross Domestic Product
Using Economic Indicators in Forex Trading
Economic indicators can help you get a sense for the general economic trend of a country. For example, an employment report that shows more jobs being created month after month, can show that an economy is becoming more productive. While a falling retail sales report can be a warning that growth is starting to contract.
Over the longer term, these trends can be the basis for a trade. You can invest in countries that are showing strength and trade against countries that are slowing down. This is the most basic element of fundamental analysis.

Support and Resistance

2008-12-22T04:13:00.000-08:00

The concept of support and resistance is simple. Support can be thought of as a floor for the price while resistance can be thought of as the ceiling for the price. When the price breaks through a resistance, that level becomes the new support level. The reverse is true when the price breaks through a support level.
The best use of support and resistance is during trend trading. If the trend is up, you want to go long at support and take profit at resistance. If the trend is down, you want to go short at resistance and take profit at support.
Support and resistance levels are sometimes not exact price levels. Many times, they will be a small range of prices. Once the price clearly breaks past that range of prices, support or resistance is to be considered broken.
Support and resistance should be used as reference points when looking at a forex chart and trying to make a decision. They can give you a good idea of where to put your stop loss or take profit orders.

Introduction to Technical Analysis

2008-12-22T04:08:00.000-08:00

Technical analysis has long been used in traditional markets like the stock market. Technical analysis methods rely on price history in order to predict the future. There are numerous methods used in the predicting, but the bottom line is that they always rely on price movements of the past. Technical analysis takes a few different forms and many methods of use.
One method of technical analysis is the use of technical indicators. A technical indicator is a graphical representation of the price action that is usually displayed along the bottom of the screen. One famous example is a technical indicator called MACD. You can see an example of the MACD in use in the first forex trade tutorial.
There are also other methods for using technical analysis. You can use trend lines, or measure support and resistance. Both methods rely on looking at the chart and reviewing recent history. Is the price following a pattern? Is it moving in a range? No matter what price is doing, it usually falls into one of those two categories. If the price is moving in a pattern and in one direction, you can use trend lines to analyze where the price should go. If the price seems to be bouncing back and forth in a range, you can use support and resistance lines to make note of where the price should change direction.
Technical analysis can be great, but like other trading methods, it isn’t perfect. Trading decisions are always up to the discretion of the trader making them. There are some great technical tools and indicators that are widely available for use. With so many traders using similar tools, even having slightly different interpretations, technical analysis can become a self fulfilling prophecy. If many traders are seeing the same price area as a buying point, the price could bounce as everyone makes similar moves. The question always remains how lasting those moves will be and that is where personal discretion comes in.
How technical analysis applies can be different for each trader. Every trader has their own interpretation of where they see trends and support. They also have their own ideas on setting up their indicators. These differences are called having your own trading system. You can take 10 different traders and you will probably get 10 different systems that give different signals. These differences are what make a market work.
Technical analysis is very useful in forex trading. It makes up only one portion of what you need to know when trading, but it is a very important thing to learn. Understanding technical analysis will give the charts some meaning when you look at them and help you understand why certain price movements occurred.

Making Your First Forex Trade

2008-12-22T03:45:00.000-08:00

Start the Trading Platform

Step 2 - Open the Chart

Step 3 - Add Indicators

Step 4 - Place the order

Step 5 - Set the Stop Loss and Take Profit Levels

Step 6 - Order Confirmation

Step 7 - The Waiting Period

Step 8 - Trade Completion

Using A Demo Account

2008-12-22T03:42:00.000-08:00

What are the benefits of using a demo account?
1. A demo account is freeDemo accounts do not cost anything. Most brokers want your name and phone number so they can contact you to try to convince you to open a live account and deposit money. That is the only real “cost”.
2. Develop and test a system without riskDeveloping a trading plan that works for you is one of the most difficult things to do. A demo account will allow you to try different trading ideas until you come up with a system that makes you comfortable. A demo account will allow you to explore the strengths and weaknesses of a trading system without risking a single penny.
3. Learn how to use the trading platform effectivelytrading platform can be difficult to grasp at first glance. The ability to use the demo version of a trading platform with play money allows you to learn the functions of your trading platform before committing your money. A broker may seem great to you, but if the trading platform is poorly put together, it is better to figure that out while testing rather than while risking your hard earned dollars.
What are the drawbacks of using a demo account?
1. No understanding of real riskIt is an advantage to be able to trade without risk, but it leaves an important element out of the act of trading. Trading psychology is important. It feels very different when your hard earned money is on the line. The demo account saves you from potentially massive losses while learning, but does not teach you anything about dealing with the emotions you will feel once that account balance is connected to your wallet.
2. No encouragement of sound money managementA demo account comes with a large amount of money deposited in it. Most of the time, a true beginner does not have a large amount of money to trade with. The amount of money that is usually deposited in demo accounts ranges from $50,000 to 100,000. These large amounts set up a psychological expectation to make large amounts of profit easily. This can encourage excessive risk taking once you switch to a live account with real money. The big difference is, when you have a live account and lose, it’s for real.
Demo accounts are a great tool for learning forex trading. They allow you to learn to trade without putting your money on the line. This can be a big advantage if you are a true beginner. Make wise use of availability of demo accounts and practice trading before committing your money.

Choose a Forex Broker

2008-12-10T08:31:00.000-08:00

Choosing a forex broker can be daunting task. They all seem to sound so good when you read their sales pages, but how do you know which ones are worth your money?

Initial Deposit

You should look for a forex broker that has a low initial deposit. It is not a matter of the amount you should start trading with, but if a broker wants many thousands just for you to open an account, it is questionable. The ideal initial deposit requirements should be $300 to $500 or less.

Regulation

The forex market is an unregulated market meaning there is no central exchange. However, forex brokers themselves are regulated. In the US they should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission(CTFC) and a member of the National Futures Association(NFA). You can verify a broker’s status with the NFA on the NFA web site. If you do not find the broker you are interested in listed with the NFA, look for another broker that is listed and has a clean record.

Customer Service

Forex trading hours vary depending on what currencies you are most interested in trading. With that in mind, it is important to find a broker with 24 hour customer service. The forex markets can be wild at times. If you had a question about order execution or a closed order, you should be able to get your question answered no matter what time it is.

A good test of a forex broker’s customer service ability is to contact the support desk and ask some questions by phone. Keep notes on how responsive they are to your questions and what attitude they have about answering them. Remember, you are trusting these people with your money. You need to feel absolutely comfortable that all your needs will be addressed.

Currency Pairs

Find a broker that offers the currency pairs that you are most interested in trading, or at least a good variety to choose from. Currency pairs tend to have different breathing patterns and you want to have a good menu of selections.

Software

A professional and easy to use trading platform is a must. You would not want to be struggling with the features of the trading platform while trying to make a trade. Any reputable forex broker will offer the ability to trade on a demo account. The demo software operates the same way as the live trading platform. This will give you a chance to fully test out the trading platform without the pressure of using real money.

Reputation

Always check the reputation of a forex broker. One way is to do a google search with the name of the broker plus the word “complaints”. Check around and get opinions from traders on forex message boards. Spend a fair amount of time doing your research. This is an important relationship. You will want to be absolutely comfortable with the broker that you decide on.

The important thing to remember is that you will have to do some homework here. It is imperative that you are not lazy about it. Don’t be sucked in by a glossy sales page with extraordinary claims. Investigate! Use a demo account. Take some time to shop around. In the end, you will be happy that you did.

Get Started with Forex Trading

2008-12-10T08:27:00.000-08:00

Before you can get started with forex trading, there are so many questions to answer. How do I choose a broker? Should I use a demo account? What do I need to know before making my first trade?

Let’s answer these questions one at a time, in order of importance.

1. Choose a broker
Making a decision on which broker to use is personal for each trader. Some brokers offer certain options that some traders will thrive on, while other traders will hate the broker for those same options. It is important to review and compare the options of each broker closely and choose the one that makes you feel most comfortable.

Review Forex Brokers

2. Open a Demo Account
Once you have made your decision on which broker you like the best, it is time to open a demo account. Most brokers will offer at least a 30 day trial of their trading platform giving you a chance to trade on the platform using play money. Using a demo account is a good opportunity to make sure that you feel comfortable using the broker’s trading tools. You would not want to trade real money without being fully comfortable with the trading platform. A demo account will not only help you get a grip on how to use the broker’s trading platform, but also trading the market in real time.

Learn to take risk seriously
Practice sound money management

3. Learn About Leverage
Forex trading is typically carried out using leverage, or trading on margin. Margin is a useful tool, but it can be very dangerous if it isn’t used correctly. Forex brokers typically offer anywhere from 50:1 leverage up to 400:1 leverage. The higher the number, the less money required to put on a large trade. The use of leverage is something that needs to be taken with a lot of care.

4. Practice Reading Charts
Before you start making trades you should get familiar with charts and how they work. It is a good idea to get familiar with the different time frames and the different types of charts. The shorter time frames will give you an idea of how the market is moving minute to minute. The longer time frames can show you how the market moves over longer periods and will show the larger trends. Most charting software will offer charts as lines, candlesticks, or bars. Take plenty of time to try out different looks and time frames to find the style that you are comfortable with.

Learn about candlesticks
Learn to understand support and resistance

5. Making the first live trade
The first trade is a nervous and exciting experience. The demo account prepares you for the technical aspects of trading, but when real money is on the line, emotions will come into play. It is important that you keep a level head and do your best to trade with the same methods that you practiced on the demo account. It may prove to be difficult, but if you master your emotions and use sound money management, anything is possible after this step. If your first trade loses money, do not give up, just piece together where you think you went wrong, and try again.

Forex trading is a constant learning experience. Trading mistakes can be expensive. If you learn from those mistakes and do your best to avoid them in the future, you can become a very successful forex trader.

Holiday Trading

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For beginning forex traders in particular, holiday trading is very tempting. It can be difficult to pull yourself away from the excitement on the market and take a break from the action. Let’s examine some of the reasons to avoid trading on holidays.

1. No Liquidity

Banks are usually closed on holidays and professional traders and big institution are on vacation. Because of this, two way trading is very limited. That means that prices can move very easily in one direction if any surprise large orders come in.

2. Unexpected Behavior

Building on the previous idea about liquidity, sometimes a surprising event will happen and because the markets are not liquid, they will move very quickly and sharply. These moves can take place in a blink and if you are trading, the market can make a move against you before you even have a chance to act.

3. Inactivity

The unexpected behavior is usually the exception rather than the rule. Most of the time, there is very little action in the forex market on US holidays. For daytrading purposes, technical analysis usually fails. The market is usually so slow that even if you can make money, it will probably be so little that it isn’t worth it.

4. Everyone Needs Personal Time

Above all, you shouldn’t be trading on holidays because you have to rest sometime. It’s better to take time off and spend it with your family. That time does not come around often and it’s better to take that time off while you can. The forex trading markets are busy most of the time. Holidays are a perfect time to rest , reflect, and recharge.

Japanese Candlesticks

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Japanese candlesticks originate from the Japanese rice trading markets in the 1700’s. They were used to track rice futures on the world’s first futures exchange.

In recent years, Japanese Candlesticks have become popular in the US trading markets. They can be viewed as simple colorized indicators that show when price is going up, or when it’s going down.

When the price is increasing, the candle turns blue as it heads higher. When the price is decreasing, the candle turns red as it moves lower. Candlesticks have a 2 wicks and a body in the middle. One end of the body represents the opening price, and the other end represents the closing price. The wicks on either end indicate the high and the low.

Candlesticks have their own science to them. Understanding them is essential for basic chart reading skills for almost any market.

Best Times to Trade

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The forex markets are great because they are open almost all of the time and there are a wide range of currencies to choose from. This brings up an important question.

What are the most active hours for forex trading?

Generally speaking, the most active hours all around are between the London markets opening around 8:00 GMT and end with the markets in the US closing around 22:00 GMT. The absolute busiest time in the forex markets are during the London to US overlap between 13:00 GMT to 16:00 GMT. These are the hours that are the most liquid or when the most traders are in the markets making trades. If your intention is to do daytrading, these are key hours!

What are the major sessions for forex trading?

There are 3 major sessions each day in the forex markets. They are the London session, the US session, and the Asian Session.

The London Session
The London session starts around 8:00 GMT and winds down around 1600 GMT. The currencies that are the most active during these hours are EUR, GBP, and USD.

The US Session
The US session starts around 1300 GMT and winds down around 22:00 GMT. The currencies that are the most active during these hours are AUD, EUR, GBP, JPY, and USD.

The Asian Session
The Asian session is a reasonable quiet session on most days. All pairs are pretty slow moving and it is not a good time to day trade. The only real currency that has noteworthy activity is the JPY and the activity is slow unless a major financial event happens.

Summary

The best hours for trading the forex markets, no matter your method, are during the London and US session overlap. The markets are full of active participants during these hours and the currencies really move. For the most part, even the larger fundamental news comes out during these times. Trading during these hours is your best chance to get in while the market is making decisive moves and it will be your best chance to score quick profits.

Trading on Margin

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In the forex world, brokers allow trading of foreign currencies to be done on margin. Margin is basically an act of extending credit for the purposes of trading. For example, if you are trading on a 50 to 1 margin, then for every $1 in your account, you are able to trade $50 in a trade. This has both its drawbacks and advantages.

Advantages

The advantage of trading on margin is that you can make a high percentage of gains compared to your account balance. For instance, let’s assume that you have a $1000 account balance and you are not trading on margin. You initiate a $1000 trade that nets you 100 pips. In a $1000 trade, each pip is worth 10 cents. The profit from your trade would be $10 or a 1 percent gain. If you were to use that same $1000 to make a 50 to 1 margin trade giving you a trade value of $50,000, the same 100 pips would net you $500 or a 50 percent gain.

Disadvantages

The disadvantage of using margin is risk. Let’s make the opposite assumption that we made while discussing advantages. You are still using a $1000 account balance. You initiate a $1000 trade and lose 100 pips. Your loss is only $10 or 1 percent. This is not too terrible, you would have plenty of capital left to try again. If you were to make a 50 to 1 margin trade for $50,000 a loss of 100 pips takes $500 or 50 percent of your capital. One more trade like that and your account is finished. On the first example, you only lost $10 or 1 percent, you could make that same losing trade 99 more times before your account was empty.

Summary

Margin trading is just another tool. You can use it to make impressive gains and simultaneously risk excessive loss. Trading on margin effectively is best done with a reasonable amount of experience and a strict risk management policy.

Forex Charts

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Chart Basics

Learning how to read a forex chart is considered to be somewhat of a science. They look complicated at first glance. Forex charts can look drastically different depending on what options you want to use. Charts usually have settings for the display style of the price and the time frame that you want to view. Time frames can be anywhere from 1 second to 10 years, depending on the charting system. Price can usually be displayed as a candlestick, a line, or bar.

Timeframes
Price Options

Chart Types

Charts have typically have several different display modes for displaying the price. One method that price can be displayed is called Japanese candlesticks. Candlestick charts are the most commonly used display method for showing the price on a forex chart. There are theories about using candlestick patterns to predict the price.

Price can also be displayed as a line. Line charts are a good way to simplify the display of the price. The line chart will show you the closing price for each period.

Another way to display the price is by using a bar chart. The bar chart is similar to the candlestick chart. A bar chart will show you where the price opened, the high and low, and where the price closed.

Candlestick Charts
Line Charts
Bar Charts

Technical Analysis

One of the best reasons to learn how to read a chart properly is so you can apply technical analysis. Not every trader believes in using technical analysis, but it can be useful, even if it is not your primary method of trading. Technical analysis relies on the price that is on the chart you are using. Most charting systems will allow you to add technical analysis tools as overlays on your chart.

Forex Orders

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In forex trading, there are several different types of orders that you can use to make and control your trades. There are orders that control both how you enter and how you exit the market.

Market Orders

Market Orders are orders that are executed live on the market at the current price. A market order can be used to open or close a trade at the market price.

Limit Orders

Limit Orders are typically orders used to exit the market in profit. If you are going long, the limit order will be above the market price and if you are going short, the limit order will be below the market price. You can think of a limit order to be like a finish line. Once the market price crosses the limit order, your trade will be closed and your profit will be realized to your account balance.

Stop Orders or Stop Loss Orders

Stop Orders are also an exit order that will close your trade. Commonly referred to as a stop loss order, this type of order is intended to limit the amount of loss incurred by your trade. A stop loss order will close your trade at a designated level of loss. Stop losses can also be used to lock in gains as your trades progress into profit.

Entry Orders

Entry Orders are orders to enter the market at a specified price. It is almost impossible to monitor the market every second and this is why an entry order can be handy. If you feel the market may take a certain action, such as break through a price that it has been touching but it has not been able to break, you would want to use an Entry Limit Order. Once the price crosses your Entry Limit Order, you are in the market.

Entry Orders can be a double edged sword. The advantage is that you can enter the market when it moves while you are away or not paying attention. The disadvantage is the market can touch your Entry Order and take it negative before you have the chance to evaluate the move. This is where good risk management practices come into play.

Summary

Understanding different types of forex orders and their uses is an essential basic skill. Take the time to study them and try them out using a demo account.

The Benefits of Forex Trading

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There are five things give trading the forex market some unique advantages.

1. 24 hour market

Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.

2. High Liquidity

Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.

3. Low Transaction Cost

In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.

4. Leverage

Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.

5. Profit Potential from Rising and Falling Prices

The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.