Showing posts with label forex. Show all posts

11/17/09

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Introduction to Risk Management

Risk Management Basics

By John Russell, About.com Guide

See More About:

risk management
investment exposure

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.

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Best Times to Trade
The Best Times to Trade the Forex Market By John Russell, About.com Guide See More About:market hoursforex daytrading zSB(3,3)Sponsored Links Forex Trading2 pip fixed spreads, 400:1 leverage Free charts and Practice Account.www.gcitrading.com Free Forex Auto TradingLet the experts trade for you for free! Take a free demo now.autotrade.zulutrade.com Stocks Ready To SoarHot News Alert, Huge Profits 1000%+ Stock Near Explosive Breakout Pointwww.otcstockexchange.com zob();if(zs<1){gei('spacer').classname='hide';gei('sidebar').classname='hide';}Forex Trading Ads Forex Trading Accounts Forex Futures Foreign Currency Rates Currency Forex Market Exchange Rate 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.

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When does the forex market open?

By John Russell, About.com Guide

Question: When does the forex market open?

Answer: The forex market is open almost all of the time! It opens on Sunday night around 21:00 GMT and closes on Friday afternoon around 21:00 GMT. Forex traders can initiate trades at any time between Sunday and Friday.

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Forex Scams
Popular Forex Scams

By John Russell, About.com Guide

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.

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Mistakes That Forex Traders Make

When getting started in forex trading, there are common mistakes to be avoided. This is a list of common forex trading mistakes.

1. Using Too Much Leverage

One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.

2. Over Trading

Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.

3. Picking Tops and Bottoms

Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.

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Best Times to Trade The Best Times to Trade the Forex Market

By John Russell, About.com Guide

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.

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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. 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 seriouslyPractice 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 candlesticksLearn 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. Related ArticlesUsing A Demo Account - The Benefits and Drawbacks of Using A Demo AccountWhy Do Brokers Give You So Much LeverageAbout.com Forex Trading: Most Popular ArticlesTop Three Broker ServicesBecoming a Successful Commodity Broker John Russell
Forex Trading GuideSign up for my NewsletterMy BlogMy ForumzSbL=3;zSB(2);zSbL=0Sponsored Links Globecot News NetworkNews and analysis of the global textile marketswww.GlobeCotNews.com Free Forex Auto TradingLet the experts trade for you for free! Take a free demo now.autotrade.zulutrade.com Forex and Liberty Reserve1LR to start, affiliate system, bonus program, 5 minutes to start!www.FXOpen.com Free Demo Forex TradingFind Out Why Top Traders Choose Us With a $50k Demo Account...www.FXDD.com/ Kingswood ToysToys Sourcing & Trading company Exporter based in Hong Kong & Chinawww.toy.tc Options VelocityUltra Low Latency Market Data Europe, US and Asiawww.options-it.com

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.

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.

John Russell
Forex Trading Guide

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How Does Forex Trading Work?
Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you feel is going to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar’s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to close your trade at that point, you would have made $100. Forex trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.

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What is Forex Trading? An Introduction to Forex Trading By John Russell, About.com GuideForex Trading is the act of trading currencies from different countries against each other. Forex is acronym of Foreign Exchange. For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.

forex index

Web definitions for FOREX
How Does Forex Trading Work?
How to Start Trading
Best Times to Trade
Mistakes That Forex Traders Make
Forex Scams to Watch Out For
When does the forex market open?
Best Times to Trade
Introduction to Risk Management

11/17/09

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Sponsored Links

Why is risk management important?

Controlling losses

Using correct lot sizes

Tracking overall exposure

The bottom line

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When does the forex market open?

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Forex Scams
Popular Forex Scams

1. Signal Sellers

Sponsored Links

2. Phony Investment Funds

3. Miracle Software

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Mistakes That Forex Traders Make

1. Using Too Much Leverage

Sponsored Links

2. Over Trading

3. Picking Tops and Bottoms

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Best Times to Trade The Best Times to Trade the Forex Market

What are the most active hours for forex trading?

What are the major sessions for forex trading?

Summary

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Sponsored Links

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forex index

Blog Archive

your entry number

11/17/09

Sponsored Links

Why is risk management important?

Controlling losses

Using correct lot sizes

Tracking overall exposure

The bottom line

When does the forex market open?

Forex Scams Popular Forex Scams

1. Signal Sellers

Sponsored Links

2. Phony Investment Funds

3. Miracle Software

Mistakes That Forex Traders Make

1. Using Too Much Leverage

Sponsored Links

2. Over Trading

3. Picking Tops and Bottoms

Best Times to Trade The Best Times to Trade the Forex Market

What are the most active hours for forex trading?

What are the major sessions for forex trading?

Summary

Sponsored Links

Forex Scams
Popular Forex Scams