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More About Forex
Analyzing Forex
Fundamental Analysis
The two primary approaches of analyzing currency markets are fundamental analysis
and technical analysis. Fundamentals focus on financial and economic theories,
as well as political developments to determine forces of supply and demand.
Technicals look at price and volume data to determine if they are expected
to continue into the future. Technical analysis can be further divided
into 2 major forms: Quantitative Analysis: uses various statistical properties
to help assess the extent of an overbought/oversold currency, Chartism:
which uses lines and figures to identify recognizable trends and patterns
in the formation of currency rates. One clear point of distinction between
fundamentals and technicals is that fundamental analysis studies the causes
of market movements, while technical analysis studies the effects of market
movements.
Fundamental analysis comprises the examination of macroeconomic indicators,
asset markets and political considerations when evaluating a nation’s currency
in terms of another. Macroeconomic indicators include figures such as growth
rates; as measured by Gross Domestic Product, interest rates, inflation, unemployment, money
supply, foreign exchange reserves and productivity. Asset markets comprise stocks,
bonds and real estate. Political considerations impact the level of confidence
in a nation’s government, the climate of stability and level of certainty.
Technical Analysis
Technical analysis examines past price and volume data to forecast future price
movements. This type of analysis focuses on the formation of charts and formulae
to capture major and minor trends identify buying/selling opportunities assessing
the extent of market turnarounds. Depending upon your time horizon, you could
use technical analysis on an intraday basis (5-minute, 15 minute, hourly),
weekly or monthly basis.
Why Investors choose forex instead of other financial products?
The High Volume and Liquidity
Forex is the most liquid market in the world. Because of its size, there is never
a problem buying or selling a position, no matter how large. In addition, your
funds are not tied up for long periods as they are when waiting for stock values
to rise. With Forex your account is totally liquid, just as readily available
as your bank account.
The spot Forex market is a $1.4-$2.2 trillion daily market, making it the largest
and most liquid market in the world. This market can absorb trading volume and
transaction sizes that dwarf the capacity of any other market. If you compare
this to the $30 billion per day futures market it becomes clear that the futures
markets provide only limited liquidity. The market is always liquid, meaning
positions can be liquidated and stop orders executed without slippage.
24-Hour Market
The Forex market does not come to a halt each day at the close of business
hours like the stock, equity and commodity markets do. The gaps and erratic
price jumps these gaps in the market cause can cost a trader dearly.
The Forex market never stops trading the entire week long. Only on the
weekends does the market temporarily stop trading until Sunday evening.
Forex market is a seamless 24-hour market. At 2 PM Sunday, New York time,
trading begins as markets open in Auckland, New Zealand, then Sydney
and Singapore. At 7 PM the Tokyo market opens, followed by London at
2 AM, and finally New York at 8 AM. As a trader, this allows you to react
to favorable/unfavorable news by trading immediately. It also gives traders
the added flexibility of determining their trading day.By comparison,
the currency futures markets in the United States, such as the Chicago
Mercantile Exchange and Philadelphia Exchange, have regulated hours.
The CME, for instance, opens at 8:20 AM New York Time and closes at 2:00PM.
Therefore, if important data comes in from England or Japan while the
U.S. futures market is closed, the next day’s opening could be
hectic.
Execution Quality and Speed
The futures market is known for inconsistent execution, both in terms of
pricing and execution time. Every future trader has experienced a half
hour wait for a market order to be filled and has been executed at a
price far away from where the market was supposed to be trading. Even
with electronic trading and limited guarantees of execution speed, the
price for fills on market orders is far from certain. Washington Prime
Plus inc. offers instantaneous execution and price certainty. On the
FX dealing station, traders execute directly off real time streaming
prices. There is no discrepancy between the displayed price and the execution
price. This holds true even during volatile times and fast moving markets.
In the futures market, execution is uncertain because all orders must
be done on the exchange. This creates a situation where liquidity is
limited by the number of participants, which in turn limits quantities
that can be traded at a given price. Real time streaming prices ensure that
market orders, stops, and limits are executed without slippage and/or
partial fills.
All stop-loss, limit and entry orders are guaranteed against slippage except
in extraordinary volatile market conditions. All quotes and trades are
subject to the terms and conditions of the Client Agreement accessible
through this website.
Commission Free Trading
No commissions or exchange fees. There are NO trade commissions when trading
Forex. Brokerage companies instead make money on the spread (difference
between the buying and selling price) which barely affects your profits
at all. It's much better than commissions! You end up saving a lot of money
on costly commissions when trading Forex. In the futures market traders
must pay a spread and a commission. All traded financial products have
a “bid” (buy) price, and an “ask” (sell) price,
with the difference defining the spread, or cost of execution. Up until
recently, lack of transparency in the futures market has disguised the
spread.
Now online trading platforms, which show the depth of the market by including
both the buy and sell price, allow traders to see the real cost of the
trade. Because the currency market offers round-the-clock liquidity, traders
receive tight; competitive spreads both intra-day and night. Futures traders
are more vulnerable to liquidity risk and typically receive wider dealing
spreads, especially during after hours trading.
Washington Prime Plus charges no commission or transactions fees to trade
currencies online or over the phone. The over-the counter structure of
the currency market eliminates exchange and clearing fees, which in turn
lowers transaction costs. Costs are further reduced by the efficiencies
created by a purely electronic market place that allows clients to deal
directly with the market maker, eliminating both ticket costs and middlemen.
In the futures market the prices represent the LAST trade, not necessarily
the price for which the contract will be filled. This lack of transparency
hides the true cost of the trade.
Instant access to Back Office Capabilities
In the spot Forex market, traders can see the value of their positions
and account equity move up and down with the market in real time. The key
information for every account is re-calculated and updated every time the
exchange rates change. Traders have immediate access to detailed information
regarding every open position, open order, and the generated P/L per trade.
Traders also have 24-hour access to full, real time snapshots of their
account statement since inception, or on a daily, weekly, monthly or yearly
basis. As a trader this means you never have to approximate your account
equity or be uncertain in regards to available margin.
Margins, Leverage and Risk Management
When trading Forex you enjoy up to 50 times the leverage of trading stocks.
In stocks, for every $1,000 cash you invest, you control a maximum of $2,000
worth of stocks. The maximum leverage is 2:1. But with Forex, if you invest
$1,000 margin on a foreign currency trade, you can control up to $100,000
in currencies.
For the purpose of risk management, traders must have position limits.
This number is set relative to the money in a trader’s account. Risk
is minimized in the Spot FX market because the online capabilities of the
trading platform will automatically generate a margin call if the required
margin amount exceeds the dollar value of the account as a result of trading
losses. All open positions will be closed immediately regardless of the
size or the nature of positions held within the account. If the futures
market moves against you, your position may be liquidated at a loss and
you will be liable for any resulting deficit in the account.
You can profit in an up or down market. When trading stocks most of the
money is earned in bull markets, which is very limiting. With Forex, you
can easily profit in both directions, long and short, and make profits
on the fluctuation of the exchange rates between any two currencies. It
matters not which currency is rising or falling in value against another.
Forex is much more predictable than stocks. Many studies of trend following
systems prove that currency trends are the most consistent and profitable.
Regardless of the type of trend following system used; long term, intermediate
term or short term, currencies invariably outperform all other markets
including stocks, bonds and other commodities. The stock market is tiny
compared to the vast foreign exchange market, and technical trading with
stocks is not always reliable because the fundamentals of stocks can change
with the wind. The Forex market is much more reliable and predictable,
and the trends once they begin tend to persist, giving tremendous opportunities
for profit.
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