Thursday, 27 February 2014

What is Forex Trading?

If you are wondering what is forex trading, it is essentially the trading of currencies of different countries. Forex stands for foreign exchange, and it works somewhat like the stock market in the sense that you buy low and sell high. But it’s also in many ways different. Here is an example: the currency in many European nations is the Euro (EUR), while in the US it is the dollar (USD). A forex trader may buy Euros while selling USD at the same time, a process known as going long with the EUR/USD, or whatever currency is being traded.

How Foreign Exchange Works
Currency or forex trading is usually done via a market broker. When you trade you have to select a currency pair that you believe will change values, so you make a trade for it. For instance, if you bought 1,000 Euros in January 2014, it will cost you $1,300 USD. Assuming that you held onto your Euros for a year, and by again assuming that time the value of the Euro reached $1,400; if you sell, you will gain a profit of $100.

Currency trades can be made online. These days it just takes a few mouse clicks to place an order, after which your broker will send your order to the appropriate market to set your position. Once your trade is closed, your position is closed and your account will be credited with the profit or loss. This isn’t as complex as it sounds, as the process is now fully automated.

Managing Forex Trades
As you can see, answering the question “what is forextrading” is quite easy, but while the process is simple, you need to approach it with caution and due diligence. Just like the stock market and investing in general, you need to do your homework first. If you want to succeed in currency trading you must rein in your emotions and learn about risk management.

The biggest challenges for new traders is (1) using too much leverage, (2) too nervous about losing money, or both. Before you begin trading, make sure you know your risk appetite and study forex risk management. While everyone can profit from currency trading, you still need to set stop limits so you don’t end up losing money. These measures are very important. 

Getting Started
If you want to go into currency trading, you have to get in touch with a forex broker or trade online. Either way you will need to open an account and fund it. Once your account is ready you have to decide what currency pair to trade. A lot of beginners go with the EUR/USD since it is very liquid and is actively traded. However, you also need to look at the market situation and decide what is best.
Now that you know what is forex trading and have chosen a currency pair, use a chart and start analyzing its prospects. If you expect the currency to fall, you short trade it, and if you think it will go up, you go long, or buy it. Once you have made your decision, you can begin trading and make some serious money.   

To learn more about Forex Trading visit Baby Pips and read their comprehensive guide.

Monday, 17 February 2014

Ways of Making Black Box Trading Work for You

Black box trading, or automated trading, is becoming more widespread, and the reason for this is that it allows anyone, even a new trader, to make market transactions that would have been otherwise impossible without these technologies. Not only is the technology becoming more affordable, but there are a lot of benefits that traders can get out of it, not the least being your trades are placed automatically in your account.

How to Get Into Automated Trading
The simplest and most effective method to get into auto trading is to use an existing system. This isn’t as simple as just copying of course as you also need to know how these systems function. If the idea of entrusting your funds to another person or a system makes you uncomfortable, learn as much as you can about it. Does the system work with ranges or trends? What kinds of strategies are in place, and are they for short, medium or long term? Just like with the stock market, you need to check the reward and risk ratio of each strategy, and the win rate as well. In other words, the more you know, the easier it will be to pick a forex automated strategy.

Essential Features of Trading Platforms
Automated trading systems should provide you with real-time and historical data that can help you assess strategies. With automated trading you should know each strategy’s profit and loss as well as other vital facts and figures like the risk/reward ratio, the loss/win percentage and intraday and max drawdowns. Black box trading will give you all the stats necessary to get some insights into each approach.

Modifying Strategies to Meet Your Needs
If you’re the type who likes to tinker with different strategies then this is the approach for you. Under this type of trading you take an existing system and make modifications until it suits your style and preferences. For instance, you may have found a forex strategy that generally suits your taste but you don’t like the limit levels imposed. Or perhaps the strategy uses a moving average that you’re not comfortable with and want to change it.

If this is how you want to trade, you’re in luck since there are a lot of web based trading platforms that provide such types of customizable strategies. Using this approach you can customize parameters like currency pairs, stop loss levels, indicators, timeframes and many others. These platforms also allow you to optimize and back test these strategies.

If you are an advanced trader you will probably want to develop your own strategy from scratch. There’s a reason why this is designed for advanced traders; it takes a lot of time and it can be difficult. But if you know a system that’s consistent, there’s no reason for you not to try it.

If you are going to use black box trading while customizing strategies, it is best to open a demo account (virtually all platforms allow this) so you can try out the different strategies. If the results are satisfactory, you can go live and start trading.