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The
Forex market is a seamless 24-hour market.
At 5 PM Sunday, New York time, trading begins
as markets open in 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 events by trading
immediately. It also gives traders the added
flexibility of determining their trading day.
Unlike
the equity market, profit potential exists in the
foreign exchange market regardless of whether a trader
is long or short, or which way the market is moving.
Equities are often considered a buyers market, since
market rules and regulations are structured to
discourage short selling (selling shares one does not
own). Since currency trading always involves buying
one currency and selling another, there is no
structural bias to the market. This means
a trader has an equal potential to profit in a rising,
as well as a falling market.
Online Trading Company
charges no commission or transactions fees to trade
spot foreign exchange online or over the phone. In the
equities market traders must pay a spread and a
commission. The over-the counter structure of the FX
market eliminates exchange and clearing fees, which in
turn lowers transaction costs. Online trading
technology, which gives direct access to Online Trading Company
prices, also lowers transaction costs, which in turn
eliminates commission fees. In addition, currency
trading offers spreads that narrower than can be
obtained when trading equities (especially in
after-hour markets). This is because
equity traders are more vulnerable to liquidity risk,
which results in wider dealing spreads.
Online Trading Company
allows greater leverage than the equities, futures or
options market.
Online Trading Company’s trading platform,
was designed to effectively monitor and control risk
exposure in real-time, with an extreme degree of
precision. Traders can utilize 10:1 leverage (or even
greater) without risking a margin call situation. Leverage
is a double-edged sword. Without
proper risk management, this high degree of leverage
can lead to large losses as well as gains.
Technical
Analysis (the study of charts) is the study of past
price movements in order to predict future price
movements. A currency, as a commodity, is uniquely
suited to technical analysis because the economic
fundamentals that move the market (recessions and
economic booms) tend to repeat themselves.
Economic cycles are the ultimate repetitive
event and are easier to identify than equity
fundamentals.
Currencies
rarely spend much time in tight trading ranges and
have the tendency to develop strong trends. On a daily
basis a technically trained trader can easily identify
new trends and breakouts, which provide multiple
opportunities to exit and enter positions. Online Trading Company
provides clients with three free real-time charting
packages as well as paid options for more
sophisticated users.
Currencies
are traded in pairs; therefore if a trader
“buys” one currency he is simultaneously
“selling” the other. As with a stock investment,
it is better to invest in the currency of a country
that is growing faster and is in a better economic
condition. Currency
prices reflect the balance of supply and demand for
currencies. Two primary factors affecting supply and
demand are interest rates and the overall strength of
the economy. Economic indicators such as GDP, foreign
investment, and the trade balance reflect the general
health of an economy and are therefore responsible for
the underlying shifts in supply and demand for that
currency. There is a tremendous amount of data
released at regular intervals, some of which is
more important than others. Data related to interest
rates and international trade is looked at the
closest.
If
the market has uncertainty regarding interest rates,
then any bit of news regarding interest rates can
directly affect the currency markets. Traditionally,
if a country raises its interest rates, the currency
of that country will strengthen in relation to other
countries as investors shift assets to that country to
gain a higher return. Hikes in interest rates,
however, are generally bad news for stock markets.
Some investors will transfer money out of a country's
stock market when interest rates are hiked, causing
the country's currency to weaken. Determining which
effect dominates can be tricky, but generally there is
a consensus beforehand as to what the interest rate
move will do. Indicators that have the biggest impact
on interest rates are PPI, CPI, and GDP. Generally the
timing of interest rate moves are known in advance.
They take place after regularly scheduled meetings by
the BOE, FED, ECB, BOJ, and other central banks.
The
trade balance shows the net difference over a period
of time between a nation’s exports and imports. When
a country imports more than it exports the trade
balance will show a deficit, which is generally
considered unfavorable. For example, if U.S dollars
are sold for other domestic national currencies (to
pay for imports), the flow of dollars outside the
country will depreciate the value of the currency.
Similarly if trade figures show an increase in
exports, dollars will flow into the United States and
appreciate the value of the currency. From the
standpoint of a national economy, a deficit in and of
itself is not necessarily a bad thing. If the
deficit is greater than market expectations however
then it will trigger a negative price movement.
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