The concept of Stock option trading was introduced in the 1970’s, and it became popular in 1980’s. However the market losses of 1990 caused a stop in this type of trading, the recent concept of electronic trading (online trading) made them again popular to the public.

Stock options are options, which use stocks as the fundamental instrument. Like all types, the stock options can be defined using several related phrases that are unique to options trading markets. Strike Price, also known as Exercise Price, is a common word used to describe stock options.

Strike Price is the fixed price at which the owner of an option can buy (‘call option’) or sell (‘put option’) the underlying commodity. A call option and a put option is the right to purchase and sell 100 shares of a particular stock respectively.

It is not allowed to own puts or calls indefinitely. The expiration time ranges from one month to three years, and many points in time in between. These periods depend on which stock they represent.

There are a lot of risks coming with the stock options trading. One major risk is that the customer is obligated to trade in the strike price. That is, if a customer wants to buy the underlying stocks, he or she must do it on the strike price though the actual market stock price is lesser than that. Likewise, the customer needs to sell his stock at the strike price though the actual stock market price is far higher.

This article is written for Orient Financial Brokers (OFB), licensed and regulated by Central Bank of the UAE since 1997, to conduct brokerage in Foreign Exchange, Commodities, etc.



By: Russel Rashid

About the Author:

This is the first in a series of insights into trading the forex markets successfully. We have ten keys to trading success that all new forex traders and certainly many experienced forex traders need to learn and need to know. We’ll start with the top three with the rest detailed in the rest of this series.

11. Commission Free Trading

This was the initial sales pitch most brokers used and many still do. “You’ll trade for free – no commissions!” Well, any of us who trade actively know commissions add up to some ungodly amounts – many times you look at your annual statements if you trade actively and it’s not uncommon that your broker makes more, maybe much more, than you do in your trading profits. Forex trading is not commission free. Sure, there is usually not an “add-on” commission. However, they force you to pay a spread on every trade. You have to always buy at the ask and always sell at the bid. This is not the case in stocks, or futures or really any other market.

This forced spread on every trade is a commission. That’s what it is. Despite what the broker might claim. And that forced spread is not cheap. 3 pips is $30 on a just one full sized pair. Try $50 on a 5 pip spread you still see as commonplace.

Now, compare that to your average futures or stock trade. Which is more? Forex usually by far.

Now, let’s not leave it at that. Remember, you get some amazing leverage opportunities with Forex so the actual commission compared to the dollar volume you are able to trade is actually reasonable in some cases – assuming you trade at the right places and follow the right strategies. We’ll cover that below.

12. 100:1 Leverage…No, Wait! How about 200:1….or 400:1?

You’re going to be rich! With that kind of leverage you make just a few pips per days and you’ll spend as much time with your banker as you do with your significant other, right? You look at the end of month totals from your strategy, run it through your state of the art Leverage Calculator and instantly you are making 100%, 300% or 500% per month. Do that a few months, a bit of compounding and you’ll be buying that private island after all.

This is another one of those broker come-ons. It just doesn’t work this way. Yes, you can get this leverage. The brokers are going to allow it so I’m not saying it isn’t as advertised. However, you are guaranteed to wipe out using it. Guaranteed. There simply is no way you can trade at these leverage levels and make it. Not unless you are some trading genius who can take a trade and never lose. If you are – please contact me at once!

For the rest of us, you are going to lose. You are going to lose more than once. You are going to have some losing streaks. It’s the nature of trading. It’s not a big deal, especially if you can win more than you lose, and if your average win is greater than your average loss. You do that and who cares about some losses. Don’t get hung up on it.

However, you will care very much if you over-leverage. Do not over-leverage! This is the single, greatest mistake most new Forex traders make. Your state of the art trading calculator spits out numbers that are too great to pass up and you let greed get in the way of logic.

Think about it this way. 200:1 leverage.

You have a trade where you are targeting 25 pips and risking 25 pips. As you’ll learn below, that trade actually has to go 28 pips or more to hit your target of 25 pips and you’ll actually be risking 28 pips or more – but for this example we won’t get hung up on that. We’ll solve that later.

You have a $5,000 account and trade it with 200:1 leverage. That means you can trade 1,000,000 worth of currency (you can see why we said spreads above are a significant cost but with leverage can end up being a small percentage of cost) – and that means 10 full sized pairs.

Oh, and you lose on this trade. Let’s do the math. 10 pairs x 25 pips = 250 pip loss. Make that with spread 10 pairs x 28 pips = 280 pips loss x $10/pip = $2800 loss.

Oops. You’ve just lost over 50% of your account. Don’t even think about what would have happened if you were risking more – and these days on the Forex, good luck risking much less.

If you lose twice in a row – which happens all the time - you’ve just wiped out. Sure, if you win you make a great return, but you are completely counting on virtually never losing. Even if you get a few wins immediately, you’ll eventually wipe out.

It’s what happens to the new gambler in Las Vegas. They try a few hands, they win, they get sucked in, and then before they know it they are at their ATM machine looking for their mortgage money to try and get back that winning feeling.

You’ll have success trading with huge leverage. Some of the time. It will be great and you’ll brag to your friends how you made 50% that afternoon. Then, a few days later you’ll be asking them to pick up the lunch tab.

Do not use crazy leverage. Do not use crazy leverage. Do not use…ok, you get the idea.

Decide on a fixed percentage you are going to risk on your account on any one trade. 5%? 10%? And calculate that amount to determine what size you can trade based upon the risk per trade. It will still be great leverage – Forex provides that. What’s wrong with 5:1 leverage or 10:1 leverage? It blows away the stock market but it’s not going to wipe you out in a couple of trades.

13. Spreads

Find a broker that does not charge high spreads. Sure, you need a broker who provides a stable platform, which provides good customer service, which is regulated (important!), that has account insurance/guarantees, and so on. But realize these brokers make money many different ways. They make spread money, they make money by laying off orders on other banks, they make money on stop running. Did I say that? Guess it’s too late to take it back.

There is simply no reason to pay more than 3 pips on the EURUSD. And really, you should be paying 2 pips. On the GBPUSD and USDCHF why are you paying 5 pips? Sorry, it’s not going to a charitable cause – your broker’s bank account isn’t a non-profit. Those spreads are crazy. You should pay 3, maybe 4 at most on the other majors.

There are new trading platforms coming out in recent months, some based upon the “Currenex” platform that basically takes your orders direct to the “real” trading market and your broker only takes a small commission on the trade, closer to the model we see in stocks and futures. Or they are mimicking the Currenex platform and developing on that works similar. Look for this; it is important to have liquidity and low costs.

And forget about all the “exotics” – avoid trading anything that is not amongst the main pairs – EURUSD, USDCHF, GBPUSD, USDCAD, AUDUSD, USDJPY, EURJPY and maybe EURGBP. And stay away unless spread is 2 or 3 pips, maybe 4. That’s already more than enough to trade so why do you need to trade the GBPCHF for 15 pips spread? Unless you really like to make car payments and pay for rounds of golf for your broker. If you do see a compelling reason to trade, for example, the GBPJPY - and there are some great moves there - just be sure you are building the spread costs into your trading outcomes – you might need it to go 7 to 10 pips just to get break-even, let alone to start making a profit.

The rest of this important top 10 with critical insight into ensuring your forex trading success can be found here: http://www.netpicks.com/BetterTrading.html



By: mark

About the Author:

Here we will discuss 3 tips which if you include them in your FX Trading strategy can turn a trading account making marginal money into big forex profits. These tips don not conform to the consensus way of making money but most forex traders don’t win!

1. Cut Back Trading Frequency

Most traders simply trade too much and you need to remember you don’t get rewarded for the amount you trade - just how many trades you get right and the profit they produce. The high odds big trades only come around a few times a month so look for them and trade them.

For example, I know traders who trade less than 10 times a year yet make 100% + annual profits and you can to.

Forget short term trading like forex scalping or day trading and hit the high odds trades only - the big trends that last for weeks or months. Look at any forex chart and you will see them, so lock into them and trade them.

2. Hit High Odds Trades Hard

When you have a high odds trade - hit it hard in terms of money you are prepared to risk. You hear a lot about risking 2% per trade but for a retail trader this is ridiculous. If you invest $1,000, that’s 20 bucks and your risk is so small, your going to get stopped out by random volatility. If you have a high odds trade risk up to 20%.

This is not being rash. If you have a high odds trade your confident in then you need to take a meaningful risk to make a worthwhile profit.

3. Don’t Dilute the Above!

Only run high odds trades and forget about diversifying. Diversification is supposed to reduce risk and maybe it does - but one fact is clear, it will dilute your profit potential at the same time.

Why when you have a great high odds trade do you want to dilute and reduce its profit potential?

Many people diversify so much, they never make anything! So don’t bother spreading trades around, hit the high odds trades, risk as much as you can afford and focus on it.

Many traders try so hard to reduce risk they actually create it and ensure they will never make any decent gains.

Trading is all about taking risk but this is not being rash, it’s about taking calculated risks, at the right time and knowing when to bet, how to bet and what stake to risk.

Your not trading forex to make 10 or 20%, you can do that with less risk elsewhere!

Your out to make 50 - 100% or more and the above is really common sense and if you try it, you will reduce your risk, turbo charge your gains and enjoy currency trading success.



By: Kelly Price

About the Author:

There may be dozens of strategies in Forex trading. Let’s just talk about the roots.

Nature Of Market:

Every thing in the universe has its NATURE. So is Forex market. So is every currencies pair in this market. For example, GBP/JPY always moves faster, and its wave range is longer than other pairs, such as a hundred pips during a day or even a hour. EUR/GBP generally waves narrowly several pips only within a day. For American, EUR/USD and GBP/USD like to sleep in day and dance at night. AUD/USD and NZD/USD look like twin, they commonly act in the same style, if one of they goes north, another one does not like to go south. But EUR/USD and USD/CHF are doomed to be enemy, while one of them flies up like a hydrogen balloon, the counterpart mostly will drop like a lead ball. And so on, so on.

Once we find this kind of “Nature of Market”, we can develop and figure out some strategies for particular currencies pairs, just follow their nature, predict their moving direction and range. Then we will get our own trading strategy and system.

Fundamental Trading:

In Forex market, many professional analysts like to use a kind of method to predict the future. It is so-called “Fundamental Analysis”. Based on this method, they develop many kinds of strategies to trade Forex. These are strategies of forecasting the future price movements of currencies based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the foreign currencies.

If you like to try Fundamental Trading, you need learn and understand a lot of finance knowledge. Actually, not only finance knowledge, you need to be interested at many things of this world, including politics, economy, geography, culture, diplomacy, even military affairs. And you need to study the core underlying elements that influence the economy of a particular entity. For example, when the USA’s GDP or employment report is strong, you begin to get a fairly clear picture: the general health of America’s economy is good. So the US dollar should be stronger than other currencies. But how far can the US dollar go? Fundamental Trading may not answer this question very accurately. You may need to come up with other precise tools as to how best to translate this information into entry and exit points for a particular trading strategy.

Hedge:

In finance, a hedge is an investment that is taken out specifically to reduce the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.

In FOREX, there are two kinds of similar “hedging” strategies:

1, Buy and Sell the same currencies pair, same lots, same timing. Then let it go. While one of those orders goes north, the counterpart will go south. After the winner takes profit, we can wait for the loser turning around. In a yo-yo market, this method works well.

For example, buy 2 lots GBP/USD at 2.0003, at the same time sell 2 lots GBP/USD at 1.9997. While the rate rises up to 2.0053, we close the buy order and take profit 50 pips. Now, the sell order will draw down around 50 pips. Let’s wait for the rate falling down, it will fall down usually, especially in yo-yo market environment. If the rate drops down to 2.0037, close the sell order, the sell order will lose 40 pips. Does it hurt? No. Don’t forget the 50 pips we have taken at the buy order. Totally, we can get 50-40=10 pips. Furthermore, if the rate keeps falling, let’s say down to 2.0027, we can take 50-30=20 pips, etc.

Some people would doubt it… doesn’t this “strategy” sound like hedging flat for nothing, just paying double spread? Why bother? Well, they are right, because we forgot mentioning the key point: timing of closing orders. When to close the winning order to set a foundation and when to close the losing order to lock the profit, there are some tricks inside. Experienced traders use technical analysis skills to decide this vital timing. Believe it or not, those experienced traders say that this method helps them screening false signals out.

This kind of “Yo-Yo Hedge” can work at any currencies pair.

2, Buy (or sell) unequal lots of special currencies pairs and buy unequal quantities of another kinds of currencies pairs which usually move in the opposite direction. This seems a “Semi-Hedge” trading strategy. It is created based on “Correlation” between some particular currencies pairs. So it is not suitable for every currencies pair.

Actually, this kind of hedge has another feature: earning SWAP! You earn interest daily on the held position which can yield up to 50% per year of your full account balance.

There are several pairs can do it. Such as EUR/USD Vs. USD /CHF, GBP/USD Vs. USD/CHF, AUD/USD Vs. NZD/USD, EUR/JPY Vs. CHF/JPY, GBP/JPY Vs. CHF/JPY.

Let’s take the EUR/USD and the CHF/USD pairs.

These pairs are historically negatively correlative 93-98% of the time. That is when one pair goes up the other goes down, and vice versa, up to 98% of the time. In a high leverage account (as high as 400:1 or 500:1), you could earn 50% SWAP interest in a year. How? Let’s say you have $5,000 in your account and a 10% risk margin set. If the net interest we receive is 1.25% annually, this 1.25% interest will be enlarged to 50% per annum, by the 400:1 leverage.

And, this return does not include the buy low/sell high profits.

But, if the base of this kind of hedge collapses, it means the “Correlation” does not exist any more, for example the “Correlation” drops under 50% or lower, there will be a disaster.

Arbitrage:

Some people call “Arbitrage” as a risk free strategy. But other people call it as a trick which looks like the cat pawing chestnuts from a fire. But in theory, its risk is minimum in deed. We introduce three types of arbitrage strategies here:

1, Triangle Arbitrage: Searching for two highly fast-moving pairs (like EUR/USD and USD/JPY), the price of a not-so-fast moving pair like EURJPY should always be derived by multiplying (or dividing, etc) the fast-moving pairs. So for example, if EUR/USD is 1.4871 and USD/JPY is 108.24, the logical price of EUR/JPY should be 1.2 x 120 = 160.96. But at the same time, the real EUR/JPY rate is 160.90. The slower moving pair lags behind the logical price, then profit opportunity comes.

In practice currencies are quoted with a bid ask spread, so a trader should be careful that he is actually buying at the quoted ask price, and selling at the quoted bid price. Other transaction costs, such as commissions, might also invalidate the apparent free lunch.

More pairs:

AUD/CAD CAD/JPY AUD/JPY

AUD/CAD GBP/CAD GBP/AUD

AUD/CAD USD/CAD AUD/USD

AUD/CHF CHF/JPY AUD/JPY

AUD/CHF GBP/CHF GBP/AUD

AUD/CHF USD/CHF AUD/USD

AUD/JPY EUR/JPY EUR/AUD

AUD/JPY GBP/JPY GBP/AUD

AUD/JPY USD/JPY AUD/USD

AUD/USD GBP/USD GBP/AUD

AUD/USD USD/CAD AUD/CAD

AUD/USD USD/CHF AUD/CHF

AUD/USD USD/JPY AUD/JPY

CAD/JPY EUR/JPY EUR/CAD

CAD/JPY GBP/JPY GBP/CAD

CAD/JPY USD/JPY USD/CAD

CHF/JPY EUR/JPY EUR/CHF

CHF/JPY GBP/JPY GBP/CHF

EUR/AUD AUD/CHF EUR/CHF

EUR/AUD AUD/JPY EUR/JPY

EUR/AUD AUD/USD EUR/USD

EUR/AUD GBP/AUD EUR/GBP

EUR/CAD AUD/CAD EUR/AUD

EUR/CAD GBP/CAD EUR/CAD

EUR/CAD USD/CAD EUR/USD

EUR/CHF AUD/CHF EUR/AUD

EUR/CHF GBP/CHF EUR/GBP

EUR/CHF USD/CHF EUR/USD

EUR/GBP GBP/AUD EUR/AUD

EUR/GBP GBP/CAD EUR/CAD

EUR/GBP GBP/CHF EUR/CHF

EUR/GBP GBP/JPY EUR/JPY

EUR/GBP GBP/USD EUR/USD

EUR/JPY GBP/JPY EUR/GBP

EUR/JPY USD/JPY EUR/USD

EUR/USD GBP/USD EUR/GBP

EUR/USD USD/JPY EUR/JPY

GBP/JPY USD/JPY GBP/USD

2, Hedging Arbitrage:

This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of roll over interest rates (SWAP) between two brokers.

One broker which pays or charges roll over interest at end of day, and the other should not charge or pay this kind of roll over SWAP interest. The main idea about this type of Hedge Arbitrage is to open a position of currency (Fore example, the highest SWAP GBP/JPY) at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency with the broker that does not charge interest for carrying the trade. This way you will gain the interest or SWAP that is credited to your account, risk-free.

3, Netting Arbitrage:

The main idea behind the strategy is, using differences between cross rates (such as EUR/USD, GBP/USD, and EUR/GBP) at different markets.

For example, suppose you had opened the following positions:

buy 1 lot EUR/USD at 1.4867;

sell 1 lot EUR/GBP at 0.7600;

and sell 0.76 lot GBP/USD at 1.9586.

The netting/clearing gives the following results:

Long EUR from the first pair and short EUR from the second pair gives zero exposure in EUR.

Long position in GBP from the second pair and short position from the third pair gives zero exposure in GBP.

Short position from the first pair ($148,670.00) in USD and long position from the third pair ($195,860.00*0.76) in USD gives you $183.60 profit without open positions and exposures.

Simple? Not really for small traders, may be for those “big brothers” only. Because it is really hard to play spread, slippage, stop loss hunting or so on games against brokers.

Carry Trading:

Carry trading is a well known trading strategy which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. Then this investor can make profit from the difference of these two interest rates.

JPY is currently considered to be the most popular currency to use as the low interest yielding currency in the carry trade, because its interest rate is the lowest of the world almost at 0. And GBP is currently considered to be the high yielding currency. So are NZD and AUD.

When we buy these currencies pairs: GBP/JPY, AUD/JPY, GBP/CHF, USD/JPY, or EUR/CHF;

Or sell: EUR/AUD, EUR/GBP, AUD/NZD;

Both actions can yield positive SWAP roll over interest. If combining with some kinds of hedge trading, we can make as high as 100% profit annually and keep the risk low.

The big risk in a carry trading is the uncertainty of exchange rates. Also, these transactions are generally done with a high leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

Martingale:

Originally, martingale referred to a class of betting strategies popular in 18th century France. In Forex trading, the strategy let the trader double his/her order lots after every loss, so that the first win would recover all previous losses plus win a profit equal to the original investment. In the example below, you bought 1 lot EUR/USD at 1.4650. Unfortunately, the rate drops. You play it in martingale way, “double down”, buy two lots, you need the EUR/USD to rally from 1.4630 to 1.4640 to break even. As the price moves lower and you add four lots, you only need it to rally to 1.4625 instead of 1.4640 to break even. The more lots you add, the lower your average entry price. Even though you may lose 100 pips on the first lot of the EUR/USD if the price hits 1.4550, you only need the currencies pair to rally to 1.4569 to break even on your entire holdings. Once the rate goes up one more pip, you will win a lot.

EUR/USD Lots Average or Breakeven Price

1.4650 1 1.4650

1.4630 2 1.4640

1.4610 4 1.4625

1.4590 8 1.4605

1.4570 16 1.4588

1.4550 32 1.4569

The Martingale strategy needs a very strict money management and you must understand that in the beginning money will be coming slowly, but if you lose the patience and raise risk level up to much, you may not hang on to the end to see the turn-around.

Anti-Martingale:

The anti-martingale strategy is the opposite of the better known martingale approach. This approach instead increases order lots after wins, while reducing them after a loss. Using an anti-martingale risk management scheme will increase profits during time periods when a trading approach is working well, while automatically decreasing exposure during portions of the cycle where trading is unprofitable. This is believed to decrease the risk of ruin for trading.

Grid:

Basically the trader sets a series of entry limit orders X pips from the current price, for example 15 pips. Some experienced traders like to use the Fibonacci Series Numbers (0, 1, 1, 2, 3, 5, 8, 13, …) or Golden Section Numbers to make this grid. Once price hits the level the limit order is executed. Then every 15 pips there is another order at limit price executed. And so on. In a yo-yo market, while the price moves up or down, there always be some limit orders executed. Once the order is taken profit, and the price moves to its original level again, a new limit order shall be executed again, then repeat the same process. Just open orders and take profits in a set of “grid”. It is simple and easy, but hard to deal with when and how to close all orders, especially the Stop Loss. Some experts say we do not need stop loss, but will you take the chance to hold your all positions till “Margin Call?”

Day trading:

This refers to the practice of buying and selling currencies pairs such that all positions will usually be closed within the same Forex the trading day. The day trading idea comes from stock market. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time. Under the rules of NYSE and NASD, customers who are deemed “pattern day traders” must have at least $25,000 in their accounts and can only trade in margin accounts.

But in Forex market, every one can be a day trader to do day trading. Actually, more than day trading, they can do “scalping”.

Scalping:

Scalping is a trading style where small price gaps created by the bid-ask spreads are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. It means trying to get a few points (1~3 pips only, no greed, no long term) off the market every time. This strategy is based on a fact: approximately 70 to 80% of the time, the market is in a consolidation pattern. What this means is that for the majority of time the market is not making significant moves. For example, after the USA market is closed and before the Europe market is open, the Forex market tends to range in a consolidation channel for hours at a time before making another significant move in one direction. This kind of market behavior pattern is ideal for Forex scalping. Every time you enter the market, wait 10 or 20 minutes, once you have several pips gain then cash it and go.

Scalping has some features:

1, Lower exposure, lower risks. Scalpers are only exposed in a relatively short period.

2, Smaller moves, easier to obtain. The normal wave of the market will give you several pips easily.

3, Large volume, adding profits up. Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits. Scalping is not suitable for small-capital traders.

But be careful, not every broker welcomes this kind of scalping strategy. If you scalp it too quick and thin, let’s say you just hit 1 pip every 2 or 3 minutes then run, and repeat it again and again within a day, every day, you must feel high, eh? But the broker may be not happy and bans you. You will be kicked out because of your successful scalping!

Break-Out:

Using the Bollinger Bands indicator on a chart, we will find every Forex currencies pair is waving in a “band”, or a channel. By finding major support and resistance levels with technical analysis, a Break-Out strategy trader will buy this pair at the lower level of support (bottom of the band/channel) and sell them near resistance (top of the band/channel). Till now there is not a Break-Out yet.

Once the price breaks the upper range line with larger-than-average volume, or the opposite: the price breaks the lower range line with larger-than-average volume, the chance is coming. The idea of this strategy is that when a currencies pair breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. So buy it at the price breaks the upper range line and continue to hold it until the rate has risen a distance comparable to the height of the range. If it goes down instead, stop losses as it penetrates the upper range line. Or, sell it at the price breaks the lower range line, and continue to hold it until the rate has fallen a distance comparable to the height of the range. If it goes up instead, stop losses as it penetrates the lower range line.

Pivot:

Besides Support and Resistance levels, many foreign exchange traders like to use another indicator to analyze and predict currency pairs’ price changes, it is so-called: the Pivot Point. To calculate and analyze pivot is a subset of technical analysis, with this bench mark, traders can locate the rotation point of the trend, and this is very helpful for deciding when and where to buy or sell.

Classical Pivot Point, Support and Resistance Formulas are as follows:

Look at any one chart, the pivot is an average of the previous bar’s high, low, and closing prices. In the following formula, “H” represents the previous bar’s high, “L” represents the previous bar’s low, and “C” represents the previous bar’s closing price.

Current Bar’s Pivot Point (P)=Previous Bar’s (H+L+C)/3

First level of support and resistance can be calculated as follows:

First Resistance Level (R1)=(2*P)-L

First Support Level (S1)=(2*P)-H

Likewise, the second level of support and resistance:

Second Resistance Level (R2)=P+(R1-S1)

Second Support Level (S2)=P-(R1-S1)

Since many currency pairs tend to fluctuate between Support and Resistance levels, and these levels are calculated based on Pivot points, so when a trend or breakout trader knows where the pivot point is, it will enable him/her to find out key levels that need to be broken for a move to qualify as a breakout.

News Trading:

The system is developed based on economic news events from around the world. Nearly half of those announcements have moved the market significantly. Before a big news is coming, we can buy and sell some currencies pairs at the same time, same lots, set stop loss prices for them. After the news is released, especially for the big one, both sides of buy order and sell order will jump significantly. No matter which order is a winner, just let it go. And the loser will hit the Stop Loss, just let it be. The winner’s gain minus the loser’s loss, it is your news trading profit. For example, Non-Farm Payrolls/Employment Report - The NFP is the most influential news release of every month. It’s announced on the first Friday of the month at 8:30am EST for the prior month. We can put a buy order and a sell order at market prices for GBP/USD, at 8:29 am EST. Don’t forget, set 30 pips Stop Loss level for them. Wait 2 minutes only, the news is announced, it is a big one! Then the sell order jumps over 100 pips, and the buy order drops like a brick. The brick hits the Stop Loss and the pain is over. Totally, your gain could be 100-30=70 pips. Quick and easy, cool enough?

Trend Following:

It is so simple, just follow the trend. Buy it is the most difficult strategy because no one can tell you 100% for sure what is the right TREND. Go to look at a weekly chat of USD/CAD, if you had shorted this pair in September 2001 and held it till September 2007, you know what the trend means.

The most famous trend analysis tool seems the Wave Principle. In the 1930s, Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable patterns. Elliott isolated five such patterns, or “waves,” that recur in market price data.

Another trend analysis guru should be W. D. Gann. In 1908, Gann discovered what he called the “market time factor”, which made him one of the pioneers of technical analysis. To test his new strategy, he opened one account with $300 and one with $150. It turned out to be wildly successful: Gann was able to make $25,000 profit with his $300 account in only three months; meanwhile, he made $12,000 profit with his $150 account in only 30 days! After his results were verified, he became famous on Wall Street as one of the best forecasters of all time.

Back to the chat of USD/CAD, now, please tell me, how to follow the trend? Will USD/CAD continue the trend which is going south further to 0.6000, or, another trend going north reversely back to 1.6000?



By: Victor Mars

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What is a spread?

In margin forex trading, there are two prices for each currency pair, a “bid” (or sell) price and an “ask” (or buy) price. The bid price is the rate at which traders can sell to the executing firm, while the ask price is the rate at which traders can buy from the executing firm.

For example, when you see the price quote of EUR/USD is 1.2881/1.2884 as in the above picture, the bid is 1.2881 whereas the ask is 1.2884. That means traders looking to sell must do so at 1.2881, those looking to buy must do so at 1.2884.

The difference between the bid and ask price is the spread, which constitutes the cost of the trade. In fact, all traded instruments - stocks, futures, currencies, bonds, etc. - have spread. If a trader buys at 1.2884 and then sells immediately, there is a 3-point loss incurred. The trader will need to wait for the market to move 3 points in favour of his/her position in order to break even. If the market moves 4 points in your favour, he/she starts to profit.

Many online trading firms like to promote margin forex trading as an almost cost-free instrument - commission free, no service charge, no hidden cost, etc. Traders should know that spread is the cost of trading, and in fact, it also represents the main source of revenue for the market maker, i.e. the forex trading company. The spread may appear to be a minuscule expense, but once you add up the cost of all of the trades, you will find it can eat away quite a portion of your account or your profit. If you check the price tag of a T-shirt before you buy it, do the same thing when you trade forex, look into the spread before you decide to trade. Your trade needs to surmount the spread (the cost) before it profits.

Know your expense: the spread

Spread is the cost to a trader. On the other hand, it is a revenue source of the firm who executes the trade. In the foreign exchange market, the spread can vary a lot depending on the executing firm and the parties involve. Inter-bank foreign exchange can have spread as tight as 1-2 pips, while the bank can widen the spread to 30-40 pips when dealing with individual customers. If you check out the spread of those small exchange shops nearby the tourists’ sights, you may find the spread can go up to 400 to 600 pips.

Thanks to keen market competition, the spread of online forex trading is getting tighter in the past few years. For major online forex companies, their spreads are essentially the same. The table shows the typical spread of four major currencies of online forex trading at the time being:

Pair Spread

EUR/USD 2-3 pips

USD/JPY 3-4 pips

USD/CHF 5 pips

GBP/USD 5 pips

It is important for a trader to find the tightest spread as possible, but anything that is far lower than the typical spread is skeptical. The spread is the main source of revenue of a forex trading firm, if the firm cannot earn enough from the spread, there maybe some other hidden cost in the transaction.

Another point to note is that many market makers often widen the spread when market conditions become more volatile, thus increasing the cost of trading. For instance, if an economic number comes out that is off expectations, thereby creating a flood of buyers or sellers, the market maker may often widen the spread to restore the balance between buyers and sellers. As a result, traders should inquire about the execution practices of their clearing firm; firms with poor execution of orders and a tendency to widen spreads will ultimately result in higher trading costs for the end user.



By: Actionforex.com

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Forex Trading involves buying one currency in a currency pair, by selling the other. So if one is trading in EUR/USD, the trade may involve buying EUR by selling USD at the current market rate or vice-versa. Similarly buying EUR in EUR/GBP would require GBP to be sold.

Unlike options or stocks which have lots of companies that can be traded on, the forex market has got limited currency combinations which can be used to place the trades.

Despite this, often people wonder which currency pairs should be chosen for trading? Should it be USD based or should it be the one that is heavily volatile or should it be some other?

Lets look at few parameters which can be used to decide -

1. What is the pip spread involved - The biggest factor to be considered is the spread between the currencies. In layman’s terms, Spread is a difference between the sell price and the ask price of forex currency pairs as given by the forex broker. In other words, it is a commission of the broker or agent through which the trades are made. The lower the spread, the better it is for the forex trader. The lowest spread I have seen is in EUR/USD, which has the average spread is 2 pips to 3 pips. Typically a spread of upto 5-6 pips is good enough to trade.

2. What is the liquidity? - The more the liquidity, that means the higher is the amount of money being traded on that currency pair. So, this eventually means that that particular currency pair moves a lot in a the trading sessions. Its better to trade on such from a day trading perspective as the trades don’t need to be kept open for a longer time. I have seen that the GBP/USD is heavily liquidated. On average it moves about 100-150 pips everyday. This is followed by EUR/USD and USD/CHF.

3. How does the currency pair behaves? - Does it move technically or is it primarily fundamental driven? The one that is primarily fundamental driven doesn’t has much regard for technical analysis. I have seen JPY (Yen) as one such currency which is heavily fundamental analysis driven.

So, these are the some factors that can be used in identifying the currency pairs to be traded on. Though these factors are not an exhaustive list, they can be used as minimum basic rules. The pip spread is one important criteria. The lower, the better it is. However the currency pair should also be sufficiently liquidated as this means that there will be significant pips movement during a trading day.



By: Rahul Gupta

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Are you new to the Forex market? If you are, you need to develop a forex trading strategy and run with it. As you know, in Forex, you are not buying the physical currency; you are laying money on the movement of this currency. If the value of the currency rises or falls you will either make or lose money. In the world of Forex, this is known as spread trading, meaning you are placing a bet that a certain currency price will move in the direction you want it to move in.

Every day new traders enter the market and every day traders fail to make money. There are three main reasons why people fail to make money in trading the Forex. First, they don’t set a budget for each trade and end up losing way more than they can afford to lose. Second, they don’t have a solid Forex trading strategy. Third, they lack the discipline it takes to be a trader. Most people fail in all three of these areas, but even failing in one area can destroy a trader.

Before you begin trading, you need to sit down and figure out what you can spend on each trade you make. You need to know exactly how much money you can afford to lose and how much you wish to gain on each trade. If by some chance a trade happens to go against you and you start losing money, you shouldn’t close out of a trade until you reach your losing marker. When a trader enters the market, they enter with high expectations and don’t expect to lose money. When they start to trade and something goes wrong, they panic and bail out. In turn, they miss out on the chance that their odds will turn and they might make some money on that trade. This is why it is so important to have a game plan before trading.

On the other hand, if they have no clue about how much they want to make from a trade, they might get greedy and end up losing in the long run. As they see their pips increasing, they tend to leave the trade going thinking they are really going to cash out on their investment. Have you ever heard the phrase, what goes up must come down? Well, at some point, the trade will turn and you will end up losing money. In the world of Forex trading, this can happen at any time, it is completely unpredictable. So, don’t be greedy!

These are pretty much the basics when developing a Forex trading strategy. If you strive to have a budget for each trade, develop a solid trading strategy, and are disciplined, you can have success trading in the market.



By: Bart Icles

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The first thing you must understand in forex trading is the spread and the pips. Each currency is traded against another one. This is called a currency pair. An example for a popular pair with high daily trading volume is EUR/USD.

The EUR/USD exchange rate is one of the most traded contracts in the world. In total the forex market trades around $2 trillion Dollars every day but there are only a few currency pairs that are traded with high volume.

When you want to trade this pair then you need to know the spread and the value of a pip. The spread is the difference of the buy and sell price. For example you want to buy the Euro against the Dollar. The current price that your trading platform displays is 1.5000 x 1.5003. That means there are 3 pips spread.

You can buy the Euro at 1.5003 but sell it only at 1.5000 right now. The price of the currency pair is constantly changing. The spread can also change. The spread will get bigger with more market activity for example. Your broker is the one who earns the spread. He widens the spread when he has more risk and reduces the spread when the risk for the broker becomes smaller.

You have no other choice than paying the spread. There are brokers that offer zero spread trading but that is often an illusion. The broker makes the pricing and he can give you any price he wants. The price you see may have no spread but you can be sure that you pay a price for it some way.

Other popular currency pairs are GBP/USD, USD/JPY and CHF/USD. Your trading platform may have dozens of pairs available but do not forget that only the major currencies provide enough volume and volatility for day trades.



By: Nelson Woolwine

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