I want to explain a little more about the currency pairs. Currencies are always traded in pairs in the Forex. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for currency pairs. In this example ABC is the symbol for one countries currency and DEF is the symbol for another countries currency.

Here are some of the common symbols used in the Forex:

USD – The US Dollar
EUR – The currency of the European Union “EURO”
GBP – The British Pound
JPN – The Japanese Yen
CHF – TheSwiss Franc
AUD – The Australian Dollar
CAD – The Canadian Dollar

There are symbols for other currencies as well, but these are the most commonly traded ones. A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible. Some of the common pairs are the EUR/USD, GBP/USD, EUR/AUD, USD/CAD, etc…

The currency pair looks like a fraction. The numerator (top of the fraction) is called the base currency. The denominator (bottom of the fraction) is called the counter currency. When you place an order to buy the EUR/USD, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and bying the USD. So if you buy or sell a currency pair, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.

If this seems confusing then you are in luck. You can always get by with just thinking of the entire pair as one item. Then you are just buying or selling that one item. Thinking like this will still enable you to place trades. You only need to be aware of the base/counter concept for fundamental analysis issues.

So why is it imprtant to know about the base /counter currency now? The base/counter currency concept illustrates what is actually taking place in a Forex transaction. I mentioned before that short-selling was restricted in the stock market. Short-selling is where you sell a stock/currency/option/commodity first and then try to buy it back at a lower price later. But in the Forex, you are always buying one currency (base) and selling another (counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is essentially the same.

You want to be able to short-sell with no restrictions so you can make money when the market drops as well as when it rise. The problem with traditional stock market trading is that the market has to go up for you to make money. With forex trading you can make money in all directions.

Another important concept for Forex trading is the leverage. Leverage is when you can use a little money to control a lot of money. The Forex market is probably the highest leverage market in the world. There are different types of leverage available in Forex trading. The highest leverage possible is 200:1. This means that if you put up $1 margin, the trading provider will allow you to trade with $200. So if the price of the currency pair goes up 1%, you make200*1% = 200%!!!!

The margin for Forex trading is a good faith promise to the trading provider. Other money in your trading account also insures your transaction. You only need to know that the margin is the amount of money you need to place a trade.

Another imprtant piece of lingo is the term “pips”. Since we have the EUR/USD, EUR/AUD, etc…, we ned a way to talk about the number or price. When you see a Forex currency pair price quote, the last digit of the price is commonly refered to as a pip. So if you see a price quote of 1.6118 and then a price quote one minute later of 1.6119, the price rose 1 pip. Similarly, if we see a price quote of 187.50 and then another one 5 minutes later of 187.58, the price rose 8 pips. The pip is always the last decimal place of the currency price quote.

These lessons literally could go on for several years and you still would not know everthing. At this point, you are ready to start demo trading. Once you begin to place demo trades, you will learn a lot about how Forex transactions are placed. This is an important step for you to be able to learn how to become a trader.

Here’s how to get started with your own demo account.
Go to http://fxcm.com/mini-demo-registration.html

There you can sign up for a free mini-demo account. A mini account is just like a real demo account, except the trade sizes are smaller. In a real account the smallest trade size is $100,000; in a mini account the smallest trade size is $10,000 (this can be done with a $50 margin, the power of leverage!).

There are several other places online to sign up for a free demo account. I use fxcm, because they have the best overall reputation online. Fxcm has built itself to the premier Forex trading platform. I don’t get paid anything to endorse them, but they are currently the best.

Once you sign up for your mini-demo account, you will need to try out one of the trial charting packages. Any of these will do because they all have the SMA. You can then set up your demo account and use the SMA crossover method I mentioned in previous post. This is a good way to get used to how orders are placed. Once you have a real trading system, you will already know how to place orders properly.

Everyone makes mistakes placing orders. You need to experiment in a demo account to make your mistake without losing money.

At this point you have to make a decision about how fast you would like to learn how to become a trader. The truth is that the long you wiat to get in on this market, the more potential money you are missing out on. You need to decide what time frame is right for you to begin trading.

You need to decide if:
1. You want to place real trades within the next 3 months (or sooner, depnding on your desire).
2. You want to build your knowledge for several months before placing real trades.

The choice is entirely yours. No-one else can make that decision for you. You need to make a plan and stick to it. It is important not to put off your success. Success requires action.

Fundamental analysis is the most difficult aspect of Forex interpretation. It requires an extended period of learning fundmental concepts and their impact on the Forex market.

To learn a fundamental style of trading completely would require years of experience. So how can you take advantage of fundamental concepts without having those years of experience?

So what does fundmental analysis do ? Fundamental analysis uses “economic indicators” and other news related information to determine an impact on Forex prices. These “economic indicators” are published at regular intervals and many of the international banks use this data to forecast forex trends. The economic indicators measure how well an economy of one country with another. The status of an economy will influence its exchange rate, so fundamental analysis provides us with ways to measure potential forex trends.

When this data is made available to the public there is a reaction from investors and speculators. Information in the form of news and economic indicators is vaguer than that of technical indicators. There is a lot of gray area in this type of analysis. The market will ultimately react to how people think the economic data compares to the current market situation.

Economic indicators usually reveal information that “ Should cause a currency to go up in price” or “May cause a currency to go down”. The words ‘should’ and ‘may’ in the quote above reveal the ambiguity of the fundamental data.

Here is an example of what analyzing fundamental data is like. Let’s suppose there are six economic indicators (there are a lot more). Let’s call our six indicators A, B, C, D, E, and F. Now we wait for the data from our indicators to be published in a financial magazine or at an online source. We manage to get the readings for our economic data for the EURO:

Indicator A: is in a range where the Euro may go up
Indicator B: is in a range where the Euro should go up
Indicator C: is in a range where the Euro could go down
Indicator D: is in a range where the Euro usually goes down
Indicator E: is in a range where the Euro could go up
Indicator F: is in a range where the Euro may do down

By looking at the above indicators, you donj’t know what the Euro is going to do. Furthermore, currencies are always traded in pairs. You would have to get fundamental data for another currency pair and compare it with the EURO to make a trading decision. I think you can appreciate that this is no simple task.

I do not want to discourage you away from fundamental data. The best way to lean is one piece at a time. Eventually you will build a puzzle from all of the fundamental and technical data and make more informed trading decisions.

At this point I am going to list some of the most commnly used fundamental indicators (sometimes referred to as economic indicators).

1. The Gross National Product (GNP). This number represents the total financial position of an entire country. This is probably the most referred to economic indicator ( although by itself it does not provide enough info to make decisions).
2. The Gross Domestic Product (GDP). Basically this is the GNP for the United States. This measure is still referenced , but is almost completely phased out of use. The term GNP has been used to represent GDP as well.
3. Consumer Price Index (CPI). Measures retail prices in a country.
4. Producer Price Index (PPI). Similar to the CPI, but for wholesale prices.
5. GNP & GDP Deflator. Readjusts the GNP & GDP for inflation.
6. Industrial Production (does not have an acronym).
7. Capcity Utilization
8. Unemployment rates also have an impact on foreign currency exchange rates.
9. Personal Income has an impact on foreign currency exchange rates.
10. Consumer Spending Indicators also influence Forex prices.

These are just a handful of economic indicators used in fundamental analysis.

If you do not like the concept of fundamental analysis, you can certainly skip it altogether. There are plenty of purely technical systems out there for you to trade with. A key concept to technical analysis is that all of the fundamental data is ultimately revealed in the price anyway. And if you have a system that must be triggered when the price goes up or down, then you have a great tool.

There are two main types of analyzing the Forex market. The first type is technical analysis. Technical analysis is a way of using historical price data in different ways to predict the future price of a currency pair. Technical analysis relies on price charts and various technical indicators to make predictions. The main assumption of Technical Analysis is that the historical price data reveals patterns that repeat themselves over time.

Fundamental analysis is also a popular way of analyzing the Forex market. Fundamental analysis examines different facts about the economy to predict price movements.

I am explaining technical analysis first because it is the easiest and most precise way of trading the forex market. “The numbers don’t lie” is a phrase that applies more to technical analysis than to the fundamental approach. Technical analysis can be learned much faster than fundmental analysis and requires less expertise.

I mentioned above that technical analysis is based on technical indicators. These indicators make different mathematical calculations and display the results on a price chart. The skilled Forex tr4ader interprets these indicators and makes trading decisions. So how do you become a skilled Forex trader?

The most basic technical indicator is one that you can draw with your own hand. I will simply explain this indicator, but you will not use it. This basic indicator was used early in the stock market, and is still used today. This indicator is known as a “trend line”. To draw a “trend line” you simply do the followings.

1. Print out an historical price chart for a given time interval of a currency pair.
2. Draw a line connecting two or more parts of a graph that have higher lows, or lower highs.

Now you have a trend line. This trend line represents the basic price direction of the currency pair. When the price of the currency pair breaks through the trend line in the direction opposite of the trend, you would expect a reversal.
By reversal I mean these…
1. If the prior trend was upward and the price broke through the trend line moving down, this would indicated a new downward trend using the trend line method.
2. If the pror trend was downward and the price broke through the trend line moving up, this would indicate a new upward trend using the trend line method.
Trend lines can act as either floors or ceilings for the pr4ice data. When these lines are penetrated, the price usually moves completely to the other side of the trend line.

Suppose you are monitoring the EUR/USD (the very popular currency pair). You draw a trend line connecting 3 points where higher lows are reached than previously on the chart. After you draw the line, you notice that all of the price data on the chart so far falls below the trend line you have drawn. The trend line is acting like a floor. The fllor appears to be a boundary that the price will not cross. So now you wait until the price crosses the bondary. A few periods later you notice that the trend line has been broden when the EUR/USD fell below it. So now yo would expect the price to go even lower because the “trend line” method suggest that an old floor will act as a new ceiling. So now you can expect all of the prices to be below the trend line once it has been broken.

Once the trend line is broken, the price should stay below the trend line. This method is not very scientific. A lot of the method depends on how you draw your trend line. I have also given you a simplistic version of the trend line method. There is a little more to it.

Because the trend line method is not very scientific (or accurate) better methods have been developed. Some changes were made to the trend line philosophy and many people called for a more precise method. There are actually many more precise methods available today. The next method was not a practical candidate to replace trend lines until the computers reached the sophistication of the mid 1990’s.

The Simple Moving Average (SMA) is a theoretical extension of the trend line concept. The Simple Moving Average is plotted on a graph by the charting program for the Forex market data. The SMA takes the average of the close price of a given number of the last few periods. Any nuber of the periods can be selected. You can have an SMA5 or an SMA20. An SMA5 will take an average of the previous 5 close prices on the chart and will plot it on the chart alongside the other price data. Each bar will use the previous 5 bars worth of data to calculate a point and plot it on the graph.

If the SMA is generated using a large number of periods (like an SMA50 or SMA75), you could interpret it similarly to the trend line. But if you select “faster” SMA’s (like an SMA5 or SMA20), you need to use a different strategy.

I am about to give you a strategy using the SMA. I will tell you how to set up a free demo account and begin using this strategy for practice trades. This strategy is a very basic one. It does not have a high degree of accuracy, but it is very easy to do and it is fun. It is a good technique to begin trading with. I want you to keep in mind that there are better strategies out there.

The SMA crossover method. After you have set up your free demo account (see : Online Forex Trading Demo Account Setup), you need to open the charting software. The SMA is one of the most commonly used indicators and can be found in almost every charting package out there. When you plot the SMA, you will be able to selelct a line color to plot it. Make sure to use a different color than the actual prices on the chart.

Step 1: Plot an EMA5 using blue (or any color you like)
Step 2: Plot an EMA20 using red (or any color that is different than step 1’s color)

You now have 2 SMA’s plotted on the chart. You also have two signals.

By signal : When the SMA5 crosses the SMA20 moving up ward.
By signal : When the SMA5 crosses the SMA20 moving down ward.

The beauty of this method is that the price of the currency pari can not go up significantly without triggering the buy signal. In other words – if the currency pair begins to trend up, then the buy signal must be triggered. The opposite is also true – if the currency pair begins to trend down, then the sell signal must be triggered. The only time where this system fails is when there are false alarms. Sonmetimes the currency will act like it is going to trend up and then it will trend back down.

Here is a way to see how the SMA’s predict price movements. You should open up some charts and put on the SMA5 and SMA20 overlays. You can then look at the times where the price fell or rose significantly. What did the SMA look like near the beginning of the price movement? What did it look like after? By viewing how the SMA reacted in the past you will get an intuitive feeling for how it will act in the future after an SMA crossover.

The SMA crossover method will work best in longer time frames. If you attemt to use it for tick-by-tick day trading, it will nprobably only producce losses. This method works better for trades that last weeks, or months. I have only shown you this method so you can trade it for fun. I strictly want to caution you not to trade any real money using this system ever, unless you add tips from other sources to it an perfect it for yourself.

While “Chapter 13” is not an appropriate way to end a financial endeavor, it is, in this case, one of the most important conclusions to an incredibly helpful tool full of investment advice, especially when it is placed at the end of a book to offer assistance to those threatened with bankruptcy due to bad investment decisions. There are always ways to turn around when you have begun to walk down the wrong path. Much like moving on to a new car after purchasing a lemon that has been nothing but a nightmare, you can reverse your direction.

Some people can spend days, months, and even years trying to conquer the stock market and still fail. In some cases, it is virtually impossible for an individual to ever get the hang of the functionality of the market. If you cannot follow market trends, then it is best that you do not make any investment decisions.

It is okay not to fit into the market. At the same time, you can still make money with investments. One final option you have is to create a discretionary account. This means that you sign a contract with your stockbroker and turn over a sum of money to the agent for investment, leaving the determination of placement of that investment in the hands of your agent. You never again have to worry that you have made a bad investment. In fact, in this scenario, you do not even have to follow any market trends or other information that has anything to do with financial investment. Your broker will simply let you know when you have increased your net worth or if your assets have taken a dive.

Whatever choices you make in regards to moving in on the stock market, you need not worry about not having the essential information to help you get through your first few trading experiences. Now, you have the basic knowledge and the essential reference guide to get you started on the path to success and wealth that you can access at any given time.

If you have even a passing interest in the topic of FOREX curreny trading, then you should take a look at the following information. This enlightening article presents some of the latest news on the subject of FOREX curreny trading.

If you are actively trading in the New York Stock Exchange, one of the most active exchanges in the world, you should be very thankful. Its total daily transactions are averaging approximately at U.S. $50 billion, making it the largest stock exchange in the United States in terms of dollar volume. There are many individuals who want to get their feet wet on the ground of this New York City-based stock exchange.

Yet, you are luckier if you are actively involved in trading foreign currencies, or commonly known as Forex trading, which is considered to be the largest market on the world. Its average daily trading turnover is approximately U.S. $2 trillion, exceeding the combined magnitude of all other equity markets, including the New York Stock Exchange. Thus, you are luckier since you have the opportunity of getting more profits out of that $2 trillion traded everyday.

If you are not yet involved in Forex trading, then you are currently missing the benefits of trading foreign currencies—24 hour trading time, transactions conducted in real time, extreme liquidity, and others. Thus, you should decide to get a Forex trading account and start trading right away.

However, just like other types of investment, you must be aware of what kind of ground you are stepping into. In other words, before getting a live Forex trading account, you must be properly educated first about the background of Forex trading. You must learn how you will maximize your earning potentials as well as decrease the risk that you are into through practicing with free demo accounts. Moreover, you must have a trading system to follow and the necessary tools that will help you analyze varying conditions of the Forex market to position yourself on the profiting aspect of a certain trade.

It’s really a good idea to probe a little deeper into the subject of FOREX curreny trading. What you learn may give you the confidence you need to venture into new areas.

Once you know what you are getting into, you are now ready to get your live Forex trading account, web-based trading system and platform, and other tools that you will need in your Forex trading career. Most neophyte Forex traders obtain their trading accounts and platforms through a Forex brokerage company or agents. There are many brokerage firms out there and you need to be selective, or else you will suffer the adverse consequences.

If you are still uncertain which Forex trading company you will trust in the early start of your Forex trading career, why don’t you try ACM Forex? They probably got what you need and at the same time the key towards the success of your Forex trading career.

ACM Forex stands for Advanced Currency Markets Forex, a Swiss-based online Forex trading company that is founded in the city of Geneva, Switzerland in 2002. Since it was founded on that year, ACM is now one of the major Forex institutions, particularly in online day trading, with an average monthly trade volume of U.S. $70 billion. They offer their clients quick access to the speculative Forex market through online dealing platforms that allows forward and stop trading of 27 pairs of foreign currencies as well as of several precious metals.

If you will open a live Forex trading account with ACM Forex, you will receive several benefits such as the following:

• WYCIWYG or “what you click is what you get” advantage. It means that the price you clicked on at the start of the deal will be the price you are executed at, thus no single movement on the foreign currency price.
• NRFQ or “no request for quote”. You can click on any live streaming price list and there are no requisites even on fast markets. Expect that there will be no dealer intervention and timers.
• There will be no commission collected for every transaction that will be completed using the ACM Forex trading platform. All profits will go to your pockets and not to somebody else.
• You are allowed to have multiple online trading platforms for maximized trading flexibility.
• With ACM Forex, your risk is only limited to deposits or funds. Thus, you will never owe more than what you have invested in your Forex trading account. This means that there are no negative balances, whatsoever.
• You can open a live Forex trading account for as low as U.S. $5,000.
• There are 27 pairs of foreign currencies that you can trade within several clicks.
• You have access to 24-hour foreign currency trading and technical support services even on weekends.
• There are no confirmation delays—only instant and real time trade executions.
• Secured online trading platform.
• Technical analysis and real time charting tools for your market evaluation tasks.

With ACM Forex, the start of your Forex trading career is as good as a veteran trader. A good jump start and continuous success awaits you in ACM Forex.

Is there really any information about FOREX curreny trading that is nonessential? We all see things from different angles, so something relatively insignificant to one may be crucial to another.

Good Luck!

Sitthipong Suaylertsin

Nattapong Chaiwongteerachote

After shoveling through piles of information and taking in so much knowledge, you probably feel like you are swimming in terminology and cannot remember just where to begin. The best way to retain knowledge is through repetition, and having a quick reference guide is never a bad idea, either. The following pages are a brief overview of the in depth discussions in this book, allowing you to quickly reference a topic in a bind.

The Forex Basic Trade

A share is a holding of a company that varies in value based on the desire or need for that particular company’s goods or services. As a shareholder, your net worth increases and decreases based on taking a short position (selling) when values are high and a long position (buying) when prices are low. As long as the stock or security is in your possession, the change in value is considered unrealized gain or loss because you cannot measure it in liquid assets (cash).

When most commodities traded on the market are on a strong upward trend for a period of time, this is referred to as a bull market. Should value take a sharp downward swing and continue on that path, it is called a bear market. If no such trend is recognized, and the value of stocks and securities is fairly even, this is referred to as flat.

The Foreign Exchange Market

The Foreign Exchange Market is the stock exchange on which several different countries across several different time zones trade their domestic and international commodities in various currencies. Currency is the denomination or monetary division used in a particular land (such as the U.S. dollar or the Euro). When multiple currencies are in use, they are typically expressed as a ratio called a cross-rate that shows the amount of a second currency that is equivalent to the first listed. Determining what the equivalent is would be referred to as currency conversion.

Several countries in Europe, which have now consolidated their currencies to agree on the Euro (since 1999) trade on Forex, as it is called for short. Britain, which to this point has opted to continue using the pound sterling, also takes part in international trade, as well as the United States, Japan, and Australia. Each of these countries utilizes its own currency for standard trading purposes, with options for investment in foreign currencies. Determining whether or not this is worthwhile depends on the currency conversion rate.

The value of a nation’s currency is determined by its government and federal bank (the Federal Reserve, better known as the FED, is the federal bank of the United States). Purposeful change in the rate of conversion by a government is referred to as valuation – devaluation is taking value and strength from the currency, and revaluation adds strength and purchase power to the currency. If the same change to the rate of conversion occurs naturally through events and the volatility of the market, it is then called appreciation and depreciation.

Forex : Careers In The Market

Without the assistance of professionals, it is nearly impossible to trade on the open market. Market analysts track trends in the stock market that affect the value of share holdings. They use such information and basic history to help predict the outcome of different aspects of the market in the future.

Other individuals, referred to as chartists, create charts and graphs that interpret all the data – various numbers, statistics, percentages, etc – into an easy to read candlestick chart that tracks the trends of specific commodities on the market.

A stockbroker is an individual or a company that assists you in making your investments. A broker can aid you in making smart financial decisions, helping you track your and place your orders, and following trends in the market.

A market-maker does the same job as a stockbroker, with the exception that this individual or company retains an investment in a particular variety of securities and bonds that can be sold in short order to a client for a lower price so that the client can make money by immediately selling the same shares at the higher market price.

Other individuals can assist with loans, allowing you to buy on margin. This involves the opposite approach – borrowing money to purchase a stock or security that is at a low market value so that the client can later resell the commodity at a higher price.

Protecting Your Investments

There are several ways to protect your investments. By placing limit orders, you guarantee to the best of your ability that you will not lose money on the market and virtually guarantee at least a minimal profit. However, if you change your mind about those limits, you can always place a stop order. If you leave standing instructions with your stockbroker, these are referred to as open orders that remain such until the transaction is executed and the order filled.

Try to set your limit orders just above the support levels (the lowest levels of value to which a stock can drop) and just below the level of resistance (the upper level above which it is difficult for the value of a stock to rise).

Also, set a value date – a date at which time you can take an average of the value of a particular commodity and review your options. This should be reviewed at least every six months, if you plan to retain any holdings of a particular security.

Besides the expert options described above, there are other nontraditional ways to make money on the stock market. In considering these options, however, you should consider making a career of trading stocks and securities. Some types of trading are simply not for the faint of heart, and that means you must have complete motivation and an adventurous spirit to take part in these areas of the market. The chances of taking a giant hit and experiencing a great loss are multiplied.

Day Trading

Day traders take on some of the greatest market risk of all. Because day traders work with investments that change drastically within hours, they are by nature playing in the lion’s den. These stocks are extremely volatile, and for most, day trading is a quick way to lose a great deal of money. It is difficult to make a great deal of cash in this manner, and it is even more difficult to forecast the outcome of these day trade stock options. You cannot be certain of the overnight position (the net value at which a stockbroker or day trader will open the following morning).

And in Forex, there is little room for day trading, as the market never shuts down during the workweek. In these cases, the day trader has to set a time limit for him- or herself to get out, selling all shares, so that he or she can sleep soundly while the world spins round and start the next day fresh.

Day trading is very dangerous and is not recommended to newcomers. In fact, it is not really recommended at all, and most people who partake of this volatile part of the industry are extremely seasoned in trading on the open market, do not consider the risk factors carefully enough prior to entering this branch of the market, or have enough money that they simply wish to try this form of investment and do not care if they lose a goodly sum.

Secondary Markets

Secondary markets are interesting in that they are created by the government to help redistribute money that is used for loans. Fannie Mae and Freddie Mac are two of the major corporations from which stocks are purchased on a secondary market.

Here is how it works. When a person purchases a home, he or she requests a loan from the bank, usually for about eighty percent of the cost of the house. This is granted, and the house is purchased by the bank for the individual or family, who begins to pay off the loan to the bank.

Meanwhile, to assure that money is available at that bank for the next person who needs a mortgage loan, Fannie Mae or Freddie Mac, two entities originally established by the United States government, will purchase the loan from the bank. Therefore, the money is returned to the bank for use in the future.

What do these agencies then do with the deficit they have acquired? They sell it. On the secondary market, they break up the loan into shares that are backed by the mortgage itself and sell those shares, recovering the money from investors. Eventually, those securities mature, probably about the same time that the original loan is paid off to the bank, and the investors reap the benefits of their investment with the interest earned.

Another way to take advantage of a volatile international stock market is to make a swap. This is the exchange of securities or bonds in order to take advantage of lower interest rates. For example, if a business entity in Britain is in possession of one security, and another in Japan is in possession of a different security, the two commodities may be beneficially traded or sold to each other in order to save on the interest rates, if the currently held bond or security is kept at a lower interest rate in the opposing market.

For example, let’s say one business is in possession of a bond “A” that is paying out only two percent interest in its current market, and another is holding bonds “B” in its market at three percent interest. If bond A is actually paying out three percent on the foreign market, and bond B can be cashed in for four percent on the first market, both parties can make more money on a trade of bonds. They can mutually benefit from a sale of the securities to each other due to a gain of more interest.

If that seems confusing, then perhaps a swap is not in your near future. This is more often processed between businesses on the foreign market rather than individual parties, though with the correct broker, it could be accomplished. However, should you work the deal, you need know little except that you are looking at a higher profit margin than previously, and your broker will take care of the rest.

If you determine that you should have stock options as a business, you will probably decide to hire a fulltime consultant for all your financial needs, including the handling of your share holdings. In fact, when businesses are large enough and present a strong enough trading presence within the market, especially on Forex, you will find that there are entire departments dedicated to maintenance on the stock options.

After spending a lot of time buying and trading on both domestic and foreign markets, you will find that the process becomes easier and almost intuitive. You no longer have to work so hard to determine currency conversion or find the next big explosive commodity. It will be like second nature for you.

What, then, becomes the next big challenge for someone trading on the open market? What keeps things from becoming monotonous and boring? First of all, there is always something new and different happening on the Foreign Exchange Market. Remember, it operates 24 hours a day, and you never know what you will find when you wake up in the morning. However, there are various ways that you can take advantage of the variance in currency conversion and a lag in time between markets that can affect trading values.

Arbitrage

There are some commodities that are traded in multiple currencies on multiple markets on Forex. Although computers have made worldwide communication almost lightning fast these days, all of these markets can trade together with fairly equivalent values for the securities shared across currencies.

However, the system is not perfect, and the value may rise or fall in one country and currency prior to the same change in value reaching across another border. Seasoned traders have learned to take advantage of this lag in the market trending by using a process called arbitrage. In this transaction, you purchase the particular stock or security on the market with the lower price while simultaneously selling the same in a market where the value is higher. The process is a bit complex, so we will use an example. Let’s say that one U.S. dollar is equivalent to .5 British pounds, meaning that everything is going to be twice as expensive in British pounds.

Now, let’s take a look at the price of a stock that is traded on both markets. If they were equivalent, then the stock would trade for two dollars in the United States and one pound in Britain. However, if something happens and the stock value drops in Britain, it is six hours ahead of the United States, and this drop may not hit the American market immediately.

If the value of the stock drops in Britain to .8 pounds, the purchase price is now below that of the price in dollars due to the currency conversion. In this case, arbitrage would take place when you bought shares of the stock in on the British market in pounds and sold it on the U.S. market in dollars, benefiting by the slow communication of the fall in value of the stock. In effect, you will make $.40 per stock.

Volatility of Currency Conversion

Another way to take advantage of the ever-shifting value of each individual currency is to trade based on the changing rates. What exactly does this involve? You must closely watch the changing conversion rates. When a currency conversion rate changes drastically, it is time to make a move. This is very similar to arbitrage, but the area is much riskier due to high volatility. For instance, if you have purchased a stock in the scenario above on the U.S. market for two dollars a share, and suddenly the British pound gains value, dropping to a conversion of only half a pound for every two dollars, you would want to sell your shares on the British market because the value of a pound is higher and now has greater purchasing power.

One piece of advice to keep in mind, though, is that it is best to immediately dispose of all liquid assets in foreign currency, usually in the same day. This is referred to as tomorrow next because it takes two to three business days for foreign currency to be delivered, and by exchanging the currency for value in stocks on the same business day, you avoid having to take delivery of the currency altogether.

Now that you know a little more about the stock market, and you have decided to try your hand at investment, you should be more concerned with understanding the jargon you will hear on the trading room floor. Although you probably will not find yourself amid a group of screaming stockbrokers on Wall Street (and these days, most of the trading is done by computer anyway), knowing that learning to talk the talk is part of walking the walk.

Margins, Spreads, And Other Condiments

Okay, so it is margins, not margarines, but it sounds very similar. In order to understand the stock market, especially on Forex, you need to speak not a language meant for common communication, but the language of trade. For instance, when you think of a margin, for many this means a variable – like the “margin of error” in a statistic.

However, in trade, it refers to the sum of money borrowed from a broker in order to purchase stocks when the market is on a downtrend. Then, when the value begins its next upswing, you sell the stock at the higher price, pay back the margin (along with the premium accrued), and retain the profit.

When you buy on margin, the money lent by the stockbroker is referred to as a margin account. The margin account is provisional based on the value of the stock. Occasionally, if the value of the stocks purchased should drop too low for the safety margin set forth by the broker, the agent will request that more money be deposited into the margin account to make up for loss. This is referred to as a margin call.

In some trades, the market value does not come into play. For instance, a forward trade is set up between two individuals or two companies outside the open market. It involves a process of negotiation and an eventual compromise in price. There is usually a bid made – the offer to buy a commodity at a certain price – and an asking price or offer – the price for which the other business entity is willing to sell the securities or other holdings. The difference between these two purchase numbers is referred to as the spread.

If the spread cannot be narrowed and eventually closed, no deal can be made. This agreed-upon price is called the forward price, and all details involved in the trade process when this type of transaction takes place are detailed in a contract and referred to as forward points. Usually, the forward price is outlined as available for a particular date, and should the transaction not be completed on this date (referred to as the transaction date), then the trade must be renegotiated.

Jobbers, Yards, And Other “Brit” Terms

One of the major foreign markets that Americans trading on Forex will encounter is that of the British. While several other terms relating to the stock market will be similar because of the common language, there are some specific terms that are very different in the British trading vocabulary.

For example, in the United States, stockbrokers who hold onto securities purchased at low prices for the purpose of selling them to clients in a higher priced market (so that the client can turn around and resell them for the profit on the open market) are called market-makers. However, in Britain, this type of investor is simply referred to as a “jobber”.

Another term you will want to be familiar with is “yard”. This does not refer to a green patch of land, a measurement in inches, or even 36 of something. The term is used in reference to quantity of currency rather than value and is equivalent to one million units of the currency in question. In other words, you can have a yard of dollars or a yard of yen, and though it is the same quantity of bills, coins, or whatever physical currency is used, it is not necessarily equivalent in value.

In Britain, they do not use the Euro, and they do not use the U.S. dollar. They have chosen to still use the pound sterling, a currency that has been used in the country for hundreds of years. However, Britain is currently on a path to make the conversion to the Euro within the next five years.

Open And Shut

In the stock market, there are various types of orders that can be placed to help protect you from making a bad investment or to limit the amount you pay for a certain security or other commodity. For instance, if you have made a bad investment and do not want to reinvest in a particular security, you should sell all shares of that stock, regardless of taking on a small loss. This action is referred to as closing a position. On the contrary, if you are doing well with your investment, you might participate in a rollover, simply reinvesting any earnings in additional shares of the stock or security.

An open order is exactly what it sounds like, meaning that the order remains pending until it is either executed by your stockbroker or canceled by you as the client. A stop order would cancel any pending orders you have placed with your stockbroker. You also have options like One Cancels the Other Orders. These allow you to have interest in several commodities, leaving orders with your stockbroker to buy all of them, should they drop to a certain price. Then, should one of those reach this preset low price, your stockbroker will follow your direction and invest your money in that particular security, followed by a cancellation of all additional orders.

When a broker gives you an estimate on the price for a particular stock or commodity, it is considered a quote. A quote is never completely accurate and is usually referred to as a spot price, as the value of a security can change within a few seconds. However, it is as close to accurate as can be expected. When you put in an order, the broker then processes the fill, or completion, of that order. The actual value at which the trade is completed is called the fill price. The completion of a trade or purchase, referred to as a settlement, can also be called the execution of a transaction or realization of an order. As you see, there are a lot of terms to take into consideration, and we have not even begun to consider terms used in some of the tougher areas of the market.

Next, we will consider some specialized, more complex trading options that you can use on Forex to take advantage of the volatility of the market and the constantly varying exchange rates.

One of the most important aspects of protecting your investments is balancing your risks with reassurances. There are several ways to do this, and we will discuss those in this chapter.

Limit Orders And Balancing Risks

A limit order is a standing amount at which you have agreed to buy or sell a particular security or other commodity. For instance, you have designated to your stockbroker that you will not sell X Security until its value reaches a minimum value of Y dollars. At the same time, you will not purchase the same X Security if it exceeds a value of Z. Setting limits for the price you pay for a particular security, as well as the price you will accept to sell it, protects you and your investment in several ways.

First of all, you are maximizing your gains, but mostly, you are avoiding loss. Any loss that occurs with limit orders will always be unrealized loss, or a loss that is not measurable in liquid assets or cash. In other words, until you sell the stock and reap the net loss, it will not affect your net worth. Since you have set a limit that does not allow your commodities to be sold for less than the original cost, you cannot possibly have a loss in your net worth. At the same time, you are also assuring at least a certain amount of profit by setting your sell point high enough to reap that particular profit.

Another way to protect your assets is to hedge. This means that you create and sell a futures contract stating that, when your shares reach a certain value in the future, you will sell your holdings at this predetermined price. When that price is reached, the order will be processed and the transaction completed. Of course, if you ever change your mind about a limit that you have set, you can place a stop order with your broker, which designates that you no longer wish to trade at the specified dollar amount.

You can also buy on margin. This is very similar to short selling, but instead of borrowing stocks to sell, you are essentially borrowing money to purchase stocks on your own when the market value is down. Then, when the value of the securities you have purchased rises and you are able to sell for a profit, you repay the loan and keep the excess from the sell, minus the broker fees. Of course, all dealings with a stockbroker incur a premium, or fee for services rendered, and it is nearly impossible to trade without a broker or broker service. However, online services are often less expensive than live agents, but you can research to determine what your best option is.

How Do I Handle a Whipsaw?

No, we are not referring to anything in the garage, the bedroom, or a country band. A whipsaw is market trend that defies the odds. It can be thought of as the “fender bender”. Despite how careful you are as you learn to drive a car and become coordinated, sometimes you cannot do anything to avoid being rear-ended.

Whipsaw is a term for what happens when everything points toward a specific direction in market trend, causing you to buy (if it looks as though prices are going to rise) or sell (if it seems they are about to fall), then the opposite effect occurs.

For example, if you purchase a security at five dollars per share because the stock seems to have fallen as far as it can go and appears to be starting an upward trend, then unexpectedly, the stock plummets to one dollar per share, this is considered a whipsaw effect. If this happens to you, as it surely will if you play the market long enough, the best thing to do is wait it out. The stock will do one of two things – it will either dissolve entirely, and the company will go bankrupt (this is what you do not want to happen), or it will rebound, and you can opt to wait for a chance to turn a profit or you can get out as soon as the purchase rate is reached.

Whipsaws are not the end of the world, and no one can expect to gain with every stock market purchase. However, if you find that you are involved in several of these instances, you should seriously reconsider your investment options. You may be reading the signs incorrectly, or you could be picking bad stocks. You should seek advice for any future investments you expect to make prior to purchasing any further stocks or securities.

Another way to overturn a bad investment like this is to proceed with an offset transaction – a purchase or sell that offsets the loss of a previous transaction. You could either purchase additional stock in the same company at the lower price if you expect it to recover, or you can opt for another hot commodity that is about to explode in price, either of which will help you offset your loss. You could also sell shares of a security in which you have a large amount of unrealized gain – gain that cannot be measured in liquid assets or cash due to increase in value of stock and security holdings – in order to replace the lost cash value.

All of these are viable options to recover a loss, but waiting for the share value to rebound is always the first choice. It avoids the loss of funds already invested, retains the option to pursue profit, and reduces the risk of further investment into the market.

As you grow and learn about these various options, you will need to feel more comfortable when surrounded by financial gurus and geeks who speak what sounds like gibberish, muttering words you have never heard left and right. The following chapter will take you through some of the meanings of the major “buzz” words used in the stock market and the international financial district.