FOREX : What Is It And How Does It Work?

#21
Namaskar TATraderji,

your article is good and given fine outline of the Forex and some rudements to catch-up. It would be more interesting if you would have suggested the platforms to trade the Forex., is it possible in India.

staco
 
#22
Namaskar TATraderji,

your article is good and given fine outline of the Forex and some rudements to catch-up. It would be more interesting if you would have suggested the platforms to trade the Forex., is it possible in India.

staco
 
#26
Re: Trade Forex and make money

Hi TATrader,

I have started to look into FOREX and have opened a demo account to trade on. Do you have any trading systems developed and what indicators do you use?

Prashanth

TATrader said:
Trade Forex and make money

For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.

FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.

How FOREX Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Investment Strategies: Technical Analysis and Fundamental Analysis

The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.

A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.

Trade Forex and make money

FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.
 
#27
Re: Trade Forex and make money

TATrader said:
I understand that refco sify offers this service.
Hi,

Yes Refco Sify does offer this service.But I believe that Forex trading is not actually allowed by the RBI to resident Indians. Hence when filling up the declaration form (form A2) for transferring the funds from your bank to the broker......mention the transaction as investment in shares.
Happy trading.

CrossCurrency Trader.
 
Last edited:

Sai

New Member
#28
Re: Trade Forex and make money

crosscurrency said:
Hi,

Yes Refco Sify does offer this service.But I believe that Forex trading is not actually allowed by the RBI to resident Indians. Hence when filling up the declaration form (form A1) for transferring the funds from your bank to the broker......mention the transaction as investment in shares.
Happy trading.

CrossCurrency Trader.
Seniors,

This does not sound good. Is this correct, can somebody clarify about the correct status of FOREX trading in India? Id this is not "actually allowed" can we legally have a web site from SIFY offering this service :confused: ? Pls comment.
 
#29
Re: Trade Forex and make money

Sai said:
Seniors,

This does not sound good. Is this correct, can somebody clarify about the correct status of FOREX trading in India? Id this is not "actually allowed" can we legally have a web site from SIFY offering this service :confused: ? Pls comment.
Sir,

I spoke to Refco in Bangalore regarding this issue, they have not confirmed the legal status of forex trading for Reasident Indians. But there are lots of people who do trade currencies and most of them agree its illegal in India.Also the banks dont let you transfer the funds to your broker if you mention it as investment in forex! This has been my experience with the banks (4 different banks).Hence I now tell the bankers that it is investment in shares, for which they oblige. However, I strongly feel after a lot of research that forex trading is not permitted to resident Indians and none of the so called Introducing Brokers of different brokerage houses say its legal!!!

Also, please note that forex trading is extremely risky and i have lost thousands of dollars initially.....and some of my friends have lost tens of thousands in forex.Please trade a demo initially and only invest if you feel you confident enough to trade.Unfortunately I had to learn the hard way!But yes it can be very profitable too.......always have an effective risk management system and never forget to place your stop loss order!! I also feel that the main reason traders lose money in forex is because of over exposing their account.And finally dont blindly follow others trading strategies since we all have different financial capabilities and goals.

Happy trading.

CrossCurrency Trader.
 
#30
Re: Currency Trading

Broker comparison link:

1) www.proedgefx.com/autoemailsNew/brokercomparison.htm

2) Are they registered with the NFA and CFTC?

3) Are all monies pooled together? (Hopefully Not!)

4) Forex Trading hours? (trading hours will vary from firm to firm)

5) How long will it take them to wire your funds when you want them?

6) Will Bid/Ask spreads deviate from their Interbank feed to prematurely trigger stops? And if not may I have your assurance in writing?

7) Will I have an appointed representative/contact for my needs? (trading help, system education, general inquires)

8) Any incentives to open? (Referral bonus, cash back etc…)

9) Complimentary services?

10) Fees for Market news, withdrawals, technical support, minimum balance, etc…

http://www.proedgefx.com/gp_demoreg.aspx?ref=JBAR
 

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