Analysis of Foreign Exchange Markets

Foreign exchange traders generally fall into two groups and base their decisions on either technical analysis and fundamental analysis. Technical traders use charts, trend lines, support and resistance levels, mathematical models and other means to identify opportunities and drive trading decisions. Fundamental traders identify trading opportunities by analyzing economic information, such as interest rates, money supply and political/economical macroeconomic factors. Additionally, some traders take short-term positions and trade frequently while others are long-term, buy and hold traders.

Forex Futures Calendar

A good futures calendar is vital to any trader. Preferably having a physical one in hand is nice, but online is better than nothing.

Many new (and current!) traders are terrified at the idea of taking physical delivery of an underlying commodity. The nightmare of waking up one morning and forgetting to close out your position wheat only to opend the door and find a truck unloading bushels of it onto your front lawn have haunted many of us.

Please take a look at a futures calendar for a complete list of all important trading dates. This way you will always leave enough time to rollover your position to the next month, thus never taking physical delivery.

On a related note, I used to use Interactive Brokers for my trading. The nice thing about using their platform is they would automatically exit your position so that taking delivery is physically impossible. The downside is that some exchanges aren't compatible with this technology so that makes it impossible to trade them, like the London Metals Exchange (LME).

Calendar for Trade : www.forexfactory.com/calendar.php, dailyfx.com/calendar, www.realtimeforex.com/forex-calendar.htm, www.babypips.com/tools, www.forexeconomiccalendar.com, www.ac-markets.com/forex-news/economic-calendar.aspx, www.forexyard.com/en/calendar.

Forex Intro

Forex (Foreign Exchange) is the name given to the "direct access" trading of foreign currencies. With an average daily volume of $1.4 trillion, forex is 46 times larger than all the futures markets combined and, for that reason, is the world's most liquid market. In the past, forex trading was limited largely to enormous money center banks and other institutional traders. But in just the past few years, technological innovations and the development of online trading platforms allow small traders to take advantage of the significant benefits of trading foreign currencies with forex.
In contrast to the world's stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world.
Currency pairs is a combination of two currencies by means of which display a rate of one of currencies in relation to another. The currency, costing the first in a combination, refers to the basic. The currency, costing in a combination, it is accepted the second names quoted. The exchange rate speaks about that, how many the quoted currency give for the basic currency.

Thus, rate EUR/USD 1.2879 means, that for 1 euro (EUR) give 1.2879 US dollars (USD). Rate USD/JPY means, that for 1 US dollar (USD) give 104.96 Japanese yens (JPY). By the way, quotations in international currency market FOREX are usually expressed by five--place number. Examples of currency pairs: * EUR/USD - euro / the American dollar;
* USD/JPY - the American dollar / the Japanese yen;
* GBP/USD - the British pound / the American dollar;
* USD/CHF - the American dollar / the Swiss franc;
* USD/CAD - the American dollar / canadian dollar;
* AUD/USD - the Australian dollar / the American dollar.The information on columns: * Currency - the name of currency pair
* Last - the size of last quotation
* Bid - the quotation on sale
* Offer - the quotation on purchase
* Change - a deviation of the quotation from daily average
* High - the maximal quotation for day
* Low - the minimal quotation for day
* Time - time of last change of quotation
* Open - the quotation at opening period
* Close - the quotation at closing the periodThe difference of quotations is usually measured in items - 1 item corresponds to unit of the younger category of number of the quotation.Having cluck on number in column Bid you can place an order on sale, and in column Offer on purchase of corresponding currency. The difference between quotations in these columns makes commission Marketiva (spread). That is for example, having bought and at once having sold (not waiting changes of the quotation), you will lose currency from 3 up to 5 items at work with primary currency pairs (that is, that are correlated with US dollar - USD). For secondary currency pairs this difference can make up to 12 (and can and more) items.Having cluck on button Subscriptions you can choose (to add, remove) those currency pairs, which quotations you wish to receive. Button Columns allows to choose columns which you wish to see in this window.Except for that in this window there is bookmark Latest News having cluck on which you can see the latest news and as to subscribe (unsubscribe) on (from) corresponding groups of news, which can as-or to affect a condition of the currency market so to help you with the analysis of tendencies of its change.

The first field I think clearly without comments. Buy/Sell - a choice of type of operation, you wish to buy quoted currency (euro) or to sell. Now very essential fields Price and Price Type. You have an opportunity to choose one of three types of the price:
Market (it is chosen by default - thus change of a field of the price is not accessible), will make operation at the price of which it is known at the moment of receipt of the application, operation is carried out immediately after receipt.
Limit (operation with restriction) - allows to choose a ceiling price on which you are ready to make purchase or minimal on which are ready to make sale. Operation is carried out after crossing border current by set you.
Stop (the stop of movement) - allows to wait changes of a direction of movement of the price. For example you wish to buy as it is possible more cheaply when the price will start to grow, but do not know where movement of the price will go. You can expose stop-warrant on purchase above the current price (if it was the Limit-warrant purchase would occur immediately). Now you wait where movement of the price and if the price continues to fall will go, correct the warrant on lower threshold, well and if the price will start to grow there will be a purchase. I.e. you have waited changes of a direction of movement of the price.Duration - validity of the application.Duration Type - a way of cancellation of the application (by default Good till cancelled - while you do not cancel the application). Good Till Date - remains it is valid before the date chosen by you. Immediate or cancel - the warrant will be immediately executed (if satisfies to other conditions) or is excellent.Quantity - quantity of currency. It is underlined in cents.Quantity Type - type of quantity, only completely (Full) or it is possible partially (Partial). Actually there is no difference what type of the sum you expose opening the warrant: Full or Partial. This option is given for other kind of actives and is not used at trade in the market Forex. It is possible to ignore it at trade.Exit Stop-Loss - the price at which you wish to close a position after performance of the warrant if the direction of movement of the price mismatches your forecast, i.e. with negative result of commercial transaction.Exit Target - the target price of end of the transaction. The price on which you plan to receive profit and automatically to close the transaction.Desk - you can choose Live Trading - real or Virtual Trading - the virtual account (for trainings).Text - simply comment for itself.

Forex Education

The Forex market is the largest market in the world and is worth one and a half trillion dollars. At first site this may seem daunting, but it is exactly the sheer size of the immense Forex market that makes it the ideal market for small and large traders a like. When you invest in the Forex market, you know that you are in for the ride of a lifetime. In addition, there are so many advantages to the Forex over other markets, that there is simply no comparing them. There are truly more options in the Forex than in any other market.

Firstly, the size of the market dictates the high liquidity of the stock. Whenever you want to sell stock, you may be sure that there will always be a buyer for it. Same thing goes whenever you wish to buy stock. When you are dealing with a market the size of the Forex, you know that you will always have transaction ready for you, since it is worth a lot of money. In addition, this means that deals will be made much faster with less slippage of the prices.

Foreign exchange trading is the simultaneous buying of one currency and selling of another. Examples of currency trading pairs are Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY). Most currency transactions involve the "Majors" - US Dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

Unlike most financial markets, the foreign exchange market has no physical location and no central exchange. The Forex market operates through an electronic network of banks, corporations and individual traders. Forex trading begins every day in Sydney, then moves to Tokyo, followed by London and then New York. The major market makers, or dealers, consist of the commercial and investment banks, the exchange traded futures, and registered futures commission merchants (FCMs) such as FX Solutions. FX Solutions' dealing desk is open 24-hours a day from Sunday 16:00 to Friday 16:30 Eastern Time.

Foreign Exchange Prices

Foreign exchange markets and prices are mainly influenced by international trade flows and investment flows. The FX markets are also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions especially interest rates, inflation, and political instability. Those factors usually have only a short-term impact, which makes Forex attractive as it offers some of the diversification necessary to protect against adverse movements in the equity and bond markets.

Foreign Exchange prices, or quotes, include a "Bid" and "Ask" similar to other financial products:

Bid: Price at which Dealer is willing to Buy and Traders can Sell Currency

Ask: Price at which Dealer will Sell and Traders can Buy Currency

The difference between the Bid and Ask is called the "Spread", which is the Trader's cost of the transaction.

Currencies are usually quoted to four decimal places, such as the Euro/US Dollar trading at 1.2400/1.2403, with the last decimal place referred to as a point or "pip". A pip for most currencies is 0.0001 of an exchange rate; the exception to this is all pairs that we offer with a JPY denominator have pips of .01.

Formula for computing pip values and position values for direct rates, cross rates, and indirect rates in the forex markets

Direct Rates: GBP/USD, EUR/USD, AUD/USD
Indirect Rates: USD/CAD, (USD/JPY), USD/CHF
Cross Rates: EUR/SEK, GBP/EUR, AUD/NZD

Calculating Direct Rate Pip Value:
Formula: Pip size=lot size x tick size
Example for 100,000 EUR/USD

1 PIP = 100,000 (lot size) x .0001 (tick size) = $10.00 USD

Calculating Indirect Rate Pip Value:
Formula: Pip size = (lot size x tick size)/current rate
Example: for 100,000 USD/CAD

1 Pip = 100,000 (lot size) x .0001 (tick size)/1.2400 = $8.0645


Calculating Cross Rate Pip Value:
Formula: Pip Size = (lot size) x (tick size) x (base quote)/current quote
Example: for 100,000 EUR/GBP trading at .6750 and EUR/USD trading at 1.1840

1 Pip = [100,000 EUR/GBP (lot size) x .0001 (tick size) x 1.1840 (EUR/USD quote)] / .6750 (EUR/GBP quote) = $17.54 USD


That is the most difficult part. With the above information you can determine your risk and how much you can lose/gain.

Example: EUR/GBP is trading at .6750 and you want to buy 100000 EUR/GBP now and place your sell order at .6800. If the cross rate rises to your sell stop it be a .0050 difference which is equall to 50 pips. Remember 1 pip equals $17.54, therefore, if the EUR/GBP rises and you sell 50 pips higher you will make $877.00 USD.

So, as you can see as long as you know what you are doing forex trading doesn't have to be any riskier than trading stocks. In fact it can help diversify a portfolio since many currencies will have a low correlation to the stock market.

Forex trading certainly

Forex trading certainly can be quite risky, but it doesn't have to be. With a strong risk management system you can trade these with the same risk as trading Microsoft or General Electric. Some of the most profitable trades in history were a result of forex trading. Remember George Soros breaking the Bank of England when he shorted roughly 10 billion in British Pounds.

forex, global currencies, currency trading The currency market is the world's single largest market. It is larger than all global stock markets combined, the commodity markets, or even the interest rate markets. Currencies can be traded through the Interbank market or in the futures market.

To keep the rather complex topic of forex trading as simple as possible I am only going to address the Interbank market on this page.

This market will enable you to trade many curencies, such as: the U.S. dollar (USD), Canadian dollar (CAD), Euro (EUR), British Pound (GBP), Australian dollar (AUD), Mexican Peso (MXP), Swiss Franc (CHF), Swedish Krona (SEK), Norwegian Krona (NOK), Hong Kong Dollar (HKD), Brazilian Real, and others.

By the nature of this market if you are buying a currency you are selling another. For example, if you buy the Euro, you must be buying it in relation to another currency. If you think the Euro will appreciate compared to the U.S. dollar you would buy the EUR/USD (euro/u.s. dollar). This currency relationship I gave of the EUR/USD is called a cross, a currency cross, or a cross rate.

Currencys and cross rates move in increments of a "pip" (stand for price interest point). It's just what it's called. If a cross is quoted at 1.5487 then a movement of .0001 would be one "pip". Almost all of the cross rates have four digits to the right of the dicimal, however, crosses containing the Yen have two places (i.e. 104.87).

In order to buy or sell a currency cross you need to know how much a one "pip" move will cost you in U.S. dollars. This is the most important part of currency trading-and the part that I spent the most time understanding cold.
There are many great sources for forex trading charts that one can buy. There are a few online sources that aren't quite as good but will certainly suffice.

Option Trading Strategies

Different option trading strategies can help you make money in any market environment. You simply have to determine what the market or stock is doing and choose your arsenal (calls, puts, butterfly, condor, etc.).

For the traders that know about options please view my page on various option trading strategies.

When I was starting out, options gave me a hell of a time. I picked up a book on the topic and did not even know what being short meant. Needless to say I had a tough time and did not finish reading it.

Options confuse alot of people. They can be complicated but they can also be quite easy and very profitable. Aside from the concept of options, option trading strategies themselves can be complicated.

Options are probably the single fastest way to make or lose money on the planet, period. You can make 1000% in a day or you can lose everything (or more).



To begin, an option is exactly that, an option to do something. In real estate you can buy an option. For example if you see a home that is selling for a good price ($100,000) and you know somebody willing to buy it for even more ($110,000) but you don't have the money to buy the house yourself and sell it, you use an option.

You would go to the owner of the home and tell him you will pay him $1,000 for the option to buy his home within the next 30 days for his asking price ($100,000). You pay him the $1,000 and line up your friend who will buy it for ($110,000).

You have now locked in the ability to purchase the home for a fixed price (although you have payed a small fee for this luxury) but you know that you have a guaranteed period of time in which you can buy this home.

Now translate that situation to stocks. In stock options you have two basic vehicles: a "call", and a "put". If you buy 1 "call option" you have purchased (for a small premium) the right but not the obligation to purchase 100 shares of the underlying stock at a specific amount for a specific period of time.

For example: I think Google is going higher this month. It is currently at $500/share. Now choose among the option trading strategies (here we will just buy a call option). I will buy 1 $500 Google August Call option. If the option is selling for $12.00 then I am investing $12.00 for the right to buy 100 shares of Google stock until the third Friday in August (yes it is always the third friday of the expiration month).

So, if Google stock goes to $600/share at the end of July I can exercise the option by buying 100 shares of Google @ $500 (this will cost me $50,000) and immediately sell it at the market price of $600 (netting me a profit of $9,988 after deducting the $12.00 I paid for the option).

What was my risk? Only the $12.00 could have been lost even if Google went backrupt and the stock went to $0.00.



A put option is exactly the opposite. A put option give you the right but not the obligation to sell 100 shares of the underlying stock at a specific price within a specific period of time.

Options trading strategies can get extremely complicated as well. There are huge option trading firms that only hire PhDs from MIT to crunch option pricing algorithms...taking advantage of small pricing discrepancies.

The Black-Scholes option pricing model has been the standard for many years. If you want to see how complex option pricing can get feel free to google it and take a look...no need to explore it here.

To break it down to the lowest common denominator: Options are highly levered ways of playing a stock to the upside or the downside. There is also definable risk with a maximum loss (the cost of buying the option). The previous sentance is true when you buy or sell puts or calls. Selling puts or calls can theoretically have unlimited risk.

Different option trading strategies can change how you approach a stock by deciding if it is going to be really volatile or not as well.

Fundamental Analysis

The basic premise of fundamental analysis is that the value of a currency is determined by the comparative strength and weakness of a country's economy in relation to those of its trading partners. The stronger a country's economy - measured in higher GDP growth, lower inflation, higher interest rates, greater productivity, more political stability, etc. - the stronger a country's currency. Over time, these fundamental factors produce the long lasting price trends typical of the currency markets.

Many factors pertaining to a national economy are monitored, assessed and judged for the effect they have on economic growth and development. These trends are often large and complicated, and can be enacted over a long period of time. Another factor which affects a country's economic status is its political system - the balance between social welfare and individual competition, or the openness of an economy to foreign trade and capital. Other areas include the social and cultural makeup of a nation, such as the productivity, labor mobility, and entrepreneurship. Natural resources also play a part, such as oil or mineral deposits.

Fundamental analysis views an economy and its currency through economic statistics. These statistics often depict a particular sector of an economy rather than the economy as a whole. Because of this, different statistics may point in opposite directions; one area of an economy may be growing while another falters, or the importance of one industry declines as another rises. Most statistics are also retrograde, telling you what has already happened, but not necessarily what is to come.

In our interconnected and volatile world, political, military, human, and even natural events can have rapid, vast, and long-lasting repercussions. A fundamental analyst must take into consideration all this information to create an overall picture of an economy - its strengths, weaknesses, vulnerabilities and, most importantly, its future potential and the likely future course of its currency. Personal judgment and experience come into play to complete the fundamental currency analysis.

Market Drivers

A Forex market transaction differs from a retail transaction. In a retail environment, the price is predetermined by the seller, and the purchaser measures his need for the item against the price asked and makes his decision to buy or not. In a market transaction, both the seller and the buyer continually adjust their price expectations to the information flowing out from the market to its participants and into the market from outside sources. A seller who thinks that the price may be higher in a few minutes may choose to withdraw an offer hoping to get a higher rate. If enough sellers withdraw their offers at a specific level the deal price will rise to the next available offer. But if traders think the price may fall then they may lower their own offers until they find a buyer, in effect driving the market price lower.

When each participant in the market reacts to this changing information, the combined reaction results in the movement in price. It appears to an observer that the 'market' traded lower only because the thousands of individual decisions that comprise the movement are not given separate life - only the mass decision, 'the price', is represented. We often say 'the market reacted badly to the news' or 'the market took profit today'. But the common use of this 'market' shorthand tends to obscure what is most important psychological point in understanding market behavior - the 'market' is a picture of the thoughts of its participants, a snapshot of our minds.

The difference between what the market participants assume will happen in the market and what reality proves produces market movement. When a particular economic statistic is released, and it's at or close to the general opinion of what the result would be, then the trading reaction is muted. The statistic is said to be 'priced into the market', which means that many prior trading decisions assumed the state of the economy portrayed by the statistic and that has become reflected in the trading rate. If the statistic proves to be different than this assumption, then most of those trading decisions will be immediately unwound, and result is price movements that reflect those changes. It is this tension between the opinion of the majority of market participants as reflected in the trading rate, and the economic, statistical or rate reality that dominates currency trading.

Economic Indicators 101

An economic indicator is information amassed and published by a government or private entity recording the activity in a particular economic sector, either in a specific industry or in an entire economy. Most indicators are statistical, but they can be anecdotal or subjective as well. Indicators are recorded and published on a regular basis by many organizations and are used by traders to assess the strengths or weaknesses of an economy, to predict future activity, to judge central bank policy, and to provide insight into the many economic variables that make up a modern industrial economy.

Most indicators are classified as leading or lagging. Leading indicators are those that track economic factors that usually change before the general economy and are used to predict future economic conditions. Lagging indicators record activity that has already taken place, and may or may not be useful in prediction.

Economy-wide indicators are the broadest measures of productive activity and record the result for an entire economy. Usually collected by governments, they are among the most authoritative statistics.

Examples are:

* Gross Domestic Product (GDP)
* Consumer Price Index (CPI)
* Producer Price Index (PPI)
* Unemployment Rate

Industry and sector based statistics normally pertain to a particular industry, such as housing or a particular economic activity, such as retail sales. Collected by both government agencies and private sector groups, the activity they track is more limited, and can have a close correlation to the broader indices, generating considerable trading interest.

Examples are:

* Durable Goods Orders
* Housing Starts
* Building Permits
* New Home Sales
* Retail Sales
* Purchasing Managers Index
* Institute for Supply Management (ISM) Survey

The final group is sentiment indicators, which gauge business and consumer opinions on current economic conditions and their expectations and intentions for the future.

Not all statistics on a single topic are of equal importance. Some government and central banks prefer one measure to another and the markets will assign that much more trading weight to the favored statistic. Other statistics gain or lose interest over time depending on their volatility, changes in the economy or newer and better measurement techniques.

Traders will also focus on different statistics depending on what is felt to be more pertinent to current economic and market conditions. If market focus is on GDP growth then economy-wide statistics will be paramount. If developments in a particular industry are of concern then those statistics will be uppermost in traders' minds.