GDP Figures Better Than Predicted

Better than expected US GDP figures subjected the US dollar to the usual downward pressure experienced from a rise in risk sentiment. US GDP rose 3.5% during the third quarter exceeding expectations of 3.3%. Stock markets rose sharply sending currency traders in search of higher yielding currencies. Once again the Aussie and Kiwi dollars were big winners and both gained a full 2% against the US dollar. The Aussie traded at US$0.9146 and has a benchmark rate of 3.5% as opposed to the greenback’s near zero rate. The Kiwi traded at US$0.7342 after rising as high as US$0.7352.

Pound Rallies

The pound continued its rally and climbed above $1.66 the highest against the greenback in almost a week. The pound rose nearly 1.5% trading at $1.6605 against the US dollar. The dollar index or DXY which measures the US dollar against a basket of six major currencies fell 0.6% to 75.947. Despite losses the DXY is on track for a weekly increase of 0.6%. US unemployment claims fell to the lowest level in seven months further boosting risk sentiment among investors.

Recovery Skepticism

Despite the figures some analysts are not fully confident of economic recovery. Boris Schlossberg of GFT stated, “The (jobless claims) figure remains above the 500,000 barrier and until it drops below that level the market will not be fully confident that the recovery has taken hold,” Against the yen the US dollar gained 0.9% trading at 91.41 yen after hitting a session peak of 91.62.

Euro Gains vs. Dollar

Both the US dollar and the yen fell against a basket of 16 major currencies and both stocks and commodities rallied. The euro vs. dollar rate fell almost 1% to $1.4859 finally trading at $1.4827 in late New York trading. During the last four trading sessions the dollar had gained on the euro due to perceptions of a stalled US recovery but the third quarter GDP figures spurred a stock rally and demand for riskier assets across the board.

Quick Forex Tip: Interbank fx trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank fx trading, s/he must do so through the use of a broker.

US Dollar Pulls Back From Multi Month Low

Dismal figures posted by General Electric and Bank of America have triggered a rise in risk aversion causing the US dollar to pull back from a 14 month low. General Electric reported a 42% decline in profits and Bank of America posted a quarterly loss sending investors and traders in search of safe haven assets. Investors were disappointed with the results after earlier in the week JP Morgan posted positive figures. Philip Lawlor of Nomura stated, “JPMorgan set the hurdle rate very high, and at the margin it’s difficult for the banks - you saw it with Goldmans yesterday - to now come in and have the same type of positive reaction.”

US Consumer Sentiment Down

US consumer sentiment fell as consumers remain concerned that recovery will be slow and drawn out. The combination of poor stock performance in Europe and the US and low US consumer sentiment triggered a round of risk aversion benefiting the US dollar. Shaun Osborne of TD Securities in Toronto stated, “It’s not a particularly good report as we saw a big drop in the outlook. It’s a case of poor data hurting equities but supporting the dollar in a risk-off and risk-on mentality.”

Commodity Based Currencies Perform Well

The dollar gained 0.5% on the euro and traded at $1.4872 on Friday and against the Japanese yen the dollar gained 0.6% trading at 91.09 yen. The pound fell to $1.6270 after hitting a three week high of $1.6401. The Canadian dollar fell for the second straight day as risk aversion trimmed demand for risky assets. The two day decline came after a rally that many believed would push the Canadian dollar to parity with the US dollar. Against the greenback the Canadian dollar was the fourth best performer after the Aussie dollar, the Brazilian real and the Mexican peso. All are commodity based currencies which have performed well in forex markets.

Quick Forex Tip: Interbank forex dealers have access to better spreads than the average investor because of the size of the transactions. Small investors who want to trade interbank fx now have access through the use of forex brokers who are able to put together large transactions. Additionally, many very wealthy individuals trade interbank fx hoping to profit from currency fluctuations. Whether you have a lot or a little money to invest, interbank forex trading is a great option because forex markets are almost recession proof.

Aussie Big Winner Again

The Australian dollar has been a recent big winner in forex markets globally. The Aussie dollar has experienced an astounding 32% rally so far this year and some forex traders and currency experts are predicting the Aussie dollar will reach parity with the US dollar for the first time since 1982. Demand for the Aussie has climbed as investors remain concerned about the status of the US dollar as a reserve currency and predictions that US interest rates will remain at record lows. Jonathan Xiong of Mellon Capital in San Francisco stated, “We like the Australian dollar and that’s one of the recovery plays we have on. He further stated that parity is “a possibility, but we don’t make forecasts on whether it will go to parity or a particular rate.”

US Dollar Pulls Back From 14 Month Low

The US dollar pulled back from a 14 month low against the euro as disappointing third quarter results from General Electric and Bank of America triggered a slight rise in risk aversion. Amelia Bourdeau of UBS AG stated, “The rally in the dollar we see today is profit taking going into the weekend. We think risk seeking will continue, although it’s getting choppy.” The dollar vs. euro rate rose 0.4% to $1.4891 after hitting a 14 month low of $1.4968 and against the yen the dollar advanced 0.3% to 90.86 yen. Bourdeau also said she believes that the US dollar’s decline will resume as currency traders and investors seek higher yielding assets.

Aussie Second Best Performing Currency

The Aussie dollar is the second best performing currency after the S African Rand. The Australian economy expanded after one single quarter of economic contraction. Currency experts believe the growing Australian economy will make the Aussie dollar even more attractive against the US dollar which is troubled by massive deficits and is also pressured by the amount of debt the U.S. Treasury will issue. Australian growth has been fueled by a A$20 billion ($18 billion) in government handouts to consumers and China’s demand for the country’s iron ore.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.

Forex trading has become incredibly popular during the past decade and the forex market is the world’s largest with approximately 3 trillion dollars traded daily. At one time currency markets were only open to large investors, central banks and large corporations. Online currency trading began in 1994 and has attracted millions of investors to this lucrative market. Forex trading has allowed adept traders to make money during the current global recession. Forex trading offers investment opportunities that equity markets cannot match.

One of the most attractive features of forex trading is the use of leverage. Forex trading is done in standard lots of 100,000 or mini lots of 10,000. To overcome initial capital needs forex brokers began to offer leveraged accounts. A leveraged account is a sort of credit offered by the forex broker and is backed up by the investor’s capital. Leverage allows the investor to control large amounts of money. Forex traders monitor exchange rates in ‘Pips’ which is the smallest variation in currency prices and can be in the second or fourth decimal place in a currency pair’s price.

As an example suppose a currency pair’s price EUR/USD moves from $1.47 to $1.48. The move equals 100 pips or $0.01 change in the exchange rate. These small movements are the reason that transactions must be carried in large amounts and the use of leverage allows these small movements to accumulate into decent profits by the use of leverage. When dealing in lots of 100,000 minute changes can mean significant profits.

Most forex brokers’ offer leveraged accounts ranging from 50:1 to 400:1. Of course higher leverage means higher risk. Most experts recommend that novice forex traders start with low leverage and increase the leverage as they become more familiar with forex trading. Using leverage should be done with caution and used intelligently. Using leverage wisely is one of the keys to success in currency markets.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records

Trading forex has become incredibly popular during the past few years and can be incredibly lucrative. Forex traders have access to incredible amounts of leverage which can mean incredible profits and, unfortunately, losses. Successful forex traders share several characteristics in common including discipline, long term focus and extensive preparation and education. Forex trading is also high risk and currency markets can be volatile. During the current recession many successful forex traders have learned how to profit from a dismal economy. Like any kind of investing forex trading has its pitfalls but by avoiding common mistakes novice forex traders can mitigate some risk. Here are the top 10 mistakes commonly made by novice traders.

1.    Dealing with unlicensed forex traders.

Licensed forex traders are subject to regulations and will do everything in their power to make sure your trades are based on the best current market information. Unlicensed traders may take excessive risks especially when they are using the funds of others.

2.    Dealing With Offshore Forex Traders

Investing offshore is a real risk. While some offshore traders may be reputable there have been many scams reported and some would be traders have been swindled. If things go badly you will have no legal remedies available if you account goes south.

3.    Lack of Education

Forex trading is complex and without the proper education bad and costly decisions are bound to be made. Traders need to be able to analyze market news and act accordingly. Novice traders should have extensive knowledge of forex trading before the first trade is made.

4.    Failure to Understand leverage

Using the leverage available to forex traders can be a double edged sword. Traders who do not understand leverage are setting themselves up for huge losses. The greater the amount of leverage assumed by the investor the greater the risk.

5.    Not Checking References

Not checking the references of a forex trader can be a fatal mistake that could cost the investor dearly. Any successful forex trader should be able to provide multiple references.

6.    Investing Too Much Money

Forex trading is very high risk and traders should never invest more than they are willing to lose. Although the forex market can be very lucrative market conditions can change several times during the course of a day.

7.    Pursuing High Yields

As has been stated several times forex markets are volatile and long term stability should be the goal. New traders should use low or moderate risk strategies.

8.    Over Trading

New forex traders should limit their trading to one or two markets at first.

9.    Lack of a Trading Plan

Forex traders should establish both long and short term goals. Do not base the trading plan on hypothetical profits and use a clear logical approach. Set daily, weekly and monthly trading goals along with a long term plan.

10. Failure to Use   Use Logic and Reason

There are many websites hawking ‘foolproof’ forex trading methods and many other sites offering ‘hot’ forex tips. While many forex software trading platforms are based on scientific formulas and algorithms many other software platforms are scams. There is no substitute for a thorough education. Forex traders should always use logic and reason when making trading decisions.

While this list is by no means complete these are some of the most common mistakes novice forex traders make. Avoiding these mistakes can easily make the difference between profit and loss.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.