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Top 10 Forex Mistakes

Top 10 Forex Mistakes

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.

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Dollar Dips After Three Days of Gains

Dollar Dips After Three Days of Gains

Dollar Falls Against 15 of !6 Major Currencies

The US dollar experienced a slight dip after three straight days of gains as investors and currency traders sought out higher yielding assets putting downward pressure on the dollar. The dollar fell against 15 of the 16 major currencies as Asian stock markets rose due to a report from the Asian Development Bank said that regional economies will grow at a better than expected pace and demand for emerging market assets will increase. U.K. Prime Minister Gordon Brown expressed concerns about removing government stimulus programs too soon. Brown, who will be attending the G 20 summit, stated, “The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression.”

Rising Risk Appetite Pressures Dollar

The US dollar vs. euro traded bear a one year low due to rising risk sentiment and a widespread belief that the worst of the recession is over. Many economists believe that the Fed will continue to keep rates at record lows sending currency traders in search of higher yielding assets. Lee Hardman of the Bank of Tokyo stated, “The dollar is likely to remain weak in the near term, what’s driving the dollar lower is the exceptionally loose liquidity conditions, and this encourages its use as a funding currency.”

Concern Over Euro’s Strength

Once again New Zealand’s dollar was a big winner on forex exchanges. The Kiwi rose 0.8% to $0.7250. The euro took a hit after a French official expressed concern about the Euro’s strength. In midday trading the DXY was up slightly at 76.211 after hitting a low of 75.892, the lowest since last September. Forex traders remain cautious in advance of the expected Fed statement and the G 20 summit scheduled to take place in Pittsburgh.

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.

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All Eyes On the Fed

All Eyes On the Fed

Dollar vs. Yen at Two Week High

The US dollar rose on Monday hitting a near two week high against the Japanese yen. The dollar rose slightly more than 1.0% against the yen and trade was muted in Asia as many major cities closed for holidays. In midday trading in New York the dollar vs. yen rate rose 1.1% to 92.26.  A dearth of economic data caused traders to take profits on other currencies that have recently rallied against the dollar. Many force traders are awaiting the results of the Federal Open Market Committee meeting Wednesday. The FOMC is expected to keep rates at between 0% and 0.25% and many forex traders will be watching for any signs of the Feds exit strategy from quantitative easing. Vassili Serebriakov of Wells Fargo stated, “The markets are consolidating and correcting ahead of the Fed decision this week.”

Dollar Correction Due

Some forex traders and currency analysts noted that investors are concerned about short dollar positions and said a correction may happen in the near future. Vassili Serebriakov commented, “We have also seen from the speculative positioning an increase in dollar shorts, in particular euro longs. So it’s surprising to see that outstanding short exposure is being scaled back.” Forex traders increased short dollar positions, betting that the greenback will depreciate, last week to the highest since March 2008 according to the Commodity Futures Trading Commission.

Dollar Gains on Euro

The euro vs. dollar fell 0.3% to $1.4659 down from a high of $1.4766 last week, the highest since September 2008. Against a basket of currencies the DXY, ICE dollar future index rose to its highest since September 10th at 76.50 up 0.6 % for the day. Stocks were down dampening risk sentiment benefiting the greenback. Investors are watching the Fed closely watching for changes in the Fed’s economic assessment.

Bernanke Says Recession “Very Likely” Over

In a statement last week Fed Chairman Ben Bernanke said that the recession was “very likely” over. Marc Chandler of Brown Brothers Harriman believes that the Fed is likely to be cautious about the US economy and will keep interest rates at record lows for an extended period of time.

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.

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Dollar Drops to New One Year Low

Dollar Drops to New One Year Low

Dollar Hits One Year Low

The US dollar fell to its weakest level in almost a year against the euro. Rising stocks and increased US industrial production are seen as signs of recovery causing forex traders to sell the dollar in favor of higher yielding currencies. The Kiwi dollar posted the biggest gains vs. the US dollar and investors were attracted by the three-month deposit rate that is almost ten times higher than US deposit rates. Lauren Rosborough of Westpac Banking Corp. stated, “We are in an environment that is constructive for growth. It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”

Rate Comparisons

In yesterdays trading the dollar to euro exchange rate fell 0.5% to $1.4724 the lowest since September, 25th, 2008. The Japanese yen gained 0.1% against the US dollar trading at 90.95. The Kiwi dollar rose an astounding 1.5% to $71.53. The three month deposit rate in New Zealand is 2.73% compared with US rates of 0.28% and Japanese rates of 0.38%. The Aussie dollar rose 1.3 to $87.49 and offers a three month rate of 2.93%. Brian Dolan of FOREX.com stated, “The dollar is on its back heels. Until we get a setback in the risk markets, the dollar looks to remain under pressure.”

Rising Stocks Pressure Dollar

Stock gains put downward pressure on the dollar and pared safe haven demand. The Standard and Poor’s 500 Index rose 1.4 % and the DXY which tracks the US Dollar against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish Krona fell 0.5% to 76.151, the lowest since September, 23rd, 2008. Rising risk appetite has damaged the dollar on forex markets. Michael Woolfolk of BNY Mellon stated, “The trend is for continued improvement in risk appetite. The dollar remains under
pressure.”

It is clear that increased risk sentiment is putting the US dollar under pressure. Massive US deficits are also a concern among investors.

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.

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LIBOR-OIS Spreads ‘Normal’

LIBOR-OIS Spreads ‘Normal’

Greenspan Says LIBOR OIS Rates ‘Normal’

currency4The Libor-OIS spread fell to a level that former Fed Chairman Alan Greenspan called ‘normal, indicating a thaw in credit markets. The Libor-OIS spread which is a gauge of banks reluctance to lend fell to 25 basis points, the least since January 2008. The Libor-OIS spread also affects interbank forex markets. David Keeble of Calyon stated, “It certainly is good news and indicates that some normality is returning, at least in prices. It backs up what the Fed said last night. Everything seems to be going well at the moment.”

ECB Cuts Rates to Record Low

This is good news for both interbank and retail forex markets. Also affecting currency exchange rates was the news that the Eurozone economy contracted by a less- than-forecast 0.1 percent pushing the euro upward in both interbank and retail forex markets. The ECB cut its rate to a record low of 1% and started purchasing 60 billion euros ($86 billion USD) of bonds and provided unlimited amounts of euros to financial institutions. The ECB said in its bank lending survey that banks were less aggressive about credit standards for both companies and households.

Further Euro Gains ‘Not Likely’

The euro to dollar exchange rate rose to a one week high on Thursday as the good news from the Eurozone put downward pressure on the dollar. Demand for higher yielding assets and currencies put further pressure on the dollar. Some analysts say that further euro gains are not likely.  Adam Cole of RBC Capital Markets in London stated, “What we really need to see for the euro to run any further is some evidence from leading indicators that growth is actually turning positive at the moment. So there is a limit to how far it can run until we get some convincing evidence that Q3 is likely to be positive.”

The euro to dollar exchange rate was up 0.5% on Thursday and traded at $1.4270 and against the yen traded at 137.49. Both interbank and retail forex traders are waiting for US retail sales data due late Thursday.

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.

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High Yielding Currencies Take a Hit

High Yielding Currencies Take a Hit

European Stocks Fall, Dollar Holds Gains

High yielding currencies such as the Aussie and New Zealand dollars fell on Tuesday after European stocks and oil prices fell. The US dollar held onto gains made last week after US employment figures and manufacturing showed signs the recession is easing in the world’s largest economy. Forex traders and investors are now awaiting the release of the results of the FOMC meeting which are due Wednesday. Some analysts saw signs of risk aversion which has also helped the dollar and the yen.

Trading Thin

Currency experts saw few market moving events in European markets and noted that trading is thin because of the summer holiday season. Peter Frank of Societe Generale stated, ‘Oil has dropped back from the day’s high, that could be a driver. In very thin volumes, it looks like there’s a certain amount of risk aversion going on.” The Aussie dollar fell 0.2% to $0.8355 and the Kiwi dollar fell 0.7%. The Japanese yen gained against the Aussie dollar by 0.9% to 80.63 yen while the Kiwi dollar slipped 1.5% against the yen to 64.72.

Some Have Cautious View of Dollar’s Gains

Many forex traders are starting to believe that the correlation of the US dollar to risk sentiment is fading and some remain cautious saying that the same thing happened in early June when the dollar rose on better than expected employment data. Chris Turner of ING said, “The dollar is holding onto Friday’s payroll-inspired gains, but it needs some fresh support to avoid sinking back as it did in June. The Fed is likely to keep current rates at 0-0.25% and many expect the Fed to end its $300 billion Treasury purchases program.

Treasury Auction This Week

Many experts expect currency exchange rates to be affected by the US Treasury auction of $37 billion dollars of 3-year notes on Tuesday and will auction off a total of $75 billion T notes this week. In the recent past Treasury auctions have been well received.

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.

Posted in Featured ArticlesComments Off on High Yielding Currencies Take a Hit

Dollar Stock Correlation Changing

Dollar Stock Correlation Changing

US Data Improving

forex21A deceleration of US job losses and improved housing and manufacturing data lifted stocks and surprisingly the US dollar. Typically when risk sentiment rises the dollar declines against higher yielding currencies. Negative data usually caused investors to seek the safe haven of the dollar causing it to rise on global Forex markets. During the last year currency exchange rates were largely affected by stock markets. When stocks rose the dollar declined against other currencies and when stocks fell the dollar rose on safe haven demand.

Dollar Returning to Fundamentals

It appears that the stock dollar correlation is starting to change. After Fridays US jobs data the dollar changed its traditional pattern and rose against other major currencies. Earlier in the year the correlation between the euro-dollar rate and the Standard and Poor’s 500 was about 50% meaning that the euro and S&P 500 rose and fell in tandem. Some currency experts expect the link between the two to weaken further. Joseph Trevisani of FX Solutions stated that the dollar’s gains on Friday are “a sign that the currency markets are weaning themselves from the ‘good-news-is-bad-news for the dollar’ syndrome and returning to fundamental measures of economic growth and interest rate cycles.”

Many traders and investors welcome the change. Alan Ruskin of RBS Securities stated, “The idea of selling the dollar on strong U.S. data because it is risk-positive is being appropriately challenged.”

Full Economic Calendar This Week

Currency exchange rates will undoubtedly be affected by this week’s economic calendar. On Tuesday the US Federal Reserve will meet for two days and investors will be closely scrutinizing statements due to be released on Wednesday. Also on Wednesday international trade data for June is due to be released. On Thursday retail sales for July will be released and on Friday industrial production and consumer sentiment for August will be released.

Fed to Auction $75 Billion of US Debt

This coming week the US Treasury will auction $75 billion of 3 year notes, 10 year notes and 30 year bonds. The auction is expected to show investor confidence in the US’s ability to finance its debts.

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.

Posted in Featured ArticlesComments Off on Dollar Stock Correlation Changing

LIBOR Rates Hit Record Lows

LIBOR Rates Hit Record Lows

The London Interbank Offered Rate

forex22The London Interbank Offered Rate (LIBOR) affects everyone in many ways. Simply put the LIBOR is a world wide guide banks use when lending to each other. Most adjustable rate mortgages (ARMs) and credit card interest rates are based on the LIBOR. The higher the rate the higher the payments on the mortgage or credit card. The British Bankers Association meets daily to compile the rate which is then released through the Reuters news agency. Unfortunately there is no way of forecasting the LIBOR beyond a year’s time. Lenders around the world monitor the LIBOR rate daily.

Record Lows Last Week

Last Friday the interbank rate for three month euro, dollar, and pound funds hit record lows. The LIBOR dropped to its lowest since the BBA introduced the Libor fixings in 1989. BBA data showed that the three month dollar LIBOR rate fell to 0.50375%. The three month spreads of LIBOR over Overnight Interbank Swap rates also narrowed. The spread is indicative of the three month premium paid over Overnight Interbank Swap rates and is widely held as an indicator of backs willingness to lend to each other. A narrow spread is seen as an indicator of more willingness to lend while a wider spread indicates reluctance to lend.

No Full Recovery Until 2010

The narrower spreads are seen as a positive development and with banks more willing to lend to each other risk sentiment is raised. Narrower spreads are good news for credit markets and have a positive effect on currency and equity markets. While the results of the current LIBOR are positive many experts believe that it will take well into 2010 for bank to bank lending to recover from the financial and credit crisis which began with the failure of Lehman Brothers in 2008.

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.

Posted in Featured ArticlesComments Off on LIBOR Rates Hit Record Lows

Intel and Goldman Sachs Results Pare Safe Haven Demand

Intel and Goldman Sachs Results Pare Safe Haven Demand

Dollar at Two Month Low Against Majors

forex23The US dollar is currently at a two month low against a basket of major currencies. Positive second quarter data from Intel and Goldman Sachs raised risk sentiment and raised investor sentiment about the economy and corporate earnings. A US report that showed a slowing in industrial production contraction also lifted investor’s spirits and damped demand for safe haven assets. Ian Stannard of BNP Paribas SA stated, “The recent data releases and earnings reports out of the U.S. have buoyed equity markets and seen the yen and the dollar both come under some pressure. Today’s U.S. industrial production data will be key as to whether this improvement in risk appetite continues.”

Optimism Driven Trading Emerging

US corporate earnings reports have had a major effect on currency exchange rates. The stellar second quarter performance of both Intel and Goldman Sachs exceeded the estimates of analysts. Daisuke Uno of Sumitomo Mitsui Banking Corp. said, “There is a sense that optimism-driven trading is re- emerging. The forecast-beating results from Goldman Sachs and Intel suggest the yen will weaken and stocks will advance.” Other second quarter reports are due from many of the companies in the standard and Poor’s 500 Index.

Developed Countries to Lose 30 Million Jobs

Although risk sentiment was up many forex investors and experts feel that recent signs of an economic upturn will be short lived supported only be the trillions of dollars governments around the world have poured into the global economy. The Organization for Economic Cooperation and Development said that developed countries could lose 30 million jobs during the period beginning at the end of 2007 and ending in 2010. German data showed investor pessimism and analysts believe this data shows that the German economy will not start growing until 2010. Carsten Brzeski of ING stated, “The German economy could be among the first to escape the recession. However, it is ‘if’ and not ‘when,”

Currency experts expect forex trading for the rest of the week to be volatile.

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.

Posted in Featured ArticlesComments Off on Intel and Goldman Sachs Results Pare Safe Haven Demand

Yen at Five Month High

Yen at Five Month High

Risk Aversion Benefits Yen

yen5The Japanese yen is at a five month high against the US dollar fueled by investor concern about US Q2 corporate earnings. Many investors believe that recovery this year will be minimal. The yen was also helped by an upgrade in Japan’s economic forecast. The dollar rose against commodity based currencies due to lower oil prices. Earlier in the year commodity based currencies such as the Aussie and New Zealand dollars had been big winners.

Geithner’s Remarks

The dollar was helped by remarks be Treasury Secretary Timothy Geithner who said that there was a good chance that the US and other major economies would see growth over the next two quarters. Trading has been thin due to summer holidays but some currency experts said that forex investors and traders are cautious despite expectations that some major firms will show signs of recovery. Lauren Rosborough of Westpac in London stated, “All the big banks, save Citi, are seen having positive earnings in the second quarter … but at the same time, the market wants to sell risk this week.”

Banks to Post Q 2 Earnings

Risk aversion has been dominant and has affected global currency exchange rates. The US dollar and the Japanese traditionally benefit from risk aversion and are seen as safe havens. Expectations of a change in the Japanese government have also contributed to risk aversion. This week several large banks will post second quarter earnings. Among these are Goldman Sachs Group, JPMorgan Chase & Co, and Citigroup Inc. James Hughes a market analyst at CMC in London stated, “This week there is heavy focus on the U.S. earnings season, and investors will want to see that any recovery for major companies is revenue-based and not cost-cutting based.”

Also due this week and sure to affect currency exchange rates are minutes of the last Federal Reserve policy meeting and a Bank of Japan meeting.

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.

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