While trading courses offer a structured way of learning foreign exchange, they aren't the only option for a beginning trader. Those who are talented self-learners can take advantage of free options online, such as trading books, free articles, professional strategies, and fundamental and technical analysis. Again, even though the information is free, make sure it is from a credible source that has no bias in how or where you trade. This can be a difficult way to learn, as good information is scattered, but for a trader starting out on a tight budget, it can be well worth the time invested.
Before jumping in with the sharks, getting trading advice in the highly volatile forex marketplace should be a top priority. Success in dealing with stocks and bonds does not necessarily breed success in currency.
Forex classes and trading courses—either through individual mentoring or online learning—can provide a trader with all the tools for a profitable experience. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. Types of Forex Trading Courses. Qualities of Good Forex Classes. Staying Away from Scams. Other Types of Forex Education. The Bottom Line. Key Takeaways As an individual trader, it's never been easier to get access to forex markets from several online and mobile providers.
With easy access, beginners may find it in their best interest to read up on how the forex market works and to hone their skills and knowledge with a forex-specific trading course. Courses are offered both online and in-person. Keep a look out for the course provider's reputation, feedback from past students, and if the course has professional accreditation or certification.
Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. Related Terms Forex Training Definition Forex training, broadly, is a guide for retail forex traders, offering them insight into successful strategies, signals and systems.
It identifies and mandates industry-best practices. Forex Broker Definition A forex broker is a financial services firm that offers its clients the ability to trade foreign currencies. Forex is short for foreign exchange. Authorized Forex Dealer Definition An authorized forex dealer is a regulated financial institution that facilitates transactions in the foreign exchange market. Commodity Market A commodity market is a physical or virtual marketplace for buying, selling, and trading commodities.
Discover how investors profit from the commodity market. Investopedia is part of the Dotdash Meredith publishing family. This not only means that foreign investors are more likely to invest in the debt of that country, but also that domestic investors are less likely to look outside the country for higher yield, creating more demand for the debt of that country and driving the value of the currency up, all else being equal. Conversely, when a central bank lowers interest rates, then interest rates on all types of debt instruments for that country are going to be less attractive to investors, all else being equal.
This not only means that both foreign and domestic investors are less likely to invest in the debt of that country, but that they are also more likely to pull money out to seek higher returns in other countries, creating less demand for, and a greater market supply of that currency, and driving its value down, all else being equal.
Once this is understood, it is next important to understand that foreign investors are exposed to not only the potential profit or loss from interest rate changes on the debt instrument they are investing in, but also to profits and losses which result from fluctuations in the value of that country's currency.
This is an important concept to understand, as it generally will work to increase the profits for investors when interest rates increase, as the increase in the value of the currency is realized when they sell the investment and convert back into their home country's currency. This gives the foreign investor that much extra return on their investment, and that much extra incentive to invest when interest rates rise, driving the value of the currency up further all else being equal.
Conversely when interest rates decrease, there will be less demand for the debt instruments of a country not only because of the lower yield to investors, but also because of the decrease in the value of the currency that normally comes with a decrease in interest rates. The additional whammy of a loss to the foreign investor from the currency conversion that results as part of the investment, further incitivizes them to put their money elsewhere, decreasing the value of the currency further, all else being equal.
In our last lesson we continued our free forex trading course with a look at interest rates and how the capital flows associated with movements in the interest rates of a country affect the value of its currency. Now that we have a basic understanding of how interest rates move the forex market, lets help drive this point home with a specific example from today's market environment.
For our example we are going to say that I am a savvy investor located in the United States who is seeking a good place to park some savings where I can earn a decent return on my money. For this particular slice of my portfolio I am looking for an interest paying instrument that will pay me a steady stream of cash on my money.
As many of you already know a government or corporate bond will do just this paying me whatever the interest rate is as set by the country's central bank that I am investing in, plus an additional interest rate depending on the length of the bond that I am investing in for example a 1 year bond is generally going to pay me a lower rate of interest than a 10 year bond and for the extra risk that I take on for different type of bonds for example a government bond is normally going to pay me less than a corporate bond because there is less chance that the government is going to default on the loan.
So, knowing this, I decide that I would like to invest in a bond that pays me a good rate of interest, and I am not looking to get too speculative about this investment, so I prefer a government bond over a corporate bond. For our example we are going to say for simplicity's sake, that the bonds of the countries that we have available to invest in pay an interest rate equal to the interest rate in the country as set by the central bank.
Now with this in mind the next thing that I do is list out all the different interest rates for the major countries of the world and I come up with: [B]United States: 2. Now I am not going to drag the lesson out by including all the history of the interest rates in New Zealand here, but I will tell you they have been in a high interest rate environment relative to the United States for quite some time.
With this in mind if I would have have followed this logic in the past then it would have played out very well for me not only from an interest rate standpoint but also from a currency appreciation standpoint. It is also a great example of the forces we have spoken about in our lessons on capital flows and in our last lesson on interest rates at play in today's market. As we learned about in our lessons on how rollover works in module two of this course, when holding a position past 5pm NY time traders earn interest when they are long the currency with the higher interest rate.
Conversely, when traders are long the currency with the lower interest rate they pay interest when holding a position past 5pm NY time. Like the US investor in the example from our last lesson who took his US Dollars and invested them in New Zealand Bonds to earn a higher return, currency traders can also take advantage of countries which offer higher interest rates. Luckily for us however taking advantage of interest rate differences between countries is generally much easier for currency traders who can do so with a simple click of the mouse.
To help demonstrate this lets look at the interest rates as set by the central banks for the main currencies which we are interested in. If we buy this currency pair, then we are long the New Zealand Dollar which is the higher yielding currency, and short the US Dollar which is the lower yielding currency. As you can see here, we can take advantage of the higher interest rates in New Zealand by buying New Zealand Dollars and Selling US Dollars with the click of the mouse, and without having to go through the trouble of figuring out how to buy New Zealand bonds as we would have had to in our last lesson.
Because of the simplicity of this strategy and the fact that in addition to the interest that one earns by being long the currency with the higher interest rate there is the opportunity for capital appreciation should the higher yielding currency move in one's favor, this is a hugely popular strategy.
This is important to us as traders not only because it is a strategy that we may want to consider trading at some point, but also because a huge amount of capital flows in and out of currencies based on this strategy, making it a major market mover in both the long and short term time frames. Lastly, it is important to us as traders to understand that when a trader is long the carry, meaning that he or she is long the currency pair with the higher interest rate, then that trader is normally trading with the wind at their back as they are getting paid every day they hold their position, regardless of what happens to the exchange rate.
Conversely when a trader is short the carry, meaning that they are long the currency pair with the lower interest rate, then they are generally trading with the wind in their face as they are paying money every day, regardless of what happens with the exchange rate. This of course makes the large assumptions for simplicity's sake that the exchange rate and rollover rate will remain the same as they are today for the 1 year period that the trader is in the trade.
Now you may be thinking to yourself at this point, "well Dave I was kind of excited about this whole carry trade thing and was seeing how it was so popular until I see a 7. To be honest with you this does not get me too excited and I don't really see why this is all that popular. So with this in mind, lets say I leveraged this position 2 to 1, which most traders I think would agree is still pretty conservative. This would double the return from the rollover portion of the trade to Taking this a bit further, if I increased the leverage to a more aggressive 3 to 1, that would put my return from rollover at When people first see this many times their initial reaction is one of excitement, which makes them want to jump right into a trade.
As with most things however, if making money was this easy then everyone would be a millionaire, so while this is an enticing return, and while there has been a lot of money made by people employing carry trade strategies, there are other things to consider: 1. It is how traders deal with these unknowns that separates traders who consistently make money with carry trade strategies from those who do not, a topic which we will discuss in our next lesson.
As we have learned in our first two lessons on the carry trade, it is the size of the difference between interest rates in the countries whose currencies we are trading that ultimately determines how much we either pay or receive for holding a position past 5pm New York Time.
With this in mind it is only logical that if the difference in interest rates between two countries changes, then so will the rollover amount that is either paid or collected when trading those country's currencies. So with this in mind we are long the positive interest rate differential of 8. If this were to happen then our positive interest rate differential of 6. Very simply here, as the positive interest rate differential has decreased the amount of money that we earn for holding the position has decreased as well.
Conversely, if rates were to rise in New Zealand and stay the same in the United States then the interest rate differential would grow in our favor, and the amount we earn for holding a position past 5pm should grow as well. So you can see here that one of the first things that must be considered when thinking about a carry trade is what the current interest rates are, and what they are expected to be for the life of the trade.
A second thing which must be considered when thinking about a carry trade is the exchange rate fluctuation that may occur while a trader is in the position. Traders may consider a number of things here, the most popular of which are one of or a combination of: 1. Capital Flows: Most importantly here is interest rate expectations which as we discussed in our lesson on how interest rates move the forex market, when interest rates rise in a country, interest bearing assets generally become more attractive to investors, which will many times drive the value of a currency up all else being equal, and vice versa when interest rates fall.
Notice here that I say interest rate "expectations". As we have talked about extensively in module 8 of our free basics of trading course, markets anticipate fundamentals so in general once an interest rate increase or cut is announced, it has already been priced into the market. Trade Flows: Most importantly here is affects on the current account. We will be discussing how traders go about forcasting changes in capital and trade flows in the coming lessons.
The third thing which traders focus on and which we have already covered in our basics of trading course is: 3. Technical Analysis: As carry trades are generally longer term trades many traders will look at the overall trend in the market and use technical analysis to try and determine when they think the trend is going to be in their favor if they open a carry trade.
As we learned in our free basics of trading course in the free course section of InformedTrades. Through Fundamental Analysis 2. Through Technical Analysis 3. Through a Combination of fundamental and technical analysis While which method a trader chooses is ultimately up to them and their trading personality, it is my opinion that a trader who at least has an understanding of both technical and fundamental analysis is in a better overall position to trade profitably, than someone who focuses on only one school of thought.
To help understand this lets say that I am a trader who studies technical analysis and believes that at least in the short term, which is the time frame that I trade on, that technicals are all that matter. If I focused purely on technical analysis then I would probably enter that position not knowing that at AM I may be in for a surprise that I was not expecting.
As those of you who have been through module 8 of my basics of trading course know, at AM on the first Friday of the month Non Farm Payrolls NFP's are released, which historically has been one of the most market moving fundamental releases in the forex market. While I am not saying that a trader who trades on technicals should not take a trade that looks good to them from a technical standpoint because of weak fundamentals, what I think this shows is that technical traders who at least have an understanding of fundamentals have the ability to decide whether or not they should factor in a specific piece of fundamental information or no.
In my opinion this gives them a big leg up on technical traders who dismiss fundamentals altogether. Now lets say that I am a trader who trades a carry trade strategy which trades based off of a model I built to forecast interest rates based on fundamental news releases. Next lets say that my model generates a buy signal at 1. Would my trading not be better served if I at least knew that there was a major head and shoulders top in place, so technically the market is very weak here?
As with our technical analysis example what I am not saying is that a trader who trades on fundamentals should not take a trade that they feel is good from a fundamental standpoint when the market is weak from a technical standpoint. What I am saying however is that fundamental traders who at least have a basic understanding of technical analysis have the ability to decide this for themselves.
In my opinion this gives them a big leg up on fundamental traders who dismiss technicals altogether. As you have probably realized if you have been following my courses, they are designed to give traders a knowledge of both fundamental and technical analysis because I believe a knowledge of both puts traders in the best position to learn to trade profitably.
I also believe that you can't really make a decision if you are going to trade based mainly off of technicals, fundamentals, or a combination of the two unless you have a sound understanding of the basics of both fundamental and technical analysis.
As we have already covered the basics of technical analysis in my free basics of trading course, I am assuming that everyone already has an understanding of this. With this in mind the rest of this course will be focused mainly on the fundamentals of the forex market, which we will start with in our next lesson. If you have not done so already I encourage you to go through module 8 of the basics of trading course located in the free course section of InformedTrades.
As we now have a basic understanding of how trade flows and capital flows move the forex market, the next step is to look at each of the individual currencies we will be focusing on so we can gain an understanding of their backgrounds, and the makeup of their economies. Once we have an understanding of this it will become clear what fundamental factors are the most important drivers of individual currencies, and therefore what we as traders should watch for.
Before we get into this however it is very important that everyone has a sound understanding of how trade flows and capital flows move the forex market which is covered in module 3 of this course as well as the following concepts, all of which are covered in module 8 of our free basics of trading course located in the free course section of InformedTrades. In module 8 of the basics of trading course we cover the Federal Reserve which is the central bank in the United States.
While the central banks that we are going to be covering going forward may differ in how aggressive they are with monetary policy in relation to the Federal Reserve, the methods they use to conduct monetary policy, and the reactions of the forex market that monetary policy generates, is basically the same no matter what central bank you are looking at.
I am going to give everyone 10 questions here that you should now have the knowledge to answer if you have been through module 8 of my free basics of trading course, and module 3 of this course. To help make it interesting for everyone, I will offer a free copy of Kathy Lien's excellent book Day Trading the Currency Market, to the first person that posts the correct answers to all 10 questions in the comments section of this lesson on InformedTrades.
If you are watching this video on Youtube you can find a link to this lesson on InformedTrades to the right of the video. Ok so here we go: 1. If inflation is low and a Central Bank is concerned about recession, what would the expected monetary policy response be? If inflation and growth are both high what would the expected monetary policy response be? If a central bank raises interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?
If a central bank lowers interest rates, what affect if any is this expected to have on the currency of that country, all else being equal? If a country's imports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any? If a country's exports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?
Japan is a major importer of oil and Canada is a major exporter of oil. Traders who follow US Dollar fundamentals pay particular attention to any numbers which reflect the overall health of the consumer. Once the first person posts the right answers to all 10 questions I will send a private message to them via the forum to request the mailing address where they would like their free copy of Day Trading the Currency Market sent. That's our lesson for today. In tomorrow's lesson we will begin a discussion on the fundamentals that move each of the main currencies we will be focusing on, starting with the US Dollar, so I hope to see you in that lesson.
In our last lesson we continued our free forex trading course with a look at why the US Dollar is still king of the currency world. As expected, this lesson generated a lot of debate, so in today's lesson we are going to look at whether or not the US Dollar will remain the king of the currency world. While currently the US Dollar is still king of the currency world, many argue that the tides are changing, and that the US Dollar is in danger of losing this status.
Whether or not this happens, to what extent it happens, and if it does happen how quickly or slowly it happens, is of huge importance to currency traders. The most important reason why the US Dollar is king of the currency world is the fact that, as we learned about in our last lesson, it is the world's reserve currency. According to Wikipedia. This is an enormous amount of dollars being held by central banks outside of the United States, so forex traders watch closely anything that could show a decrease in the appetite of central banks for US Dollars.
Like with individuals and companies, other countries willingness to lend money to the United States by holding US Dollar Denominated Debt as reserves is based on the financial soundness of the United States as a whole. As we learned about in module 3 of this course, the US has run a large current account deficit for years.
In addition to this, the country's government has also run large budget deficits. Like an individual who runs up large amounts of debt, this makes the debt of the United States less attractive, and has the potential to decrease other countries willingness to fund these activities, by holding US Dollar Denominated debt as reserves.
Secondly, many consider the monetary policy of the United States to be flawed, citing the Federal Reserve's increase of the money supply to hold interest rates low, as a major factor in the dollar's decline. As we learned about in our lessons in module 3 of this course, the lowering of interest rates tends to weaken the value of a currency all else being equal.
As the value of the currency falls, countries around the world who hold that currency, see wealth evaporate due to the falling value of their reserves. This obviously has the potential to make the US Dollar less attractive for them to hold as their reserve currency, which means a decrease in demand, and a decrease in the value of the currency all else being equal.
As we just discussed, this decreases the wealth of the countries who hold the US Dollar as their reserve currency, and has the potential to reduce their appetite for US Dollars, regardless of the reason for the decline in value. This potentially means a decrease in demand from the central banks to hold US Dollars as their reserve currency, and a decrease in the value of the currency, all else being equal.
As some of you who are a little more experienced in the markets probably know, some problems can arise with the above scenario, and there have been many examples in history of countries who were not able to hold their currency pegs. So what does all this have to do with the US Dollar's Status as the world's reserve currency? Well, one of the main reasons that countries have in the past chosen to peg their currencies to the US Dollar, is because of the relative stability of the US Dollar in relation to other currencies.
It is important to understand that not only do the currencies of countries who peg to the US dollar fluctuate in value along with the US Dollar, but their own monetary policy is basically tied to the monetary policy in the United States.
This is all fine and dandy so long as the monetary policy of the United States is considered sound, and so long as the currency does not fluctuate in a manner that adversely affects the economy of the country pegging to the dollar.
There is a perfect example of this going on as of this lesson, with oil producing countries in the Middle East. As the price of oil has been high for so long, the economies of countries such as Saudi Arabia are booming, and money is flowing into those countries at a rate never seen before, creating all sorts of demand for the Riyal Saudi Arabia's Currency.
At the same time, the United States, the currency of which Saudi Arabia pegs their currency to, is going through an economic slowdown. So what you have here is a situation where, if anything, monetary policy should be tightening in Saudi Arabia, and their currency should be strengthening.
As their currency is pegged to the US Dollar however, they are affected by the loose monetary policy of the United States, throwing fuel on an already hot economy, and weakening their currency when it really should be strengthening. As we learned in our lessons on monetary policy in module 8 of our basics of trading course, this is a recipe for massive inflation, which it seems they are starting to see signs of now. Scenarios such as this can cause countries to abandon their currency pegs or switch the currencies that they peg to something which is of major importance to the status of the US Dollar as the World's reserve currency.
There are many different scenarios such as the one above which can arise from countries who peg their currency to another. It is important for us to have a fundamental understanding of how to spot these scenarios, as whether or not countries continue to peg their currencies to the US Dollar, or move to a basket of currencies or another currency all together, will have huge affects on the value of the US Dollar going forward.
In our next lesson we will wrap up our discussion on the US Dollar with a look at the final factors to consider when eying the status of the dollar, so we hope to see you in that lesson. The final video in our three part series on this subject. As you can probably imagine, we could spend many lessons and multiple hours going over each of the economic indicators that affect the price of the US Dollar.
It is for this reason, that before getting into any of the actual indicators, I wanted to give everyone an overview of the broad things that move the market. As we have discussed in previous lessons the two broad categories that pretty much everything that moves the forex market fits into, are trade flows and capital flows, as covered in module 3 of this course.
Once you have an understanding of this, all that is necessary to understand how economic numbers move the dollar, is to understand which numbers are important to the market at the time, whether those numbers fit into the trade flows or capital flows category, and how they should affect the dollar as a result. As we learned in module 8 of our basics of trading course, how the market reacts to economic releases is generally determined by two factors: 1.
How important the market considers a particular release to be. How close to market estimates the number comes in at. Remember that markets anticipate news, so generally if an economic release comes out as expected, there is very little if any market reaction to that release. How important the market considers a particular economic release to be, is something that changes over time depending on what is happening from a US Dollar fundamentals standpoint.
If there are worries that the economy is going into recession, then the market is going to be extra sensitive to any numbers, such as non farm payrolls and consumer spending, which may provide early warning signs that this is the case. Conversely, if the economy is heating up and the markets are worried that inflation may become a problem, then the most market moving numbers may be price data releases, such as the CPI and the PPI. For your reference, according to Dailyfx.
Non Farm Payrolls 2. FOMC Releases 3. Retail Sales 4. ISM Manufacturing 5. Inflation 6. Producer Price Index 7. The Trade Balance 8. Existing Home Sales 9. Foreign Purchases of US Treasuries TIC Data We have discussed most of these indicators already, and for those which we have not, a quick google search, and review of the indicator in the context of whether it fits into trade flows or capital flows, should answer the question of why they move the market.
Although I am probably a little biased since I used to work with the people who run the site, I am a very big fan of Dailyfx. They have a great global calendar which you can find at the top of the site as well as tons of both technical and fundamental commentary on everything that affects the US Dollar and forex market in general. For this lesson specifically, if you click the calendar button at the top of the site you will see they have all of the economic data releases from the major countries of the world with the time of the release, the previous number, the forecasted number and the actual number which is updated after the release.
You will also notice here they have links for the more important numbers giving a definition of the release, the relative importance of the release, and the latest news release relating to that release. If you click back to the homepage of the site you will see lots of fx related reports which the Dailyfx staff puts out throughout the day.
As we discussed in module 8 of our basics of trading course, the best way to get a feel for how economic numbers affect the market, and which numbers are in focus, is to start following the market on a daily basis and seeing how it reacts to various news events. As this is the case, I highly recommend following the commentary on Dailyfx. If you have not registered for a free realtime demo account I have included a link above this video where you can do so.
That's our lesson for today, and that wraps up our discussion on the US Dollar. In the next lesson we are going to look at the next most traded currency in the world, the EURO so we hope to see you in that lesson. The Euro is now the official currency of 15 of the 27 member states in the European Union EU , which makes it the currency used by over Million people. Like Europe itself, the Euro has an interesting history, which we as traders must understand to have a full understanding of the fundamentals of the currency.
There are two major factors which lead to the eventual formation of the European Union, and therefore the Euro, which are important for traders to understand. Nothing like the decimation that the World Wars brought to Europe had ever been seen before however, so after World War II, there was a realization that a drastic reordering of the political landscape was needed, in order to put nationalistic rivalries to bed once and for all.
Also as a result of World War II, the world's power structure had shifted, and the major European countries who were once the superpowers of the world, were replaced by two new superpowers. The United States and The Soviet Union were now the unrivaled superpowers of the world, and as a result there was a keen awareness among the former world powers of Europe, that banding together was the only way for Europe to have comparable clout on the world stage.
It was primarily as a result of these two factors that the European Coal and Steel Community which eventually became the European Economic Community, the predecessor to the European Union was founded in the 's with the general goals of: 1. Lowering trade barriers and facilitating economic cooperation for the benefit of the member nations.
Increasing Europe's clout on the world stage 3. Integrating the economies of the major countries in Europe to the point where they were too reliant on one another to go to war again. During the next several decades many things happened from a diplomatic and trade standpoint that are very interesting, and which can be read about by doing a search on google for the history of the European Union. The next important event for us as traders however, came with the ratification of something which is known as the Maastricht Treaty in the 's.
With the Maastricht treaty, member countries moved from a simple economic cooperation, to the much grander ambition of political integration between member nations. This is important to us as traders as it was here that plans for a single currency to be used among member nations was introduced, and therefore here that the basic fundamentals of the Euro were laid out. There were three steps outlined in the Maastricht treaty that had to be completed before the currency could be released which were: 1.
Free circulation of capital among member countries. The second, and most important step for us as traders to understand, was the coordination of economic policies. Once the Euro was introduced, each of the member countries would be bound by the monetary policy as set by the European Central Bank.
With this in mind, you could not have countries with extremely different levels of inflation and interest rates, replace their currency with the Euro, without undermining the credibility and fundamentals of the currency. To make the currency credible, and to make its introduction as smooth as possible, member countries were required to keep inflation, interest rates, and debt below certain levels. Lastly, they were also required to maintain an exchange rate that was basically a banded peg, allowing their currency to fluctuate only within a narrow band.
In the European Central Bank was established and the eleven countries listed here began to use the Euro in electronic format only. These countries formed what is known as the European Monetary Union, which is comprised of countries who are members of the European Union, and use the Euro as their currency. Greece, the United Kingdom, Sweden, and Denmark the other members of the European Union at the time remained outside the European monetary Union for different reasons.
While this may seem a bit like a history lesson rather than a lesson in trading, it is very important for traders of the Euro to have an understanding of the history we have just gone over. As we will learn in coming lessons, it is because of this history that the Euro is where it is today, and many of the concepts we have just outlined still affect the value of the currency in today's market.
As we discussed in our last lesson, the Euro was launched as an electronic currency on January 1st As you can see from this chart, the markets initial confidence in the Euro, and really the European Union as a whole, was initially not very high. Over the next year the currency sold off from just above 1. While the tables have turned now in the Euro's favor, it actually took the European Central Bank intervening in the markets and buying Euros, to keep the currency from sliding further in The launch of the Euro was the largest monetary changeover ever, and as you can see, was not guaranteed success.
As we touched on in our last lesson, getting a dozen countries, which varied widely in their economic and political clout, to give up control over their own monetary policy and switch to a more centralized monetary system, was no easy task. As we learned about in module 8 of our basics of trading course, one of the most powerful tools that countries have to try and manage their business cycle is monetary policy, a tool which those adopting the Euro were essentially giving up.
Although we have not seen a real test of this yet, you can imagine a situation where the economy of one of the major countries in the EMU such as Germany, goes into recession, but overall growth in the rest of the EMU is steady.
If Germany were not part of the EMU, they could cut interest rates to try and bring their economy out of recession. Since they are however, their hands would be tied in this situation from a monetary policy standpoint, which may drive their economy deeper into recession than would otherwise be the case.
As we also learned about in module 8 of our free basics of trading course, countries have a second tool to manage the business cycle, which is Fiscal policy. As the EMU nations are still primarily independent from a fiscal policy standpoint, they do still have this in their toolbox.
So here again member nations are someone limited in what they can do to help their own economies, should it falter. Of all the things to understand about the Euro from a fundamentals standpoint, it is this that is the most important, as it is here that a true test of the Euro, will eventually come. So far I think most would agree that the Euro has been a resounding success, and since the original 12 countries replaced their currencies with the Euro as their paper currency in January of , 3 more EU member nations have joined the EMU, and 5 other countries outside the EU have adopted the Euro as their official currency.
As a result of its success and the large combined economies that the currency represent, many feel that the Euro will one day replace the US Dollar as the premiere currency of the world. If you have thoughts on this I would love for you to share them in the comments section below. Thats our lesson for today. In our next lesson we will look at the major economies of Europe which traders watch closely for fundamental direction in the currency so we hope to see you in that lesson. In our last lesson we continued our discussion of the Euro with a look at its introduction, and the major factors which will determine the long term fundamental direction of the currency.
In today's lesson we are going to continue our free forex trading course, with a look at the major economies in the Eurozone and how each affects the value of the Euro. As a result of this economic data out of these countries has the tendency to move the Euro the most, so traders naturally pay them more attention. There are literally thousands of economic numbers released in the Eurozone however, like we covered in module 3 of this course, those that affect the current account trade flows or interest rates capital flows are going to have the greatest potential to move the currency.
All of the indicators which we cover in module 8 of our basics of trading course, have a counterpart in the EU. Most of the time they are also named the same, and as they show the same things, traders can expect the market to react accordingly. The only thing to keep in mind here is that the economic climate in the United States vs. The second thing that it is important to understand about EU economic releases, is the different mandate of the European Central Bank, versus the Federal Reserve.
Where the Federal Reserve has a dual mandate of maximizing employment and maintaining price stability, the ECB's mandate is solely to maintain price stability. With this in mind, the ECB is normally seen as more hawkish than the federal reserve, meaning they are more likely to hold steady or raise interest rates when economic data show price increases, and less likely to cut interest rates as quickly as the fed when growth in the Eurozone slows.
I could spend many lessons covering each of the economic indicators and their relative importance to the market but in the interest of maximizing our learning I am going to instead defer to two free sites which do an excellent job here. As you can see here they categorize the major economic reports and then list them out with stars representing the relative importance of the indicator to the market. If you click on the link for each indicator it will take you to a page giving a definition as well as commentary on how traders should expect the release to affect the market.
Once you have an understanding of the economic indicators then you can get the date, time, and forecast for the release from the global calendar which you can find by click the calendar button at the top of Dailyfx. As you can see here the importance of the indicator to the market is also indicated with stars on the calendar, and the important indicators have links where you can go for more information.
Thats our lesson for today and that wraps up our series on the Euro. In our next lesson we will look at the next most actively traded currency in the world, the Japanese Yen so we hope to see you in that lesson. Japan has the second largest economy in the world behind the United States, and an economic history that is the starting point for understanding the fundamentals of the Yen.
The first thing that it is important to understand from a fundamental standpoint about the Japanese economy, is that unlike the United States, Japan has very few natural resources. The country saw this as necessary, because of the vulnerable position that its lack of natural resources would have otherwise put it into.
Like with Europe however, World War II, set the country back considerably from an economic standpoint, as according to wikipedia. While no one would obviously wish for that type of destruction, there was actually a silver lining in this for the Japanese Economy. As so much of their infrastructure had been destroyed, this gave the Japanese the ability to upgrade it significantly, ultimately giving them an edge over victor states, who now had much older factories.
After World War II the United States occupied Japan, which resulted in the building of a democratic nation, that was dominated by industry, instead of the military. As the Japanese were now putting all of the focus, which had before been put into the military, into rebuilding their industries, they were able to not only match their pre war production levels by , but surpass them.
In the decades that followed Japan proved very competitive on the international stage, and its economic growth in the 60's, 70's and 80's has been described as nothing short of astonishing. If you were around living in the US during the 80's, you can probably remember the envy and fear among the US population, that Japan was quickly going to overcome the United States as the world's economic power house.
While I don't think there is any question that the quality of Japanese products and services has remained very high since the 80's, unfortunately Japan's economy derailed in the early 's, culminating in the busting of one of the most famous asset price bubbles in history. In the decades following World War II the Japanese population had one of the highest savings rates in the world.
As more money was being saved, this meant there was more money available for investment, making access to credit much easier than it had been in the past. As Japan's economy was and still is an export oriented economy, the value of the currency also went up dramatically during this time. The combination of a strong economy, easy access to credit, and a strengthening currency made Japanese assets especially attractive. As its economy seemed unstoppable, and newly wealthy Japanese saved more and more money, much of that capital flowed into the stock and real estate markets.
As you can see from this chart the stock market roared through the s, almost quadrupling in value in 5 years. In the most expensive districts, according to wikipedia. It took until for the stock market to finally bottom, down from a top of around 39, to a bottom of around According to wikipedia. While this may seem like a history lesson that is not relevant to traders, as we will learn in tomorrow's lesson, the affects of Japan's asset price bubble on the Yen are still being felt today, and therefore an understanding is necessary to know how today's market will react to different fundamental events.
In our last lesson we began our discussion on on the Japanese Yen, with a look at the history of the Japanese economy, including the build up of what became one of the biggest asset price bubbles in history. In today's lesson we are going to continue this discussion by examining what happened from the early 's on from a monetary policy and economic standpoint, so we can understand the fundamental foundation on which the Yen sits today. In the Bank of Japan BOJ began to raise interest rates, and the government instituted limits on total bank lending to the real estate sector, to try and reign in speculation which was driving stock and real estate prices to astronomically high levels.
While the central bank was hoping to simply take the foot of the gas and tap the breaks on the economy, unfortunately the markets reaction was drastic, resulting in a stock market and real estate crash starting in This was a "perfect storm" so to speak for the Japanese financial system and economy, as the effects of decline in real estate and stock market prices started a chain reaction, which reverberated throughout the economy and whole financial system.
The first and perhaps most important thing to understand here, is that the economic slowdown, combined with drastic falls in the stock and real estate markets, caused the financial position of Japanese banks to rapidly deteriorate. Much of the speculation that was sending real estate prices so high was being driven by loans from Japanese banks, which took the land they were making the loan on as collateral.
As the quality of the loan was thus tied to the value of the real estate backing that loan, as real estate prices fell off a cliff so did the quality of the bank's loan portfolio's. Secondly, large Japanese institutions such as banks cooperate with one another in Japan, and as a result of this Japanese banks hold large quantities of each others stock.
Holdings of stock are considered an asset for the banks and were included in the banks capital numbers, which basically define how financially solid a banks balance sheet is. As the value of these stock holdings tumbled lower, so did the bank's capital position, putting further pressure on the stability of the individual banks in Japan, and the Japanese Banking System as a whole. Thirdly, as the economy slowed as a result of all this, the individuals and corporations who had received loans began to have a harder time making their payments, further deteriorating the quality of the bank's loans, and stability of the banking system.
At least partially as a result of weak corporate governance, most will argue that Japanese banks did little to adjust to the financial difficulties they now faced, instead preferring to wait for stock and real estate prices to move back towards their pre bubble bursting levels.
The government also did little to address the problem until , when it became clear that without government intervention massive bank failures would result. This history is important to us as traders for two reasons: 1. Reforms aimed at returning the stability of the Japanese financial system are still ongoing today, and it is these financial and structural reforms that traders watch closely when determining the fundamental direction of the Japanese Economy.
Japanese consumers, many of whom had lost large sums of money in the real estate and stock markets, lowered consumer spending significantly, resulting in prices actually starting to decrease towards the end of the 's, something which is known as deflation.
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|Forex trading in egypt||In order to get a credit line from a top bank to trade foreign exchange you must be a very large and very financially stable institution, as bankruptcy would mean the firm that gave you the credit line gets stuck with your trades. This automated trade processing, and therefore made it easier for a lecture about forex to offer the ability link trade fx to the individuals and still be profitable. As we have already covered the major indicators for the US in module 8 of our basics of trading course, and as the indicators in Japan are much the same, in the interest of maximizing our learning time I am going to point you towards two free sites for more information. Traders who follow US Dollar fundamentals pay particular attention to any numbers which reflect the overall health a lecture about forex the consumer. If you don't have several thousand dollars budgeted for one-on-one training, you are probably better off taking an online course. In our next lesson we will wrap up our discussion on the US Dollar with a look at the final factors to consider when eying the status of the dollar, so we hope to see you in that lesson.|
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Forex Broker. November 11, November 1, Please help clarify 2 standard lot size as regards the 50 USD bonus. List of Forex Brokers. Who are the Forex market participants? When does the Forex market come? What are the market working hours? Where does a new trading session day open? Recent Comments. Mobile Flip Menu. Pages Sitemap. A finalized deal is known as a spot deal.
It is a bilateral transaction in which one party delivers an agreed-upon currency amount to the counterparty and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present rather than in the future , these trades actually take two days for settlement. A forward contract is a private agreement between two parties to buy a currency at a future date and at a predetermined price in the OTC markets.
A futures contract is a standardized agreement between two parties to take delivery of a currency at a future date and at a predetermined price. Futures trade on exchanges and not OTC. Unlike the spot market, the forwards and futures markets do not trade actual currencies.
Instead, they deal in contracts that represent claims to a certain currency type, a specific price per unit, and a future date for settlement. In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.
In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange CME. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized.
The exchange acts as a counterparty to the trader, providing clearance and settlement services. Both types of contracts are binding and are typically settled for cash at the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The currency forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets to hedge against future exchange rate fluctuations, but speculators take part in these markets as well.
Companies doing business in foreign countries are at risk due to fluctuations in currency values when they buy or sell goods and services outside of their domestic market. Foreign exchange markets provide a way to hedge currency risk by fixing a rate at which the transaction will be completed.
To accomplish this, a trader can buy or sell currencies in the forward or swap markets in advance, which locks in an exchange rate. For example, imagine that a company plans to sell U. Unfortunately, the U. A stronger dollar resulted in a much smaller profit than expected. The blender company could have reduced this risk by short selling the euro and buying the U.
That way, if the U. If the U. Hedging of this kind can be done in the currency futures market. The advantage for the trader is that futures contracts are standardized and cleared by a central authority. However, currency futures may be less liquid than the forwards markets, which are decentralized and exist within the interbank system throughout the world. Factors like interest rates , trade flows, tourism, economic strength, and geopolitical risk affect supply and demand for currencies, creating daily volatility in the forex markets.
A forecast that one currency will weaken is essentially the same as assuming that the other currency in the pair will strengthen because currencies are traded as pairs. The trader believes higher U. Trading currencies can be risky and complex. The interbank market has varying degrees of regulation, and forex instruments are not standardized. In some parts of the world, forex trading is almost completely unregulated. The interbank market is made up of banks trading with each other around the world.
The banks themselves have to determine and accept sovereign risk and credit risk , and they have established internal processes to keep themselves as safe as possible. Regulations like this are industry-imposed for the protection of each participating bank. Since the market is made by each of the participating banks providing offers and bids for a particular currency, the market-pricing mechanism is based on supply and demand.
Because there are such large trade flows within the system, it is difficult for rogue traders to influence the price of a currency. This system helps create transparency in the market for investors with access to interbank dealing.
Depending on where the dealer exists, there may be some government and industry regulation, but those safeguards are inconsistent around the globe. Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the United States or the United Kingdom U. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent. Trading forex is similar to equity trading.
Here are some steps to get yourself started on the forex trading journey. Learn about forex: While it is not complicated, forex trading is a project of its own and requires specialized knowledge. For example, the leverage ratio for forex trades is higher than for equities, and the drivers for currency price movement are different from those for equity markets.
There are several online courses available for beginners that teach the ins and outs of forex trading. Set up a brokerage account: You will need a forex trading account at a brokerage to get started with forex trading. Forex brokers do not charge commissions. Instead, they make money through spreads also known as pips between the buying and selling prices.
For beginner traders, it is a good idea to set up a micro forex trading account with low capital requirements. Such accounts have variable trading limits and allow brokers to limit their trades to amounts as low as 1, units of a currency. For context, a standard account lot is equal to , currency units. A micro forex account will help you become more comfortable with forex trading and determine your trading style.
Develop a trading strategy: While it is not always possible to predict and time market movement, having a trading strategy will help you set broad guidelines and a road map for trading. A good trading strategy is based on the reality of your situation and finances. It takes into account the amount of cash that you are willing to put up for trading and, correspondingly, the amount of risk that you can tolerate without getting burned out of your position.
Remember, forex trading is mostly a high-leverage environment. But it also offers more rewards to those who are willing to take the risk. Always be on top of your numbers: Once you begin trading, always check your positions at the end of the day. Most trading software already provides a daily accounting of trades. Make sure that you do not have any pending positions to be filled out and that you have sufficient cash in your account to make future trades.
Cultivate emotional equilibrium: Beginner forex trading is fraught with emotional roller coasters and unanswered questions. Should you have held onto your position a bit longer for more profits? How did you miss that report about low gross domestic product GDP numbers that led to a decline in overall value for your portfolio? Obsessing over such unanswered questions can lead you down a path of confusion. That is why it is important to not get carried away by your trading positions and cultivate emotional equilibrium across profits and losses.
Be disciplined about closing out your positions when necessary. The best way to get started on the forex journey is to learn its language. Here are a few terms to get you started:. Remember that the trading limit for each lot includes margin money used for leverage. This means that the broker can provide you with capital in a predetermined ratio.
The most basic forms of forex trades are a long trade and a short trade. In a long trade, the trader is betting that the currency price will increase in the future and they can profit from it. Traders can also use trading strategies based on technical analysis, such as breakout and moving average , to fine-tune their approach to trading. Depending on the duration and numbers for trading, trading strategies can be categorized into four further types:.
Three types of charts are used in forex trading. They are:. Line charts are used to identify big-picture trends for a currency. They are the most basic and common type of chart used by forex traders. They display the closing trading price for the currency for the time periods specified by the user. The trend lines identified in a line chart can be used to devise trading strategies. For example, you can use the information contained in a trend line to identify breakouts or a change in trend for rising or declining prices.
While it can be useful, a line chart is generally used as a starting point for further trading analysis. Much like other instances in which they are used, bar charts are used to represent specific time periods for trading. They provide more price information than line charts. Each bar chart represents one day of trading and contains the opening price, highest price, lowest price, and closing price OHLC for a trade.
Colors are sometimes used to indicate price movement, with green or white used for periods of rising prices and red or black for a period during which prices declined. Candlestick charts were first used by Japanese rice traders in the 18th century. They are visually more appealing and easier to read than the chart types described above.
The upper portion of a candle is used for the opening price and highest price point used by a currency, and the lower portion of a candle is used to indicate the closing price and lowest price point. A down candle represents a period of declining prices and is shaded red or black, while an up candle is a period of increasing prices and is shaded green or white.
The formations and shapes in candlestick charts are used to identify market direction and movement. Some of the more common formations for candlestick charts are hanging man and shooting star. Forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. This makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions. The forex market is traded 24 hours a day, five and a half days a week—starting each day in Australia and ending in New York.
The broad time horizon and coverage offer traders several opportunities to make profits or cover losses. The extensive use of leverage in forex trading means that you can start with little capital and multiply your profits. Forex trading generally follows the same rules as regular trading and requires much less initial capital; therefore, it is easier to start trading forex compared to stocks.
The forex market is more decentralized than traditional stock or bond markets. There is no centralized exchange that dominates currency trade operations, and the potential for manipulation—through insider information about a company or stock—is lower. Even though they are the most liquid markets in the world, forex trades are much more volatile than regular markets. Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own.
Leverage in the range of is not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their interconnectedness to grasp the fundamentals that drive currency values.
The decentralized nature of forex markets means that it is less accountable to regulation than other financial markets. The extent and nature of regulation in forex markets depend on the jurisdiction of trading. Forex markets lack instruments that provide regular income, such as regular dividend payments, that might make them attractive to investors who are not interested in exponential returns. Forex, short for foreign exchange, refers to the trading of one currency for another.
It is also known as FX. Forex is traded primarily via three venues: spot markets, forwards markets, and futures markets. Companies and traders use forex for two main reasons: speculation and hedging. The former is used by traders to make money off the rise and fall of currency prices, while the latter is used to lock in prices for manufacturing and sales in overseas markets. Forex markets are among the most liquid markets in the world.
Hence, they tend to be less volatile than other markets, such as real estate. The volatility of a particular currency is a function of multiple factors, such as the politics and economics of its country. Therefore, events like economic instability in the form of a payment default or imbalance in trading relationships with another currency can result in significant volatility.
Forex trade regulation depends on the jurisdiction. Countries like the United States have sophisticated infrastructure and markets to conduct forex trades.