Off Exchange Foreign Currency Market (FOREX)

FOREX - The Perfect Market To Trade

Markets exist to provide a way for people to buy or sell commodities and to raise or invest funds. A great deal of people and businesses trade FOREX for the purpose of speculation, that is to buy and sell currencies solely for the purpose of making profit. This is not parasitic as some people may think. In fact, speculative FOREX trading provides an important function in the market place. It makes markets more efficient and liquid. FOREX trading is a noble pursuit that is necessary for the health of the markets, reducing the cost of doing business and assisting in the stabilization and expansion of the global economy.

The Off Exchange Foreign Currency Market, commonly referred to as the FOREX, is the largest market in the world, larger than all the other "public" markets combined. Trading volume was about $3 trillion per day up until the economic crises in late 2008. Take a look at the image just below to see how it has increased since then...

Each of the green vertical lines at the bottom of the above graph represents the EURUSD volume (most heavily traded currency pair) traded for one week represented by the weekly candle stick above it. This indicates very clearly that the number of investors participating in the FOREX market has grown considerably as the great majority of traditional investments are no longer safe.

For more than forty years, the spot foreign exchange market has been the "Invisible Giant" of the investment world, being more than 3 times the combined size of the US Equity and Treasury markets. The FOREX market is unlike any traditional market not only because of its sheer magnitude, but also because the entire market is run electronically, within a network of banks and it is not centralized. The currencies traded in this spot market are the lifeblood of the global financial system which is used nearly every day by every person and company in the world. Even though the currency market trades more than $3 trillion a day now (more than 40 times more than the NY Stock Exchange), most people still don't know anything about it. This market's liquidity and competitive pricing is unsurpassed. FOREX trading and related business activity is accelerating exponentially, at a ferocious pace. Online trading, web-based research and analysis, combined with competitive pricing have made the market much more accessible since 1998, and no longer a monopoly of the large banks, financial institutions, and investment funds. Millions of individuals and smaller businesses now actively trade FOREX.

FOREX trading can be very lucrative. However... BE WARNED ...that it is not for everyone, and in fact, it seems that only a small percentage are able to trade and consistently make profit, while the other 95% or so fail. It requires a great deal of discipline and know how in regards to technical, fundamental, and sentiment analysis as well as risk and money management to trade the FOREX successfully. You are also trading in the same environment as the big banks and the government entities that intervene when they please to make price go the way they want it to. Like any other profession, it takes years to become proficient at it, and even then, a certain talent and ability is required.

Just how profitable can it be trading the FOREX market? You hear sometimes about FOREX traders making as much as 50 per cent per month and even more, but months that profitable are rare and you don't hear about the losing months of those same traders. In regards to establishing good long term track records I refer you to an important article by John Mauldin, the best asset manager guru of asset manager gurus out there in my opinion, whose newsletters I have been reading for several years. All the best financial experts and newsletters out there often refer to and quote John. The article is very informative and sobering regarding the truth point blank about high yield. (John's website)

Why is trading FOREX so attractive? The answer is leverage. You can dramatically leverage money and your time and place. No other market can compare. You can trade $100,000 by putting up $1000 on 1 per cent margin (100 to 1 leverage) on accounts funded with $10,000 and up. On accounts funded with less than $10,000 you can trade at upwards of 500 to 1 leverage enabling you to trade $100,000 (standard lot size) with as little as $200 on margin. That's quite different from the usual 50 per cent margin requirement in equity markets. There are no daily limits and you have total access to your money whenever you want to open any trade position you like at any time. The FOREX market is open 24 hours a day from Sunday evening through Friday afternoon EST, and at any place in the world where you have a phone or Internet connection. There is no need for banks or brokers as you can just log on to your trading account and click buy or sell. For backup, you can always call your brokerage firm to make the trade for you, or even have someone you trust do it for you, or have your automatic trading robot in action from your always on VPS (Virtual private Server).

The FOREX market is simpler to trade than stocks, futures and options. You can buy or sell currencies and profit when the market is going up or down. There are no restrictions when selling (shorting) currencies as there are in the U.S. stock markets. There are no required contract sizes, expiration dates, and other constraints found in the futures and options markets.

You generally do not have to pay commission fees. The brokerage firm collects the spread cost between the buy and the sell price of the currency pairs, which is built in when you open a buy or sell position in the market. The exception is at ECN brokers dealing with higher trade volumes than the regular retail FOREX brokers in which case commissions are charged and are less than the spread costs.

You can also trade with currency options enabling you to limit your risk just to the amount of the premium you paid for your options contract. You decide how much risk you are comfortable with for yourself.

You can also now trade gold and silver at most FOREX brokers.

The potential for profit, trading the FOREX, can be very substantial, and it can also be very risky. FOREX as a spot market is more affordable, has far lower minimum account opening amounts (as low as $100), is less volatile, more convenient and more liquid than the stock market. Profits can be compounded, as once initial profit is made, it can be multiplied by increasing the lot size traded and or the number of open positions. Your profits are also added to your account and compound until they are withdrawn. View compounding examples.

And then along came automatic trading system robots, the most popular being MT4 Expert Advisors (EAs). This has become my favorite by far. In my opinion, automatic trading software technology understood and used properly can give you very significant advantages...

I am very well connected to the FOREX networks and list-owners on the Internet (since 2001) and so have been able to keep track of probably all the most notable FOREX systems and robots coming out on the market. I have personally tested 100s of them and 99% are garbage and the hype is outrageous. Out of the many 100s of commercial robots available now, there are a genuine few that I am working and trading with.

On September 1, 2010, we completed the latest version of our ForexGridMaster (v3.00) EA robot (in development since 2005). It is specifically designed to enable traders to easily create their own automatic trading system strategies and also share strategies with other traders.

One of my most promising strategies using our ForexGridMaster robot, trades price going both ways simultaneously the whole time the market is open, so as to capture upwards of 5,000 pips per trading day at relatively low risk. Our newest ForexGridMaster version (v3.00) has specific added features enabling the trader to solve the key problem with grid trading strategies... the accumulating open negative trades.

To illustrate the real potential that Automatic Trading System EA Robots have for making lucrative profits, here are the results from the 2008 (world) Automatic Trading Championship which was run from October 1st to December 26th, 2008 at http://championship.mql4.com/. Starting capital for all participants was $10,000 and all trading was totally transparent to the public, broker statements uploaded automatically for viewing, lots of trading statistics, and excellent interviews with the system developers.

You can practice and learn to trade the currency markets without risking any money by using free demo accounts and studying the tremendous amount of FOREXFOREX trading information available on the Internet. If you want to cut to the chase and go direct to the best hands on FOREX trading education possible than I highly recommend Jimmy Young (20 year big bank trader) whom I trained with at http://www.eurusdtrader.net/index.html. Unfortunately I spent tens of thousands of dollars on trainings, trading courses, webinars, etc. before I found Jimmy. Please note that I receive no remuneration for this recommendation. Still, in the end I have chosen automatic robots as my main focus.

The six major currencies traded in the currency spot market are the USD (United States Dollar), the EUR (Euro), the GBP (British Pound), the CHF (Swiss Franc), the JPY (Japanese Yen), the CAD (Canadian Dollar) and the AUD (Australian Dollar). These are traded in pairs... EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD and the AUD/USD. For example with the EUR/USD pair you may open a Buy position which means you are buying the EUR and selling the USD simultaneously. The Buy price could be 1.3350 which means it costs $1.3350 US to buy one Euro. The Sell price would be 1.3348 with maybe a 2 pip spread.

Most FOREX brokers enable you to also trade both Gold and Silver on the MetaTrader 4 platform.