Wednesday, March 05, 2008

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Forex/Currency Trading: It is a sentiment game w/ a crowd mentality where even the best players w/ the best forecasts are tricked out of good positions by the magic of price action.
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An exchange rate transaction is termed a cross rate when the home country currency is not a party in the trade. For example, for a trader in the U.S., a cross rate would be euro/yen, or the euro against the Japanese yen.
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Do not worry about what market will do. Just worry about what you will do when market reaches your "pain point" or "happy point". You will have an easier life as a trader that way. Forex players can operate quietly, but they cannot hide their moves in those charts.

Forex Related News

Zimbabwe currency tumbles to record low

Wed, 05 Mar 2008 11:18:19 EST
Read full story for latest details.



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Win Big Time In The Forex market With This AmazingForex Strategy System II

Choosing a Forex Broker

By Grace Cheng

As you may already know, foreign exchange (Forex/FX) is an unregulated market that is not traded on an exchange, which means that prices you see and get from one broker could vary from those of another broker. There are mainly two types of brokers. One type is an ECN (Electronic Communications Network) and another a Market-Maker.

Market-makers "make" or set the prices on their systems based on what they think is best for themselves as the counter-party. This is because every time you sell, they must buy, and when you buy, they must sell to you. This is why they can give you a fixed spread since they are setting both the bid and the ask price. Many of them will then try to "hedge" or "cover" your order by passing it on to someone else; however, some may decide to hold your order, and thus trade against you. This can result in a conflict of interest between the retail trader (you) and the market-maker.

ECNs, on the other hand, pass on prices from several banks and market-makers, as well as from the other traders in the ECN, and display the best bid/ask prices based on these input. This is why sometimes you can get no spread on ECNs, especially in very liquid currency pairs. How do ECNs make money then? They do so by charging you a fixed commission for each transaction.

Here are some of the pros and cons of ECNs and market-makers:



* Usually give free charting software and news feed
* Prices can be "smoother" and less volatile than ECN prices (this can be a con if you are scalping or trading very short term)
* Often have a more user-friendly trading and analysis interface


* They may trade against you. In that case, there will be a conflict of interest between you and them
* The price they offer you may be worse than what you could get on an ECN
* It is possible that they may trigger stops or not let your trade reach your profit target levels by manipulating prices
* During news, there will usually be a large amount of slippage; their systems may also lock up or not allow order placing during times of high volatility
* Many of them discourage scalping and put scalpers on "manual execution" which means their orders may not get filled at the price they want

Examples of some market-makers:

* Pros: You can usually get better bid/ask prices since they come from several sources
* Variable spreads between bid and ask may give no spread or tiny spreads at times
* If they are a true ECN, they will not be trading against you but will pass on your orders to a bank or another customer on the other end of the transaction.
* You will be able to offer a price between the bid and ask with a chance of it getting filled
* If they support Stop-Limit orders, you can prevent slippage during news by making sure that your order either gets filled at the price you want or not at all
* Prices may be more volatile which will be better for scalping


* Many do not offer integrated charting
* Many do not offer integrated news
* Many of the trading platforms are less user-friendly
* Because of variable spreads (between bid and ask,) it may be more difficult to calculate stop loss and profit target in pips beforehand.

It is important that you carefully look into the pros and cons of each broker before choosing the one which best suits your needs. You may also wish to have several broker accounts to mitigate the risks, and so that you can compare bid/ask prices and trade on the broker with the best prices for the direction you wish to trade. Because of the unregulated nature of forex, US brokers are not required to keep your money in an untouchable account that only you can have access to if they were to collapse. As customers of Refco (was one of the world's largest brokers) found out, their unprotected accounts made them unsecured creditors, and thus are less likely to get their money back than those who had given secured loans to Refco. What this means is that the customers' money was used to pay other creditors.

The moral of the story is this:

Deposit as little money with your broker as you need for trading, and withdraw your profits when they exceed a certain amount. Keep the rest of your trading capital in your own bank accounts which are probably government-insured.

Some Forex Ideas
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News or data are always read by the market along the prevailing market bias. Data can provide a good reading for the state of the market. If the data is bad but the price is still rising or not affected, it must be a bull market which means buy on dip strategy is a better one. Conversely, if the data is good but the price is not rising or even falling, it must be a bear market which means sell on bounce strategy is a better one. The inflexion point must be when bad news or good news. no longer affect the prices as they have done before. Medium/long-term bias changes are usually accompanied by such reactions to the news. It is not the numbers that counts but how the market reacts to the numbers that counts. That gives some comfort to those who are not privy to the numbers already

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There are even some auto trade systems available today that can do it all for you. In order to make an online fortune you MUST first learn how to do it before you attempt to use your own hard earned money to try and make money on the forex market. There the patient forex trading gurus who earn millions of dollars per month from currency trading every month, but there are also those who loose millions of dollars. The only difference between the winners and losers is that the winners took the time to learn what it is about and they traded with dummy account before the dived into the market. It is not that difficult to make a good profit from forex trading, just about anybody can do it if you are dedicated and serious

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Will the forex trading training program that you're considering be able to provide you with more advanced education when you're ready? You may as well choose a training program that will grow with you. Once you become accustomed to using a given learning system, it muddies up the learning process to have to familiarize yourself with an entire new system.
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Asian Morning Update 4th March 2008

Mon, 03 Mar 2008 18:48:02 -0500
Is it time for concerted bank intervention?

European releases overnight:

January Forecast Actual
Italian PPI (MoM) +0.5% +0.4%
Italian PPI (MoM) +5.1% +5.2%

Swiss SVME PMI 61.6 (prior) 60.5
Italian Manufacturing PMI 50.2 50.6
French Manufacturing PMI 53.4 53.8
German Manufacturing PMI 54.0 54.3
Euro-zone Manufacturing PMI 52.3 52.3
U.K. Manufacturing PMI 51.0 51.3
Euro-zone CPI (E) (YoY) +3.2% +3.2%

European PMI numbers remain stable to firm while producer prices keep rising to maintain the upward pressure on inflation. The ECB has been provided with a breather and while they would prefer to hike rates on Thursday they will be satisfied that manufacturing remains on a mild downward path only. The fewer areas seeing volatility will provide them with time to observe and judge reactions.

Elsewhere the huge $17bn subprime writedown by HSBC was a huge shocker but softened by the fact they still managed a 17% H2 profit last year. It also raised its dividend. However, the extent of the subprime losses is still clearly unknown although estimates run at around $600bn in total.

U.S. releases overnight:
Forecast Actual
U.S. January Construction Spending (MoM) - 0.7% - 1.7%
U.S. February ISM Manufacturing 48.5 48.3

U.S. numbers last night were soft but without being dramatic. Given the recent housing numbers the lower construction spending number seems a logical conclusion and is therefore nothing new to the market. It does though point to lower orders for industry and continued softness in industrial production and employment numbers.

The Manufacturing ISM was just about in line with forecasts with most components seeing a slippage. New orders did see a modest increase of 0.4 to 49.5. However, the trend remains lower.

Elsewhere Treasury Secretary Paulson made a firm statement in rejecting many bailout plans as being designed more for “bailing out investors, lenders or speculators who, instead of getting a free pass, should be accountable for the risks they took.”

Plosser is the latest from the Fed to express his concern over inflation by commenting, “There are some signs that pressures are creeping up a bit. We can't wait too long for inflation expectations to materialize.” However, he did still place the current crisis as being more urgent and this “merits lower rates.”

So for the rest of the day for the Dollar was down a bit and up a bit. The Euro just reached the 1.5268 resistance while Dollar-Yen and the Swissie held above their early European lows of 102.60 and 1.0307 respectively. Meanwhile the Pound held within is two-day range.

The recent weakness in the Dollar has brought a series of comments from the ECB and also the IMF.

The IMF head Strauss-Kahn declared the Euro as overvalued. His comments drew support from Trichet who urged the U.S. to support the Dollar and from Juncker who stated that he is “starting to become increasingly concerned and vigilant” about its value.

In a newspaper interview a month ago Juncker commented that G7 powers had agreed they could respond collectively if markets behaved irrationally. Yesterday Trichet added, “In the present circumstances, I consider it very important what has been affirmed and reaffirmed by the U.S. authorities including the secretary of the Treasury and the president of the United States, according to whom the strong-dollar policy is in the interests of the United States of America.”

Central banks pulled back from concerted central bank intervention following the period from the late 1980’s to early 1990’s as it was considered to have limited impact. We have to note that since then Forex rates have seen less annual volatility.

However, we are currently seeing a situation where the largest global economy is under severe pressure. The decline in the Dollar is contributing to the already significant inflationary pressures which will only worsen consumer confidence.

Europeans are clearly concerned over the strength of the Euro and the impact this has on their economy. The ECB would prefer to hike rates to reign in the surging inflationary pressure there but are held back by the credit crisis and possibly a perception that it will encourage carry trades between the Dollar and Euro.

The market sentiment is exceptionally bearish Dollars to the extent that it is overwhelming all other considerations. From this perspective the prospect of the Dollar sales diminishing is hard to see.

If there is any way the Dollar will reverse its fortunes than it will come in one of two forms:

• European banks are hit harder forcing their own downturn; or
• Concerted central bank intervention

It is not something I have generally considered as being likely or viable. However, with current excessive bearish sentiment and the risks to both the U.S. and in deed the global economies it may be something that is possible.

Having said that, I don’t think that time is now. There is still more Dollar downside to go technically but we shouldn’t dismiss this possibility…

More later once the daily analysis has been done…

The following are economic releases from Asia due today:

Japan February Monetary Base (YoY) +0.1%
Australia January Retail Sales (MoM) +0.5%

The RBA are due to announce their interest rate decision

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