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Basic Differences Between Forex and Stock Markets

August 4, 2011 By Leave a Comment

The word forex is a short form of the word Foreign Exchange, which is the basis of the commercial transactions which take place between two countries with their own currencies. The forex market refers to the trading that takes place within this area and is different from the stock market. Established since the ‘70s, this market deals not just with one business or investment but the entire gamut of trading and selling of currencies.

While both the forex and the stock markets deal with money, the biggest difference between the two is the sheer volume of money transacted on a daily basis as well the span of operations. The forex market deals with nearly 2 trillions of dollars which in comparison to any stock market is much larger. The players in the forex market are also different, where the money transactions are done between governments, international banks and financial institutions of different countries.

The amount of money which is bought, sold or traded in a forex market can quickly be turned into liquid cash, or better still, it is actually made into hard cash. The speed with which such transactions take place in a forex market can be really fast for any investor, irrespective of the country of his origin.

The other difference between a stock and a forex market is that stock markets operate in shares and businesses which belong to a specific country; forex markets on the other hand operate globally and can include any and every country of the world. Its span of operations is far wider. The market encompasses nearly every country of the world and deal with trading their individual currencies which has nothing to do with any specific business or corporation.

While stock markets operate only on business working days and may remain closed on bank holidays and weekends, the forex market has to consider the several time zones across which it operates. Hence the forex market is open 24 hours 7 days a week to accommodate all the countries. While one market opens another closes. Because of the difference in time zones, one country may close its market but another in another part of the world has opened its own. Thus the trading in a forex market happens on a non-stop basis.

The stock market of any country operates with the prevailing currency of that country. For instance, Japan will work with the yen and the US stock market will work with dollars, Indian stock market with Indian Rupees, etc. The forex market, on the other hand, works with many countries and trades in many currencies. These are the major differences between the stock and the forex markets.

It is important to know the basics of this important financial market called the forex or foreign exchange market, if you also want to participate in it with your investments.

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Basics of the Forex Market

August 4, 2011 By Leave a Comment

Though the market has many names like the foreign exchange market, forex market or simply the FX, the function is same, and that is trading in foreign exchange or currencies of many countries of the world. The participants of this trading of currencies are usually governments, banks, business or companies. It is important to remember that financial markets are chiefly operated by brokers or banks. Ignorance about this fact has led to many scams where several foreign companies and fraudulent people have siphoned off funds or fleeced the public who were unaware that foreign trade can only be conducted by banks or broking companies who specifically deal with foreign exchange.
What are the components which are traded in the forex market? Cash, stocks and of course currency are the components with which this market deals with. You can not trade in any currency without the forex market playing its role in the transaction. Imagine making a trip abroad and you want to get your dollar’s worth in the foreign currency. This is when you are ‘trading’ your money. This is the basis on which the forex market operates. Foreign exchange is not available in every bank or financial institution. Forex, therefore is a specialized form of financial deal.

There are many small businesses and rather greedy individuals who are on the look out for making some quick and bid money, who fall prey to forex market scams. In their haste to earn a few hundred quick dollars, they overlook many pre-requisites of forex trade. If you do not deal through a bank or a broking company who specially deal with forex, chances are that you could lose every penny of your investment.

Here are some scams that you should be careful about:

• Forex scams are all about investing in a company which is perhaps illegally operating in your country. Remember, there is no way you could get your money back, if you have lost it in a forex scam. If you every come across a company who claims to deal in forex, have a closer look at the company to check whether they are permitted to operate in your country. There are enough companies who are not allowed entry into the forex market as they have part record of cheating customers.

• The internet has opened up wider vista for forex trading in the last five years. Even awareness about forex market has also increased. For any successful and clean forex transaction to take place, banks must step in where there is a licensed and trained broker who is aware of all the formalities to complete the transaction keeping your specific requirements in mind. There are the usual commissions which are paid on every transaction and this is the normal and usual rule.

• The other type of forex scam is related to the soft ware which helps you in trading with forex. In any case you must consult your financial broker and learn more about trading in forex, educate yourself on the forex market and its dynamics before you make any investments in this market.

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Should You Invest in Forex Trading?

August 4, 2011 By Leave a Comment

What exactly is forex trading? It involves investing in other currencies so that you can earn interest overnight, for a particular time span or due to the differences in the value. Though forex trading also involves other assets together with money, but since you are putting your money in other countries and other businesses which deal with currencies other than your own, the basis on which you win or lose money is on the trading of money only.

Forex markets operate day and night because of the varied time zones in which the participating countries are situated. While the market environment of one country will impact another, it is not always good or bad as often the trading margins are close to each other.

Any commercial transaction between two countries be it goods, services or a combination of both would surely involve the forex market. While currencies of two countries change hands, the forex trading can involve up to two trillions of dollars every day. While banks are often the primary source of forex trading, you would have to think hard whether you wish to be part of this big money scene. If you have any experience in stock markets, you would perhaps have some idea of forex markets as well.

When you are playing in the stock market, you buy and sell shares while watching the performance of the company where you have invested money. In the forex market you are buying products and paying money for it. While doing this you could win or lose money depending on the value of the currency vis-à-vis the other. Remember currency exchange rates vary every day, sometimes by the hour. To know more about forex trading you could use some free online ‘game’ soft ware.

Playing these types of online games involve logging on and creating an account. Then enter what area you are interested in and what you plan to do. The virtual reality game plays with different currencies – so this gives you a first hand experience as to what it is to win or lose money. As you carry on with this virtual reality experience, you realize what decisions are required based on what type of information and how you can read through the various market dynamics. You also know when to take your broker’s advice and how to move on with the game of making money.

If you want to invest your money in forex market, it is recommended that you go through a broker or a financial institution. Individual investors are also referred to as spectators as their investments are miniscule compared to that made by governments and banks at any point in time. The bulk of money however small, can not bar an individual from investing in the forex market. Your financial advisor or bank can give you more information as to how you can go about it. There are many stipulations in the US forex market regarding forex trading by American citizens, so if you locate a broker through the internet, you better find out more invformation about the company, its location and legality status.

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How to Trade in the Forex Market

August 4, 2011 By Leave a Comment

If you start practicing forex trading without knowing much about its pitfalls and legalities, you are consciously putting your money at the highest risk possible. It would be better if you start practicing forex trading by playing many online games and simulations where you can learn many of its tips and tricks. This can then suitably prepare you to face any real-life situation better. Forex market involves many countries of the world each one with their own currencies. When pitted against each other their value could be much more than the original valued currencies which are being traded. Remember one of the primary purposes of the forex market is to create wealth for governments, banks, brokers and of course many countries.

The first task for you when you want to learn about forex trading is to acquire the relevant software cum leaning-education system. With the game, you would enter your requirements and what you wish to learn. Then download the relevant section on to your computer. Playing such games, you would learn when and how you can lose or gain money in the forex market. It also exposes you to the operational details of the forex markets, how the individual currencies work and how different their valuations are. These are important lessons which the game can teach you at the comfort of your own home.

The gaming involves your opening an ‘account’. After this you could watch the different financial markets and how they interact with each other, and operate with ‘fake’ trading options – and watch how your money grows or every investment goes down the gutter. Use the gaming system a few times a week to practice it thoroughly – so that you are better prepared to face the real world of forex trading to make money. Of course, you will still need the services of a broker or a financial institution – but you will be able to understand their processes better. You are better equipped to make meaning out of their news, the market operations and know more about the rise and fall of currencies around the world.

Also referred to as FX market, it is wise to ensure that you are dealing with a reputed broker or a financial institution, before you start any transactions in forex trading. With the spurt of interest in forex market and forex trading there are several companies which are sprouting all over the internet claiming that they are genuine financial brokers or companies. However in reality they are far from it. All forex trading transactions can only be completed by an authorized and licensed broker or a company that deals with foreign exchange located in your own country. For instance, the US government has in place many strict rules and regulations regarding which companies are eligible to deal with the public in matters of forex trading or forex market.

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Understanding the Global Forex Market

August 4, 2011 By Leave a Comment

Forex is a ‘method’ of trading with foreign currencies or foreign exchange. The institutions who are involved in foreign exchange markets are some of the largest and most reputed in the world. They trade in currencies from across the globe and create a balance between the losers and winners. You could compare the forex market with the stock market, except that the forex market operates on a far larger and wider scale – involving many people, currencies and trades of several countries across the globe.

The value of a currency fluctuates every day. What one dollar is worth today may change for the better or worse tomorrow or the day after. So if you are trading in the forex market and investing a large sum of money, you must keep a close watch on the currency fluctuations or you could stand to lose vast sums of money. Though London, New York and Tokyo are the three main forex centers of the world, there are several other locations where forex trading takes place.

The Australian dollar, the Swiss franc, the British pound sterling, the Japanese yen, the Euro zone Euro, and the United States dollar are the most heavily traded currencies though not necessarily in this order. While you could trade using only one currency, you could also trade using several currencies, to increase your interest accumulation and make extra money.

Just like stock exchanges across the world open and close depending on the time zones, forex trading also follows a similar pattern. The situation of any forex trading of one country could have an impact on another country, depending on the closing and opening hours. Exchange rates also fluctuate from one trade to another. So if you are a broker or starting to practice in the forex market of your country, you must know the ruling rates before you start trading for the day.

The stock market is dependant on various factors like products, prices, internal development within a company which affects the stock prices. When someone knows beforehand any information about the company, it is called insider trading which involves using business confidentiality to make and this is considered illegal. In the forex trading though, there is very little or zero inside information. The forex market is never impacted by what is going on inside any business, but more by the state of economy and what affects it. The value of the currency and the stability of a country are some of the factors which impact forex market and forex trading.

Every currency which is traded in the forex market is represented by a three-alphabet code which ensures that the investor is dealing with the right country. While the Euro is depicted by EUR, the dollar by USD, the yen by JPY and the pound by GBP, every currency has its own 3-letter symbol. If you are interested in investing in the forex market there are several companies details about which you could study online, before you put your trust and money on them.

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Know the Participants of Forex Trading

August 4, 2011 By Leave a Comment

Forex trading involves trading between different countries of the world, their currencies and the precise timing of investing in some specific currencies. But who are the players in this ever-volatile and fluctuating market? Who are the intermediates through whom the transactions are completed? All forex trading is usually completed with the help of a broker or a financial institution. While there are plenty of people involved in forex trading, similar to stock trading, the former takes place on a larger scale and on a global platform. Majority of forex trading takes place between governments, banks and other large financial institutions. Of course the smaller retail investors are also present, often referred to as spectators, as their scale of investment is smaller compared to the biggies. The financial situation of a country makes the forex market fluctuate. It involves trading of millions between some of the most powerful countries of the world as well as smaller countries.

It has been observed over the years that majority of transactions in forex trade is done by banks and hence this is called inter-bank. About 50% of all forex trading is done by banks. Thus the lesson to be drawn from here is that if banks can use this machinery to make money for the stock holders and for bettering their operations, you can imagine that there is money for the small investors as well. To increase the amount of money held by a bank, it participates in forex trading on a daily basis. It is possible that a bank can invest millions of dollars in a day and the next day make the interest earned available to its stock holders, etc.

There are many commercial enterprises like Deutsche bank, UBS, Citigroup, HSBC, Braclays, Merrill Lynch, JP Morgan Chase, Goldman Sachs, ABN Amro and Morgan Stanley and more who also trade in forex markets. They do this to increase the value of wealth to stock holders. Though the number of smaller companies participating in forex markets is relatively low, but they are there nevertheless. The amount of investment and trading done by smaller businesses is negligible in comparison to the trading done by large corporations and financial institutions.

Central banks play the most important and critical role in the functioning of the forex market. The supply the money and control the interest rates. The sheer availability of money for the forex markets depends on the central banks. These are located in Tokyo, London and New York. Though these are not the only central locations for forex trading but definitely the largest involved in the market. It is possible that banks, commercial enterprises or central banks incur heavy losses – and these are passed on to the investors. Otherwise all parties concerned can enjoy the benefits of huge monetary gains.

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What are Fibonacci Numbers?

August 4, 2011 By Leave a Comment

Who is Leonardo Fibonacci? Was he the guy who painted Mona Lisa? Or is he the guy behind the counter at Vinnie’s Pizza? He is neither. In fact, Fibonacci (1175-12150) is the name of a famous Italian mathematician who made enormous contributions to the field of mathematics including introducing the decimal system to Europe.

He is also the man behind a sequence of numbers which have since then become known as Fibonacci Numbers or the Fibonacci Sequence.

The Fibonacci Sequence start with a 0 and a 1, and each new number is the sum of the two previous numbers (0 + 1 = 2, 1 + 2 = 3, and 3 + 2 = 5). The first numbers in the sequence are as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, and 144…and so on till infinity.

Fibonacci discovered a strange relationship in these series of numbers, their ratios to one another and the prevalent nature around us. So what has that got to do with forex trading?

In fact quite a lot. The ratios which exist in the Fibonacci numbers are also present in the price movement of currencies – be it stock or any other form of investment.

Without sounding mysterious any more, let us take 3 big numbers which you need to remember: 0.382, 0.500, and 0.618. Though there are many other numbers, but these three happen to be most important.

The fact of the matter is that these numbers are used to derive the ‘retracement levels’ which in turn are used by brokers to assess the purchase and sell off timings. This is how it works:

Imagine that the price of a currency pair or a company’s stock is on an ascending trend. History says that prices go up, then get in to a temporary turn mode and then resume their upward trend. The reversal point is where the Fibonacci numbers play a role.

The price of a currency is going up is expected to turn and reach one of the Fibonacci numbers before it bounces back upwards again. If you can predict this with accuracy and buy just before the upward trend begins, you could rake in big profits.

Your online trading platform should be able to chart the Fibonacci numbers for you. All you have to do is to map the line from the low to the high point, the retracement levels are automatically charted out.

This concept is in reality not as simple as it is made out to be. Here are things to consider when the price hits a Fibonacci number:

You can not predict the precise retracement level the price will stoop to. If you choose .382 and the price drops to .618, you could stand to lose a lot of pips.

Likewise, if you choose the wrong high and low points your retracement level prediction can throw you completely out of gear.

Though the Fibonacci numbers may seem accurate, sometimes they simply do not work at all because of the number of variables in the forex market. It is not wise to depend on one method to predict currency price fluctuation.

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Forex Trading – Look Before You Leap

August 4, 2011 By Leave a Comment

When you want to make big money you think of forex market. Forex or the foreign exchange market is sometimes referred to as the FX market. Because of the constant fluctuations in the value of the different currencies of the world, some investors have indeed been successful in making big money trading in this market. Forex trading is more often than not, done via a broker or a financial institution through whom you buy stocks, bonds and other types of investment tools.

What happens to your money which you invest in the forex market? These investments are used in various countries of the world, mostly to prop up investments made by people in some types of hedge bunds of overseas markets. So your money could be invested in one county on one day and in another the next day. The changes are decided by your broker or the financial institution. When you read details of your forex account and the transactions, you will notice that every currency is denoted by a combination of three letters which are specific to a particular country.

For instance, the dollar is represented by the letters USD, the yen of Japan by JPY, the British pound is denoted by GBP and so on. When you study the transaction details in your financial statement, you will come across information which looks like this: JPYzzz/GBPzzz. The meaning of these alphabets is that you have taken your yen and put them into the British market. In case your money is spread across the forex market and you are dealing with multiple currencies, your statements will reflect the different transactions in this manner.

The companies who should be trusted in forex trading are investment management firms. To get the most out of your investments, you must look for a company which has got at least a couple of decades’ of experience and not some one who has just entered the business yesterday. You need to be extremely cautious of various investment companies which pop up in your screen on the net. These companies are usually located in a foreign country and hold you with the promise of successful trading in forex markets through their expertise. You must spend time reading the fine print so that you put your trust in some company who is worth it.

When you start trading in the forex market, you will find that there are limitations to your investing amount which vary from one company to the other. Some companies need a minimum investment of $250 or $500, while others may ask you for a minimum investment of $1000 or even $10000. The amount of money you need to open an account with the company is its private policy. The scam companies on the net would sometimes tell you that you need only an investment of $1 or $5 to open an account – but before investing you would like to know more about the company, where they are operating from. This type of research will prove to be safer initiatives when you re dealing with forex trading online.

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Forex Trading – Who Are The Big Players?

August 4, 2011 By Leave a Comment

Forex trading involves using stocks and currencies from countries worldwide to create a market where enormous amounts of money are traded daily. While the basic principles of operation between the stock and the forex markets might be same, the sheer scale and the market operatives of the forex market are far larger than the stock market and the net outcome and the total flow of money is also several times bigger than this market. The whole market scenario of the forex market involves hundreds of currencies from different countries of the world, though there are some currencies which are traded more than others. The big players of the forex market include Deutsche bank, UBS, Citigroup, and others such as HSBC, Barclays, Merrill Lynch, JP Morgan Chase, and still others such as Goldman Sachs, ABN Amro, Morgan Stanley, and so on.

Anyone can start trading in the forex market anytime but to know precisely what you should and should not do, where to place your money at what time and how, you need the assistance of professionally managed large financial institutions. This is in your best interest. Contact any of the big broker firms as these are most trustworthy.

Few of the biggest traders of the forex markets are international banks. They have plenty of money to invest on a daily basis from the interest they earn. So now you know how banks make money on the money that you save with them. If you want to know whether your bank is involved in forex trading, think whether you can withdraw money from them when you are on a vacation in a foreign country. If they are unable to assist you, then most likely they are not involved in forex trading. There is another way you could find out – check their quarterly financial statements which they issue for public information. Or, simply ask any manager of the bank and he will be able to tell you.

As a newbie to the forex market you must understand that there is not a single bank or a single person who controls the trading in the forex market. Various currencies originating from various countries of the world are traded in these markets. In fact, the US dollar, Japanese yen, British pound, Euro zone euro, Swiss franc and the Australian dollar are the few currencies which are traded most in forex markets. Of course there are other currencies from other countries as well. The most important forex trading markets are located in Tokyo, New York and London with several other smaller trading centers spread all over the world.

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