The Use Forex Trading as Hedging of Currency Risks

Companies engaged in foreign trade transactions worldwide are active participants in international Forex market. For exporters, there is a constant need to sell foreign currency, while for importers the constant need to buy it. Currency exchange rates in the international currency market are constantly changing. As a result, the real value for the goods or services can significantly change and a profitable contract may not be as profitable or unprofitable based on changing exchange rates. Of course, the reverse situation can occur; when a changing exchange rate causes more of a profit. Nonetheless, the task of a trading company is not to lose or profit from these varying exchange rates.  Read more

Technical Analysis Vs Fundamental Analysis

There are two basic strategies of investing in the Forex market; one based on technical analysis and one based on an analysis of fundamentals.

Technical Analysis
Technical analysis is based on the assumption that future rates of a particular currency or trends in the market can be be extracted from analyzing technical charts with various mathematical tools. This method is attractive since all factors that affect prices have already been taken into account and are reflected in the chart’s behavior. The fundamental analysis investor is essentially basing their investments on three fundamental assumptions:

1. The market movements are based on the integration of all factors that affect prices. This includes historical factors and future predictions.
2. The movement of prices directly reflects these past factors and assumptions of future events.
3. History repeats itself.

Someone who uses technical analysis looks at the high/low price of a currency, the price of its opening and closing, and the volume of its transactions. This investor does not overly examine the market. He/She does not invest based on a long-term evaluation of the market, but looks at what has happened to the currency in the recent past expecting that small fluctuations will continue just as they have done before.

Fundamental Analysis
Fundamental analysis takes into consideration the current situation in the country of the currency, including factors such as its internal economy, political situation etc. The economy of a country depends on a number of quantifiable measures such as its central bank rate of interest, the level of unemployment, tax policy, interest rates and inflation. An investor also can add to these quantifiable factors qualitative aspects such as the political situation or governmental stability that will also have an affect on the market.  Before investing based on these on these factors alone, it is important to bear in mind the hopes and expectations of market participants. Like any market, the value of a currency is largely based on perceptions and expectations, not only on its reality.

What is the Strategy for Me?
So you ask yourself what is the winning strategy? In reality most small and big investors in financial markets use a hybrid strategy. Nonetheless, they usually choose one type of analysis as their investing foundation depending on their personal characteristics. For example, if one has more trust in his technical abilities he/she will base their investments on technical analysis. On the other hand, if one prefers to act more on his/her intuition he/she will invest using fundamental analysis. However, a good trader will always compare their investing foundation against conclusions extracted by using the second strategy and will only execute trades after examining both analysis types.

10 Tips From A Professional Forex Trader

Here are 10 great tips from a professional Forex Trader:

1. Trade only with the money you can afford to lose. Never trade emotionally or when stressed over debt.
2. Start with a Demo Forex account to get practice in the executions and the different software functions necessary to ensure smooth trading.
3. The forex market is not a casino or a lottery! You should never depend on luck, but on sound investment strategies.
4. Analyze both your successes and failures. Keep a dairy of all your transactions. Review it often and learn from your mistakes.
5. Adopt a very strict policy on the limit of losses you are prepared to accept from a trade. These limits should be between 3-10% of the balance of your account.
6. Mistakes and losses are common and necessary when trading in any market. The sooner you learn to how and why you lose, the faster you will be able to earn money. Do not you blame yourself or others, and even less the market.
7. The main enemy of trader is not the market. Accusing the market is like attacking the world. The biggest enemies of traders are greed, impatience, loss of emotional control and lack of self-confidence.
8. Read the opinions of others, but base your decisions solely on your own analysis and your educated feeling of the market.
9. Always follow this immutable rule: Cut your losses as soon as possible and keep your winning positions as long as possible. 
10. Try to work with your demo account as if it was your real account. The more quickly you’re convinced that trading on your demo account is equivalent to trading on the real account, the sooner you begin to develop your own technical trading techniques. You must have the same attitude when you work with your demo account that when you’re on your real account, because the techniques that you use at this point are identical to the ones you will use on the real account. Do not think you learn how to be a trader by entering competitions with demo versions. You must enter a competition only after developing your own trading strategies.

Forex & Tax

Do I need to fill out a 1099 form for my Forex trading? This question is always raised when trading Forex or many other work from home carrers. Generally, Forex traders are not required to give a 1099 form to the IRS nor to clients regarding their profits or losses. However, under section 61 of the Internal Revenue Code, it is the trader’s duty  to report all profits to the IRS.  Therefore, you are required to report all profits and losses.

Forex Trading Stratgies - What is Scalping?

There is more than one way to trade forex. Scalping is one of the most popular strategies among forex day traders because its fast pace short term trades that take from minutes to hours. For those in the forex market looking for a short term investment horizon, then the ’scalping’ strategy can be the best value for their money by exploiting small, fast changes in currencies rates.

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