T2W Guide to Trading: Forex

[Sharky]

T2W Guide to Trading: Forex
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Edited by Sharky - Last Updated: 29th Jan, 04

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Editor's Message:
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Welcome to the first T2W Guide published on the site. We hope that this new initiative will over the next few months develop into a valuable resource for both new and experienced traders alike. The guides will always be a work in progress, and no more so that this first guide - there's plenty of gaps that need to be filled but we hope that through the collective collaboration of the site's members we'll quickly fill them.

If you'd like to volunteer as a particular forum editor please email us at volunteer@trade2win.co.uk with a description of your trading experience and the reasons why you think you'd make a good editor.

Sharky.
29th Jan, 04

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How does it work?
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• Each forum will have a guide which will act a digest of information concerning the subject of that forum
• The guide will always be the top thread in the forum
• Each guide will have an editor who's job it will be to update the guide
• Please contribute to the guide in any way you can. The editor will integrate your suggestions, feedback and text into the guide - whereupon your post will be removed.
• For a full description and to discuss the guides further please use this thread

Forex Guide Contents
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1. The Guide
2. FAQs
3. Recommended Forum Topics
4. Glossary
5. Further Resources
  a) Related Links
  b) Recommended Reading
  c) Useful Software
  d) Brokers


1. The Guide
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1.1 Introduction

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1.2 Why Trade Forex

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1.3 The Different Ways to Trade

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1.4 Regulations and Caveats

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2. FAQs
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• What is Foreign Exchange?
• Where is the central location of the FX Market?
• Who are the participants in the FX Market?
• When is the FX market open for trading?
• What are the most commonly traded currencies in the FX markets?
• What kind of trading strategy should I use?

What is Foreign Exchange?
The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of approximately US$1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example Euro/Dollar or Dollar/Yen.

Where is the central location of the FX Market?
FX Trading is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over the Counter (OTC) or 'Interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network.

Who are the participants in the FX Market?
The Forex market is called an 'Interbank' market due to the fact that historically it has been dominated by banks, including central banks, commercial banks, and investment banks. However, the percentage of other market participants is rapidly growing, and now includes large multinational corporations, global money managers, registered dealers, international money brokers, futures and options traders, and private speculators.

When is the FX market open for trading?
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, then London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

What kind of trading strategy should I use?
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analyses to identify trading opportunities, whereas fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor. The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectation of an event that drives the market rather than the event itself.


3. Recommended Forum Topics
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GBP/USD freebie trading strategy
Started by Newtron Bomb
A basic outline of a full strategy used by a member to trade GBP/USD. Using MA crossovers on a 15 min chart with a 100ema, entry and exit points are defined along with additional notes for maximising profit.

4. Glossary
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Base Currency
The first currency in a Currency Pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USD/CHF rate equals 1.6215 then one USD is worth CHF 1.6215 In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

Central Bank
A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

Cross Currency Pairs or Cross Rate
A foreign exchange transaction in which one foreign currency is traded against a second foreign currency. For example; EUR/GBPThe second listed Currency in a Currency Pair.

Currency Pair
The two currencies that make up a foreign exchange rate.
For Example, EUR/USD

Currency Symbols
AUD - Australian Dollar
CAD - Canadian Dollar
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
CHF - Swiss Franc

Currency Swap
Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

European Central Bank (ECB)
The Central Bank for the European Monetary Union.

Federal Reserve (Fed)
The Central Bank for the United States.

Foreign Exchange - (Forex, FX)
The simultaneous buying of one currency and selling of another.

Forward
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

FX
Short for Foreign Exchange.

Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.

Intervention
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

Kiwi
Slang for the New Zealand dollar.

Pip (or Points)
The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Roll-Over
Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

Round trip
Buying and selling of a specified amount of currency.

Spot Price
The current market price. Settlement of spot transactions usually occurs within two business days.

Sterling
slang for British Pound.

Swap
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

Swissy
Market slang for Swiss Franc.

Two-Way Price
When both a bid and offer rate is quoted for a FX transaction.


5. Further Resources
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a) RELATED LINKS
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Forex Related Sites
Forex Directory
FXStreet
Global View
TheFinancials

Forex Forums
CommoditiyTrader
DailyFX
MoneyTec

Central Banks & Regulatory Agencies
Bank of England
Bank of International Settlements
Bank of Japan
Bank of Canada
Commodity Futures Trading Commission
European Central Bank
Federal Reserve Bank
Reserve Bank of Australia
Swiss National Bank

News
Bloomberg
FX Week
Market News International
CNNfn
Reuters


b) FURTHER READING
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A Foreign Exchange Primer
By S.B. Shamah
RRP: £32.50 - Amazon (£22.75 - 30% Off)


c) SOFTWARE LIST
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Insert Here


d) BROKERS
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Forex Brokers
Capital Market Services
Deal4free Forex
FXCM UK
London Capital Forex
RefcoFX

Spread Betting Brokers (Offer Bets of FX)
Capital Spreads
FinspreadsT2W Guide to Trading: Forex

[Sharky]

Welcome to the first T2W traders' guide!

[JonnyT]

Hi Sharky,

You have missed out the futures that trade on Globex.

The EUR/USD is very liquid and has a much tighter spread than any FOREX rip off merchant, sorry Broker.

Deal4Free also offer Forex Spreadbets.

JonnyT

[options]

excellent start Sharky.

If I may add a quick check trading timetable.

http://www.4xmadeeasy.com/product/timechart.html


Either leave the advert at the top in or take it out. I haven't got a clue who they are.

[Rognvald]

These sort of guides if properly managed, supported by members and replicated across the trading spectrum will give a potentially major edge to this site. Excellent.

[darrenf]

Guide to trading

excellent idea!

[TheBramble]

Outstanding Paul!

Only question I have is why the original posting is dates 25-01-04 and I'm only seeing it today (29.01.04)?

[Rognvald]

One question Sharky
Is it your intention to have a guide for each type of instrument only or do you intend to put in place a guiide for say trading strategies, TA, Level II, direct access, techies etc