Hapa tutaenda kujadili na kuelekeza kuhus biashara ya mtandaoni inayoitwa FOREX TRADING.
Forex market ni soko kubwa duniani. Mzunguko wake ni dola trillion tano ($5 Trillion) za kimarekani kwa siku. Washiriki katika soko hili ni benki kuu na mabenki ya kibiashara, Mashirika, institutional investors, Hedge funds na watu wa kawaida kama wewe na mimi.
What Is Forex?
The Foreign Exchange Market (Forex, FX, Currencies Market) is a global
market for trading currencies. The foreign exchange market determines the relative
values of different currencies.
Where Is Forex Located?
Unlike stocks and commodities markets, Forex is a completely decentralized
market. There is no central location and there are no formal exchanges where
transactions take place. Practically all Forex trading is done “over-the-counter”
electronically, by telephone or in person.
Forex is a general term combining all worldwide financial institutions and
organizations of all sizes into a single market place.
How Big Is Forex?
The foreign exchange market is the most liquid financial market in the world.
According to the Bank of International Settlements, trading in foreign exchange markets
averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010
and $3.3 trillion in April 2007.
When Is Forex Open?
Forex is the only financial market open 24 hours 5 days a week.
The Forex business week starts on Sunday at 5:00 p.m. Eastern Standard Time
with the opening of financial centers in Wellington, New Zealand and closes on Friday
at 4:00 p.m. Eastern Standard Time with the closing of financial centers in New York,
U.S.A.
How Is Forex Regulated?
Unlike the securities and futures markets, the foreign exchange market is not
controlled by any central governing body. There are no clearing houses and arbitration
panels. All members trade with each other based on credit agreements.
At the same time, the reputable retail Forex dealers and brokers are licensed and
regulated as providers of financial services in countries where they operate. The
following is the list of countries and their regulatory bodies:
U.S.A.: National Futures Association (NFA) and Commodity Futures
Trading Commission (CFTC)
Canada: Investment Industry Regulatory Organization of Canada (IIROC)
and Canadian Investor Protection Fund (CIPF)
United Kingdom: Financial Conduct Authority (FCA) and Prudential
Regulation Authority (PRA)
Australia: Australian Securities and Investment Commission (ASIC)
Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
France: Autorité des Marchés Financiers (AMF)
Who Are The Main Participants In Forex?
The foreign exchange market is divided into levels of access based on sizes of
transactions. At the top is the interbank market comprised of the large commercial banks
and commercial organizations, followed by smaller banks, followed by large multinational
corporations, hedge funds, and all the way down to the smallest retailers.
How Is Forex Different From Other Markets?
The only financial market open 24 hours 5 days a week.
The most liquid market in the world averaging over $5 trillion per
day(see also How Big Is Forex? )
Low transaction costs – most brokers include their commissions in the
spread. There are no clearing fees, no exchange fees, and no
government fees
High leverage and fractional lot trading effectively eliminate barriers
to entry. One can start trading Forex with as little as $25(see
also What Is A Lot, Mini-Lot, Micro-Lot, Nano-Lot? ).
There are no margin calls in Forex unlike in stocks and futures
markets.
Selling short in Forex is just as easy as buying long. There is no uptick
rule such as in stocks trading.
There are no limits on the size of your position unlike in the futures
markets.
Due to the 24-hour trading there are rarely any gaps in prices except
over the weekend.
The enormous size of Forex makes it impossible to manipulate.
How Does It Work?
What Currencies Are Traded In Forex?
All currencies in Forex are traded in pairs. Each pair’s name is an abbreviation
of the names of its currencies. Some of the popular pairs were given nicknames by
traders.
The most trading activity is concentrated in 7 currency pairs, which are called
the Majors. All of these pairs include the US dollar. They are:
EUR/USD - Euro versus US dollar or the number of US
dollars for one Euro (nicknames: Euro, Fiber)
GBP/USD – British Pound versus US dollar or the number
of US dollars for one British pound sterling (nicknames: Pound,
Cable, Sterling)
USD/JPY - US dollar versus Japanese yen or the number of
Japanese yens for one US dollar (nicknames: Yen, Dollar-yen,
Ninja)
USD/CHF - US dollar versus Swiss franc or the number of
Swiss francs for one US dollar (nicknames: Swissie, Dollar-franc).
CHF stands for Confederation Helvetia franc.
USD/CAD - US dollar versus Canadian dollar or the
number of Canadian dollars for one US dollar (nicknames: Loonie,
Canuck)
AUD/USD - Australian dollar versus US dollar or the
number of US dollars for one Australian dollar (nicknames: Aussie,
Oz)
NZD/USD - New Zealand dollar versus US dollar or the
number of US dollars for one New Zealand dollar (nickname: Kiwi)
The last three pairs are also called commodity pairs because Canada, Australia
and New Zealand are rich on natural resources.
There are currency pairs that do not include the US dollar. They are called
Crosses. The most popular of them are:
EUR/JPY - Euro versus Japanese yen or the number of
Japanese yen for one euro (nickname: Yuppi)
EUR/GBP – Euro versus British pound or the number of
British pounds sterling for one euro (nicknames: Euro-pound, Eurosterling,
Chunnel)
EUR/CHF – Euro versus Swiss franc or the number of
Swiss francs for one euro (nicknames: Euro-swissie)
GBP/JPY – British pound versus Japanese yen or the
number of Japanese yen for one pound (nickname: Guppy).
The list goes on.
There are also so-called Exotics such as USD/MXN – US dollar versus
Mexican Peso or USDPLN – US dollar versus Polish Zloty
What Is An Exchange Rate?
An exchange rate is the value of one currency converted into another.
In an exchange rate, there are always two components: a base currency and a
counter currency also called a quote currency.
An exchange rate can be quoted directly, when the foreign currency is the base
currency and the domestic currency is the counter currency and indirectly, when the
domestic currency is the base currency and the foreign currency is the counter currency.
For example, a direct quotation for the US dollar in Canada would be US$1 =
CAN$1.1293. In this quotation, the US dollar is the base currency and the Canadian
dollar is the counter currency.
The price of the pair states how much the first currency is worth in the second
currency denomination. For example, if the price for EUR/USD is 1.3500, this means
that one Euro is currently worth US$1.35.
How To Read The Forex Ticker Tape On Bloomberg?
USD - JPY 106.95 ↑ 0.065
The above means that the value of one US dollar has increased to 106.95
Japanese yens. The price change is +0.065 yens.
What Is A Spread?
Just like in many other markets, currency pairs in Forex are quoted as two
prices: Bid and Ask.
The Bid is the price at which someone is willing to buy the pair and the Ask is
the price at which someone is willing to sell the pair. Therefore traders always buy at
the Ask price and sell at the Bid price.
The difference between the Bid and the Ask prices is called the Spread. The
sizes of spreads differ between brokers and currency pairs.
Where Is The Money?
How Do You Make Money In Forex?
Just like in other financial markets, you profit in Forex by buying low and selling
high or by selling high and buying low.
Your profit is the difference between the purchase price and the sale price
multiplied by the number of lots traded.
For example, if you buy one standard lot of EUR/USD for 1.1600 and sell it for
1.1700, your profit is 1.1700 – 1.1600 = 0.0100 or 100 pips.
The pip value of one standard lot of EUR/USD is $10. Therefore, your profit is
100 pips x $10 = $1,000.
Selling in Forex is very easy. You don’t have to own or borrow the currency
pair. You can just sell it and profit from the price decline. For example, if you sell one
lot of EUR/USD for 1.1600 and the price drops to 1.1500, you will profit:
1.1600 – 1.1500 = 0.0100 * 100,000 = $1,000
What Are The Long and Short Positions?
Buying a currency pair in anticipation of the price increase is also called
opening a long position or buying long.
Selling a currency pair in anticipation of the price decrease is also called
opening a short position or selling short (shorting).See also How Do You Make Money
What Are Lot, Mini-Lot, Micro-Lot, Nano-Lot?
All currency pairs in retail Forex are traded in lots. Each standard lot is worth
$100,000 USD of whatever currency is being traded.
Therefore, when trading the Canadian dollar, the Euro, or any other currency,
you would be trading $100,000 USD worth of that currency. The actual amount of that
currency will depend on its current price in USD.
Most retail brokers allow trading in tenths of a standard lot, such as 0.1 lot also
called a mini-lot, 0.01 lot or micro-lot and even 0.001 lot or nano-lot.
In Forex?
What Is A Pip?
A PIP or Percentage in Point is the smallest unit of price change for a currency
pair.
The easiest way to calculate a pip is to ignore the decimal point and to count the
fifth digit starting from the left. Therefore, for the majority of the pairs one pip equals to
0.0001.
Exceptions to this rule are currency pairs priced between 10 and 100. In those
cases the pip is the fourth digit from the far left or 00.01
Nowadays brokers quote prices to the fifth decimal digit, which equals to the
one tenths of a pip. Therefore one pip looks like this now: 0.00010
What Is The Value Of A Pip?
To calculate the value of one pip, you need to divide one pip in decimal form
(i.e. 0.0001) by the current currency pair’s exchange rate, and then multiply it by the
size of the standard lot (100,000 units).
For the USD/CAD currency pair trading at 1.1150, the value of one pip is
0.0001/1.1150 * 100,000 = US$8.97
For the EUR/USD pair trading at 1.2630, the value of one pip is 0.0001/1.2630
* 100,000 = 7.92 euros. To convert the value of the pip into U.S. dollars, multiply it by
the exchange rate. Therefore, the pip value in U.S. dollars is 7.92 * 1.2630 = $10.
The pip value varies between currency pairs due to different exchange rates.
Exceptions are the currency pairs where the U.S. dollar is the quote currency. In those
cases, the value of one pip for a standard lot is always equal to US$10.
When trading fractions of the standard lot (mini-, micro- or nano-lots), the pip
value of the standard lot has to be multiplied by the fractional lot value. Therefore, the
value of one pip in the EUR/USD pair for a mini-lot is $10 * 0.1 = $1. The pip values
for micro- and nano-lots are $0.10 and $0.01 respectively.
Where Can I Trade Forex?
Usually, when people talk about Forex they refer to the spot market. In the spot
market currencies are traded physically or electronically “on the spot” at the current
market price.
For an average person, the most practical way to trade Forex is via an online
broker. Brokers pair all buy and sell orders and re-sell or hedge the remaining part to
other brokers and/or financial institutions. The prices quoted by the broker are usually
aggregated from multiple sources and might slightly differ between brokers.
It is also possible to trade currencies via Futures, Options and Exchange-Traded
Funds (ETFs) but those markets are out of the scope of this e-book.
When you place a trade in Forex, you are always long or short one side of the
pair against the other side of that pair. Therefore, you are always long and short at the
same time.
When you buy the EUR/USD pair that means that you simultaneously buy the
Euro and sell the USD. When you short the Euro, you sell the Euro and buy the USD
How Much Money Do I Need To Start Trading Forex?
To start trading, as opposed to gambling, you must have a proven trading strategy
and a clear objective. Your initial goal should be not to make money but to learn to trade
profitably.
With that goal in mind, it is advisable to start trading a demo account first. Once
you are profitable and comfortable using the software and your trading system, start
trading with real money but trade fractions of a standard lot (seealso What Is A Lot,
Mini-Lot, Micro-Lot, Nano-Lot?).
Psychologically, trading with real money feels very different from trading a
virtual account, even if you only risk and make just pennies.
To determine how much capital you need, calculate your average risk per trade
in dollars and multiply that amount by the maximum number of reasonably expected
consecutive losses. The resulting amount will be your risk capital.
Add to this risk capital the margin required by your broker for your average
trade. The total amount will be the capital you need to start trading.
For example, if my average risk per trade is $10 and I reasonably believe that
the maximum number of consecutive losses produced by my trading system will not
exceed 30, my risk capital is $10 x 30 = $300.
If the margin required for my average trade is $50, then I would need at least
$300 + $50 = $350 to start trading.
Note, that margin requirements differ for different currency pairs. Also, take into
account that sometimes you will want to have more than one trade open at the same time.
Therefore it would be beneficial to have more money available for the margin.
Once you become consistently profitable, you can increase your risk per trade
and recalculate the trading capital requirements accordingly.
What Are Forex Trading Sessions?
The Forex trading week starts with the opening of financial centers in New
Zealand and Australia followed by Tokyo, Hong Kong and Singapore followed by
Frankfurt and London followed by New York.
By the time the North American banks close for the day, the foreign exchange trading
starts in New Zealand again. Therefore traders distinguish 3 major trading sessions:
Asian, European and North American.
The Asian trading session:
The Asian trading session starts around 5:00 p.m. Eastern Standard Time with
the opening of financial centers in Brisbane, New Zealand and ends around 2:00 a.m.
Eastern Standard Time with the closing of financial centers in Tokyo, Japan.
The European trading session:
The European trading session starts around 1:00 am EST with the opening of
financial centers in Frankfurt, Germany and ends around 10:00 a.m. EST with the
closing of financial centers in London, UK.
The North American trading session:
The North American trading session starts and ends with the activity of financial
centers in New York, USA. Their early activity starts around 6:00 a.m. EST and ends
around 5:00 p.m. EST.
How To Analyze Forex?
What Types Of Forex Analysis Are There?
Same as in stocks and commodities markets, there are two basic types of
analyses in Forex: Fundamental and Technical. Many traders use mix of both of these
types.
Some traders also consider Sentiment analysis as a separate form of analyses
but we believe it to be a part of the Technical analyses.
What is Fundamental Analyses In Forex?
Fundamental analyses studies economic, political and social factors that affect
prices of currencies.
Fundamental analysts make their buy and sell decisions based on their
interpretations of statistical reports, economic indicators, central banks policies,
political events, and other related data.
What is Technical Analyses In Forex?
Technical analysis is based on two premises:
1) All fundamental data available to all market participants
is reflected in the price.
2) Most of the time people react in the same way to similar
situations. Therefore historical price action repeats itself and can be
used to predict future changes.
Technical analysts disregard all news and fundamental data. They study price
charts and base their decisions on the price action alone
What Is Money Management In Forex Trading?
Money management is the most important factor that separates successful traders
from the rest. Proper money management is what really makes or breaks a trading
account. A trader can have the best trading strategy in the world and still lose money or
even wipe out the entire account due to the pure money management or the lack of
thereof.
Money management in Forex involves calculating risks and probabilities. The
trading funds should be allocated between different strategies based on their
risk/reward ratios. A trader should set the maximum allowed percentage of the account
that can be risked at any given time.
What Is A Trading Plan?
If you treat trading as a business as opposed to a game of chance, you need to
have a trading plan, which is in essence a form of a business plan.
A trading plan defines overall trading goals, ways of achieving these goals, and
all other aspects of trading such as:
What markets to trade
Which timeframes to trade (tick or range bars, 1 min., 5 min, daily,
etc.)
How to scan markets for opportunities
Which strategies to use and when
Money management rules strategies and also includes
What Is Scalping In Forex?
Scalping in Forex is a style of trading where traders attempt to take advantage of
small price fluctuations of currency pairs.
Scalpers “jump” in and out of numerous trades within a short period of time
trying to make (“scalp”) a small profit on each trade. Scalpers make tens and even
hundreds of trades per day.
What Is Swing Trading?
Swing traders attempt to take advantage of short-term changes (swings) of price
trends in the opposite direction. They try to recognize the changing trend and profit from
the price swing in the opposite direction.
What Is News Trading?
Prices of currencies depend greatly on the economic data. Therefore, important
economic news such as changes in interest rates, employment, Gross Domestic Product
(GDP), etc. cause changes in related currencies.
News traders attempt to profit from price moves and trend changes that often
follow important news releases.
News trading is another trading strategy that we use often in our trading.
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