This will enable you to gain better control over any open positions as and when they arise. It is important to ensure that your forex broker of choice is a reputable company, who will ensure that your personal information and trading funds are fully protected and backed up.

Segregation is frequently used amongst forex brokers as a way to separate your funds from the funds of the company i. their daily costs, debts and running costs.

So, no matter what happens to the forex broker, your money is safe and segregated. If you find that a forex broker is unable to do this, we would suggest you find a better broker as it is standard practice these days. All of the brokers listed towards the end of this forex trading PDF are regulated by at least one reputable licensing body. In terms of getting set up as an online forex trader, the steps remain constant regardless of which broker you decide to join.

Below we list some of the steps that you will need to take. In order to open an account, you will need to enter some personal information. Standard details requested by the broker will be things like your name, residential address, and contact details. Some brokers will also require your tax status and will ask you to provide more financial details such as employment status, net worth and any regular income.

In this instance, you will usually need to answer some multiple-choice questions based on your experience. This is usually a fairly simple process. Known as KYC in the industry Know Your Customer , this simply means that the forex broker is going to need you to prove who you are. Some brokers will verify this using scanned copies of documentation. Now you need to select your payment method of choice usually from a drop-down list.

Bear in mind that how long this takes to go into your trading account will largely depend on the payment method — so always check this before parting with your cash. Some brokers even support e-wallets like PayPal and Skrill. After reading our forex trading PDF you should now be feeling confident enough to begin trading. However, we do recommend that you always try out a free forex trading demo first. This will allow you to test out your newly formed trading strategies before risking your own capital.

In the next section of our forex trading PDF, we explore some of the more important technical indicators and market insights used by seasoned traders. First invented by Richard Donchian, the donchian channels can be adapted as you like, in terms of parameters. Should you choose to view a day breakdown, for example, the indicator will be created by taking the lowest low, and the highest high of that period so in this example 30 periods.

When observing the moving average on a donchian channel you can look at averages stretching from 25 days to the last days. The direction which is permitted is determined by the direction of the short-term moving average. With this in mind, you should think about opening one of the following two positions:.

You will need to sell your pair in order to exit your trade if you open a long position and visa-versa. This is another commonly used forex indicator. The simple moving average aka SMA operates at a slower rate than the present market price known as a lagging indicator. Furthermore, it uses a lot of historical price data. In fact, more so than most other strategies. A good indication that the latest price is higher than the older price is when the long-term moving average is below the short-term moving average.

This could be considered a buy signal due to an upward trend in the market. In the opposite scenario when the long-term moving average is higher than the short-term moving average, this of course points towards a sell signal due to a downward trend. Moving averages are usually used as evidence of an overall trend, rather than purely forex trading signals. Of course, this is a great way to make your breakout signals much more productive. If you are alerted to a sell signal, this indicates that the short-term moving average is below that of the long-term moving average, so you might want to place a sell order.

However, if you are given a signal to buy, this usually means that the short-term moving average is higher than that of the long-term moving average.

Using breaks as trading signals, the breakout is considered a long-term strategy. The breakout itself occurs when the market goes further than these consolidation limits — whether that be lower or higher. As such, a breakout must take place whenever a new trend occurs. By looking at breaks, you will have a good indication of whether or not a new trend has begun.

In this case, you might want to use a stop-loss order to give you a better chance of avoiding a substantial loss. As glamorous as a career in forex trading might sound, there are a number of risks that you need to take into account. In the below sections of our forex trading PDF, we explore these possible risks in more detail. The transaction risk is in relation to the exchange rate and any time zone differences.

This means there is a chance that at some point between the beginning and end of a contract that the exchange rates could be subject to change.

The risk of this happening elevates with the more time that passes between entering a contract and settling the same contract. This generally leads to investors withdrawing investments, and as a result, your return will be lower. The good news is that when a currency rate is on the rise, chances are that the respective currency will be stronger. When this does happen, your returns could be higher.

This is because seasoned investors like to gain exposure to stronger currencies. The higher your leverage is, the higher your losses or benefits will be. Of course, this means leverage can affect your trading in a positive or negative way — depending on which way it goes. The final part of our forex trading PDF is to explore which brokers are popular with both newbie and seasoned traders. Each of the forex trading platforms listed below has been pre-vetted, meaning that you can be confident they tick most boxed.

This means that each platform is regulated, offers heaps of forex pairs, has low commissions and fees, and supports several payment methods. AvaTrade is an established broker that offers thousands of financial instruments.

On top of stocks, indices, commodities, and cryptocurrencies all via CFDs , you can also trade heaps of forex pairs. There are no trading commissions to pay, and spreads are very competitive. You can either trade via the AvaTrade web-platform, or via popular third-party provider MT4. The platform is heavily regulated, with several licenses under its belt. com is an FCA, CySEC, ASIC, and NBRB-regulated online broker that offers heaps of financial instruments.

All in the form of CFDs - this covers stocks, indices and commodities. You will not pay a single penny in commission, and spreads are super-tight. Leverage facilities are also on offer - fully in-line with ESMA limits.

Once again, this stands at on majors and on minors and exotics. If you are based outside of Europe or you are deemed to be a professional client, you will get even higher limits. Getting money into Capital. Having made it this far through our forex trading PDF, you should by now have an understanding of how technical analysis works, and have a good grasp of the macroeconomic fundamentals which guide currency values.

Armed with all of the useful information included in this guide, you should be ready to get out there and start trading forex. Hopefully, making a profit and learning more along the way. If you are a trader with somewhat limited funds, you might find that swing trading suits you best. If you have a larger trading fund available to you, you might have a more profitable experience with fundamental based trading.

Either way, w e do recommend trying out a free demo account where possible before trading with your hard-earned money. As well as reading helpful guides like ours, actually learning by doing will also provide you with a better sense of how it all works and how you might like to trade yourself. What does forex mean? Forex as a term refers to 'foreign exchange'. You will make money in two different scenarios. You either buy a currency pair for less than you sell it for long order , and you sell a currency pair for less than you bought it for short order.

The spread is the difference between the bid and ask price of a forex pair. This gap in pricing must be included in your profit and loss forecasts, and it is how the broker ensures that the platform always makes money. This depends on the type of forex pair you are trading. The pip refers to the movement of one decimal place in a pair.

This depends on several factors, such as your location, the currency pair, and the broker itself. In most cases, traders from the UK and Europe are capped to leverage of on major pairs and on minor and exotic pairs. Slippage means that your forex order is executed at a slightly different price to what you had asked for. Free Forex Signals Telegram Groups of Forex Trading for Beginners: How to Trade Forex and Find the Best Platform Learn 2Trade Forex Channel.

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com — Zero Commissions and Ultra-Low Spreads. Zero commissions on all assets Super-tight spreads FCA, CySEC, ASIC, and NBRB regulated. Does not offer traditional share dealing. exports to the rest of the world rose by only 16 percent. During that period, China accounted for roughly 25 percent of total U. Fred Bergsten, Bates Gill, Nicholas R. Lardy, and Derek Mitchell, China: The Balance Sheet: What the World Needs to Know Now about the Emerging Superpower.

New York: PublicAffairs, CHINA REVALUES YUAN: A TURNING POINT? On July 21, , after more than a decade of strictly pegging the renminbi to the U. dollar at an exchange rate of 8. This was the beginning of a long-term strategy to integrate China into the world economy by easing the abil- ity of capital to flow into and out of the country.

The ability to exchange currency is a key factor in this process of integration. The revaluation signaled that China was begin- ning to allow the strengthening of its currency. As of March , the renminbi value was at approximately 7.

This means that it takes fewer renminbi 6 percent to con- vert to one dollar since revaluation. Many economic studies believe that a free-floating Chinese currency would appreciate by 20 percent. The five currencies are the U. dollar, the yuan, the yen, the Korean won, and the pound. However, the exact weighting of these currencies in the basket is not being disclosed and there may be other currencies included.

Even though the Chinese currency known as the renminbi does not float on the mar- ket, and it is tied to the dollar within a narrow price, the influence of China on global currency flows is profound. There is increasing pres- sure on China to allow the renminbi to increase in value, either through a wider managed envelope or through a full float. A full float is highly unlikely because the Chinese gov- ernment is not interested in giving up control of its economy, which would occur in a full float.

Any increase in the value of the renminbi could result in a significant benefit to exporters in the United States and Japan. In recent years, even speculation that the Chinese were about to allow the renminbi to increase in value led to price moves that strengthened the Australian dollar and the yen. China is becoming a global economic power that impacts the economic development of the world. It is the processing plant of the world, wherein many product components are imported and then put together.

But just over 40 percent of its trade is with Asia. Federal Reserve chairman Bernard Bernanke at the Chinese Academy of Social Sciences Beijing, China, December 15, : The emergence of China as a global economic power is one of the most important developments of recent decades. For the past twenty years, the Chinese economy has achieved a growth rate averaging nearly 10 percent per year, resulting in a quintupling of output per person [see Figure 4.

Currently, however, this process is not balanced. The Chinese export more than they import, and therefore accumulate a great deal of cash. dollars will have a major impact on the direction of the U. The Chinese State Admin- istration of Foreign Exchange SAFE is the key agency on the future of these dollar reserves.

For the forex trader, following Chinese developments and intentions on global trade and currency policies can be rewarding because it can point the way for new trad- ing opportunities. One big effect could result from a possible slowdown in the China economy. RMB 12, 10, 8, 6, 4, 2, 0 60 80 90 00 70 65 75 85 95 19 19 19 20 19 19 19 19 19 FIGURE 4. Sources: National Bureau of Statistics, China Statistical Yearbook ; National Bureau of Statistics Plan Report.

cover the U. budget deficit. An economic crisis in China has the potential to raise the U. interest rates, thereby placing major additional costs on U. businesses and individual consumers and producing dislocation in the U. It could also exacerbate Chinese domestic political tensions in an unpredictable fashion.

October 30, If a possible slowdown in China worries U. assets worries them even more. dollar around the world. This is historically an extremely high level that no other country has been able to sustain for any significant period. The danger is that the U. economy could suffer a precipitous decline if the ability of the United States to borrow ever-greater amounts should end abruptly.

Inter- est rates and inflation might suddenly soar as the dollar fell and the stock market crashed. Since the Chinese growth rate of over 10 percent per year GDP generates a voracious appetite for resources such as oil, copper, steel, iron ore, cement, and Ag complex, the countries that provide these resources experience a demand for their dollars. When China buys copper from Australia, renminbi must be converted into Australian dollars. This provides support for the Australian dollar and the Australian economy.

Since China imports major resources such as copper from Australia, the aussie would be affected by a potential Chinese slowdown. Also, Japan, a significant trading partner of China, and its currency will often weaken or strengthen on expectations of a Chinese slowdown or sustained growth. Chinese influence has begun to extend also to Africa. For example, Chinese exports are beginning to shift to the Suez Canal, rather than going around Africa. This is causing Turkey, Italy, and other nations to invest in Egypt to tap into Chinese export to Europe.

In the coming years, the trading world will focus on whether China can control its growth rate, avoid inflation, and increase its currency float. Traders need to keep track of key per- formance parameters such as Chinese GDP and inflation projections, as well as Chinese interest rate decisions. Between and July , China increased its interest rates to reach a level of 6.

Whether this will work is unknown. But as China, which is now the seventh largest econ- omy in the world and the second largest in purchasing power parity, becomes more of a consumer economy, the status of the Chinese economy will become easier to monitor.

Companies such as Home Depot, Wal-Mart, Kingfisher British , and Best Buy are en- tering the Chinese market, and many other firms are acquiring Chinese companies. As a result, the coming years will provide more reliable data on Chinese consumer spending and growth. The Shanghai Composite Index is very sensitive to whether the ren- minbi will strengthen. Their value would increase Wall Street Journal, March 22, , p.

com and find the latest value of the renminbi in the quote table that is supplied. It is listed as the symbol CNY as shown in Figure 4. Is it getting stronger or weaker? FIGURE 4. Commodities are key resources in world growth, and they impact global inflation. This chapter focuses on what the forex trader should know about the commodity connection to currencies.

GOLD Gold price movements are important for currency traders to understand. But gold is also a commodity on its own, adding strength or weakness to currencies of countries that produce gold. South Africa, of course, is the leading producer of gold, but its currency, the rand, is not floating, so traders can look to the Australian dollar and the Canadian dollar for trading those cur- rencies when gold patterns provide trading opportunities.

Gold price action can also be a misleading guide to the currency trader. In recent years, Gold has attracted a great deal of investment demand from exchange-traded funds ETFs. In , ETFs were buying 20 tons of gold, and this rose to tons in The trader who looks at gold prices rising may interpret it as a reaction to the dollar, when it actually can be reacting as a function of investment demand.

Figure 5. Dollar Index USDX. Central banks have an important role regarding gold. They hold gold as part of their reserves see Figure 5. FIGURE 5. the USDX. reserves, and 15 percent is in gold. The key variable that can affect currency prices is whether a central bank will increase its gold reserves and thereby decrease its reserves of dollars or another currency.

As a result, rumors of central banks increasing gold reserves can disrupt currency prices. The idea that gold is important to currency moves is sound, but needs to be qualified and put in the context of world events.

Sometimes gold acts as a store of value in times of crises. But the correlations between gold moves and currency moves provide a great deal of variation.

The trader needs to be vigilant regarding what factors are moving gold. At the end of the day, in the words of Phillip M. Source: Phillip M. Hildebrand, member of the Governing Board, Swiss National Bank. For example, copper plays an important part in the industrial development of China. As the world grows, more copper is in demand. The forex trader has to ask the question: Who benefits from copper demand?

To answer this question, we should look at who produces copper. Australia is the second largest producer of copper, and since its currency is freely floating, the Australian dollar can be traded. The commodity connection with currencies is particularly strong for the Australian dollar, the New Zealand dollar, and the Canadian dollar. A closer look is presented in our section on currency personalities. CRB INDEX Traders looking to track the commodity and currency relationships should follow the Commodity Research Bureau CRB Index.

The CRB Index consists of a basket of com- modities and provides a useful measure of potential inflationary pressure. When com- modity prices rise, this price increase can spread into the economy by increasing the costs of production and goods.

This inflationary tendency is closely watched by central banks. We can see in Figure 5. EQUITIES AND FOREX The relationship between currencies and equities is an area of interest that is becoming increasingly evident and important for traders to become knowledgeable about. In all equity markets around the world, exporting sectors benefit from a weaker home currency or the expectation of one.

DaimlerChrysler, Renault, and Peugot suffer share declines when the euro surges beyond expectations. As we noted in our section on China Chapter 4 , when there is specula- tion that the renminbi will increase, many Chinese equities increase in stock value due to expectations that their assets will increase in value. housing sector equities have a direct link to forex. Dow Jones Industrial Index suffered its worst day in four years, was a direct example of the link between equities and forex.

The sell-off was precipitated by a sudden fall in the dollar against the yen. This decline caused a liquidity crisis as hedge funds needed to sell equities to release funds to buy back their positions in the yen.

See Chapter 1 for a discussion of this event. As globalization increases, strong currency moves will impact equity markets as it did on February In a real sense, tracking equities where their dollar earnings are important can benefit a trader in providing leading indicators of forex price moves.

The relationship between the dollar and the equity markets is further underscored by the Dow Jones Industrial Index reaching historic highs. This occurred as the USDX entered into an extended downtrend see Figure 5. Why has the relationship been in- verse between the equity market and the value of the dollar?

A deeper look reveals the answer. As the dollar value declines versus other currencies, the companies that export to the rest of the world benefit from increased sales, as exports become more attractive to foreign buyers. Additionally, multinational corporations having assets abroad experi- ence an increase in the dollar value of those assets. the Dow. Are any of these commodities in a channel pattern?

These reports are results of extensive profes- sionally designed surveys that are conducted on a regular basis in many countries. When these survey results are released, they provide important information on expecta- tions regarding the economy of a country.

This information is seriously assessed by cen- tral banks in determining their next moves in controlling inflation. Growth in business or consumer confidence has inflationary potential, while a decline in business or consumer confidence portends economic slowdown. When these releases come out, they move the market, especially if the results are surprising. Beyond having an impact upon their release, confidence indicators can also provide a leading indicator for the forex trader.

If business confidence is at its highest in years, the market will interpret it as positive for the currency because greater confidence in- dicates expansion and growth of an economy.

Where there is expectation of expansion and growth, there is the concomitant expectation of interest rates not going lower and possibly going higher. These confidence surveys are not perfect predictors of resulting currency moves.

They are one of the most important ingredients in the mix of fundamen- tal forex factors. Some of the important confidence indicators are listed on page 42 and should be fol- lowed. Their release times are tracked in the numerous economic calendars available, and strategies for trading these economic data releases should be learned by traders.

It is interesting to note that every major country has its version of investor and busi- ness confidence indicators. These form in effect a leading indicator about currency directions. de r IFO Business Climate Survey www.

de r Institute of Supply Managers www. aspx U. Sentiment Indicators r Consumer Confidence www. htm r Fed Beige Book released two weeks prior to Federal Open Market Committee meet- ings, eight times a year r ISM Nonmanufacturing www. cfm r Empire State Manufacturing Survey monthly report, www. html r Chicago PMI ISM Nonmanufacturing released on the third business day of the month, can be found at www. cfm r Philadelphia Business Outlook Survey monthly, www. com and Find the Next Business or Consumer Confidence Report Release Time Watch what happens upon the release to the currency pairs.

This chapter focuses on how a trader can gain an understanding about the strength and weakness of a currency. The concept of a trade- weighted currency basket is introduced as well as how to obtain the latest trade-weighted information and data that can be directly used in trading.

TRACKING CURRENCY STRENGTH: HOW STRONG IS A CURRENCY? We can be convinced that currencies reflect world opinion about how well an economy is doing or expected to do. The next step in fundamental analysis is to be able to make a judgment about a particular currency itself.

Ultimately, the question arises for the trade: How strong is the currency? In spot forex trading, the trade itself is always a paired event of one currency against another. But when a trader makes a judgment about the strength or weakness of a currency by only comparing one currency against another usually the U. dollar , the conclusion can be misleading as to the global strength or weakness of the currency.

When trading majors where the U. dollar is part of the pair, the comparative question becomes: How strong is the U. dollar against that currency?

question of how strong a particular currency is on its own terms without reference to another pair, the trade-weighted index TWI is used by economists and should also be used by currency traders. The TWI represents how well the currency of a country is doing against a basket of other currencies.

The currencies included in the TWI are those that reflect the major trading relationships with the index currency. Each currency receives a weight in the index that reflects its importance. For example, in Table 7. We can also see that Canada and many other nations have a very small percentage compo- nent of the TWI.

Each year the central bank and economists adjust the weights to reflect changing realities of international trade. As China increases its trading relationships around the world, it will receive more weight in TWIs.

The point is that the TWI represents a way TABLE 7. dollar pound sterling 5. By knowing the TWIs of each currency, the forex trader can detect a strengthening and weakening of a currency and also get a sense of how a currency can be impacted by events in countries of their trading partners.

Many traders often ask the question: What do you think of the U. dollar or yen, pound, or euro? One important way of answering is from the perspective of the TWI. Each currency gains a trading personality, and knowing the TWI for each currency is very useful, because it will reflect the big picture much more accurately. Most recently, the International Index Company issued a new product line called iBoxxFX® , which are indices that are, in fact, trade weighted. They allow an average forex trader to take a snapshot of the strength of a currency without the noise of the forex market.

Table 7. Notice how each currency index reflects the varying importance of its different trading partners. We will see shortly that these trade weights are a clue to defining the fundamental personality of a currency. Before that time, it was pegged to the dollar, and before that it was pegged to the British pound. By floating its currency, the market sets the value of the currency and the cen- tral bank can avoid the necessity of intervening by buying and selling dollars to keep the currency value.

But a floating currency also permits capital to float out of a country. The fear of floating is great among totalitarian regimes and emerging countries that want to maintain control of their economy. By looking at the aussie TWI see Table 7.

The role of Australia as a global trading country makes it an attractive currency to trade. The recent years of economic expansion have created strength in this currency. The currency in had a strong upward trend, which, from a world trade perspective, re- mains intact. The Australian dollar is almost as equally sensitive to the Japanese economy as it is to the euro or the U. Important also to consider are commodity-related events such as movements in cop- per and gold.

Australia is a major producer of both of these commodities and is affected by price patterns. Figure 7. TABLE 7. We can see how the movements are in sync, visualizing a strong correlation between commodity moves and the aussie-dollar pair.

It shows that in , these commodities began to diverge down while the aussie FIGURE 7. iBoxx® is a registered trademark of International Index Company Limited.

FIGURE 7. continued strengthening. When a trader sees divergence from the traditional relation- ship, questions arise. Why would the aussie continue to be strong if copper is weak? The answer was that there was great strength in other sectors of the Australian economy, making copper less important. The fundamental personality of the aussie is that of a commodity- and trade- dependent currency. The aussie will be affected by global economic growth and, in particular, Chinese growth. China is now the second largest buyer of Australian exports, making the aussie more sensitive then ever before to the direction of the Chinese economy.

A special feature of the aussie is that it has a multiple fundamental personality. It can be considered an Asian currency, reflecting Asian growth, and it can be consid- ered a currency that also is impacted by the United States and Europe. This means that the forex trader should seriously look to trade the aussie pairs such as the Australian dollar—Japanese yen AUDJPY and Australian dollar—euro AUDEUR , as well as the traditional Australian dollar—U.

dollar AUDUSD pair. Growth will, however, be held back in by the effect of a drought on the agricultural sector. The cycle of growth that the aussie is in will be certainly tested. Events in China and the commodity markets will be important factors to watch. Source: Guy Debelle, head of the International Department, Australian Foreign Exchange Market, November significant over the coming year are events in Japan.

If Japan raises its interest rates, the aussie will suffer because the conditions for the carry trade will decline. The Japanese rate of 0. If this spread changes, so will the condi- tions encouraging a stronger aussie. In recent years, it has been very rare for the aussie to depreciate against the yen. This made the risks of an unhedged carry trade very low. But the risk of carry trades providing a big decline remains very real.

Domestically, the Australian economy entered with year lows in unemploy- ment at 4. The Reserve Bank of Australia increased rates to 6. At the end of , inflation rates were at 3. The combination of domestic growth and global growth makes trading the aussie in the coming years a lot of action. dollar receives a weight of 86 percent in the trade- weighted basket.

Refer to Table 7. Therefore, when the U. economy slows, the Canadian economy also suffers. When oil prices increase, the Canadian currency benefits. From a fundamental point of view, trading the Canadian dollar against the U.

pair is the most effective way to play this currency. A useful web site for tracking the Canadian economy is www. New Zealand is almost a classic example of how fundamentals can drive currency movements. The New Zealand economy is small. Since its consumer economy is small, the fundamental char- acteristic that affects its economy is whether its exports can grow.

Therefore, interest rates and the resulting currency valuation are key to its future economic vitality. Data show only 4 percent of the New Zealand firms do any exporting. But this level was recognized as having risks of slowing the New Zealand economy. In fact, the New Zealand Central bank intervened for the first time since and sold the New Zealand dollar on June If it tries to raise rates further to slow down inflation, it can choke off exports and cause a major contraction.

The fundamentals point to a mixed situation that can go either way. As a result of this uncertainty, the kiwi offers potentially very many trading strategies, as the currency will be extremely sensitive to central bank actions as well as surprises in economic data.

The forex trader looking to trade the kiwi can explore trading the dollar pair U. dollar—New Zealand dollar USDNZD , as well as the kiwi against the aussie NZDAUD , the yen NZDJPY , or the euro NZDEUR. MEXICAN PESO The peso is a currency that offers potential for trading more than ever. The OECD projects a GDP growth in Mexico of 3. Importantly, inflation is projected to be just above 3 percent www.

Additionally, the peso is strengthened by its ability to attract capital flows. It is useful to note that those traders who sell the U.

dollar and buy the Mexican new peso MXN in the USDMXN pair, receive interest rate payments. So the peso can be used as a carry trade currency pair. The second major factor is the U. Mexican exports are at a level of over 80 percent to the United States, and there is a high inflow of capital coming from Mexicans living in the United States.

Oil also needs to be considered. Like Canada, Mexico is a net exporter of oil and attracts petrodollars. A major negative factor is business confidence. The Mexican busi- ness climate is often marred by inefficiencies, and the political economy generates a great deal of negative sentiment. Another factor emerging is Asian competitiveness. If Mexican interest rates fall, the peso could weaken substantially; if the U.

economy slows, Mexican growth will suffer. Based on this fundamental picture, trading the Mexican peso should be considered mainly against the dollar, and trading this pair using longer-duration charts is more advisable see Figure 7. JAPANESE YEN Japan is the second largest developed economy in the world.

To understand Japan today, one has to have a sense of where the Japanese economy has come from. In , the Nikkei Index, which is a price-weighted index of the top stocks on the Tokyo exchange, peaked around 39, In , the Nikkei Index fell by 39 per- cent, and in March , it was at the 17, mark, still quite a way from the highs of the previous era.

auction prices, and surges in sales of luxury brand bags and jewelry. The Nikkei had tripled in price in the 45 months prior to its peak. Also, metropolitan land prices tripled between and Compare this to the same period growth rate of other nations, shown in Table 7. The Japanese stagnation had many causes, but a major contributor was the Japanese consumer. Studies e. Household disposable income declined, household wealth declined, and, coupled with uncertainty about the future, the result was low confidence in prospects of strong growth.

Once the forex trader appreciates what the era of stagnation was like in Japan, he or she will have a greater understanding of why Japan today is still not on firm footing of renewed growth. For example, household disposable income had a growth rate of only 0.

Household wealth declined by an average 0. Interestingly enough, there is data showing that the proportion of people saving for old age rose from The data from Japan underscores the importance of consumer confidence. This makes it diffi- cult to stimulate growth through traditional monetary measures such as lowering inter- est rates. Another important characteristic was that prices were actually in deflationary mode, and when prices keep falling there is little incentive for consumers to purchase since they expect cheaper prices.

It was before the emergence of the retail forex market. But the era of stagnation also holds clues as to whether Japan will experience robust, uncertain growth or retreat again into stagnation. Much will depend on the interest rate decisions of the Bank of Japan and business and consumer confidence surveys because the core cause of stagnation was lack of consumer confidence and spending.

Therefore, the core of recovery will be a recovery in consumer spending. But it is not easy to stimulate the Japanese consumer. This means that the forex trader should carefully watch consumer confidence and inflation data coming out of Japan for clues as to whether Japan is overcoming deflationary fears. One such clue oc- curred in March when, for the first time in 16 years, Japanese land prices showed an increase.

Other clues will be necessary before the Japanese inflation rate moves beyond its current 0. Also important is export data on Japan. Stimulating exports becomes a critical factor in determining the ability of the Japanese economy to grow.

However, any extreme level of weakening of the yen would help exports. But remember that too weak a yen against, for example, the euro may help Japanese exports but would undermine European exports. The forex trader should note that where there are beneficiaries to a currency direction, there are also losers.

The Japanese finally increased interest rates to 0. But the interest rate differential between Japan and other nations is still quite steep. Even if the Bank of Japan increases rates to 0. This uncertainty in the Japanese economy creates a great deal of increased rang- ing behavior in the currency. Traders of the yen should almost always expect the unex- pected because economic news from Japan has a built-in greater potential to surprise us.

Also important to consider is the growing impact of China on the Japanese prospects for growth. A weak yen, in contrast, stimulates Japanese export growth. Export growth data therefore becomes very important in affecting sentiment toward the yen. With regard to Japan, perhaps the best word to describe current conditions is un- certain. The uncertainty whether the Japanese consumer economy is strong enough to grow, combined with the uncertainty of whether Japanese interest rates will rise, dom- inates trading of the yen.

The complexities facing the Japanese economy also involve aging workforce and potential shortages in labor. All these factors make trading the yen more challenging than the other currency pairs. CARRY TRADE The Japanese big picture implications are profound. With interest rates at 0. This is where Japanese investors can borrow at extremely low rates and place the capital in bonds of other nations and receive a net gain in interest rates.

New Zealand and Australia have been major beneficia- ries of the carry trade. For example, New Zealand interest rates are almost the highest in the world, at 8. It therefore is a major attraction for the low-interest-rate costs of borrowing yen. A popular way to do this is called the Uridashi bond.

The total flow of such bonds is in billions more. These bonds are of short duration, most being two to three years. If the market perceived that Japanese rates will increase, the huge amount of carry trade money outflow could suddenly decline. On February 27, , this is ex- actly what happened, with a sudden sell-off of the dollar against the yen. This caused simultaneously a sell-off of the Dow Jones Industrial Index as big funds got out of equity positions to cover losses in their previous selling of yen.

Even gold sold off during this crisis. Refer back to Figure 1. The big picture on Japan is one that focuses on uncertain growth and relatively low interest rates. Preliminary edition, November During , the yen had a wide range between its index lows and highs and ended near its lows see Figure 7. Its value largely depends on what happens in the economies and the currencies of the United States and Europe. Refer back to Table 7. The first is the bet that the interest rate differences between Japan and the rest of the world will continue.

An additional strategy is simply to be selling yen until the key fundamentals change and the trade-weighted index reverses toward the mean of The fact that the trader may observe that the yen is weakening, even in the face of good economic news, should not be a surprise. Instead, the trader looking to buy yen would wait for the period of technical strengthening to run its path and then look to go long the yen.

Any surprise news that is positive for the yen can just mean to be prepared for a reversal toward strengthening. The USDJPY pair and the EURJPY pairs are the best trading instruments for the yen.

A third strategy is to buy into the longer view that the Japanese economic recovery will continue and that interest rate increases are inevitable. The trading strategy is to buy the yen sell USDJPY —of course, at the right technical locations, which we discuss in Part II. EURO The euro as a currency is the most complex in the world. The creation of the euro was a tectonic event in world economic news. Other currencies reflect one unified economy, whereas the euro reflects 13 economies comprising the Eurozone: r Belgium r Germany r Greece r Spain r France r Ireland r Italy r Luxembourg r The Netherlands r Austria r Portugal r Slovenia r Finland When combined, the Eurozone economy presents a powerful part of world trade.

Managing to control the multiple economies of the Eurozone makes the mission of the European Central Bank ECB one of the most challenging of all central banks. To succeed, the policies of the ECB need to succeed in all of the member countries. Keep in mind that this is not easy. Each country has its own domestic policies, and its own TABLE 7.

Events in any country can undermine, achieving the average inflation rate that the ECB sets. The forex trader has to expect the unexpected in regard to the euro.

We can observe these trading relationships in the Trade- Weighted Index for the euro refer to Table 7. dollar has the greatest weight, with the British pound and then the yen following. There is more than one trade-weighted index that the trader should be aware of. For example, we also have a fairly new trade- weighted index for the euro called the Dow Jones Euro Currency 5 Index Table 7.

The DJEC5 places a greater weight on Japan and less weight on the United Kingdom. It also includes Australia, which is ignored by the TWI. dollar to euro In any case, trading the euro in the absence of knowledge about which countries the euro trades with will undoubtedly lead to misjudgments about the performance of that currency.

The importance of the euro as a currency reflects the fact that its trading partners are global, and as a result the euro as a currency may become less dependent on U. economic prospects.

Traders have many choices of pairs to shape the trade. The EURUSD pair is the most popular, followed by the EURJPY pair and the EURGBP pair. The fundamental picture of euro performance at this point in time is that of sustained strength. It has been probing trade-weighted highs, which reflects strong economic per- formance in its member countries. The economic growth of the Eurozone has led to interest rate increases by the European Central Bank to contain inflation near a 2 per- cent level.

This increase in rates has served to further strengthen the demand for the currency. The ECB raised its benchmark interest rate seven consecutive times, from 2 percent in December to 4. However, the Eurozone also faces a relatively high unemployment rate of nearly 8 percent. If the currency continues to have strength against a weakening yen, the Eurozone may face a slowdown on exports, of which Japan is an important trading partner Figure 7.

The trader should carefully watch the EURJPY pair Figure 7. Fundamental forces will kick in and provide the impetus for a sell-off. BRITISH POUND CABLE Great Britain remains a vigorous part of the global economy. Consider the fact that over half of the profits coming from the Financial Times and London Stock Exchange FTSE are profits from overseas activity. The British economy is intimately linked to global trading patterns.

The TWI of the pound as tracked by iBoxx® see Table 7. This immediately suggests that in trading the pound, the EURGBP and the USDGBP pairs would be the main pairs to trade.

We can see in Figure 7. In , it broke the index number of We can also see that the pound is getting close to topping out in global strength, and traders need to watch for a possible probing or trend break in its TWI, as we can see in Figure 7. The Bank of England BOE , in response to the hot British economy, raised rates in a surprise move in August , and raised rates again to 5.

These actions of the BOE show that its policy on raising rates is very sensitive to data and that the central bank is not ideological about it. The key factor for traders to watch will be what the BOE does on interest rates. As indicated in the section on fundamentals, housing continues to be a major com- ponent of decisions of central banks. But any data that shows a slowing of inflation would translate into a selling of the pound.

Beyond the critical components of interest rates and GDP, Great Britain has unique economic challenges due to an increase in migration levels.

The surge in migration can affect inflation and employment levels in a variety of ways, and those who watch and trade the pound must not ignore these aspects of fundamentals and Great Britain.

Sources: Reproduced with kind permission of Land Registry. The house prices data being used is Crown copyright and is reproduced with the permission of Land Registry under delegated authority from the Controller of HMSO.

SWISS FRANC The Swiss franc represents an interesting niche among the global floating currencies. Over the years, it has been used as a safe-haven currency because it had a link of convertibility. This link was abandoned in , but the Swiss National Bank SNB , the central bank, still holds 30 percent of its assets, about tons in gold. Even though it is more than 70 years after the global collapse of the gold standard in , there is still an association of gold and the Swiss franc.

In a speech commemorating this anniversary, John Pierre Roth, chairman of the gov- erning board of the SNB, said the following: As I said at the outset, the role of gold has faded over the years. But gold had an afterlife long after it ceased to be relevant in any form for the conduct of mone- tary policy. The constitutional changes that severed this link took effect in , followed, within the same year, by the correspond- ing changes in the relevant law.

The new law no longer includes an obligation on the part of the SNB to redeem banknotes for gold—an obligation which—in practice—had been suspended for decades. Moreover, it has abolished the mini- mum gold coverage of the banknotes in circulation and the gold parity of the Swiss franc. With these changes, gold finally became a normal and marketable asset for the SNB. In May , the SNB began to sell part of its gold stock.

About 50 percent of the gold once owned by the SNB has now been sold. It reflects the fact that it is embedded in the European economy. From a trade-weighted point of view the most important currency impacting the franc is the euro followed by the U.

dollar see Table 7. Trading this currency offers several alternative strategies. It can be used as a hedge against the EURUSD trade; it can also be used as a method for buying dollars.

In fact, in trading the news, the hedge effect of the USDCHF against the EURUSD is employed to implement a trading the news strategy. The Swiss franc also can be used as an alternative to the yen for those traders looking to construct a carry trade.

They would be selling the Swiss franc, which has an associated low interest rate of 2. Finally, by understanding the state of the Swiss econ- omy and evaluating the trade-weighted index charts Figure 7. com and register. You will then be able to generate the latest TWI charts in a few simple steps.

Dollar aining a fundamental understanding of the U. economy is a critical part of being G prepared fundamentally for forex trading. economy is still the largest developed economy in the world, and therefore the U. dollar reflects this im- portance. It is true that we are in a period when the world economy is growing, particularly with the growth of Asia.

This growth may mean that in the coming years, the preeminence of the U. economy will diminish. However, as the U. economy re- mains the critical pivot point of the world economy, forex trading will continue to pay close attention to U. In particular, the forex trader, in trading a currency pair involving the dollar, is actually making a judgment or a bet about the direction of the U.

dollar with regard to the other pair. This can be a five-minute bet or one that goes substantially longer in duration. But the fundamental question the trader has to answer is whether to be bullish or bearish on the dollar for his next trade. A first approach to getting a picture of the global position of the U. dollar and gauging whether it is strong or weak is by looking at the Trade-Weighted Index TWI. In Figure 8. dollar has declined significantly.

It is probing the lows of this index, and if it breaks below 80, the world, through global trading forces, will demonstrate an unprecedented decline in dollar values. This year chart certainly provides a perspective missing from day-to-day trading, but a forex trader can zoom in on the U. dollar performance by generating a nearer- term chart.

For example, in Figure 8. Dollar Index—TWI recent patterns. The trader can use this chart and generate strategies to prepare for future moves if they occur. FIGURE 8. Source: Board of Governors of the Federal Reserve System. Dollar 71 based on a review of Figure 8. dollar is in a compressed triangle and that it is testing historic support near 80 on the TWI. Gaining insight into the strength of the U.

This index is traded at the NYBOT and is a weighted index. But the USDX is traded by major funds and is considered an important barometer of sentiment regarding the dollar. It can easily be tracked at www. STRUCTURE OF THE USDX The USDX has its own basket of currencies, just like the TWIs. The question arises of which is better?

The answer really depends on how you use it. The USDX is more popular and provides a trader an accepted way to track dollar sen- timent, though it is less accurate from an economic point of view. When the USDX is showing a dollar decline, it may be exaggerating the real decline from a global trading point of view. The USDX chart provides a good way of checking dollar sentiment. It should be clear that there are many ways to evaluate the dollar. In fact, new mea- sures are always being introduced.

Citigroup recently introduced its own dollar index called the Citigroup Flow-Weighted Index. This index scrutinizes international capital flows, which have become an important influence on forex.

Dollar Index Currency Weight European euro 0. Morgan Dollar Index, which looks at the dollar in terms of a basket of 18 curren- cies. The bottom line is that the forex trader has now an improved ability to answer the question of how well the dollar is doing in terms of its fundamentals by looking at the different TWIs of the dollar.

FOREIGN DEBT AND WHO BUYS U. ASSETS One of the fundamental variables that affect sentiment regarding the U. dollar is the fact that as a nation the United States has huge foreign debt. For example, economist David Levy said recently: The current account deficit measures the difference between what U. residents spend abroad and what they earn abroad in a year.

It now stands at almost six percent of GDP; total net foreign liabilities are approaching a quarter of GDP. Sudden unwillingness by investors abroad to continue adding to their already large dollar assets, in this scenario, would set off a panic, causing the dollar to tank, interest rates to skyrocket, and the U. economy to descend into crisis, dragging the rest of the world down with it www. Another way to look at the current account deficit is that it reflects the excess of im- ports over exports.

The question is: Why is there a current account deficit in the United States, and why do nations such as China have a current account surplus?

The answer is that the fundamental personality of the U. The fear is that if foreign investors of U. Treasury notes suddenly became unwilling to buy these notes, the U. economy would suffer. Here is what happened in Foreign ownership of U. Treasury securities has often been the subject of con- siderable public debate. Discussion of this issue arises particularly at times of uncertainty about either the outlook for the exchange value of the dollar or the need for cash in countries holding large stocks of Treasury assets.

In June of , for example, there was a flurry of activity in the U. financial markets when the Prime Minister of Japan, Ryutaro Hashimoto, suggested that Japan might find it necessary to sell some of its large Treasury holdings. On the day following Mr. Dollar 73 falloff on October 19, financial markets to sudden decisions by foreign holders of U.

debt to undertake large-scale sales of their dollar assets. Laurence H. pdf The U. Trea- sury Securities www. The fear that someday foreign own- ership of U. Treasury securities will stop and cause interest rates to increase and destabilize the U.

The trader will find that this fear continues to resurface in newspaper headlines and will likely become part of the U. national political dialogue.

When the U. Treasury report comes out, it can move the forex market. securities see Table 8. From a fundamental view, this is supportive of the dollar. We can see that the Organization of Petroleum Exporting Countries OPEC accumulates dollar surpluses from its petrodollars.

It also purchased more U. Monitoring the levels of foreign owners of U. securities is an important part of sensing the true dollar sentiment in the world. Forex dollar bulls can point to the fact that essentially a consistent stream of buyers of U. treasuries has provided a floor against a steep and quick fall of the U. Major Foreign Holders of Treasury TABLE 8. Economists are in agreement that the effect of foreign purchasers of U. Treasury securities is to lower interest rates.

Without such purchases, U. rates might be nearly 1 percent more. Here is how analysts at the U. Treasury Department portrayed risks to the United States related to foreign ownership of U.

r The trade balance has been weaker. r Econometric evidence suggests that recent heavy central bank buying has helped keep interest rates low. investors would increase exposure to foreign securities. r A decline in the role of the dollar, were it to occur, would likely be gradual. r Central banks are very conservative by nature. r The institutional structure of global trade payment system would change gradu- ally. and thus does not present a risk of a sharp or destabilizing financial market event www.

In the long run, evidence exists that there is a trend toward diversification of foreign holders away from dollar assets.

Unlocks access to the leading crypto trading analysis, signals and trading tools. World class development team backed by Quant developers and VC investors. Our Forex trading PDF, it is widely believed that forex is one of the biggest and most fluid or liquid asset markets in the world.

Sometimes referred to as FX, currencies are traded 24 hours per day — 7 days per week. In simple terms, refers to the process of exchanging one currency to another — and generally speaking, this will be for tourism, commerce, trading and many other reasons.

In this forex trading PDF we are going to talk about what forex trading is and some of the commonly used terminology in the industry. Essentially, it is the action of selling or buying foreign currencies. Of course, these are all used by banks, corporations and investors for a variety of reasons like profit, making a trade, exchanging foreign currencies and tourism.

One of the major benefits with forex trading is that after opening a position, traders are able to put in place an automatic stop loss as well as at profit levels this closes the trade. The forex market is a place to buy or sell against each other a variety of national currencies, globally.

Wherever two foreign currencies are being traded, you can be sure that a forex market exists regardless of the time zone. In this section of our forex trading PDF, we are going to run through some of the most commonly used forex trading terminologies in the industry. The pip represents the smallest amount possible a currency quote can alter. For instance, 0. The differentiation between the sale price and the purchase price of a currency pair is known as the spread.

The least popular least commonly used currency pairs usually have a low spread. In some cases, this can be even less than a pip. When trading the most commonly used currency pairs the spread is often at its lowest. The total value of the currency pair needs to surpass the spread in order for the forex trade to become profitable. In order for forex brokers to increase the number of trades available to its customers, they need to provide capital in the way of leverage. Before you can trade using leverage, you must sign up to a forex broker and open a margin account.

Contingent on the broker and the size of the position, leverage is usually capped at if you are a retail client non-professional trader. Some offshore forex brokers will offer much more than this if you are seeking higher limits. It is because of the aforementioned example that you should exercise caution when using leverage. Should the worst possible scenario happen and your account falls below 0, you should contact your forex broker and ask for its policy on negative balance protection.

The good news is that all forex brokers which are regulated by ESMA the European Securities and Markets Authority will be able to provide you with this extra level of protection, ensuring that you never become in debt with your broker. Margins are a good way for traders to build up their exposure. Put simply, in order for a trader to maintain position and place a trade, the trader needs to put forward a specific amount of money first — this is the margin.

Rather than being a transaction cost, the margin can be compared to a security deposit. This will be held by the broker during an open forex trade.

It is commonplace for forex brokers to give their customers access to leverage see above. In order for you to lower your risk of exposure and offset your balance, you might consider hedging. This is a procedure which involves traders selling and buying financial instruments. When there are movements in currencies, a hedging strategy can reduce the risk of disadvantageous price shifts. The protection of this technique is often a short term solution.

Traders often turn to hedge in a panic as a result of the financial media reporting volatility in currency markets. This is usually down to huge events like geopolitical turmoil conflict in the middle east , global health crisis COVID and of course the great financial crisis of To counteract negative price movements, market players will tactically take advantage of attainable financial instruments in the market.

This is hedging against risk in its truest form. Hedging will give you some flexibility when it comes to enhancing your forex trading experience, but there are still no guarantees that you will be totally protected from any losses or risks. While it can take some time to get your head around heading in the forex markets, the overarching concept is that it presents both outcomes. That is to say, irrespective of which way the markets move, you will remain at the break-even point less some trading commissions.

More specifically, the spot trade is a spot transaction, with reference to the sale or the purchase of a currency. Essentially, spot forex is to both sell and buy foreign currencies. A good example of this is if you were to purchase a certain amount of South African rands ZAR , and exchange that for US dollars USD.

If the value of the ZAR increases, you are able to exchange your USD back to ZAR, meaning you get more money back in comparison to the amount you originally paid.

CFD is basically a contract which portrays the price movement of financial instruments. So, without having to own the asset, you can still make the most of price movements, whilst also avoiding the need to sell or buy vast amounts of currency. CFDs are also accessible in bonds, commodities , cryptocurrencies, stocks, indices and of course — forex.

With a CFD you are able to trade in price movements, cutting out the need to buy them at all. This section of our forex trading PDF is all about forex charts. When it comes to a MetaTrader platform, traders can use bar charts, line charts and candlestick charts. You can usually toggle between the different charts, depending on your preferences, fairly easily. The first record of the now-famous candlestick chart was used in Japan during the s and proved invaluable for rice traders.

These days, this price chart is without a doubt one the most popular amongst traders all over the world. Much like the OHLC bar chart see below , candlestick charts provide low, high, open and close values for a predetermined time frame. Live forex traders love this chart due to its visual appearance and the range of price action patterns utilised. This allows you to gain a better understanding of how live trading works before you take any big financial risks in the market.

As the title suggests, this one is a bar chart, and each time frame a trader is looking at will be displayed as a bar. In other words, if you are viewing a daily chart you will see that every bar equates to a full trading day. With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers.

OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down. It is a great tool for looking at the bigger picture when it comes to trends.

The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day. In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for. When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades.

After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades. In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long. When forex traders expect the price of an asset to fall, they will go short.

This means benefiting from buying at a lesser value. To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces. This will change on a second-by-second basis. As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing.

For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure. The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market. The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few. The most liquid currency pairs are therefore the ones in high demand.

When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system. There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.

Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space. This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make. You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis. This is because it will save you a lot of leg work having to move between different sites and sources of information.

Some of the fastest and easiest trading platforms are MetaTrader 5 MT5 and MetaTrader 4 MT4. Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts.

It is essential before you begin trading seriously that you fully trust the trading platform you intend on using. This is especially the case if you intend on using a scalping strategy, for example. However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer.

This is also the case with the precision of quoted prices, and the speed of order processing. All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours.

To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately.

In order for forex brokers to increase the number of trades available to its customers, they need to provide capital in the way of leverage. significant weakening in the housing market, which was an omen that increases in rates were increasingly not likely. Trea- sury Securities www. If the deficit is greater than Stretch, London-based head of market expectations however, it can trigger a foreign-exchange strategy at CIBC. Even though it is more than 70 years after the global collapse of the gold standard in , there is still an association of gold and the Swiss franc.

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