Forex Day Trading - Forex Hedging

Hedging is defined as holding two or more positions at the same time, where the purpose is to offset the losses in the first position by the gains received from the other position.

Usual hedging is to open a position for a currency A, then opening a reverse for this position on the same currency A. This type of hedging protects the trader from getting a margin call, as the second position will gain if the first loses, and vice versa.

However, traders developed more hedging techniques in order to try to benefit form hedging and make profits instead of just to offset losses.

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Currency Day Trading - Leave Out the Emotions

The key to making money in the currency exchange market is to avoid emotional decisions and to follow a carefully thought out strategy that takes the current market and history into account. Going with your gut is not the way to go in the Forex market. Going with your gut could cost you money. Forex trading is a highly volatile market where emotions tend to run high. Emotions can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you think you're seeing at the moment. The keys to success in Forex are system, analysis and perseverance.

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Forex Day Trading - Economics for Fundamental Analysis

Let's begin our brief examination of fundamental analysis by observing that up until a century ago there was only one school of analysis, and there were still a large number of self-made trading millionaires. That one school of analysis, of course, was fundamental analysis. Technical analysis has been with us as an organized discipline since the end of the 19th century, but fundamental analysis has been here since the beginning of economics in the days of Lydians and Persians, at the very least. Those new to online Forex trading can benefit from this little detail as they make their decisions about the merits of the two schools of analysis.

Fundamental analysis aims to predict future market action on the basis of economic data and news. While technical analysis focuses strictly on the price, fundamental analysis studies the economic, political, and social dynamics in an economy in order to reach conclusions about an asset, which is a currency pair in Forex of course.

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Forex Day Trading -Forex Market Indicators

All the investors in the forex market often base their decisions in trading upon economic and political news around the world. Forex and stock market depend on the countries economy. Using of industrial production index is the best way to predict the market trends in the future. All the traders are using this market indicator specially the traders who want to trader for a long time because if a country's economy is improving definitely its currency rate goes up and if the economy is decreasing, currency rate will automatically goes down.

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Forex Day Trading - Spreads, Commision and Costs

The forex market is quickly becoming one of the most popular markets for trading.

Not only are the experienced traders looking to this market to maximize their trading returns, but many new, individual investors are now able to trade the Forex market — just as they do stocks and futures.

More and more individuals are seeing Forex not only as a new way to diversify their portfolio, but are also finding that it is becoming the most profitable component of their investments.

And that's because of the many advantages Forex offers over other markets like stocks or commodities. Here's what you will typically see advertized about Forex:

— Unparallelled liquidity. It is the largest financial market in the world by far. Almost $2 trillion being traded daily!

— Excellent leverage potential. Individual investors have access to leverage of 100:1 and even 200:1

— No Commissions (more on this later on)

— Low trading costs.

And yes, the Forex market really does offer all these advantages.

But the last two points above talk about costs, and that's what we'd like to focus on in this article.

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Forex Day Trading = Forex vs Futures

Todays current futures market is quite unlike the futures of the 19th century. Todays future market is a worldwide one that includes manufactured goods, financial currencies and treasury bonds, and agricultural products.

When you speculate on futures it is not the actual good that is speculated upon rather it is the contract for the goods that is traded as value. Every futures contract includes a buyer and a seller. The following is an example of a futures speculation: A farmer agrees to deliver 1000 bushels of corn to a baker at a price of $5.00 a bushel. If the daily price of corn futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 — $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.

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Forex Day Trading - Forex Advantages over Futures or Stocks

There are many different advantages to trading forex instead of futures or stocks, such as:

1. Lower Margin

Just like futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin requirements that are needed for trading futures are usually around 5% of the full value of the holding, or 50% of the total value of the stocks, the margin requirements for forex is about 1%. For example, margin required to trade foreign exchange is $1000 for every $100,000. What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's. When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well. You should make sure that you fully understand how your margin account is going to work. You will want to be sure that you read the margin agreement between you and your clearing firm. You will also want to talk to your account representative if you have any questions.

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Forex Day Trading - ECN vs Market Makers

This article assumes some knowledge of the way the forex market and forex brokers work. If you are not familiar with this, we recommend that you first read our Structure of the Forex Market and Structure of Forex Brokers articles. Contrary to popular belief, ECN's are not superior to Market Makers in every way. There are advantages and disadvantages on both sides.

Minimum Deposits

There are retail market makers out there today that allow traders to begin with $1 in their accounts. That’s not to say that this is a great feature, but it does present options to people who may not have the kind of money it takes to open a Currenex account. It’s a good thing too, because ECN contract sizes are often multiples of $1 million, and some ECNs expect a daily volume of $25 million. Shackled with those types of minimums, you had better be well Capitalized (with a capital “C”).

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Forex Day Trading - Trend trading Buying on dips and selling on rallies

Those members who have purchased our systems will quickly acknowledge that we have a fondness for trading systems that go long on dips and short on rallies. We have developed at least one system with that strategy in each of the markets we trade. In the S&P market and the Bond market we have developed more than one system that takes this preferred approach.  The benefits of buying into an uptrend on dips and selling into a downtrend on rallies are probably obvious.

If we compare the dips and rallies approach to entering on breakouts we can see that the "dips" entry strategy allows us to enter at cheaper prices with less risk and more profit potential. That is a nice combination of benefits. In this Bulletin we will share some of our conclusions from our many hours of research on how to identify these potentially profitable opportunities. 

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Forex Day Trading - Hedging a Good Thing?

It's easy to describe what an unhealthy risk is: scuba diving with a Great White Shark while holding a raw, rib-eye steak in your hand, for example. But it's a little harder to discern what a healthy risk is. Some seem to think safety in numbers amounts to a healthy risk -- the more partakers, the less the risk. In other words, as measured by head count, it looks like a lot of investors have followed Wall Street's lead: Living on the h-EDGE fund is, indeed, a safe bet. A December 15 New York Times article reports:

"Hedge funds have grown at supersonic speed [to become] the most important players in today's financial markets."

And, a Wall Street Journal column from the same day explains just how "important" IMPORTANT really is:

• In the first 10 months of 2004, $106.6 billion flowed into hedge funds vs. $72.2 billion in all of 2003.
• Assets in hedge funds have grown by 260% over the past five years, to a $1 trillion total ($1,000,000,000,000).

With this many zeros, it's natural to think. Superior performance in hedge funds must account for the rapid growth

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Forex Day Trading - Position Sizing is Important

Position sizing is a simple, effective trading strategy to maximize profits.  Even with a great  trading system, if you don't manage your money properly, you're just polishing the brass handles of a sinking ship.  Yes, even if you have a great strategy, poor position sizing will run your financial ship of opportunity into the rocks.

This is especially so if your trading account is not very large.  For the sake of simplicity, lets' say you have an account of $100 and you invest $25 per trade.  Obviously, if you incur only four losses in a row, your account would be wiped out!

On the other hand, what if you invested only $2 per trade with the same account (the famous 2% rule)?  It would take a string of fifty losses to clean you out.  But, being unnecessarily "safe" can also result in a loss in profits.

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