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SWAP IN FOREX TRADING : REQUIRED FOR ALL REAL INVESTORS

October 22, 2011 By Raj 2 Comments

Author’s Bio: This is a guest post contributed by V. Allison from getforex.

What exactly is Forex swap?

Swap is a forex trading (a transaction which consists the decision to make the sale of a stated amount of currency and the acceptance of another currency of a different country) term which means a real-time buying and selling of the same amount of a particular currency for two different rates for the selling and purchasing of another currency.

Forex swap is a type of borrowing mechanism in which an investor can buy or sell a base currency at present and can sell or buy in future. It takes place when a trader and a broker trades one currency for another at a decided rate and then convert those currencies back at a particular date in the future, at the previously decided exchange rate. It is also referred as the FX swap.

It involves:

  1. A spot transaction: It can be described as a two-day delivery transaction that can be said as a direct exchange between two currencies within a short span of time that involves cash transaction but it does not include interest. It also does not include trades between US or Canadian Dollar, Turkish Lira, Euro and Russian Ruble, which settle the next business day.
  2. A forward transaction: It can be described as a one way dealing with the foreign exchange risk. This transaction occurs at any future date at a pre-decided exchange rate in spite�of the present market rate. The duration for this transaction is decided by the broker and the trader that may be for few days, months or years.

Relation between spot and forward transaction is:

 

relation between spot and forward transaction

Where:

  • F – forward rate
  • S – spot rate
  • r1 – term currency’s simple interest rate
  • r2 – base currency’s simple interest rate
  • T – tenor ( it is calculated as per the day count convention)

Difference between Forward and Spot = Forward points or Spot points.

Difference Between Forward and Spot

Where:

      r1 and r2 are small.

When the interest rate difference get larger or smaller, the absolute value of swap points increases.

Pricing of FX Swaps:

The price or cost of an FX swap can be determined by the difference of interest rate between the two swapped currencies. It can be measured by the swap points or the equivalent foreign exchange.

Uses of Forex swap:

  1. It is used to hedge against exchange or currency risk.
  2. It is used to speculate on a change in interest rate differentials.
  3. It is used to borrow money for a short span of time.
  4. It is used to extend or rollover an existing forward contract.
  5. It is used to take a view on future interest rate
  6. It provides a way of using the foreign exchange markets as a funding instrument and an alternative to lending and borrowing in the Eurodollar.

Real investors hedge or secure their trades or investment in the Forex market against substantial losses. They can achieve hedging or insurance against loss in the forex market only by using the strategy of Forex swap.

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The top 5 trading currencies in the Forex Market

October 19, 2011 By clintstarr Leave a Comment

The top 5 trading currencies in the Forex Market

Currencies are traded for profit on the Forex Market, with traders speculating on the value of international currencies before exchanging one for another.Opening each day in Australia and closing in New York, Forex operates across international time zones, trading currencies 24/7.

Read on for more on currency trading and the top five Forex traded currencies …

Who trades currencies?

Banks, businesses and individuals each use Forex to trade currencies.

Why trade currencies?

Traders speculate on fluctuations in international currency values to make a profit by trading currencies on the Forex market.

It’s been estimated that 95 per cent of Forex transactions are carried out as a form of profit speculation, while 5 per cent facilitate international payments and currency conversions in daily commerce.*

Why do Forex currency values fluctuate?

Fluctuations in currency values allow traders to profit by trading one currency for another.

Although currency values tend to fluctuate slightly throughout any given day, international currency values can seriously depreciate or appreciate depending

on a region’s economic and political stability, allowing for significant profits or losses to be made when trading one currency for another.

Trading currencies on the Forex market:

Each Forex transaction involves the purchase of one currency and the simultaneous sale of another.

As such, Forex traders refer to currencies in pairs. A currency pair is made up of the two currencies exchanged during any one given Forex transaction.

Some currency pairs are traded more often than others on the open Forex market. The seven most traded currency pairings are called major currency pairs, while other less-common couplings (especially those which don’t feature the USD) are known as cross-currency pairs.

Experts advise new traders to begin trading using the major currency pairs.

The Top 5 Forex traded currencies are:

  1. USD
  2. EUR
  3. JPY
  4. GBP
  5. AUD

The top 5 Forex traded currencies explained:

The seven most traded currency pairs on the Forex market – the major pairs – are thought to account for 75 to 80 per cent of Forex’s daily trading volume**, meaning some currencies are traded much more frequently than others.

Each of the top 5 Forex traded currencies is a part of at least one of Forex’s seven major currency pairs.

The US Dollar

The US Dollar is the central currency against which all other currencies are traded. As a result, most Forex transactions involve trading the USD for another currency.

The Euro

The EUR/USD is the most actively traded Forex currency pair, and by some estimates accounts for 28 per cent of daily Forex trading***.

The Japanese Yen

The JPY/USD is the second most actively traded Forex currency pair, and is thought to account for 13 per cent of daily Forex trading****. JPY/USD is generally used as the regional currency proxy for China and other Asian countries.

The Great British Pound

The GBP is most commonly traded against the Euro and the US Dollar – the two most traded Forex currencies. The GBP/USD currency pair is estimated to account for 12 per cent of Forex’s daily trading volume.

The Australian Dollar

The AUD is commonly traded against the USD to comprise one of Forex’s seven major currency pairs, explaining the AUD’s entry as the fifth most traded Forex currency.

Author Bio

Clint is a part of the digital blogging team at cashzilla.co.uk who work with big finance brands and Forex trading sites. For more information about me, or to keep up to date with the latest in finance news, check out my posts at cashzilla.co.uk or visit my Twitter account, @cashzilla.

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What are Metatrader Profiles and How to Create, Save and Copy Them?

May 11, 2011 By Raj Leave a Comment

What is a Metatrader Profile?

A metatrader or MT4 profile is a saved group of charts that you saved with some predefined settings. You have particular indicators on different charts and the charts are arranged in some particular order and want to have the same charts retrieved with the same settings and same orders at a later time. You can save these settings as a profile and you can get them at a later time.

Difference between a template and a profile:

A template is for a single chart. If you want to apply particular settings to any chart you can save it as a template and you can apply it to any chart. If you want to know more about templates and you can read the post “How to create your own templates in metatrader for different techniques?” – http://www.forexbees.com/how-to-create-your-own-templates-in-metatrader-for-different-techniques/

But a profile is a group of charts you saved with different settings and you can retrieve all those charts with the same settings whenever you want.

Creating and Saving Metatrader Profiles:

One thing you need to make sure before you create and save your metatrader profiles is you need to run your metatrader as an administrator especially if you are using Windows 7 system. I am not sure about XP and other systems but if you want to copy your metatrader profiles to a different metatrader account, which is discussed in the later section, you need to run metatrader as an administrator. For this right click on your metatrader application and click the option “Run as administrator”.

Running Metatrader as an Administrator

Once it opens the metatrader application, have your favorite charts with different indicators and arrange them as you want. For example I want to trade using stochastic oscillator. I want to observe the stochastic oscillator in the daily chart and enter trades in hourly chart. So I have put a daily chart with stochastic oscillator in the upper chart and an hourly chart with stochastic oscillator in lower chart. I arranged the charts for four different currency pairs so that I can view all of them at the same time.

Metatrader Charts Arranged in a Specific Order

Now I want to save them as a profile so that I can retrieve the same settings at a later time. You can save your profile either by click the “Save As” in “Profiles” section through “File” in menu bar or by clicking the “Save As” under “Profiles” button in the tool bar.

Saving a Profile through File Menu Bar

Saving a Profile through the Tool Bar Button

Now give a name to your profile. For this profile I used the name “Daily_Hourly_Stochastic”. Click “Ok” and your profile is saved.

Give a Name To the Profile

Now at any time go to the “Profiles” section under “Files” menu and you will see your profile and you will be able to retrieve your settings at a later time.

Metatrader Saved Profile

Note: One important thing you have to note here is if you make any changes on the opened profile like adding more indicators, changing the indicator settings etc. the changes will be automatically saved to your opened profile. So if you want to keep the same settings of the profile, don’t make any changes on the opened profile. Open a different profile and make any changes you want.

Copying Metatrader Profiles:

If you want to copy your metatrader profile to a different metatrader account on the same system or a different system you can do that. Just go to the metatrader folder where you have installed it and you will see a folder called “Profiles”. Go into that and you will see a folder with the name of the profile you have created. For example in the above example I have created the profile with the name Daily_Hourly_Stochastic and you can see that folder in the following picture. You can copy that and paste it in your new metatrader account and you will be able to see your profile in your new metatrader account. It’s very simple.

Note: You have to remember one thing here. If you want to copy your profile, you have to run your metatrader as an administrator before you save your profile. If you don’t run it as an administrator your profile won’t be saved in profiles folder. You have to search the “C” driver to find it.

Copying a Metatrader Profile

Shifting Between Profiles:

  1. You can switch between different profiles or change the profiles in the following ways.
  2. You can go to the profiles section under File menu and select whichever profile you want.
  3. You can click on the profiles toolbar button and switch to a different profile.
  4. You can click at the bottom where it shows the different profiles and switch between the profiles.
  5. You can use the hot key Shift + F5 to go to the previous profile.
  6. You can use the hot key Ctrl + F5 to go to the next profile.

Switching Between Profiles

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Indian Black Money In Swiss Bank equals the daily forex market turnover?

February 6, 2011 By Raj 1 Comment

Indian Black Money In Swiss Bank equals the daily forex market turnover?

It’s a known fact that people save their black money in Swiss Bank(Black money means money for which taxes are not paid to the govt.). Do you know the latest figures of how much money is in Swiss bank from different countries? (This is based on the reports in 2006 collected from different internet forums and news magazines. This may not be true but I believe in these statistics as big people and corrupted politicians from India save their black money in Swiss bank. )

  1. India —- $1,456 billion
  2. Russia —$ 470 billion
  3. UK ——-$390 billion
  4. Ukraine – $100 billion
  5. China —–$ 96 billion

Recently I read in a news article from a local news portal that the black money in Swiss bank from Indians is now 85 lacks crores rupees, which is almost equal to 2 trillion dollars.

I also have been reading in the newspapers recently that Indian govt. already knows some of their names who saved their black money in Swiss bank but not willing to reveal their names to the public. (Because their own names might be list or the whole politician names might be in that list).

You can check the following articles from “Times of India”, a well-known news magazine in India.

http://timesofindia.indiatimes.com/india/all-tainted-swiss-a/c-belong-to-Congress-leaders/articleshow/7375734.cms

http://timesofindia.indiatimes.com/india/Notices-sent-to-17-related-to-black-money-trail-Pranab/articleshow/7430670.cms

The whole point is, if these statistics are correct, the black money from India in Swiss bank is almost equal to the forex market daily turnover.

Note: The above statistics are completely based on the figures available in different forums and in different online news magazines. There is no strong report or something like that, that is available to the public.

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Accumulation Swing Index Trading Results – Week2

January 17, 2011 By Raj 3 Comments

Accumulation Swing Index Trading Results – Week2:

The following are the second week trading results for the accumulation swing index trend line breakouts.

Last week I mentioned that this simple breakout strategy which I am experimenting made around 100 pips first week but there was an open trade that time which I lost. So the first week it made only 38 pips.

Last week also I entered trades using the breakouts of trend lines. It made only 6 pips profits. But there is an open trade which is currently around -20 pips in loss. I will update it whenever it is closed.

I am still trying this strategy to see if I can make it better to eliminate some of the bad trades by using different other indicators like Bollinger bands, Stochastic etc.

So the following are the overall results using this strategy.

First week – Profit 38 pips

Second week – So far in a profit of 6 pips but depends on the order that I opened last week and currently in a loss of 20 pips. I will update it next week.

ASI Break out strategy first week:

http://www.forexbees.com/accumulation-swing-index-trading-results-week-1/

Accumulation Swing Index Indicator:

http://www.forexbees.com/accumulation-swing-index/

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What happens if every trader wins in forex?

January 11, 2011 By Raj 3 Comments

What happens if every trader wins in forex?

It is a known truth that 95% of traders lose in forex. Only 5% of traders win in forex.

It is the broker who pays the winning trades but since there are a lot of losers in forex, brokers get a lot of profit.

Suppose every forex trader has a strategy that works 100% and doesn’t lose even a single trade. (I know that it’s not possible) What happens? Not even every single trader, just if the % of winning traders rises above 50% from 5%?

Does the broker pays it to the traders and lose the money?

The broker can be compared to a car insurance company. Any insurance company can be profitable only when they have far less number of claims for accidents than the number of insurers they have. If it has more claims then the company will go into losses as it has to pay for the claims. Just the same way, if the number of successful traders increases, definitely the broker has to lose and close his brokerage company.

But this may not be the case. Since here brokers have the control over the trades they may close the trades in advance so that the trades won’t go into profits. The broker may also close the account. In some forums it is mentioned that some of the trader’s accounts are closed as they are going into too much profits.

What is your opinion on this? What do you think?

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Can’t we make money in day trading?

December 2, 2010 By Raj Leave a Comment

Can’t we make money in forex day trading?

As Danielle Franklin mentioned in the article “8 Most Common Trading Myth“, can’t we really make money in day trading? In that article the author mentioned “Day Trading Makes Money” as one of the myths. The following is the excerpt of the article.

2. Day Trading Makes Money

What’s wrong with day trading anyway? Let’s start with the term “day” – since forex market yields a certain long-term trends, any movements during the 24-hour span is considered random. This means that when you are day trading, you basically guessing.

Another thing related to day trading is the commissions (aka bid/ask spreads) that brokers receive for every single trade. This means, first of all, that there is no such things as no-commission brokers (they are getting paid quite well, believe me!) and, secondly, every time you change your positions, you will pay for it.

I agree with the point that the brokers receive commission for every single trade which is the spread for the currency pair and since we do more trades in day trading we pay more to the brokers. But for each trade if we can make more number of pips than the actual spread that means we will be in profits.

Even though market yields a certain long-term trends, I don’t think that the movements during the 24-hour span are always random. Within that time period also we can see trending markets and range markets. It depends on the traders like

  1. How many number of pips they are targeting for in day trading. In day trading during Asian markets we can target for a max. of 10 to 20 pips but in other market timings we can target for 50 to 100 pips. But in day trading we cannot target for 500 pips as in long term trading.
  2. How many number of simultaneous trades a trader is doing. In my opinion any trader should not enter more than two simultaneous trades.

The above are only a few of the things any day trader should follow.

Other than the above things, the stop losses in day trading also less but in long term trading the stop losses will be more. So if the trades hit the stop losses, the loss will be more in long term trading than in day trading. Moreover entry signals for long term trades occur only a few times a year.

So, in my opinion we can still make money in day trading but it depends on how many pips traders are targeting for, how good they are in analyzing the markets etc.

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Trend lines – Indicator that sends emails

February 1, 2010 By Raj Leave a Comment

In my trading experience the following two are two of the most valuable techniques that works 90% of the time.

1) Trend line reversals
2) Trend line breakouts.

The above two techniques work very good and I am able to draw the trend lines correctly. But one problem I am facing is when the price reaches the trend line I am not at the system and I am not able to take the trades.

So I am thinking to develop an indicator which will send emails to my iPhone whenever the price touches the trend line. I searched in the net to find out if there are any indicators already there and I got one indicator like that. But it sends emails only when the price reaches the trend line. I also would like to get the emails with the information of whether the candlestick closed above the trend line or below the trend line.The following are the different steps of what I am thinking.

Lets say there is a trend line at the top the chart for the currency pair EURUSD.

1) When the price reaches and touches the top trend line it should send an email saying that “EURUSD – 1hr chart – Price touched the trend line”.

2) When the price touched the trend line but closed below the trend line. It should send an email saying that “EURUSD – 1hr chart – Price touched the trend line but closed below the trend line”.

3) When the price touched the trend line and closed above the trend line. It should send an email saying “EURUSD – 1hr Chart – Good Opportunity. Price broken the trend line”.

The above are some of the points.

So I am thinking of developing this indicator and would like to share this indicator with only some of my web visitors. So please throw your ideas.

Idea of trend line break indicator that sends different emails

Idea of trend line break indicator that sends different emails

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