FX Island

Those trading in the foreign-exchange market (forex) rely on the same two basic forms of analysis that are used in the stock market: fundamental analysis and technical analysis. The uses of technical analysis in forex are much the same: price is assumed to reflect all news, and the charts are the objects of analysis. But unlike companies, countries have no balance sheets, so how can fundamental analysis be conducted on a currency?

Since fundamental analysis is about looking at the intrinsic value of an investment, its application in forex entails looking at the economic conditions that affect the valuation of a nation’s currency. Here we look at some of the major fundamental factors that play a role in the movement of a currency. more…

The forex market, unlike other exchange driven markets, has a unique feature that many market makers use to entice traders to trade. They promise no exchange fees or regulatory fees, no data fees and, best of all, no commissions. To the new trader just wanting to break into the trading business, this sounds too good to be true. Trading without transaction costs is clearly an advantage. However, what might sound like a bargain to inexperienced traders may not be the best deal available – or even a deal at all. Here we’ll show you how to evaluate forex broker fee/commission structures and find the one that will work best for you.

Commission Structures
There are three forms of commission used by brokers in forex. Some firms offer a fixed spread, others offer a variable spread and still others charge a commission based on a percentage of the spread. So which is the best choice? At first glance, it seems that the fixed spread may be the right choice, because then you would know exactly what to expect. However, before you jump in and choose one, there are a few things you need to consider. more…

You don’t have to be a daily trader to take advantage of the forex market – every time you travel overseas and exchange your money into a foreign currency, you are participating in the foreign exchange (forex) market. According to the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity conducted by the Bank for International Settlements, the forex market generated $3.2 trillion dollars worth of transactions each day. This makes the forex market the quiet giant of finance, dwarfing over all other capital markets in its world.

Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s take a look at some of the basic concepts that all forex investors need to understand.

Eight Majors
Unlike the stock market, where investors have thousands of stocks to choose from, in the currency market, you only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. These following eight countries make up the majority of trade in the currency market:

1. United States
2. Eurozone (the ones to watch are Germany, France, Italy and Spain)
3. Japan
4. United Kingdom
5. Switzerland
6. Canada
7. Australia
8. New Zealand

These economies have the largest and most sophisticated financial markets in the world. By strictly focusing on these eight countries, we can take advantage of earning interest income on the most credit worthy and liquid instruments in the financial markets. more…

Although forex is the largest financial market in the world, it is relatively unfamiliar terrain to retail traders. Until the popularization of internet trading a few years ago, FX was primarily the domain of large financial institutions, multinational corporations and secretive hedge funds. But times have changed, and individual investors are hungry for information on this fascinating market. Whether you are an FX novice or just need a refresher course on the basics of currency trading, read on to find the answers to the most frequently asked questions about the forex market. How does this market differ from other markets? Unlike the trading of stocks, futures or options, currency trading does not take place on a regulated exchange. It is not controlled by any central governing body, there are no clearing houses to guarantee the trades and there is no arbitration panel to adjudicate disputes. All members trade with each other based upon credit agreements. Essentially, business in the largest, most liquid market in the world depends on nothing more than a metaphorical handshake. more…

- Euro Breaks Below 1.3000 – German ZEW Survey Could Impact Trade on Tuesday
- British Pound Tumbles Against Safe-Havens – UK CPI May Fall Back Into BOE’s Inflation Target Range
- Canadian Dollar Under Pressure Ahead of Bank of Canada Rate Decision – What to Expect

US Dollar, Japanese Yen Rally on Flight-to-Quality as Investors Fear Results of US Bank Stress Tests
The US dollar and Japanese yen surged on Monday as risk aversion shook the markets once again. Indeed, there is substantial uncertainty about the health of the financial markets as the US government performs stress-tests on the 19 biggest US financial institutions, and the results will not be announced until May 4. Until then, investors could remain jittery, especially when they see announcements like the one released by Bank of America today, as they said the net charge-off rate rose to 2.85 percent from 1.25 percent a year earlier, while credit-card losses increased to 8.62 percent from 5.19 percent. With the US recession lingering on and job losses accelerating, banks may find that they are persistently weighed down by consumers’ inability to pay. more…

Technical analysis is the study of stock prices and pricing patterns that can help investors determine whether a stock is overbought (expensive) or oversold (cheap). By using various technical indicators together, called correlation, traders can bring the “big picture” about a stock into clearer focus.

Here we’ll look at volume, the Aroon indicator and Fibonacci numbers, three technical analysis tools that can be used to help facilitate more profitable trades. In fact, investors can use them in conjunction with each other to spot emerging trends and stay ahead of the crowd. Read on to find out how. more…

People’s emotions lead them to make bad financial moves in chaotic times. Here’s what to look out for. In a chaotic bear market like this one, it’s easy for investors to fall into traps. They might scramble to make trades based on the latest news reports. They might search for a miracle stock that will pay off big and let them recoup all their losses. Or they might go in the other direction — and get so scared of the market that they don’t make any moves at all. more…

Those trading in the foreign-exchange market (forex) rely on the same two basic forms of analysis that are used in the stock market: fundamental analysis and technical analysis. The uses of technical analysis in forex are much the same: price is assumed to reflect all news, and the charts are the objects of analysis. But unlike companies, countries have no balance sheets, so how can fundamental analysis be conducted on a currency? more…

The Reserve Bank of Australia rate decision will set the stage this week as Governor Glenn Stevens is anticipated to lower the benchmark interest rate by 50bp to 5.50% ahead of the ECB and BoE policy meeting on Thursday. The central bank is expected to ease policy for the third consecutive meeting as fears of a global recession continues to pose a threat to the $1T economy.

The Reserve Bank of Australia lowered the benchmark interest rate by 100bp for the first time since 1992 as fears of a global meltdown intensified. The RBA minutes showed that the central bank slashed borrowing costs for the second consecutive meeting to lower the interest rate to 6.00%, stating that the unexpected move was ‘appropriate’ in order to stave off further downturns in the $1T economy. Meanwhile, Governor Glenn Stevens said that the risk of a ‘global catastrophe’ has died down as a result of the extraordinary efforts taken on by policy makers worldwide, but has raised speculation that the RBA will continue to ease policy further as the major economies around the world slip into a recession.

1.Practice before you start trading with real money. Could you imagine an athlete going to the Olympic Games without preparation and training? Make sure you have practised your trading on a demo platform and get comfortable with it and your trading style before committing real money.

2.Know what moves currency markets. Like any asset class, there are a number of factors that drive currency performance. A country’s macroeconomic situation can have a major influence – economic data releases, policy decisions and political events can change an economist’s outlook on the country, and therefore the currency. There are also technical factors such as interest rates, equity markets and international trade which may have an impact. Spend time getting to know these. more…