How Do Forex Brokers Make Money?

It is one of the most talked-about advantages of trading on the Forex—the commission-free trades!  Unfortunately, while we would all like to think that Forex brokers are just out there executing trades for the fun of it, the simple truth is that everyone needs to make money—even the brokers.  While they may not charge a traditional commission, brokers on the Forex still make their money whenever trades take place.  Brokers actually are compensated in a number of ways, including:

•    Buying/Selling Currencies
•    Earned interest on deposited funds
•    Converting and holding currencies
•    Rollover fees

It is in the buying and selling of currencies that brokers make the majority of their money.  They make this money in something known as the “spread”, or the difference between the asking and bidding price of the currency pair.  The “ask” is the price a retail Forex trader would pay for a position.  The “bid” price refers to the amount that an investor could then sell the position at.

The smallest unit of measure in Forex trading is known as a pip and it is equal to .0001 (except for the Japanese Yen, which is .01).  The difference between the ask and bid price is typically only 3 or 4 pips and this is what the broker makes when buying and selling currencies.

A broker is actually a middleman and never actually charges anyone directly.  Instead, a broker purchases a position from a larger investment institution and then sells it to the retail Forex trader while pocketing the difference between the two amounts.  For instance, a broker might set the “ask” price at 1.250 and the “bid” price at 1.246.  If the investor were to sell the position immediately, then the most they could sell it for would be the “bid” price of 1.246—or a loss of 4 pips.  Since the typical Forex transaction is conducted in $100,000 lots, that means that the broker made $40 in that currency exchange.

The spread will vary depending on the broker and the currencies being traded.  Typically, the spread averages between 3-5 pips.  Unfortunately, brokers are necessary tools in the Forex trading game if for no other reason than the sheer size of the transactions.  There is approximately 1.8 trillion dollars exchanging hands on the Forex every day and these transactions are conducted in $100,000 “lots” (there are also $10,000 mini-lots and even micro-lots).  Thus, it is typical for Forex transactions to be highly leveraged with most traders only putting up $1,000 (or 1/100) in capital.

Forex brokers will tend to be partners or somehow associated with investment banks and similar institutions.  These “backers” actually guarantee the loans used to leverage Forex trades—and without them—none of us could trade on the currencies markets unless we were willing to risk more than the 1% demanded by most brokers.

Yes, the brokers do make money when investors trade on the Forex but they do provide a genuine service.  Just be careful to avoid trading too often because although the pips are small—they can disappear quickly especially when investors try to compensate for a loss by turning around and investing before doing their homework.  Therefore, be wary of any Forex broker that advocates any form of “day trading” or the like—it’s a very, very dangerous strategy to use in the most volatile and fluid market the world has ever known!

Forex Learning To Read Charts And Make Your Profits Explode

The first step in technical analysis is to learn to read the charts. Here are a few basic lessons to guide your early attempts.

When first analyzing a currency pair, look for the prevailing trend. Start with the long-term charts (monthly, weekly, and daily), going back for several years. Because these charts contain a greater amount of data, they provide a clearer picture of just what the currency pair is doing than the short-term charts (hour, half-hour, 15-minutes, or 5-minutes). The extra data also makes what the indicators are telling you more reliable

Identifying the trend is simple: just look at the chart and decide if the graph is going more up than down, or more down than up. Trends can be steep or shallow, years long or weeks short. Practice identifying them, and finding the points where they change direction. The longest-term trend is the strongest, which is another reason for looking at those charts first.

Even if you’re scalping or day trading and don’t intend to hold a position longer than an hour, you’ll do better by trading in the same direction as the prevailing trend. So take the time to identify it on at least the daily charts before you begin. There’s an old trader’s saying: “The trend is your friend.” It’s not a lie.

Once you’ve identified the trend in the long-term charts, compare that with what you see in the short-term charts. You’ll find that there can be any number of intermediate-term and short-term trends within the path set by the prevailing trend. The graph will waver up and down but overall it will follow the path set by the longest-term trend.

Next, find the support and resistance levels, which are the “floor” and “ceiling” points on the graph, respectively. These are key points on the chart where the price repeatedly refuses to break through, or just peeks through then gives up the fight. The price will go just so high or so low, but no further; it reaches that point then changes direction. The more times that happens, the stronger the support and resistance are.

Draw a straight line, either in your mind or on the chart, passing through most of the support points. Then draw another passing through most of the resistance points. This gives you a picture of the path the currency pair’s trend is following, called a price channel, and it’s a simple but powerful tool to help determine how that path will continue.

When support and resistance are strong, the graph of the currency pair seems to bounce along sideways between those two lines like a pinball. When this happens, the currency pair is said to be range-bound. As this happens 80% of the time, many people simply trade within channels, although this technique doesn’t deliver any jackpot profits.

These lines don’t have to be level. Sometimes the currency pair is trending up or down, but still moving within that channel. However it’s slanted, you can still trade within that range.

When a currency pair breaks out of a price channel, sometimes it falls back into the channel, and sometimes it gains momentum and keeps moving. This last is called a momentum market, and it’s the other way to trade the range: set an entry order for the price to break out, either above or below the channel, then sit back and let it ride.

Congratulations—you now understand the most important elements of basic technical analysis!

Forex Charting Software

If you are trading in the exciting field of foreign currency, forex charting software is perhaps your most important tool. Whether you are a short term player or take a medium term bet, charting software helps you in trend analysis and predicting the future. If you are a long term investor or trader, the right charting software can help you understand some of the most visible trends emerging in the market for taking a bigger bet and making huge money in the process. It is worthwhile to wait for reasonable and more deterministic trends to emerge and then start making investment rather than taking short term bets on intra day fluctuations. It is here that charting software is one of the most wonderful technical analysis instruments.

Today automated trading systems and huge data elements allow a more scientific approach towards investing in the foreign currency markets. While the old school of thought still believes in investing on gut feeling, traders increasingly prefer profit boosting techniques and methods to earn greater than average returns. For those who thrive on adrenaline rush of high voltage trading drama, forex charting software is perhaps one of the most scientific basis for making their assessment of future trends.

Most of the advanced charting software comes with real time or almost real time data streams and features to generate alerts for buy or sell recommendations. You can also back test these alerts with your own parameters and get audio and visual alarms for generation of a foreign currency alarm. All this is designed to help you time your decision in the most efficient manner and thus earn profits.

One of the great features of the advanced forex charting software is that they can be embedded to your trading account and thus you may also automate your trading strategies. Thus as soon as a sell alarm is signaled, the server sends an alert to your cell or email account and if you have an automated brokerage account, you can do the trade without any human intervention. A great way to be a smart investor. You can even place a stop loss alert and exit timing alert based on your own parameters and thus be within the range
defined by you.

Foreign currency market is highly volatile and has a number of dependencies outside your control. The only thing you can ensure is to develop trading strategies for good returns. Forex charting software is there to help you achieve this objective. While it is true that no one can make money simply by blindly following the charting, it is also true that you get a fair idea of  future trends and fluctuations as they emerge based on historical data elements over a long period of time.

The best way to start is download the advanced charting tools and go through the manual and instructions thoroughly. Open a demo account and start dummy trading and see where you stand in the field. Once you are fairly conversant, use forex charting software to your good cause of making money.

Who Are The Top Forex Chart Providers?

When it comes to investing on the Forex, there are two basic paths you can choose:  Fundamental or Technical.  Fundamental investors look at changing interest rates, GDP figures, and other economic indicators to help them anticipate fluctuations in the exchange rates of currency pairs.  Technical traders, on the other hand, look for trends in the market to help them identify currency pairs and the best enter and exit points on a position.

Fundamental investors rely upon news releases and their overall impression of the economic outlook of nations in a currency pair.  Technical traders, however, use charts and the application of analysis to help guide their investment decisions.  Fundamental investors tend to be short-term investors while technical traders try to look at the bigger picture and be more focused upon the long-term pricing outlook.

In truth, most technical retail traders on the Forex market do not have the time to compile charts from scratch.  While many retail investors do import information into programs like Excel in order to interpret the information, they still tend to rely on an outside source for the raw data.  To do this, the technical retail trader relies upon Forex chart providers like the following:

•    FxTrek
•    ESignal
•    FX-Charts

So who is the top Forex chart provider?  The answer to this question depends upon the individual investor but you do want to look for a provider that produces charts that are easy-to-read and relevant to the particular strategy you employ.  Now there are chart providers that are going to insist upon offering up a ton of “insider secrets” to the market in addition to their charts.  In fact, all providers will provide some degree of insight but this is no criteria to choose a chart by—this information will only confuse you and cause you to doubt your investment strategy.

If there is one common problem to most investors new to the Forex it is a tendency to over trade and ignore the stops they put into place when acquiring a position.  Fear is a common human emotion and it guides more investments than people think but it also causes people to exit positions prematurely and over trade.  While the opinions of investment experts may sound perfectly logical and a lot more involved than your own strategy—they are just opinions.  The market is always right—no investing expert can claim likewise.

Once you acquire a position, place your stops and keep them in place.  Losses will happen but you need to perfect your own investing strategy using continual back testing and chart analysis—not listening to the opinion of others once you are already in the game.  What you need most of all from an FX chart provider is accurate and easy-to-read charts.  While the advice may be helpful when learning the market and prior to acquiring a position, it tends to breed fear and cause doubt once you already are in the game.  Thus, choose your chart provider based upon their charts—not the advice they produce each and every month!

What Is Forex Market?

The forex market, or foreign exchange market, is a trading market where people will trade currencies around the world. The forex market is like the stock market in that money is traded and that people on the market can gain or lose money in trading, but it is much larger than any other market out there. That is because all kinds of monies are being traded at any time of the day.

Like with stock market prices currency exchange rates will change every day and can be different at any time of day. Therefore, it will be important to watch how your forex market investments are doing so that you do not lose any money in your transactions.

Also, you should understand that the forex market is open all day long. There are major forex market trading areas around the world, including locations in London, New York, Zurich and Tokyo. There is always at least one forex market trading area open during the day. The exchange rates will be different throughout the day, especially when the forex market in one city closes for the day and another at a different point in the world opens.

There are many different currencies that are being traded on the forex market. These include the American, Australian and Canadian dollars, the Swiss franc, and Euro and Japanese yen. When using the forex market you can trade a currency against another one trade it for another currency in order to help increase your revenues and earn more interest.

One great benefit of forex market trading is that there is very little possibility of any insider trading involved. Insider trading, although it is illegal, does happen in traditional stock markets, as people will know inside business secrets that will allow for people to buy stock before it begins to go up significantly in value. While the forex market does have people buying and selling things like in the regular stock market, insider trading is not found in the forex market because the changes are all based on how people buy and sell and by how the value of the economy of different countries is going.

It is also easy to identify different currencies on the forex market. This is because all of the currencies on the forex market are identified by three-letter codes to help distinguish between them all. For instance, the American dollar is listed as the USD, and the Euro is listed as the EUR. These codes make it simple to remember what currencies are out there for trading.

The forex market is a great market for you to consider investing in. If you would like to learn more about the forex market and how you can get involved you should consult your local broker for information. Also, be sure to look up information on the broker you are interested in working with to see if it is the right one for you to be working with for the forex market.

Forex Trading for Beginners

Learn Forex Trading Online

More and more Americans are realizing how much they can earn by joining the Foreign Exchange (Forex) market. However, not all have taken action to actually become one of the many individuals and companies trading from all parts of the globe. There are some who are still hesitant to join because they don’t know how to start in the first place.

Well, thanks to the wonders of technology and the power of Internet, you can now readily access information on how to do Forex trading. With just a few clicks of the mouse, you can learn Forex trading online.
Most forex trading websites give you the chance to try out Forex trading by allowing you to register for a free forex practice account. This way you can get the feel of Forex without risking your money. It also gives you the opportunities to become familiar with the various options available on that online forex trading platform.
Other forex websites offer access to Forex trading platforms, real-time Forex charts, Forex market research done by experts, and the most recent, high-tech Forex trading tools. There are also Forex training programs, seminars, and courses on the Internet that you can avail of.
Forex trading may not be suitable for everyone, as this kind of money-making exercise involves risk, time and requires nerves of steel and experience. It’s best to avail of Forex trading resources online before you put your money on an full online forex account.
You can also visit forex trading forums to learn more about where to learn forex trading online and which are the best websites to trade forex. It ispossible to make money from forex trading only if you are well equipped with the knowledge.

The info you must learn about Forex trading signals

There are numerous kinds of software that forex traders use in their work. Forex trading is very risky and very often a forex trader needs months or even years of training and gaining experience, but properly chosen forex trading software can accelerate this process and be of great help.

But this doesn't mean that you can choose any available program and use it straightaway and make money on it. There are numbers of programs, both bad and good. If you want to invest in some software you have to choose it very thoroughly and avoid useless fraud programs. The only way to secure yourself against the low-quality software is to read the unprejudiced reviews of other people using it.

Before you buy any forex software you have to know that there are no ideal programs of this type. They are all made by people and may sometimes make mistakes, but it is vital to be able to distinguish between programs that are closest to the ideal and those good for nothing ones. Automated forex trading software means that you will still have to manage it to some extent, and not that you will install in on your computer and instantly become a millionaire.

If you are interested in a particular kind of software then search for its free demo versions. The latter are created not for the free use of the program, but for your opportunity to try it, ensure that it is good and then invest in it. Never make your decision only in the basis of an advertisement -some of them will write anything to make you interested.

Your main goal should be to be able to finally trade without the help of any forex trading software, because in most cases those who become very successful in forex trading either have never used forex trading software or gained all the necessary experience with the help of it and then started doing everything on their own. But this level of skills will come with time.

It goes without saying that in order to be able to maintain the forex trading software you will have to have a reliable internet connection. If your local network or any other current internet connection often becomes disabled, that won't do. In this case find some other internet access, because you will need it often and a lot.
Keep in mind - no forex trader who relies too much on forex trading software of any kind and wants everything to be done without their participation is meant to fail eventually. After all, forex is too a kind of art, and you have to work hard using your own brains in order to become a real and successful expert.

One of the methods to enhance your Forex trading activity is to use forex trading signals. However, be prepared to the fact that now the market full of forex trading signals - do you really expect that all of them work properly and bring profit?

Of course, no. So we seriously recommend you to visit this blog and read how to choose forex trading signals that really work.

Intro to The FOREX Market

The Foreign Exchange Market – better known as FOREX - is a world wide market for buying and selling currencies.
It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.
The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at 'floating' rates determined by supply and demand. The FOREX grew steadily throughout the 1970's, but with the technological advances of the 80's FOREX grew from trading levels of $70 billion a day to the current level of $1.5 trillion.
The FOREX is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange.
There is no centralized location of FOREX – major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market.
Even though there are many huge players in FOREX, it is accessible to the small investor thanks to recent changes in the regulations. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots.
Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' – loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange.
There are many advantages to trading in FOREX, including:
- Liquidity: Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.
- Accessibility: The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.
- Open Market: Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time – there can be no 'insider trading' in FOREX.
- No commission Fees: Brokers earn money by setting a 'spread' – the difference between what a currency can be bought at and what it can be sold at.
How does the foreign currency exchange market work?
Currencies are always traded in pairs – the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.
The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction.
At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.