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Forex92

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What are the distinctions between forex and precious metals trading?

Popular trading categories include forex and precious metals. Their similarities and contrasts make it difficult for many investors to select between the two trading products. So, what distinguishes foreign exchange from precious metals?

1. Market growth

Exchange rates are changing every second, and daily trade volume exceeds $7 trillion US dollars. Stocks, futures, and other trading instruments have significantly less activity and participants. Currently, the currency market is the largest, while the precious metals market is modest.

2. Stock-trading

The forex market allows investors to trade many assets. A global broker platform allows inventors to trade currency and precious metals. The foreign exchange market has dozens of currency pairs, but few precious metals. Investors in precious metals have fewer options, thus their choices are constrained.

3. Transaction transparency

Forex is a global investment market. No market makers control it. Long and short transactions are generally fair, and Forex brokers are regulated by reliable institutions. The currency market is more open and transparent than precious metals.

4. Transaction flexibility

Most forex trades are executed on the MetaTrader 4 trading platform, which works on both PCs and mobile phones. Forex trading is more flexible than most investment markets, including precious metals trading.

Compared to precious metals trading, investors prefer FX trading. So, how can you manage the dangers of currency trading?

First, investors should not rush into the forex market. They should first practise trading on the free demo account supplied by the forex trading platform. Beginners in foreign currency trading should be patient in learning and understanding the markets. Simulated trades are used to create trading techniques and patterns. Profits increase month by month as the possibility of profit increases, allowing you to open a live trading account.

Second, investors must plan their investing budgets ahead of time. To thrive in the foreign exchange market, investors should not only focus on profits. Still, they should research the maximum loss they can tolerate and prepare trading funds. Losing transactions might put you under a lot of financial stress if you don't plan ahead of time. Trading under financial stress is a definite way to lose a lot of money rapidly.

Stop-loss orders might help you decrease your risk exposure when trading Forex. To minimise huge losses, traders should set a loss tolerance range. The size of the loss is determined by your trading account's balance. To be a consistently profitable trader, you must develop a trading plan. You can't control the outcome of a deal, but you can control how much you're willing to lose. So always use stop-loss orders to manage risk.

To make money in foreign exchange financial management, you need trading knowledge and quick market reactions. Quicker people naturally excel as day traders. However, investors should always be prepared by testing their trading techniques and familiarising themselves with the trading process. You must also learn to use stop-loss orders to decrease trading risks.
 

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Five Important Forex News Events You Should Be Aware Of

Because currency markets are so volatile, it is critical for rookie traders to understand the economic indicators and forex news events that shape the markets. Learning which data to look for, what it means, and how to trade it can help rookie traders become more profitable immediately and put them up for long-term success.

Top 5 Market Events

1.CB rate decision


Every month, the world's central banks gather to decide on interest rates. The outcome of this choice is tremendously crucial to the currency of the economy and thus to traders.

A rise in rates is often considered as bullish for the currency, whilst a fall in rates is generally seen as bearish, depending on the perception of the economy at the moment.

While the decision itself is important, the accompanying policy statement provides the Central Bank's summary of the economy and forecast. This is also where monetary policy is unveiled, which includes QE, which we cover extensively in our Forex Mastercourse.

2.GDP

GDP is a key indicator of a country's economic health. Every year, the central bank determines how fast a country's GDP should increase.

Currency values tend to fall when GDP falls short of market forecasts and rise when GDP exceeds expectations. Currency traders closely follow the release of this number, which can be used to anticipate Central Bank moves.

3.CPI (Inflation Data)

The CPI is the most extensively used inflation statistic. The index shows historical average prices paid by consumers for a basket of commodities and whether the same goods are costing consumers more or less.

This data is used by central banks to decide rates and policies. Inflation is countered by raising interest rates if it exceeds a target.

4.Ratio de chô

Markets pay close attention to a country's unemployment rate since it is a key indication for Central Banks. As Central Banks seek to balance inflation and growth, higher employment leads to higher interest rates, attracting traders' attention.

5.FOMC

While all central bank meetings are vital, the US Federal Open Market Committee takes centre stage as the world's reserve currency.

Every month, the committee meets to set rates and make statements on current economic conditions and the efficacy of existing monetary policy, as well as future economic conditions and monetary policy expectations.
The committee has members who vote at each meeting, with “Hawkish” members favouring a rate increase and “Dovish” members favouring a rate decrease.
 

Forex92

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What are the distinctions between forex and precious metals trading?

Popular trading categories include forex and precious metals. Their similarities and contrasts make it difficult for many investors to select between the two trading products. So, what distinguishes foreign exchange from precious metals?

1. Market growth

Exchange rates are changing every second, and daily trade volume exceeds $7 trillion US dollars. Stocks, futures, and other trading instruments have significantly less activity and participants. Currently, the currency market is the largest, while the precious metals market is modest.

2. Stock-trading

The forex market allows investors to trade many assets. A global broker platform allows inventors to trade currency and precious metals. The foreign exchange market has dozens of currency pairs, but few precious metals. Investors in precious metals have fewer options, thus their choices are constrained.

3. Transaction transparency

Forex is a global investment market. No market makers control it. Long and short transactions are generally fair, and Forex brokers are regulated by reliable institutions. The currency market is more open and transparent than precious metals.

4. Transaction flexibility

Most forex trades are executed on the MetaTrader 4 trading platform, which works on both PCs and mobile phones. Forex trading is more flexible than most investment markets, including precious metals trading.

First, investors should not rush into the forex market. They should first practise trading on the free demo account supplied by the forex trading platform. Beginners in foreign currency trading should be patient in learning and understanding the markets. Simulated trades are used to create trading techniques and patterns. Profits increase month by month as the possibility of profit increases, allowing you to open a live trading account.
 

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Will the digital revolution bring about the apocalypse of cryptocurrencies? – Stablecoins: Are they truly "stable"?

Stablecoins, a type of digital currency, have several advantages. Payments are settled almost instantly, and "unbanked" people can use them. Because stable coins are not restricted in supply, they do not face the same risks of deflation as limited digital currencies.

Unlike volatile cryptocurrencies like Bitcoin and Ether, the values of stable coins tend to be stable. These tokens are "backed" by reserves, say many stable coin issuers.

Some stable coin issuers' reserves include assets that can endure periods of illiquidity and price volatility. Stable coin issuers, like commercial banks before deposit insurance and a comprehensive supervisory and regulatory framework, might undergo "runs" if investor trust in their assets is disrupted.

If the tremendous expansion of stable coins continues in the future years, financial market volatility may become dramatic.

Until date, stablecoin issuers have mostly operated unregulated. But regulators are catching up to the potential concerns of stable currencies. Some government agencies have urged that Congress introduce legislation requiring stable coin issuers to become insured depository institutions, subject to regulatory oversight.

Also, central banks planning to launch their own digital currencies may soon challenge private stable coin issuers. Part III will cover central bank digital currencies (CBDCs).
 

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Making money in forex is simple if you understand how banks trade!

Why trade forex?


In my educational forex writings, I often wonder why so many traders struggle to achieve consistent forex profits. The answer lies in what they don't know rather than what they do. After 20 years at investment banks, many as a Chief trader, he knows how to extract cash from the market. It all boils down to how bank traders execute and make trading judgments.

Why? Speculators account for 95% of all forex volumes, while bank traders account for 5%. Without knowing how they trade, you can only assume. Let me first debunk a fallacy regarding forex traders in banks. They don't make proprietary trading judgments all day. They mostly just transact on behalf of the bank's customers. It's called ‘clearing the flow'. They may make thousands of trades every day, but none are for their own book.

What does a bank buy?

They just trade 2-3 times a week for their own account. These are the trades that determine whether they get a bonus at the end of the year.

As you can see, bank dealers don't spend all day ‘scalping' to meet their budgets. They are highly systematic and only trade when everything is in order, both technically and fundamentally. So that's all!

Technically, it's a no-brainer. When our clients first come to us, their charts often baffle me. Indicators with huge 3-4 hour time delays typically contradict one other. Using these indicators and techniques will quickly deplete your trading cash.

Why trade forex?

Their trading judgments are based on economic facts. The market's fundamental background consists of three primary sectors, which makes predicting currency direction difficult.

As a result of the political circumstances, the currency direction is fairly erratic. When there are no political considerations and the central bank policy is based on economic data, we get pure currency direction and big patterns. What bank traders await.

The market's fundamentals are incredibly complex and might take years to comprehend. Our two-day event focuses on this to ensure traders have a thorough understanding of each topic. You will be set up for long term success if you comprehend them.
 

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A foreign exchange swap is a two-part or “two-legged” currency transaction used to shift or “swap” the valuation date for a foreign exchange position. Read more about the currency swap.

When pricing a foreign exchange swap transaction, traders add or subtract pips or “swap points” from the beginning value date's exchange rate, commonly the spot rate, to obtain the forward exchange rate.

WORKING OF A FOREX SWAP

In the first leg of a forex swap, a fixed amount of one currency is bought or sold against another at a fixed rate. It's termed the close date since it's usually the first date after the present date.

In the second leg, the same amount of currency is sold or bought against the other currency at a different agreed-upon rate on a different value date.

Because the first leg of the swap opens up spot market risk, the second leg instantly closes it down, resulting in no (or very little) net exposure to the prevailing spot rate.

FOREX SWAP POINTS AND CARRY COST

The whole cost involved with lending one currency and borrowing another during the time period ranging from the spot date to the value date will be estimated mathematically.

The “cost of carry” is transformed into currency pips and added or subtracted from the market rate.

The carry is calculated using the number of days from spot to the forward date, plus the interbank deposit rates for the two currencies.

Generally, the carry is good for the seller and negative for the buyer of the higher interest rate currency forward.

WHY USE FOREX SWAPS

A foreign exchange swap is frequently employed when a trader or hedger wishes to roll forward an open forex position to prevent or delay delivery. However, an FX swap can be used to accelerate delivery.

For example, FX traders frequently use “rollovers,” or tom/next swaps, to extend the value date of a previous spot position to the current spot value date. These rollovers are often performed automatically by retail forex brokers for positions opened after 5pm EST.

However, a company might use a forex swap to hedge if they discovered that a forward outright contract had been delayed by a month.

A month's extension of their existing forward outright contract hedge would suffice. By agreeing to a currency swap, they would end the existing near-date contract and establish a new one for the desired date a month later.
 

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EFFECTIVE TECHNICAL INDICATOR USE

Market observables like price and volume are widely used by technical traders to compute and plot mathematical values. They can also use technical indicators to predict future market behaviour and provide buy and sell signals.

As useful as technical indicators are to forex traders, keeping the amount of indicators checked to a minimum is often required to make swift trading decisions.

The next sections will discuss some of the most widely used technical indicators by forex traders.

TRADITIONAL INDICATORS

Among the most widely utilised technical indicators for assessing forex market action are:

Averages

Traders may compute an average exchange rate over time. This average is then placed on the price activity and moves with it. The effect is to smooth out price data and identify trends.

Simple, exponential, or weighted moving averages tend to be lagging indicators of future market action with little predictive potential.

Nonetheless, some traders utilise crossovers between short and long moving averages as trading signals, with the former being a bullish indicator and the latter a bearish one.

Oscillators

Banded oscillators are oscillators that are measured on a scale of 0 to 100%.

Price action divergence of various oscillator indicators is significant for possible market reversals.

We'll look at some popular oscillators later.

The RSI

The RSI is a popular and reliable indicator of overbought and oversold market conditions. The market is considered overbought if the index exceeds 70, and oversold if it falls below 30.

The RSI can also be used to spot regular and hidden divergence from price activity, indicating impending market reversals.

The Stochastics

A common momentum indicator is the Stochastics. Its core idea is that prices tend to close higher in an uptrend to suggest upward momentum. In a downturn, prices tend to close lower than the day's range, indicating downward momentum.

Volatility History

Forex traders, especially those trading currency options, frequently compute historical volatility. You may find out the annualised standard deviation of price movements by choosing a time range.

Historical volatility is connected to standard deviation of exchange rate fluctuations and is usually stated as a percentage.

Traders can utilise historical volatility to gauge market risk levels for a particular pair. This data can be used to size holdings for risk management objectives.

Bollinger B

Bollinger Bands are another excellent technical indication of market volatility that are often shown over the price action on a chart.

The indicator's core line is a simple moving average, while the upper and lower lines show standard deviations around the central line.

When the market exceeds the upper line or falls below the lower line, forex traders use this indicator to identify a short or long position.

The OBV Indicator

To confirm price breakouts for chart patterns and support or negate other technical indicator trade signals, many technical analysts look to trading volume statistics for a currency pair.

The OBV indicator evaluates the exchange rate's performance and uses that information to signify positive or negative trading volume. Watch for a shift in the OBV indicator's sign to suggest a possible reversal in the exchange rate's direction.

SIMPLE THINGS

It is important to reduce the amount of technical indicators you use to generate trade signals as low as possible while yet maintaining consistent profitability.

The more technical indicators you need to study before making a trading choice, the greater the risk of “analysis paralysis”.

Remember that the forex market is volatile, especially when prominent technical indicators or chart patterns predict major rate changes. In this context, any additional delay in joining the market can be costly, turning a winning position into one that loses.
 
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THE TEMA INDICATOR'S TRIPLE EXPONENTIAL MOVING AVERAGE

Patrick Mulloy invented the Triple Exponential Moving Average (TEMA) in 1994. Trading with EMAs or oscillators has always had the issue of lag in trading choices. The TEMA was created to address this issue.

Using the price's moving average smooths out short term swings. But what if we double smooth the market motion with the EMA of the EMA? The new MA would give an even smoother picture of pricing movement, making it easier to discern trends and shifts. The TEMA's genius is in the trailing term added to the formula to deal with delayed signals.

CALCULATION

The formula for calculating the triple exponential moving average is:

TEMA=3xEMAofEMA+ (EMAof EMAofEMA)

To calculate the TEMA value, the trader just selects the indicator's timeframe. If we set the period to 5 days, the indicator will generate the EMA using raw price data. Then it will treat the new EMA as if it were a fresh price action graph, and take a second EMA. This second figure is known as the double EMA. In order to compute the indicator's value, a third EMA of the DEMA will be calculated. The TEMA solves the lag issue of conventional exponential moving averages by adding a new term to the calculation. That's right, it's the EMA-of-the-EMA in the formula. The indicator is shifted to the right by subtracting this term from the total of the EMA and the triple EMA multiplied by three.

STRATEGY

TEMA is a powerful instrument that can be used to track long-term trends as well as trade shorter-term moves in a sophisticated trading scheme. It's a trend indicator. Using it in a ranging market where short term changes within the range pattern generate the largest trading opportunities is difficult due to its tendency to smooth out short term aberrations.

Overall, lengthier trends are easier to trade with TEMA. Longer-term trends allow us to disregard volatility and apply the indicator's indications more easily. The indicator loses usefulness as the trend becomes more erratic. You can use it with other oscillators to trade during periods of high volatility, and you can use other instruments to assess volatility individually. Some traders prefer the MACD modified with this indicator (instead of the usual EMAs used to smooth the market).

SUMMARY

The benefits of using the Triple Exponential Moving Average are numerous. It is easier to discern patterns, has no lag, and is used similarly to a simple or exponential moving average. Cons: Too quick to suggest a change in momentum, and its strong signals concerning price action may not always coincide with a straightforward and easy-to-trade market configuration.

The TEMA indicator is used to reduce volatility. TEMA is a priceless tool for traders who want to focus on a long-term, powerful and believable trend with a simple trend following approach. TEMA may not be the best choice in volatile markets, especially if it is not utilised in conjunction with Bollinger Bands or the Standard Deviation tool.
 

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A STEP-BY-STEP GUIDE TO FUNDAMENTAL CURRENCY MARKET ANALYSIS

COMMENTS TO BEGIN


They help the forex trader identify prospective chances in an ever-changing market. These tips are useful for both new and experienced traders, but veterans have learnt one essential distinction. They don't spend much time on the FA side of the equation because they lack resources, access to important information, and the ability to comprehend and digest the mounds of data made public everyday.

Large banks, hedge funds, and institutional investors have those resources, yet even they struggle to foresee market movements. As a rule of thumb, utilise FA to gauge market sentiment, the interplay of important variables, and existing monetary policy differences to identify which currency pairs provide the most potential. Every trader's goal is to monitor market circumstances everyday and adjust strategy accordingly. Every trading day, FA and TA help you achieve this goal.

EXPLORE THE MACROECONOMIC AREA

We need an analytical framework to build wealth. We must first lay the foundation for the edifice. Our research will be based on global macroeconomics. To filter data and reach the dynamics of currency pairs at the lowest level, we must first construct the highest level background. We will look at cyclical dynamics, major central banks' monetary policies, and other data. For this reason, we must consider previous data when predicting market direction. The first step is simple: a boom reduces volatility and increases global liquidity; a bust does the opposite. Nevertheless, a trader must know how to separate noise from data, or else he may fall victim to political or media hype, and his analysis will fail.

Decide on the cycle phase

First, we must define the global economic cycle phase. The changing phase of the global economic cycle can be detected by looking at global default rates, international reserve accumulation, and major economic power bank loan surveys, even though these are secondary indicators that are a bit late. But they are still safe, because market participants frequently ignore these statistics until they are reinforced by dropping industrial production and growing unemployment, which occur late in the cycle.

Examine new technology, politics, and market fundamentals

After determining the cycle phase, we will try to find the dynamics that can boost global productivity and promote non-inflationary economic growth. When rising economies acquire advanced technology and create new industrial production bases, productivity rises and growth is sustained without inflation. Also, if nothing else changes, the introduction of new technology like as air travel, mass production, or the Internet will boost productivity, income, and demand. Our section on fundamental analysis has further information on this issue.

For obvious reasons, the global political environment has a big impact on currency swings. Several political events influenced economic fundamentals, causing significant inflation in the 1970s. Similarly, post-war hyperinflation in Germany was produced by political upheavals that distorted economic events.

Step 1: A expanding global environment (a boom phase) will be ensured until technological breakthroughs are fully absorbed, but productivity gains might cause bubbles. During a cycle bust, all speculative behaviour must be curtailed. Less aggressive emerging market trades, less leverage, and more long-term positions as currency pairs bottom. To manage our risk allocations, we can use correlation research and money management strategies to develop our risk portfolio. After deciding on this component of our transactions, we can go on to step two and examine the monetary situation.

THE GLOBAL MONETARY ENVIRONMENT

The second step takes us from general studies to an examination of the developed world economies. In the first phase, we looked at the economic forces that affect all nations. Now we'll look more closely at monetary policy and try to gauge the present cycle's length and depth.

Consider world leaders' interest rate policy

We will explore prominent central banks' policy biases, such as the Bank of Japan, the Federal Reserve, and the ECB. Our research will examine these institutions' policy biases, legal requirements, and independence. Understanding their policy biases can help us forecast money supply growth and other variables including emerging market development potential, stock market volatility, and interest rate expectations in a local market, which can lead to significant rate differentials with other countries.

Comparing the prior period's money supply and credit standards

After learning about global central banks' policies, we must compare them to their predecessors and assess their impact on the global economy. Easy money after a recession is typical, and if credit channels work, it should notify us to raise our portfolio's risk tolerance. Conversely, tight monetary policy would cause global economic restructuring, lowering our portfolio's risk tolerance. To keep the forex market risky, the central banks of weak countries will have to keep raising interest rates. This would cause risk bubbles in the forex market, giving traders an opportunity to short their currencies. An extended period of tight monetary policy by most industrialised countries will compel speculators to lower leverage and so impact currency markets. As the currencies of countries with solid fundamentals appreciate, we will have another contrarian trade chance to short them.

Deflationary bubbles, commodities shocks, and major political events can all disrupt the above.

Analyze the VIX, corporate and private sector loan default rates
We know the cycle phase, but we need to know our portfolio's volatility tolerance. Low risk perception in the economy allows all actors to raise leverage and liquidity, which leads to a generally safer environment for forex traders. Of course, low or high volatility are transient market occurrences. Market volatility is not only measured in terms of its magnitude, but also its sources, actors that help minimise it, and counteracting variables. Knowing this will help us react swiftly to market shocks and reduce our losses when they occur.

Step 2: This will help us understand where we are in the cycle. With low VIX, default rates, and interest rates during the boom phase, we can make the most of our hazardous investments (for example by longing the AUD, while shorting the yen.) Alternatively, by expressing a negative perspective of risk in our portfolio, we can safeguard our wealth while pocketing good returns if other financial actors reach the same conclusions.

STEP 3

Finally, in the third stage, we will determine which currencies to buy or sell, and for how long. We will simplify the method here, however the most critical signs are:

Investigate nation-to-nation interest-rate
We must establish an opinion on the direction of central bank interest rates based on unemployment figures, capital expenditure, and output gap. Examine the unemployment rate and the output gap. Labor shortages cause wage pressures, which eventually translate into higher prices and inflation when an economy's capacity constraints increase and unemployment reduces. To offset this, the central bank will hike rates until the economy shows symptoms of cooling, such as rising unemployment and reduced capacity constraints. Similarly, a trader can predict future interest rates by tracking these numbers.

Compare the currency balances of payments

A nation's balance of payments is like a company's balance sheet. The stronger the balance of payments, the stronger the currency. We'll look at countries' current and capital accounts. Bank deposits and asset sales (which can be rapidly altered) or long term developments like foreign direct investment or reserve accumulation? These topics were covered previously, and the reader can review them to better grasp balance of payments dynamics.

Step 3: During the cycle's expansion phase, economic players choose risk, therefore currencies with stronger fundamentals are sold to those who prefer to attract capital via higher interest rates. So, during a boom or the start of one, we sell currencies with solid fundamentals but low interest rates and purchase currencies with excellent fundamentals but high interest rates. During the bust phase, we will buy low-interest currencies with strong balances of payments and sell high-interest currencies with poor balances of payments.

So we will either enter long-term counter-trend bets with low leverage or wait for the market to corroborate our research with its actions.

FINAL REMARKS

Fundamental Analysis is a time-consuming process. Even if it is purely academic, a general comprehension of its principles in a certain situation will assist you identify your largest potential reward. 2014 brought us two great instances of how this works. Initially, the UK economy seemed to be recovering faster than the US. The notion was that austerity was working, and that the UK would hike interest rates first. The Pound, as the FA frontrunner, quickly appreciated against its competitors. A failure of economic data sent the Pound tumbling.

And the US economy was poised to be the first to boost rates. But Europe has slow growth, low inflation, recessionary tendencies, and a possible need for quantitative easing. As a result, the Euro plummeted hard. In both cases, a basic understanding of Fundamental Analysis would have led the trader to the most profitable currency pairs. You want to know how the market changes, and what causes those changes. But use your time properly to maximise your trading time.
 

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THE BENEFITS OF AN UNREGULATED FOREX MARKET

In any market, efficient medium and long term trading involves trading in the direction of the major underlying trend.

This is true whether the market is in an upward trend (bull market) or a downward trend (bear market).

The largely uncontrolled forex market allows traders to effortlessly trade with the trend, up or down. Contrarily, stock market traders frequently have to consider other considerations imposed by regulations designed to prevent market crashes.

STOCK BEAR MARKETS ARE OFTEN BANNED BY LAW

Regulated stock markets have restricted traders from taking equal long and short positions in stocks.

After recent crashes, the stock market's rules have changed a lot. These measures, while successful in preventing market crashes, have made shorting equities in volatile situations difficult.

Traders of several financial equities are even prohibited from making short sales when the market is down a particular amount.

Also, equities tend to trend based on the prognosis for the firm or the market. In a bear market, solid stocks with great earnings will also decrease, but not as much as the total market.

TRADE FOREX BEAR MARKETS FREE

The good news for forex traders is that the foreign exchange market is less regulated than the stock market. Basically, you can go long or short on any currency pair at any moment.

For example, stock traders cannot sell equities they do not own, a practise known as shorting. An upward tick is required to short a stock.

This limitation does not apply to forex dealers. Contrary to stock markets, where short selling is restricted, the forex market allows traders to trade both bull and bear markets.

OTHER UNREGULATED FOREX MARKET BENEFITS

Also, because the forex market is mostly uncontrolled, its movements are often dictated by the flow of orders and supply and demand, but central banks may occasionally intervene to smooth out sharp or unfavourable exchange rate changes.

Also, because currencies trade in pairs, they cannot all fall at the same time. Unlike stocks, which can literally all plummet in a down market. That's why the SEC has so rigorous stock shorting restrictions.

Overall, the forex market's greater independence allows traders to profit equally and readily from bull and bear markets in one or more currency pairs.
 
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