.: Think Forex And Consider These Two Factors
Category:Home / Finance / Currency Trading
In this article I will cover two important advantages that the Forex market offers to traders.
Daytrading with a small account
If you want to daytrade with stocks and you have less than $25.000 on the account, you are likely to have a hard life. The reason is that a rule called "pattern day traders" allows you to daytrade freely only if you have that amount or more on your account. If you have less, your daytrades (positions entered and exited the same day) are limited to three in any five trading days period. Your broker should monitor your activity and make sure you do not execute trades that are not allowed under the "pattern day traders" rule. This regulation applies for stocks and stock options. The Forex market at the time of this writing is not involved.
Risk Control
The Forex market has two characteristics that may translate in a better risk control on your trades. What I mean by risk control, is the possibility to define your maximum loss should the market move agains you. If we do not consider the use of options or other tools as a hedge, the way to take control of losses is by using a stop loss order.
Nothing new, up to here. The problem that at times traders face is that a stop order can be executed at a price much worse than the one intended and originally set.
Generally, there are two situation where this can happen.
The first has to do with the liquidity of the market. Within this article, we can consider liquidity as a synonymous of trading volume. If liquidity is poor in a market, there might be a significant price difference from one execution to the next one. You can notice this easily in any intraday chart of a small volume security: the price does not move in a continuous an harmonic way, like it does in a very liquid market; rather, it has a tendency to "jump" from one level to the next. This can affect the execution of your orders in a negative way. The phenomenon is also referred to as "slippage". Here we consider in particular the exit order, but slippage can affect your entry order as well, and this could translate in for example in a buy order executed at a higher price than the one you wanted to buy. The Forex market does not fear competitors about liquidity. 1.5 Trillions dollar are traded in Forex every day. The other markets follow at a big distance.
The second factor that gives trouble to risk control is in the occurence of price gaps. Say your stock closes today at 63, and your stop order is at 61.5. In theory, your maximum risk is 1.5 points per share. But the stock for any reason tomorrow opens for trading at 57, and you will be stopped out at that price, so the actual loss will be 5 points per share. Gaps are common in stocks whenever an important news is announced when the market is closed. Sometime an important news can cause a gap even intraday, especially in a not so liquid market. Some other times, the trading in a stock is suspended just in the wait of an important pending news. A gap in almost assured when the news is released. Of course, your position can also benefit from a gap, if the gap direction is in your favour. But the point here is that the occurence of gaps reduces your power to control risk with a stop loss order. The Forex market is virtually always open from Monday to Friday. There can be wild intraday moves caused by news, but the occurence of gaps is very rare within the week.
These are just two of the potential advantages the Forex market offers to traders. There are many others that I will not cover here, from the cost of trading (commissions are often zero), to the amount necessary to open an account (which can be very low). All these factor explain why the Forex market is attracting more and more traders.
Good trading
Roberto Zarotti
Article keywords: forex, trade, trading, online trading
Article Source: http://www.articles32.com
You want to know more about the Forex ? Here is where you will find
great free resources for your education:
www.ForexProfitsBuilder.com
.: New Currency Trading Articles
1). A Closer Look At Some Of The Investment Myths In The Foreign Exchange Markets
Just like anything else there is a learning curve plus there is a lot of research and strategy that goes on behind the scenes to make a trade successful. I have written this article to help you avoid some of the more common investment myths so you will know what to realistically expect when you begin trading.
2). How To Avoid Some Common Forex Scams
There is an old saying that states, "A Fool and his Money are Easily Parted". With the proper strategy and resources from which to educate yourself, there is no reason to be foolish.
3). How To Choose The Correct Forex Trading Software For You
Just like with stock trading, there are a large number of software programs you can use to make your foray into the foreign currency exchange markets. You will find that you have two basic choices, either web based or desktop based programs.
4). Pattern Recognition And Why You Need To Learn It To Be Successful In Forex Trading
Pattern recognition is a method that will help you to be a much more successful trader. Just as with regular stock trading, the foreign currency exchange markets will very often repeat certain patterns over time.
5). How To Keep From Losing When Trading In The Forex Markets
Just as with any investment, the entire goal of investing in the foreign currency exchange market is to make a profit. The thing you must always remember though, is that just like with any other market investment, you can also lose. The reason that savings accounts and insurance policies pay such low rates of interest is because of the lack of risk.
6). Earn Unlimited Money Trading in Global Forex
What is needed to make huge amounts of money in the FX-market each day? How can you do the same ? We are giving you a head start.
7). The FOREX Market Is A Goldmine
Learn about the FOREX market, where trillions of dollars are inconspicuously made and lost every single day
.: Top Currency Trading Articles
1). Electronic Currency Exchange: Trading Digots for a profitable living
First of all, if you're just finding out about electronic currency exchange trading, then probably you're still asking "what in the world does this electronic currency business is", and most importantly, "how do I make money from it?"
Well, you are reading this at the right time, because electronic currency exchange is a business that is expanding and offering new ways to profit from it.
2). Fibonacci Numbers and the Golden Ratio – 3 Tips for Greater Trading Profits
Support and resistance levels are an important consideration for most traders to help identify entry and exit points when trading. Fibonacci percentage "retracement" levels based upon the Fibonacci number sequence and golden ratio are very popular with many traders but what are they exactly?
3). How To Spot Forex Fraud
As the popularity of Forex increases so do the number of scam artists attempting to cash in on the Forex gravy train. Since Forex involves trading money internationally, often over the Internet, a whole new breed of scams have come about. Ironically many of these scam artists are finding their marks through newspaper, television or other print media advertisements.
4). Mechanical Trading systems – Spotting the Ones That Make Money!
Mechanical trading systems are, as you would expect, systems that make trading decisions for you. The thought of having mechanical trading systems you can simply use to generate automatic profits, is obviously very attractive to many traders.
5). A Profitable Forex Strategy
Copyright 2006 Timothy Rohrer
Making money in the forex market is not an easy task by any means. However, given a bit of education and knowledge of the market, it can become quite easy to profit in the forex market. Most traders end up learning that it’s the simply systems that create the wealth. Over analyzing and over thinking can sometimes affect your trading methods and strategy.
6). Hot Tips for Successful Online Forex Trading - Part 2
In the first article in this series, I passed on several tips to help you become a successful trader.
7). The Function of Money and its Future
Originally exchange took place without the use of money, by barter. Long before money had come into the commercial world people exchanged goods for goods. This system of barter made it possible to satisfy many wants that would otherwise have gone unsatisfied. Barter raised the standard of living, but under such a system the exchange of goods was greatly hampered.