Economic Calendar (25th May 2009)

Interest Rate Decisions
Interest rates decisions news flashes provide guidelines for the overnight lending rate which are bound to have an effect on businesses and consumers alike. An upward surge in the cost of living - inflation and a runaway economy is slowed by hiking the interest rates. Lowering interest rates rejuvenates an economy from the doldrums by enabling consumers to get easy credit thus increasing consumption. Currencies strengthen when interest rates move north and weaken when the rates move southwards.
Change in Employment
Change in employment index compares the employment to the unemployment rates in a certain economy. The index which is calculated by economist is used to predict future spending and consumption pertains which are likely to occur due to change of one of the parameters. An economy can either grow or contract depending on which of the two parameters changes.
Consumer Price Index (CPI)
CPI is one of the most reliable parameters used to gauge the extent of inflation on the economy. Every household spends money on some basic commodities and utilities, these items are collectively referred to as “the consumer basket”. By monitoring the changes in price of the consumer basket, economists are able to predict the interest trends. This is largely due to the fact that central bank will more often than not act to tame inflation by raising interest rates and vice versa. The adjustments of interest rates to keep consumer basket within the majorities reach will affect the underlying currency either strengthening or weakening it.
Retail Sales
Retails sales are good pointers of the state of the economy. When the economy is strong and growing, retails sales escalate and consumer are more willing to spend money on luxury goods. Conversely, a shrinking economy is characterized by a reduction in retail sales and cautious spending by consumers.
Trade Balance
This is simply the difference between total exports and total exports between two or more trading nations. Multinational trade involves the export and import of goods and services between nations. When one country exports more than it imports the net effect is a trade surplus. The reverse of this is known as trade deficit. Great emphasis is placed on Trade Balance Report as it shows the movement of goods and services between nations. Countries with trade surplus usually have stronger economies as there have more money in than what there are spending.
Gross Domestic Product - GDP
GDP is derived at by measuring the consumers’ ability to consume / afford goods and services produced within their economy. A strong GDP is a sign of a robust economy which should be checked for inflation - rising interest rates - while a weak GDP could be interpreted to indicate a recession meaning interest rates are likely to head south.
ISM Manufacturing Survey
This survey gauges the mood and sentiments of companies’ top brass, decision and policy makers towards inflation. The centerpiece of this survey is their take on business outlook - new business, production capacities, backlogs, inventory levels and manpower issues. A 50 points scale is used to interpret the findings with value 50 indicating expansion, while values below 50 are a sign of recession.

Forex Position Size Calculator

Download your forex position size calculator to work out exactly how much to trade according to your account size and the percentage of your trading account you want to risk per trade.

Simply enter in the current price of the currencies at the top of the spreadsheet, and enter in “LONG” or “SHORT” in the relevant field. You then simply insert your entry and stop price and the calculator works out exactly how many currency units you should trade.

Please note: Do not enter any decimal points when inserting the price of your entry or stops. i.e. 1.5931 would be 15931

Download the Calculator by Clicking Here

Trading Platforms

MetaTrader 4

MetaTrader 4 is free with several different Forex brokers. This platform allows for auto-trading.

CLICK HERE to go to the site.

Trade Station

Trade Station started out as just software for testing trading stratagies, but has become a brokerage firm over the years

CLICK HERE to go to the site.

eSignal

eSignal is another software trading platform that can be used to back test trading ideas. eSignal can be linked to a broker of your choice and you can place trades through the software.

CLICK HERE to go to the site.

Books

Here are Trading books that I recommend you read:

Trade Your Way To Financial Freedom – Van Tharp

Trading In The Zone- Mark Douglas

Way Of The Turtle – Curtis Faith

Technical Analysis Of The Financial Markets – John J Murphy

More going to be added soon…

Forex Weekly Report

May 23, 2009

Despite the fact that US equity indices finished last week higher, they did so only marginally and much of the gains were due in part to a strong Monday performance. Stocks drifted lower for the rest of the week and went into the Memorial Day weekend barely up on the week. For the week, the Dow was up 8.68, or 0.10 percent, the S&P 500 was up up 4.12, or 0.47 percent and the Nasdaq was up 11.87, or 0.71 percent.

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Global Economy Still On The Mend

May 15, 2009

We noted last week that news from the Eurozone would likely be the catalyst for currency markets this week and that was the case. That said, US equity markets have sent a chilling reminder that all is not well there with regards to the economy. This was the second consecutive week of declines for US stocks after seven weeks of gains and investors may be wondering if the bulls have lost their sway. On the week, the S&P 500 lost 5%, the Dow Jones Industrial Average shed 3.6% and the Nasdaq lost 3.4%.
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Stress Tests, Jobs And More

May 8, 2009

This was another week dominated by headlines out of the U.S. as equity investors continued to play earnings season while waiting for the results of the bank stress tests. Of course Friday brought the release of non-farm payrolls and that news was grim, though in a familiar market refrain these days, not as bad as expected. All three major US indices finished the week higher, with the S&P 500 leading the way, up about 5%
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Markets In Wait And See Mode…

May 2, 2009

Global equity markets were fairly active this week, led by a steady news flow out of the U.S., but currency markets were surprisingly docile. One reason for this may be a continued rally in US equities, now into its second month, could be leading more investors back to stocks, at least for the time being. On the week, news of the swine flu epidemic greeted traders at the open of Asian markets. In the wake of the SARS virus from a couple of years ago, Asian investors are especially sensitive to health epidemics and that concern showed as their markets closed down on Monday, sending futures to lower opens in Europe and the U.S.
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Understanding Currency Spreads

What is a spread?
A spread has got two definitions to it. First, it represents the difference between the buying price and selling price of a currency pair in pips. Whenever one exchanges currency he or she is selling his or her own currency and buying the foreign currency. The difference in these asking and purchasing prices becomes the spread. Wider spreads bring about higher asking prices and lower bid price, thus make you pay less when you exchange your money. The reverse also applies in the Forex market.
The second definition of a spread refers to the means by which brokers earn their money. In any financial transaction involving the exchange of currency, a broker connects the trader to the global currency market. Wider spreads show that less of a trader’s money is being exchanged and transferred. The difference that is offered by the broker and the spread that he or she pays in the Forex market is what translates to the fee that they earn from exchanging and transferring a trader’s money.

Are Spreads important?
Spreads are important as they greatly affect ones transfer costs. Most global transfers in the industry offer great spreads, thus the need to ascertain what services are offered by each Forex firm before making transactions in order that one fully benefits from these spreads. Though the spreads (pips) may sometimes seem small if moved in the right direction can translate to many hundreds of dollars of gains or losses.

Do brokers benefit from the spreads?
Spread policies also differ from broker to broker. Exchange rates are given daily by most brokers and they remain constant the whole day. These daily rates have wide spreads and brokers most times loose very little even if they suggest that they are negotiating to lower bids. The wide spreads placed on these bids help in cushioning against rate fluctuation all through the day and act as a way of ensuring the brokers get profits on the transactions.

Are there any bodies regulating the exchange rates?
Exchange rates are however dictated by the Forex interbank market. At this place the rates fluctuate all through the day all the through the week. Some brokers may try to salvage the situation by offering daily rates but one should be wary of this. One is able to make an informed situation after he or she has studied how the spreads determine the exchange rates and consequently affect the cost of one’s transfer. If you are equipped with thorough information of the dealings of Forex matters you will be able to choose the right broker to handle your money.

What action should I take?
For a beginning trader, it does not hurt to try your hand in forex trading, you have so much to gain and very little losses to make. Choose a broker that offers better spread policy in order that you may save most of your money. Carry out research to realize which broker offers the best spreads in the market.

Pros and Cons of Leverage Trading

In forex trading, one of the most important things to work with is leverage. What it does is allow you to trade positions much higher or greater than the cash you have. There are pros and cons to it, even though it sounds exciting.

Profit making potential

With leverage trading there is huge potential to make great profits. This will mean though that the leverage used is high and that you make winning calls all the time. It is very risky however and not as easy as it sounds. Any volatility, even in the short term can lead to huge loses.

Is it a trick?

Many people consider leverage a trick. They cannot imagine trading with other people’s cash. However, this is normal and can be equated to taking out a mortgage to buy your home. In forex trading, the mortgage is leverage. In this case though, you are required to manage risk.

Guaranteeing leverage

Leverage must be guaranteed just as a mortgage is guaranteed. In the real estate market, a mortgage is guaranteed by the house itself. However in the forex market the leverage is guaranteed by the amount of funds deposited in the trading account.

How it works

Basically a broker will provide credit for you to trade with based on how much money you deposit in the trading account. This can be at a leverage ratio of 1:100 such that with $1000 you can trade $100,000 in forex. This allows you to open much larger positions than you could before and make a much higher profit.

Managing risk

You have to be keen to manage risk when it comes to leverage trading or you can lose big time. This can be done in one of two ways. First you can use stop-loss options when working with short term systems of trade. Secondly, you can consider a safe value in case the price moves in the opposite direction.

Is Leverage necessary?

If you are just beginning and do not have much money with which to trade, leverage is a necessity. If you want to make your profit margins high, you will need to trade bigger lots to make it.

Trade with the margin

To be a professional trader, you will need to use the margin that is available to you so that you can be able to handle the price oscillations that are so common in the market. Leverages should be done within reasonable ratios. If the leverage is greater than 1:20 may be detrimental and can wipe you out if the market oscillates the wrong way.

Brokers

Brokers are really the ones who make money using leverage. They lure you in with great leverage deals such as 1:400 meaning that if you invest a trade capital of One thousand dollars you can get even $400,000 to work with. However, if you are wiped out they will profit from the deal.

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