Forex-handel

Forex trading (also ‘Foreign Exchange’ or ‘FX’) is the buying and selling of one currency for another. Trades are placed based on the exchange rate listed on over the counter (OTC) or platform traded platforms.

The market is the largest in the world, with more than $5 trillion traded per day. Forex can be traded all the time five days a week. There is no central exchange for currencies, so they are traded from different sources all over the world.

In each currency pair, the first currency is called the ‘currency’ and the second is the buying currency. So, with EUR/USD, the price indicated is how many US dollars are required to buy 1 Euro.

Almost all financial news, or global events, will affect forex prices. With markets available 24 hours a day and many brokers offering low commissions, tight spreads and high leverage, forex trading has become extremely popular among retail investors. However, it remains a high risk, especially where leverage is involved.

 

 

How Forex Pairs Work

Forex pairs are the starting point for forex trading. A ‘pair’ is the two currencies that will be traded. So a trader is going to buy one currency using the other. So, for example, with the GBP / USD pair. The trader will buy pounds using the US dollar.

If prices are quoted, they are always the second currency, then buy the first. With EUR/GBP, for example, the price is in pounds to buy 1 Euro. However, note that the decimal point will move, making the price look a little strange to anyone used to exchanging currency for their holiday. In the EUR/GBP example, the rate for trading is currently 8454.8. For holidaymakers traveling to Europe, buying 1 Euro equals 84.5 pence.

The currency of the trading account does not matter, the broker will convert it as necessary to enable traders to buy or sell currencies. Retail forex trading simply speculates on the movement of exchange rates between forex pairs.

What Influences the Forex Markets?

What Affects the FX Markets? About everything. Almost every piece of world news imaginable can have an effect on currency prices. For example, the collapse in the price of oil led to a similar drop in the value of the Russian ruble. An economy so heavily tied to oil will rise or fall with the value of the commodity. There are of course extra factors to consider, but the example is clear.

A more subtle example was the Indian rupee. New management at the Reserve Bank of India has boosted investor confidence in the recovery plans for the Indian currency. The confidence was reflected in the resulting strong performance of the rupee. While India’s currency directly benefited, other Asian currencies also drifted higher, with local performances a factor helping both the Philippine peso and the Thai baht.

Another example is foreign policy. If a nation like China were to negotiate a deal with Russia on gas, both currencies could benefit. If markets believe that one trading partner has the better side of the deal, one currency may gain while the other suffers. Traders can view the future foreign policy and invest accordingly. These examples are some of the more obvious and larger market drivers, but illustrate the fact that forex is a very complicated market.

Volatility in the Forex Markets

Uncertainty in markets usually leads to volatility. The world economy is undoubtedly uncertain at the moment, which means that there are many opportunities for Forex traders. Binary options offer an opportunity to profit from the uncertainty. The range of forex currencies available to trade via binary options brokers has never been greater and the right strategy for the right currency can be very profitable. Our reviews highlight brokers that focus on binary options exchange rates.

Forex hours opening hours

Some beginners skip some forex basics and give straightforward strategy. This can be a mistake and lead to many lessons being learned the hard way (losing trades). One such “fundamental” is knowing the hours when certain markets will be open.

The forex market is open 24 hours a day. This is because banks and corporations are open at different times worldwide. This demand provides liquidity to forex pairs. Yet each hour of the day has different trends based on which part of the world is open for business. Understand hourly markets and hourly trends, and you will be better able to apply your strategies at appropriate times.

Forex market sessions

Large markets are open at different times throughout the day. Which market(s) are open directly affects the liquidity and volatility of the forex pairs.

For example, the EURUSD is very liquid and volatile during the London and New York sessions, especially during the “overlap” period in which both London and New York trade.

The USDJPY usually has the most volatility when Tokyo first opens, and when New York opens many hours later.

In general, currencies see greater liquidity when one or more markets that actively trade or use the currency are open for business.

Here are the forex sessions based on GMT for UK traders:

The chart does not show every market in the world. But the shown are the most important markets for forex. The Canadian market is open while New York is open, and London overlaps with other European markets.

Germany opens an hour before London; Therefore, some believe that this is the open and not the start of the London session. However, on average, volatility does not see a noticeable increase until London opens.

Intra-day volatility

The most important sessions directly affect the volatility of the currency pair. Hourly volatility follows certain trends. If your strategy is based on volatility, or you use a trending strategy, then focus on times of the day where the price movements are the greatest.

If you use more of a range trading strategy, or prefer low volatility, you should use it during the calming times. Check where the charts show a decrease in the hourly volatility.

08:00 to 17:00 GMT offers the best trending opportunities, with 13:00 to 17:00 offering the biggest draws overall.

Those looking for reduced volatility, or times more likely to fluctuate quietly, trade between 20:00 and 05:00 GMT.

The USDCHF is very similar to the EURUSD in terms of the hourly volatility structure, although the USDCHF moves less each day and thus the total hourly volatility is several pips less.

The NZDUSD has a lot more hourly volatility than the AUDUSD, and they both move about the same amount each day.

Conclusions for opening hours

Learning the basics, such as what the market sessions and hours mean to you as a trader, can greatly help with strategy and timing. No matter what time frame you trade, create a checklist that helps you determine what type of market you want to trade. Don’t try to force trades. It will also help in filtering trades and picking up good opportunities.

Forex vs binary options

The main advantage of Binary Option over Trading Forex is the defined and limited loss you can suffer on any trade. When you buy a binary option, you know at the beginning what your maximum loss will be. It is defined by the cost of the option itself. You can also define your loss trade Forex by adding a stop loss order to your position, but two things can then come into play;

• A volatile price breakout against you where you intended to stop your losses after, say, 30 pips, but you end up getting stopped after more than 30 due to the volatility of the market.
• The temptation to move your stop loss as the market closes because you feel the momentum won’t last. Ultimately, this can result in you losing much more than you initially thought of risking in the trade.

In other words, it can remove the need for disciplined risk management. Traders often get emotional, which can end up being disastrous. With Binary Options, your maximum loss is always fixed and there are no risks of losing more.

This also relates to the concept of volatility, with a Binary Option it doesn’t really matter how the market moves as long as it ends up in the money at expiration, whereas a Forex position can often see you taking a loss lose. to the high volatility of the market – to then see the price move back in your favor.

 

 

Although both trading methods share many common features, there are additional elements that differentiate each:

• Leverage. Binary options are usually offered without leverage. Traditional Forex often offers large amounts of ‘gear’. Leverage is a double-edged sword. Some traders ask for the extra profit potential it gives, others will be concerned about the losses that can result in leveraged trades.
• Risk. Risk and reward are clear from the outset with binary options. The best and worst cases are both known. In more traditional forex, the profit or loss may not be clear until the trade is closed. Leverage magnifies this problem.
• Capital Requirements . Traditional forex will require more cash on account than binary options.
• Flexibility. Binary options can provide Touch and Range options in a simple way. The same trading profile can be achieved with conventional forex trades, but it requires more consideration on behalf of the trader.
• Fixed Expiration Date . Forex traders can move in and out of trades without having a definite end point for any of them. At the beginning of the option, a specific expiration must be determined.
• Monitoring. A binary option can be aged at expiration, without additional risks. A Forex trade should be monitored if there are sharp price movements that can cause stop losses or similar things. Of course, binaries can also be traded throughout, so some traders may prefer to monitor binary positions as well.

Speed of trade

Binary options allow for very short expiration times. Timeouts of only a few minutes are available, in fact even as little as a sixty second timeout. In forex, it is very rare that the market will move enough to close your position in a few minutes, let alone sixty seconds. As payouts for Binary Options vary between 75% and 90%, you can buy an option for £200 and receive a profit of between £150 and £180 after only a few minutes.

Distance to target

With Forex trading, you enter a position with the goal of the price level reaching a certain target that will inevitably be far from the current price. Binary options allow the strike price, the strike, to be in the money, giving a higher chance that the option will be in the money at expiration. With the forex target price possibly far away from the current market price, a larger price movement is needed to be able to profit to the same extent.

In Forex, if the current market price for EUR/USD is 1.1200, you enter the trade with the idea that the market will go up or down, let’s say 20 pips, while in Binary Options, the strike price is the current market price 1.1200 and your option must be above or below that price, even just by paying once to deposit.

The advantages of Forex

The biggest downside when trading Binary Options is your required win rate. If you apply risk/reward ratios correctly in Forex, your individual profits should usually be higher than your losses. This is because you should enter each trade with a target profit that is higher than the stop loss, for example 35 pips versus 25. This means that even if you are only right 50% of the time, you should make money as your winning trades will earn more than you lose trades.

This concept does not work for Binary options and it is easy to see why. With payouts around 75-90%, traders need to win more than 50% of their trades to be profitable. With each individual trade, more funds are risked than will be won in the event that the option is settled. In this scenario, you need to get it right more than 50% of the time to make an overall profit.

With binary trading, there is also no real secondary market. Once you’ve bought an option, you may want to go before the expiration of that position – you may be trying to minimize your loss or maximize your profit if you think the market is changing. Therefore, you may want to sell the option you bought. To do this, you can only choose it at the price displayed to you by the broker, where you bought the option.

While you can have different accounts with different binary options brokers and compare the prices of the option you want to buy before you buy it, once you’re in the trade, if you want to relax, it’s the trade before it expires. you have no choice but to do so at the price the broker displays. In Forex, of course, the market is freely priced at any given moment and you know that you will get the fair market price to exit your trade and not the broker’s price.

To summarize the binary options vs forex debate

Which trading option is the best ie the most profitable market to trade in? Binary options or forex? It very much depends on your own level of commitment in terms of hours per day in front of a screen and discipline in risk management.

With Binary Options, you may not need to be in front of the screen for many hours a day to follow the markets on a constant basis, as may be required when trading Forex. You can take your stand and wait until the outcome is rest assured that your maximum liability is the cost of the option. You don’t have to worry about keeping your stop loss; it is fixed at the price you paid for the option and cannot be changed.

One thing that both markets have in common is the analysis required to make a trading decision. Whatever market you are going to trade in will always look at Fundamentals and/or Technical Analysis. For both markets, you need to hone your analytical skills and create a profitable trading plan or strategy.

Fundamentals of forex options trading

Here, a professional trader, and founder of a money management and trading advisory firm, shares his thoughts on the fundamentals of binary options trading and the system he personally uses.

The strategy below is not a secret, but it is not well known either. Its simplicity is the reason for its success.

EUR/USD

The currency pair I generally trade is the EUR/USD pair. This is because it is the most volatile – but also predictable – forex pair. It is still the most traded pair since the opening of the Forex markets to retail investors. The daily volume has greatly increased since those early days. EUR/USD is also a pair that financial firms use to hedge income against market fluctuations.

One problem that often comes up on binary forums is the amount of different strategies being discussed or offered. The majority of traders think that the more complicated the system, the more profitable it will be. If these forex strategies fail, the system gets blamed. However, the real problem is behind the scenes. No strategy will adapt itself to changing market conditions; the dealer must adjust.

Many people argue that this strategy will not work in specific market conditions. However, the point is that markets are binary; the price will only rise or fall. Fluctuating markets don’t actually exist. Any system has the same ultimate goal – to locate the best entry and exit points for any given trade.

For example: An experienced trader will easily detect support and resistance levels. A beginner may not. The same novice investor can use a strategy using the following:

• stochastic,
• MACD
• RSI…

…but what they don’t see is that these indicators give him the same entry points that the experienced trader uses.

When trading forex options, it is most important to see the best entry point and know what the next price movement is.

Note: The below are personal opinions and a strategy that I personally use. Everything should be read carefully. Do not try to use the high risk methods without a good understanding of how the strategy works. Consider trading with a demo account before risking real money. Be prepared to pass trades if something puts you off. Don’t force trades where there aren’t any; opportunities will arise.

Forex Fundamentals

The first point is to provide an overview of the forex markets in general: exchange of currencies is determined by the laws of supply and demand.

Here’s a hypothetical example: Apple (a US-based corporation) sells 1 million devices across Europe, earning 500 euros per product. EUR (€) is the base currency. They use HSBC for clearing, so these funds are received there. However, Apple reports in dollars, and their government account is with BOA.

So Apple earns 500 million euros which is in the HSBC account in Luxembourg. Those funds should now flow to their BOA account and change to USD.

They now have to exchange currencies. The transfer order is entered at 16:00 UK time on Tuesday. It will not transfer immediately. Banks will accumulate all their USD orders during the night. It is possible up to a month ago.

The UER / USD pair is trading at 1.27000 at 6 GMT on Wednesday morning. So Apple’s account with BOA will receive 635 million dollars at 8 hours EST. The order is set at 1.27000. How can banks – or repaying investors – make money from this deal?

How do investors earn?

BOA will obviously get a commission from Apple, but what about HSBC?

At 08:00 GMT – the opening of the London markets, the liquidity is 380 million euros. The price is 1.27010. So 500 million euros equals 635,050,000 dollars. At the moment the markets cannot handle this trade.

Expanding on the hypothetical example, the markets look like this. Euro outlook is bearish. Asian markets rose overnight. The US fiscal cliff is being resolved. Millions of retail investors and outlets take BUY orders and place their stops 10 pips below the current price. There is now pending liquidity of 300 million euros plus current liquidity of 380 million euros. The total liquidity in USD is currently (1.27010) 482,638,000 USD and 381,030,000 USD pending (equivalent to stops).

Exchange rates

Market data shows that the stops are at 1.26910. At 8.15 hours GMT the order therefore sells the available liquidity (840 million Euro sell order). The effect of this is to push the price to 1.26905. Now the bank’s BUY orders are activated. Other retail investors are now making new buy orders to cover their losses.

The price flies to 1.27099. Here we can gradually exit from our BUY positions (if we follow the bank actions). As the trend still looks strong, people are buying our orders. On a chart this can be shown by green candles that get smaller towards the uptrend.

Trade outcome

So the market liquidity rose to 380 + 300 = 680 million euros. We left at 1.27099 for a gain of 9.9 pips (from 1.27000). Once the leverage – and the scale of these trades – is considered, enormous sums of money just changed hands. Banks (and retail investors) both use leverage to make huge profits from such moves.

This was all just an example. The truth is that the volumes are huge (4 trillion dollars a day). There are many traders, market makers and stakeholders in these markets, but that example is to show you how FX works, and it is extremely important in analyzing the levels and trends of the support and resistance (SR).

These levels are defined by the bigger players. It also does very well because retail investors notice it and use it too. The smart money cycle happens in 3 price cycles. We then see a short-term channel where the price holds for some bullish strength.

A Forex system – Fibonacci

These price cycles are not random. They follow a line. This sequence is defined by a set of numbers called Fibonacci numbers.

Fibonacci numbers were not developed for trading. This occurs in the natural world, where many biological systems can be described in terms of Fibonacci-like sequences.

Major forex traders (including banks) do not use indicators such as RSI, CCI or MACD. They use systems based on the Fibonacci numbers.

When you combine Fibonacci with precise calculations of the price channel and information about how others trade, you have a profitable forex trading strategy.

Forex using binary options?

Why should you consider all this when trading binary options? Unlike with foreign exchange, you have to be right more often. You need to identify the direction, not the magnitude of the movement.

During the day trading it will not include large trades above. I want to bag price movements (and pips) so I need to use something that finds these price cycle movements and reversals. For binary forex (and spot fx day trading) I use 3 indicators with very precise functions.

 

 

Forex correlations

Forex correlations are an important tool. If you haven’t learned what it is, you can trade. Correlations show which pairs move together. It also determines those moving in opposite directions. No less important is that it will show which pairs are not related.

It all helps to judge which trades we should do. This can reduce the risk and also provide additional trading opportunities that are not present on the price chart.

How to read exchange correlations

Correlations are normally displayed with values ranging from -100 to 100. A value of -100 (inverse correlations) shows two forex pairs moving exactly opposite each other. If one rises, the other falls and vice versa. A figure of 100 means that two forex pairs are moving together. If one rises, so does the other. Likewise, if one falls, so will the other. Numbers at the extremes of the spectrum are rare – but the closer the number is to -100 or 100, the stronger the correlation.

So figures over – / + 70 are a significant correlation. Anything over – / + 80 is a strong correlation. Consider the GBP/USD and EUR/USD transition above. This gives a figure between the GBP/USD and EUR/USD of 89.6. This shows a strong correlation.

Then rate USD/CHF with EUR/USD. This shows that the correlation between these two pairs is -95.4. This highlights a very strong inverse correlation. If the EUR/USD rises, the USD/CHF falls, and vice versa.

With many pairs there is no relevant correlation. Where a value (positive or negative) is less than 60, the correlation is not very strong. Anything around 0 shows that there is no relationship between the pairs at all. As an example are the NZD / USD and the EUR / USD pairs. The correlation here is -1.7. This means that there is no daily correlation between these pairs. In other words, the NZD / USD going up or down tells us absolutely nothing about what the EUR / USD can do.

Correlation series

Correlation tables are created and updated based on hourly, daily and weekly time frames. All of these time frames provide valuable information depending on which time frame you are trading. For short-term trading, the hourly and daily correlations will be most important. Numbers change; do not take the above as gospel.

Why are currency correlations important?

There are a number of reasons why you should care about forex correlations. The main reason I monitor them is to control risk. For example, a trader may assume that trading multiple pairs offered them diversification. It can only be assured that it is some correlation.

If you go long (buy calls) in the EUR/USD, GBP/USD and buy (buy calls) the USD/CHF, you have essentially taken 3 very similar positions. If someone moves against you, it is likely that everyone will move against you. Risk is effectively tripled. If leverage was also used, the risk is high.

Another reason why forex correlations matter is that they can provide you with trades that you may not have seen. For example, you believe that the EUR will rise against the USD (that is, that the EUR / USD will rise). You look at the chart and don’t see a good trade setup. Since you know that the GBP/USD usually moves with the EUR/USD (based on the current correlation), you can also examine the GBP/USD to see if there is a better trade setup.

You may also want to see if there is a trade setup to go short (buy buy) in the USD/CHF as it typically moves in the opposite direction to the EUR/USD. High correlations (positive to negative) give you alternative trades; choose the one with the best trading setup.

Confirm trades

I also want to use forex correlations to confirm trades. If I find forex pairs with high correlations, I will use one pair to confirm trades in the other. For example, if the EUR/USD rises, and I want to go long (buy calls), I also want to see the GBP/USD rise. Since these pairs are highly correlated, they should move together. If they don’t, it alerts me that maybe I need to take a closer look at my trade. That doesn’t mean I won’t take the trade. These correlations do change and two pairs never move perfectly in harmony. It does mean that I have very good reasons to trade (as you always should anyway).

Correlations can be a complicated statistical subject. Hopefully this introduction has given you enough of the concepts to do some homework yourself. Check correlations regularly to be aware of relationships between forex pairs that may affect your trading.

Use the correlation data to control risk, find opportunities and filter trades. If you are having trouble seeing how correlations work, try looking at the numbers in the correlation tables and then plotting the price charts of the two forex pairs involved. Notice how the pairs move relative to each other; This will help create a general understanding of correlations.

Swing Trading – Definition and Examples

A ‘Swing’ trade is usually a trade that is open between one and five days. A trader tries to follow the momentum of an asset price, usually within an established trend channel.

The idea of ‘swing trading’ comes from the stock market and is a type of trading strategy mostly followed by retail traders. The reason for this is that it is difficult for institutional traders to enter positions of the size they need without moving the market.

This is not necessarily true for the Forex market as the Major pairs are all very liquid and there is a large interbank market. Traditionally, trading positions swing itself in terms of the time horizon between that of day traders and medium-term investors or traders. A day trader will hold for a few seconds or hours at most, while a medium-term investor may hold for a number of weeks.

However, the forex market is a whole different kind of ball game. Even in the most furious bull trend or the most savage bear trend, you may find that the day’s price action has gone through some highs and lows, instead of moving in one direction all day.

Swing traders in Forex markets can also be a day trader and try to use the price momentum to the downside and upside. Their mission is to get into the market as long as the momentum is rising, but it goes short as soon as the market moves back to the downside.

What is the analysis of the Swing strategy?

Due to their short holding period, swing traders are not as interested in fundamentals and focus mainly on technical analysis. It could be something as simple as a 3-day moving average crossover strategy, set up to get in and out of positions early. Or an elaborate mixture of different technical indicators superimposed on each other.

In any case, the intent is the same, to get in early when the momentum changes and to reverse the position when the market pulls back. So this strategy works especially well if the market is trending sideways rather than up or down. Forex markets do have a lot of swings, even when the market has a clear trend, but it can be painful if you want to sell early enough in a strong bull market to get the swing.

Definition of the right market

Determining whether the market is currently suitable over a given period of time is crucial to the successful outcome of this strategy. You need to consider the time horizon for which you are trading, in the Forex markets there are fluctuations in relatively shorter time intervals. So it is necessary to stick to the time horizon in which you are trading to determine if the market is trading sideways. A sideways market is defined when highs and lows do not go past previous highs and lows, giving rise to so-called channels as well as other chart patterns.

The shorter the time frame, the smaller the difference between high and low, or the shorter the channel of price action. For daily charts, you can expect most majors to stall rather than have between 2% and 6% wide channels. In comparison, if you look at an hourly chart, the channel can be around 0.5% to 1.5%. The markets that are often sideways in shorter time periods than in one day can often move in very tight ranges as the market consolidates its new level.

Let’s look at some examples.

The hourly chart in the first image is for the USDCHF. As we can see, the pair is going through a relatively tight price range of around 45 pips, between 0.98800 and 0.9925. The blue rectangle extending from May 19 06:00 GMT to May 24 03:00 GMT highlights how channeled price action remained during that period. The task of the swing trader is then to try to go short or sell at points A, C and E and to go long or buy at points B, D and F.

In swing trading there are no down periods; the strategy consists in being consistently long or short. So there are no lock-in and waiting periods, which can be useful when the market pulls back, allowing you to re-enter the market at a better price than the one you left. However, it can be amazing if the trend is sharp and continues.

It is therefore necessary to identify a break of the sideways price movement, and the development of increased momentum in one direction. From the above chart, it appears that there has in fact been a breakout of the channel pattern. Three of the last four bars closed above the blue rectangle which would raise red flags to a swing trader. The sideways action may not have developed into a new rise. However, the fact that the price has moved above its channel calls for caution. It will be necessary to wait and see if the market has now found new momentum or simply a higher upper end of the channel.

The hourly chart in the second image, for EURGBP, shows how price action moves from one sideways channel in the green rectangle to another sideways channel at a lower level in the pink rectangle. As price moves from point 1 to point 2, it can be tempting to open a short position at point 2 with the view that a new bear trend is underway. Only to find that the price is now going higher again and can trade within a range.

Ultimately, as always, you should use caution, but even if you’re not a swing trader, you can’t help but keep swings in the market. With the correct identification of the market system, you can avoid buying when the market is about to go down, or selling when the market is about to start back up.