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How to Spot Short Term and Long Term Trends

trendThe old adage that ‘trend is your friend’ is perhaps more suited to Forex traders than any other kind of investor. Knowing the trend can save the forex trader from making disastrous investment decisions and also ensure that he tweaks his exposure to the market in time to leverage opportunities or avert serious capital erosion. What is surprising is that even traders who have spent many months in this market end up making rookie mistakes that cost them heavily. In a  vast majority of these cases, the trader’s fault lies in his failure to identify and/ or understand the market trend correctly.

What is leverage in forex trading? Advantages and risks explained

forex leverage explained

Think of forex leverage as a bank loan with interest. The idea sounds fantastic, until you learn the conditions and requirements! In trading, leverage allows you to gain access to a huge investment funds in currencies with a small initial deposit amount. For example, leverage of 1:200 makes rather miserable $100 turn into an attractive $100x200=$20,000 of tradable currency.

Differences between Forex Trading and Commodities Trading

forex vs commoditiesCommodity and forex markets are among the most lucrative and exciting markets where you can trade. For the same reason, they are preferred by many. Now, whether you choose to trade in commodities or forex is entirely up to you. But before you do make a choice, it is imperative that you know the differences between them. Here are a few factors that will help you understand the differences between forex trading and commodities trading.

Comparing Currency Pairs

compare-currenciesWhy are you trading that? What was the criteria you used to select the currency pair or pairs you trade? Most traders start out trading the most popular pairs such as the EUR/USD, USD/JPY and GBP/USD. Often their decision is based upon where they live as well as knowledge of underlying economies connected with currency pairs. As traders gain experience they will trade a wider variety of pairs-scanning charts for trading opportunities. However, after a few years of trading, most retail traders will settle on a few pairs or even a single pair to trade.

Central Banks and Forex Trading

central banksThe era of the Central Banks began in 1913 with the founding of the U.S. Federal Reserve. There were central banks before that exercised immense power-particularly the Bank of England-but the economic influence of the USA and the Fed, was like nothing before. Moreover, the U.S. Fed-a private institution-was given a more independent role than other banks, as well as a dual mandate. Today, the U.S. Fed continues to be in the driver’s seat of the global economy with an unparalleled influence on the valuations of currencies.