How to be a TRADER part 6: Meet the Players

How to be a TRADER Part 6 – Meet the Players!

We now know about “The Ladder”, but whaty about the people ON that ladddr? WHo are they?
Lets get stuck in!

Lets be clear, Forex was initialy inteded to be used by the big guys, you know the ones – those who had 10 milklion $ plus to play with. It was that way at least until the late 90’s.
But that was before the internet became a standard tool for the masses, which opened up the platform for Brokers to offer trading accounts to us little people too.

Here are the Market Players:

1) Super Banks

The largest banks int he world are those who determine the exchange rates, based on supply and demand. This collective of superbanks is known as the interbank market.
Some of these banks include Citi, JP Morgan, Barclays, UBS, HSBC etc.

2) Large Commercial companies

Did you know that companies actually take part in the FX markets to actually conduct business.

EXAMPLE: When Apple purchase electronic electronic parts for their products from Japan, they pay in Japanese Yen… so to do that, they have to change their USD to JPY in order to pay.
Typically they will deal with commercial banks for such transactions.

Also – how about company aquisitions ? If a British company buys an American company, then they will need to swap their pounds for dollars in order to make the payment.
If its a multibillion dollar/pound company, then these transactions can have quite the effect on currency flow and therefore the prices.

3) Governments and Central Banks

Governemnets and Central Banks such as the Federal Reserve, Bank of Engalnd, Bank of Canada etc are also constatly involved in the FX Market too.
There are international trade payments to think about as well as their FX reserves, and at the same time they adjust their exchange rates to control inflation, and this has a direct effect on currency value.

4) The Speculators

“The Speculators” account for around 90% of the market trading volume, and they come in various forms.
Simply put, these are the people looking to make money by trading lots of it – This is the catagory we fall in to.
We are… THE SPECULATORS.

How to be a TRADER Part 5: Understanding the Structure

Understanding the Structure of the Forex Markets

Right – Forex is probably new to you but you will have probably at some point looked at the stock market so let’s take a look at the structure of the stock market and then see how it compares with Forex.

 

 

 

The layout of the stock market is pretty simple. You have the Middleman who controls the price of stock. Every trade goes through him and his goal is to potentially play with prices to his own benefit. He doesn’t really care too much about the trader.

This Middleman has to make sure client orders are filled, BUT, what if the number of Sellers was far great than that of the buyers? Well at this point he would have a balance of left over stick which isn’t selling.

If he sees this as a possibility, he’ll basically increase the transaction cost to those sellers to put them off the sell-off, thus, accommodating his own need for balance.

Forex is different – you do NOT have to go through a centralised exchange with just one price – quotes will vary across various brokers, whereas with stocks there is just one price and then an ever manipulated and often large transaction fee.

There are hundreds and hundreds of options when trading Forex and lots of players; Brokers, Traders, Banks, ECN Brokers, more Traders, and so on and so forth. This is good for us because they all want our money, so we can use that to our advantage and get the best deal every single time we trade.

Now the structure of the Forex markets amid all this chaos is relatively logical in its layout. Let’s take a look…

The Forex Ladder:

The largest banks in the world Formulate what we call the Interbank Market. They actually trade with each other using two main electronic systems:

  • EBS – Electronic Brokering Services
  • Reuters Dealing 3000 – Spot Matching

Both of these two companies are in competition but they are so large its negligible – both have their unique strengths and both have their weaknesses.

Interestingly both have their own “Best Currency Pairs”.

On the EBS platform they are EURUSD, USDJPY, EURJPY, EURCHF and USDCHF. These will be their most liquid and readily available currencies.

Now in this interbank market, each bank can see what each other one is offering in terms of rates. But whether or not each bank can just pick the rate they want out of what’s on offer is another thing – like anything in life when it comes to finances, the better the credit rating you have and the better your relationship with credit agencies is, the more you get offered – these interbank relationships are no different.

Moving down to the Hedge Funds, Corporations, Retail Market Makers and Retail ECNs – these guys aren’t as close knit as the Interbank Market when it comes to their credit relationships, therefore, their transactions are done via commercial banks. Naturally this results in slightly higher rates for them.

And all the way at the bottom, you have Retail Traders – so traders looking to make more income from home, or those looking to trade for fun. Basically traders that are not part of an institutional organisation.

So we know the structure – next we will take a look at the different players in the Game of Currency.

 

How to be a TRADER Part 4 – Forex Vs. Stocks

Forex Vs Stocks – FIGHT!

There are around 2800 stocks listed on the NYSE (New York Stock Exchange).

There’s also the NASDAQ index that lists another 3100. So to know the stock market you only need to stay on top of almost 6000 companies… EASY …. NOT!

In Forex, while dozens of currencies are traded, most of the market traders focus on 4 main “Major” pairs. Take your pick – 6000 companies or a handful of trading pairs… How much free time (Or lifetimes) do you have on your hands?

So now the blindingly obvious benefit of Forex over Stocks is out of the way let’s look at a few more.

24 Hour Action

Read a news article that wins you over on buying some company stock in the evening? Bad news my friend, you can’t buy it until the stock market opens in the morning.

Forex on the other hand is a 24hour, seamless market with 24/7 customer support in most cases. You can trade by your own watch!

Instant Order Execution

Usually, your trades are executed instantly. What you see is what you get – because the trades execute so fast there is a limit to price fluctuations as the trades are ordered. We are talking under usual conditions… So don’t expect the same treatment if Wall Street suddenly vanishes.

Generally, as soon as you hit that buy or sell button your trade is opened. Unfortunately, the stock market is not quite so clean cut when it comes to the user experience.

Minimal Expense when it comes to Commissions

Most FX Brokers do not charge commission or additional transaction fees when you trade currency through them. On top this, spread (the gap between where price is sitting and where your trade executes) is generally transparent and much lower than that of any other market. Simple.

No Uptick on Short-Selling

In the Equity market there is a restriction on short selling. This is not the case in the currency market. Trading opportunities are there in the currency market whatever the direction of the trader and whatever way the market is moving. You always have equal access to trade in both a rising or falling currency market.

No Middlemen

We have already covered this to some extent. The problem with the stock market in some ways is the middleman. These guys cost you money, whenever its transactional fees, or even fees for their time. When trading the Spot Currency market this is not the case. Spot currency is decentralised – this means that the competition between the various brokers is heavy, which ultimately means faster access, and cheaper costs for us.

Large Fund Buy and Sell schemes do not Control Currency movement

A common practice in the stock market is large funds buying and selling stock to directly control the price direction. Because the Forex market is so large, it is less common for this to happen. No matter how big the trader, they are just a small part of a giant market.

Analysts and Brokers are less likely to Dictate Direction

Media can have a very large impact on the masses buying and selling a currency, as can a broker and this can directly control stock price. Not sure what that all means – watch the Wolf of Wall street!

There is a close relationship between company’s stock and their brokers whereas with the FX market, all the broker can actually do is analyse it. So to conclude, here are the things that the Forex market CAN offer you, but the Stock Market Can’t:

  • 24 Hour Trading
  • Minimal or No Commission
  • Instant Market Order Execution
  • No Middlemen
  • No Market Manipulation

 

I think there is a logical clear winner here, but you be the judge…. My final thought:

FATALITY!

 

2 Tips to make the last trading quarter of 2017 epic!

If you took the summer off, then you no doubt have a lot of catching up to do.

Well, to save you all the time of scanning through whats been going on over the past 6 weeks, I’ve uploaded a free analysis video to bring you up to speed.

I’ve also included 2 incredible tips for tightening up your results, and increasing your win rate. Both of these ideas were created by private students, and they are so good, I’ve even started using them myself!

Here is the link to that video: https://youtu.be/pwHfR4KjHHI 

Enjoy!

 

BN

How to be a TRADER Part 2: How Can You Trade Forex?

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So… We already know now that Forex is Great, but did you know there is more than one way to actually trade it?

In this Blog we will take a look at the most common Trading options that you will come across. In particular, we will focus on Forex Spot, Futures, Options and Exchange Traded Funds (otherwise known as ETFs).

The Spot Market

Like the name suggests, in the Spot Market, currency is traded there and then, as in immediately, or “On the Spot”. Lots of traders love the Spot Market because it’s a simple set up, there’s lots of liquidity (meaning trading orders are filled easier), and it operates Monday to Friday/ 24 hours!

It is very easy to take part in the Spot market and you do not need massive funds to get started. Some accounts can be opened for as little as $20 and some even give you no deposit bonuses for opening accounts. Not bad eh?

On top of this those providing the Spot Market (Brokers) very often include various useful tools and research within their offerings.

Futures

Ok so venturing out to the “Not so Simple”, we have the Futures. These are in effect contracts where you agree to buy or sell an asset at a certain price on a certain date. Again, the clue is in the name – “Futures”. Futures have been there since the early 1970’s and were created by the CME (Chicago Mercantile Exchange). When futures started, Flares were still cool.

Being Traded through a centralised exchange, the future market is highly regulated and fairly transparent, meaning the benefit to you in price and transaction information being easy to get hold of.

Options

Ok, so an “Option” can be described as a Financial Instrument where the buyer has the right or the “Option” (A-Haaa see what we did there, again the clue is in the name) to buy or sell an asset at a specified price on the options expiration date. If you SELL an option, then you are obliged to buy or sell an asset at a specific price BEFORE its expiration date. Oh and very much like Futures, Options are also traded on an exchange. Examples of such exchanges are the Chicago Board, the Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange. The downside to Options is that on some, the market hours aren’t so flexible, and liquidity is far lower than what we see in the Futures and Spot Markets.

Exchange Traded Funds (ETF’s)

ETF’s are the noobies of the world of Forex. An ETF could contain a combination of stocks and some currencies, which to the trader means having a much more diverse set of assets. While being created by Financial Institutions and are very much traded the same way as stocks are, through an exchange. (AHA! I knew there would be another “The clue is in the name”). ETFs do have their limits, in that the market isn’t a 24-hour operation, and on top of this they are subject to cost, I.e. commissions and transactional costs.

 

So that’s it – Several options are available to you when it comes to trading Forex. Whether it’s spot, futures, options or ETF’s, ultimately there will be an option that suits you when choosing a suitable platform to trade.

The Spot Market is generally the most popular, and potentially the best option when starting out as a trader. For those with time on their hands and lots of experience it doesn’t hurt to experiment, but just make sure you don’t experiment with money you can’t afford to lose.

In the next blog we will take a look at the Advantages of Forex trading and show you why you should investigate the arena further to give it a go.

HOW to be a TRADER Part 1 – “What’s it all About?”

This series of Blogs is designed to give you a truly beneficial insight into what Forex is and more importantly how we can make regular income from it. Any story begins with the start – so let’s dive straight in and take a look at what Forex actually is.

I’m sure you have been on a holiday away from your own country of residence and have been to collect your holiday currency, and noticed a screen at the counter with lots of different exchange rates displayed. You switch your home currency to the currency of your holiday destination and hey presto… you have just taken a trade.

We are of course talking about a very small scale trade here. But the principle is very similar when it comes to the Forex Markets.

But HOW can you make money from this? Well… the exchange rate is something that constantly changes on a daily basis. Going back to our holiday currency illustration, let’s say you are American and you are visiting Japan. You essentially swap $100 for yen. At the time of writing this article the JPY cost is 0.0092 USD per Yen.

So for your $100 you get 10896.80 Yen…. You have Sold the USD and Brought the Yen – this is a Forex Trade. Now, as we said, the exchange rates constantly move – so let’s imagine the cost of the Yen increases to 0.0192. You sell the Yen and Buy the USD back. BUT instead of your $100, with the new increase in the Yen exchange rate, you actually get $209.21 back. Of course we are talking small scale in terms of the size of the trade, and large scale in terms of the move but the principle is, that by buying a currency at a certain cost, and then selling it at a higher cost, you make profit.

 

Imagine it scaled up.

 

The FX Market (otherwise known as foreign exchange or Forex) is actually massive – it’s the largest Financial Market in the world, trading 5.3 TRILLION dollars a day in volume. Most people think of “Trading” as stock market trading, but this area is tiny in comparison with just $22 billion per day being traded.

Ultimately while you do not see anything physical when trading FX, you are essentially buying and selling money. Think of it as buying shares in a country. In the stock market, share prices are a representation of the markets opinion on the strength of the company. In FX, the price of currency is a reflection of the health of its corresponding country.

So say you buy the Yen – you are buying shares into Japan and betting on the health of the county’s economy. If the economy does well, you sell those Yen and make a profit (hopefully). All Forex trades come in the form of a currency pair, for example the USDJPY. If you buy that pair, you are buying the USD and selling the Yen, thus betting on an economy in the USA that is better than the economy in Japan.

In Forex we have “Major” currencies, Major meaning the currency has a “Major” bank behind it (we will get to that in later articles), and they are USD, EUR, JPY, GBP, CHF, CAD, AUD, NZD.

These major pairs are THE most traded currencies, though there are others known as “Exotics” after all, each country has a currency right, and each country has an ever changing economy.

Now, Forex Trading is largely based on market speculation. The more that Countries, companies and people trade, the higher the Volume of money moving around from currency to currency gets. The level of this trading volume is what is referred to as liquidity.

From an investment point of view, liquidity is what determines how easily price can change so it’s an important factor for investors to consider. The more liquid the markets are, the more trading volume there is to be used, and the more the markets can and will move. The liquidity can vary depending on the time of day and also economic indicators and the weight of news flows.

There are many reasons to trade Forex, and if you start on the right foot it doesn’t have to be AS difficult as it is known to be. Forex is a 24-hour market with no Middleman, No Fixed Trade Size and Low Transaction costs making it a very desirable industry to be in, and it is open and available for all to participate.

Ben Nathan FX v2.0

I’m excited to be able to share this news with everyone, my new site is under development and very close to completion…fingers crossed we should be live within 1-2 weeks. I’m afraid there isn’t much to see on the URL right now but it’s a whole new website and brand identity. Check back here soon for more information.