Traders on the Foreign Exchange market, Forex market for short, can potentially make thousands of dollars based on the volatility and fluctuations of a country’s currency.
To better themselves and have a leading advantage over other traders, some Forex traders and investors participate in a practice known as news trading.
The technique of news trading is quite simple.
It is the trading of foreign currency immediately before or after an important economic news announcement. After such announcements, there is a high possibility that market prices will fluctuate, either for the better or worse, depending on the announcement.
The main advantage of news trading is the potential for a country’s currency to make huge gains or losses in very little time.
Within minutes of an economic announcement, a country’s currency can gain or lose one hundred points almost instantly.
The potential of huge profits attracts Foreign Exchange traders and investors, however there are various risks associated with news trading.
Saturday, December 27, 2008
Forex News Trading
Remaining 5 Points of Top 10 Myths about Forex
1. Forex is a scam. Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam.
2. "I need to exactly predict the market outcome to be profitable in Forex." There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds.
3. "I need to use a very complex strategy to be successful in Forex." It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management.
4. "I need to have a lot of starting capital to get profit in Forex." Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders.
5. Forex is gambling because it’s completely random. Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random.
Top 10 Myths about Forex
Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.
Forex traders seek profit in buying currencies low and selling them high. However there also many myths surrounding the foreign exchange market:
Forex traders seek profit in buying currencies low and selling them high. However there also many myths surrounding the foreign exchange market:
1. Forex trading is easy. Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex.
2. "I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
3. "I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours.
4. "I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses.
5. No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment.
2. "I will make money in Forex, if I can trade stocks successfully." Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.
3. "I can make profit whenever I want if Forex market is open 24 hours a day." Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours.
4. "I can be a successful Forex trader just following someone else’s signals." Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses.
5. No commission is to be paid in Forex market. You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment.
Yen Down on Intervention Concerns
The Japanese yen posted its first daily drop against the U.S. dollar after 5 days of gains as the Japan’s Finance Minister said that the currency intervention will be used if needed to keep the yen from the excessive appreciating.
USD/JPY rose from 87.34 to 87.81 as of 8:30 GMT today with a daily maximum at 88.28. EUR/JPY rose from 125.80 to 126.87 after reaching its daily high at 127.40 — its peak since November 10.
The yen appreciates against the dollar since August this year and it reached its new 13-year minimum yesterday.
The U. S. Federal Reserve cut the interest rate below the Japan’s level making the dollar a less desired currency and opening a new possibility for the yen to continue strengthening.
Other Japanese officials believe that the intervention is a needed step and also a very probable one considering the recent currency gains and the ongoing global recession.
Japan Slashes Rates, Yen Grows
The yen advanced against all other major currencies today after the Bank of Japan announced a rate cut to a near-zero level and the investors ran from the risky assets into the Japanese and U.S. currencies.
The Bank of Japan reduced the target overnight rate from 0.3 percent to 0.1 percent at its meeting on December 19 and said that it will use the additional liquidity to help the domestic companies with their debt.
USD/JPY fell from 89.55 to 88.67 as of 9:16 GMT today. EUR/JPY went down from 127.79 to 124.80, while GBP/JPY declined from 134.65 to 133.14 and reached its lowest level since May 1995 at 132.53 today.
The recent rate cuts by the Federal Reserve and BoJ are the signals that the markets are more than troubled.
Central banks show that they are fighting with the crisis and the crisis is in the state which requires such measures. Investors in their turn decode this message as the signal to continue converting to «safe haven» assets. Result — the yen and the dollar are likely to continue appreciating.
The Bank of Japan reduced the target overnight rate from 0.3 percent to 0.1 percent at its meeting on December 19 and said that it will use the additional liquidity to help the domestic companies with their debt.
USD/JPY fell from 89.55 to 88.67 as of 9:16 GMT today. EUR/JPY went down from 127.79 to 124.80, while GBP/JPY declined from 134.65 to 133.14 and reached its lowest level since May 1995 at 132.53 today.
The recent rate cuts by the Federal Reserve and BoJ are the signals that the markets are more than troubled.
Central banks show that they are fighting with the crisis and the crisis is in the state which requires such measures. Investors in their turn decode this message as the signal to continue converting to «safe haven» assets. Result — the yen and the dollar are likely to continue appreciating.
Ecuador to Continue Using U.S. Dollar
The President of the Republic of Ecuador, Rafael Correa, said yesterday that the U.S. dollar will remain as the country’s main currency as the economic crisis offers harsh times for the Ecuadorian financial system.
Earlier Correa criticized the policy of maintaining the U.S. dollar as the country’s currency and was going to return to sucre — a national currency that has been in use until 2000.
Analytics believe that Correa may abandon the dollar only after the consequences of the default’s are ruled out.
Since January 2000 Ecuador uses the U.S. dollar as the national currency as one of the means to enhance the economic situation in the country.
The ongoing crisis adds pressure on the oil-exporting Ecuador as the oil lost more than 70% in the last 3 months.
Ecuador refused to pay interested on the country’s foreign debt this week, defaulting on the country’s $3.9 billion foreign bonds.
Earlier Correa criticized the policy of maintaining the U.S. dollar as the country’s currency and was going to return to sucre — a national currency that has been in use until 2000.
Analytics believe that Correa may abandon the dollar only after the consequences of the default’s are ruled out.
Since January 2000 Ecuador uses the U.S. dollar as the national currency as one of the means to enhance the economic situation in the country.
The ongoing crisis adds pressure on the oil-exporting Ecuador as the oil lost more than 70% in the last 3 months.
Ecuador refused to pay interested on the country’s foreign debt this week, defaulting on the country’s $3.9 billion foreign bonds.
Pound Down vs. Euro, Dollar, Yen
The British pound fell against the other major currencies today, most notably against the euro, as the market participant expect that the Bank of England will continue reducing the interest rates for the U.K. banks.
EUR/GBP rose from 0.9316 to 0.9500 as of 11:10 GMT today, still below its record high 0.9555 set last Thursday. GBP/USD fell from 1.4948 to 1.4736, while GBP/JPY declined from 133.37 to 132.46 today.
Not only the expectations for the lower interest rates press on the pound, but also the commentaries by the monetary officials, stating that the rates as the policy tool are not enough, hurt the pound’s position on the global currency market.
The current bank rate set by the Bank of England at 2 percent is already lower than the Eurozone’s 2.5 percent interest rate.
Traders believe that there are no strong reasons for the pound to go up in the near future and the parity with the euro will be seen very soon.
EUR/GBP rose from 0.9316 to 0.9500 as of 11:10 GMT today, still below its record high 0.9555 set last Thursday. GBP/USD fell from 1.4948 to 1.4736, while GBP/JPY declined from 133.37 to 132.46 today.
Not only the expectations for the lower interest rates press on the pound, but also the commentaries by the monetary officials, stating that the rates as the policy tool are not enough, hurt the pound’s position on the global currency market.
The current bank rate set by the Bank of England at 2 percent is already lower than the Eurozone’s 2.5 percent interest rate.
Traders believe that there are no strong reasons for the pound to go up in the near future and the parity with the euro will be seen very soon.
Canadian Dollar Declines for Fourth Day
The Canadian dollar declined today against its U.S. counterpart for the fourth straight day as the oil prices continued to fall globally.
Following the expiration of the January crude oil futures the price has briefly went up but then continued to decline as the traders expect that the demand will shrink faster than the OPEC cuts its real output.
Canada isn’t a member of OPEC but oil constitutes about 10% of its exports.
USD/CAD rose from 1.2209 to 1.2240 as of 9:19 GMT today — the volatility is still at a very low level because the Japanese banks are not participating in the trades today due to the national holiday.
The Canadian dollar, which is also known as loonie, lost almost 24% this year with the large portion of losses contributing to the nearly 70% oil slump since September.
The Canada’s government said earlier that the country’s economy, which is currently world’s 8th largest, will probably contract in 2009 for the first time since 1991.
Following the expiration of the January crude oil futures the price has briefly went up but then continued to decline as the traders expect that the demand will shrink faster than the OPEC cuts its real output.
Canada isn’t a member of OPEC but oil constitutes about 10% of its exports.
USD/CAD rose from 1.2209 to 1.2240 as of 9:19 GMT today — the volatility is still at a very low level because the Japanese banks are not participating in the trades today due to the national holiday.
The Canadian dollar, which is also known as loonie, lost almost 24% this year with the large portion of losses contributing to the nearly 70% oil slump since September.
The Canada’s government said earlier that the country’s economy, which is currently world’s 8th largest, will probably contract in 2009 for the first time since 1991.
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