FOREX ARTICLES

With the introduction of the carry trade into the mainstream audience, yen currency pairs have become the speculator's pair du jour. Currency crosses like the GBP/JPY and NZD/JPY have been able to net small intraday - or even longer term - profits for the currency trader as speculation continues to support the bid tone. But how can one enter into a market that is already seemingly overheated? Even if a trader could, what would be a good price, and doesn't everything that goes up come down? The answer is easier and simpler than most believe. In this article we'll show you how to use carry trades to profit from overwhelming market momentum.

All About The Carry Trade
First, let's take a look at the carry trade. In short, the carry trade is used when an investor or speculator is attempting to capture the price appreciation or depreciation in a currency while also profiting on the interest differential. Using this strategy, a trader is essentially selling a currency that is offering a relatively low interest rate while buying a currency that is offering a higher interest rate. This way, the trader is able to profit from the differential of interest rates.

For example, taking one of the favored pairs in the market right now, let's take a look at the New Zealand dollar/Japanese yen currency pair. Here, a carry trader would borrow Japanese yen and then convert it into New Zealand dollars. After the conversion, the speculator would then buy a Kiwi bond for the corresponding amount, earning 8%. Therefore, the investor makes a 7.5% return on the interest alone after taking into account the 0.5% that is paid on the yen funds.

Now on the earning side of the trade, the investor is also hoping that the price will appreciate in order to make further gains on the transaction. In this case, anyone that has invested in the NZD/JPY trade has been able to reap plenty of benefits. For 2007, not only were traders able to benefit from a 7.5% return, they also benefit from a currency that has appreciated by 20.6% since the beginning of the year - a far cry from your ordinary U.S. Treasury bond. (For more on this strategy, see Currency Carry Trades Deliver.)

Flags and Pennants: Easy and Simple
With the currency rising the way it has, how can a trader really capture market profits in the bull market? One such formation that has proved to be a great setup may be the all too familiar: flag and/pennant formations. This has been especially useful in carry currency crosses such as British pound/Japanese yen and New Zealand dollar/Japanese yen. Both formations are used in similar capacities; they are great short-term tools that can be applied to capture nothing but continuations in the foreign exchange market. They are both even more applicable when the market, especially in the case of carry trade currencies, has been trading higher and higher in every session. (For more insight, read Analyzing Chart Patterns: Flags and Pennants.)

To get a better sense of how this works, let's quickly review the differences between a flag and a pennant:

* A flag formation is a charting pattern that is indicative of consolidation following an upward surge in price. The name is attributed to the fact that it resembles an actual flag with a downward-sloping body (due to price consolidation) and a visually evident post. Targets are also very reliable in flag formations. Traders who use this technical pattern will reference the distance from the bottom of the post (significant support level) to the top. Subsequently, when the price breaks the upper trendline of the flag, the distance of the post will more often than not be equivalent to the next level of resistance.

* A pennant formation is similar to the flag formation - it differs only in the form of consolidation. Instead of a body of consolidation that moves in the opposite direction of the post (as in the case of a flag), the pennant's body is simply a symmetrical triangle. Although pennants have been known to slope downward as well, the textbook formation has also been noted as a symmetrical triangle, hence the name.

Trade Setup
Let's take a look at a real-life example using the British pound/U.S. dollar in July 2007. Here, a 60-minute short-term chart offers a great opportunity in the GBP/USD in Figure 1. After convincingly breaking through resistance at the pivotal 2.0200 trendline, the underlying currency proceeds to top out at 2.0361 and consolidates. Forming a flag technical pattern, we note that the post is 160 pips in length and apply it when the currency breaks through the top trendline at 2.0330. As you can see, the estimate rings true as the pound sterling gains against the U.S. dollar far above market targets and tops out at 2.0544 before consolidating again.




Source: FX Trek Intellicharts
Figure 1: A perfect flag formation in the GBP/USD

Flag and Pennants in Carry Candidates
Similar setups are seen in the cross currency pairs, giving the trader plenty of opportunities in the currency market, with or without dollar exposure. (For more on these pairs see, Make the Currency Cross Your Boss.) Taking another market favorite, the British pound/Japanese yen, let's take a look at how this method can be applied to the chart.

In the short-term 60-minute chart in Figure 2, a typically long flag formation is coming around in the GBP/JPY currency pair. In order to establish the formation initially, it is recommended that the chartist draw the topside trendline first. This rule is a must as an initial drawing of the bottom trendline may lead to varying interpretations. Once the initial downward-sloping trendline is drawn, the bottom is a simple duplicate. Here, the trader will make sure to note a touch by the session bodies rather than the wicks in verifying the formation as true. This is to isolate only true price action and not volatility or common "noise" that may occur in the short term.

In Figure 2, the bottom trendline has been pushed slightly higher to incorporate the bodies rather than the wicks. Next, we measure the post. In this case, referencing a major support level at 245.69, we calculate the differential with the top of the move at 248.93. As a result, the distance between the two prices is 324 pips. Theoretically, this will place our ultimate target at 251.74 on a break of the trendline at 248.50.



Source: FX Trek Intellicharts
Figure 2: An extended flag formation offers plenty of opportunity.

Trading Rules
When placing the entry, always make sure of two things:

1. The trade is on the side of carry. This means that the speculator is always buying the higher interest rate currency. In this case, the trade is going long pound sterling and gaining 5.25%.

2. Always place the buy entry after the candle close. Applying a buy order after the break of the top trendline ensures that the trendline has been broken. Placing the entry before the close above the trendline may subject the order to being hit on possible market noise above the resistance barrier. This may leave the trader in an unfavorable position as consolidation continues.

Taking into account both rules, we place the entry on the close or slightly below, at 248.77. Risk takers will likely hold the carry trade until the full move has been completed. However, a more conservative strategy, and one that works more often than not, involves placing an initial target at the halfway mark. Taking into consideration the break at 248.50 and half of the full forecast of 324 pips, initial targets should be set at 250.12 with the corresponding stop five pips below the session low.

Step by Step
Now let's take a look at a step by step process that will allow traders to enter on the carry trade momentum in the market. Figure 3 shows a great opportunity in the New Zealand dollar/Japanese yen cross pair. Following the complete downturn that occurred July 9 - July11, 2007, a visual burst can be seen by chartists as bidders take the currency higher over the next 48 hours, establishing a temporary top at Point A.



Source: FX Trek Intellicharts
Figure 3: Following A Sharp Decline, NZDJPY Vaults Higher Off Of Support

Now we set the stage (Figure 4):

1. After consolidation, draw the topside trendline first, completing the formation with the duplicate bottom trendline giving the chartist the flag boundaries.
2. On a sign of a trendline break, measure the distance from the bottom of the post to the top. In this instance, the bottom support of the post is 93.81 with the top at 95.74. This gives the trader a potential for 193 pips on the trade after a break of the top trendline.
3. Once there is a confirmed break of the trendline, place the entry that is at the session close or lower of the finished candle. In this case, the break occurs approximately at 95.40 with the entry being placed at that session's close of 95.46 (Point C). Subsequently, a corresponding stop is placed five pips below the session low of 95.37. Ultimately, the position is well within normal risk parameters as it is risking 14 pips to make 193 pips.
4. Set initial and full targets. With the full move estimated at 193 pips, we get a partial distance of 96 pips (193 pips / 2). As a result, the initial target is set for 96.42 (Point B).
5. Set contingent trailing stops. Once the initial target is achieved, the overall position should be reduced by half with the rest being protected by a trailing stop set at the entry price (or break-even). This will allow for further gains while protecting against adverse moves against whatever is left. Longer term strategies will hold to the entry price as the ultimate stop, promoting a worst-case scenario of break-even.

Incidentally, the initial target is achieved right before a slight retracement in the NZD/JPY currency in the example. Subsequently, the position remains on target for further gains as it continues to trade above the entry price.



Source: FX Trek Intellicharts
Figure 4: Trade setups in the NZD/JPY

Conclusion
Flags and pennants can accurately support profitable trading in the currency markets by assisting in the capture of overwhelming market momentum. In addition, applying strict money management rules and using a trained and disciplined eye, a trader can boost returns while helping the overall portfolio in capitalizing on the yield offered through the interest rate differential. Ultimately, sticking to those two tenets of market price and yield, FX investors can't go wrong being long on carry.

By Richard Lee,
Access Investopedia's Forex Advisor FREE Report - The 5 Things That Move The Currency Market

Richard Lee is a currency strategist at Forex Capital Markets LLC. Employing both fundamental models and technical analysis applications, Richard contributes regularly to DailyFX and Bloomberg. He has extensive experience in trading the spot currency markets, options and futures. Before joining the research group, Richard traded FX, equity and equity derivatives for a private equity consortium. Richard graduated from Pennsylvania State University with a Bachelor of Arts in economics and a Bachelor of Science in French with an emphasis in international business.

With the introduction of the carry trade into the mainstream audience, yen currency pairs have become the speculator's pair du jour. Currency crosses like the GBP/JPY and NZD/JPY have been able to net small intraday - or even longer term - profits for the currency trader as speculation continues to support the bid tone. But how can one enter into a market that is already seemingly overheated? Even if a trader could, what would be a good price, and doesn't everything that goes up come down? The answer is easier and simpler than most believe. In this article we'll show you how to use carry trades to profit from overwhelming market momentum.

All About The Carry Trade
First, let's take a look at the carry trade. In short, the carry trade is used when an investor or speculator is attempting to capture the price appreciation or depreciation in a currency while also profiting on the interest differential. Using this strategy, a trader is essentially selling a currency that is offering a relatively low interest rate while buying a currency that is offering a higher interest rate. This way, the trader is able to profit from the differential of interest rates.

For example, taking one of the favored pairs in the market right now, let's take a look at the New Zealand dollar/Japanese yen currency pair. Here, a carry trader would borrow Japanese yen and then convert it into New Zealand dollars. After the conversion, the speculator would then buy a Kiwi bond for the corresponding amount, earning 8%. Therefore, the investor makes a 7.5% return on the interest alone after taking into account the 0.5% that is paid on the yen funds.

Now on the earning side of the trade, the investor is also hoping that the price will appreciate in order to make further gains on the transaction. In this case, anyone that has invested in the NZD/JPY trade has been able to reap plenty of benefits. For 2007, not only were traders able to benefit from a 7.5% return, they also benefit from a currency that has appreciated by 20.6% since the beginning of the year - a far cry from your ordinary U.S. Treasury bond. (For more on this strategy, see Currency Carry Trades Deliver.)

Flags and Pennants: Easy and Simple
With the currency rising the way it has, how can a trader really capture market profits in the bull market? One such formation that has proved to be a great setup may be the all too familiar: flag and/pennant formations. This has been especially useful in carry currency crosses such as British pound/Japanese yen and New Zealand dollar/Japanese yen. Both formations are used in similar capacities; they are great short-term tools that can be applied to capture nothing but continuations in the foreign exchange market. They are both even more applicable when the market, especially in the case of carry trade currencies, has been trading higher and higher in every session. (For more insight, read Analyzing Chart Patterns: Flags and Pennants.)

To get a better sense of how this works, let's quickly review the differences between a flag and a pennant:

* A flag formation is a charting pattern that is indicative of consolidation following an upward surge in price. The name is attributed to the fact that it resembles an actual flag with a downward-sloping body (due to price consolidation) and a visually evident post. Targets are also very reliable in flag formations. Traders who use this technical pattern will reference the distance from the bottom of the post (significant support level) to the top. Subsequently, when the price breaks the upper trendline of the flag, the distance of the post will more often than not be equivalent to the next level of resistance.

* A pennant formation is similar to the flag formation - it differs only in the form of consolidation. Instead of a body of consolidation that moves in the opposite direction of the post (as in the case of a flag), the pennant's body is simply a symmetrical triangle. Although pennants have been known to slope downward as well, the textbook formation has also been noted as a symmetrical triangle, hence the name.

Trade Setup
Let's take a look at a real-life example using the British pound/U.S. dollar in July 2007. Here, a 60-minute short-term chart offers a great opportunity in the GBP/USD in Figure 1. After convincingly breaking through resistance at the pivotal 2.0200 trendline, the underlying currency proceeds to top out at 2.0361 and consolidates. Forming a flag technical pattern, we note that the post is 160 pips in length and apply it when the currency breaks through the top trendline at 2.0330. As you can see, the estimate rings true as the pound sterling gains against the U.S. dollar far above market targets and tops out at 2.0544 before consolidating again.




Source: FX Trek Intellicharts
Figure 1: A perfect flag formation in the GBP/USD

Flag and Pennants in Carry Candidates
Similar setups are seen in the cross currency pairs, giving the trader plenty of opportunities in the currency market, with or without dollar exposure. (For more on these pairs see, Make the Currency Cross Your Boss.) Taking another market favorite, the British pound/Japanese yen, let's take a look at how this method can be applied to the chart.

In the short-term 60-minute chart in Figure 2, a typically long flag formation is coming around in the GBP/JPY currency pair. In order to establish the formation initially, it is recommended that the chartist draw the topside trendline first. This rule is a must as an initial drawing of the bottom trendline may lead to varying interpretations. Once the initial downward-sloping trendline is drawn, the bottom is a simple duplicate. Here, the trader will make sure to note a touch by the session bodies rather than the wicks in verifying the formation as true. This is to isolate only true price action and not volatility or common "noise" that may occur in the short term.

In Figure 2, the bottom trendline has been pushed slightly higher to incorporate the bodies rather than the wicks. Next, we measure the post. In this case, referencing a major support level at 245.69, we calculate the differential with the top of the move at 248.93. As a result, the distance between the two prices is 324 pips. Theoretically, this will place our ultimate target at 251.74 on a break of the trendline at 248.50.



Source: FX Trek Intellicharts
Figure 2: An extended flag formation offers plenty of opportunity.

Trading Rules
When placing the entry, always make sure of two things:

1. The trade is on the side of carry. This means that the speculator is always buying the higher interest rate currency. In this case, the trade is going long pound sterling and gaining 5.25%.

2. Always place the buy entry after the candle close. Applying a buy order after the break of the top trendline ensures that the trendline has been broken. Placing the entry before the close above the trendline may subject the order to being hit on possible market noise above the resistance barrier. This may leave the trader in an unfavorable position as consolidation continues.

Taking into account both rules, we place the entry on the close or slightly below, at 248.77. Risk takers will likely hold the carry trade until the full move has been completed. However, a more conservative strategy, and one that works more often than not, involves placing an initial target at the halfway mark. Taking into consideration the break at 248.50 and half of the full forecast of 324 pips, initial targets should be set at 250.12 with the corresponding stop five pips below the session low.

Step by Step
Now let's take a look at a step by step process that will allow traders to enter on the carry trade momentum in the market. Figure 3 shows a great opportunity in the New Zealand dollar/Japanese yen cross pair. Following the complete downturn that occurred July 9 - July11, 2007, a visual burst can be seen by chartists as bidders take the currency higher over the next 48 hours, establishing a temporary top at Point A.



Source: FX Trek Intellicharts
Figure 3: Following A Sharp Decline, NZDJPY Vaults Higher Off Of Support

Now we set the stage (Figure 4):

1. After consolidation, draw the topside trendline first, completing the formation with the duplicate bottom trendline giving the chartist the flag boundaries.
2. On a sign of a trendline break, measure the distance from the bottom of the post to the top. In this instance, the bottom support of the post is 93.81 with the top at 95.74. This gives the trader a potential for 193 pips on the trade after a break of the top trendline.
3. Once there is a confirmed break of the trendline, place the entry that is at the session close or lower of the finished candle. In this case, the break occurs approximately at 95.40 with the entry being placed at that session's close of 95.46 (Point C). Subsequently, a corresponding stop is placed five pips below the session low of 95.37. Ultimately, the position is well within normal risk parameters as it is risking 14 pips to make 193 pips.
4. Set initial and full targets. With the full move estimated at 193 pips, we get a partial distance of 96 pips (193 pips / 2). As a result, the initial target is set for 96.42 (Point B).
5. Set contingent trailing stops. Once the initial target is achieved, the overall position should be reduced by half with the rest being protected by a trailing stop set at the entry price (or break-even). This will allow for further gains while protecting against adverse moves against whatever is left. Longer term strategies will hold to the entry price as the ultimate stop, promoting a worst-case scenario of break-even.

Incidentally, the initial target is achieved right before a slight retracement in the NZD/JPY currency in the example. Subsequently, the position remains on target for further gains as it continues to trade above the entry price.



Source: FX Trek Intellicharts
Figure 4: Trade setups in the NZD/JPY

Conclusion
Flags and pennants can accurately support profitable trading in the currency markets by assisting in the capture of overwhelming market momentum. In addition, applying strict money management rules and using a trained and disciplined eye, a trader can boost returns while helping the overall portfolio in capitalizing on the yield offered through the interest rate differential. Ultimately, sticking to those two tenets of market price and yield, FX investors can't go wrong being long on carry.

By Richard Lee,
Access Investopedia's Forex Advisor FREE Report - The 5 Things That Move The Currency Market

Richard Lee is a currency strategist at Forex Capital Markets LLC. Employing both fundamental models and technical analysis applications, Richard contributes regularly to DailyFX and Bloomberg. He has extensive experience in trading the spot currency markets, options and futures. Before joining the research group, Richard traded FX, equity and equity derivatives for a private equity consortium. Richard graduated from Pennsylvania State University with a Bachelor of Arts in economics and a Bachelor of Science in French with an emphasis in international business.

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

To determine if Forex trading is truly for you, trying out a Forex demo account is the way to go. It is a method used by thousands of potential Forex traders and investors to determine if forex trading is for them. A demo account allows an interested person to go online and see how an account would work Without investing and risking any real money. An investor pretends to have money in an account and buys and sells the same way it would be done in reality. The software used for these demo accounts is very realistic, and generally a person is able to see at the end of the day if they would have lost or gained money if the transactions had been real.

Here's an example. An investor pretends to have a margin account with ten thousand dollars in it. He looks closely at the currency markets and believes that the dollar will go up in value against the yen. The demo account allows him to buy at a ten to one margin, so he buys (in the program) one hundred thousand dollars of dollars and sells one hundred thousand dollars of yen. There will be a spread, or difference, which amounts to the pretend profit.

A demo account allows one to son is found to be because it is always much safer to learn how to do this sort of thing without having actual money at risk. The same principle applies when kids in driver’s education classes sit in demonstrator modules that resemble real autos. They are able to practice driving without taking risk. They maintain heir safety while they build their skills, knowledge and confidence. Pilots follow this idea also by using flight simulators. You would never think of flying an airplane unless sufficient time had been spent in a flight simulator first. The same holds true for forex trading. Spending time with a demo account allows the potential trader to gain skills and learn the ins and outs of the game and the market place. A person is then able to see if they truly have the instincts necessary for the market and have sufficient knowledge to “play with the big boys.”

Most brokerage companies involved in Forex trading have demo accounts available, sometimes free and sometimes for a small fee. Even if a fee is paid, it is usually worth it because a Forex trader can parlay his skills and knowledge into vast profits after spending some time practicing with the Forex demo account. A demo account can be set up quickly through a broker. A trader with an interest in setting up a Forex demo account can also go online and find a vast array of companies ready, willing and able to help the student trader set up an account and enhance his/her skills. Learning what you are doing is always smart, no matter what game you are playing, and Forex trading can certainly be seen as an advanced financial game.

A demo account is the way to go if there's any hesitation, After months of study of the Forex market one might be convinced that he could make a go of it as a day trader in the Forex market. His wife, however, may not be as convinced or confident and may be a little bit more risk inclined. Going to an online brokerage company is the best next step. Setting up a demo Forex account will allow one to make trades as though he were using real money. After several days, on paper, he might find that he's made a consistent profit. As he learned and as his confidence increased he became even more anxious to open a real Forex account and invest his money. His wife also saw how on paper he had made a nice profit and relaxed. Real Forex trading was the next step.

By using a demo account one can learn enough to go foreword and open a true account and become an active trader.

By David McLauchlan

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

To determine if Forex trading is truly for you, trying out a Forex demo account is the way to go. It is a method used by thousands of potential Forex traders and investors to determine if forex trading is for them. A demo account allows an interested person to go online and see how an account would work Without investing and risking any real money. An investor pretends to have money in an account and buys and sells the same way it would be done in reality. The software used for these demo accounts is very realistic, and generally a person is able to see at the end of the day if they would have lost or gained money if the transactions had been real.

Here's an example. An investor pretends to have a margin account with ten thousand dollars in it. He looks closely at the currency markets and believes that the dollar will go up in value against the yen. The demo account allows him to buy at a ten to one margin, so he buys (in the program) one hundred thousand dollars of dollars and sells one hundred thousand dollars of yen. There will be a spread, or difference, which amounts to the pretend profit.

A demo account allows one to son is found to be because it is always much safer to learn how to do this sort of thing without having actual money at risk. The same principle applies when kids in driver’s education classes sit in demonstrator modules that resemble real autos. They are able to practice driving without taking risk. They maintain heir safety while they build their skills, knowledge and confidence. Pilots follow this idea also by using flight simulators. You would never think of flying an airplane unless sufficient time had been spent in a flight simulator first. The same holds true for forex trading. Spending time with a demo account allows the potential trader to gain skills and learn the ins and outs of the game and the market place. A person is then able to see if they truly have the instincts necessary for the market and have sufficient knowledge to “play with the big boys.”

Most brokerage companies involved in Forex trading have demo accounts available, sometimes free and sometimes for a small fee. Even if a fee is paid, it is usually worth it because a Forex trader can parlay his skills and knowledge into vast profits after spending some time practicing with the Forex demo account. A demo account can be set up quickly through a broker. A trader with an interest in setting up a Forex demo account can also go online and find a vast array of companies ready, willing and able to help the student trader set up an account and enhance his/her skills. Learning what you are doing is always smart, no matter what game you are playing, and Forex trading can certainly be seen as an advanced financial game.

A demo account is the way to go if there's any hesitation, After months of study of the Forex market one might be convinced that he could make a go of it as a day trader in the Forex market. His wife, however, may not be as convinced or confident and may be a little bit more risk inclined. Going to an online brokerage company is the best next step. Setting up a demo Forex account will allow one to make trades as though he were using real money. After several days, on paper, he might find that he's made a consistent profit. As he learned and as his confidence increased he became even more anxious to open a real Forex account and invest his money. His wife also saw how on paper he had made a nice profit and relaxed. Real Forex trading was the next step.

By using a demo account one can learn enough to go foreword and open a true account and become an active trader.

By David McLauchlan

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

Learning anything new can lead to mistakes, but making mistakes can be the natural part of the learning process. When learning to trade or invest in the Forex, mistakes can lead to lose of profits and can become expensive. A good investor will understand the market they are using for trading. Whether you are new or experienced, you can still make mistakes. There are common errors that many traders and investors make when trading on the Forex. With a little research, you can learn how to avoid common Forex trader mistakes and how to learn to move on.

Using too much margin when trading or investing on the Forex can lead to costly mistakes. Margin is the use of borrowed money to purchase securities. While it is true that using margins can help you make more money, it can also make your losses bigger. When new investors look at margins as “free” money, they have the potential to lose much more money in the Forex. Margin is not free money and using is too much can end up making more debt than profits. You would not buy stocks using a credit card, so you would not use margins to trade currency. When investors use margins when trading on the Forex, it requires the investor to have to watch their investments much more closely than when margins are not used. Margins should never be used if the investor does not have the experience or time to closely monitor their trades.

Another common, but costly mistake is when investors buy and trade on unfounded tips. This is one of the most common mistakes, even with more experienced traders. It is easy to be tempted to buy or trade currency or even stocks when you overhear someone talking about the next big “thing”. Sometimes this can be helpful, but more often than not, it will only lead to losses, not profits. Do not fall victim of investing and trading based on tips you hear or read about on television or on the Internet. If you hear about a trade that interests you, then best tip is to do some research and talk to your broker before trading or investing. You can also benefit from getting a second opinion about a Forex tip before buying, selling or trading any form of currency.

Not understanding how the foreign exchange market works is yet another costly mistake that new traders and investors make. Understanding the terminology and terms used in the Forex is very important to new traders. There are tutorials and free demos widely available on the Internet that allows traders and investors to learn how to use the Forex to their advantage. In addition, it is wise to choose an experienced broker that can help you trade and invest in the Forex. These brokers should know everything about the Forex and can help traders and investor make wise choices. Find a broker that is tied with a good financial institution and that has experience in the Forex.

Also, another common mistake is when traders and investors buy or sell when the rate on currency is cheap. Sometimes this is a good move, but just because the rate is low, does not mean that it will profit the investor. Instead of choosing a currency to buy or trade, it is best to look at all of the factors that affect the exchange rate and look at the trends and history. Avoid buying or selling any currency just because the rate is low. Most of the time, there is a distinct reason why these rates are low. Research the trends of the currency and find out, which ones are the best profit makers when trading on the foreign exchange market.

Last of all, another common mistake that costs money for both new and experienced traders is that they underestimate their trading abilities. Some investors feel that they do not understand the Forex well enough to trade to their fullest ability. Anyone with willingness to learn the Forex can profit with some education and research. It can take some time to learn the aspects of the foreign exchange market, but even new investors can learn how to trade with success.

All this to say that you must do your homework. Do not go into all this thinking that it will be easy. There are a lot of big boys playing this game and most of them will not lose any sleep if you lose your shirt at all this. Like any investment, do not mortgage your first born in order to get started.

By David McLauchlan

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

Learning anything new can lead to mistakes, but making mistakes can be the natural part of the learning process. When learning to trade or invest in the Forex, mistakes can lead to lose of profits and can become expensive. A good investor will understand the market they are using for trading. Whether you are new or experienced, you can still make mistakes. There are common errors that many traders and investors make when trading on the Forex. With a little research, you can learn how to avoid common Forex trader mistakes and how to learn to move on.

Using too much margin when trading or investing on the Forex can lead to costly mistakes. Margin is the use of borrowed money to purchase securities. While it is true that using margins can help you make more money, it can also make your losses bigger. When new investors look at margins as “free” money, they have the potential to lose much more money in the Forex. Margin is not free money and using is too much can end up making more debt than profits. You would not buy stocks using a credit card, so you would not use margins to trade currency. When investors use margins when trading on the Forex, it requires the investor to have to watch their investments much more closely than when margins are not used. Margins should never be used if the investor does not have the experience or time to closely monitor their trades.

Another common, but costly mistake is when investors buy and trade on unfounded tips. This is one of the most common mistakes, even with more experienced traders. It is easy to be tempted to buy or trade currency or even stocks when you overhear someone talking about the next big “thing”. Sometimes this can be helpful, but more often than not, it will only lead to losses, not profits. Do not fall victim of investing and trading based on tips you hear or read about on television or on the Internet. If you hear about a trade that interests you, then best tip is to do some research and talk to your broker before trading or investing. You can also benefit from getting a second opinion about a Forex tip before buying, selling or trading any form of currency.

Not understanding how the foreign exchange market works is yet another costly mistake that new traders and investors make. Understanding the terminology and terms used in the Forex is very important to new traders. There are tutorials and free demos widely available on the Internet that allows traders and investors to learn how to use the Forex to their advantage. In addition, it is wise to choose an experienced broker that can help you trade and invest in the Forex. These brokers should know everything about the Forex and can help traders and investor make wise choices. Find a broker that is tied with a good financial institution and that has experience in the Forex.

Also, another common mistake is when traders and investors buy or sell when the rate on currency is cheap. Sometimes this is a good move, but just because the rate is low, does not mean that it will profit the investor. Instead of choosing a currency to buy or trade, it is best to look at all of the factors that affect the exchange rate and look at the trends and history. Avoid buying or selling any currency just because the rate is low. Most of the time, there is a distinct reason why these rates are low. Research the trends of the currency and find out, which ones are the best profit makers when trading on the foreign exchange market.

Last of all, another common mistake that costs money for both new and experienced traders is that they underestimate their trading abilities. Some investors feel that they do not understand the Forex well enough to trade to their fullest ability. Anyone with willingness to learn the Forex can profit with some education and research. It can take some time to learn the aspects of the foreign exchange market, but even new investors can learn how to trade with success.

All this to say that you must do your homework. Do not go into all this thinking that it will be easy. There are a lot of big boys playing this game and most of them will not lose any sleep if you lose your shirt at all this. Like any investment, do not mortgage your first born in order to get started.

By David McLauchlan

First, what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.


Second, What is a Scam: A confidence trick, confidence game, or con for short (also known as a scam) is an attempt to intentionally mislead a person or persons (known as the mark) usually with the goal of financial or other gain. The confidence trickster, con man, scam artist or con artist often works with an accomplice called the shill, who tries to encourage the mark by pretending to believe the trickster.

Whenever there is an opportunity to make large amounts of money, there will be people who are eager to jump right in and start making money. And where there are people who are eager to get rich quick with a minimum of effort on their part, there are fraudsters waiting to take their money. Experienced traders are wise enough to avoid the frauds – it’s the new traders who are most vulnerable to the forex scams that are slipping into the currency exchange market.

The U.S. CFTC (Commodity Futures Trading Commission), which regulates futures and commodities trading, warns new investors to be wary of frauds and scams that promise huge profits from your investments, in and out of the Forex market. The CFTC has issued several Consumer Fraud Alerts in connection with foreign currency trading. They offer the following tips to help you avoid being scammed.

“I made $1900 in one minute!” touts one sidebar ad for a Forex trading company. Ads that promise high returns on small investments with little or no risk to you are tempting bait. The fact is that while there are certainly big profits to be made in forex, there are correspondingly large losses. And most novice traders drop out of active trading by the end of their first year because they can’t afford the risk.


Before you part with a penny, thoroughly check out the company or trader you’re planning to do business with. Check the CFTC’s consumer fraud alert page. Check to see if the company is registered with the CFTC, or is a member of the National Futures Association. Check to see if there’s any disciplinary action against the firm or company. Get even more basic. Get a valid address and telephone number, and verify that it belongs to the company. Check to be sure the person you’re dealing with actually works for the company. Especially if you’re doing business on the Internet, it’s very easy for a scammer to fake credentials.


The Internet has made it incredibly easy for scammers to operate. It only costs $6.95 a month to have a professional looking web site hosted – that’s pennies a day to reach millions of potential marks. Before you part with credit card numbers, bank account transfer permissions or wire transfers, be sure to check out the company with all the authorities listed above.


Legitimate dealers don’t need to contact you with unsolicited email, or pressure you into doing business with them. If someone is pushing you to invest right now, tonight, this moment, it should set off huge warning signals in your head. A real dealer is more concerned with keeping you as a customer for the long haul. He’ll be patient while you check out his credentials and reputation. A phony dealer can’t afford that luxury – he needs to get you on the hook right now, or risk losing his score.


The interbank market is a term for a loose network of currency traders that include banks, financial institutions and large corporations. Fraudulent currency trading firms often tell customers that they’ll trade for them on the interbank market where the prices are better. It should be a warning signal to you to stay away.

While technically not ‘scams’, you should also be wary of paying good money for training courses that promise you systems that are ‘guaranteed’ to earn you high profits. If the course advertises that their system will earn you huge profits with minimal risk, or guarantee you 40% return on your money in six weeks, take the promises with a huge grain of salt. Experienced traders understand that the forex market is a time market – while it’s possible to make large amounts of money in short-term trades, finding those profitable trades is a matter of being in the right place at the right time… which means putting in the time and the effort to be there.

They also understand that they’ll lose more often than they win – the trick is to keep your losses short and your profits long. Any company that guarantees that you’ll make a profit on all or most of your profits is coloring their advertising. Stick with trusted companies whose credentials you can verify and whose background you can check.

Always remember that if it sounds to go to be true....it probably is...


By David McLauchlan