Emerging Markets Shed FX Reserves

According to the most recent monthly data, the foreign exchange reserves of most developing countries are disappearing faster than they can be replenished. As a result of the global credit crisis, central banks have taken to deploying vast sums of capital towards the dual ends of stimulating their economies and propping up their currencies. The latter can be especially expensive, as countries like Ukraine and South Korea can attest. Both countries have spent 20% of their respective reserves to halt the decline of their currencies, and both abandoned such a strategy after accepting its futility. Ironically, there seems to be a direct correlation between dwindling forex reserves and a depreciating currency, as investor nervousness and currency devaluation reinforce each other. There is one bright spot in this quagmirem, however. The Guardian reports:

China says its reserves are continuing to rise, with the chief economist at the National Bureau of Statistics telling Reuters they would exceed $2 trillion by the end of the year. Beijing [will] not resort to "panic selling" of reserves, instead maintaining a "prudent and responsible" stance.

Read More: Emerging reserves haemorrhage as currencies fall

Central Banks Still Prefer Dollars

Since its introduction only ten years ago, the Euro has ascended at an incredible pace. Perhaps the best proxy for its respectability is its growing share (currently estimated at 27%) of Central Banks' foreign exchange reserves. Still, most analysts reckon that the Dollar will remain ascendant for the near-term. For one thing, the perception remains that the US is the safest place to invest, and in fact this attitude has been reinforced by the current economic downturn. In addition, there is very limited doubt that the Dollar will be around for a very long time, whereas there are many skeptics who invariably insist that the Euro is on the verge of breaking up. In short, as the global economy rebalances itself, reserve accumulation will slow generally, and diversification into the Euro will slow specifically. Marketwatch reports:

In view of the value already tied up in holdings of U.S. government paper, it would take a decisive -- and probably foolhardy -- shift for the world's largest reserve holders in Asia or Latin America to transfer significant holdings of present reserves out of the dollar and into the euro.

Read More: Reserve shifts into the euro will slow

Emerging Markets Poised for Recovery?

In a recent interview, three emerging market fund managers aired a common view: the asset class which comprises emerging markets represents a solid investment. Their reasoning is that the tremendous declines wrought in emerging market equities and currencies over the last six months were caused primarily by technical factors, rather than a substantive change in the long-term economic picture. In other words, this drop was effected by foreign investors that withdrew money en masse from emerging markets in order to meet fund redemptions and repay loans denominated in Dollars. At the same time, economic analysis, as well as common sense, dictate that an increasing portion of future global growth will be realized in the developing world. Many such countries have invested wisely in infrastructure and built up sizable foreign exchange reserves. Consequently, they are well-positioned to survive the current downturn intact. Accordingly, once investors "come to their senses" and recover their collective appetite for riskier investments, it probably won't be long before emerging market assets and currencies are bid up to pre-crisis levels. Forbes reports:

"Current valuation of emerging markets is the lowest it has been since I began investing in this asset class in 1988. Based on trailing 12-month earnings, emerging markets is trading at a price/earnings ratio of only 7.7x, and a price/book of 1.3x (with return on equity at 17%)," [observed one analyst].

Read More: Emerging Markets: What To Buy

US Dollar Forecast to Recover Against Euro, British Pound

Written by David Rodriguez, Quantitative Analyst

EURUSD – Euro Forecast to Turn Against US Dollar on Shift in Forex Sentiment
USDJPY – US Dollar May Lose Further Against the Japanese Yen
USDCHF – Forex Sentiment Accurately Forecasts Massive Swiss Franc Rally
GBPUSD – British Pound Outlook Bearish Against Downtrodden US Dollar
USDCAD – Canadian Dollar Forecast Unclear Against US Dollar

Forex Positioning in the Euro/US Dollar

EURUSD – Forecasts for the Euro/US Dollar currency pair have now shifted to the downside, as a flip in retail forex positioning signals that the recent Euro/US Dollar uptrend may reverse. Last week we cited extremely net-short “crowd” positioning as a clear sign that the Euro would rally, but the forex crowd has now capitulated and the majority of traders are now long the EUR/USD. Indeed, the SSI ratio currently stands at 1.18 as nearly 54 percent of traders are long the pair. Yesterday only 40 percent of traders were long, and these reversals most often occur at turns in price. As such, our SSI-based forex trading signals recently went short the Euro/US Dollar via a sentiment-based trading strategy.

Forex Positioning in the US Dollar/Japanese Yen

USDJPY – The forex trading crowd continues to buy into US Dollar/Japanese Yen declines, and such stubbornness suggests that the pair may yet fall further. That said, positioning has become far less extreme through recent trading. The ratio of long to short positions in the USDJPY stands at 1.31 as nearly 57% of traders are long. This stands in contrast with a ratio of 2.11 at this point last week, and the slow capitulation from the forex trading crowd tells us that we are zeroing in on a bottom. Through the very short term we may expect the US Dollar to continue falling against the Japanese Yen, but a stronger shift in sentiment would signal that a turn is likely. As it stands, our USD/JPY trading strategies are currently flat after aggressively selling through previous price action.

Forex Positioning in the British Pound/US Dollar

GBPUSD –Forex positioning in the British Pound/US Dollar pair has been inconsistent through recent trading, but a recent increase in GBP/USD-long positions supports the case for near-term British Pound weakness against the US Dollar. Indeed, the ratio of long to short positions in the GBP/USD currently stands at 1.48, as nearly 60 percent of traders are currently long. Given that our Speculative Sentiment Index is most often contrarian in nature, the forex crowd’s long bias gives us reason to look for a downturn in the GBP/USD through the foreseeable future. In fact, two of our forex trading strategies have very recently gone short the British Pound against the US Dollar.

Forex Positioning in the US Dollar/Swiss Franc

USDCHF – Recent US Dollar/Swiss Franc price action is a testament to the effectiveness of Speculative Sentiment Index-based currency forecasts. Forex trading crowds had remained heavily net-short the USD/CHF since July, and the pair went on to mount an impressive multi-month rally. Most recently, that same crowd capitulated and actually went net-long the USD/CHF near the 1.2000 mark. The US Dollar subsequently went on to post its biggest monthly loss against the Swiss Franc in history—incredible by any standards. Looking to very short-term trading, the crowd is currently net-short the pair, with short positions outnumbering longs by 1.08 to 1. Such a flip gives us reason to look for a reversal, but a sharp drop in open interest gives us little conviction in our forecast. Our forex trading signals previously went short the USD/CHF for sizeable profits, but the strategies now hold a weaker bias.

Forex Positioning in the US Dollar/Canadian Dollar

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.07 as nearly 52% of traders are long. Yesterday, the ratio was at -1.05 as 51% of open positions were short. In detail, long positions are 1.7% higher than yesterday and 50.6% weaker since last week. Short positions are 8.9% lower than yesterday and 11.1% stronger since last week. Open interest is 3.7% weaker than yesterday and 56.7% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses. Tell us and other traders what you think in our forex forum.

How do we interpret the SSI? The FXCM SSI is based on proprietary customer flow information and is designed to recognize price trend breaks and reversals in the four most popularly traded currency pairs. The absolute number of the ratio itself represents the amount by which longs exceed shorts or vice versa. For example if the EURUSD ratio is 2.55, long customer orders exceed short orders by a ratio of 2.55 to 1. Conceptually similar to contrarian analyses using the CFTC IMM open position data or COT Report, the SSI provides an alternative approach that is both more timely and accurate in forecasting currency price movement. The SSI is a contrarian indicator that tells you how the market is weighted and where the trend may head. More long positions don't necessary suggest more confidence in the direction of the current trend. In general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action.

FxPro Advertising Campaign

FxPro announces its latest advertising campaigns and has joined forces with several major players in the financial news sector. Brand awareness is a key factor in advertising, especially for a global player such as FxPro who plan on reaching out to new markets in the very near future. The main campaigns proudly undertaken so far are in conjunction with Bloomberg, the gatekeepers of the financial news industry, CNBC who reach 340 million homes on a daily basis and Euronews, providers of reports on all financial and current affairs globally, all aiding us to raise the company profile on a global level and promoting brand awareness worldwide. FxPro is an online trading and investment specialist, enabling clients to trade Forex, Contracts For Difference CFDs, Stocks, Futures, Indexes and other tradeable instruments, as well as providing portfolio management via the FxPro Metatrader 4 Trading Platform, the leading online trading platform. FxPro has more than 150 Partnerships worldwide and boasts a huge client base in over 120 countries. FxPro's headquarters are in Cyprus with offices in France and Russia and plans to move to further key markets in the very near future.

Investors Uncertain about RMB

Only a few weeks ago, investors had made significant bets that China would reverse its official policy of RMB appreciation. Futures prices indicated that investors collectively expected the currency to depreciate over 7% against the Dollar over the next year, as part of a comprehensive Chinese policy to boost the faltering economy. Since then, however, the RMB recorded its biggest one-day rise since the currency peg was abandoned three years ago, and investors subsequently scaled back their bets.

While it's unclear what caused the sudden change in sentiment, there are a few factors which probably contributed. First is Treasury Secretary Henry Paulson's recent visit to China, in which he encouraged China to continue to permit the the Yuan to appreciate. In addition, high-ranking Chinese economic policy-makers have indicated that market forces will increasingly determine the valuation of the Yuan. Finally, there is the recent election of Barack Obama, a long-standing critic of what he believes to be the undervalued RMB. Bloomberg News reports:

"Any attempt to devalue the currency is likely to be met with considerable opposition from China’s trading partners." The new U.S. administration under President-elect Barack Obama "will be less tolerant of the 'crawling peg' appreciation policy," said one analyst.

Read More: Yuan Forwards Advance Most Since Peg as China Seeks Stability

Emerging Markets Shed FX Reserves

According to the most recent monthly data, the foreign exchange reserves of most developing countries are disappearing faster than they can be replenished. As a result of the global credit crisis, central banks have taken to deploying vast sums of capital towards the dual ends of stimulating their economies and propping up their currencies. The latter can be especially expensive, as countries like Ukraine and South Korea can attest. Both countries have spent 20% of their respective reserves to halt the decline of their currencies, and both abandoned such a strategy after accepting its futility. Ironically, there seems to be a direct correlation between dwindling forex reserves and a depreciating currency, as investor nervousness and currency devaluation reinforce each other. There is one bright spot in this quagmirem, however. The Guardian reports:

China says its reserves are continuing to rise, with the chief economist at the National Bureau of Statistics telling Reuters they would exceed $2 trillion by the end of the year. Beijing [will] not resort to "panic selling" of reserves, instead maintaining a "prudent and responsible" stance.

Read More: Emerging reserves haemorrhage as currencies fall

AUD Continues to Dive

On the basis of technical factors, the Australian Dollar had halted its precipitous decline against most major currencies. As a result of an unbelievable 100 basis point interest rate cut, however, the currency has resumed its fall. That the rally was short-lived is not a mystery. The yield advantage enjoyed by Australia over the last few years has almost completely evaporated. Combined with lackluster Australian equity performance and tanking commodity prices, foreign investors have little reason to maintain capital in Australian holdings. On the plus side, the rate cut showed investors how serious Australian economic policy-makers are in dealing with the credit crisis. Unfortunately, diligence doesn't always translate into efficacy.

Read More: Dollar back under pressure

Japan Stays out of Forex

Officially, Japan has not intervened in forex markets since 2004, when it spent the equivalent of $300 Billion to hold down the value of the Yen. That impressive streak could soon come to and end, however, as the Yen continues to surge on the unwinding of the carry trade. The performance of the Yen- which recently touched a 13-year high- is particularly impressive since it comes at a time when virtually every other currency has collapsed relative to the US Dollar. Now, analysts have once again taken to pouring over monthly data on Japan's Central Banking activities, in order to confirm that it is keeping its finger off of the trigger. Given that the Yen's appreciation has already prompted several high-level meetings among global economic and political leaders, however, it is probably only a matter of time before Japan ends its multi-year abstinence from forex. Reuters reports:

Japanese Finance Minister said earlier this month that the authorities must be ready to deal with big swings in markets as they are undesirable. His comments pushed the yen lower against the dollar as market players were wary of intervention.

Read More: Japan did not intervene in currency market in Nov

Will China Fund US Deficit?

When all is said and done, the US government will have injected trillions of dollars into the economy, in the form of bailouts, guarantees, economic stimuli, etc. Whether it will have the desired effect is debatable. The question that no one seems to be asking is, "How is the government going to finance such exorbitant spending?" It appears that China, which has become of of the largest holders of US government debt, will continue to participate- not necessarily because it wants to, but because it doesn't have a choice. China's economy remains heavily reliant on the export sector to drive growth. Because its exchange rate regime does notpermit the RMB to fluctuate freely, the proceeds from the consequent trade surplus must be invested abroad, rather than domestically. For both symbolic and economic reasons, it seems the bulk of the surplus will continue to be invested in the US, probably in safer assets like US Treasury Securities. This is certainly good news for deficit hawks and Dollar bulls. The Wall Street Journal reports:

Even if China wanted to invest outside the U.S., it couldn't. If China recycled its foreign currency into, for instance, the European Union or Japan, it would effectively force those trading partners to run large trade deficits with China, which neither can absorb.

Read More: China Will Keep Buying U.S. Government Debt

Russian Ruble Declines with Price of Oil

Having already fallen 12% in 2008, the Russian Ruble is well on is way to fulfilling analysts' predictions that it will fall 30% before stabilizing against the US Dollar. While the credit crisis has not been kind to Russia, the Ruble is suffering more from a collapse in the price of oil, which recently slipped below $50 a barrel. For reference, the government needs the price of oil to stay above $70 in order to balance its budget. Now, the country's current account surplus is eroding almost as quickly as its foreign exchange reserves, which it is deploying in a vain effort to forestall the decline in the Ruble. The response of the Central Bank has been to widen the band within which the currency is permitted to fluctuate; in practice, this is tantamount to defeat, and is sure to trigger a further decline. Bloomberg News reports:

"The central bank is letting it fall because of oil, reserves depletion, all of that," said an emerging-markets currency strategist. "We can probably expect to see more of this."

Read More: Ruble Falls on Speculation Central Bank Scaling Back Defense

Could the RMB Fall?

Since China revalued the Yuan in July 2005, it was considered a foregone conclusion that the currency would continue appreciating at a steady clip. The global credit crisis, generally, and the Chinese economic downturn, specifically, has turned that assumption on its head. Last week, the RMB declined by the biggest margin since the revaluation, prompting speculation that China will adopt a currency policy diametrically opposed to that which it has pursued over the last few years. The move also coincided with the annual China-US trade summit, attended by none other than Treasury Secretary Henry Paulson. The new consensus among currency traders (proxied by futures contracts) is that the Yuan will depreciate slightly over the next two years, as China moves to provide a boost to its export sector. Given that the currencies of most of China's Asian neighbors have fallen by double digits over the last year, the Yuan may have to fall sharply in order to maintain competitiveness. The Wall Street Journal reports:

the Chinese currency hasn't experienced a large devaluation in at least a decade. Such a move would go against the realities of geopolitics and against signals that Beijing is more focused on boosting domestic consumption than on stimulating exports.

Read More: Will China Finally Try Wielding Its Yuan?

Indonesian Rupiah Faces Collapse

The economic situation in Indonesia is similiar to that of several other emerging market economies, characterized by falling export revenue, shrinking government coffers, and capital flight. The consequent decline in the Indonesia Rupiah has almost become self-fulfilling. In other words, as skittish investors rush to move their capital out of Indonesia for fear of complete collapse, they are simultaneously making such a collapse more likely. Indonesian policy-makers are conscious of this tendency of nervousness to feed back into itself, and are delicately trying to avoid shocking the markets. On the one hand, they want to limit the decline of the Rupiah. On the other hand, they don't want to take actions that will make investors nervous, even if it means making it more difficult for them to short the currency. The International Herald Tribune reports:

Last week, Indonesia changed its currency rules to make it more difficult to buy foreign exchange. The measures, mostly affecting Indonesians rather than foreigners, would make speculative bets against rupiah depreciation more difficult.

Read More: Indonesia undergoing currency crisis

US to Continue to Pressure China Over RMB

After rising nearly 20% over the last three years, the RMB has virtually stopped appreciating against the US Dollar, perhaps as a result of the credit crisis. At the same time, the US exports sector- previously one of the few bright spots of the sagging economy- has begun to stall. US Politicians have taken note, and are now renewing their efforts to persuade China to allow its currency to rise further. They are also agitated about China's perpetually growing forex reserves (currently estimated at $2 Trillion), which are increasingly being deployed in sensitive areas. Meanwhile, the Chinese economy is growing at the slowest pace in years, and the Chinese government is resorting to desperate measures to prop it up. In short, allowing the RMB to rise, while placating US policymakers, is tantamount to economic suicide, and hence unlikely.

While other sovereign wealth funds have existed for nearly 50 years without controversy, "China appears far less likely than other nations to manage its sovereign wealth funds without regard to political influence that it can gain by offering such sizable investments."

Read More: US panel urges action on China currency, investing

Get Started Investing in Forex: 37 Tutorials, Tools & Resources

Even if you're an active trader in stocks, you may not be prepared to invest in forex, or the foreign exchange market. Forex trades 24 hours a day from 5:00 p.m. ET on Sunday until 4:00 p.m. ET Friday, so you won't hear those opening or closing bells. And, there's no central market like the New York Stock Exchange or Nasdaq. Instead, trade is conducted between participants through electronic communication networks (ECNs) and phone networks in various markets around the world. So, when you hear that the US dollar closed at a certain rate, it simply means that was the rate at market close in New York. But currency continues to be traded around the world long after New York's close.

But, like securities, traders can go long or short and they can make a profit or lose money. As with stocks, it's best to conduct some research into how the forex market works before you begin to trade. After you understand how the forex market works, you can begin to build a trading strategy.

The following list contains 37 tutorials, tools, and resources that will help you get started with investments in forex. If you've traded on any stock exchange in the past, some of these tools might feel or appear familiar, but they may have a new twist. The resources listed below were chosen for their clarity and simplicity as well as for their reputation.

Getting Started

The following information is for the forex beginner, but even intermediate-level forex traders might pick up a tip or two from these sites:

1. Baby Pips: A pip is the smallest unit of price for any foreign currency, so "baby pips" is a bit redundant. But you won't find any redunancy on this site. Skip the news on the front page for now and go straight to the School of Pipsology that holds a complete course for beginners. If you walk through all the lessons contained on this site, you'll have a solid basic forex education under your belt.
2. Forex Glossary: Although the previous tutorial might help you to understand some forex terms, this glossary is a great tool to have on hand for future reference. You'll see some familiar terms here, like "selling short" and "limit order," and you'll learn that they mean the same as they do when you use them for trading securities. But, you'll also find new terms like "big figure" and "two-way price," terms that will set you apart as a forex trader.
3. Investopedia: This online financial encyclopedia contains an extensive 10-part article on forex investing, from an introduction to a recap that covers everything from benefits and risks to technical analysis. If you can't get enough of Investopedia's information, head to their Forex index, where you can find a list of articles and an opportunity to download their free e-Book entitled, "High Probability Trading Setups for the Currency Market."
4. National Futures Association(NFA): Now that you have a basic understanding about forex markets, visit the NFA to learn how to build a sound forex strategy. The NFA is "the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets," which basically means that this organization regulates any market that depends upon future cash flows. The "investor information" section contains materials about how to find a broker and basic lessons in forex trading. Plus, they publish forex warnings, news, and they offer a place for investor disputes and complaints.
5. Commodities Futures Trading Commission(CFTC): The CFTC operates along the same lines as the SEC (Securities and Exchange Commission), except this government organization focuses on protecting market users and the public from fraud in the futures and option markets. So keep this site handy to stay on top of any forex scams through their Consumer Advisory on Forex Fraud. You can learn quickly what to avoid in your learning curve through a detailed forex advisory that offers information about other resources as well.
6. Martket Traders Insitute (MTI): You don't need to spend a lot of money to train in forex markets. Even MTI offers free resources such as videos and lesson plans that will help you get off the ground. If you like what you hear and see, you can invest in materials for the advanced trader down the road.

Learn about Currency

If you're going to trade something, you better know what it is you're trading. These currency sites will help you get up to speed on foreign currency exchange and markets.

7. Exchange Rate: Skip the top link box, as those links will take you to FXCM (Forex Capital Markets — see #13 and #33). Instead, try out the "hot" and "currency info" links that provide information about everything you'd want to know about worldwide currencies for 170 countries. Includes calculators, fun facts, serious facts, and more.
8. Oanda: With a free registration you can access customizable currency tools, including calculators and foreign exchange data. If you don't register you can still access currency exchange tools that are great items for instant information, especially for travelers, let alone forex investors. The Traveler's Cheat Sheet is indispensable for money-conscious globetrotters.
9. GoCurrency: This site offers a powerful and accurate currency converter, but don't stop there. Learn about currencies by country, currency forecasts, and gather insights on foreign investments.
10. The Euro: Confused about the Euro? Over 13 European Union countries now use the Euro, and this Web site, brought to you by the European Commission, will teach you everything you want to know about this currency. But the Euro represents just one currency among hundreds. Which leads me to my next point...
11. List of Currencies: This is an extensive list provided by Wikipedia that covers everything from ancient coinage to the current Yen. As with most Wikipedia lists, you might run across a link or two that doesn't contain information. But, you can use that information to search elsewhere if needed.

Get the News

Once you've learned the basics, the next best thing you can do before you begin to trade is to read up on forex information via traditional financial news sites and blogs. Use the tutorials listed above during this process so that you can grasp the language and learn the strategies involved in any reporting. Take advantage of forums or chats offered by these resources to ask questions:

12. Action Forex: This site offers an easy-to-read layout that includes news, insights, fundamentals reports, calculators, and tons of other forex resources.
13. Daily FX: An easy-on-the-eyes news source that offers a calendar, charts, and a forum. Sponsored by FXCM, this site offers a free weekly trading lesson and free quarterly outlook reports. You must be an FXCM client to access the market commentary, but the other "free" news offers a great resource for learning and for staying on top of forex news.
14. Forex Reader: The Forex Reader is a popular blog that offers updates on financial headlines relegated by currency. It also serves as a resource for individuals seeking a Houston trucking accident attorney along with other legal and financial information.
15. Forex News: Like most of the sites listed here, Forex News offers more than news. Check out their forums, their technical news, and their educational and research materials while you're there. Register for free to take full advantage of the site's resources, including a chat feature.
16. FXStreet: Global Forex Trading (GFX) sponsors this forex news site. Use the forums, chats, strategies, techniques, and trading tools to get a feel for forex. Additionally, several bloggers share their insights, including Wayne McDonell's FX Boot Camp Training Videos (visit his FX Bootcamp site).
17. Profiting with Forex Blog: You might discover that this newsworthy blog is part of the network, "Profiting with Forex." The blog is interesting, but the backend reports, podcasts, and commentary at the "Profiting" site might appeal to you more.
18. The Forex Project: Lessons learned first-hand from a forex trader. This site has an unbelievably long list of topics, along with news about the blogger's personal trading experiences, calculators, charts, news, and a perspective on forex psychology.

Participate in Forums

Speaking of forums, here are a few specific resources where you can tap into information from around the world that may help to answer your questions about forex trading and markets. Be aware that individuals who want to sell their ideas visit these forums, just like any other forums. But, you'll find a wealth of valid information here as well.

19. MoneyTec: With over 33,000 members, this traders' forum offers a format to discuss trading ideas, share, learn, and build new trading techniques and strategies.
20. Global View Forums: Another free forum that's been around since 1996. This one focuses solely on forex. You must register to participate.
21. Forex Factory Forum: You'll find a Forex Beginner Q&A section as well as topics that focus on specific strategies and techniques. Free to register.

Learn Strategies

You'll discover that some forex traders use Fibonacci (Fib) methods, and that others rely on current financial news to divine futures. There are as many strategies as personalities in the forex market, but — like the stock market — they rely either on fundamental or technical analysis. The following contains a mix of the two:

22. Fibonacci Lesson: Don't know much 'bout arithmetic, Fibonacci numbers, or the Golden Section? This tutorial, offered by Dr Ron Knott from the Mathematics Department of the University of Surrey, UK will provide results. Simple to use, easy to understand, and filled with illustrations to help you learn why some numbers are so important to nature. Interstingly, these numbers are also of vast interest to many forex investors.
23. Fibonacci Forex Indicators: Forex Planet will begin to show you how to apply Fibs to forex in this easy-to-understand lesson. But, the lesson is short, so you might try the next resource as well:
24. Mini-Lesson on Fibonnaci: This lesson also applies to forex, and it offers a short tutorial on applications along with a downloadable Fib calculator.
25. Intro to Japanese Candlestick Charting: Altavest provides a short and succinct introduction to Japanese candlestick charting, another method that forex traders use to graph charts.
26. Candlestick Patterns: If you like the Japanese candlestick methodology, this site will thrill you. Extensive patterns are illustrated graphically from basic to single patterns and reversal to continuation formations. This entire site offers some great information on techniques and strategies beyond the candlestick information, so take some time to look around while you're here. Basically, this site has it all as far as technical analysis goes.
27. Fundamentals of Forex: Forex TV brings you the lowdown on what type of news would affect forex from a fundamental standpoint. You can use the information on this list to conduct further research, but I'll bring a few of those topics to you now...
28. Consumer Price Index (CPI): The US Department of Labor offers a ton of information just on this page alone through their links. But, the CPI is often influenced by many other factors. If you're a fundamentalist, you might want to tag this next link for further research as well...
29. Bureau of Economic Analysis (BEA): Don't play around with someone else's opinions. Get the straight stuff from the US Department of Commerce like the pros. Everyone from the White House staff to US Trade Commission employees to trade policy officials who want to negotiate international trade agreements uses the measurements contained on the BEA Web site. Why should you be left out of this information resource?

Use Charts

Charts offer visual validation for technical strategies, but they also reflect fundamental behaviors in the market. Even if you're a seasoned securities trader, you might want to learn more about the psychology behind forex trading. If you can read all sorts of charts inside and out, you'll have the forex advantage.

30. The Law of Charts: Joe Ross offers advice for traders across the board, but the information contained in his "Law of Charts" offer speaks to forex as well as any other trading strategy. He identifies chart patterns that result from human behaviors and points to entry and exit targets on those charts. You can take advantage of Ross's other tools as well, including the forum.
31. Forex Charting 101: A brief and basic overview of forex charts from Pip Trader. You'll discover that the charts are very similar to those that you might use for securities trading. But, some of the charts may seem more complicated if you're not a seasoned trader.
32. Free Forex Charts: There's no reason for me to push you into using a specific chart. Instead, I'll point you to a short list of free forex charts that you can use for practice. When you're ready to begin trading, take a look at their lists of premium and system trading charts for professional use. The lists contain ratings and reviews, visuals, features, and tips and tricks for individual charts.
33. FXCM: Although I don't advocate specific brokers in this article, when you visit brokerage sites make sure that you take advantage of any free information offered by those businesses. In this instance, Forex Capital Markets offers tons of information about forex trading, and you can sign up for a risk-free 30-day practice account to get your feet wet. Forex.com and several other brokerage sites also offer this free account service. Be aware that when you sign up for these services that you'll be added to a mailing list. You can opt out of these lists, but read any other pertinent information to make sure that you're not obligated to purchase anything from any brokerage that you use for services such as this one.

Other tools

The tools listed below are "sidebars" to all the information listed above. I'll cut you loose on the last two sites, as they contain just about every site you'd might want to access for more forex information:

34. Live Forex Rates: You might recognize the GFT logo behind the rates, but don't let that distract you from the constantly changing figures. If you're addicted to live feeds, you'll be mesmerized by the constantly changing currency rates on this chart.
35. A Free Book about Forex: This book is truly free, as you don't need to register to access the PDF file. A forex trader offers information about all the mistakes he made as he learned how to develop his own forex strategy. Short and easy to read, this little book will bring some insights into how to avoid some pitfalls in the forex markets.
36. Top 100 Forex Sites: Although these sites are rated by popularity and, therefore, subject to rating scams, you can learn much from the sites that are listed simply from the variety of information that's offered here. Many sites are brokerage firms, but as I mentioned previously you can find free information on many of these sites such as news, calculators, techniques, and more.
37. Earn Forex: A link exchange/directory for other forex sites. Unlike the "Top 100" site listed previously, Earn Forex doesn't rate their links. But, you will also find much different information here than at the previous site. Additionally, the links are sorted by categories, which makes it easier to find what you need. In addition, you'll find other tools here like calculators, articles, and a forex FAQ and glossary.

There are many other sites that I could list for your forex training, but my next suggestion is to head to your local library and read some books about forex trading. If you find an author or two who are to your liking, begin to study their techniques and strategies both through their books and on the Internet. If you share your information and questions on forums, you might find a mentor who will help you learn how to strategize and to use charts and fundamentals to your advantage as well.

Forex trading isn't learned overnight; so don't feel inadequate if you can't grasp the fine points immediately. You can't lose by learning more about how world economies work. The information that you gather in your search for forex training will make you a better trader no matter which markets you prefer to use.

British Pound Under Pressure

The British Pound has already fallen 25% against the Dollar, since the credit crisis kicked off earlier this year. On a technical basis, therefore, it would seem that the Pound is due for a rally. From the standpoint of economic fundamentals however, the picture is quite bleak. While the Bank of England's recent 150 basis point interest rate cut could help restore the UK economy to solid footing, it sent a massive shock to investors. UK interest rates now stand at a 50-year low, and futures prices suggest that the benchmark rate will fall another 1% in the next 12 months. In addition, the Bank of England has not ruled out ruling interest rates all the way to zero. As unlikely as this scenario may be, investors are now fully aware of the scope of Britain's economic troubles. The next couple weeks could be make-or-break for the Pound, as a series of economic data releases, as well as the minutes from the latest BOE meeting, will help investors craft a more accurate forecast. Daily FX reports:

Housing, industrial trends, consumer spending and public borrowing readings...provide additional confirmation that this evolving recession will be far worse than the slump of 1992.

Read More: British Pound Could Forge New Lows As Rate And Growth Outlook Fail

Euro: To Praise or Condemn?

In light of the credit crisis, commentators on the Euro have taken to one of two extremes; either they believe the Euro is doomed, or they argue that the Euro represents the key to EU economic salvation. The naysayers point to recent trends in financial markets such as the widening spread between German and Italian bond yields. They further argue that a common monetary policy exacerbated the credit crisis by fomenting real estate booms in overheated economies, namely Ireland and Spain. Supporters, on the other hand, need to look no further than the complete economic collapse in Iceland to understand the advantages of the Euro. Moreover, some of the more fragile EU members (Luxembourg, Belgium) would have witnessed runs on their currencies, if not for their participation in the common currency. In the end, the Euro probably represents a viable investment alternative to the Dollar and it brings the benefit of relative stability to its members. While its supporters are prone to overstating its benefits, it's not likely at risk of crumbling in the next few years. The Economist reports:

The euro's defenders are convinced that the currency will still be there at the end of the crisis. That is a reasonable bet. But public support for the euro may still be painfully tested as economies deteriorate.

Read More: No room in the ark

Russia to Devalue Ruble

Russia is currently facing its worst currency crisis since 1998, when it defaulted on its debt and the Ruble plunged 71% against the Dollar. This time around, Russia is being attacked on two fronts: the sell-off in emerging markets and the collapse in the price of oil. Both trends occurred suddenly and with such force that the economy swung from current account surplus to deficit in a matter of months. Meanwhile, the Central Bank of Russia has spent nearly 1/5 of its $500 Billion in forex reserves to slow the proportional decline in its currency. If the price of oil and the stock market continue to decline in tandem, the Central Bank will no doubt find it increasingly difficult to defend the currency, and a massive devaluation would inevitably follow. The Central Bank has already hiked rates; it is running out of options. Bloomberg News reports:

Today's central bank decision will prompt "further runs on deposits," wrote [one group of] analysts in a research note today. "Flight from rubles now is the key factor to watch."

Read More: Ruble Devaluation Concern Triggers Stock Plunge, Rate Increase

All Signs Point to Down

Regardless of your preference, all economic indicators seem to be heading in the same direction: down. Home sales and home starts, as well as home prices, are way down and projected to fall further. Consumer spending is declining by double-digits (in annualized percentage terms), which is no surprise considering consumer sentiment recently touched an all-time low. The national unemployment rate and unemployment insurance claims are rising nearly every month and week, respectively. Factory production is falling, and inventories are rising. Stock market capitalization is down across the world, especially in export-driven markets like Japan and Korea. The US economy as a whole contracted in the last quarter. The distinct lack of nuance in the economic picture has led most economists to project that the current recession (although not officially a recession) will be the worst in decades. The Wall Street Journal reports:

The current downturn is shaping up to be worse than the recessions of 1990-91 and 2001 and the prolonged downturn that ended in 1982. Banks are cutting back on lending, consumers are spending less, companies are shedding jobs amid sinking profits, and the housing bust that triggered the slide persists.

Read More: Economists Search for End of Woes

How to Choose a Forex Broker

Today, I'm going to take a break from covering the credit crisis in order to cover an important logistical topic: how should one go about choosing a forex broker? There are dozens (if not hundreds) of retail forex brokers, a fact which can be overwhelming to those considering dabbling in forex for the first time. The first step is to assess the quality of the broker, itself. Where is it registered? Those based in offshore tax havens should be treated with some degree of skepticism, as they are subject to lax, if any, regulation. It could be difficult to withdraw funds from an account held with such a broker. Along the same lines, what is the broker's reputation? Typically, the most "visible" brokers will also offer the best customer service, as much of their business is generated through word-of-mouth. Next, you should examine the product(s)? What kind of trading platform will you have access to? Will you have access to research and advanced (technical) analysis tools? What is the average execution time? The final considerations are financial. In other words, what is the spread and what are the terms of financial leverage. At the same time, you should be careful not to allow this latest aspect to weigh too strongly on your selection, reports The American Chronicle:

It's far too easy to be attracted to brokers that offer up to say 1:400 leverage, and therefore allow you to take out very large positions with a small margin, but this is a very dangerous game and it's all too easy to over-leverage yourself and wipe out your account completely.

Read More: 5 Important Things To Consider When Choosing A Forex Broker

Will Obama Embrace Strong Dollar Policy?

While the Bush Administration nominally embraced a strong Dollar policy, the currency's 20% decline over the last eight years suggests it was actually a low priority. The Obama administration, in contrast, is much more likely to maintain such a policy, a circumstance which could help the Dollar to continue its year-long rally. Obama will assume the office of the presidency at a time when US finances are looking particularly tenuous, with a projected 2009 budget deficit of $1 Trillion. In order to finance the government bailout, as well as an additional economic stimulus plan and a host of other initiatives (let's not forget the two ongoing wars), Obama will need to spearhead an effort to attract more foreign capital. For this to happen, the Dollar's status as the world's reserve currency must be cemented and confidence in the Greenback must be restored. Ironically, Obama may receive a boost in this aspect from the credit crisis. The Guardian reports:

The dollar [rally] is likely to persist as market participants looked to snap up more U.S. assets after the decisive election of a candidate that promised to bring sweeping changes to a country mired in the worst economic crisis since the Great Depression.

Read More: Obama win cements need for strong dollar policy

UK Rate Cut Backfires

Last week, the Bank of England acquieced to the seriousness of the credit crisis by cutting its benchmark interest rate by 150 basis points- the largest margin in nearly two decades. While the move was intended to restore confidence in the UK economy and its financial markets, the opposite result obtained. In other words, investors interpreted the rate cut as an indication that the UK economic situation is even more precarious than was initially feared. In fact, this bearish sentiment is born out by economic data, which shows falling home prices and rising unemployment. Since peaking against the Dollar late last year, the British Pound has since declined 25%.

Read More: Sentiment still volatile despite rate cuts

Overnight Rally

I like to imagine I am in tune with the markets. My trading record may not agree with this minor flight of fancy, but nonetheless, it's much more rewarding to have a feeling of control.

This morning, waking up much earlier than normal, I thought I'd take a look at the section of the Forex world that I follow... the AUDJPY.

Aha, not only did we have a nice rally -- an echo of the DOW futures up by several hundred, but according to my chart it was the perfect time to take a nip. It looks like we're about to push above 58.70 and start another leg of upward movement.

It looks that way to me. Be warned, mileage may vary.

UPDATE: We have the upward break so now the question is... will we break 59.50?

UPDATE: We're around 50.20 right now... it looks like a test of ~59.50 is imminent.

UPDATE: We've just had a quick push up to ~59.50 and now it's slightly above...

UPDATE: I'm taking my profit... it's time to get ready for work and it looks like it's time for a down leg.

Don't expect too much from G20 summit - Canada

OTTAWA, Nov 7 (Reuters) - Expectations should be modest when it comes to the results of a major international summit next week on the global financial crisis, a senior aide to Canadian Prime Minister Stephen Harper said on Friday.

The Group of 20 industrialized and developing nations is due to meet in Washington on Nov. 14 and 15 for talks on the turmoil and to discuss possible solutions.

(Reporting by Randall Palmer, writing by David Ljunggren; Editing by Peter Galloway) Keywords: FINANCIAL/CANADA SUMMIT

UPDATE 1-UK lenders pass on UK 1.5 pct rate cut

LONDON, Nov 7 (Reuters) - Five major British lenders passed on the Bank of England's 1.5 percentage point rate cut to their variable rate mortgage customers on Friday after the government urged them to keep lending to help stave off a recession.

HBOS, the UK's biggest mortgage lender, building society Nationwide, state-owned Northern Rock, Royal Bank of Scotland, owner of NatWest, and Bradford & Bingley all passed on the rate cut in full.

They joined Lloyds TSB and Abbey, owned by Spain's Santander, who cut their standard variable rates on Thursday.

Bank chiefs were called to a meeting earlier on Friday with UK Chancellor Alistair Darling, where he urged them to pass on the base rate reductions to help get the economy moving again.

There was broad agreement at the meeting to pass on the cuts to households and small businesses, a person at one of the banks told Reuters.

Just two major British banks -- HSBC and Barclays -- have yet to follow suit. They said they were still reviewing the BoE's rate decision on Friday.

Neither HSBC nor Barclays is taking cash from the government's bailout of UK banks. The rescue plan will see the government buying stakes of up to 57 percent in RBS and 43 percent in a combined Lloyds and HBOS.

Interbank borrowing costs fell sharply on Friday to help the banks follow the base rate move. The London Interbank Offered Rate (Libor) for three-month sterling fell to 4.5 percent from 5.56 percent.

Lloyds said it would cut fixed rate products for new customers from next Tuesday, following the fall in funding costs. It wants to see where Libor settles before introducing a lower priced tracker mortgage range next week, it said.

Libor sets the cost of borrowing between banks, and is a more significant influence on banks' funding costs than the base rate. Libor has held far above the base rate since the onset of the credit crunch, making it difficult for lenders to respond to cuts by the central bank.

The BoE's rate cut on Thursday was the biggest since the central bank gained independence in 1997, and took the base rate to 3 percent, its lowest level in 54 years.

About 10 percent of British mortgage borrowers are on standard variable rates, according to figures from the Council of Mortgage Lenders, with half on fixed rate deals, and the remaining 40 percent on rates that track the BoE base rate.

'About 40 percent of mortgage and corporate lending is fixed rate, on our estimates, so there won't be any immediate impact from recent rate cuts until those customers refinance,' Jonathan Pierce, analyst at Credit Suisse, said in a note.

'At that time it will help, but we think about it more as curbing the uplift in payments that would otherwise have been experienced rather than allowing a big fall in monthly payments,' Pierce added.

WTO chief urges tough global financial regulation

PARIS, Nov 8 (Reuters) - The head of the World Trade Organisation urged countries to accept tough new international regulation of finances even if it was an 'ideological revolution' for them to share sovereignty on such issues.

In an interview with French newspaper Le Monde published on Saturday, Pascal Lamy said it was politically sensitive in the United States and in emerging countries to accept supra-national authorities, but the financial crisis required adaptability.

'There are world organisations for trade, health, the environment, telecoms, food. There are two black holes in world governance: finance, with its bursting bubbles, and migration,' Lamy was quoted as saying by Le Monde.

'We need international regulation of finance with binding rules and a mechanism of surveillance and sanctions. A sick cow or a defective lighter don't cross borders, whereas at present a toxic financial instrument can,' he said.

Lamy reiterated that countries should resist the temptation of protectionism, which was one of the factors that caused the Wall Street crash of 1929 to snowball into a worldwide economic depression.

He rejected the notion, voiced by some critics of the U.S. Democratic Party, that under Barack Obama the world's biggest economy would be more protectionist than under the market-friendly Republicans.

'What changes with the Democratic Party are the plans to reduce social insecurity. The feeling of insecurity engendered by free trade is stronger in the United States than elsewhere because the social safety net is thinner there,' he said.

'If the Democrats apply their social programme, that can reassure Americans and help international trade talks. Obviously they have to have the resources to match their ambitions. But in any case I think it would be wrong to equate Republicans to liberalism and Democrats to protectionism,' he said.

Lamy announced on Nov. 4 he would seek a second term as director-general of the WTO and renewed his vow to conclude the Doha round of talks to open up world trade. Lamy's current term began in September 2005 and expires on Aug. 31, 2009.

Obama win triggers run on guns in many U.S. stores

PHOENIX, Nov 8 (Reuters) - Sales of rifles, pistols and ammo are surging in parts of the United States, as many gun owners fear President-elect Barack Obama's administration may seek to tighten ownership of certain weapons.

'The day after the election, I had many more calls than usual from people looking for semi-automatic rifles,' said David Greenberg, the owner of the Second Amendment Family Gun Shop, in Bisbee, Arizona, who sold out of AR-15 rifles in recent days.

'There seems to be a fear they will be banned, and it's fairly likely,' he added. 'Obama and Biden are driven to eliminate firearms from the face of the country.'

Gun stores and trade groups have reported a spike in firearms sales in the run-up to the Nov. 4 election victory of Democrat Obama and Vice President-elect Joe Biden, who many perceive as strongly pro-gun control.

The National Shooting Sports Foundation, a trade association for the shooting, hunting and firearms industry, reported a 10 percent jump in gun sales this year based on its analysis of an excise tax placed on firearms and ammunition, and a spokesman said the increase had grown dramatically ahead of the election.

'Gun owners are afraid of what Obama is going to do as far as guns,' said spokesman Tony Aeschliman. 'He has a clear record of being against us.'

Obama stated his support for the right to bear arms during campaigning, although both he and Biden back a permanent ban on assault weapons -- military style semi-automatic rifles -- and 'common sense measures' to keep guns away from children and criminals, positions which spurred concern among some gun enthusiasts.

'It's always been the liberal or Democratic agenda to restrict gun ownership,' said Jim Pruett, the owner of a gun store in a Houston-area strip mall, whose sales more than tripled on the Saturday before the election to $35,000.

In McPherson, Kansas, gun dealer Steve Sechler said demand at a gun show last weekend jumped by more than 50 percent as buyers rushed to stock up on guns including Kalashnikov and AR-15 rifles.

'Most of the people there were cussing Obama and saying we need home defense,' Sechler said.

BUSINESS BOOMING

Obama loyalists say gun owners need not fear curbs when he takes office in January. The Democratic governor of Ohio, Ted Strickland, told a rally last month he had spoken directly to Obama about the right to bear arms.

'If you are a sportsman, if you are a gun owner, if you are someone that honors and respects the Second Amendment, you have nothing to fear from Barack Obama,' he told a crowd in Chillicothe.

The lobbying arm of the powerful National Rifle Association, however, stoked concerns during the campaign, calling Obama a 'serious threat to Second Amendment liberties.'

Among other complaints, they accused Obama of endorsing a 500-percent increase in the federal excise tax on firearms and ammunition -- a comment he made as an Illinois state Senator in Illinois in 1999, but has not repeated.

The sentiments are so strong Wall Street is taking notice. BB&T Capital Markets analyst Frank Mitsch on Wednesday raised estimates for Olin Corp due in part to expected increased sales from its Winchester firearms ammunition business.

But despite surging sales, not all gun dealers are celebrating.

Scottsdale, Arizona, gun shop owner Manuel Chee sold out of AR-15 type rifles in the days on either side of the election, but said he would prefer to have steady sales and no prospect of curbs -- whether real or imagined -- in the future.

'I'd rather that (Republican Sen. John) McCain got in and there's not a big scare and we just followed our normal sales,' Chee told Reuters.

'Rather than say right now we are going to make a lot of money for a few months, and then in a few months, possibly, our business could be shut down,' he added.

All Signs Point to Down

Regardless of your preference, all economic indicators seem to be heading in the same direction: down. Home sales and home starts, as well as home prices, are way down and projected to fall further. Consumer spending is declining by double-digits (in annualized percentage terms), which is no surprise considering consumer sentiment recently touched an all-time low. The national unemployment rate and unemployment insurance claims are rising nearly every month and week, respectively. Factory production is falling, and inventories are rising. Stock market capitalization is down across the world, especially in export-driven markets like Japan and Korea. The US economy as a whole contracted in the last quarter. The distinct lack of nuance in the economic picture has led most economists to project that the current recession (although not officially a recession) will be the worst in decades. The Wall Street Journal reports:

The current downturn is shaping up to be worse than the recessions of 1990-91 and 2001 and the prolonged downturn that ended in 1982. Banks are cutting back on lending, consumers are spending less, companies are shedding jobs amid sinking profits, and the housing bust that triggered the slide persists.

Read More: Economists Search for End of Woes

Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the it, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

USD/CHF: Swiss franc
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
EUR/USD: Euro
AUD/USD: Aussie

These six currency pairs generate up to 85% of the overall volume in the Forex market. So, for instance, if a trader goes long on the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread
All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2645/48 or 1.2645/8

The bid price is 1.2645

The ask price is 1.2648

A Pip
A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.35 to 113.40 equals 105 pips.

Margin Trading (leverage)
In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call
A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader "theoretically" with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?
The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of forex trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

The History of Forex Trading

Many centuries ago, the value of goods were expressed in terms of other goods. This sort of economics was based on the barter system between individuals. The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the first World war, most Central banks supported their currencies with convertibility to gold. Paper money could always be exchanged for gold. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of WWII, The Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon's suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the worlds largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

In Europe, the idea of fixed exchange rates had by no means died. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when built-up economic pressures forced devaluations of a number of weak European currencies. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002.

Today, Europe has embraced the Euro in 12 participating countries. The physical introduction of the Euro on January 1, 2002 saw the old countries currencies made obsolete on July 1, 2002.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The size of the FOREX market now dwarfs any other investment market.

It is estimated that more than USD 1,200 Billion are traded every day, that is the same amount as almost 40 times the daily USD volume on the American NASDAQ market.

http://www.universityforex.com

Forex Intervention: Back on the Table?

With the Dollar rallying to multi-year highs and the Yen surging to multi-decade highs, some analysts have begun to re-assess the possibility of Central Banks intervening in forex markets. As if on cue, leaders from the G8 countries also released a statement expressing their concern. It is not a stretch to say the last few weeks have been awash with stories about emerging market economies that have been destabilized as a result of the rapid depreciation of their currencies, as well as companies that were forced into bankruptcy as a result of currency speculation gone bad. Meanwhile, the US and Japan are certainly nervous about the impact of more expensive currencies on their respective export sectors. Ironically, it was only six months ago that some analysts were gaging the same probability of intervention; at that time, however, the purpose would have been to prop up the Dollar, whereas now it would be to bring it back down to earth. I suppose the moral of the story is that in forex terms, six months is practically an eternity. Besides, as we reported yesterday, both the Dollar and the Yen have already begun to fade. The Wall Street Journal reports:

"But, this is not a currency crisis" said a foreign exchange strategist. "This is a liquidity crisis, a growth crisis, a confidence crisis. As such, probably the first step should not be to intervene to save currencies."

Read More: Do Currencies Require an Intervention?

Forex Liquidity and the Credit Crisis

Most of the commentary surrounding the dual Dollar-Yen rally that has unfolded over the last couple months has focused around monetary policy and risk aversion. Accordingly, the prevailing theory is that both currencies are being driven upwards because of narrowing interest rate differentials and a collapse in risk tolerance. However, it's also important to consider the role of technical/financial factors. Specifically, liquidity in forex markets is dissipating rapidly as market participants have found it difficult to secure lines of credit to finance leveraged currency trades. In addition, those with leveraged short positions in the Dollar and Yen have been forced to partially unwind their positions for the same reason. In hindsight, the decline in both the Dollar and the Yen over the last few years now appears to have been driven primarily by the same expansion in credit that underlied the real estate bubble, which enabled traders to take advantage of interest rate differentials to earn relatively risk-free profits from a carry trade strategy. Regardless of the fact that these interest rate differentials persist and a carry trade strategy remains theoretically viable, it's becoming impossible to undertake because of a shortage of credit and liquidity. FX Solutions reports:

The credit crash has affected participation rates in all markets. Many speculative players who depended on credit and leverage to fuel their trading have withdrawn. They will not return anytime soon. In the currency markets this permanent drop in liquidity may keep price movement volatile long after calm has returned to other markets. It has substantially diminished liquidity in the yen crosses which were, for so long, the speculative favorites of currency traders.

Read More: Volatility and the Carry Trade

Currency Trading for Dummies - Getting Started Edition, will help you get the most out of your practice account. Practical step by step action plan Learn the mechanics of forex trading Fundamental factors that drive currency markets How to develop a risk aware trading plan click on it!!

Learn why forex traders choose FOREX.com. Easy to use trading platform Powerful tools and research 24 hour support during trading hours Forex training & education

Forex Volatility Destabilizes Global Economy!

Volatility in forex markets has surged to unprecedented levels. In the words of one analyst, "Moves in the currency markets witnessed during just a few hours of trading...'are typically what we see in a quarter.' " The currencies of both emerging market countries and industrialized nations have been battered indiscriminately, as investors have fled to locations perceived as less risky, namely the US and Japan. On the one hand, a stronger Dollar has almost completely alleviated inflation in the US and will hence make it easier for the Fed to continue cutting interest rates. On the other hand, US exports, previously one of the few bright spots in the sagging economy, will become less competitive. Then there is deflation, long since relegated to history textbooks, but now once again considered a threat. Countries whose currencies have declined, meanwhile, are finding it difficult to convince investors to stay put, and have taken to deploying their forex reserves as a stopgap measure to stabilize their respective economies. The Wall Street Journal reports:

To combat these sharp moves, Brazil, Mexico, Russia, and India collectively have drawn down their reserves by more than $75 billion since the end of September, selling dollars to protect their currencies, according to Win Thin of Brown Brothers Harriman.

Read More: Currency-Price Swings Disrupt Global Markets

Hedge Funds Crush British Pound

The British Pound is perhaps one of the worst victims of the credit crunch, having fallen 25% against the USD in the year-to-date. According to analysts, hedge funds deserve much of the blame. Apparently, most hedge funds, including those that are based in the UK, denominate their portfolios in terms of Dollars. As a result of the exodus away from emerging markets, such funds have found themselves awash in cash, which they have promptly converted into Dollars. The reasoning behind this investment strategy is twofold: first, as the incredible strength of the Dollar has illustrated, the prevailing wisdom among investors is that the US is currently the least risky place to invest. Second, the interest rate gap between the US and the rest of the world looks set to narrow, which means the yields on US security will become relatively attractive. The Telegraph reports:

Worldwide interest rate forecasts are being revised downward, which has increased interest in the US where rates have already been slashed.

Read More: Sterling caught up in 'currency market tsunami'

Forex Rally Comes to an End

These days, the Dollar and the Yen are veritable proxies for investor confidence/risk tolerance. As a result, on days when US stocks rise, the Dollar (somewhat ironically) will typically experience a decline. Over the last couple weeks, it should therefore come as no surprise that the tremendous rise in US stock prices was matched by a proportional fall in both the Dollar and the Yen. If only for technical reasons (i.e. that the scale tipped too much in the other direction), it seems investors have regained some of their comfort with investing in emerging markets, leading some of the hardest-hit currencies (Korean Won, Brazilian Real, Mexican Peso) to recover some of their gains. Call it wishful thinking, but some investors now believe that the US recession will be milder than originally forecast, which would certainly exert a positive impact on such emerging market economies. In addition, there were monetary factors underlying the currency reversal, reports The Washington Post:

There were more specific reasons for some of the fluctuations. A news report that the Bank of Japan might cut rates in the near future was a factor in driving down the yen.

Read More: Currency Swings Reverse Course

Forex Minis Shrink Risk Exposure

Trading currencies means buying one country's currency while simultaneously selling another country's currency. Every currency trade therefore involves two currencies. The usual size of a currency pair is 100,000 units, known as a "standard lot".

In most cases, beginner traders do not want to stomach the risk that comes with the exposure of a standard lot. As a result, most online forex brokers offer the ability to trade mini lots, which are 10,000 units of the currency rather than 100,000. For a new trader, these mini lots can be an especially effective tool for learning to trade forex.

What is a pip?
Before one can fully understand the benefits of a mini lot, it is important to review the concept of a pip. A pip is the smallest increment that a currency pair can move. For most currency pairs, a pip is a change in the fourth decimal place of the currency quote. For example, if EUR/USD is quoted at 1.5567 and it moves to 1.5568, it has increased by 1 pip. The value of 1 pip is calculated by the size of the lot that is traded. So, if you buy a standard lot of 100,000 EUR/USD at 1.5567 and it goes to 1.5568, a 1-pip move, then the value of your trade has increased by $10 (or 100,000 x 0.0001).

If we did the exact same calculation using a mini lot, then we would multiply the 1 pip by the size of a 10,000 mini lot instead of the usual 100,000 lot. So 10,000 x 0.0001 = $1. When you trade a standard lot, the value of the pip is $10 but when trading a mini lot the value of a pip is $1. This is true when the U.S. dollar is the second, or quoted, currency in the pair.
Base Currency Vs. Quote Currency
One other piece of information to remember is that a currency pair is comprised of a base currency, which is the first currency listed in the pair, and the quote currency, which is the second currency listed in the pair. In the case of the EUR/USD, the euro is the base currency and the dollar is the quote currency.

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Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the it, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

USD/CHF: Swiss franc
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
EUR/USD: Euro
AUD/USD: Aussie

These six currency pairs generate up to 85% of the overall volume in the Forex market. So, for instance, if a trader goes long on the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread
All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2645/48 or 1.2645/8

The bid price is 1.2645

The ask price is 1.2648

A Pip
A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.35 to 113.40 equals 105 pips.

Margin Trading (leverage)
In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call
A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader "theoretically" with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?
The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of forex trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

OANDA

OANDA is a leading market-maker for currency trading. OANDA FXTrade Platform comes from 15+ years of foreign exchange market research and analysis.

Highlights of FXTrade:

Transactions as small as $1 US - no minimum trade size!

Continuous interest payment

Multi-currency accounts: supporting 7 currencies, including: US dollar, Euro, Swiss Franc.

No minimum deposit

Tight spreads as low as 2 to 3 pips on all transaction sizes

24 hour trading and customer service

Free technical analysis & charts

BROKER INFO
Minimum trade:	NO limits on trade size: FXTrade is unique in its ability to support trades in much smaller quantities than most other platforms. In fact, it allows you to trade as little as $1.00!
Pip spread (most popular pairs):	2-3
Commissions:	No
Trading Software:	OANDA FXTrade Platform
Regulated:	NFA (USA); CFTC (USA)
CONTACTS
Headquarters:	New York City
Phone number:	+1 416 593 9436 24 hour live customer service from Sunday 4 pm EST to Friday 4 pm EST
Company URL:	fxtrade.oanda.com

Forex Trading Software

Key factors For Your Forex Software

Prior to buying any forex software package there are some requisite items that had better be included. The most significant is security and your internet forex trading package should include a 128 bit SSL encryption which will keep cyberpunks from getting at any of your private details and data such as your account balance, dealing history, etcetera.

Supplying the top-quality security system for your forex trading will include a company that allows for twenty-four hr technical server support for your forex software, twenty-four hr upkeep should anything fail, every day backups of all data, and a security system that has been configured to keep any illegitimate access. Along with these security system communications protocols there are likewise a few forex trading companies that apply smart cards and fingerprint digital scanners to guarantee that only their employees can get admittance to their hosts.

A different useful element when it comes to selecting your forex software package is to see what the company’s downtime is like. When it pertains to trading in forex and especially your cyberspace forex trading you want to see to it that the forex software package you pick out is dependable and available twenty-four hrs a day. The forex software system you pick out for your forex dealing had better come with technical help accessible at all times should your session break off.

Seeing to it that all the preceding features are listed in the forex software system you pick out will help to secure your forex trading success.