Complete Guide to Online Forex Trading Systems - Part 5

Please note it is your responsibility to evaluate the accuracy, completeness and usefulness of any information, opinion or advice contained in the content below.

This is Part 5 of a 5 Part Series.

Part 1 - Introduction
Part 2 - Market Mechanics
Part 3 - Leverage and Rollovers
Part 4 - Accounts and Statements
Part 5 - The Main Players

The Main Players

Central Banks And Governments

Policies that are implemented by governments and central banks can play a major roll in the FX market. Central banks can play an important part in controlling the country’s money supply to insure financial stability.

Banks

A large part of FX turnover is from banks. Large banks can literally trade billions of dollars daily. This can take the form of a service to their customers or they themselves speculate on the FX market.

Hedge Funds

As we know the FX market can be extremely liquid which is why it can be desirable to trade. Hedge Funds have increasingly allocated portions of their portfolios to speculate on the FX market. Another advantage Hedge Funds can utilize is a much higher degree of leverage than would typically be found in the equity markets.

Corporate Businesses

The FX market mainstay is that of international trade. Many companies have to import or exports goods to different countries all around the world. Payment for these goods and services may be made and received in different currencies. Many billions of dollars are exchanges daily to facilitate trade. The timing of those transactions can dramatically affect a company’s balance sheet.

The Man In The Street

Although you may not think it the man in the street also plays a part in toady’s FX world. Every time he goes on holiday overseas he normally need to purchase that country’s currency and again change it back into his own currency once he returns. Unwittingly he is in fact trading currencies. He may also purchase goods and services whilst overseas and his credit card company has to convert those sales back into his base currency in order to charge him.

Speculators And Investors

We shall differentiate speculator from investors here with the definition that an investor has a much longer time horizon in which he expects his investment to yield a profit. Regardless of the difference both speculators and investors will approach the FX market to exploit the movement in currency pairs. They both will have their reason for believing a particular currency will perform better or worse as the case may be and will buy or sell accordingly. They may decide that the Euro will appreciate against the US Dollar and take what is called a long position in Euro. If the Euro does in fact gain ground against the US Dollar they will have made a profit.

What Next

Well now we have a basic understanding of how the FX market works and who the main players are, what next? You are now going to have to decide the best way to trade the market. The two most common approaches are that of fundamental analysis and technical analysis.

Fundamental analysis concentrates on the forces of supply and demand for a given security. This approach examines all the factors that determine the price of a security and the real value of that security. This is referred to as the intrinsic value. If the intrinsic value is below the market price then there is an opportunity to buy and if the market is above the intrinsic price then there is an opportunity to sell.

Technical analysis is the study of market action, mainly through the use of charts and indicators to forecast the future price of a security. There are three main points that a technical analyst applies. A. Market action discounts everything. Regardless of what the fundamentals are saying, the price you see is the price you get. B. The price of a given security moves in trends. C. The historical trend of a security will tend to repeat.

Of all of the above things the most important of them is point A. The tools of the technical analyst are indicators, patterns and systems. These tools are applied to charts. Moving averages, support and resistance lines, envelopes, Bollinger bands and momentum are all examples of indicators.

There are many ways to skin a cat as the saying goes but fundamental and technical analysis are the two most popular ways of trading FX.

My own preferred approach is that of technical analysis. It is beyond the scope if this little book to cover all the finer points of trading and if you would like to learn more then I would suggest your first book should be ”Trading For Beginners” which you can find at www.tradingforbeginners.com. It is specifically designed for the novice trader wishing to learn more about trading and technical analysis.

Conclusion

I hope you have enjoyed my little course introducing you to the Forex market.

You may wish to join our free trading lessons newsletter at www.wizardoftrading.com Every couple of weeks you will receive a free trading lesson teaching you different techniques on how to trade the markets. Remember caution is the best way forward in trading. Don’t risk money you can’t afford to lose, don’t trade with live cash until you have paper traded for at least three months and control your emotions.

If you have any questions, feel free to drop me a line at the email address below. Until then,

God Bless and good trading.

Mark McRae
info@wizardoftrading.com

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May 22 2008 05:07 pm | Foreign Exchange Forex

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