| | There are many tools available to the FOREX trader
for analyzing the market as well as for buying and selling currencies. Software
tools are a necessary part of FOREX because of its volume and volatility. Software can be used to automate some of the trading procedures and safeguard
against losses.
In order to make rational, successful trades, the FOREX trader needs information
– lots of information. Current exchange rates are the tip of the iceberg – the
trader needs historical data as well as current information about political and
economic conditions that could affect currency prices. All this information is
provided by many FOREX brokers on their web sites.
Successful FOREX trading relies on making accurate assessments of current
political and economic conditions. Being able to predict whether a currency
will fall or rise against another currency allows the FOREX trader to profit
from currency movements.
There are two basic trading methods for buying and selling currencies. Reactive
trading means the trader responds to changes in the political or economic
climate. Speculative trading means the trader makes buying decisions based on
predictions on how the market will respond to current events. While most FOREX
trading is speculative, both types of trade require up-to-the-minute information
and an analysis of current and historical conditions.
Traders rely on both fundamental and technical analyses. Fundamental analysis
is based on news information about political conditions, economic policies,
trade patterns, interest rates and unemployment rates. Technical analysis
relies on historical charting to identify trends and patterns over time. Information needed for both types of analyses is available in real time on the
Internet. Most online brokers offer live news feeds and streaming rates for
observing minute by minute changes in the market.
All this information can help you decide which currencies to buy. More tools
are available to help you minimize your risk and maximize your profits.
The Risk Probability Calculator (RPC) can be used to identify trades that have
more potential gain than potential loss. The RPC can also help you target exit
points to end the trade.
Pivot Points can be used to predict movements of currency prices. They are
calculated as an average of the currencies high, low and closing prices. Pivot
Point Calculators tell you whether prices fall in the normal trading range or
extreme trading ranges.
Pip value calculators are used to tell you the value of each pip (smallest
currency unit) according to various sized lots. Pip calculators can tell you
the actual profit or loss that will result from movements in the FOREX.
Once a trader has decided which currency pair to trade, he logs on to his online
account provided by his broker. The desired currency pair is entered and the
current exchange rate appears on the screen. The amount of the trade is entered
(how much currency you wish to buy). Some brokers may give you the option of
specifying the amount you wish to risk. This automatically enters a 'stop loss
rate' into your order.
After the details of the trade are entered, you will be taken to a confirmation
screen where you can accept the current price on screen. You may be given the
option of 'freezing' the quoted price, meaning the price of your transaction is
exactly what you see on screen without any slippage. Accept the rate and your
deal is running.
Just as you can enter a 'stop loss rate' to automatically sell the currency if
it falls below a certain rate, you can enter a 'take profit rate' to
automatically sell the currency when it reaches a certain level. If you don't
enter a 'take profit rate' you need to monitor the movement of the currency to
decide when to close the deal and take either your profits or your losses.
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