How to Trade Forex Right Now

The Basics of Forex Trading

When engaging in forex trading, you are simultaneously purchasing one currency and selling another. For example, if you purchased Japanese yen and sold U.S. dollars, you would be going long JPY/USD. Over time, the foreign exchange rate of the yen compared to the dollar will change. When you close out the trade, you will have either a gain or a loss when you sell yen and purchase dollars.

When you open the trade, 100,000 yen may cost you $1,300. If the dollar weakens, your trade is worth more over time. When you close the trade, you will sell the 100,000 yen for more that you bought it for. It may be worth $1,400 and you will have made a gain of $100 on the trade. Most currencies can be traded on established forex markets, but the U.S. dollar, the euro and the yen are the most commonly traded.

Brokerages

Forex trades are conducted through brokerages. Many brokerages have an online trading platform. When you place an order on your account through the broker, the trading house sends the order to the Interbank Market to fill. The Interbank isn't a bricks and mortar establishment, but a network of traders and banks that deal in currencies.

As with stock brokerage houses, some forex brokers offer guidance and advice with trading and others leave you to trade on your own. The costs and fees to maintain an account and to conduct each trade vary from broker to broker. You may try Trust Capital to be your brokerage firm. Check out our advantages.

Trading on Volatility

This year is a particularly volatile time for forex trading, which can mean larger gains and larger losses. The United States and many European countries are facing unprecedented budget crises, political instability and natural disasters. All of these factors will have an impact on the value of currencies and their relationship to each other. The continued strengthening of the yen against most other major currencies makes it a good bet in the short to medium term and JPY/USD trades are popular.

Dangers to Avoid

While making gains on forex trades is the reason investors get into the game, losses are always possible. Currencies are particularly susceptible to swings due to major events - most of which are unpredictable. An unexpectedly negative jobs report, a major earthquake or the death of a foreign leader can all lead to large and immediate downward currency movements. Losses can mount in minutes if you are on the wrong side of the trade.

The best way to avoid this type of devastation in your forex portfolio is to put a stop loss on every trade. A stop loss is a point at which your broker will automatically unwind your trade. It limits your losses when there are sudden swings and protects your capital investment. If you are gaining on trades, you can always set the stop loss point higher to lock in some of the gains.

The Bottom Line

Forex trading can be exciting, whether you day trade it or stay in for the long haul. Dealing with a reputable brokerage can mean the difference between making money and losing it. With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market.

The Swiss Franc: What Every Forex Trader Needs To Know

Introduction to the Swiss Franc

Switzerland has seemingly always had an outsized significance to the global financial community, and its currency is no exception. The Swiss franc is the sixth-most traded currency on the foreign exchange markets, even though its economy (in nominal GDP) ranks just 19th in the world. Despite a long-held reputation for conservatism and prudence, the Swiss franc is not a common reserve currency.

The central bank behind the Swiss franc is the Swiss National Bank. As befits the country's reputation for sober and conservative economic management, the SNB does target a consistent inflation rate of around 2%. Generally speaking, the SNB does not engage in stimulative monetary policy in response to economic downturns.

The Economy Behind the Franc

Switzerland's economy is small overall, but it has some outsized significance in the global banking community.

Financial services make up more than 11% of Switzerland's GDP and the country's strict policies regarding neutrality and bank secrecy have made it an exceptionally popular destination for global funds. While Switzerland has been cajoled into rolling back some of its secrecy, there are widespread rumors that as much as one-third of the world's offshore funds are held in Swiss banks. Due in part to its neutrality and its long reputation as a banking center, the Bank For International Settlements is based in Basel.

Although Switzerland's central bank targets stability in prices, stability in growth has eluded the country. GDP growth has gone negative four times in the last 20 years and has frequently been below 2% a year. Switzerland has indeed been quite successful at controlling inflation over the last 20 years, however, and debt (as a percentage of GDP) has held steady around 55% for a number of years.

Switzerland does boast an exceptionally low rate of unemployment and though manufacturing has been in long-term decline, the country is still competitive in some industries like chemicals, pharmaceuticals and electric machinery. That said, services (particularly financial services) are a major component of the economy and a major factor in the high per-capita income of Swiss citizens.

Drivers of the Franc

There are several theories that attempt to explain foreign exchange rates. Purchasing power parity, interest rate parity, the Fisher effect and balance of payments models all offer explanations of the right exchange rate based upon factors like relative interest rates, price levels and so forth. In practice, these models do not work especially well in the real market – real market exchange rates are determined by supply and demand, and that include a variety of market psychology factors.

Major economic data includes the release of GDP, retail sales, industrial production, inflation and trade balances. These come out at regular intervals and many brokers, as well as many financial information sources like the Wall Street Journal and Bloomberg, make this information freely available. Investors should also take note of information on employment, interest rates (including scheduled meetings of the central bank) and the daily news flow – natural disasters, elections and new government policies can all have significant impacts on exchange rates.

Trading in the Swiss franc is certainly influenced by the global demand for Switzerland's services as a confidential offshore holding area for funds. The franc also trades as a more stable alternative to the dollar, euro or British pound in times of turbulence and uncertainty. While there are really not enough francs in circulation to use it as an alternative to these currencies, traders and speculators nevertheless seem to prefer the franc when conditions get dicey in other economies.

Carry Trade

When talking about the carry trade (which involves borrowing in a currency with low interest rates and using it to buy government debt in a currency with high rates), most of the conversation revolves around the Japanese yen. Nevertheless, the Swiss franc is also a significant player in the carry trade due to the low rates, stability and liquidity. Carry trades with the Swiss franc often involve the euro or pound, and traders must keep an eye the interest rates in those areas as they can influence demand for the franc.

Unique Factors for the Swiss Franc

Switzerland's famous neutrality is a significant factor in its economy and currency. Though Switzerland harmonizes many of its policies with the Eurozone countries, it is not a member and it maintains its independence. What's more, as a global destination of choice for expatriated capital, Switzerland is less sensitive to the economic performance of its neighbors.

Switzerland does have some risks with its heavy reliance on its banking sector. Under pressure from countries like the United States and Germany, some of Switzerland's bank secrecy laws have been relaxed. That is likely a concerning development for dictators, criminals and businessmen who want to keep their wealth both safe and secret. As a result, other countries like Singapore have begun tightening their rules and promoting themselves as emerging alternatives to Switzerland for offshore accounts.

Another odd aspect to the Swiss franc is that, in many ways, it is a currency and not a country. While the U.S. dollar is certainly boosted by its heavy weighting as a reserve currency and its safe haven status, trade in the dollar is still largely dictated by the economic conditions of the United States. For the Swiss franc, it sometimes seems that only the interest rate decisions of the SNB really matter. Perhaps this is because Swiss governments have maintained largely consistent economic policies (no one expects anything wild from the Swiss), or perhaps it is because demand for the Swiss franc is dominated more by its utility as a liquid, stable and reliable alternative currency.

The Bottom Line

Currency rates are notoriously difficult to predict, and most models seldom work for more than brief periods of time. While economics-based models are seldom useful to short-term traders, economic conditions do shape long-term trends.

As Switzerland is not likely to move away from its conservative low-growth, low-debt philosophy and is likely to remain a key banking center, the fundamental supports for the franc seem to be firmly in place. What's more, so long as Switzerland's policies continue to result in low rates, it is likely to remain an attractive option in carry trades and a currency with a significance far outstripping the size of its home economy.

The Five Fatal Flaws of Trading

Close to 90% of all traders lose money. The remaining 10% somehow manage to either break even or even turn a profit – and more importantly, do it consistently. How do they do that?

Why Do Traders Lose?

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, 'How do you stop the Hand?' Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw No. 1 – Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.

How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn’t matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint we can give you regarding developing a defined trading methodology is this: If you can’t fit it on the back of a business card, it’s probably too complicated.

Fatal Flaw No. 2 – Lack of Discipline

When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice we can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

Fatal Flaw No. 3 – Unrealistic Expectations

Between you and me, nothing makes me angrier than those commercials that say something like, "...$5,000 properly positioned in Natural Gas can give you returns of over $40,000..." Advertisements like this are a disservice to the financial industry as a whole and end up costing uneducated investors a lot more than $5,000. In addition, they help to create the third fatal flaw: Unrealistic Expectations.

Yes, it is possible to experience above-average returns trading your own account. However, it’s difficult to do it without taking on above-average risk. So what is a realistic return to shoot for in your first year as a trader – 50%, 100%, 200%? Whoa, let’s rein in those unrealistic expectations. In my opinion, the goal for every trader their first year out should be not to lose money. In other words, shoot for a 0% return your first year. If you can manage that, then in year two, try to beat the Dow or the S&P. These goals may not be flashy but they are realistic, and if you can learn to live with them – and achieve them – you will fend off the Hand.

Fatal Flaw No. 4 – Lack of Patience

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. Markets trend only 20% of the time, and, from our experience, we would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why we believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.

All too often, because trading is inherently exciting (and anything involving money usually is exciting), it’s easy to feel like you’re missing the party if you don’t trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.

How do you overcome this lack of patience? The advice we have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don’t worry about missing an opportunity today, because there will be another one tomorrow, next week and next month ... we promise.

We remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: 'Aim small, miss small.' We offer the same advice in this new context. To aim small requires patience. So be patient, and you’ll miss small."

Fatal Flaw No. 5 – Lack of Money Management

The final fatal flaw to overcome as a trader is a Lack of Money Management, and this topic deserves more than just a few paragraphs, because money management encompasses risk/reward analysis, probability of success and failure, protective stops and so much more. Even so, we would like to address the subject of money management with a focus on risk as a function of portfolio size.

Now the big boys (i.e., the professional traders) tend to limit their risk on any given position to 1% - 3% of their portfolio. If we apply this rule to ourselves, then for every $5,000 we have in our trading account, we can risk only $50-$150 on any given trade. Stocks might be a little different, but a $50 stop in Corn, which is one point, is simply too tight a stop, especially when the 10-day average trading range in Corn recently has been more than 10 points. A more plausible stop might be five points or 10, in which case, depending on what percentage of your total portfolio you want to risk, you would need an account size between $15,000 and $50,000.

Simply put, we believe that many traders begin to trade either under-funded or without sufficient capital in their trading account to trade the markets they choose to trade. And that doesn’t even address the size that they trade (i.e., multiple contracts).

To overcome this fatal flaw, let me expand on the logic from the 'aim small, miss small' movie line. If you have a small trading account, then trade small. You can accomplish this by trading fewer contracts, or trading e-mini contracts or even stocks. Bottom line, on your way to becoming a consistently successful trader, you must realize that one key is longevity. If your risk on any given position is relatively small, then you can weather the rough spots. Conversely, if you risk 25% of your portfolio on each trade, after four consecutive losers, you’re out altogether.

Break the Hand’s Grip

Trading successfully is not easy. It’s hard work ... damn hard. And if anyone leads you to believe otherwise, run the other way, and fast. But this hard work can be rewarding, above-average gains are possible and the sense of satisfaction one feels after a few nice trades is absolutely priceless. To get to that point, though, you must first break the fingers of the Hand that is holding you back and stealing money from your trading account. We can guarantee that if you attend to the five fatal flaws I’ve outlined, you won’t be caught red-handed stealing from your own account.

About Trust Capital - Corporate Profile

Trust Capital S.A.L is a financial intermediary regulated by the Central Bank of Lebanon, specializing in online execution and clearing services for retail and institutional investors. We operate our business according to industry best-practices and maintain the highest standards of governance, compliance and integrity.

For security of clients’ funds, Trust Capital holds all its clients’ deposits with highly rated and secured financial institutions, Trust Capital also retains a strong network of international banking counter parties for coverage of clients’ exposure.

Trust Capital has developed direct Links to exchanges and treasury departments of major banks in order to deliver accurate and competitive real-time prices. Technological advancement inherent in Trust Capital Trading Platform stabilizes the price feed and further narrows the fixed spreads.

We understand that our success is synonymous with the loyalty of our customers, which is why we maintain a customer-centric organization. By insisting to know our clients better, we are able to provide quality customer service and more personalized support. We apply complaint management techniques and encourage our clients ’ comments in order to improve and streamline our processes according to our customers’ requirements.

Our customers utilize the Trust Capital Trading Platform to access the markets. The platform is a true multi-product, multi-asset class system that is capable of handling thousands of transactions simultaneously. It is indeed a favorite among professional and retail investors alike.