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Analysis

Legitimate Forex Brokers: How to Spot Them

by Danijel
written by Danijel

legitimate Forex brokers

Despite what you might hear, most Forex brokers are actually honest people doing an honest job. It’s the few bad apples you need to watch out for. In any case, telling an honest broker from a dishonest one is probably the first thing a Forex trader should do; literally the first thing, at least when it comes to Forex trading. Here are a few hints and tips to help you manage your situation.

First and foremost, the authorities are on the job

The number of actual Forex frauds has been on a constant decrease during the last few years, but this does not mean you are not in danger of losing money. Crooks are being discovered and caught all the time, but this is of little comfort to their victims, as only a tiny fraction of the stolen money ever gets recovered. Nevertheless, few crooks can sustain their operations without a hitch for more than a few months, while legitimate Forex brokers stay in business for years, building and maintaining their reputation. So before you place any meaningful sum in their care, make sure they won’t take actions against your interests. Their reputation is a good way to start.

Next step: get real legitimate Forex brokers

You do realize many traders fail to make a profit and sometimes blame it on the broker. And even good reviews can be fabricated, so don’t take anything for granted, and always keep a healthy dose of skepticism when reading those. Blogs and forums are full of stories how (il) legitimate Forex brokers conspired against their clients, how slippage was always present, markets suddenly change direction at the worst possible moment etc. Who is behind these claims can make all the difference. A rookie will trade based on feelings rather than logic, and many experienced traders count on this. It is not uncommon for “traps” to be laid for rookies who take the bait. In all fairness, legitimate Forex brokers could warn people of this, but this is not their primary duty. However, brokers do tend to drop the ball every now and then, more often than they would like to admit, and incur losses for their clients. But this is far from an everyday occurrence. You need to look for complaints from experienced traders and specific (large) single losses. But if they accuse brokers of not responding to calls or being unavailable, refusing to provide specific information to direct questions, being vague and pushy, this is something you need to take into account. Being unable to withdraw funds is the absolute worst when it comes to telltale signs. So make sure your broker is reputable, make a small account and go easy at first. And read the small print inside the contract; it’s small and illegible for a reason.

Finally                                                                                   

If you do end up with a crook, there is little you can do. Other than reporting them and writing reviews, there is little recourse. Just make sure your accusations are true before making them. Legitimate Forex brokers are not a scarce “asset class” and you can find plethora of honest, open and transparent broker in our website.

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BlogEducation

Forex scam: the multifaced enemy

by Danijel
written by Danijel

Forex scam

Forex scam come in various forms, and can happen to anybody. When it comes to scam itself, it is important to note that it always changes, evolves. In the old days, when Forex markets were more “exclusive”, Forex scam was relatively straightforward and not nearly as common as in recent past. However, after the internet revolutionized the way financial trades are done, the number of scams and their variety has exploded. It is vital to familiarize with as many types of scams as possible to keep up, as the crooks will always be one step ahead.

Good old-fashioned rip-off Forex scam

Back in the day, people would fix the spreads between bid and ask prices and rig the market. You see, brokers rarely offer a small spread unless they have to. They feel comfortable if the spread is seven pips or more, even if five or six would still bring them a hefty commission. But if you add four or five pips more than you absolutely need to, most of the profits (if not all of them) will turn into commission for the broker, even if the investment was on the money. This type of Forex scam has subsided over the years, but some unregulated brokers still overcharge for their services. These are relatively easy to spot, as their spreads will differ greatly from the other brokers. If confronted with this fact, they tend to pack up and disappear, along with any money you left them.

Fake trading signals

Despite the popular belief, trading signals can be quite useful, as long as they are legit. But if they are not, they might be tricky to sell. This is where false advertising comes into play. Depending on the scam, this could be quite effective, due to realistic “testimonies”, “success stories” and the fact that some even offer a good trade every now and then to fool people even further. At one point, they will simply disappear along with the money.

Forex robots

There is a lot to be said for people who let machines make decisions in their stead. So far, despite promises and guarantees, there hasn’t been a single Forex robot that actually lived up to its “potential”. At best, it will generate random trades and squander your money. At worst, the trades won’t be random at all. There is no way for you to know what it was programmed to do.

Embezzlement – everyone’s favorite

The most straightforward Forex scam there is, when your broker simply steals your money little by little. At one point the numbers no longer add up, and you realize someone has been skimming the profit the entire time. This is not really a scam, more of a theft really, but it usually goes undetected if the broker mixes up the accounts to muddy the water and conceal actual financial performance.

Conclusion

All Forex scam, no matter how convoluted, are about your money. The only way to be safe is to always have unrestricted access to it: you and you alone. For support and useful articles, review, check out www.forexfraud.com.

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learning forex
Learn to Trade

Learning Forex

by Dragan Stankovic
written by Dragan Stankovic

When it comes to learning Forex trading in the currency markets, there are two basic ways to achieve this. One is to create a dummy practice account offered by most brokerages as a tutorial on Forex trading, and the other is to create a real account, start trading and learning Forex form experience – either yours or that of any experts you can find. Now, considering that you may need to open a real account eventually, in order to start trading and make some real money, this may or may not be the ideal way to learn things as the losses you incur will also be real.

Learning Forex from practice / demo accounts

There are many tutorials on how to learn to trade Forex, and frankly speaking, this is not one of them. This is a comparison between two separate ways of learning Forex trading. Now, as far as Forex trading goes, these simulators are as realistic as it gets. The feeling is not quite the same, naturally, and any profits and losses are virtual, meaning if you wanted to go crazy with the odds and see how that plays out, it’s better for everyone to do it here. It’s better for you, that much is certain.

Learning Forex form real life

The biggest issue is not whether to learn through trial and error on the real market (you will definitely have to do itlearning forex eventually), but how to minimize any potential losses when you do it. Since they are aware this day would have to come, many traders simply choose to skip the tutorial and get straight to business. One way to compromise between the two ways, one of which offers no actual experience and the other offering potential bankruptcy, is to use an “expert advisor”, which is usually little more than an euphemism for Forex robots. Or, it could be a real person, sending you trading signals, but this is not as common as you might think.

Expert advisors

Learning Forex from expert advisor means taking hints on Forex trading from either a piece of software or an actual person (or both). There is no rule that you can’t do this on practice accounts, but even people who did fine on their own during these simulations usually resort to expert advisors once they enter the real market. Some even get lazy and resort to “copy trading”, a practice when you match someone else’s trades to the letter and share their fate – if they lose, you lose and vice versa. But then you’re not really the one trading, are you? Plus you need to account for slippage, i.e. the lag between expert’s actions and you becoming aware of them. If anything happens, he is not going to warn you first, he is going to save his money. If you catch on in time, great, if not, well… You’re on your own.

Having said that, learning from experts in real life does have its merits. Not only do you get to learn things first hand, you’ll make actual money doing it. Just be careful.

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Analysis

Cross Currency in Forex Markets

by Danijel
written by Danijel
Currency, cross currency

Currency

Cross currency, unlike their major and commodity counterparts, do not get paired with US dollar. This means cross currency traders need not worry about US economy affecting their business. This one deals with cross currencies in Forex markets and their strong points concerning range-trading.

What is the purpose of cross currency?

For a very long period of time, the US dollar was the intermediary for currency exchange; it means if you were a trader in a Forex market, looking to exchange currencies you had to convert your currency to dollars and then convert those dollars into whichever currency you needed. For instance, if you has Swiss francs and needed yens, there was no way to swap them directly. Instead, you had to convert your francs into dollars and then use those dollars to buy yens. Luckily, now that cross currencies are part of the mainstream of financial markets, you can simply exchange currencies directly, much faster and at considerably lesser expense, although some less liquid currencies still use US dollars as medium for conversion. Today, the euro is the most traded cross currency in the world.

Modern currency crosses in Forex markets

Currency crosses are widely considered the best choice for range-bound trading, at least in Forex markets. This is especially true for EUR/CHF, the reasoning for this being that the economic growth rates for Switzerland and the European Union are similar and connected. The similarity between countries whose currencies are crossed help stabilize any major changes that might occur, making them ideal for range-bound trading – since they rarely exceed certain parameters. In the earlier example (EUR/CHF), it is hard to imagine major shifts in the economy of Switzerland without the European Union being affected – or vice versa. This is why there is a constant pressure from both parties to preserve or restore the status quo as efficiently as possible. It doesn’t take a financial genius to figure out what would happen if say, Switzerland let its currency run rampant on the markets – the whole Europe (and not just Europe, but every related market – financial or otherwise) would be reeling from the aftershock for some time. Such condition simply could not last, because the backlash would affect Switzerland as well. This is what makes cross currencies a relatively safe bet when it comes to trading range – things just don’t work that way when it comes to other securities. Currencies are relatively immune to microeconomic events, unlike stocks and commodities; only macroeconomic events are powerful enough to affect currencies. However, macroeconomic events happen too, so it might behoove you to place a stop limit on your range trading, just in case.

To conclude

Cross currencies in Forex markets are ideal for range trading. The main reason is that countries behind those currencies have a vested interest in keeping them liquid and stable. You practically have a whole country looking after your investment – how awesome is that?

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Analysis

Commodity Currencies in Forex Markets

by Danijel
written by Danijel
Rising star, commodity currencies

Chinese yuan is not considered commodity currency, except the vast coal resources, it has no significant amount of resources.

Apart from major currencies, who have found themselves in Forex markets because of either tradition or sheer economic power of countries behind them, there are commodity currencies who owe their Forex status to their relation to an important commodity. Unlike major currencies, who got in Forex markets because of economies of countries that back them, commodity block currencies are there because of their strong ties to commodities, such as oil, minerals, precious metals, agricultural and forestry products, machines etc.

Examples of commodity currencies in Forex markets

Currencies universally dubbed commodity currencies are: Norwegian crown, South African rand, Russian ruble, Brazilian real, Chilean peso as well as Australian, Canadian and New Zealand dollars. The most commonly used pairs are between US dollar and Australian, Canadian and New Zealand dollars (“Aussies”, “Loonies”, and “Kiwis” respectively). What these countries have in common is that they all rely on the export of particular commodities for the majority of their income.

Rundown of basic commodity currencies

Canada’s dollar is based on oil, but Canadian economy also relies on lumber and mining. Forex traders refer to it as “Loonie”, supposedly because of the depiction of a loon on a side of the coin.

Australia’s dollar, or “Aussie”, derives much of its value through its links to Australian mining industry and precious metals, especially gold and silver.

Among Forex traders, New Zealand’s dollar is known as “Kiwi”. Its value is most affected by New Zealand’s agricultural products as well as forestry products in the modern markets.

Norwegian crown has to thank Norway’s oil  reserves for much of its value. Having said that, much of Norwegian economy goes to aluminum industry. Industrial metals make an important part of commodity markets. So does machinery, and Norway does not lag behind in that regard.

South Africa’s currency is the rand. The major commodities of South Africa are based on its mining industry. A large part of it encompasses precious metals – meaning gold, but diamonds and iron play an important part in South African economy.

Brazil’s real fuels what is widely considered one of the five largest economies in the future. Agriculture is an important part of the economy, at least when we talk about Brazil.

Russia deals in rubles, obviously. Russian economy is diverse, but a large chunk of it is being occupied by oil industry and products. Russian mineral wealth should not be underestimated, either. Gold and lumber may play an important part as well. Trading with gold was never so easy on the Forex markets. Lot of brokers, such as the HotForex as well, offer competitive spreads for trading with commodities.

Chilean peso and much of Chilean economy relies on industrial metals, primarily copper and related products.

To conclude

When it comes to commodity currencies in Forex markets, traders should keep in mind that values of the aforementioned is closely related to one or more commodities. Their fates are linked, at least for the time being. Major currencies, on the other hand, do not rely solely on one or two types of commodities, making them potentially more stable, yet less predictable, strangely enough.

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Analysis

Comparison: Forex Market vs Other Markets

by Danijel
written by Danijel

Despite its growing size and potential, Forex market was a kind of “terra incognita” for retail traders and general public alike. Before the rise of internet trading changed everything, Forex markets around the world were forced to take the back seat, while stocks, options and futures markets reigned supreme. In fact, few trades other than large banks, hedge funds or other major players in financial markets even bothered to venture into this great unknown. In any case, now that the genie is no longer in the bottle, it might be a good idea to analyze some major differences between Forex and other markets.

Comparison: Other Markets vs. Forex Markets

In comparison: in Forex markets, traders do not deal with securities, commodities or goods; they trade money for money, one currency for another. Even the exchange is not physical – it never has been, as everything is done via computers. The market is entirely speculative, whereas in other markets, speculation is a much smaller part of the equation. One of the initial driving forces behind Forex markets from the very beginning has been a practical one: the need of international financial players (like major banks, corporations and such) to constantly exchange currencies to meet their daily needs: issuing loans, paying salaries,  acquiring raw materials, supplies and goods etc. In order to do that in a foreign country, you need a steady source of fresh currency readily available, and Forex came to the rescue. The idea of turning a profit from these ventures came at a (much) later point. Today, these “bare necessities” comprise only about 20% of total volume of Forex trading – the rest being speculative trades whose only goal is to turn a profit (it is advantageous to find reliable and transparent broker, such as HotForex, in order to help you manage your risks carefully).

In comparison with another markets that sets Forex markets apart is that the object of trade (i.e. currency) is never traded alone, but paired up with (or against) another currency. These currency pairs are composed of a short and long currency, the short one being the one you give and the long one the one you receive in return. The other markets “pair” their objects and currency.

Finally

choose forex, comparison

Choose Forex

Forex markets are nowhere nearly as regulated as in comparison with other markets. While less regulation means less bureaucracy and more profits, there is no central authority so all trades are based on credit agreements, which means: no guarantees, no arbitration to settle disputes, no clearing houses – so be careful out there. How does this even work? Forex markets are self-regulated, which actually works surprisingly well, as major players typically depend on one another and oversee everyone else. The lack of regulation also allows things other markets do not: there is no ban on short-selling, no limits on your position (you are only limited by your capital), no pesky uptick rules, no penalty for insider trading etc. Whether this is a good thing or not is entirely up to you to decide.

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choose forex - gold and gold socks
Analysis

Currency Risk in Forex Market and How to Curb It

by Danijel
written by Danijel
Currency risk

Currency risk

Currency risk, events, regulations and trade opportunities keep the Forex markets moving. Every now and then, the price of one currency changes in relation to the price of another currency. The chance of that happening is called currency risk, and it has caused quite a few headaches for Forex traders over the years. Currency risk affect all traders and businesses whose ventures transcend national boundaries (or borders). There are several ways to curb currency risk: the most common are currency forwards, futures and options.

Forwards

Currency forwards are typically reserved for banks, corporations and other major players. They are legally binding contracts that pin the exchange rate of a currency on a future date with no down payment. They are considered over-the-counter instruments, which means there is no centralized exchange for them. This also means that there is no legal way of backing out if the situation becomes unfavorable, so in some cases a deposit is required to ensure compliance and control damage.

An alternative for smaller investors would be the money market hedge; it is not the first option traders go for these days (they usually turn to forwards, futures and options first), but it is certainly worth mentioning. It is a great means against currency fluctuations if currency forwards are not available or practical (and they usually aren’t). This is a complicated process involving bank accounts in different currencies, and several transactions; it is useful as a short term solution, but this is a topic for another article.

Currency Risk Management with Futures

Futures enable you to trade a fixed amount of currency at a fixed rate over a period of time. Their margin is low, they are simple, reliable standardized and common. On the other hand, they do require an upfront payment (margin) and they are a commitment which should be handled carefully as it puts the buyer in a bind and limits his options to either fulfilling the contract (the currency exchange is arranged at current exchange rates but is to be carried out at a later date) or cancel the trade altogether, selling the future at the prevailing price.

Options

For those investors who desire no obligations, currency options are the way to go. Holding a currency option entitles you to trade currency at a fixed rate over a period of time (optional), plus a small fee for the broker (not optional). However, the holder is under no obligation to complete the trade, especially if the conditions are adverse. If the spot rate is more favorable, you simply let your options expire and make the trade at the new exchange rate.

Conclusion

When it comes to curbing currency risk, hedging is the best way to accomplish this. All of the above-mentioned means are forms of hedging. As to which is best, it depends on the trader. Currency forwards are the most reliable, but unavailable to most. Options give the most maneuvering space and futures are the middle ground.

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Analysis

Forex Algorithmic Trading

by Danijel
written by Danijel
Forex Trading

Forex Trading

For better or worse, we owe computers and their algorithms for our new way of life. For instance, there once was a time when forex traders had to rely on phones, newspapers and unconfirmed rumors to do business. Even back then, forex markets were considered among the most liquid financial markets around and an absolute necessity if you needed to trade currencies in order to get foreign merchandise and services. That need was the driving force behind forex markets from the get-go. Since what happens in the forex markets could affect entire economies of different countries, forex markets have always attracted attention from governments and major players on the world stage. Back then, the difference between brokers and clients was huge. Fortunately, that gap has shrunk considerably (or closed completely in some cases) by now. In modern forex markets, almost everything is done via computers.

When it comes to forex trading, one of the monumental changes ushered in by the era of computers is the possibility of algorithmic trading. Forex algorithms are basically sets of rules made to accomplish a specific goal automatically and at low cost. Forex traders input parameters like price, quantity and time and computers do the rest.

Types

There are five types of algorithmic trading in forex markets: statistical algorithmic trading, auto-hedging, algorithmic execution strategies, direct market access and finally high frequency trading. Statistical algorithmic trading is a type of algorithmic trading where computers search for trading opportunities as defined by their forex trader users. Computers identify potential trading opportunities based on statistical analysis of available data in real time. Auto-hedging is a type of algorithmic trading whose goal is to reduce the risk of monetary loss as much as possible, without damaging the potential for making money. This is achieved by reducing the amount you can lose if the worst case scenario comes true. Direct market access refers to the speed and cost at which forex traders can utilize multiple trading platforms. The main feature of high frequency trading is the high rate of trade order executions. It enables traders to place orders without having to worry if the price changes by the time their order is executed, but haste is not always a good thing. It does provide the opportunity to exploit miniscule changes in price at relatively low risk, although the speed at which this is done carries its own potential for errors.

However, trading algorithms have attracted some criticism. Some consider them unfair because the rich can afford superior algorithms, gaining crucial speed advantage. Furthermore, they cannot adapt on their own to sudden market changes and need to be monitored constantly, though this may change some day.

Conclusion

Whatever their shortcomings may be, trading algorithms have become an indispensable part of forex markets. They are one of the reasons why forex markets have grown so much over the last decades. Considering the nature of forex markets, trading algorithms will remain a factor for years to come.

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forex trader - CHF: Earthquake in Forex
Analysis

Hedge Fund in Forex – To Minimize Uncertainty

by Danijel
written by Danijel
Hedge

The Swiss franc has risen by almost 30pc against the euro after the central bank shocked global markets by abandoning its long-standing cap against the euro.

Hedge funds are nothing new in the financial markets in general. Hedge funds emerged in the 1940s as a strategy to curb risk in the financial markets. Even the term ‘hedging’ refers to the practice of reducing the risk of unfavorable price movements through a futures contract. However, in modern days, their primary purpose seems to be maximizing profit. It is important to mention that hedge funds are quite diverse when it comes to assets and markets and very few focus exclusively on forex markets, especially after 2008. However, hedge funds in forex markets have been making a comeback for quite some time now.

Forex hedge funds use pooled resources of a large number of investors as well as a number of financial strategies to earn them their return and stay on top. Hedge funds are open to a certain number of investors and the initial investment is relatively large; their standard lock-up period is one year, with limited options for subsequent withdrawal at regular intervals that can be up to two years apart, so this is definitely a long-term investment. They are controlled by professional managers who get a percentage of the proceeds in addition to their fee to incentivize their good performance and innovative approach to strategies.

Market-neutral strategies are the preferred strategies for most hedge funds, as they are perceived as being able to profit under any circumstances. The ability to exploit the momentum on any market cannot be overestimated. Being able to acquire undervalued currency or get rid of overvalued one quickly is certainly an advantage, while the combination of long and short positions helps manage the risk and keeping the ‘beta’ as close to 0 as possible. It should be said that it is generally harder to get rid of overvalued currency than to acquire undervalued one, due to the nature of the market.

Global macro strategies take advantage of large scale changes in the financial markets. The main characteristic of global macro strategies is their reliance on major trends as well as their heavy usage of futures and options. Forex hedge funds employing a global macro strategy hold their short and long term positions based on macroeconomic principles, including the state of economy and economic views of entire countries – and base their actions accordingly. For instance, if a hedge fund manager believes British economy will enter a recession, he or she will do what they can to sell off their positions on British pounds. Or if they believe Swiss economy will flourish in the foreseeable future, they might take long positions on Swiss francs.

When it comes to investments, hedge funds have become a category of their own. In any case, those who aim to invest in a hedge fund should get familiar with all its risks, aspects and strategies before committing to it. Always keep in mind that a hedge fund’s potential for profit is only matched by the risk it involves.

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currency rates - quality in trading
Analysis

Broker – How to pick your very first broker

by Danijel
written by Danijel
broker

We recommend to pick the most competent brokers with years traceable experience

Broker is a person or a firm that implements an investor’s buy and sell orders for a fee. In order to do that, a brokerage account is needed. A brokerage account is a deal between a broker or a brokerage firm and an investor in which the former is authorized to make transactions on latter’s behalf. It is important to note that there are many types of brokerage accounts including various services. Some brokerage firms offer only the most rudimentary services, a secure platform from which the investors may conduct their own transactions at their own discretion, while some other brokerages offer additional services alongside their accounts, such as expert advice from experienced professionals, faster implementation of orders, additional tools for analysis or more trading margin. These additional services come with additional costs, however, so it might behoove an investor to assess his/her options before choosing the type of account that suits their own financial interests in the most productive way.

Of course, the right brokerage account is not the only paramount thing to consider; choosing the right broker is just as important. Not too long ago, only the affluent could afford the services of a professional broker, so there were relatively few of them. However, the Internet has opened a plethora of new opportunities and budding new markets, so the need for brokers has been on the constant rise ever since, along with their numbers. This came at a cost, though, as this new economic boom attracted some unscrupulous and/or unqualified people to the ranks of brokers.

Brokers are usually divided into two groups: some deal with their clients directly, while others merely act as intermediaries between clients and other brokerages; these are called broker-resellers. This is why hiring services of a regular broker may seem like a good idea, since the broker-resellers are rarely as reputable or qualified as their regular counterparts, so an investor should thoroughly investigate the broker before any money changes hands.

Another distinction is between discount and full-service brokers. Discount brokers charge lesser fees, but offer little or no advice on how to invest. The appearance of discount brokers with their affordable fees is what enabled ordinary people to enter the markets formally reserved for the affluent and their assistants. However, for those favoring the traditional approach, a full-service broker is the way to go. For a (much) higher price, the client can count on expert advice on investment, taxes, financial matters as well as additional research and other tools not commonly available. In order to level the playing field, many discount brokers have introduced additional options with their standard services.

Choosing a broker is by no means a trivial task. There are many factors to consider, but in the end it all comes to an individual investor’s needs. An ideal broker should be reliable and competent, with a reasonable fee and appropriate range of services. Other than that, it is all a matter of choice.

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