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April, The ECB and The Forex Markets

Last week was not a good one for Euro, against the dollar. It started out quite promising, but went downhill from there…fast. This was more noticeable because other forex currency pairs did alright against the US Currency. Maybe not great, but at least we saw a mix.

The ECB have gotten themselves into a bit of a pickle. How did that happen? It’s quite interesting. Central Banks have characters. The character of a Central Bank is usually a derivative of the people who run it, along with the relative strength of the country’s currency, along with some spice. Well, it is well known that the European Central Bank is generally against dropping Interest rates to very low levels, if they can help it. They responded to this crisis by cutting rates, just like everybody else. However, they responded late. They came along kicking and screaming. Along the way they have often indicated their desire to maintain a strong euro. That desire seemed to stand, even as the pillars collapsed around them.

Well, now we have a rate decision approaching. Things are still not great. In fact, new data seems to indicate the Europe is still in dire straits. They need to do more. To that end The President of the ECB, Trichet, has shown (key here: actually spoken this aloud) a willingness to drop rates lower than 1.0%. This is unprecedented. Finally, they are coming to their senses! Great! Well not quite. You see, another big official also said pretty much the opposite in the news. The unwillingness to drop below 1.0.

What’s going on here? Is El-Presidente losing his grip? Where’s the unity? At least people knew what to expect before this. Now…well now there’s confusion. An incongrous message is put out there. The end result: The Euro is left with a four day losing streak against the dollar. This, when the others such as the pound and Commodity currencies were fighting back. With more negativity expected in the news this week, the ECB fellas will have to get their act together.

Things aren’t all rosy for the others either. The pound, though it fared better than it’s european cousin, also has it’s problems. There was no real news last week. That won’t be an issue this week. There’s plenty to go round. Some of it will be bad, and we will all see that, in spite of the optimism, we are not out of this yet. This should bode well for the US Dollar. Also, a major investment firm has boycotted bets that the Pound will continue gaining against the dollar since the pair failed to close above major resistance just above 1.5000. That will just add to negative pound sentiment.

All in all, it looks like a week for the dollar. Happy trading.

Trading or Investing?

If you are to be successful in arriving at any particular destination, it is not enough to know where the final destination is; you also need to know exactly how to get there. Hence, if you need to get to Mario’s Chip Shop, a map might be handy. That’s not all that there is to it, though. You also need to know what sort of map. You might require a different map if you are going to fly there, or if you are much further away; than if you are driving. Your decision will also be influenced by your resources. Can you afford the flight, or are you going to have to drive all 1500 miles? We can go at this for ages…but I am sure you get the point. You have to know where you are, what resources you have, what sort of person you are; before you can begin your journey to the Chip Shop.

If you wish to make profits off the Markets – e.g. Stocks, Options, Commodities, and Forex, of course – then you need to know exactly how you are going to go about doing that…your approach. In general, you buy an item, hold onto it until it gains in value, then you sell it and make a profit (in Forex Trading, one currency is always on the Buy side, so this still applies). If it is a long term investment, you might never actually sell it. However, the value of the amount you own should still rise in perceived value. This might also take on a slightly different dimension when you try to make profits from the interest you might earn from owning the item in question. There are also dividends that companies pay out if you own their stock. All of these come into play, but the general model still holds.

People see the above goal differently…for different reasons. Some people will buy a company’s stock, and hold onto it indefinitely, through ups and downs etc. Such a person would be an investor. They hold onto the item for a relatively “long” period of time. A trader is more opportunistic. They might buy the same stock, but would sell (or short) it when it’s value goes down, then perhaps buy again if they think it is going back up. Investors tend to be in it for the comparatively long haul; traders, while not necessarily short term players, tend to be more willing to drop the item if the market dictates. The trader tends to be more active. The distinction is quite important, as it can influence how either of them uses the same piece of information.

You see on the Markets everyday in this economy. Some bad news comes out, and the traders sell. They have no attachment to the stocks, they have an attachment to profit. The investors are much more likely to hold on, for whatever reason.

You need to work out what your approach to bring to the whatever market you find yourself trading.

How to start Forex Trading

Trading in the currency markets can be very lucrative. It can also be an easy way to lose all your money. It all depends on your approach. It doesn’t necessarily require you to go through an extensive research and study program for months. You will, however, need to invest some time and effort to digest all the information required to do well at it. Provided you trade wisely and cautiously, you can become a Forex expert within a year or so, making consistent substantial profits from it. So, where do you start? Well, at the beginning, of course.

Get a decent Internet connection

It may seem silly to have to mention this but, at least in my experience, a slow or dodgy internet connection can cost you…a lot. Part of what has made Forex Trading so accessible to regular folks is availability of high quality free software and market information. There’s a wide array of sources of information, most over the internet, so the importance of the internet is obvious.

The main reason why the quality of the internet connection comes up, aside from speedy delivery of information, is software trade execution. I once entered a trade impulsively – this is a big no-no, and this example underscores why – and, shortly afterwards, realized my mistake. I knew I needed to get out immediately. I attempted to do so but my Wireless internet connection went off at that point. I had lost a substantial amount of money by the time I got my connection back. I blamed karma. Fate was obviously after me. In truth, it was because of my unreliable internet connection. All it takes is one case such as this to destroy your trading Account. If you are going to trade seriously, get a good broadband service.

Research & planning

The second phase of Forex trading has four sub-steps: research, research, research and planning. One just cannot put too much emphasis on the importance of research in Forex trading. Read a book, or three. Get some background on world markets and how they affect each other. Remember that the Forex Market is influenced by a lot of external factors. You will need to understand correlations to maximize your profits. There is some free information available, so you don’t necessarily have to spend money. However, be wary of e-books that try to sell you systems. Get your own knowledge first…unless of course you can try them risk-free.

Along with research, formulate a feasible plan about how you will conduct your trading. If possible, write it down and treat it like a business plan. It should serve as your blueprint for trading. Think about how much you are going to invest. Also write down your short-term and long-term goals and how much loss you can afford. Your strategy will depend on this information so try to be clear and precise.

Find a broker

Your next step is to find a brokerage firm through whom you will buy and sell currencies. You need to be thorough while checking out brokers. Regulation in the Forex Market is no where near the level of other markets. There are still a number of unscrupulous firms out there that might try to defraud you. Try to find a firm that has ties with an international bank or any other financial institution. You should also check if the firm is registered with Commodity Futures Trading Commission, the US government institution that regulates fraudulent trading practices.

Along with the above, you will also want to confirm that the broker is a good fit for you. How good is their software? Do they allow you trade and view charts via website, in case you are unable to get to your own computer? Do they have a mobile application? Make sure you have all these answers. Ultimately, if you are unhappy with one, you can change to another one.

Set up a demo account and trade

All brokers should now offer demo trading accounts. These will allow you trade “fake” money against real-life conditions. Open one and trade, trade, trade! Test out your strategies for at least a few months on a demo account before going live. You will learn a lot about yourself and what you are comfortable with as a trader this way.

Once you have gone through this, you will be ready to start your Forex Trading journey proper.

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