Examples of some prominent central banks include the US Federal Reserve Bank the Fed , the European Central Bank ECB , the Bank of England BOE and the Bank of Japan BOJ — with the Fed undoubtedly being the most influential among all the other central banks in the world. Issues that are of most concern to central banks are those relating to: inflation price stability , economic growth and the unemployment rate.

One of the ways that central banks control these factors is through the setting and adjustment of interest rates, which will affect the valuation of many currencies. Sometimes central banks intervene directly in the forex market when they are not satisfied with the current exchange rates of their currencies. That is, they may find that the current exchange rate is either too high or too low for the overall benefit of the economy. The Bank of Japan is well-known for its intervention in the market.

Hence, when the BOJ deems that the Yen is getting much stronger against, say, the US dollar or the Euro, it may step into the open market to deliberately depress its currency by selling Yen against US dollars and Euros. This act of central bank intervention may cause other institutional players to follow suit, and further drive the currency exchange rate towards the rate that is favoured by the intervening central bank. Most of these institutional speculators have international portfolios that consist of both domestic and international assets like stock or bonds to diversify their holdings.

They tend to be very aggressive participants of the spot forex market as they often facilitate currency transactions when purchasing or selling foreign assets. For example, an investment manager who is in charge of an international stock portfolio will be required to buy and sell foreign currencies so as to pay for any purchase of overseas stocks.

Hedge funds, being largely unregulated, often practise very different styles of wealth generation from investment management companies; they tend to adopt more aggressive forms of trading with the aim of generating a high return on investment. Sometimes, a portion of their assets under management may be allocated specifically for currency speculations, with the objective of maximising their overall profits. Large hedge funds and investment management companies are capable of moving the forex market in their transactions.

Forex brokers The emergence of sophisticated online forex brokers made forex trading feasible for private individuals. In the past, only wealthy individuals could speculate in the forex market, but now things are very different. Anyone can simply open a trading account with a retail forex broker and trade currencies online with little money upfront, as forex brokers tend to offer highly leveraged margin accounts for individuals. There are basically two types of forex brokers: 1.

market makers: who set the bid and the ask prices themselves, and 2. Electronic Communication Networks ECNs : consolidate various bid and ask prices from market makers and other participants connected to their platform, and display the best available prices. These are explained in some detail below. Market Makers Market-making is a lucrative business for banks and brokers, and forms the backbone of market liquidity.

By quoting the bid and the ask prices on the screens of electronic brokering platforms, or through telephone calls, they are essentially providing liquidity and inviting other qualified parties other banks, hedge funds, corporations or retail customers like individual traders to deal with them.

In doing so, market makers must be prepared to buy or sell from other market participants. Some market makers may have established credit links with banks that trade on the interbank market, or they access electronic brokering platforms like EBS or Reuters for pricing.

the price at which the market maker will buy bid price , and the 2. price at which it will sell at ask price from a customer. During periods of high liquidity in which there is a great deal of trading activity, spreads of the actively traded currency pairs are usually kept quite narrow, between pips. When the market is very quiet with little trading action going on for a particular currency pair, for example just prior to the New York close on Fridays or during news releases, dealing spreads tend to widen, sometimes by a huge margin, as a way for market makers to protect themselves when they feel that they may have to carry additional risks.

Market makers usually operate a dealing desk, which refers to the market maker trading with the customer, and the presence of dealing desks means that the market maker may potentially trade against the customer. They may move their currency quotes pips away from the interbank rates. Independent traders should always be sceptical of claims by some market makers when they say they do not operate a dealing desk.

Electronic Communication Networks ECNs ECNs are electronic trading platforms that match buy and sell orders automatically at the specified prices. Traders tend to be more aware of their existence in stocks or futures markets. An ECN broker gets its currency pricing from several liquidity providers such as banks, market makers or other traders who are connected to the system. When an order is placed, it is routed to the best available bid or ask price in its system. Unlike the case of some market makers, spreads on ECNs are variable rather than fixed.

Although ECN-type brokers typically charge a small commission, you can usually get tighter spreads on many currency pairs due to the large liquidity pool available. Risks of trade manipulation are also minimised when using genuine ECN brokers as compared to brokers that operate dealing desks. This aspect of OTC shifts the odds of success against individual traders, especially if the forex broker acts as a market maker. Since traders have to deal directly with their brokers, the latter will usually hold the opposite side of the transactions.

Because of the inherent conflict of interest that exists, this arrangement does not sit well with many individual traders as they fear that the market maker will trade against them, and that is not an uncommon practice in the market making industry.

No information on volume Since buy and sell transactions are not cleared by a central system, there is no way of knowing the total volume of trade.

Lack of volume data can pose a challenge to stocks or futures traders who have made the switch to currencies as they may have become used to checking volume. No singular exchange rate at any one time Exchange rates do differ from place to place, screen to screen, depending on which parties are offering what. Cash transactions take place between countless parties at any one time, and there is no exchange which records all these transactions.

Some independent traders are not even aware of this peculiar aspect of OTC dealings. Since there can be a few different prices for a currency pair at any one time, you may not be able to see what is the best available price if you trade through only one market maker.

Generally, though, the rates provided by market makers to retail traders are quite close to the pricing quoted in the interbank market.

No standard data Exchange rates differ from one market maker to another because there is no consensus specified by a centralised market. Different market makers have different rates at the same time although usually not differing by more than a few pips.

A trader would have to accept what is being quoted by his broker unless he compares prices with other brokers. Price charts from different price feed vendors will also look slightly different as they each have their own data source.

Although, in general, the currency prices are quite similar. The forex trading day Also, being a hour market, boundaries of a trading day are blurred. Traders from around the world are in various time zones. Traders from, say, Singapore would display a different timing from their US counterparts — who tend to display EST Eastern Standard Timing on their price charts. While the trading arena has had a boost from the CME-Reuters joint venture of a central forex exchange, it remains to be seen if that can benefit independent traders.

Trade manipulation by some market-making brokers is something that is difficult for traders to prove, and something that is easy for the culprits to dismiss. However, despite the limitations that come with the OTC territory, spot forex trading can be extremely financially rewarding for those who are aware of the limitations and know how to deal with them.

And trading forex is not one of the easiest ways — despite what many new traders believe. Many traders fail, and they empty their trading accounts before they learn how to exploit the forex market to their advantage. Although there are also traders who are successful in forex trading, their numbers are small compared to the majority of losers.

Many times, traders are not aware that they have the power and might to shift the odds to their favour, that they can dramatically increase their chances of success if they want to. The main reason why many traders get defeated by the market can be attributed to their lack of knowledge. In this 21st century, where the buzzword is knowledge, it is not just a matter of working hard, but also a matter of working smart. Knowledge is the key that can open many doors — if you have an intimate knowledge of how something works, you can then come up with ways to exploit what you know to your advantage.

This applies to forex trading as well. You need to know how to identify high probability trade setups and how to manage your money wisely. For every transaction in the forex market, there are winners and losers. Your goal is to make more overall profits than losses over a period of time, and to emerge an overall winner.

My approach to consistent trading success lies in three main pillars, or the 3Ms: Mind, Money and Method. It is often said that we are our own worst enemy.

Human beings are emotional creatures, and most of our decisions are guided more by emotions than logical thinking. Our mind is capable of playing tricks on us; we can get seduced into unfavourable situations by our emotions. Emotions can work for us or against us. Sometimes they can save us from landing in a pile of sticky mess, but sometimes they can land us in it.

We can also turn the tables around by playing tricks on our mind, making it believe whatever we want it to believe. Do you have the mental strength? Whether you are new to trading currencies or a forex trader who has some experience, here are some questions to ask yourself: Do you really have a strong desire to succeed in forex trading?

Sure, every one wants to succeed in something, but do you have the desire to want to succeed in forex trading? First of all, this field is not for every one, for you must have the passion for it. If you just want to try your luck, or dabble, in trading, you will just end up among the majority who lose their money. You must have the deep desire to want to accomplish your goals, because without this desire, your thoughts will not materialise into action, and it is action that could transform your goals to reality.

To be a successful trader, you must be highly self-motivated, have a concrete plan of action, and not be afraid of failure. Are you prepared to devote a lot of time and effort into picking up trading skills and knowledge?

To be really good at anything, you need skills and knowledge in that field. A huge amount of time, effort and money is required for a trader to attain consistent success in forex trading.

Despite the availability of forex trading-related resources on the internet, and in the bookstores, traders can find it quite daunting to learn about trading on their own as they do not know what there is to be known. I recommend that you check out those which are offered by skilled and practising instructors.

Note: Be wary of signing up for courses or seminars that are full of hype, for they can be very misleading. Avoid those that give you the impression that you can attain consistent profits after two days of intensive learning, or those that require you to purchase expensive software.

While there are some shortcuts to gaining knowledge via courses or seminars, there is no substitute for honing your trading skills in the market.

Are you willing to accept losses as part of trading? Every one makes mistakes, and mistakes are inevitable. Got a trading loss? Then whip out your trading log to record what your mistakes are and what you have learnt from that losing trade. Always have something positive to take away from your losses, and treat it as a learning experience.

Know that there will be other trades coming your way. Are you willing to take sole responsibility for your trading decisions? You read some market analysis, and then trade according to what the analyst is saying. That trade turns out to be a loser, and you turn around to blame it on that market report.

It is dangerous to blame losses on other people, the forex market, or the stars, for you are the only person responsible for pulling the trigger.

And if you blame others you will never be able to find out how you can improve. Fear and greed Fear and greed are the two dominant emotions that affect not just the state of our mind, but also the currency market. In fact, the fluctuations of these two emotions are the main drivers of the currency market.

There are, of course, other emotions that exist in the market such as disappointment, regret and so on, but fear and greed are the principal forces that tilt the scales of supply and demand of currencies. When traders feel overly optimistic about a country or its currency, they become consumed by the great hope that the currency would appreciate in value against another currency. They are then guided by this hope and greed to buy the currency pair now so that they could hopefully sell it at a higher price in the future.

Greed then grows into euphoria, as traders continue to buy and buy, thus taking currency prices to newer highs. When people are buying a currency with great hope, they are also selling the other currency in the pair with great fear. On the other hand, when currency prices go down, fear and greed are also the main drivers of the move.

All in all, fear and greed are behind the steering wheel of the currency market. So, while you must learn to recognise these emotions in the market, the problem comes when you allow them to distort your logic when it comes to making trading decisions, as most of these decisions will turn out bad, and are likely to cause you to regret your actions later.

Since there is no way of banishing these emotions for good, the best thing to do is to control these emotions, instead of letting them control the way you think and act. Face and control your fears Since greed can be categorised as a kind of fear, which is the fear of missing out, I will discuss the primary types of fears relating to trading, and how they can be overcome. The first step to preventing fears from ruining your trading performance is to recognise the various forms of fear that is connected to trading.

And once you recognise the type of fear you are experiencing, the easier it is for you to handle that emotional obstacle so that you can trade better. That is the key to emotion-free trading.

It is not about pretending that those fears do not exist, but how you handle them that matters. Here are some common trading-related fears. Fear of missing out Why do so many people rush to departmental store sales, or rushed to buy technology stocks during the dot-com boom? Any kind of buying mania stems from a very strong emotion that is commonly invoked in people, and that is the fear of missing out.

In trading, this fear manifests itself especially during a sharp rally or decline of a currency pair. Your heart begins to pound really fast, and you have a million thoughts zipping through your brain, with most of the thoughts urging you to buy now, now, now.

I am losing out! Traders suffering from this type of fear are usually the ones who get onto a trend too late. Be disciplined and hold off that mouse whenever you sense that this type of fear is creeping up on you. Think instead of all those traders who are pouring dumb money into the market, and be glad that you know better than them not to join in the craze. Fear of losses Trading is a game — there will be winners, and there will be losers.

Sometimes you win some, sometimes you lose some. Losses are bound to happen, no matter how accurate a trading system may be.

The fear of losing is most prominent in new traders as they do not yet have adequate trading skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This can lead to trading paralysis, whereby traders become afraid of pulling the trigger when it comes to entering or exiting trades as they fear losing money or a big portion of their trading capital.

However, if you have a reasonable stop-loss order in place, that is in accordance to your money management rules, you should have no reason of being fearful of damaging the trading account based on just one trade. That is what stop-loss orders are for — to guard against huge losses. When you do encounter hesitancy in pulling the trigger, evaluate if you have valid reasons for doing so or if you are simply held back by fear. Traders just have to get used to the reality that losses are inevitable.

The trick is to ensure that your losses are kept small so that you do not harm both your trading account and your state of mind. A trader does not have to be right. It does not matter at all whether he or she is right or wrong; what counts is whether he or she is profitable in the long run. Traders should not be hung up on the outcome of single trades, or even a few trades, as trading performance has to be assessed over a period of time.

What matters is that you end up profitable over a period of time. Once you place less emphasis on being correct on a current trade, your fear of making wrong decisions should abate, thus enabling you to make better trading decisions without feeling burdened by the overwhelming pressure to be correct in that trade. Remember that there will be times of losses and times of profits, which is why it is so important to enter only trades that have a high probability of success.

Focus on the big picture Do not get caught up in feeling invincible or pessimistic after a win or a loss. As trading is a very highly charged and emotional activity, it is very easy for traders to oscillate between emotional highs and lows.

The outcome of just one trade should not affect your overall performance, unless you have violated proper risk management guidelines by betting the farm on a single trade or by over-leveraging. A trade is just one of many trades. When you are wrong on one trade or several trades, try not to beat yourself up or feel regret.

Instead, analyze to see where and how you could have done better in those trades or what mistakes you may have made, and record what you have learnt from them. If there was really nothing that could have been preventable, just accept that the market is unpredictable. The outcome of one or a few winning or losing trades should not be magnified. Other trades will surely come.

I strongly believe that once a trader has honed his or her trading skills, the ultimate factor that will affect his or her overall profitability is money management skills. Money management is all about managing the possible risks, and it is the defining factor that separates winners and losers in forex trading. Novice traders think of how much they can harvest from the market; experienced traders think of how much they can lose to the market.

Many traders are so eager to trade to make big money that they completely overlook money management. Poor money management also explains why so many traders get wiped out by the market. Money management is about fully optimising your trading capital. It allows you to be proactive in managing risks, and to cope with trading losses — which are part and parcel of the game.

It is an essential tool to ensure that you will have more than enough to last another day in the trading game. No matter how good a trading system may be, there will be times when you will experience a series of losses. Success comes to those who have set down rules for money management, and have the discipline to follow them through their trading.

Preserve your capital The shining light that attracts all traders to the forex market is the prospect of being able to grow their money by tapping into the online trading platform as their own in-house money tree.

In almost any field, it is true that most people are drawn to short-term benefits, but are myopic when it comes to long-term planning. Trading is no exception. When risk capital is put aside for trading, you are hoping that this amount of money could be transformed into a much bigger amount; otherwise, what would be the point of risking it? But if this capital runs out, what can you bank on to make your desired profits? After all, money begets money.

To drive home the importance of capital preservation, I will discuss the concept of drawdown, and how that is relevant to money management. In other words, it is the amount of money that you lose — it is usually expressed as a percentage of your total trading equity at any given time. Drawdown is not an indication of your overall trading performance, as it is calculated when you have a losing trade against your new equity high or your original equity, depending on which is higher.

Recovering from drawdown As drawdown gets bigger and bigger, it becomes increasingly difficult to recover the equity. Many people are not aware that in order to recoup the percentage of equity that they lose, they will need to gain a bigger percentage just to break even.

The answer is no. It will require an Let me show you with numbers. OK, that is not scary yet, but if you start losing more and more of your capital bigger and bigger drawdowns , the faster you will go down the rabbit hole.

While many traders hope for that One Big Win that will magically transform them into millionaires overnight, they are more likely to be confronted with the One Big Loss that will threaten their survival in the forex market if they do not exercise careful money management.

If a trader has a big loss, he or she will have to spend more time to get back to where he or she was before, instead of using the time to make profits.

Traders who burn out quickly in the market are those who do not show respect for risk. On the other hand, traders who have flourished are those who fully understand the importance of stringent money management and incorporate that into their trading approach. There is no way around to recouping slowly, unless you want to drive yourself to total destruction by risking more and more of your equity to try to make back your losses.

Holding on to a losing trade for too long is the biggest cause of a big drawdown. Be well-capitalised Most new traders run out of money even before they see any profits in their trading account. Indeed, those who are new to trading most likely do not have a good understanding of the risks and dangers that are lurking in the market, and few even know what drawdown means or have even heard of this word.

Many of them do know that trading can be very risky if they do not know what they are doing or how things work in the currency market and, to them, one of the obvious but incorrect ways to limit this risk is by allocating just a small amount of money to their trading account. There are also many new traders who begin their trading business with little initial capital as they simply do not have enough money. Whatever their reasons may be, being under-capitalised will be more than just a mistake; it is often the prelude to trading failure.

Forex traders who want to set themselves up for success must be well-capitalised. Never mind that some retail brokers are offering a minimum account deposit of just a few hundred dollars — a paltry amount that almost every one can afford. Sufficient initial capital must be available to cushion the impact of a string of consecutive losses, so that you do not wipe out your trading account. A series of losses is really not that uncommon in trading, and all traders must be financially prepared for it.

Those with insufficient trading capital tend to set really tight stops, which will naturally then lead to a higher probability of being stopped out. They also tend to have a good chunk of their account eaten away by unreasonably large losses in relation to their trading account, if they do not set tight stops. So it seems that whichever way they turn, they are setting themselves up for failure, unless they are willing to trade smaller lot sizes.

Looking outside of trading, many other businesses fail because the owners often do not have enough capital to tide them over the initial starting phase. For example, a new restaurant owner must set aside enough money to pay the rent of the restaurant for at least a few months to a few years, assuming that the restaurant would not make any net profits in that period of time.

If the owner only has enough to pay for two months rent from his or her own pocket, and the restaurant is still not making enough to cover the rent and other expenses in the third month, how do you think the business is going to sustain itself? The entire business could fail, not because of the business model, but because of the lack of sufficient capital to keep the business running while the customer base builds up.

Trading, as I have mentioned before, must be treated just like any other business, not a frivolous casual pursuit. The point is this: by starting off sufficiently capitalised, you are more likely to adhere to your money management rules and, by doing so, you are really giving yourself a good fighting chance in the market. Losses are really just part of the trading game. If trading losses are kept manageable and reasonable, they should not dent your trading account too much, provided that you are well-capitalised.

Knowing when to get out of a losing position in the currency market is a very important tool of risk management. Stop-loss orders allow traders to set an exit point for a losing trade, and are the best weapon against emotional trading.

While I recommend that traders place a stop-loss order at the time of placing their entry order, mental stops may also be used — but preferably by traders who are more disciplined. From experience, it is much wiser to have a wider but reasonable stop than to have an unreasonably tight stop. Generally, a stop-loss order should not be shifted in the losing direction while a position is opened. A good trader should know beforehand when to cut his or her losses, and also when to get out of the market with profits.

It is indeed the elusive factor that courts the relentless determination of its seekers. Want to know where it lies? It only exists in the creative part of the mind — together with fairies and gnomes. There is no perfect formula or strategy that can achieve that unrealistic goal because people who are involved in the financial markets evolve with changing market circumstances, even though certain old habits die hard.

Despite the non- existence of the magic formula, there are certainly high probability ways of trading the forex market. While the bulk of this book is focused on the Method part, you need to combine Method with both Money and Mind in order to attain success in the trading business. The old question: technicals or fundamentals? There are generally three broad categories of forex traders pertaining to what they base their trading decisions on: 1. the technical trader, 2.

the fundamental trader, 3. the trader who combines both technicals and fundamentals. Each type of trader has a distinctively different way of interpreting the currency market based on his or her own opinions.

Technical trading A technical trader believes that historical data has a big role in the forecasting of future price action, and is thus devoted to currency price chart analysis, making use of various charting tools such as support and resistance levels, trendlines and a myriad of chart indicators to understand past price behaviour so as to predict what the market will do next.

Most forex traders employ some kind of technical analysis to help them make trading decisions. Technical traders assume that everything that is to be known about the market has already been factored into the current price. Fundamental traders believe that the exchange rate of currencies are largely driven by economic and geopolitical conditions, aside from central bank interventions, and will keep track of economic data such as trade balances, inflation, Gross Domestic Product GDP , unemployment rates, interest rates and so on.

They are also concerned about what policymakers have to say regarding the monetary policy of the country, and will keep on top of these when speeches are scheduled. Combing technicals and fundamentals Since there are advantages of analyzing the forex market from these two different fields, it would be too restrictive to just side with one area and ignore the other. The most effective traders tend to make trading decisions based on a combination of both technical and fundamental factors in order to get a feel of the overall market sentiment, and then decide to either trade that sentiment or to trade against it taking a contrarian approach.

The strategies taught in this book must always be combined with the prevailing market sentiment, which is influenced mainly by fundamentals. Some strategies may work well for some traders, but may not have the same results for others over a period of time.

This may seem puzzling for some people who are wondering that if something works for someone, then it should work for other people as well. In trading, there are so many other factors specific to each trader that can influence the overall trading performance — his or her emotions, psychology, trading time frame, money management rules, lifestyle, trading capital and so on.

The strategies included in this book are open to customisation according to your own personal preference. Many traders do not give themselves the fighting chance and time to stay in the game as they are prone to getting wiped out very quickly.

The Ten Rules For Forex Trading I list here ten rules that I think are important for trading forex. Dos 1. When trying out a new trading strategy, always test it in a demo account, or with a small amount of money, before you commit more money to it.

Always keep a record of each of your trades, with details of: why you got in, how you got out and why it turned out the way it did. Have a personalised trading plan and update it as you learn from the market. If you are unsure of a trade, stay out. It is better to miss an opportunity than to have a loss.

When trading, keep up-to-date with both the fundamentals and technicals affecting the market. A trader in the dark is a trader in the red. It will affect you emotionally, and you will most likely lose it to irrational trading.

Always know why you are getting into a trade, and how you are going to get out of it. Just be concerned about being profitable. Chances are that your account will be decimated before you can recoup your losses and go into profit. Vent your frustrations elsewhere after a loss. Do you see it as a big mechanical matrix which is devoid of emotions? Or do you think of it in mathematical and probability terms? Perhaps, you may even view it as just a vast network of computers which are designed to cheat the trader sitting in front of his or her computer and trading electronically.

Most traders I know have a love-hate relationship with the forex market, thinking that the market is, in turn, either against them or for them. To me, the forex market is nothing more than the compressed display of emotions at any one time emanating from currency speculators around the world.

It is similar to a big living organism, like a human being, which is made up of numerous cells, with each cell carrying out its own function and interacting with other cells of the body, working to keep the body alive with round-the-clock chemical and biological processes.

The forex market is alive as a macro living organism, which comprises a vast number of market participants acting out their perceptions and emotions, thus driving the blood around the invisible entity.

The participation of each player, whether the player is an institutional dealer or an independent trader, is akin to the individual functioning of a cell, which collectively will constitute the whole organism — the forex market in this case.

Knowing what the market thinks and how it thinks is crucial to trading success because, ultimately, the trader is dealing with other traders out there, and needs to know what they are thinking.

Even if you see the market as an enemy, what could be better than knowing the weak points and being able to read the mind of your adversary? In this chapter, I shall focus on how you can better understand the market, and use that knowledge as one of your trading weapons. Market sentiment is simply what the majority of the market is perceived to be thinking or feeling about the market — it is the most important factor that drives the currency market.

This is so because traders tend to act based on what they feel and think of certain currencies, regarding their strength or weakness relative to other currencies. Market sentiment sums up the overall dominating emotion of the majority of the market participants, and explains the current actions of the market, as well as the future course of actions of the market. The trend adopted by the forex market is actually a reflection of the current market sentiment, which in turn guides the trading decisions of other traders, whether they should long or short a currency pair.

In the process of making educated trading decisions, traders have to weigh a multitude of factors which could influence the bias of a currency, before making up their minds about the current and future state of certain currencies.

There are three main types of sentiment when it comes to forming opinions in the forex market: 1. bullish, 2. bearish or 3. just plain confused. If the majority of the market wants to sell that currency, the market sentiment is deemed to be bearish; if the majority wants to buy that currency, the market sentiment is bullish; and when most market participants are unsure of what to do at the moment, the sentiment ends up being mixed.

Market sentiment acts like a fickle lover, capable of changing its mind based on certain incoming new information which can upset the existing sentiment. One moment everyone could be buying the US dollar in anticipation of a stronger dollar; the next second they could all be dumping it as they fear the dollar would start to weaken due to the impact of some new piece of information, which is almost always some fundamental news.

Interest rates Trends in interest rates are one of the most significant factors influencing market sentiment, as interest rates play a huge role affecting the supply and demand of currencies.

Every currency in the world has interest rates attached to them, and these rates are decided by central banks. Some currencies have higher interest rates than others, and these are usually the currencies that attract the most attention from savvy international investors who are always looking across the global landscape in the continual search for a better interest rate yield on fixed-income investments.

This, of course, also depends on the geopolitical or economic risks of that particular currency. Just like when a bank lends money to a higher-risk borrower, high-risk currencies require a significantly higher interest rate for investors to consider keeping money in those currencies. What causes fluctuations in interest rates? The value of money can and does decrease when there is an upward revision of prices of most goods and services in a country. The nice word for this erosion in value is, of course, inflation.

Controlling inflation Central banks are responsible for ensuring price stability in their own country, and one of the ways they employ to fight inflationary pressures is through the setting of interest rates. If inflation risks are seen to be edging upward in, say, the US, the Fed would raise the federal funds rate, which is the rate at which banks charge each other for overnight loans. When the overnight rate is changed, retail banks will change their prime lending rates accordingly, hence affecting businesses and individuals.

An increase in interest rates is an attempt to make money more expensive to borrow so that there will be a gradual decrease in demand for that currency, thus slowing down an overheated economy.

Interest rates and currencies The most important way in which interest rates can influence currency prices is through the widespread practice of the carry trade. A carry trade involves the borrowing and subsequent selling of a certain currency with a relatively low interest rate, then using the funds to buy a currency which gives a higher interest rate, in an attempt to gain the difference between these two rates — which is known as the interest rate differential.

The trader is paid interest on the currency he or she is long in, and must pay interest on the currency he or she is shorting. This difference is the cost of carry. Therefore, a currency with a higher interest rate tends to be highly sought after by investors looking for a higher return on their investments.

The increased demand for that particular currency will thus push up the currency price against other currencies. For instance, in there was a strong interest among Japanese investors to invest in New Zealand dollar-denominated assets due to rising interest rates in New Zealand.

The then near-zero interest rates in Japan forced a lot of Japanese investors to look outside of their country for better yields on cash deposits or fixed- income instruments.

See Figure 5. When forex traders anticipate this kind of situation, they become more inclined to buy that high-interest-rate currency as well, knowing that there is likely to be massive buying interest for that currency. So, in general, rising interest rates in a country should boost the market sentiment regarding the currency of that country. The opposite is true too: when interest rates are cut in a country, that would result in quite a bearish sentiment regarding the currency of that country, and traders would be more willing to sell than buy that particular currency.

Economic growth Besides interest rates, economic growth of countries can also have a big impact on the overall currency market sentiment. Since the United States has the largest economy in the world, the US economy is a key factor in determining the overall market sentiment, especially of currency pairs that have the USD component. A robust economic expansion, coupled with a healthy labour market, tends to boost consumer spending in that country, and this helps companies and businesses to flourish.

A country with a strong economy is in a better position to attract more overseas investments into the country, as investors generally prefer to invest in a solid economy that is growing at a steady pace. Forex traders, expecting this consequence, will put on their bullish cap to buy that currency before the investors do. Gross Domestic Product GDP , 2. the unemployment rate, and 3. trade balance data. These are explained below. Unemployment rate The unemployment data reports the state of the labour market of a country.

Trade balance data Another widely watched economic indicator is the trade balance data. Trade balance measures the difference between the value of imports and exports of goods and services of a country. If a country exports more than it imports, it has a trade surplus. For example, if the US imports an increased amount of goods and services from Europe, US dollars will have to be sold in exchange to buy euros to pay for those imports. The resulting outflow of US dollars from the United States could potentially cause a depreciation of the US dollar against the euro or other currencies, and that can affect market sentiment surrounding the USD.

The opposite scenario is true for a country that is experiencing a trade surplus. Global geopolitical uncertainties such as terrorism, transitional change of government or nuclear threats can cause investors to lose faith in some particular currencies, and they may prefer to shift their assets into a safe haven currency when these circumstances arise.

Market sentiment is very sensitive to such geopolitical developments, and can cause a strong bias towards a particular currency. For example, during periods of high tension in the Middle East in , the market formed a very bullish sentiment towards the US dollar, which became the preferred currency to hold in such turbulent times, replacing the traditional status of the Swiss franc as the safe haven currency.

Forex traders should be keenly aware of the current geopolitical environment in order to keep track of any potential change in market sentiment, which could impact currency prices. But how can you get an idea of the overall sentiment of the market? You can do so by reading reports by analysts and financial journalists in news wires or by visiting online trading forums to see what other traders are discussing.

However, these ways of getting a feel of the current market sentiment are not too accurate; you may think that other traders are in a buying or selling mood, but that may not be what is really happening in reality.

Here are some of the more effective ways of gauging market sentiment: 1. The Commitment of Traders COT report 2. Commitment Of Traders COT report What is the COT? The COT report provides traders with detailed positioning information about the futures market, and is, in my opinion, one of the most underrated tools that forex traders can make use of to enhance their trading performance. The report is compiled and released weekly by the Commodity Futures Trading Commission CFTC in the United States every Friday at Eastern Time, and records open interest information about the futures market based on the previous Tuesday.

Anyone can access the COT report for free on the CFTC website www. There are basically two types of reports available: the futures-only COT report and the futures-and-options-combined COT report.

I usually just access the futures- only report for a glimpse of what has happened in the futures dimension of the forex market.

In order to get through to the currency futures data, you have to wade past other commodities like milk, feeder cattle and so on, so a little patience is required.

Even though the data arrives three days late, the information nonetheless can be helpful since many traders spend their weekend analyzing the COT report. The time lag between reporting and release is the main handicap of the COT data, but despite this limitation, you can still use it as a sentiment tool. Figure 5. You can see the long and short positions held by traders in each of the three main categories defined by the CFTC, as explained below.

Some notes to the figure above. For example, a German car-maker, who exports to the US, expects to receive 10 million euros worth of sales within the next quarter. To hedge against the possibility of a US dollar decline which would affect the amount of euros it would receive once converted, the German car-maker would short 10 million in Euro FX futures. On the other hand, if a US car manufacturer exports 10 million US dollars worth of cars within the next quarter, it would long the equivalent in Euro FX futures contracts.

The COT report tells you the long and short positions undertaken by participants from each category. When it comes to analyzing information pertaining to currency futures in the COT report, it is generally more relevant for traders to focus on the non- commercial participants rather than on the commercial participants.

The reason behind this is that these large speculators trade the futures contracts mainly for profits, and do not have the intention to take delivery of the underlying asset, which in this case would be cash. Large speculators, however, will usually close their losing positions instead of rolling them over to the next month.

Why use The COT? The COT report allows you to gauge market sentiment in the currency futures market, which also influences the spot forex market. Currency futures are basically spot prices which are adjusted by the forwards derived by interest rate differentials to arrive at a future delivery price. Unlike spot forex which does not have a centralised exchange at the time of writing, currency futures are cleared at the Chicago Mercantile Exchange.

Price quotation One of the many differences between spot forex and currency futures lies in their quoting convention. In the currency futures market, currency futures are mostly quoted as the foreign currency directly against the US dollar. That said, spot forex and currency futures do have one similarity: the spot and futures prices of a currency tend to move in tandem. When either the spot or futures price of a currency rises, the other also tends to rise, and when either falls, the other also tends to fall.

What is of concern to us is whether the non-commercials are net long or short in that currency futures. In order to determine the volume of contracts that these large speculators are holding net long or short positions of for that particular currency futures, you just need to calculate the difference between the longs and shorts, that is, subtract the number of short contracts from the number of long contracts.

A positive figure shows the number of net long contracts, while a negative figure shows the number of net short contracts. As you can see in Figure 5. The non-commercials are long 98, contracts and short 12, contracts. Therefore, they are overall net long 85, contracts - Usually, when a particular currency is trending up against the US dollar, the non- commercials tend to register a net long position since these large speculators tend to ride on the existing trend.

The opposite situation is true too: the non-commercials tend to register a net short position when a particular currency is trending down against the US dollar. Knowing whether this category has been net long or short a few days ago only indicates to us the positioning in retrospect; this information is only useful if you compare the latest net positioning with the positioning figures from the past few weeks or months.

By comparing the latest net positioning with that of the past few weeks or months, you can tell if the latest net long or net short positioning is skewing towards an extreme reading. My observation of the financial markets is that dramatic price moves, usually at major turning points, tend to occur when the majority of the market is positioned incorrectly.

And since the large speculators are more inclined to close their losing positions than the commercial hedgers, it is beneficial for us to keep an eye on their net directional positioning as well as their net contract volume in the currency futures market. If these large non-commercials are positioned on the wrong side of the market, you can expect liquidation of these positions, with the extent of liquidation depending on the total volume of contracts traded in the wrong direction.

Such mass unwinding of positions tends to bring about a powerful price move in the opposite direction which could last for a few days, and it is this turning point that you could detect with the COT data before the reversal scene actually plays out. Example: COT — using extreme position An example of this was played out in the week through November 17, In this case, all those who had the intention to go long on GBP had already done so.

X-axis displays the dates for every three weeks even though the data for every week is shown on the chart. Y-axis displays the net number of speculative contracts. Positive numbers indicate net long positioning, while negative numbers indicate net short positioning.

The presence of an extreme reading allows you to be prepared for a possible trend reversal which could occur when large speculators liquidate their positions.

A mere increase or decrease of contracts for a particular currency futures does not indicate anything which could be of predictive value, as it simply shows you what has happened, but not what could possibly happen in a high-probability scenario. COT data is a diamond in the rough What deters many traders from using the COT report is its raw organisation of data, but that is not good enough an excuse to completely neglect this little treasure trove.

The information from the COT report can be transferred into a spreadsheet so that further analysis can be conducted in a more suitable format. Analysis of the COT report does not always throw up trading opportunities in the spot forex market, but when it does, you will be better prepared for a potential turn of tide, and be more confident in your trades.

Even though entries and exits cannot be timed solely based on the COT data, it can be an extremely useful tool to have in your toolbox to gauge the overall market sentiment.

The forex market is very efficient at discounting future expectations by incorporating them into current prices. Very often, when news comes out better than is expected by economists and analysts, the currency of that country is more likely to soar against another currency. When the news is worse than expected, that currency is more likely to fall against another currency. However, if the news or data turn out to be worse than expected and still the currency price soars, that is, the market reacts in a very bullish way to worse than expected data, a bright red flag should be waving at you.

The opposite situation also applies: if price action remains very bearish to much better than expected news, it signals a highly suspect price move. In short, you should look out for a contrarian market reaction to better or worse than expected news. Under these circumstances, it is better to assume that the price move is hardly supported by substance, and could reverse sometime soon.

A bullish price move that is not accompanied by evidence will soon be due for a reality check, just like a bearish price move that is not accompanied by evidence is very likely to be corrected very soon. For example, if a piece of news turns out to be worse than expected, and assuming that there are no pre-release rumours or leaks of the news, and the currency pair rallies to break above a significant resistance level, you have reasons to suspect that the breakout move is likely to be false and unsustainable.

Even if the currency pair manages to make new highs later on, you should be prepared for a possible trend reversal very soon. The relative significance of news will vary from time to time.

Summary As you have seen, market sentiment can be used, and should be used, to time your trade and identify profitable trading conditions. The Market Sentiment Strategy has to be applied in conjunction with other strategies as it does not have precise entry and exit signals.

Once you get a sense of the current market sentiment, you can then decide whether it is best to trade with or against the sentiment, taking into account all other factors. While it may be sensible to trade in the direction of the current sentiment, sometimes, trading against the sentiment can also be a profitable strategy, provided that you have valid reasons to do so.

For example, when the COT report indicates extreme positioning of the market, or when the market seems to be feeding off false euphoria on worse than expected news, it may be better to trade against the overall sentiment.

You should, however, wait for a more precise signal that the current sentiment is wearing off before going against it, as sometimes false euphoria can last for quite some time before resulting in a reversal. This signal could be a failed breakout of some sort or some other pattern failure.

Always keep in mind that currency prices are, after all, the expressed perceptions of traders and market sentiment is really the blood that drives the market on the whole. Being able to ride on a trend is akin to making full use of the wind direction to steer your ship towards your destination.

For a ship to go against the wind requires a tremendous amount of effort — one has to fight the stubborn resistance from the opposing wind. Indeed, for most of the time, it pays more to be on the side of the current trend than to go against it. In the forex market, trend riders can capture any trend regardless of whether it is rising or falling in an attempt to generate trading profits. Forex tends to have quite trending markets, regardless of which time frame you are looking at — trends are often formed on hourly, daily or weekly charts.

With trends possibly having a long lifespan stretching to months, or even years, it is no wonder that many traders and fund managers exalt the strategy of hitching onto trends, with the glorious aim of capturing enormous profits from start to finish. Newbie traders also need to master the craft of trading, so the offering of a demo account has also become normal, see best demo accounts apps. PDFs Portable Document Formats are one of the most popular document types used for learning forex trading.

PDFs are widely used and compatible with every operating system since they are not restricted to specific software. Many forex brokers offer PDFs as one of the options of educational resources. Some of the most popular trading topics for PDFs are:. To select the Best forex broker for Beginners with PDF materials and trading platforms suitable for beginners, we tested and reviewed several forex brokers.

We opened live accounts and deposited real money with each broker and check the education conditions of Trading PDFs. We have picked XM as the best forex broker for beginners with edycation PDFs for CFD Trading. XM is one of the best brokers for beginners to start with for both trading and other additional services. It is a well-regulated broker and is licensed in the UK, Cyprus, Australia, UAE and Belize.

The offerings of the broker include forex and CFDs of indices, stocks and commodities. It offers in-depth guides and video tutorials on financial markets and trading strategies.

The broker also conducts around 40 webinars each week in different languages for its client base around the globe. We have picked RoboMarkets as the best tutorials on forex trading MT5 Broker. RoboMarkets also RoboForex is one of the few brokers that offers an excellent library of PDF and video tutorials covering the forex markets and trading techniques. It offers services on three platforms: MT4, MT5 and R Trader. Though initially known for offering trading services with currency pairs, the platform was rebranded to RoboMarkets after the addition of other markets like indices, stocks, and commodities.

We have picked Capital. com as the best guide on forex trading. Text-based guides are still favorites of many learners and Capital. com offers the best such guides for learning forex and CFDs trading. The broker offers separate guides for each market — forex, CFDs, spread betting, and others — and covers topics from very basics to the most advanced levels.

It also provides in-depth guides on the trading strategies and market psychology, also has a glossary page to make the newbies understand the market lingo. com is also excellent when it comes to offering trading services. It lists around 3, instruments of forex, indices, stocks, commodities and cryptocurrencies, and is regulated in the UK, Cyprus and Belarus.

We have picked CMC Markets as the best demo account for forex trading and PDF education resources. The demo account has become necessary not only for beginner traders but also for exerts. While beginners can brush up their trading skills without risking real money, experts use these accounts to test new strategies.

Though almost all the brokers offer demo accounts, we picked CMC Markets mostly because of its wide range of trading services offering.

CMC lists more than 10, financial instruments covering markets like forex, indices, stocks, commodities and cryptocurrencies. The broker offers two trading platforms MT4 and proprietary Next Generation Platform. On its demo account, CMC allows paper trading on CFDs markets with £10, of virtual funds. Traders can analyze the markets using indicators on live charts and execute trades without risking any real money.

Apart from the shortlisted brokers, here is a complete list of forex brokers that offers excellent services to beginners along with PDF books and materials, which we have tested and reviewed.

Traders usually have many questions related to generic trading-related queries. We tried to pick and answer some of the most important queries related to forex trading for beginners and traders looking where to learn forex trading pdf. Demand for retail forex trading has jumped in recent years, and this prompted many beginners to jump into the trading markets.

Some of the top Financial Conduct Authority-regulated forex brokers in the UK suitable for beginner traders and good edudcation PDFs are:. Forex brokers in the USA must be registered with the Commodity Futures Trading Commission CFTC and be a member of the National Futures Association NFA. Some of the US-regulated forex brokers that offer suitable services for beginner traders are:. In order to operate in Kenya, forex brokers must be registered and authorised by Capital Markets Authority CMA.

Here are some of the forex brokers regulated in Kenya offering quality educational resources:. Forex brokers have to be registered and licensed by Financial Sector Conduct Authority FSCA in order to operate in South Africa. Here are some of the forex brokers operating in South Africa and offering suitable PDF learning materials:. As MT4 is the most popular platform to trade forex, many beginner traders being their trading journey with this trading platform.

Though the platform is a bit outdated and made for professionals, brokers are customizing it to offer services to beginners. Some of the good MT4 forex brokers for beginners also with PDFs for MT4 are:. Mobile trading has become a thing now, and many brokers are offering excellent trading services on mobile devices. Some of the excellent forex trading apps offered by the brokers which are useful to beginners are:.

Forex copy trading services are very popular among beginner traders as they can earn profits while still learning about the forex market. Some of the good copy trading apps for beginner traders are:. I am a well-rounded financial services professional experienced in fundamental and technical analysis, global macroeconomic research, foreign exchange and commodity markets and an independent trader. Everything you find on BrokerTested is based on reliable data and unbiased information.

Read more about our methodology. Your email address will not be published. Save my name, email in this browser for the next time I comment. Broker Reviews. BlackBull Markets. CMC Markets. All Reviews. Broker Categories. Brokers by Type. ECN Forex Brokers. Zero Spread Forex Brokers.

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The Forex Trading Course. Hojiakbar Zaynabutdinov. Continue Reading Download Free PDF. Whether a novice trader, professional, or somewhere in be- tween, these books will provide the advice and strategies needed to prosper today and well into the future. For a list of available titles, visit our Web site at www. All rights reserved. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. Pacifico No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section or of the United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc.

No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at , outside the United States at or fax Wiley also publishes its books in a variety of electronic formats.

Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www. Figures 1. ISBN pbk. Foreign exchange futures. Foreign exchange market. C64 I have learned much from them about trading and about the human condition. At the time, I am certain to have delivered a long-held admonition: 95 percent of what you read in economics will be either wrong or irrelevant.

I am pleased to report that The Forex Trading Course falls into the 5 percent residual category of materials that are worth reading. In addition to satisfying those with a healthy obsession to work on improving their professional skills, The Forex Trading Course will force readers to think outside the box and to develop an appetite for the pursuit of knowledge about trading. This, of course, is the most important aspect of the book and reminds me of an observation made by Sir Hugh Rigby, surgeon to King George V.

What distinguishes a great surgeon is who knows more than other surgeons. In the interest of putting the reader a leg up, an understanding of the structure of exchange-rate regimes is essential.

There are three distinct types of exchange-rate regimes—floating, fixed, and pegged—each with different characteristics and different results. Both operate without exchange controls and are free-market mech- anisms for balance-of-payments adjustments. With a floating rate, a central bank sets a monetary policy but has no exchange-rate policy—the exchange rate is on autopilot. In consequence, the monetary base is determined domestically by a central bank. With both of these free-market, exchange-rate mechanisms, there cannot be conflicts between monetary and exchange- rate policies, and balance-of-payments crises cannot rear their ugly heads.

Indeed, under floating- and fixed-rate regimes, market forces act to automatically rebalance financial flows and avert balance-of-payments crises. Fixed and pegged rates appear to be the same. However, they are fundamentally different: pegged-rate systems often employ exchange controls and are not free-market mechanisms for international balance-of-payments adjustments.

Pegged rates require a central bank to manage both the exchange rate and monetary policy. With a pegged rate, the monetary base contains both domestic and foreign components. Unlike floating and fixed rates, pegged rates invariably result in conflicts between monetary and exchange- rate policies.

Balance-of-payments crises erupt as a central bank begins to offset more and more of the reduction in the foreign component of the monetary base with domestically created base money.

When this occurs, it is only a mat- ter of time before currency speculators spot the contradictions between exchange-rate and monetary policies as they did in the Asian financial crisis of — and force a devaluation or the imposition of exchange controls.

Steve H. There are many reasons for its popularity. First, we are truly in an online revolution, powered by the globalization of the Internet. The implications are profound. Individuals can no longer expect to work for one employer. Baby Boomers are facing the opportunity and challenge of post-retirement careers.

The result has been a cacophony of information overload, instant gurus, and instant trading solu- tions that appeal to those looking for shortcuts to success. These programs essen- tially confuse people and divert them from a realistic approach to training in forex trading. This book is written for the purpose of providing a getting started guide in forex trading. It, however, is not only for the person new to forex, but for those who have tried to trade forex but received mixed results through trial and error.

It is also for those who have experience in trading other markets and seek to apply that experience to forex. They will be able to build upon their experience and gain new insights into how to ap- proach forex. Those who have achieved a level of initial success but seek to optimize their performance will find training strategies and tactics particularly useful. The underlying premise of this book is that traders are not born—they evolve.

Our goal is to sharpen the insights and the skills of the reader by providing both fundamental and technical knowledge that are common to successful traders. An underlying philoso- phy of this book is that successful forex trading requires a total approach that integrates fundamentals, technical analysis, and psychology. Each chapter topic is in essence a module of knowledge, which can be read individually or sequentially. r Part I Chapters 1—9 focuses on the forces that move prices, also known as funda- mentals.

The topics included in the fundamentals show the reader how to use fun- damental knowledge to arrive at trading decisions. The chapters provide insight on how currency price movements are affected by things like interest rates, interest rate differentials, trade-weighted indexes, commodities, housing data, China, and more. r Part II Chapters 10—15 focus on technical knowledge—how to read and analyze charts.

The reader will build specific knowledge about the components of technical analysis and how to evaluate price action in terms of classical and advanced tools in- cluding: support and resistance, retracement concepts, trend analysis, and volatility and momentum indicators.

Nontraditional charting using renko and three-line break are featured. The final chapter includes questions that the reader should be able to answer at that point. They are designed to help you assess how well you understand the material and guide you in finding and using valuable information for scan- ning currency conditions. Ultimately, all knowledge needs to be actionable.

It is my hope that experience of trying forex trading is enhanced by this book and that forex trading becomes a journey which is enjoyable for its enormous challenges and more profitable than it otherwise would be.

I applaud them for their courage to pursue the challenges of forex trading and I have learned much from them about how to teach forex with improved effectiveness. I must acknowledge the late Professor Aaron Wildavsky, at the Graduate School of Public Policy, who shaped my thinking skills more than 30 years ago into the tools of inquiry that allowed this book to emerge.

He has conducted seminars in the United States, London, and Dubai as well as online training in all time zones. Cofnas founded www. com in as the desk- top forex trading industry started to provide education and training in this field. com, a company providing forex education and global forex competitions. He has been in the financial service industry as an equity bro- ker, futures, and forex trader since He currently lives in Longwood, Florida, with his wife, Paula, where he conducts research on artificial intelligence programs using cellular automata and enjoys digital photography.

He has a daughter Paige, 25, and a son Paul, These forces are accepted by economists around the world as responsible for changes in the value of currencies. The person learning to trade forex or trying to improve his or her trading will benefit from a gain of knowledge of these fundamentals.

In fact, as you will see, fundamental forces act as leading indicators of currency movement. and global interest rates, economic growth, and market sentiment toward the dollar are the key ingredients that shape trading opportunities. Part I provides basic knowledge on how these factors impact forex prices and how they can be used in se- lecting trading opportunities. The reader will learn why fundamentals are important to for- eign exchange forex traders as well as what kind of economic activity are most important in affecting price movements.

These include interest rates, interest rate differentials, economic growth, and sentiment regarding the U. You have an opponent the market. In game of chance the key feature is that everyone faces the same odds and therefore the same level of information. In these games, no player can change the odds. Playing forex, however, is not a game of odds.

Keep it steady! An inverted yield curve situation makes it difficult for the central banks to increase rates and more likely, in fact, that rates may decrease. the technical trader, 2. In normal times, people are willing to pay more for longer-term maturities and bonds. econ- omy.

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