Why Currency Correlation Is Important in Forex Trading

Currency correlation as it pertains to currency pairs can have major consequences on a forex trader's trades. If the trader isn't up to date about various correlations among currency pairs, then he may experience lower profits, or he might take on further risk.

What is Currency Correlation?

Currency Trading

Currency Correlation means that there is a relationship that can be measured statistically between two financial instruments. With regards to the forex market, it would refer to the relationship between two pairs of currency.

The relationship correlation between these pairs are referred to as positive or negative. They will either move together in a positive direction, or they will move together in a negative and opposing direction.

"Correlation Coefficient" refers to the measure of the correlation. It ranges between -1 and +1. +1 means 100 percent positive correlation. On the other hand, -1 means 100 percent negative correlation.

Examples of a Positive Relationship Correlation

If you look at EUR/USD, and GBP/USD, you will see that these currency pairs have a positive correlation. In fact, they are almost identical, particularly over a long period of time. This means that over a period of time, the correlation between the pairs will be highly positive. This will be more apparent over a long time period, and not necessarily over a short period of say, a few days.

The reason for this is because the Euro (EUR) and the British Pound (GBP) are European currencies. As such, they are based upon the same fundamental principles. So both of these will behave similarly in relation to the U.S. dollar (USD).

Some Basic Guidelines

Here are some general rules for clarification:

The correlation between two currency pairs becomes more significant when viewed over a long period of time. With respect to the Correlation Coefficient, the higher the number either positive or negative, the stronger the degree of correlation. It's key to get a correlation at the 0.9, or 1.0 level, positive or negative. This represents the strongest correlation. If the value is below 0.5, then there really isn't any correlation.

How Is This Important to Forex Trading?

If the trader knows in advance the correlation amongst various currency pairs, then the trader can take better positions and avoid undue risk.

If the trader opens positions in two positively-correlated currency pairs, then he would be doubling his risk. On the other hand, if he were to go with two negatively-correlated currency pairs, his risk would be lowered, but so would the profit margin potential.

In the end, Forex traders do themselves a favor by having knowledge in advance about strong currency correlation pairs.

Why Currency Correlation Is Important in Forex Trading

Currency Arbitrage

A very simple meaning of arbitrage would be getting something from just nothing! If you are surprised then don't be, for that's what arbitrage is. Technically, however, it can be defined as a synchronized purchase and sale of a security which will derive you with a profit from a price difference between the two.  

Here is a small example to show how it works. Let's imagine that the price of a stock on the NYSE is per share, but the price of the same share is per share in the Frankfurt exchange. Now the difference of a could mean an instant profit for you requiring zero investment.  

Currency Trading

So let's suppose the arbitrageur therefore sells on the NYSE and buy at the same time on the Frankfurt exchange. And as the transactions are a simultaneous action theoretically, there will be a direct and instant gain of per share. The same concept is applied for currency arbitrage.  

There isn't any limit on the amount of shares an arbitrager would like to buy and sell, the gain being guaranteed by the discrepancy in price. In the above example a quick 10 million share if purchased by the arbitrager along with a simultaneous selling of 10 million share will help him net a profit of some million.  

Now this new concept of making some fast bucks is a kind of trading which is emerging as one of the most interesting online entrepreneurship. It is gradually gaining popularity as many are not aware of it as yet.  

Furthermore, the concept of arbitrage is not limited to financial instruments alone. The entire practice could be applied to almost any and every kind of a circumstances where there arise an immediate opportunity to buy and sell simultaneously at particular price differences.  

Internet is the best place to carry the currency arbitrage. You will come across various sites selling similar things for different prices. So what you can do is buy from one site and sell through another site at the particular price difference and pocket the profit.  

Currency arbitrage seems to be a very lucrative trading business but one needs to be very careful while proceeding with such affairs.  

Currency arbitrage is simple but one must be careful because you never know when it gets noticed and the price differences gets equal closing the opportunities. So if you want to try it out, just get set and go. Here's wishing you happy arbitraging!

Currency Arbitrage

Who Offers the Best Currency Trading Training?

Currency trading training can be found in a ton of different venues. Ever since forex has become the popular and less expensive alternative to day trading stocks, traders have been looking for currency trading training. The problem is that there are so many trading courses online. How can one possibly decipher the reputable training programs from all the garbage that's out there? It seems like everybody has a trading system. How do you know which ones are worth your time and money?

First off, if you see a trading system that requires a lot of indicators (stochastics, MACD, etc...) to use, run the other way quickly. If you go to free forex forums, you can find literally thousands of trading systems that use basic indicators. Its nothing new. And not to sound cynical, but they are all pretty much the same. You are using technical indicators, which represent past information, to guess which way the market is going to turn. How can you trust a seller who trades the market with these tools? It's kind of like being taught how to ride a bike from somebody who is still using training wheels. It just doesn't make any sense.

Currency Trading

Also try to find currency trading training that offers a money back guarantee. Let's face it, no matter how good the training might be, it just may not work for you, for whatever the reason. You want to know that you can request your money back. No questions asked. No harm, no foul.

Who Offers the Best Currency Trading Training?

Automatic Forex Trading Robot - Advantages of Automatic Currency Trading Software

Forex trading is an incredibly lucrative way to make money. However, due to the great changes you get in forex trading, it is not easy to beginners to determine when to place and stop trades.

Many experienced traders takes years of experience and understanding of the forex market to be able to profit from the currency trading market.

Currency Trading

However, with ever increasing powerful computers, it is now possible to delegate some of the more mundane tasks of monitoring the forex market to forex trading software. Thus came the existence of automated robots that helps to monitor and alert you of any major changes in your forex trades.

The computerised process algorithms in these forex trading robot software are amalgamation of successful minds in the fields as diverse as Mathematics, Psychology, Forex market etc. This enables the software to act impeccably in all conditions. Further more, the Automatic Forex Trading does not require constant human supervision. Tuned to match all situations,it can even trade on your behalf.

Automated forex trading robots are now commonly used thanks to its ability to decide as per the market scenario and analysis of market history. It takes in account the analysis, strategies and speculations, which fall beyond what most ordinary people can do. It computes on behalf of the user to optimise the profit in the economic conditions.

With automatic forex trading, you can trade in parallel, or along with the top leaders. Endowed to match their calibre it can live up to expectations. As it is pure logical process, there is no scope for emotional errors. The user can be anxiety free even in the toughest situation. It has proved to be competitive and reliable over the years, around the globe.

The ability to interact in multiple markets also gives it a edge. It is compatible with all formats of trading, hence removes the user's restriction to personal domain. Automatic currency trading software assists you in grabbing the opportunities when and where they surface. Being active 24x7, it can help you monitor the forex market when you can sleeping.

Nowadays, most automatic software are easy to use and user-friendly. It is suitable for people new to forex trading as well.

Automatic Forex Trading Robot - Advantages of Automatic Currency Trading Software

Understanding the Basics of Forex Trading: Currency Pairs

The foreign exchange market, or Forex (FX) for short, is said to be the oldest international trade market. It is also the largest of all trade markets. Analysts have estimated the average yearly trading volume on Forex to be over a trillion dollars. The Forex is not an exchange centralized in any one place, and trading on it takes place 24 hours a day and seven days a week without pause.

To trade on this market, you have to understand what is being traded. Forex trading deals with world currencies. A trader buys and sells currencies by exchanging one form of money for another, with the goal of making a profit from the transaction. The market quotations in Forex specify pairs of currencies. They are depicted by showing the base currency followed by a different currency, for example: USD/EUR or GBP/USD.

Currency Trading

The most commonly traded Forex currency pairs are considered to be:

EUR/USD: Euro vs. U.S. Dollar

GBP/USD: British Pound vs. U.S. Dollar

USD/JPY: U.S. Dollar vs. Japanese Yen

USD/CHF: U.S. Dollar vs. Swiss Franc

Here's how to interpret a typical Forex quotation. The currency that is shown first is generally known as the base currency, but it is known by other terms as well. It can be called the domestic currency or accounting currency or even be termed as the primary currency of a Forex currency pair. The currency that is shown in second place is called the counter or quote currency. The base currency is always equal to a single monetary unit of exchange (for example, 1 USD, 1 EUR, 1 GBP). This is generally implied and not shown. The quote currency is the amount of that currency that is able to purchase a single unit of the base currency. Forex currency pairs normally depict what is termed the "bid" and "ask" price. The bid price refers to the price at which the broker is willing to buy, while the ask price refers to the price at which the broker is willing to sell.

Let's take a look at a sample quotation. Consider a USD/EUR currency pair that is quoted as USD/EUR = 1.8. If you purchase this currency pair, you will receive 1 USD for every 1.8 euros that you sell. If you sell this currency pair, you will earn 1.5 euros for every 1 USD that you sell.

Understanding the Basics of Forex Trading: Currency Pairs

How are Currency Values Determined?

And who determines currency values?

The answer to the second part is easy. Currency value is determine by the purchasers of the currency. These are primarily travelers, governments and Forex traders. FOREX stands for Foreign Exchange. There are many factors that currency traders, governments and businesses take into consideration in determining the Fair Market Value of a currency.

Currency Trading

Fair Market Value is the price at which a willing buyer and a willing seller come together. The buyer must factor in many elements and considerations to try to accurately assess a currency's value at any given time. There are approximately 180 different currencies in the world now. Let's consider some of the factors that are used to determine a currency's value.

Factors Affecting Currency Value:

1. Political Conditions in the Country - This includes the stability of the government, the amount of corruption, bribery and the degree of law and order. Also includes a country's relationships with other countries and especially their relationship to US, UK, China and Russia. The form of government in the country is also a factor used to assess the value of a currency. Consider the widely varying forms of government in Saudi Arabia, China, UK, Venezuela and Thailand, just to name a few.

2. Economic Situation - This includes factors such as jobs, unemployment, work ethic, infrastructure, inflation and direction of the economy. Is it older or newer in orientation; computers and high tech, or more farming and manufacturing.

3. Perception from Outside - The perceptions and attitudes of other countries toward a country are as important as the reality of the country's actual situation. News, media, movies, newspapers, rumors and spin can create perceptions. How much is known about a country? The less that is known, generally, the lower the value of a currency.

4. Demographics - A young population may mean better prospects for the future, people who are more open to change and development and a growing size of the workforce. The overall population of a country is a factor. How much weight does this country have on the world scene.

5. National Leaders - The openness, trustworthiness and likeability of visible leaders is a factor. This includes political leaders, sports figures, business owners and celebrities. Here are some national figures who affect their countries, either for better or for worse. Kim Jung Il, David Beckham, Nicole Kidman, Madonna, Osama bin Laden, Barack Obama and Vladimir Putin. These help form the world's perception of a country.

6. Isolation versus Openness - Continuum China is becoming more open, more transparent. This helps. Cuba is very closed and isolated. Venezuela is becoming more isolated by some of its recent actions. China's markets are becoming more open. Cuba, Kyrgyzstan, Russia and Japan, all have differing levels of openness with the outside world, which affects the value of their currency.

7. Natural Resources - The kind of and amount of exploitation of a country's natural resources certainly helps create a perception of value, or lack thereof, of a country's currency. Mining of minerals, forests, oil, fish and other resources are considered. Also the level of technology to development these resources.

8. Weather Factors such as drought, tsunamis, earthquake and floods are taken into consideration. How frequent are they and how is the country's response to them. These also affect desirability, safety and perception of a country. Is it a tourist destination?

9. War and Conflicts - With which other country is a country at war, and who is it's allies? Their military strength and technology, their willingness to go to war and for what, are important factors in assessing a country's strength, stability and the value of its currency.

10 . Education - This includes languages spoken, level of computer know-how, Internet connectedness, culture and religion. Scientists, entrepreneurs, authors and inventors are all affected by the type and quality of education in a country.

In conclusion, currency values are determined by many factors. Not just one issue, but a composite of many must be considered. In trading currencies, such as in FOREX, trades are usually made in pairs. Values must be relative to something. So how is a country doing relative to another country is also significant. Common Forex pairs are US dollar and Japanese yen, Euro and US dollar, for example. These and other factors determine the value of a currency. Some are tangible, some intangible. Some are fixed and some are manageable. Sometimes it is the news of the moment and sometimes the long-term situation. That is why currency values are often changing and there is no one place or person who determines currency values. And why currency exchange, based on fluctuating currency values, can be an exciting, lucrative, volatile, fun or disastrous form of business or investment.

How are Currency Values Determined?

FOREX 101: Make Money with Currency Trading

For the reader refers to as the Forex (Foreign Exchange Market), an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in 1970, when free exchange rates and floating currencies are been introduced. In such an environment only participants in the market determine the price of one currency against another, depending on supply and demand for money.

FOREX is a a little 'single market for a number of reasons. First, it is one of the few markets in which we can say with a few qualifications that is free of external controls and that can not be manipulated. It 'also the largest liquid financial markets to accomplish with the trade between 1 and 1.5 billion dollars a day. With so much money moving this fast, it is clear why an individual investor, it would be almost impossible to find, much to the price of a largeCurrency>. In addition, the liquidity of the market means that unlike some rarely in stock exchange, traders can open and close positions in a few seconds, there are always buyers and sellers.

Currency Trading

A rather unique feature of the FOREX money market is the variance of the participants. Investors find a number of reasons for entering the market, some investors to long-term coverage, while others use credit lines to seek large mass in the short termProfits. Interestingly, unlike blue-chip stocks that provide generally attractive only to long-term investor, the combination of relatively constant daily fluctuations, but small currency prices, create an environment that investors attracted a wide range of strategies.

How does FOREX

Transactions in foreign currencies are not centralized on an exchange, as opposed to saying that the NYSE and then conquer the world through telecommunications. 'S Commerceopen 24 hours a day from Sunday afternoon to Friday afternoon (00:00 GMT Monday to 22.00 hours GMT on Friday). In almost all time zones around the world there are dealers who quote all major currencies. After deciding what currency the investor wants to buy, he or she so one of these dealers (some of which can be found online). And 'quite common for investors to currency prices speculating a line of credit (theavailable, with a capital of only $ 500) increase, and their considerable potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It 'due to the fact that in the FOREX investments can be made ​​without a real offer of money attractive. This allows investors to invest much more money with fewer money transfer costs, and openmultiple locations with a much smaller amount of capital itself. So you can make relatively large transactions, very quickly and inexpensively, with a small amount of initial capital. Commerce marginal in an exchange market is quantified in many. The term "lot" refers to approximately $ 100,000, an amount that can be achieved through the establishment of just 0.5% or $ 500.

Example: You believe that signals the market has shown that the pound will strengthen against the U.S.Dollars. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait to get on the exchange rate. In the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $ 405. So, on an initial investment of $ 1,000, have reached over 40% of the profits. (Just as an example of how exchange rates change over the course of a day, a daily average exchange rate of euro (in dollars), about 70 to100 pips).

If you decide to close a position, the deposit amount that was originally done to you and a calculation of your profits or losses. The gain or loss is then credited to your account.

Investment Strategies: Technical Analysis and Fundamental Analysis

The two basic strategies for investing in FOREX are Technical Analysis or Fundamental Analysis. Most investors in small and medium-sized enterprises in the financial markets using technical analysis. ThisTechnique stems from the assumption that all information found on the market and future fluctuations of a particular coin in the price chain. This means that all the factors that have an impact on the price already takes into account the market and are therefore reflected in the price. In essence then, what does this type of investors, is the starting point of his / her investments on three key assumptions. These are all factors that keeps the movement of the market that theVariations in prices is purposeful and directly tied to these events and that history repeats itself. Someone who uses technical analysis looks at the maximum and minimum prices of a currency, the prices for opening and closing, and the volume of transactions. The investor does not try to outsmart the market, or even predict major long term trends, but just look what happened to that money in the recent past, and expects that small fluctuations in generalcontinue as they have previously.

Fundamental analysis is that the current situation in the country of the currency, including such things as its economy, its political situation, analysis and other related items. The numbers, the economy of a country depends on a series of quantifiable measures such as interest rate the central bank, the national unemployment, fiscal policy and rate of inflation. An investor can also expect less quantifiable Events such as political unrest or transition will also have an impact on the market. Against all predictions on the factors alone, but it is important to remember that investors must also keep the expectations and the expectations of market participants. In fact, as in every exchange, the value of a currency is to a large extent on the perception and expectations about the money, not only on its reality.

Make money> Forex Trading Forex

FOREX investing is one of the most potentially rewarding types of investments. While certainly the risk is high, it means the ability to conduct marginal trading FOREX, the potential profits are enormous compared to the initial investment. Another benefit of FOREX is its size, almost all attempts by others to influence the market to their advantage prevented. So, who sells foreign currency to invest in afeels confident enough that the investment he or she has the same chance to profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of care, can investors who feel that they use a technical analysis are relatively confident that their ability to read the daily fluctuations in the foreign market in an appropriate way to give them the skills necessary for investment Information is active.

FOREX 101: Make Money with Currency Trading

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