13-07-2012, 11:21 AM
Currency Trading FOR DUMmIES
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Introduction
Thanks to the Internet, tens of thousands of individual
traders and investors all over the world are discovering
the excitement and challenges of online trading in the forex
market. Yet in contrast to the stock market, the forex market
somehow remains more elusive and seemingly complicated
to newcomers.
Currency Trading For Dummies, Getting Started Edition, strips
away the mystique of the forex market for smart, intelligent
investors like you who know something about the potential
of the forex market but don’t have the foggiest how it actually
works. Read this book and then, if you like what you’ve read,
put your knowledge and intuition to the test by getting a
practice trading account with an online forex brokerage
before you put any actual money at risk.
Note: Trading foreign currencies is a challenging and potentially
profitable opportunity for educated and experienced
investors. However, before deciding to participate in the
forex market, you should carefully consider your investment
objectives, level of experience, and risk appetite. Most important,
don’t invest money you can’t afford to lose.
Icons Used in This Book
Throughout this book, you see icons in the margins next to
certain paragraphs. Here are the icons and what they mean:
Theories are fine, but anything marked with a Tip icon tells
you what currency traders really think and respond to. These
are the tricks of the trade.
Paragraphs marked with the Remember icon contain the key
takeaways from this book and the essence of each subject’s
coverage.
Achtung, baby! The Warning icon highlights errors and mistakes
that can cost you money, your sanity, or both.
You can skip anything marked by the Technical Stuff icon without
missing out on the main message, but you may find the
information useful for a deeper understanding of the subject.
Speculating in the currency market
While commercial and financial transactions in the currency
markets represent huge nominal sums, they still pale in comparison
to amounts based on speculation. By far the vast majority
of currency trading volume is based on speculation — traders
buying and selling for short-term gains based on minute-tominute,
hour-to-hour, and day-to-day price fluctuations.
Estimates are that upwards of 90 percent of daily trading
volume is derived from speculation (meaning, commercial or
investment-based FX trades account for less than 10 percent
of daily global volume). The depth and breadth of the speculative
market means that the liquidity of the overall forex
market is unparalleled among global financial markets.
The bulk of spot currency trading, about 75 percent by
volume, takes place in the so-called “major currencies,” which
represent the world’s largest and most developed economies.
Additionally, activity in the forex market frequently functions
on a regional “currency bloc” basis, where the bulk of trading
takes place between the USD bloc, JPY bloc, and EUR bloc,
Trading in the North American session
Because of the overlap between North American and
European trading sessions, the trading volumes are much
more significant. Some of the biggest and most meaningful
directional price movements take place during this crossover
period. On its own, however, the North American trading session
accounts for roughly the same share of global trading
volume as the Asia-Pacific market, or about 22 percent of
global daily trading volume.
The North American morning is when key U.S. economic data
is released and the forex market makes many of its most significant
decisions on the value of the U.S. dollar. Most U.S.
data reports are released at 8:30 a.m. ET, with others coming
out later (between 9 and 10 a.m. ET). Canadian data reports
are also released in the morning, usually between 7 and 9 a.m.
ET. There are also a few U.S. economic reports that variously
come out at noon or 2 p.m. ET, livening up the New York afternoon
market. London and the European financial centers
begin to wind down their daily trading operations around