The U.S dollar had maintained a predominantly positive tone from last Friday’s release of December’s Labor Department employment report, through the first hour of today’s European session. The GBP/USD and EUR/USD currency pairs managed to rally during the London lunch, only to stall at resistance levels during the minutes prior to the open of today’s New York session. Currency correlation and Fibonacci studies set up short trade entries on both pairs. Although each trade was profitable, the 100-pip trade on the pound was the winner.
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how does a person make money by hedging when they go long and short on the same currency pair, what is the rational behind this.
Also what's a good honest broker that provides leverage up to 400
Hi,
Generally, most retail traders use hedging when they are in a losing trade position.
For example, I might go long the EUR/USD, but the market price immediately tumbles down. In order to protect myself against further losses, I place a short order so that any further downard movement in price will not affect me — I may lose in the long position, but I partially make up for that loss by the gains in my short position.
This is how most traders I know 'hedge' against losses. Unfortunately, this is a terrible way to trade.
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Between 5 p.m. EST Sunday and 4 p.m. EST Friday, there are millions of Forex traders around the world trying to make a profit by predicting the future movement of currency exchange rates. With nearly 1.8 trillion dollars changing hands each and every day, the Forex is the largest and most fluid market in the world. Traded 24-hours a day and with investors having instant access to price changes via an Internet station, it is literally possible to watch one’s fortunes ebb and flow-one pip at a time!
A pip is equal to the smallest price increment that any currency can make. For the U.S. dollar and most major currencies, that amounts to 0.0001 (0.01 for the Japanese Yen). While it seems near impossible to make any money when dealing with such small numbers, the standard transaction unit on the Forex is $100,000 and is called a lot. Thus, the movement of just a few pips in either direction can turn into big profits or big losses-real fast!
In truth, playing the Forex is much safer than heading into a casino because the odds are not automatically stacked against you-but you can still lose your shirt if you over trade. Just like professional gamblers will tell you that playing against the casinos is a losing proposition-professional and successful Forex traders know that trading too often is simply stacking the odds against them.
For whatever reason, most of us are simply not going to risk $100,000 of our own money on something as volatile as the Forex. This is why the margin is such an important factor when thinking about buying and selling positions. Typically, an investor would need to put up $1,000 of their own money to buy a lot, or 1/100 of the total. Leveraging a position may be a practical necessity but it also means that the average investor is more at risk when it comes to price fluctuations. The more leveraged the position, the greater it will be affected by pip movements-up or down.
Making a profit in the Forex market boils down to knowing when to enter and exit a position-period. Investors place stops on orders to help limit losses and they need to rely on those stops to prevent them from losing too much-or bailing too soon! Investors who track the market every minute of the day and constantly monitor their positions are not only more likely to go crazy-they are also more likely to bail when the price starts to dip. So long as you have stops in place and are sticking with your investing strategy-be patient! At most, check the market at the close of each day and just hold to your strategy until the charts indicate otherwise.
It is difficult-almost impossible-not to worry about your investments so the natural impulse is to monitor them closely. However, the time to do your homework and put in the time is before acquiring a position-not after. Backtesting will help you find the best currency pairs for your investment tastes. Once you have the stops in place, check the charts and market once a day and let the investment ride. Losses are part of the game and your stops should protect you from losing more than you are comfortable with. Forex can make you a lot of money with moderate risk but it will become like a casino and the odds will turn against you if you play too often!
I noticed that there was unusually large movement on the GBP/JPY currency pair in the end of October '08 to the beginning of November '08.
I looked on Forex Factory for an explanation, but found none that would explain that kind of movement.
My question is twofold:
1) What caused such huge movement in this market at this time?
2) Since it's not on Forex Factory, where else can I find a heads up about whatever caused these huge (mainly bearish) runs?
Most believe that the recent strength of the yen is caused by yen being used as a carry trade to purchase foreign securities. Since interest rates in Japan has been very low and investing in Japanese securities have shown poor results over the past several years, investors had previously borrowed yen to invest abroad.
As the markets have soured, investors have sold the foreign securities and repaid their loans causing foreign currencies to be sold and the purchase of yen driving the yen up and the foreign currencies down.
A similar situation (fairly low interest rates and easy money) appears to have occurred with the US dollar but not to the same extent.
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what the heck is currency pair and how the heck does it work?
Forex trading is basically buying one currency against another. Every currency has a code. For example:
U.S. Dollar = USD
Japanese Yen = JPY
Euro = EUR
British Pound = GBP
In order to execute a trade, you have to pick a pair. The most traded pair is the U.S Dollar/Euro pair (USD/EUR). And the way it works is if one currency of a pair goes up, the other currency goes down. And to make money you have to pick the currency that's going up. It's that simple.
The good thing about Forex trading compared to the stock market is that Forex is practically open 24 hours a day (except on the weekends). A good number of trading starts Monday 9:00 AM Japan time (which is Sunday 7:00 PM in New York) and continues throughout the week non-stop and ends the week about 5:00 PM New York time Friday night.
Compare that to the stock market, which is open 9:30 AM to 4:00 PM New York time Monday thru Friday.
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