Are The Forex Brokers My Friends?

This is a very good question and sadly not one that enough investors think to ask. After all, when anyone first enters into Forex trading there will always be a lot things that you don't know and your broker would seem to be the logical source of great information—right? Even the very notion of Forex trades being "commission free" is not actually accurate and it is therefore in the broker's best interest to convince any investor to trade because that is when the broker makes their money.

It is true that Forex brokers do not get paid the typical commissions found in securities or commodities transactions. Instead, these "middlers of the Forex, make their money from a host of activities relating to a trade, including:

• Buying/Selling currencies

• Converting and holding currencies

• Interest on deposited funds

• Rollover fees

In short, the Forex broker makes money from the difference between the bid and ask price. There was a time when only banks, major currency dealers, and other big players were the only ones who play in the Forex. However, brokers are often associated or somehow linked with an investment bank that guarantees the loans used to leverage a trade. These brokers buy a lot ($100,000) from a larger bank or investment vehicle and then sell it back to you—at the "ask" price.

The "bid" price is the amount that you can sell that position back to the broker for. If a position had an ask price of 1.1920 and a bid price of 1.1923 and you were to sell it immediately back to the broker, you would take a loss of .0003—or three pips. Those three pips are what the broker makes from the trade despite the fact that they technically have not charged a commission. Since the typical lot size on the Forex is $100,000, that means a trade costs $30 in the above scenario.

So, if the broker makes money from trades then it is likely they will advise you to trade often—maybe even advise setting really tight stops in order to prevent you from losing money while also creating more trades in the process. Trading too often on the Forex is not a great idea anyway because trends on the Forex tend to be towards long-term consistent price movements. Trading on news releases and increasing your number of trades puts you at greater risk of incurring loss.

Of course, just because a broker does make money from trades does not mean that they will provide you with bad information. Most brokers are very reputable and can provide you with sound investment advice. However, it is definitely better to understand the market and perhaps start out with "mini-lots" or even paper accounts before really jumping in with both feet. You will need a sound investment strategy, patience, and a lot of backtesting in order to be successful in Forex trading!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

How Do Forex Brokers Make Money?

It is one of the most talked-about advantages of trading on the Forex—the commission-free trades! Unfortunately, while we would all like to think that Forex brokers are just out there executing trades for the fun of it, the simple truth is that everyone needs to make money—even the brokers. While they may not charge a traditional commission, brokers on the Forex still make their money whenever trades take place. Brokers actually are compensated in a number of ways, including:

• Buying/Selling Currencies

• Earned interest on deposited funds

• Converting and holding currencies

• Rollover fees

It is in the buying and selling of currencies that brokers make the majority of their money. They make this money in something known as the "spread", or the difference between the asking and bidding price of the currency pair. The "ask" is the price a retail Forex trader would pay for a position. The "bid" price refers to the amount that an investor could then sell the position at.

The smallest unit of measure in Forex trading is known as a pip and it is equal to .0001 (except for the Japanese Yen, which is .01). The difference between the ask and bid price is typically only 3 or 4 pips and this is what the broker makes when buying and selling currencies.

A broker is actually a middleman and never actually charges anyone directly. Instead, a broker purchases a position from a larger investment institution and then sells it to the retail Forex trader while pocketing the difference between the two amounts. For instance, a broker might set the "ask" price at 1.250 and the "bid" price at 1.246. If the investor were to sell the position immediately, then the most they could sell it for would be the "bid" price of 1.246—or a loss of 4 pips. Since the typical Forex transaction is conducted in $100,000 lots, that means that the broker made $40 in that currency exchange.

The spread will vary depending on the broker and the currencies being traded. Typically, the spread averages between 3-5 pips. Unfortunately, brokers are necessary tools in the Forex trading game if for no other reason than the sheer size of the transactions. There is approximately 1.8 trillion dollars exchanging hands on the Forex every day and these transactions are conducted in $100,000 "lots" (there are also $10,000 mini-lots and even micro-lots). Thus, it is typical for Forex transactions to be highly leveraged with most traders only putting up $1,000 (or 1/100) in capital.

Forex brokers will tend to be partners or somehow associated with investment banks and similar institutions. These "backers" actually guarantee the loans used to leverage Forex trades—and without them—none of us could trade on the currencies markets unless we were willing to risk more than the 1% demanded by most brokers.

Yes, the brokers do make money when investors trade on the Forex but they do provide a genuine service. Just be careful to avoid trading too often because although the pips are small—they can disappear quickly especially when investors try to compensate for a loss by turning around and investing before doing their homework. Therefore, be wary of any Forex broker that advocates any form of "day trading" or the like—it's a very, very dangerous strategy to use in the most volatile and fluid market the world has ever known!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

Basic Stock Investing Strategy

Investing can sometimes be a difficult process, involving a mixture of skill, analysis, and luck. The stock market can often be very volatile thing, and even veteran stock investors can sometimes have trouble picking a good stock investment.If you like the idea of investing in stocks, then you'll be pleased to know that you can do so from the comfort of your own home. You can easily research and purchase stocks on the Internet through online brokerages. You can also trade stocks through a traditional broker, if you want the services of a full-service brokerage.

Before investing in any stock, be sure to ask yourself lot of questions about it. Always be analyzing, and never throw your money at a stock (or any kind of investment for that matter!) that you just aren't 100% sure of.If you don't have the time to get into the nitty-gritty of the stock market but still want to benefit from its growth potential, then you might consider investing in mutual funds. These offer a hands-off way of investing, where the manager of the fund will allocate exactly where the fund's investment capital goes. Mutual funds are known to diversify their investments across many different investments, so buying in with them is a great way to diversify your portfolio as well.All stellar investors have goals and a path, or strategy, laid out.

Depending on your goals, you'll generally know what kind of strategy to take. If you're young and are looking for high-growth and can take a little risk, then you'll want to be looking into high-growth stocks. If you want more security for your investment, then diversify your portfolio with mutual funds or bonds.Some people prefer to do-it-yourself approach to investors, but it would be wise to pursue the help and advice of a local financial planner. Not just any financial planner, make sure you get references. Their advice can prove to be invaluable if you let your financial goals be known.

Written by Jane Smith. Find more information on investment strategy or see accurate forex and investment charts

What Moves The Forex Markets?

Investors in any market, be it securities or currencies, wants to know what causes price fluctuations so they can predict them and make a profit. While stock investors research publicly traded corporations in order to make trading decisions, those on the Forex must consider what influences the currency exchange rates between nations. Because it is so volatile with significant fluctuations in short term prices, it is especially important for the Forex trader to understand what moves the markets in order to be successful and make a profit.

Partly because trades occur 24 hours a day between Sunday and Friday afternoon, the Forex is a very volatile market. Just as with equities, pricing on the Forex is influenced by economic and political factors facing the nations involved in the currency pair. Because the U.S. dollar is used to back 90% of all the transactions on the Forex and its economy plays such a significant role in the world economy, economic data released by the government will affect market prices—temporarily. Here are some of the prime releases that Forex scalpers or day traders tend to look at when determining whether or not to enter a position:

1. Interest Rate Decisions

2. GDP rate increase/decrease

3. Unemployment data

4. Inflation: Consumer/Produce price

5. Retail Sales

6. Consumer Confidence Surveys

7. Business Confidence Surveys

8. Trade Balance

9. Manufacturing Confidence Surveys

However, while all of these forces no doubt play a short term role in price movements on the Forex and other financial markets, their influence is very temporary and the prices soon reflect them. It is not common for Forex scalpers or day traders to enjoy long-term success because the volatile nature of the market makes losses more likely with more trading.

There is another force that does play a role in the movements of all financial markets: human behavior. Indeed, Psychology is a very big factor in any investment decision and its effects can be studied in financial charts. Four human emotions play very big roles in the price movements on the Forex:

· Greed

· Fear

· Faith

· Hope

Greed compels even technical traders to ignore stopping points and chase a trend too far—to the point of loss or losing a significant portion of profits. Once an exit point has been reached—cash out.

Fear of loss is a very common human emotion and it definitely causes many investors to take a loss too hard and quit investing. However, simply setting acceptable stop/loss orders will prevent you from losing more than you are comfortable with.

Even faith and hope can cause us to chase profits too far or not get out when losses start to mount. Technical analysis, continuous back testing, and sticking with an investment strategy while being open to adjustment—these are all common traits in the most successful traders. Although the economic indicators and news releases do play a short term role in prices, it is ultimately human Psychology that moves the Forex.

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

How Does Forex News Trading Work?

The Forex market is quickly becoming one of the most popular investment vehicles because of its huge volume and liquidity. However, it is also one of the most volatile investment vehicles because of its sudden price fluctuations and the fact that most of the market is heavily leveraged. For these reasons, fortunes can be made or lost in short order making the need for a reliable investment system very urgent indeed. While many Forex investors rely upon charts that track price movements and other forms of technical analysis to help determine entry and exit points, there are some investors who like enter and exit positions based upon news releases.

In theory, the smaller Forex retail traders should have a slight advantage when it comes to capitalizing on how the news affects the markets. With immediate Internet access and a never ending stream of brokers willing to execute trades at any hour of the day, small investors should be able to buy or sell a position quicker than some large conglomerate, mutual fund, or hedge fund. The market can literally adjust in minutes to relevant news releases so investors who move quickest will be able to capitalize—in theory.

Of course, it does boil down to knowing what news is relevant and then to determine how that will affect the currency exchange rates. Even news from countries other than those in your currency pair can play a significant role in short term price corrections. For those wishing to trade in the Forex based upon news releases, there are 8 major currencies currently playing significant roles in the market, including:

1. U.S. Dollar(USD)

2. Euro(EUR)

3. British Pound(GBP)

4. Japanese Yen(JPY)

5. Canadian Dollar (CAN)

6. Australian Dollar(AUD)

7. Swiss Franc(CHF)

8. New Zealand Dollar(NZD)

Because the USD is a backer in nearly 90% of all transactions on the Forex, the release of key economic indicators from the U.S. are always important to the currency exchange rates. These data are released at regular intervals which supposedly levels the playing field between the large and small investors. In theory, they should be able to capitalize upon short term price fluctuations caused by the release of these key indicators:

1. Interest Rate Decisions by Central Banks/Financial Policy Makers

2. GDP rates

3. Balance of trade

4. Unemployment data

5. Inflation

6. Retail sales/manufacturing output

7. Business Confidence as determined by Outlook Surveys

8. Consumer Confidence Surveys

9. Manufacturing Confidence as determined by Outlook surveys

Trading on the Forex based upon news releases means capitalizing upon short term fluctuations in the market as it corrects itself. Because these corrections can happen in a matter of minutes, it is vital for this type of investor to capitalize quickly or risk jumping after the market has already adjusted for the new information. While this is theoretically possible, it is very possible that the big investors had access to the information prior to its release. If these investors have already shifted their investments accordingly, then the market will have already corrected for the news before it was released—at least partially. If that is the case, then the small investor will jump in too late and likely face a loss.

Indeed, trading upon news releases is very dangerous because it also encourages over trading—a factor known to lead to losses—especially on the Forex. This is why most Forex investors rely upon technical analysis and their trusty charts when making decisions about entry and exit points on the market!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

A Forex Primer — Forex 101

The Forex—or Foreign Exchange—market is the largest, most fluid investment vehicle the world has ever known. Nearly two trillion dollars are exchanged each day across a vast network of computers found in central banks, investment banks, hedge funds, and brokerage firms around the world. This is the most fluid market in the world because it operates 24 hours per day Sunday through Friday afternoon when it shuts down completely.

Around clock trading means that you rarely have problems with gaps (difference between what commodity closes at and what it opens at the following day—in stocks, the gap can sometimes be devastating), this never-ending array of profit-making opportunities can sometimes lead to over trading—a very costly mistake because it often defies the logic of most Forex investment strategies and often leads to missed opportunities to maximize profit.

Traders in the Forex operate in units known as "lots". A lot is the equivalent of $100,000 (unless you opt for the "mini" lot) and you are essentially trying to predict how the exchange rate between two currencies will fluctuate in the future. While there are literally dozens of potential pairs, the six main players in the Forex are:

· U.S. Dollar

· Euro

· Swiss Franc

· Japanese Yen

· Canada Dollar

· British Pound

International corporations and nations must exchange currency to help finance payroll, secure resources, pay vendors, support infrastructure, etc. This constant exchange of money is done based on a rate that fluctuates due to a variety of factors, including:

· Psychology—fear, greed, and other emotions play a large role in the markets and can sway rates dramatically; however, human emotions have always influenced the markets making them predictable based upon enough data and proper analysis.

· Current Events—with a 24-hour news cycle, events from around the globe can quickly influence exchange rates and cause substantial price fluctuations. If investors allow fear (emotion) to affect their decision-making, then a "sell-off" panic can set in and artificially deflate exchange rates. However, the "sell-off" and panic may have been predicted if caused by historically relevant factors that triggered a similar trend in the past. Doing your homework is a good way to judge if current events are truly relevant to the true exchange rate before deciding to sell.

· Government Reports—Many analysts gauge the economy and the way exchange rates are trending by a number of reports released by the government on a periodic basis by a variety of agencies. GDP, the prime rate, unemployment figures, consumer confidence, and many other reports have been known to play temporary roles in the exchange rates between nations.

Many investors in Forex use margin to secure lots and you can typically secure 1-$100,000 lot for as little as $1,000. It is not very likely in this day and age of advanced technology and rapid connections for you to lose more than your investment—the account will typically be shut down automatically when it becomes negative but be sure to check with your broker. Small fluctuations in the market can make a big difference for those that are highly leveraged so it is best to ask very carefully about the potential risks when thinking about this option.

While there is no central exchange for Forex traders to congregate, the market remains a great place to seek opportunity and profit. However, be sure to research any investment carefully—especially for hidden costs. Brokers are not paid a traditional commission—they are actually paid the difference between the bid and ask price on orders so make certain that all decisions are made only after careful research.

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit

Forex Is Like A Casino — Playing Too Much Can Be Painful!

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!

Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit