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  • 5 Reasons to Trade CFDs


    First of all, let us start with the definition of the “CFD”. It is actually an acronym for Contracts for Differences. It gives a retail trader the possibility to benefit from the price movement of a certain financial market (stocks, commodities, equities, equity indexes, forex, etc.) without owning the underlying asset. These instruments are perfect for speculating.

    A CFD is a tradable instrument that mirrors the movements of an underlying asset and it is perfect for profiting from the short term trades without having the costs associated with the ownership of the asset. It can also be considered a contract between the client and its broker. Trading CFDs has several major advantages, and these have increased the popularity of the instruments over the last several years.

    1. Higher Leverage

    Trading a CFD provides a higher leverage than traditional trading. Depending on the underlying asset, the leverage could go from 1:2 (50% margin) to 1:100 (1% margin and most common in Forex Market) or all the way up to 1:1000 (found only with the underlying asset FX).

    1. High number of trading instruments

    Most CFD brokers offer instruments in all the world’s major markets, and not only. This way traders can easily trade any market, while it is open, from their broker’s platform.

    1. Trading on both sides

    Thanks to the fact that a trader, using CFDs, doesn’t have to own the underlying asset he/she can enter both long and short positions. Certain markets have rules that prohibit a shorting at certain times, requiring the trader to borrow the instrument before shorting or to have different margin requirements for shorting, as opposed to being long. All of these are not generally present on the CFDs market.

    1. Low deposits requirements

    Thanks to the small margin requirements for trading CFDs, brokers have reduced their first minimum deposit.

    1. Low fees per transaction

    Many brokers, depending on the type of account, do not charge commissions or fees of any kind to enter or exit a trade. The broker makes money by making the trader pay the spread. The trader must buy the ask price, and to sell/short, the trader must take the bid price. The spread depends very much on the volatility and the liquidity of the underlying asset. It is usually small in a high liquidity and low volatility market and big in a low liquidity and high volatility market.

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

  • 6 Myths About Forex Trading


    In this market, there is not an equilibrium between losers and winners. From a total of 100%, around 20% are winners, 10% are managing to keep themselves on breakeven and around 70% are thrown out of this market. These statistics have slightly changed during the last decade. The percentage of winners is rising every year that passes because this domain got awareness and traders educate themselves better and better.

    Because of this imbalance between winners and losers, myths were born. Let us tell you what are the most common myths in trading Forex:

    1. Trading Forex means Easy Money

    This is my favorite one and is also the most important reason why beginners are losing their money. Trading in the Forex Market necessitates knowledge, patience and will. It is just like any other business. A trader should first learn about the market and only after that he should invest. Usually, beginners are throwing themselves in the ocean without knowing how to swim.

    1. Leverage

    After they have lost money, novice traders start blaming other things for their loss. One of these things is Leverage. It is true that leverage can contribute to larger losses. But this happens only if a trader does not realize that he is over exposed to the market with his account, or, even worse, if he doesn’t know how to / want to cut his losses. An experienced trader will always know when to get out of a losing trade or to adjust his volume so that he will not lose money.

    1. News and Information

    These are also considered to be a factor which makes traders lose their money. After losing, traders believe that they did not have the right information for them to enter into a winning trade. But, actually, Banks or Investment Funds have access to the same information. The differences between a retail investor and a Bank or Investment Fund is the services through which they get the latest news. A paid service will provide you fast and real time access to the market news, while a free one will give you the same information but with a delay.

    1. Initial Balance

    This is also a myth created by those who did not know how to correctly manage their money. Nowadays, it is said that if someone intends to enter the Forex Market with a small amount of money, they will have no chance. This myth is actually true only for those who do not know the market and who do not have a good money management, nor a trading strategy. A well prepared trader could trade very well with a balance of 100$ or one of 10.000$.

    1. Volatility is Bad

    Have you ever heard ex-traders or someone sharing his/hers opinion regarding volatility? You will often hear that volatility is high on the Forex market and it is very bad for a trader. Well, let us tell you that volatility accompanied by leverage and a proper trading strategy is the best combination a Forex trader should look for. Volatility means that the market is active and it moves. Short term traders will always try to speculate the direction of the market in a volatile moment. In time, volatility strategies were developed and applied in such moments.

    1. Brokers work against you

    We will end up with a half myth. It is true that in the past there were a lot of brokerage houses which were not ethical and contributed to clients loses. Now, when a trader is in a trade and loses his money, he would rather blame the brokerage house than admit his own fault. For a brokerage house to go against you it would have to change the quotations for the instruments you trade. If you suspect such action, you could easily compare the quotations with those from a commercial bank. It is normal to be slight differences, but not tens of pips.

    These are the most important myths that we compiled for you to understand that this is a business, which implies risks, but there are also untruths about these risks.

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

  • 7 Steps to Becoming a Better Trader


    If you are a beginner in trading on the financial markets, then you would like to read what we have written in this article.

    The following steps will help traders to structure information so that they can be able to take the correct path for learning how to trade more profitably.

    1. Learn about trading

    The first step would be to learn more about trading, its implications, risks and benefits. Basic information regarding this domain can be easily found.

    2. Learn about Forex Market

    If you want to trade on such a market you should learn as much as possible. The opportunities are incredible. There is volatility all the time, the leverage is in favor of the trader and the liquidity is usually very high.

    3. Risks and Benefits

    There are many benefits and risks associated with financial instruments. One should know them right from the beginning. This is an important step in limiting your risks in the future.

    4. Technical and Fundamental Analysis

    Technical and Fundamental Analysis in a trading system provides a higher leverage over the market to raise the probability of accessing the winning trades category.

    5. Cultivating a Trading Strategy

    Creating a trading strategy improves the probability of forecasting market direction to earn more money. A strategy could be based on technical analysis or on fundamental analysis, but the most accurate are based on both types of analysis.

    6. Demo Trading

    A demo account gives traders a risk free capacity to practice trading in order to better understand the market behavior. At a demo account level, a trader can also test their trading strategy and fine tune their Money Management skills.

    7. Real Money Practice

    Nothing can be compared with real money trading. One cannot say he is ready to become a full time trader before trading on a real account. Open a real account today and test your strategy!

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

  • Basics of Fundamental Analysis


    The Fundamental Analysis of a business involves analyzing its financial statements and health, management and competitive advantages. It is a technique that attempts to determine a security’s value by focusing on underlying factors that affect the business (or company) and its future prospects.

    Often, fundamental analysis is used instead of macroeconomic analysis, when analyzing Forex. This type of fundamental analysis focuses on the overall state of the economy, and considers factors including manufacturing, management, employment, interest rates, production, inflation, earnings, housing and GDP.

    Many investors use fundamental analysis alone or in combination with other tools to evaluate an economy or a financial instrument for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the financial instrument.

    This type of analysis was usually used for medium and long term investing. Nowadays, it is also used for short and very short term trading. Unexpected events are triggering high volatility which gives traders opportunities to speculate on the most affected financial instrument.

    E.g. 1) Investor 1 is waiting for Apple Inc. to post its Q3 earnings. Estimations are that the EPS will be $2.5 per share. If the company will report a $5 profit per share, the probability for its price to rally is very big, so investor 1 could profit from the move.

    E.g. 2) Investor 2 was expecting the release of the United States GDP for the previous quarter. The analysts were expecting a 2.2% growth, but the actual publication is 4.1% growth. Investor 2 will most likely speculate an appreciation for the US dollar for a short term period.

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

  • Basics of Technical Analysis


    Technical analysis is a security (financial instrument) analysis methodology for forecasting the direction of prices. It is based on the study of past data, primarily price and volume. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, it can help investors anticipate what is likely to happen to price over time. Technicians using charts search for price chart patterns which give them a certain probability of what price might do in the near, medium or long term.

    One of the fundamental principles in technical analysis is that market’s price reflects all relevant information, so their analysis looks at the history’s security’s trading pattern rather than external divers such as economic, fundamental and news events. Another principle is that price action tends to repeat itself due to investors collectively tending toward pattern behavior. Technical analysis is focusing on identifying trends and conditions.

    You don’t need an economics degree to analyze market index chart. Technical analysis’s beauty lies in its versatility. The principles of technical analysis are universally applicable. Charts are charts. It does not matter if the time frame used is of 1 hour, 1 day or 1 month, it also doesn’t matter if it is a stock, commodity or currency pair, the basic principles of technical analysis are applicable to any chart.

    Technical analysts consider the market to be 80% psychological and 20% logical. The price set by the market reflects the sum knowledge of all participants. These participants have considered (discounted) everything under the sun and settled on a price to buy or sell. These are the forces of supply and demand at work. By examining price action to determine which force is prevailing, technical analysis focuses directly on the bottom line: What is the price? Where has it been? Where is it going?

    It makes sense to focus on price movements, if the objective is to predict the future price. By focusing on price action, technical analysts are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. A technician will refer to periods of accumulation as evidence of impending advance and periods of distribution as evidence of an impending decline.

    For each stock, commodity, index or currency pair, an investor would analyze long-term and short-term charts to find those that meet specific criteria. For a trader to be able to use technical analysis he should know the basic elements which are:

    Time frame

    A time frame in technical analysis represents a certain time interval in which the prices move. Time frames can be chosen from the trading platform. The range of time interval starts with 1 minute and goes up to 1 month. Knowing the difference between time frames, will help a trader to better read and understand the chart and price action.

    Most used time frames are: 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 week, 1 month.

    Chart Type

    In technical analysis there are many types of time frames, but the three types that are frequently used by investors and traders, depending on the information that they are seeking and their individual skills, are: the line chart, the bar chart and the candlestick chart. Notice how the data used to create the chart is the same, but the way the data is plotted and shown in the charts is different.

    line-chartLine Chart – It is the most basic of the three charts because it represents only the closing prices over a set period of time. It is created by a line which connects the closing prices on a certain timeframe. Line charts do not provide visual information of the trading range for the individual points such as high, low and opening prices.

    bar-char2bar-chart1Bar Chart – The bar chart expands on the line chart by adding several more key prices of information to each data point. These carts
    are made up of a series of vertical line that represent each timeframe. On the vertical line are represented the open price (little horizontal line on the left), the closing price of the time frame (horizontal line on the right), the high and the low of the trading period. A general rule for a bar chart is: If the opening price is lower than the closing price of a certain timeframe, the bar is up; if the opening price is higher than the closing price than the bar is down.

    candlestick1candlestick2Candlestick Chart – This type of chart displays the high, low, opening and closing prices for a security for a specific timeframe. The wide part of the “candlestick” is called the “real body” and tells investors whether the closing price was higher or lower than the opening price (red/black if the instrument closed lower, green/white if the instrument closed higher). The so called shadows show the trading session’s high and low and how they compare to the open and close. A candlestick’s shape varies based on the relationship between the high, low, opening and closing prices.

    Candlesticks reflect the impact of investors’ emotions on financial instrument prices and are used by technical analysts to determine when to enter and/or exist trades. There are many short and long term trading strategies based on candlestick patterns.

    The colors of a candlestick chart are highly customizable. Green/Red and White/Black are the default combinations but there is no conditioning in using them. You will see in the following examples a combination of Blue/Red.

    Trends

    trends1trends2Technical analysis can be as complex or as simple as you want it. The first step would be to identify the overall trend. The easiest way to determine whether a trend is ascending or whether it is a descending one is through peak/trough analysis. If the price action draws rising peaks and rising troughs, we can deduce that the trend is rising. If the price action draws falling peaks and falling troughs, the trend is descending. Other methods can also be used, like trend lines and moving averages.

    Support/Resistance

    support-resistanceA support level is a price level where the price tends to find support as it is falling. Meaning the price is more likely to bounce off this level rather than break through. Once the price has passed the support level it is likely to continue dropping until it finds another support level.

    resistance2A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is rising. This means the price is more likely to bounce off this level rather than break through it. Once it has passed above this level, by an amount exceeding some noise, it is likely that it will continue rising until it finds another resistance level.

    resistance3Often the broken support tends to become resistance and the broken resistance tends to become support.

    It is very important to correctly read and interpret the price action of a financial instrument. The basic knowledge in reading the price action used frequently will help traders to develop analytical and prediction skills.

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

  • What is Forex?


    Forex is the market in which participants are able to buy, sell, exchange and speculate on currencies. You can also define it this way: The Forex Market (forex, FX, currency market or Foreign Market Exchange) is a global decentralized market for trading currencies. The main participants in the market are the largest international banks, commercial companies, central banks, investment management firms and, hedge funds, the retail forex brokers and investors.

    In the Forex Market, the instruments traded are actually currency pairs. The symbol for a currency pair will appear like this: EUR/USD. It is usually followed by quotations like in the example bellow:

    Symbol Bid Ask

    EUR/USD 1.2657 1.2659

    GBP/USD 1.6052 1.6055

    1.2657 – is a quote (price). The difference between 1.2657 and 1.2658 is 0.0001, which is called PIP (Percentage Increment Point). It is the smallest unit of measurement for the quotation of the currency pairs (and other instruments too). You could also find a 5 digit quote.

    Volume 1 lot (standard measurement for trading Forex, it is equivalent of 100.000 of the first currency in the pair – in this example 100.000 EUR. You can also trade a mini lot – 0.1 lots = 10.000 of the first currency or micro lots – 0.01 = 1000 of the first currency)

    0.0001 is equal to 1 pip. The value in money for 1 pip is calculated like this:

    1 pip = Volume Value * unit value (denominated in the second currency of the pair)

    Volume Value = Nominal Volume (100.000 units of the first currency)*Trading Volume

    E.g.If one buys/sells of EURUSD:

    1 lot – 1 pip= 100.000*1*0.0001= $10; 2 pips= 100.000*1*0.0002= $20

    0.1 lot – 1 pip= 100.000*0.1*0.0001= $1; 2 pips= 100.000*0.1*0.0002= $2

    0.01 lot – 1 pip= 100.000*0.01*0.0001= $0.1; 2 pips= 100.000*0.01*0.0002= $0.2

    The first quotation is the price at which investors sell (Bids), and the second one is the price at which investors buy (Ask). The difference between them is called spread (it is usually the cost for trading in the forex market through a brokerage house).

    Using the same example, but applied as a general rule, the EUR/USD can be read: How many units from the second currency (USD) should be paid for one unit of the first currency (EUR).

    Usually, the ticker – currency pair symbol – is made of: first two letters are the acronym for the country, and the third is the acronym for the name of the currency:

    GBP – Great Britain/Pound

    JPY – Japanese/Yen

    AUD – Australian/Dollar

    USD – United States/Dollar

    There are also some exceptions, like EUR, or those for countries that have changed their currency value like PLN – Poland/New Zloty

    Sometimes, trading in the Forex Market is confused with trading a CFD based on the Forex Market. To be an active trader in the currency exchange market you should own a currency, in order to buy and own another. If someone would just like to speculate the direction of a certain currency pair, then he will trade a CFD based on that specific currency pair.

    When trading a CFD based on a currency pair, the trader should take into account the fact that leverage is applied. Let us take the next example:

    EUR/USD 1.2657 1.2659

    Leverage: 1:200 -> Margin requirement of 0.5%

    You buy 1 lot of EUR/USD at 1.2659 (ask price). You need a margin (the margin is always calculated in the first currency of the pair) of 0.5% of 100.000, which means 500 EUR. For this transaction you will have to pay a spread of 2 pips. If the market will move from 1.2657 (bid) to 1.2659 (bid), your spread will be covered and you will find yourself on breakeven. Let us say that the market reached 1.2669 and you want to close your trade.

    At this point, 1.2669 - 1.2659 (breakeven level) = 0.0010 or 10 pips.

    10 pips = 100.000 * 0.0010$ = 100$

    $100 would be your profit for a 10 pips, by buying a CFD on EURUSD.

    The Information or materials published or submitted by Forex Rally are exclusively for educational, informative or analysis purposes and cannot be considered recommendations to purchasing/selling/keeping of a particular financial instruments. They are not and should not be treated as indications or tips on trading strategies for real or demo accounts. Forex Rally warns the Users/Clients that past performance of Financial Instruments is not an indicator of future performance. Forex Rally assumes no responsibility for the outcome of transactions based on or influenced by any of the above-mentioned information. Forex Rally warns that Financial Derivative Instruments are complex instruments and leveraged products that involve a high level of risk which can result in high losses, including the risk of losing the entire capital invested by the Client. Such instruments might not be suitable for all Clients. The Client should not engage in transactions with such Financial Instruments unless he/she understands and accepts the risks involved by trading Financial Instruments, taking into account his/her investment objectives and level of experience.

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