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Hedge Funds

The forex market is a popular trading place for hedge fund managers because of the volatility and liquidity that this market entails. Hedge funds necessarily entail higher risk than traditional mutual funds do. Their main purpose is to protect against catastrophic losses in other markets, so hedge funds attempt to make money in markets even when domestic stocks are losing major ground.

Currency is popular amongst hedge funds because currencies are a global phenomenon. Even if the base currency’s market is tanking, there will be a market somewhere in the world that is doing well. For example, if stock markets within the United States are in a prolonged bear trend there will be a market somewhere in the world that is going through a bull period. When U.S. stocks are dropping, the dollar often drops relative to other currencies. This makes selling the dollar in exchange for a currency that is increasing in value a good way to protect your other domestic investments.

A hedge fund is not subject to the same laws as other mutual funds. They are designed for people with a large amount of expendable capital and as such, the laws for entering a hedge fund are a bit stricter. However, once your money is in a hedge fund, the manager has much more freedom than a traditional fund manager does. The largely unregulated forex market is a perfect match for hedge funds because of this.

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By Glenn – November 15, 2010

Important Chart Patterns

Evening Star FormationIn Forex trading we have different types of chart patterns. The most common chart pattern that has been around since a long time is called lowly pullback. This type of chart pattern is also called the pennant or the flag. Fibonacci trading depends on this pullback for its normal functioning. You can also make trades using the moving averages or the moving averages envelopes. Some people also make use of Bollinger bands to identify the pullbacks.

All chart patterns are not entirely foolproof. Even a full fledged reversal seems like a pullback in the earlier stages. However that can be corrected when the market begins to move in the right direction before you enter the trade. As mentioned before, the simple pullback is the best chart pattern. It relates well to the psychological conditions of the market. Using the Copy Live Trades system will help you better understand these patterns. You will become a much better trader this way.

There is also the candlestick chart pattern that is common in Forex trade. Doji is a very popular candlestick pattern. This pattern is formed when the opening and the closing price are virtually equal. Then there is the hammer candlestick pattern which is formed due to the decline or possible reversal in the market.

It is so called because of the short body and the long wick which looks like a hammer. The third type of candlestick pattern is called engulfing pattern. This pattern can be seen between two candlesticks. In this case one candlestick engulfs the other as the candle body of the previous day is engulfed in the body of the candle on the next day.

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By Glenn – November 10, 2010

When Can You Trade Forex?

The best benefit of Forex trading is that you can trade any time of the day and night. The Forex market remains open for 5 ½ days in a week. Hence even if you are working you can still trade in Forex after your office hours and even early in the morning.

The Forex trading system works on a network of computers that are linked to each other globally. When the particular bank open in the day for business it joins the computer network through the internet. The bank’s asking price and the bid then becomes a part of the currency market. The compute system then combines the bids form all over the world and organizes all data in a form which people can understand.

When people can see the currency prices moving it is actually the different banks that are bidding and asking for prices. The banks are located in different parts of the world. When banks in Asia are awake and doing business, the banks in the US close. When the Asian banks are about to close the European banks open. This is a continuous process and it stops only during the weekends.

When you engage your broker to buy or sell currency, he will route your order to the computer network of the bank and the order is procured at the price that you have mentioned. Your broker wont tell you where in the world the order was filled but it should not matter to you as long as your order is filled.

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By Glenn – November 8, 2010

Arbitrage

Arbitrage is the practice of purchasing a financial instrument and then immediately turning around and selling it, hopefully for a profit. This is most effective when there are two separate but related markets involved so the trader can take advantage of price differences. Additionally, arbitrage works best when large amounts of the currency (or another financial product) are used because exchanges generally are in sync with each other. If a price difference does exist, it is usually only a tiny amount and for the trade to be worthwhile a larger amount is needed in order to see any gains.

Arbitrage can be risky because markets often change quickly, and if you are trading the amounts needed to make profits, there is more of your money put at risk. For arbitrage to be most successful, an understanding of the differences between bid and ask prices is a must. The bid price is the amount that the trader is willing to purchase a currency for and the ask is the amount that a trader is willing to part with a currency for. These differences are important because arbitrage usually involves exploiting the tiny differences between the bid and the ask. For example, if the Japanese yen has a bid / ask spread exchange rate of 104.45 / 104.50, one trader is willing to purchase the yen for 104.45 yen for each U.S. dollar, and another is willing to sell it for 104.50 yen per dollar. By taking advantage of this slight discrepancy, the astute trader can make a profit off of this seemingly minute difference.

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By Glenn – November 4, 2010

When to Use Leverage

Borrow MoneyYou’ve probably heard the mention of leverage several times by now, but what exactly is it? Leverage is basically a loan that brokers will give you to increase your trading capital. Some brokers allow you to borrow 50 times (or more) the money you have in your account to make a trade. With $100 in your account, you could then trade $5,000. This allows you to make much more money than you could with just your own money. Remember though, most reputable brokers will subject you to a credit check before allowing you to borrow money from them.

There are obvious dangers to borrowing money on leverage. If you borrow $4,900 to bring your account up to $5,000, you are responsible for repaying any money that your trades might lose. If your trade sinks down to zero, you would then have to repay all of the money you borrowed. This is an extreme example, but the risk should be apparent.

So when should you use leverage? Obviously you want to minimize your risk, so you will need a few strong indicators to even initiate a trade. You should start with a minimal amount borrowed and work your way up until you are quite confident and successful with your trades. You will not be profitable if you start borrowing money right away, and you may end up owing your broker quite a bit of money as well. Your envisioned large gains can just as easily turn into large losses. This is not how you want to begin your trading career.

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By Glenn – October 31, 2010

Forex The Overview

Forex TradingThe Forex market is a huge marketplace, accounting for the equivalent of well over $1 trillion dollars per day. With no central trading platform, the Forex market is considered to be an over the counter market because individuals are able to trade with other individuals. Because of this, traders can determine who they wish to trade with and when they wish to trade. The Forex marketplace is a global phenomenon, and as such, trading takes place 24 hours per day.

The majority of trades involve the U.S. dollar, but the Euro, the British pound, and the Japanese yen are also very popular. The dollar is an important point of reference for a few reasons. For one, it is the most widely traded currency, accounting for over 75 percent of all trading activity. It also is the currency of the world’s biggest economy: the United States. For these reasons, the central banks of other nations will oftentimes keep U.S. dollars within their reserves. About 60 percent of the world’s foreign exchange reserves are held as U.S. currency.

Still, the majority of trading that takes place on a daily basis is done based upon speculation. If you remember the four major players in the Forex market, this would include brokers, financial institutions, and, in some instances, customers. These entities trade currencies not because they need to for business, but because they want to make a profit. Speculative trading is usually done on a daily basis—the Forex equivalent of day trading. Hedge funds are another example of this. Some fund managers will make as many as 50 trades in a single day in an effort to make clients a profit.

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By Glenn – October 29, 2010