Choosing a Forex Broker

Before trading Forex you need to set up an account with a Forex broker. So what exactly is a broker? In simplest terms, a broker is an individual or a company that buys and sells orders according to the trader's decisions. Brokers earn money by charging a commission or a fee for their services.

You may feel overwhelmed by the number of brokers who offer their services online. Deciding on a broker requires a little bit of research on your part, but the time spent will give you insight into the services that are available and fees charged by various brokers.

Is the Forex broker regulated?

When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with. The Forex market is labeled as an “unregulated” market, and it basically is. Regulation is typically reactive, meaning only after you’ve been bamboozled out of your entire savings will something be done.

In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

You can verify Commodity Futures Trading Commission (CFTC) registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) of NFA's Web site at www.nfa.futures.org/basicnet/.

Among the registered firms, look for those with clean regulatory records and solid financials. Stay away from non-regulated firms!

The NFA is stepping up their efforts in educating investors about retail forex trading. They’ve created a brochure fit for a Pulitzer Prize called, "Trading in the Retail Off-Exchange Foreign Currency Market”. The NFA recommends you read it before taking the forex plunge.

They’ve also developed a Forex Online Learning Program, an interactive self-directed program explaining how retail forex contracts are traded, the risks inherent in forex trading and steps individuals should take before opening a forex account. Both the brochure and the online learning program are available at no charge to the public.

Customer Service

Forex is a 24-hour market, so 24-hour support is a must! Can you contact the firm by phone, email, chat, etc.? Do the reps seem knowledgeable? The quality of support can vary drastically from broker to broker, so be sure to check them out before opening an account.

Here’s a good tip: choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions can be key in gauging how they will respond to your needs. If you don't get a speedy reply and a satisfactory answer to your question, you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre-sales service might be better than post-sales service.

How You Make Money Trading Forex

In the FX market, you buy or sell currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.

Example of making money by buying euros

Trader's Action
EUR
USD

You purchase 10,000 euros at the EUR/USD exchange rate of 1.18
+10,000
-11,800*

Two weeks later, you exchange your 10,000 euros back into US dollars at the exchange rate of 1.2500.
-10,000
+12,500**

You earn a profit of $700.
0
+700

*EUR 10,000 x 1.18 = US $11,800
** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.

How to Read an FX Quote

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:

GBP/USD = 1.7500

The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).

When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.

When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.

The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.

You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.

Long/Short

First, you should determine whether you want to buy or sell.

If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.

The Skinny on Forex Trading

What is FOREX?

The Foreign Exchange market, also referred to as the "FOREX" or "Forex" or "Retail forex" or "FX" or "Spot FX" or just "Spot" is the largest financial market in the world, with a volume of over $4 trillion a day. If you compare that to the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the Foreign Exchange really is. It actually equates to more than three times the total amount of the stocks and futures markets combined! Forex rocks!

What is traded on the Foreign Exchange market?

The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

Until the late 1990's, only the "big guys" could play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucks to start with! Forex was originally intended to be used by bankers and large institutions - and not by us "little guys". However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to 'retail' traders like us.

All you need to get started is a computer, a high-speed Internet connection, and the information contained within this site.

BabyPips.com was created to introduce novice or beginner traders to all the essential aspects of foreign exchange, in a fun and easy-to-understand manner.

U.S. Forex Market Commentary

The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4445 level and was supported around the $1.4205 level.

  The common currency reached its highest level since 21 October 2008 as traders chased riskier and higher-yielding assets.  Data released in the U.S. today contributed to investors’ moves to assume more risk.

First, the July ISM manufacturing index printed at 48.9, up from the June reading of 44.8.  The ISM prices paid component rallied to 55.0 from 50.0 in June and other sub-indices also improved including the production and new orders components.  Second, June construction spending rallied to +0.3% m/m from a revised May reading of -0.8% m/m, an unexpected improvement, while activity was off 10.2% y/y. Data released in the U.S. tomorrow include June personal spending and producer price inflation data.  In eurozone news, EMU-16 July manufacturing PMI improved to 46.3 from 42.6 in June, more-than-expected albeit still below the “boom or bust” 50.0 level.  Germany’s PMI manufacturing result printed at 45.7, up from 40.9 in June.  Surprisingly, however, German retail sales were off a real 1.8% m/m and off 1.6% y/y.  June producer price inflation data will be released tomorrow.  The European Central Bank is expected to keep interest rates unchanged when it convenes on Thursday but there is some chatter the BoE could announce measures regarding an end to its quantitative easing program.  Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.35 level and was supported around the ¥94.60 level.  The yen was off sharply across the board as global risk sentiment continued to strengthen.  Another indication of the improving risk appetite was a decline in the so-called TED spread, the difference between what financial institutions and the U.S. Treasury pay to borrow funds for three months, to 29.4 basis points – its lowest level since 26 March 2007.  The opposition political party, Democratic Party of Japan, reported “Japan cannot adopt political that would prompt a drastic drop of the dollar or make other changes during a global recession.”  The DPJ is mounting a serious challenge to the Liberal Democratic Party’s decades-long stronghold on power and may overtake the LDP at the polls later this month.  Data released in Japan overnight saw total cash earnings off 7.1% y/y in the year to 30 June, the largest decline on record and the latest indication of deflationary pressures in the Japanese economy.  The Nikkei 225 stock index lost 0.04% to close at ¥10,352.47.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥137.55 level and was supported around the ¥134.55 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥161.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥90.10 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8288 in the over-the-counter market, down from CNY 6.8291.  China reported its CLSA PMI figure improved to a twelve-month high.

STERLING

The British pound appreciated sharply higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.6985 level and was supported around the $1.6695 level.  Cable reached its highest level since 21 October 2008 following greater global risk appetites.  Positive earnings results from U.K. banking giant HSBC contributed to sterling’s bid tone.  Also, data were released that showed the manufacturing sector improved for the first time since March 2008 with the July PMI index stronger at 50.8, up from 47.4 in June.  Bank of England’s Monetary Policy Committee convenes on Thursday and could announce some policy decisions regarding an unwinding of its quantitative easing policies.  Cable bids are cited around the US$ 1.6695 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8460 level and was capped around the ₤0.8535 level.

Australian college dupes Indian students pursuing aviation course

MELBOURNE: Fate  of several Indian  students enrolled in a Sydney-based aviation college have been left in limbo after  their dreams of acquiring
commercial pilot license remained unfulfilled  even after paying thousands of dollars.

In a latest scam which came to light after ABC  TV channel programme 'Four Corners' exposed migration  and education agents duping Indian students, Aerospace  Aviation college that provides commercial pilot training, it was  alleged, exploited international students besides ill treating Indian  students.
Under their aviation course,  students who have signed up for a commercial pilots' license course that cost USD 43,500, Aerospace Aviation must deliver 200 hours of flying over 52 weeks.
Many students alleged that they never received enough flying hours due to lack of facilities and unavailability of instructors.

A student of the Aerospace Aviation college, Surendra Egalapati alleged he only received 130 hours over an  18 month period.
Another former student Scott Alex said he  was disturbed by the way the college was treating Indian students.
"It was definitely derogatory th e way they  spoke to them, the way they treated them," he said.
When asked if he could cite some example, he said "instructors hating flying with curry eating Indian  stinking yellow so on, and management, I know of a case where the operations  manager actually pushed around a student who was complaining."
Interestingly,  after breaking the scam on the TV programme there were raids at the office of  Indian migration agent, who according to Australian police was involved in providing  fake documents to students, but there were no reports of any follow  up against Aerospace Aviation that is run by Australian couple Sue and Zane Davis.
The programme interviewed  the mother of a student who alleged that after paying the entire fee of 43,000  Australian dollars the college stopped imparting training and her son had to return back with an unfulfilled dream.
She and her son Prabmeet also met the visiting high-level delegation of Australian bureaucrats, police and academics in India who promised a follow up.
She informed the delegation  that she had taken the issue with state regulatory bodies like VETAB   (Vocational Education and Training Accreditation Board) and DEEWR (Department of Education, Employment and Workplace relations),  but nothing was done so far.

Another student Surendra Egalapati echoed the same concern.
However, Sue Davis of the Aerospace Aviation refuted all allegations and said "We welcome having overseas students with us. They all bring delightful experience with them and we enjoy their time. May I add that our student of the year for the last two years has actually been an Indian students"
Egalapati n ow enrolled  in a d ifferent flying school said:  "First I went to Indian High commission, I complained there and  they had a meeting with them and Sue Davis has assured that this is not going to repeat again."
Another student Vishal Sarawat said: "There were  not enough planes, not enough instructors. I was lflying with around 21 instructors you know."
Defending her stance on the allegations made by the students, Davis said "Aviation requires a commitment. We provide the facilities, the aircraft, the highly qualified trainers, but it must be matched by the student's desire to reach a safety standard. I won't back down from that. I take that most seriously, as a delegate of CASA (Civil Aviation Safety Authority) that these students must meet the requirements."
"We have provided everything that those students need to get through the course. The students need to provide the diligence, the dedication and the commitment," she added.
She blamed the students stating that those students when away from home perhaps don't meet up to their parents' expectations.
Aerospace Aviation's students last year lodged a complaint and when they were invited by DEEWR to hear their ordeals, only around 26 Indian students turned up including Scott Alex.
"They said to me, we're too nervous, we want you to come with us. So I did. And when they asked what's happening, everybody was quiet. And then I said one thing, one point like "you have to pay USD 5,000 a month whether you fly or not, that's a bit wrong", and then everybody just started talking. So I just went there for moral support I guess you could say," Alex said.
When asked if the department, the officers, gave any undertakings to actually fix the problems, Alex said "they were shocked, they were shocked and appalled with everything we said."
However, students allege no concrete action has been taken against the college till now.

Forex: GBP/ USD resumes its advance; back above 1.7000

Fxstreet.com (Barcelona) – After finding support at 1.6930,

(MA55 hourly chart) coming from its 115 pips decline from 1.7045, fresh 2009 high

, Cable has begun to rise to trade above 1.7000 level, close to 1.7030 level.
Currently,

GBP/USD is trading around 1.7005/15, 0.35% above today's opening price.

Pair has resumed its advance from 1.6340, July 30 low.
Valeria Bednarik, FXstreet.com collaborator,

comments: “Pair is break above previous consolation range and despite over bought bullish strength intact:

above today’s high of 1.7040 next resistances come at the 1.7070 zone, and above the strong 1.7120 area, technical target for the horizontal channel break.

Corrections should remain limited as bigger time frames20 SMA slope support further rises.”

Bednarik provides us with her levels:

“Resistance levels: 1.7040 1.7070 1.7120. Support levels: 1.6965 1.6910 1.6860.”