Archives: 2009 April

One should never undermine the essential needs to choose the best Forex software when it comes to Forex trading. This is especially crucial for aspiring Forex traders as well as those who are already in this profession in order to help them in their foreign exchange activities. There are a few key elements that traders should know about Forex software in order to gain good profits.

It is a well-known fact that in today’s Forex market, it is easy for the dollar to fluctuate against other currencies in the world. Therefore, it is especially crucial to get a Forex trading software that could adjust to the changing needs in the Forex market.

In order to get the best of online trading platform before buying any Forex trading software, traders need to consider whether the online Forex trading software has the highest security which includes a 128 bit SSL encryption. This is the most important aspect which traders should not neglect as the encryption certificate will help prevent hackers from accessing any of your personal details and other financial information such as your balance account, transaction history and so on.

Another important aspect to look for is companies that will provide all day technical support of their software. This is extremely important, in cases where you have issues like unauthorized access, or any such problems. Having this support is extremely important also to improve the success rate of the trader as they are kept safe from any loss of information in the middle of a trade transaction, and can recover easily with support.

You as a forex trader can either use fundamental analysis or technical analysis in studying the forex markets and making predictions about the future. The savvier among you will try to combine both in making predictions about the future direction a particular currency is going to follow.

Fundamental analysis studies the long term effect of economic forces on currency markets whether financial or socio political using various economic indicators. Technical analysis is based on the premise that all available information is already compounded into the prices and the future prices can be predicted based on past prices.

Most of you who have been trading stocks must be familiar with the term: The January Effect. The January Effect is based on an observation that during the last few days of December and the fifth trading day in January stocks tend to perform very well.

The explanation of the January Effect is simple. During the last few days of the year, many investors are concerned about their tax returns. They try to realize capital gains or losses to file their tax returns. Many corporations also use the end of the year to face lift their balance sheets favorably at the end of the year.

Now the interesting fact is that seasonality is not common to the stock markets. Forex markets also show seasonal effects. Seasonality is defined as a trend or pattern that occurs at some particular part of the year.

Carry trading is done by forex traders to take benefit of the basic economic fact that money will flow where it will get high returns. This constant flow of capital between the different markets is what makes carry trading possible.

Carry trading is a popular trading strategy employed by professional forex traders. Hedge funds and investment banks use leveraged carry trading as one of the favorite strategies. Retail forex traders can also benefit from carry trading.

What is a carry trade? In nutshell, carry trading means taking advantage of interest rate difference between two currencies in a currency pair. Investors take benefit of the interest rate differential between two currencies by going long/buying the high interest rate currency and going short/selling the low interest rate currency.

Lets take an example: suppose New Zealand dollar offers an interest rate of 4.75% while the Japanese yen offers an interest rate of 0.25%.

In order to carry trade, an investor buys New Zealand dollars (NZD) and sells Japanese Yens (JPY). As long as the exchange rate between the NZD and JPY does not change, the investor will earn a profit of 4.75-0.25=4.5%. Using a leverage of 5:1, this 4.5% return will be leveraged into 22.5%.

Another thing that can go in favor of the investor is if the currency pair NZD/JPY appreciates, he/she can get capital appreciation as well as a yield. Many times, appreciation will also happen as many other investors also jump on the bandwagon when they see a good carry trading opportunity.