Money Management Principles in Forex Trading

Perhaps the best advice that you will receive in your trading career is live to trade another day. Currency markets are volatile, brutal and unforgiving. You should learn to survive in the markets.The single most common factor that causes many traders to blow up their accounts is greed. When you get greedy, you start taking unnecessary risks. You will spend countless hours trying to discover the Holy Grail technical indictor or a forex robot that will make you rich. You believe that by discovering that secret of investing, you will become rich without losing a single trade.Unfortunately there is no Holy Grail for anyone in trading. You will win and you will lose. So you must learn not to risk more than 2% of your account on one trade. Grow your account incrementally over time. Never ever be tempted to risk big, making one single winning trade that can make you rich.Now, know how much you are willing to risk in a single trade. I have said 2%. But if you want to be aggressive you can go up to 5%. But stay between 2-5%. Don't exceed it. On the other hand, if you are conservative, you should consider risking between 1-2% only.Once you have decided on the risk you are willing to take, knowing the rest is simple. Suppose you have a $50,000 account and you decide on a risk of 2%. How much you can risk on a single trade? You can only risk (50,000) (0.02) =$1,000. This is the maximum you should risk on a single trade.However, if you are going to trade more than one position at the same time, the amount may become higher. Let's assume you are in 3 trades at the same time trading three currency pairs! You should risk only $1,000 per trade. So your total money at risk will be (3) (1000) =$3,000. Once you have calculated your risk, you are can determine the trade size.Trade size is the number of contracts you purchase in any one single trade. You need to first determine where you want to put your stop loss in order to determine the trade size. Let's use a simple example to make it clear. Suppose you are willing to risk $1000 on trading EUR/USD pair and you decide on a stop loss of 50 pips. Each pip on EUR/USD pair is equal to $10. So the number of contracts that you can trade are 2= (1,000)/ (50) (10).You have taken the guesswork out of your trading once you have determined your risk level and calculated the trade size. You can sleep well now knowing how much of your money is at risk. You are going to be able to trade tomorrow, no matter what happens today.Using these common and simple money management rules will help you avoid the pitfall of losing almost all the money in your account. Never ever take more than 2-5% risk in any single trade. Learning to survive the markets and trading another day is the essence of trading. This can help take your trading to the next level of profitability.

Different Financial Ratios

When it comes to investing, analyzing financial statement information (also known as quantitative analysis), is one of, if not the most important element in the fundamental analysis process. At the same time, the massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. However, through financial ratio analysis, you will be able to work with these numbers in an organized fashion.The objective of this tutorial is to provide you with a guide to sources of financial statement data, to highlight and define the most relevant ratios, to show you how to compute them and to explain their meaning as investment evaluators.In this regard, we draw your attention to the complete set of financials for Zimmer Holdings, Inc. (ZMH), a publicly listed company on the NYSE that designs, manufactures and markets orthopedic and related surgical products, and fracture-management devices worldwide. We've provided these statements in order to be able to make specific reference to the account captions and numbers in Zimmer's financials in order to illustrate how to compute all the ratios.

Yield, Price And Other Confusion

Understanding the price fluctuation of bonds is probably the most confusing part of this lesson. In fact, many new investors are surprised to learn that a bond's price changes on a daily basis, just like that of any other publicly-traded security. Up to this point, we've talked about bonds as if every investor holds them to maturity. It's true that if you do this you're guaranteed to get your principal back; however, a bond does not have to be held to maturity. At any time, a bond can be sold in the open market, where the price can fluctuate - sometimes dramatically. We'll get to how price changes in a bit. First, we need to introduce the concept of yield.

Measuring Return With Yield

ield is a figure that shows the return you get on a bond. The simplest version of yield is calculated using the following formula: yield = coupon amount/price. When you buy a bond at par, yield is equal to the interest rate. When the price changes, so does the yield. Let's demonstrate this with an example. If you buy a bond with a 10% coupon at its $1,000 par value, the yield is 10% ($100/$1,000). Pretty simple stuff. But if the price goes down to $800, then the yield goes up to 12.5%. This happens because you are getting the same guaranteed $100 on an asset that is worth $800 ($100/$800). Conversely, if the bond goes up in price to $1,200, the yield shrinks to 8.33% ($100/$1,200).

Yield To Maturity

Of course, these matters are always more complicated in real life. When bond investors refer to yield, they are usually referring to yield to maturity (YTM). YTM is a more advanced yield calculation that shows the total return you will receive if you hold the bond to maturity. It equals all the interest payments you will receive (and assumes that you will reinvest the interest payment at the same rate as the current yield on the bond) plus any gain (if you purchased at a discount) or loss (if you purchased at a premium). Knowing how to calculate YTM isn't important right now. In fact, the calculation is rather sophisticated and beyond the scope of this tutorial. The key point here is that YTM is more accurate and enables you to compare bonds with different maturities and coupons.

Price In The Market

o far we've discussed the factors of face value, coupon, maturity, issuers and yield. All of these characteristics of a bond play a role in its price. However, the factor that influences a bond more than any other is the level of prevailing interest rates in the economy. When interest rates rise, the prices of bonds in the market fall, thereby raising the yield of the older bonds and bringing them into line with newer bonds being issued with higher coupons. When interest rates fall, the prices of bonds in the market rise, thereby lowering the yield of the older bonds and bringing them into line with newer bonds being issued with lower coupons.

Personality Traits You Need To Succeed in Forex

• Courage

  : This might sound strange to you, but traders sometimes experience major fear and anxiety when opening up a new position. No one will tell you Forex trading is worry free, it is not, but there are a few ways to decrease the anxiety level when trading. One of the primary methods to increase your objectivity in trading is to trade money you can afford to lose. If you know you are trading money you will need tomorrow to feed your family, you will be overcome with fear, which will have a major effect on your trading skills. One of the first things to do when beginning to trade is set aside some capital that if lost, will not leave a long lasting impact on your life. Once you have done that, your fear and anxiety levels should be much lower. Now all you need to do is take that first leap and jump into the Forex market.

• Self Control

  : This is a very important factor when trading Forex. You need to ensure you are in total control of your emotions. Do not let a winning trade lead you down the path of greed, control yourself and follow the plan. On the other hand, when experiencing a painful loss, do not get caught in the trap of overcompensating with another trade. Follow your plan religiously, and do not be swayed by your emotion. Let the brain do the navigating, not the heart.

• Self Awareness

  : This characteristic might have been at the top of the list had it been in chronological order. One of the first and most important things you need to do as a trader is get to know your trading personality. Ask yourself what kind of trader you are. Are you the type of person who is willing to take huge risks, lose some big trades, with the hope that your most successful trades will have made it all worth it? Are you the type of person that can leave a trade open overnight? Will you be able to sleep with that on your head? These are just some examples of decisions you need to make before trading. The most important thing is that you know who you are and only then can you decide how to trade.

• Patience

  : This might be the hardest trait to acquire. Experienced traders can tell you that sometimes the most profitable trades are not trades at all. Sometimes the best move is to wait and not trade. Before jumping in, make sure this trade is right for you. Have you done your homework, read the news, analyzed the market, listened to the experts? Is this trade what your strategy is telling you to do or are you being impulsive? Sometimes, it is best to be patient; there will always be another trade, another possibility to profit.

Forex Trading - Moving Average

Moving average is one of the most popular and easy to use tools available for doing technical analysis. It means the average price of a currency over a specified time period (the most common being 20, 30, 50, 100 and 200 days), used in order to spot pricing trends by flattening out large fluctuations. Moving average data is used to create charts that show whether a currency’s price is trending up or down. They can be used to track daily, weekly, or monthly patterns. Each new day's (or week's or month's) numbers are added to the average and the oldest numbers are dropped, thus, the average "moves" over time. In general, the shorter the time frame used, the more volatile the prices will appear, so, for example, 20 day moving average lines tend to move up and down more than 200 day moving average lines. There are four different types of moving averages: Simple (also referred to as Arithmetic), Exponential, Smoothed and Linear Weighted. Moving averages may be calculated for any sequential data set, including opening and closing prices, highest and lowest prices, trading volume or any other indicators. It is often the case when double moving averages are used.

Delta Trading Web

Delta Trading Web ensures the investor’s access to all the necessary features for online trading in FX, spot Gold and Silver, CFDs on Stocks and Indices, and CFDs on Brent and WTI Crude Oil Futures from any Internet-connected computer.
Delta Trading Web, characterized by its simplified and user-friendly interface, is browser-based and no download or software installation is required.
"Traders are offered streaming live quotes of all the instruments available for trading in Delta Trading (the Desktop version) and financial news feeds, along with the core trading and management functions of an advanced trading platform.
Delta Trading Web is accessible through the majority of proxy servers and firewalls. It utilizes a 128-bit https-secured connection for such features as data encryption, server authentication, message integrity and client authentication. Delta Trading Web is compatible with most of the modern browsers:Internet Explorer 5.0+, Firefox 2.0+, Opera 9.2+, Safari 3.1+.
Delta Trading Web features the following order types:
Market Order – a buy or sell order, which is executed at the best price currently available on the market;
Click & Deal – a market order with an instant execution – the execution price might be different from the placing price depending on the certain market conditions;
Limit Order – a buy or sell order, which is executed entirely or partially upon reach of the pre-set in the order price;
Stop Order – a type of “Limit Order”, executed upon reach of the pre-set in the order price;
One Cancels the Other (OCO) Order – two limit orders – a “Limit” and “Stop” are submitted simultaneously, as the execution of either one of them automatically cancels the execution of the other.

Foreign Exchange as a Financial Market

Currency exchange is very attractive for both the corporate and individual traders who make money on the forex - a special financial market assigned for the foreign exchange. The following features make this market different in compare to all other sectors of the world financial system:

• Heightened sensibility to a large and continuously changing number of factors;
• Accessibility to all traders in the major currencies;
• Guaranteed quantity and liquidity of the major currencies;
• Increased consideration for several currencies, round-the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open and….
• Extremely high efficiency relative to other financial markets.

This goal of this manual is to introduce beginning traders to all the essential aspects of foreign exchange in a practical manner and to be a source of best answers on the typical questions as why are currencies being traded, who are the traders, what currencies do they trade, what makes rates move, what instruments are used for the trade, how a currency behavior can be forecasted and where the pertinent information may be obtained from. Mastering the content of
an appropriate section the user will be able to make his/her own decisions, test them, and ultimately use recommended tools and approaches for his/her own benefit.

World Gold Market

Turkey has been an important regional gold market for many years; during the 1990s domestic jewellery fabrication averaged 125 tonnes (4.02 million oz). In addition, Turkey has been a key source of bullion for several neighbours countries. Turkish bullion imports, which normally exceed 100 tonnes (3.2 million oz) on an annual basis, came to 107 tonnes in 1999 but then rose significantly in 2000 to 205 tonnes (6.6 million oz). However, the following year bullion imports fell sharply. According to GFMS, this was partly due to the sharp devaluation of the Turkish currency and the associated economic and banking crises which affected the country. On a separate note, Turkey's position in the international market was enhanced by the full liberalisation of the local gold market in 1998 and the opening of the Istanbul Gold Exchange on 26 July 1995.

banks in dubai

Bank	Address	Telephone	Fax	Website/Email
Abu Dhabi Commercial Bank	Al Reqqa Street, Dubai	04 2958888	04 2959310	www.adcb.com
Citibank (Main Branch)	Khalid Bin Al Waleed Street, Bur Dubai, Dubai	04 5074110	04 3528654	www.citibank.com/uae
Commercial Bank of Dubai	Deira, Port Saeed, P.O. Box 2668, Dubai	04 2121000	04 2121111	www.cbd.co.ae
Commercial Bank International (Main Branch)	Al Reqqa Street, Deira, Dubai	04 2275265	04 2279038	www.cbiuae.com
Emirates Bank (Main Branch)	Beniyas Road, P.O. Box 2923, Dubai	04 3160316	04 2264302	www.ebi.ae
First Gulf Bank	Al Yamamah Tower, P.O. Box. 52053, Deira, Dubai	04 2941234	04 2949595	www.fgb.ae
HSBC	HSBC Bank Building Baniyas Square, Deira, Dubai	04 2227161	04 2281714	www.uae.hsbc.com
Lloyds Bank	Al Wasl Road, Jumeirah, Dubai	04 3422000	04 3422660	www.lloydstsb.ae
Mashreq Bank (Main Branch)	Omar Ibn Al Khatab Road, Next to Al Ghurair Center, Deira, Dubai	04 2223333	04 2226061	www.mashreqbank.com
National Bank of Abu Dhabi	Bank Street, near Burjuman Centre, Dubai	04 3599111	04 3517388	www.nbad.com
National Bank of Dubai	Baniyas Road, Deira, Dubai	04 2222111	04 2283000	www.nbd.com
Royal Bank of Canada	API World Tower, Office 1002, 10th Floor, Sheikh Zayed Road, Dubai	04 3313196	04 3313960	www.rbcprivatebanking.com/dubai
Standard Chartered Bank	Al Mankhool Road, P.O. Box 999, Dubai	04 3520455	04 3527523	www.standardchartered.com/ae
Union National Bank	Al Maktoum Street (Al Maidan Tower), Dubai

Forex: GBP/USD posts 9-month high at 1.6987

The Sterling has risen around 170 pips against the Dollar during the American session from 1.6820 to post the highest level since October 21 at 1.6987 in its way to test 1.7000 level. Currently the pair is trading around 1.6935/45, 1.40% above today's opening price action.

Valeria Bednarik, Fxstreet.com collaborator, comments: “Pair has resume midterm uptrend, after breaking to the upside, both, 61.8% retracement of last weekly fall, and the roof of the range the pair has been trapped since early June. First strong resistance level comes at the 1.7120 area, followed by 1.7400 level. Downside corrections will find support around 1.6700, that should hold to keep bias intact. Intraday supports come at 1.6950 and 1.6900, while resistances from actual price lie 1.6980 and 1.7030.”

Currency Moves Equity Opportunities

The Impact of Currencies on Equities
There are many ways in which currencies can impact equities. For multinational companies, currency fluctuations can increase or reduce foreign earnings. For importers and exporters, exchange rates can impact profitability and sales. Let's take a look at how these relationships work. (For more insight, read What will happen to my stock portfolio if the greenback loses value?)

Relative Performance Between Industry Peers
Currency fluctuations can mean the outperformance or underperformance of industry competitors. Take Boeing (NYSE:BA) and France-based Airbus for example; they realized a divergence in profitability between 2006 and 2007 when the euro appreciated 20% against the U.S. dollar. Boeing, the U.S.-based airplane manufacturer, saw a sharp rise in orders for its Dreamliner jet. There was a notable shift in interest by foreign buyers once the euro rose from 1.18 to 1.42. Boeing's European competitor, Airbus, on the other hand, suffered greatly due to the strengthening euro. In the third quarter of 2007, Airbus announced that it would be cutting 10,000 jobs and accelerating production of a new superjumbo jet to reverse an $810 million loss.

Importers Versus Exporters
Currency strength or weakness can also mean the difference between one sector underperforming another. More specifically, when the U.S. dollar weakens, companies like Wal-Mart (NYSE:WMT), which imports most of its products, underperform companies like Boeing, which sells a lot of its jets abroad. In Figure 1, the orange line represents the dollar index while the blue line represents the price of Wal-Mart divided by the price of Boeing. As you can see, when the U.S. dollar weakens, Wal-Mart underperforms Boeing and when it strengthens, Wal-Mart outperforms Boeing. The reason for this is that a stronger greenback means that companies like Wal-Mart have greater buying power, making the cost of foreign goods less expensive. 

Source: DailyFX.com

Figure 1

International Exposure
For multinational corporations, doing business internationally can be a good or bad thing. If your local currency is weakening, foreign exchange fluctuations will boost foreign earnings; if your local currency is strengthening, currency fluctuations could reduce earnings. The period between 2002 and 2007 was one of U.S. dollar weakness. Take McDonald's (NYSE:MCD) for example; the advantage that the company's quarterly earnings receive from foreign exchange conversion given their international exposure cannot be dismissed. 

In 2007, Aegis PLC (OTC:AGSI), the British buyer of advertising space, reported an 18% drop in first-half profits because of negative currency movements. The U.S. dollar fell 10% against the British pound in the first six months of the year, while the euro fell 1.8%. This adversely affected profit from U.S. and European sales. Companies based in Europe, the U.K. and even Canada were feeling the pinch of a lower U.S. dollar as the value of larger contracts with producers suffer when profits are converted back. (For related reading, see What risks do organizations face when engaging in international finance activities?)

Merger and Acquisition Targets
Sharp currency fluctuations can also lead to an increase in cross border merger and acquisitions. When the Canadian dollar hit a 31-year high in 2007, Canadian companies went on a buying spree. It was not hard to understand why, given that the currency increased 62% between 2002 and 2007. This increase raised the market share of Toronto-Dominion Bank, Canada's third largest bank (as of October 2007) to more than $52 billion, allowing it to announce plans to buy U.S.-based Commerce Bancorp for $8.5 billion. The deal was structured as 75% stock and 25% cash. If TD had engaged in the transaction six months prior to the announcement, when the USD/CAD was trading at 1.16, the deal would have cost $1.3 billion more Canadian dollars, or a premium of 14%.

Canadian banks have announced or completed billions of dollars worth of cross-border acquisitions in 2007. Currency fluctuations clearly impacted cross-border mergers and acquisitions and it is not uncommon to see this trend often when companies in countries with currencies that have increased significantly in value spend their newfound wealth. (For related reading, check out How The Big Boys Buy.)

The Impact of Equities on Currencies
The strongest relationship that we have seen between equities and currencies is the relationship between carry trades and the Dow. In 2007, you can see many currency pairs that can be categorized as carry trades. The most popular of these are the New Zealand and Australian dollars paired against the Japanese yen. With interest rates at 50 basis points in 2007, the yen became an extremely cheap funding vehicle, not only for investments in higher yielding currencies but also for investments in equities. When the Dow rallies, it tends to reflect a growing willingness of traders and investors to take on risk. Countries that offer higher interest rates do so because they generally have higher risk or lower sovereign debt ratings. That is why both the Dow and carry trades are a measure of risk. This relationship is not foolproof, but generally speaking, when there are sharp gains in the Dow, carry trades tend to rise as a reflection of growing risk appetite. When the Dow collapses, carry trades on Japanese yen crosses will sell off as a reflection of rising risk aversion. (For more insight, read Currency Carry Trades Deliver.)

Figure 2 illustrates the close relationship between the Dow (candles) and carry trades (black line) between 2002 and 2007. In this example, the carry trade index is tabulated as a basket composed of the three highest yielding currencies against the bottom three low yielding currencies updated daily over 17 years using three-month LIBOR rates for each country. For our universe of currencies, we used the majors (EUR/USD, USD/JPY, GBP/USD, USDC/HF) as well as the commodity dollars (USD/CAD, AUD/USD, NZD/USD).
 

Source: DailyFX.com

Figure 2

Carry trades can and will deviate from equity market returns in the short term and traders should not necessarily assume that if the Dow rises, carry trades will rise simultaneously. However, what Figure 2 does illustrate is that over the medium term, carry trades and equities are very much correlated. The reason why this is the case is because in its purest form, the carry trade is essentially the never-ending hunt for yield by global investors. When the carry trade performs well, it creates excess returns not only in the form of higher yields but sometimes substantial capital appreciation as well. These excess returns generate a massive amount of capital, which seeks more speculative returns and often find its way to the equity market.

The opposite is true as well where strong stock market gains attract more participants into the market. In order to initiate or increase exposure, many foreign investors, especially those on the hedge fund level will borrow against low yielding currencies like the Japanese yen and Swiss franc to leverage their investments in U.S. equities.

Stay On Top of Currency Movements
Ultimately, foreign exchange is here to stay and will continue to affect companies and their bottom lines in quarters to come. The importance of this relationship continues to grow as companies look over the horizon at global markets and competitors, and expand beyond the U.S. into countries like Europe and Asia. The result leaves sales and product lines exposed to foreign exchange risk. As a result, with everyone in the stock market looking at the same thing, it may very well pay to look outside the box and turn to the currency market as harbinger of future earnings. Ultimately, this may give the average investor a leg up in a market bent on similar interpretations.