Peter Marsden's Forex Blog

Some currency pairs have very close correlation. Currency correlation is measured between -1 and 1. -1 is 100% negative correlation and 1 is 100% positive correlation and 0 means no correlation. Negative correlation is where one pairs moves up and the other pair moves down.

There are many Currency Correlation strategies that try to profit from these correlations.

Historically some of the mostly closely correlated forex are are:

USD/CHF EUR/USD - These forex pairs have a very close inverse correlation. Around -0.95 over the last few years.

GBP/USD EUR/USD - These pairs have had a very close correlation. Around +0.92 over the last few years.

Forex correlation is very important to understand when considering your risk management strategy. This is because if you are long on two pairs that have very close positive correlation, there will always be a good chance that trades will either win or lose, so it’s not necessarily spreading the risk appropriately.

An alternative way to hedge or speculative on forex price movements is to put money into a Currency Trading ETF. This is an Forex exchange traded fund. ETFs are traded on the major stock exchanges around the world and be purchased like stocks.

A NAV (Net Asset Value) of the FX ETF aims to track the price movements of a particular currency pair, for example EUR/USD. As currency rates fluctuate constantly, the price of a currency rate ETF does as well.

A ETF tracking EUR/USD will have gained around 70% over the last seven years, as this pair has consistantly trended up.

Currency ETFs are still fairly new, but they are currency ETFs on USD/JPY (Dollar/Yen) EUR/USD, GBP/USD and many more.

Personally, I think if you know how to use a mainstream retail FX broker, you are better sticking with that. ETFs are generally better suited to people who have no knowledge of trading the underlying market, but wish to take a speculative view.

You can go short on ETFs unlike conventional stock trading.

Nowadays there are also ETFs on many many other instruments including gold, oil, gas, lean hogs, corn, cattle, stock indicies and many many more.

Public Currency Trading Forums are an excellent way to get free information on forex trading. Many of them contain information from newbie traders getting started and more experienced traders who have been trading for many years.

It can be good to see how the pro’s trade and to see what common mistakes newbie traders make.

Whilst trading forums can be can very be helpful, it is important to remember that most of the people who post on them are losing traders, so it’s a good idea to be very weary about taking any advice from them, unless they are clearly a proven and respected trader who has posted on the forum for a long time

The biggest forex trading forum I know of is Forex Factory. It’s also has a useful economic calender and details of how each news release affects the market.

Other Forums include:

ForexTSD

DailyFX Forum

Babypips Forum

In this post i’ll look at the currency trading advantages compared to trading other markets. Firstly, the major advantage that springs to mind is the low margin requirements that many FX brokers offer, making forex a high leverage investment.

Nowadays most retail fx brokers will offer at least 50:1 leverage, in some cases the leverage is as high as 500:1. If 500:1 to leverage is offered it enables a large position to be opened with a tiny amount of capital.

For example to open a USD/JPY for 1 standard 100k lot, only $200 is required! This is very low indeed. This amount of leverage is not realistic for normal trading as the inevitable outcome would be a margin call.

Another big advantage is it’s very easy to get a demo account and practice for many months before trading live.

Unlike futures trading, you can start trading forex with a very small amount of capital. Some brokers have no minimum, but realistically, if you manage to get a micro account (this is an account that allows trading $1,000 lots) you can trade with as little as $500.

Trading costs are generally very low, for example the pair EUR/USD is often only has a 2 pip spread. With most retail brokers there are no commissions, just the spread. ECN brokers often have lower spreads than retail brokers but do usually charge commissions. The spreads are usually very low on the major pairs as they are very liquid.

You can get Currency trading simulation program to test your trading strategies before going on a live account. Annoyingly many simulations or demo accounts expire within a few weeks. This can be very irritating when you want to trade strategies that need more time.

The good news is I have found two brokers that offer a demo account that has no expiry date. These brokers are:

Northfinance

Oanda

I have used the same North Finance demo account for over a year now and it has been very helpful for testing my strategies in the short to medium term.

NorthFinance uses the popular MetaTrader 4 platform, whilst Oanda has it’s own web platform.

As always, it is a good idea to test your strategies and expert advisors on a demo account for a few months before trading them on a live account.

Many people seem to wonder what is best currency trading system. Personally, I believe many forex trading systems can be successful if applied with solid risk management. Even simple strategies such as moving average crossovers can be successful. Even the best strategy in the world is only as good as the trader who trades it.

So the best forex strategy is any strategy that will consistently win in the long term combined with a competent trader who can leave their human emotions out of trading. When it comes to trading currencies, it is certainly a case of slow and steady wins the race. There is no get rich scheme element here. This leaves many new traders disappointed. The truth is that the holy grail is you!

There are many traders who would like to make money currency trading. Only a tiny percentage of people with this quest prove to be successful. The rest fail. Let’s take a look at why this.

From reading forums online it is clear that many people choose to buy a forex training course. It is my view that the vast majority of forex seminars and training courses are a complete waste of money. In most instances, it is my belief that if these traders could really make it on their own by trading foreign currencies, they would be doing just that, instead of selling expensive training courses and teach other people how to trade.

There is a mass of information on the interest for free, that can teach you how to be a good trader. For starters there is this site Forexpm.com, which naturally I recommend reading

Instead of paying a fortune for a trading course or a seminar, why not pop to a forex forum such as forex factory. I like forex factory because there are both newbie traders and experienced successful traders all sharing their strategies and experiences. I have learnt a lot from just reading the posts there.

Another possible reason most people fail is because they often see the stats like “forex is the biggest financial market in the world”, “Trade with 200:1 leverage” etc. After reading such statements, it may initially appear that there is a lot of easy money to be made. Unfortunately this is not the case.

A big reason people fail is lack of persistence. They start off with a demo account, win a few traders, then quickly sign up for a live account. The results are usually disastrous often results in big losses or even a margin call. The vast majority of new traders give up at this point. Personally, I traded on demo accounts for many months before trading live and even then I lost money initially! Persistence is often the key.

Another big reason people fail is the fact they lack trading discipline. It’s easy at first to get overexcited and trade using far too much leverage or refuse to accept a small losing trade. However, successful traders get over these human emotions. Human emotions and currency trading are a very ugly mix.

If you want to make money forex trading, it is important to have a solid strategy combined with risk management. There are strategies on this site, take a look and see there are you fancy trying.

It is important to remember, trading currencies is extremely risky, even more so for new, inexperienced traders.

For those Currency traders in England and the rest of the UK I have accross the broker GNItouch.com

They offer a wide range of instruments including CFDs, Futures and Forex. They are actually owned by the Man Financial group who are currently a FTSE 100 company. They are heavily regulated by the FSA (Britain’s financial regulator) so funds should be safe. I’m going to give them a try and see how they are on a live account.

The spreads seem competitive too, I will have to see if there is any slippage.

Personally, as I am in england, I prefer to use a English broker as the regulation is tighter than in the US and there are never any issues with having my account based in my native currency, GBP. The last thing I want to do is have my account is Dollars!

Have any people Currency Trading in England tried this broker?

As widely expected the bank of england cuts the bench mark rate to 5.25%. The pound had a big negative day against the dollar.

The european central bank left rates on hold at 4%. However, Jean Claude Trichet did signal that there could be rate cuts in the future. This is the first time he has made such a comment, clearly suggesting that the eurozone is at the top of the rate cycle. Will this be the top of the long eur/usd uptrend? It’s a possibly but the dollar fundamentals are still looking very weak for 2008 with the likelihood of more interest rate cuts from the federal reverse in an attempt to stop a recession.

The euro has gained considerably over the pound in recent weeks as Britain has already began cutting the benchmark rate.

We have certainly had a volatile few weeks in the forex market. Many of the other financial markets have also been very volatile as well, especially the dow jones. We have seen some emergency actions from the federal reserve to try and prevent a stock market crash and a recession in the United States.

The benchmark interest rate in the US is now down to 3%.

Last month I thought this may happen and wrote an article on the US Dollar carry trade. It certainly looks more appealing now. I don’t think many traders will be buying up dollars and holding them any time soon, but as always market sentiment can change very quickly.

NZD/USD, AUD/USD, GBP/USD longs are all nice positive interest carry trades. Also, EUR/USD long is also a carry trade for the first time in a few years.

Nobody really knows if the US economy will go into a recession, the fed certainly are taking drastic measures to try and prevent with rate cuts. Will it be enough? and how will the rest of the world economies be affected if the US does go into recession. All we can do is wait and see.

The Euro is looking like it may test that all important resistance point at 1.50. Possibly some time this month.

Sorry I have not posted for a while. I did very well with my trading last year, I took a vacation.

Happy to trading to all.

Pete