Money Savvy » Jennifer

Raiding the Piggy Bank? Start the New Year with Your Finances Under Control

Jennifer — Thu, 24 Jan 2008 19:43:13 +0000

Most Americans dream of owning their homes free and clear someday, part of their retirement nest egg. Yet, for many, this dream gets farther and farther from reality as they break into their home equity piggy banks.

“I am somewhat surprised at the number of our loan applicants, even many of our excellent credit quality customers, who have taken equity out of their homes over the last few years via cash-out refinances or home equity loans,” says Gary Miller, a 25-year veteran of the credit industry and CEO and co-founder of FirstAgain LLC, a financial services company based in San Diego, Calif. “Now, with larger mortgages and often less equity, particularly with the recent home price depreciation hitting many areas of the country, these people face a longer and more difficult path to debt-free home ownership.”

Before you decide to borrow against your hard earned home equity, consider the following:

* Are you using your home equity for something that actually adds value (equity) to your home, such as a remodeling project or a swimming pool or for something important in your life such as a child’s education or unexpected medical bills? This can be a prudent way to finance such expenditures. Home equity loan rates are attractive and the interest is usually tax deductible if you itemize. However, if you are using your home equity to finance vacations or pay your bills, think again, as you may be overextending yourself.

* Are you using a fixed rate home equity loan with the shortest term you can easily handle? Adjustable rates may make sense for the financially well off (and financially sophisticated) but for most people, a fixed rate and a fixed monthly payment avoid future payment shock and is the better alternative. Paying off your loan sooner obviously builds your home equity more quickly. Think of it as forced savings.

* Cash out refinances can make sense if you are improving your overall mortgage terms and using the cash for an appropriate purpose. Again, consider shortening your loan term if possible.

* Are you thinking about a home equity line of credit (HELOC)? This product is marketed like a credit card with adjustable teaser rates, ease of use and other incentives, encouraging you to use your home equity for just about anything with long repayment periods. Be careful. Having a HELOC in place may be prudent for certain purposes (for example, a future emergency) if you can be disciplined about not normally using it and pay it down quickly if you do.

* If you have excellent credit, you may qualify for an attractively priced unsecured loan that doesn’t require pledging the equity in your home. This type of loan, such as FirstAgain’s AnythingLoan, offers highly competitive, fixed interest rates and an ease of use not available with mortgage products. Entirely online and paperless, you can apply in the morning and have $10,000 to $100,000 in your account by the afternoon. It takes just minutes versus the days required for a mortgage loan.

“Given the more difficult lending environment caused by the recent sub prime meltdown, home equity products have become both more expensive and more difficult to obtain as lenders tighten their credit criteria and loan to value guidelines,” says Miller. “Our product represents a great alternative for those with excellent credit who don’t have a home equity loan option.”

To learn more about FirstAgain and its AnythingLoan, please visit www.FirstAgain.com.

Courtesy of ARAcontent

Make Financial Fitness a New Year’s Priority for the Entire Family

Jennifer — Thu, 03 Jan 2008 23:14:15 +0000

If your New Year’s resolution is to get financially fit in 2008, you’re not alone. Financial goals like saving more money and reducing debt consistently make the list of most Americans’ top New Year’s resolutions.

And a recent Experian-Gallup survey may indicate that at least some of us are sticking to our commitment to improve our fiscal health. The survey of more than 1,000 adults showed that 53 percent of those polled feel they are financially better off now than they were in 2006. What’s more, an optimistic 69 percent felt they will be even better off in 2008.

“This poll shows how committed the majority of Americans are to living financially responsible lives,” says Maxine Sweet, Experian’s vice president of public education. “It’s quite telling that nearly 50 percent of respondents said they plan to reduce their overall level of debt in 2008 and nearly one- third will check their credit score.”

What do those who will successfully improve their finances in 2008 have in common? They will rely on a combination of tried-and-true financial practices and leading-edge technologies, Sweet says.

* Pay your bills on time. It may seem obvious that this is important, but delinquent payments are among the most common negative marks on credit reports.

* Pay down balances on credit cards and other revolving credit, and keep them low. High outstanding debt could affect your credit score.

* Apply for and open new credit accounts only as needed; don’t open accounts just to have a better credit mix.

* Don’t close unused cards thinking it will automatically raise your credit score. Owing the same amount but with fewer open accounts could potentially lower your credit score.

* Be aware of the financial health of the entire family. Theft of children’s identities is on the rise – nearly 11,000 identity theft complaints by those under the age of 18 were reported in 2006, up from 6,512 in 2003, according to the Federal Trade Commission. Identity thieves use children’s names and Social Security numbers to open lines of credit. Because children rarely have a credit history of their own, the fraud can go undiscovered for years until the child grows up and tries to obtain credit.

Consider credit monitoring products that alert you to any credit activity in your name. While these products routinely monitor the credit activity of adults, Experian’s FamilySecure.com goes a step further and monitors children’s credit reports, alerting parents or guardians via e-mail if any activity is found. FamilySecure.com also provides members unlimited access to their Experian credit report, credit score, credit monitoring, fraud alerts, and information on what to do if identity theft occurs.

To learn more, visit www.FamilySecure.com.

Courtesy of ARAcontent

Need a Financial Boost? Consider Seasonal Work

Jennifer — Thu, 13 Dec 2007 22:29:05 +0000

There are many reasons people work full-time or part-time — socializing, using your education and skills or tackling challenges — but most often it comes down to earning money. According to an American Staffing Association survey, 69 percent of respondents said that additional income was an important factor in employees’ decision to pursue temporary or contract work.

Seasonal work is one of the most beneficial ways to pursue temporary employment. Potential employees can choose when, where, and how they want to work. Companies love the operational flexibility of being able to increase staff during their busiest seasons.

Here are the top five considerations for seasonal work opportunities from the team at Snelling Staffing Services, which has 182 staffing agency offices nationwide.

Consider the time of year you want to work.

Did you know that September is a great time of year to fill out applications for holiday jobs? Many companies accept applications in September and October for work that begins around Thanksgiving through New Year’s. Shipping and fulfillment are popular winter jobs, in addition to loss prevention, customer service, merchandising and stocking inventory.

In the summer, some restaurants extend their hours to accommodate families and travelers, creating a need to help fill those orders. Popular summer jobs can also include positions within recreation and aquatics centers, amusement parks, athletic teams and camps.

Employers that need temporary staffing help year round include conventions, hospitality and banquet events. Think of June weddings, while January and February are popular months for conventions and tradeshows. This allows you as a candidate to pick the season that works with your needs.

What are your strengths or skills?

If you have experience in a particular industry, especially a specific skill, or have pursued a field with continuing education, you are more likely to be hired for that expertise. Some specific skills being sought after right now include manufacturing jobs, such as parts assembly, or information technology help desk associates.

If you have accounting experience, the spring tax season is a great opportunity for seasonal work. Companies and staffing agencies begin employee recruiting in the fall for the following year’s tax season.

Consider your strengths along with the seasonal hiring needs of a particular region. Florida, for example, is experiencing a construction boom from hurricanes in recent years, along with population growth, and needs workers, full and part-time, for jobs related to all aspects of the construction industry.

What’s your availability?

What are your time constraints or parameters during the season you want to work? Do you have family time to work around? If so, you might want to consider the night shift or early mornings during school hours. If you look for opportunities that fit within your schedule and are up front with your potential employer about your availability, the better your situation.

Selling caps, gowns and announcements during the school day in the spring might be right up your alley to earn the extra cash you need. The ASA also finds that 64 percent of staffing employees report that their work gives them the scheduling flexibility and the time for family that they desire.

Do you have an industry or dream job in mind?

Think about seasonal work as an opportunity to try something new or pursue your dream job. If you’ve always wanted to pursue baking, think ahead to the month of June when bakers are their busiest prepping for the influx of weddings. If you have a healthy obsession for shopping, consider being a part-time mystery shopper. If you’ve always wanted to travel, consider temporary employment within the travel industry when travel volumes increase during the summer and companies need extra help working with customers. Beyond your paycheck, the travel perks can be beneficial.

Will you need a full-time job within the next five years?

According to Workforce Management, the number of temporary workers retained as full-time employees is expected to grow by 15 percent this year. One of the main reasons employees choose temporary assignments is the opportunity for full-time employment. The same is true for seasonal hiring. If you prove your worth during a seasonal project, the company may find a spot for you or at least provide a shining reference for a similar position.

With all these considerations in mind, where do you go from here? Visit a staffing agency like Snelling, where they have experienced employment recruiters that can help you find the job you need that fits into your seasonal schedule. Their aptitude tests can also help you pick an industry suited to your personality.

For more information about seasonal opportunities in your area, visit Snelling Staffing Services at www.snelling.com to find the office near you or by calling (800) 411-6401. Snelling delivers temporary, career and professional staffing solutions to companies, with 182 offices throughout the U.S.

Courtesy of ARAcontent

Forex Trading – What Is Forex Trading?

Jennifer — Mon, 03 Dec 2007 22:14:46 +0000

Forex is not a new household cleaning product. Forex or FX is simply short for foreign exchange, but refers more specifically to currency trading.

This is exchanging dollars for pounds, or euros for yen and so on. It has one thing in common with a household cleaning product, though – if you are not careful you can get cleaned out in a hurry trading currencies.

The currency exchange markets are the largest, most volatile and among the most risky forms of trade in the world. Amounts exchanged are large, magnifying small price changes, and the total daily volume is in the range of two trillion dollars. Yes, that’s ‘trillion’… a two followed by twelve zeros!

There are dozens of markets, with the largest centered in New York, London and Tokyo. Although, ‘centered’ is slightly misleading, since there’s no physical exchange that trades currency – unlike the New York or London Stock Exchanges for equities (stocks).

Instead, the playground primarily of large institutions – international banks, insurance companies and governments via their central banks – currency exchange is carried out by phone and via computer networks, formerly all private or government but now including the Internet.

And that latter means of communication, along with changes in trading methods, is what makes possible the opportunity for the individual investor with less than a few million dollars to participate in the fast-paced, highly speculative game of trading one country’s money for another’s.

In order to play that game without getting immediately run over, the investor will need to learn some new terminology, do some research in new areas, find a broker who trades currency and stock up on some courage pills. Enormous sums are traded in forex and only commodities trading offers similar ease in feeling dumb and getting poor fast.

But losing money isn’t inevitable for the prepared investor.

An investor will need to become familiar with new phrases and quoting methods – pips, spreads, cable and the like. Calculations formerly carried out with ease will now need a little more thought. Everyone is used to their own currency and seeing a $10 stock go up by a dollar one immediately sees a 10% gain. Trading currencies requires a little more knowledge.

The prepared investor will need to expand the scope of his research. Finding out the likely future of a home-based business is complicated, but straight forward. Conditions in one or two sectors and a few economic indicators can be grasped without requiring a PhD in finance. Learning about the factors influencing the currencies of two or more countries is an order of magnitude more difficult.

And more interesting.

Fast pace, global scope, large liquidity and volume, and a dozen different ways to hedge your bets. Yeah, that sounds good. Gotta get some of that right away!

Forex Trading – Margin Calls, a Cautionary Tale

Jennifer — Mon, 03 Dec 2007 22:09:16 +0000

Let’s examine another sample trade.

Name Bid Ask Change %Change High Low Time

EUR/USD 1.1901 1.1903 -0.0091 -0.76% 1.2024 1.1891 15:26
GBP/USD 1.7439 1.7442 -0.0004 -0.02% 1.7573 1.7410 07:01

The current ask price for EUR/USD is 1.1903. So the investor buys one euro (EUR) at the rate of 1.1903 dollars per euro. Trading one lot (100,000 units) means the investor pays 100,000 x $1.1903 = $119,030 and obtains 100,000 euros. The investor speculates that the euro is undervalued against the dollar, and turns out to be right. Now what?

EUR/USD is now listed at, let’s say, 1.1966/68. Since the investor owns euros, but wants to profit in dollars he now sells euros for dollars. Selling yields:

100,000 x $1.1966 = $119,660

The profit = $119,660 – $119,030 = $630.

Not bad for a day’s work, taking all of ten minutes. Of course, cockiness is unwise in currency trading, where rapid losses are just as quick to arrive as profits. But let’s be optimistic today.

The average investor often doesn’t have $100,000 or more to toss around. And one lot would be low in the world of currency trading where $20 million can change hands in the time it takes to make a mouse click. So, that’s where margins come in handy.

Suppose your broker offers a 1% margin. That means you put up 1%, the broker loans you the other 99%. Yes, that’s actually done, commonly. Your margin deposit is equivalent to 1,000 euros. 1% of $119,030 is 0.01 x $119,030 = $1,190.30. That’s the amount you actually invest to purchase one lot of euros at $1.1903.

When you sell, your margin is repaid and you receive the full $630, not 1% of $630 or $6.30. Since 1% = 1:100 you are leveraged 100 times over. In other words you receive the full 100 times $6.30 or $630. Whoever thought borrowing money could be so profitable!

So when purchasing 1 standard lot of 100,000 units of euros for $119,030 the investor has to provide only $1,1903 of his own cash. The broker provides the rest. Sweet deal!

But here’s what can go wrong…

You bought euros speculating that the euro was undervalued against the dollar. So you estimate the price of a euro (in dollars) will rise in the future, from 1.1903 to say 1.1906 and eventually it does. But before that happens the price falls, temporarily, to 1.1900. It loses ‘3 pips’.

Of course, at this stage no one knows how long ‘temporary’ is, nor whether the price will fall further or rise to your target selling price. Your broker, not knowing your credit worthiness or simply having bills of his own to pay, decides to cut his losses and liquidate your position. So he sells your euros for dollars and declares for you, without your prior knowledge or permission, a loss.

Brokers are entitled to do this, legally and ethically. They make no commission from you – they profit from playing spreads – and they are loaning you large sums of money for, in essence, zero interest.

Note, this is unlikely to happen on a drop of only three pips (we’re just keeping the numbers simple here), but it points to some important lessons.

Know your broker. You don’t have to be lifelong friends – they liquidate one another’s positions, too. But once you find a trustworthy and competent broker it’s desirable to keep them, rather than hopping to another the first time something isn’t done to your satisfaction.

That way, you’re more likely to receive a friendly warning call and you can shore up your position before the broker liquidates. No one likes surprise losses. Not that the others are welcomed, either. At minimum, you should be aware of the margin call policy.

Keep your credit healthy. If you don’t have enough capital to trade currency stick to stocks or mutual funds. Provide your broker with good reason to believe your credit is good so he’s not inclined to sell you out at the first sign of trouble.

Watch the market. Currency trading requires more diligence than stock or bond investing. Prices move quickly and large sums are involved. Currency prices are sensitive, even more so than other investments, to momentary political events, central bank pronouncements and other news items.

Those events are magnified by the fact that many countries are involved. Currencies trade in pairs, but professional traders are usually thinking of several different pairs at once. They watch euros against dollars and dollars against yen, playing small movements among pairs.

If you can’t pay attention, currency trading is not for you. That doesn’t mean you should be a day (or hour) trader in currency. That action is for the professional and they often lose money that way as well. They work for large banks and can afford to, temporarily. They have bigger pockets and will make it up tomorrow. But stay aware of your position.

Leverage is a terrific tool for the investor. But, as we’ve seen, there’s no such thing as a free lunch. Knowledge can keep you from getting eaten!

Choosing a Forex Broker

Jennifer — Mon, 03 Dec 2007 17:46:36 +0000

Choosing a good Forex broker can be as complicated as Forex trading itself. For that reason, investors should do their homework as diligently as they would for a trade. Here are some tips to keep in mind to make your research and choice easier.

In the U.S., any worthwhile Forex broker will be registered as a Futures Commercial Merchant (FCM) with the CFTC (Commodities Futures Trading Commission). Finding one doesn’t end the need for research, it’s just the bare minimum you should require.

Since Forex trades are highly leveraged (in effect, the broker ‘lends’ an investor up to 99% of the money required to make a trade), the broker you select should be associated with a firm with deep pockets.

Forex accounts are not FDIC (Federal Deposit Insurance Corporation) insured, so you can not expect the U.S. government, or anyone else, to bail out the brokerage firm or reimburse you if the market turns sharply downward. Large institutions, with ample capital to withstand downturns in the market, and rapid drains on their deposits if clients withdraw en masse, are crucial to your financial peace of mind.

Beyond those rock bottom basics there are many options.

Since the Forex markets trade 24 hours per day all around the world, you may want to trade after normal business hours in your home country. Whether your broker resides in the same country (usually, for language and legal reasons) or not, you want one who will pick up the phone when you call.

Forex trading has moved into the Internet age, but it is still very much a phone-based business. Getting a broker on the phone at any time of the day or night can mean the difference between profit and loss. Sometimes, big profit or loss.

Since Forex brokers don’t work off standard commissions the way stock or bond brokers do, you need to research the firm’s spreads. Forex trading is always done in currency pairs. A spread is the difference between the bid and ask price – what the broker pays to buy versus the amount they sell a currency for.

Some brokers will offer fixed spreads on all trades, which has the advantage of predictability. It’s a kind of fixed ‘commission’. But that may or may not suit your trading style or your budget, since they tend to be larger than variable spreads.

Any broker will offer a standard account to a qualified client. Typically you have to fill out an application form that states you have adequate capital and understand the risks involved in Forex trading. Standard accounts trade currency in standard lots of 100,000 units. You can’t buy 100 euros for $150, you have to buy 100,000 euros.

Since that’s a very large investment for the average trader, brokers offer leverage. Professional traders use leverage as well, of course. In other words you put in, say 1% of the total, the broker puts up the rest. That has huge profit (or loss) potential, but it entails significant risk. So be aware of a broker’s margin call policy.

Many brokers today will offer some form of ‘mini’ account. Instead of trading in standard lots, they trade in smaller units, such as 10,000. This lowers the investment required from, say $2,500 to only $250. Most clients can easily meet that minimum.

But that lower leverage requirement limits the potential for profits. That may or may not suit your investment needs. Only you can decide.

You’ll want a broker with software that provides you with the research and other trading tools you will need to be effective in Forex trading. Forex investing is much more complex and volatile than even stock or bond trading, which is already not simple when done well.

Be sure to use the trial accounts offered and make several ‘fake’ trades in order to test out the software and research available. You need real-time prices – Forex moves very fast – and lots of technical and fundamental analysis information at your fingertips.

There are websites and forums where specific brokers are discussed, but take what’s said there with a grain of salt. Just as with complaints about vendors on eBay or Amazon and other large Internet trading arenas, a few bad remarks shouldn’t ruin the reputation of honorable brokers.

Beyond all that, the factors become a little more difficult to judge. Above everything, you want to feel you trust the person on the other end of the line. They are not there to be your friend or listen to personal complaints or trade tips. But you should get the sense that they are competent, professional and ethical.

Take your time to research. After all, your decision will affect ALL your trades.

Forex Trading – Currency Trading vs Stock Investments

Jennifer — Sun, 02 Dec 2007 17:46:37 +0000

The title points up an important difference between forex and stock investing.

When buying stocks you’re making an investment in a company. Buying shares is short for ‘purchasing a share of ownership’. By contrast, no one is making an investment in Japan by buying yen. We leave aside politically motivated actions by large central governments. Currency is exchanged in order to facilitate the movement of goods and the payment of services between multiple countries, but that’s a relatively small percentage of the total $2 trillion daily volume. The largest amount is simple speculation.

Well, perhaps not very simple. Trading euros against dollars against yen against pounds against… in a twenty-four hour market with a dozen time zones… it gets complicated.

Margin differences between the two markets are enormous. Most stock brokers will leverage (lend investors money) up to 2:1. In currency trading 100:1 is common. Since price movements occur twenty-four hours per day every day, margin calls can occur while the investor is sleeping. That makes for a bad awakening.

Trading cycles are generally much shorter. Stock investments are made, even by professionals, on timelines of months or years. Currency trades are often completed within a day or even minutes. Yes, that happens in the equities markets, too. But, it isn’t the norm even though it’s more common than ever.

All these differences suggest some lessons for the investor interested in forex trading.

Do your homework.

Be aware of factors affecting currency rates. That includes not only the standard domestic economic indicators, but trade imbalance figures, central bank policy changes and others.

Watch the market.

Small, rapid changes can force your position into an area that motivates your broker to execute a margin call. Be prepared to cover your position or liquidate at times favorable to you. Know the broker’s margin call policy and practice. You’ll be required to sign a margin agreement when opening an account. Read it first.

Practice.

When starting out, take advantage of the demos offered by most brokers. Execute paper trades – trades that don’t execute on the real markets – using the real currency figures.

Get a feel for the amounts, the percentage changes and get used to converting currencies from one country to the next. You should be able to estimate without much thought how much 1,000 pounds is in dollars at the current exchange rate.

Opinions and size don’t matter.

Unlike stock markets, the size and complexity of the forex markets makes it virtually impossible for any investor, no matter how large, to dominate the price. Program trading, fund trading and so on that can cause large movements in particular equities has a negligible effect on currency prices.

Similarly, analyst projections have much less influence in currency trading. Many will read eagerly some influential columnist’s opinion of the future of IBM. Opinions of that kind are largely discounted in currency trading.

It’s a different world out there.

There are around 4,500 stocks listed on the NYSE and 3,500 on NASDAQ. And many more on other exchanges. A few hundred are major players. By contrast, only a dozen currencies account for 99% of all trades. With four major markets trading twenty-four hours per day, the action is very concentrated.

No need to be intimidated though. Currency trading has moved in the last decade from the realm of the professional trading millions at a click to mini-accounts of $250.

So, go make some money.

Forex Signals as a Trading Tool

Jennifer — Sat, 01 Dec 2007 22:06:00 +0000

Prices in Forex markets are the most volatile of any trading instrument. They change farther and faster (on average) than stocks and bonds, though commodities can be pretty roller coaster, too. This presents non-professional investors with a dilemma: either sit by a computer monitor all day, looking for price movements in real time or potentially lose a whole lot of money. But there’s a way out of that dilemma. Use signal services.

Forex signals are buy and sell indicators based on technical analysis. Technical analysis uses historical price and volume data to statistically analyze trends. The goal is to establish, with a stated probability, the likelihood of future price movements.

A signal could be as simple as ‘Buy euros now at 1.1901′. Those signals are delivered in any number of ways, by email, SMS text message to a cell phone, IM message and so on. Some are no more than flashing text and/or icons on trading software. The software contains in-built algorithms that use the methods of technical analysis, combines it with current market data and generates a signal.

For example, one commonly used technical indicator is something called MACD (Moving Average Convergence/Divergence). Without going into details here, it uses the moving average – the change in an average price over time. A signal can be generated when the value of MACD crosses above (or below) a certain threshold. Buy when it moves above the line, sell when it falls below.

Some signal services allow clients to automate the process of Forex trading even further. You can leave standing orders that when a certain signal is generated, carry out the recommendation. You get an email recommending ‘Buy euros now at 1.1901′ and the broker automatically enters an order to do just that.

As with any trading tool, it has to be used intelligently in order to avoid disasters. Entirely automating your buys and sells can amount to automatically losing money. Using a signal service can make your life easier, but never abandon your investments entirely to an automated service.

If you plan to do that, you may as well simply turn your investments over to a broker with the instruction: ‘Maximize my returns, but keep the risk down to a reasonable level’. Sensible, but not helpful if you want to control your destiny.

Signal services are definitely useful, however. They can relieve investors of the need to continually monitor prices. They can simplify the sometimes bewildering complexity of charts. They can help the investor make better decisions about when to buy or sell and at what price.

All that comes at a price, of course. Signal services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any trading service, if you make more than it costs than you would without it, that’s profitable.

But, buyer beware. There are dozens of firms that will be happy to take your money. Whether their analysis, and therefore, their signals, are worth anything is a learning experience all its own.

At minimum, investors should use order types that help control risk. Stop-loss orders, limit orders and other common types are an essential means of limiting losses and timing buy and sell orders. That technique, commonly employed in stock trading, is even more critical in the volatile world of Forex.

Forex Trading – Line Graphs, Bar and Candlestick Charts

Jennifer — Fri, 30 Nov 2007 22:06:43 +0000

Today, every form of trading has become complex. Even in the (relatively) simple world of stock trading, it’s possible to become lost in a bewildering array of charts, diagrams and technical indicators. Nowhere is this more true than Forex trading.

Fortunately, many of the more or less standard indicators and charts used in stock, mutual fund or bond trading are used in Forex with minor adaptations. Buying and selling still involves monitoring prices and observing trends. That means that many of the statistical analyses used to do that are the same, regardless of the trading instrument being measured.

As with stock or bond trading, the simple line graph is still an enormously popular tool – popular because it is so helpful. In a simple form, current prices and the historical trend can be seen at a glance. The wrinkle in Forex trading is this: what do you mean by ‘the’ price?

Forex prices are always quoted for a pair of currencies. EUR/USD quoted at 1.2537/40 means that for $1.2540 you can buy one euro. To sell euros you own in exchange for dollars, you would receive 1.2537 dollars per euro.

Charts of these prices as they change over time are generated by calculations based on tools from technical analysis. Technical analysis involves the use of highly sophisticated statistical techniques to measure, calculate and predict likely price movements and directions.

A simple technical tool might be an average calculated over time. Note the price right now. Note it again an hour later. Repeat for 24 hours and average those numbers. All this, and much more, is typically done by software available from a wide variety of Forex brokers and online sites. That average represents ‘the price’ over an average trading day.

That one day average could be used as a single point on a line graph. Repeat the process at the same times for 30 days, plotting each point, and eventually you’ll build up a line graph of a 30-day moving average. The average itself will change over time, just as the price does. The change in that average over a 30-day period (or any other interval) gives an investor one insight into price changes.

In Forex trading, there are a dozen common calculations and charts. Some take two moving averages for different intervals – say, minute-by-minute measurements averaged over one hour compared to hour-by-hour averaged over 24 hours – and plots both on one graph. A number called the Moving Average Convergence/Divergence can then be used to compare those moving averages.

Fortunately, the average trader doesn’t have to understand the underlying mathematics in order to take advantage of these tools. Software, some downloadable to your desktop, others that operate directly within your browser, can be used to generate the charts. Some provide technical indicators, buy/sell signals and other useful information.

Still, understanding how to interpret these charts requires time and practice.

Beyond the simple line graph there are a few common charts that every Forex trader will want to learn how to use. Among these are the Bar Chart and the Candlestick Chart.

A bar chart displays prices in the form of a vertical ‘tick’ or bar, with small horizontal lines to the right and left. The ends of the bar indicate the high and low for some period, often the prior 24 hours. The left-facing tick is the opening price for that period, while the closing price is indicated by the right-facing tick.

A series of these bars can be graphed to form a bar chart for any time interval desired – daily, weekly, monthly, yearly and so on. Nor does the time period have to be opening and closing prices over a 24 hour period. They could just as easily be prices every hour, graphed over a day, a week and so on.

Candlestick charts are similar to bar charts, but contain additional useful information in graphic form. Originating in Japan, where they were used to track changes in agricultural futures contract prices, they have become part of the trading toolkit everywhere.

In addition to containing the information of a bar chart, they add color coding, by making the bar have a small width, hence its similarity in appearance to a candlestick.

The rectangle making up the ‘candlestick’ is called the body. A white (or, just as often, green) body indicates a closing price higher than the opening price. A black (or red) price indicates a closing price lower than the opening price. The lines protruding top and bottom from the body indicate the high and low prices at the tips.

Some candlesticks will have no line (or shadow as it is sometimes called) protruding from the top of body. That indicates that the currency closed at its high. Similarly, there may be no line protruding from the bottom. Such information is helpful in judging trends.

The length of the body, just as does the length of the bar in a bar chart, give a visual indication of the range of prices for that period. That is a visual measure of the volatility of prices, a very important factor in trading.

Candlesticks will form patterns as they are charted over time. Those patterns aid investors in making trading decisions. Those patterns have colorful names, such as the Hammer, the Hanging Man, the Morning Star and others. But though the names are fanciful, the purpose is serious: to help detect and predict trends.

Various patterns suggest trends that can be used as part of a trading strategy. Interpreting them, however, is part science, part art. The broker and software you select can help you understand them, provided you are willing to make the effort to study them over time.

Forex Trading – Market, Limit and Stop Orders

Jennifer — Thu, 29 Nov 2007 22:09:16 +0000

To understand limit and stop orders it’s best to contrast these with the ordinary (and still extremely common) market order. A market order is one that is placed by the investor to execute at the current market price whatever that is at the time it’s filled. It’s very important to keep in mind that in Forex, ‘current’ changes even faster than in the stock market.

As a result of the inherent high (relative) volatility of Forex, any market order can be expected to deviate from the price shown on the investor’s screen some of the time. When a stock trader requests a market order right this instant to sell Microsoft at, say, $28.25, he or she can expect to get that price very often. The odds of selling at exactly the price shown on the screen right now is smaller in Forex trading.

As a result, other order types are more common in Forex trading. The most common are limit orders and stop orders.

In essence, a limit order is a request to guarantee you will not sell for less, or buy for more than the limit price, or nearly so. No broker will guarantee execution at an exact price, though this is often achieved.

Suppose, for example, that you bought euros at $1.1905. The market then rises to, say, $1.1955. Placing a limit sell order on your euros at, say $1.1945 would allow you to lock in a minimum profit of 40 pips or better.

Alternatively, you may want to buy in at no more than a specified price. Suppose the market for British pounds (GPB) is currently at $1.7750, which seems too high to you. You could place a limit buy order to buy GBP at $1.7705. In other words you are telling the broker you don’t want to pay more for GBP than $1.7705 per pound.

If the time limit expires before the price drops or rises to the limit price, the limit order simply expires unfulfilled.

A stop order used to be more commonly called a stop-loss order. That type is still used, by that name, incidentally. That gives a clue to what stop orders are primarily for: to stop losses.

It’s what can or does happen before and after that makes the difference between a limit order and stop order. A limit order is an order to buy or sell AT a specified price or better. A stop order is an order to buy or sell ONCE a specified price is reached. After that it becomes a market order and is subject to fluctuation.

Suppose you bought euros, using dollars in your account, at the then current exchange rate of $1.1903. Now suppose, as often happens in Forex trading, the exchange rate changes to, say, $1.1888. The market appears to be on the way down. In order to protect yourself from either a) having to input more cash to cover the equivalent of a margin call, or b) enduring an even larger loss, you wisely put in a stop order.

You tell your broker you want to sell those euros once the exchange rate reaches $1.1803, for example. If during the trading period, the price reaches $1.1803, your euros will be sold at the market price saving you from incurring further losses.

Note that the price used for executing the order is the market price! This is the most current exchange rate at the time the order is executed and not necessarily the threshold specified in the stop order ($1.1803). This means you may only get $1.1802, or 1.1801, or 1.1800 or lower depending on what the market price is at the moment your order is executed.

To prevent this from happening the stop-limit order may be your best friend. It’s a combination of a stop order and limit order. Like stop orders, your order will be executed once the market reaches a specific price. Once that price is reached, it becomes a limit order, so your order will only get filled at the chosen limit price, or a better price if there is one available.

These are techniques every investor should very quickly adopt as a habit, most especially novice investors. Forex trading is a roller coaster ride. Don’t get thrown out of the car. Use a seat belt… Use limit orders and stop orders liberally in your trading strategy. Market orders are simpler, but much more risky. Control your investments.