Minimize Your Risk Using Currency Options Trading!

By Noah Whilson

The huge trading volume on the FOREX has increased the interest in the currency options trading market. Like equity options if a trader believes that the price of the currency is moving higher they will buy calls on the currency. This gives them the option to buy the currency at a set price with a specified time period. If currency prices look like they will decline the trader will purchase puts, giving him/her the option to sell the currency at a specific price for a certain period of time.

One type of currency option is the traditional option contract. Since currencies trade in pairs so do currency options. With the traditional option the trader selects the strike price as well as tje expiration date of the option contract. These factors are used by the broker in arriving at the premium they will charge for the trade. If the trader feels the premium is fair the option/options are purchased. An example of an option contract is when the trader feels that the dollar will move higher against the Swiss franc. They will purchase calls on the USD/CHF. If the dollar does move up against the franc, the trader in with a traditional option will exercise the option by buying the dollar at the strike price and turning around and selling it at the current market price to realize the profit.

One of the easiest contracts to trade is the SPOT contract. The reason it is easier is because it does not have to be exercised to realize a profit. The trader picks the strike price and the expiration date just like they would with the traditional contract. The broker sets the premium. The premiums are typically higher on SPOT contracts than they are on traditional ones. You purchase calls on the base currency if you feel prices will rise. If this does in fact happen, the profit is automatically deposited into your account. If it does not happen your losses are limited to the amount of the premium.

There are several factors that will affect the premium level on an option contract. Obviously, the more time there is until expiration the higher the premium will be. The closer the strike price is to the market price the higher the premium will be. Volatility of the underlying currency price will also increase the premium.

The most popular reason for getting involved with the currency options trading market is speculation. Traders are purely trading for profits. The exposure to risk is limited to the amount of the premium that the trader pays to own the option. This factor makes it much more appealing.

Another reason people become involved with currency options trading is they want to hedge currencies they currently own from wide price swings. They may have business partners in other countries so they need to pay for goods and services in another currency. They use options to help protect them from losses rather than to make a profit on them.

So far we have discussed the strategy of buying calls or buying puts on a currency depending on how you believe the price will move. Some traders actually sell options. The risk in selling options short is much higher than just buying options. Most brokers will require that a trader deposit a large amount of capital to secure such a position.

The currency options trading market is growing at a fast pace. Traders get involved because the lower capital requirements and the limited loss potential. If you develop sharp trading skills large profits can be made in this market. - 23229

About the Author:

To REALLY make a big splash in currency options trading you MUST read a good currency trading tutorial!

Know What Is Backtesting (Part I)

By Ahmad Hassam

With Backtesting, traders can actually test their trading strategies and how well they would have done if executed in the past. Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data.

What type of a trading strategy can be backtested? Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

When the MACD histogram has crossed above the zero line and the DMI+ is above DMI-, go long when the 5 period moving average has crossed above the 20 period moving averages.

When the MACD histogram has crossed below the zero line and DMI- is above DMI+, sell short when the 5 period moving averages has crossed below the 20 period moving average.

Are backtested trading systems reliable? Why so much backtested performance is quoted on the websites to prove that the trading system is good? You must know that using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give into similar results in actual real time trading. This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data.

There is much difference between live trading performance and the backtested trading performance. Many potential factors can and will make hypothetical performance and actual performance differ significantly. So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies.

Market fundamentals keep on changing. This makes a trading strategy that may have worked very well over the past three years work in an entirely different manner for the next three years as the market changes and evolves. One of the most important facts that you should always keep in your mind is that market changes considerably overtime.

Often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future. This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly in term of trade execution, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting. These differences can potentially skew the results.

Backtesting can provide a trader with a reasonable expectation of the trading strategy's potential worth and usefulness. However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment.

Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information. - 23229

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!

Point & Figure Trading (Part I)

By Ahmad Hassam

Do you know how to read Point and figure charts? Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Many forex charting platforms provide the option of point and figure charts. Point and figure charts represent price in a radically different manner from the more familiar bar and candlestick charts.

Point and figure charts are a pure price action play because these charts generally exclude all other elements like time, volume and open/close other than price. Point and figure trading is based exclusively on price action.

Thus a point and figure chart focuses on the behavior of price action which is the most important factor from the technical analysis point of view. Point and figure charts represent clear evidence of such important technical characteristics like trend, support/resistance and breakouts.

If you look at the point and figure chart you will see many columns with Xs and Os marked in them. How do you figure out what does this means? A point and figure chart has got Xs and Os. A point and figure chart is constructed with a column of boxes alternately labeled with Xs and Os. An X column means that the price has risen in that column. Conversely, an O column means that the price has declined in that column.

So there is no concept of time in a point and figure chart. Only when price moves a significant amount regardless of time will an existing column grow or a new column is created. A new column is created going in the opposite direction when a reversal occurs on any column. So there is no time, volume, opens and close on point and figure charts.

How is a point and figure chart constructed? It depends on two variables. The first variable is the box size. This is the minimum amount that the price is supposed to move before a new box in the existing column is created. These two variables can alter the way the point and figure charts look and act.

You will see many columns of Xs and Os in the point and figure chart. X is equal to fixed price increase. Each X denotes a rising trend. For example, price would need to move an additional amount equal to the preset box size before another X would be added to the top of the column if a column of Xs has 10 boxes.

You only need to understand the concept behind the point and figure chart, you can use the charting software to do the actual drawing. Suppose, you are using the point and figure chart. You set the box size on the point and figure chart to be equal to 10 pips on the point and figure charting software.

Now the price would have to move another 10 pips above each X box before another X could be added on top of that X. On the other hand, price would have to move 10 pips lower than the each box in O column to add another O box on the bottom of the column.

The second important variable is the reversal amount. This is the amount of pips the price needs to reverse before a new column is created. Read the second part of this article to know more about Point and Figure Trading. - 23229

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. Try This Cash Printing Forex Signal Service From Heaven! First practice on your Forex Demo Account!

How to Earn a Profit on the FX Market - 5 guidelines

By Brad Morgan

Foreign Exchange trading enforces a few guidelines and rules when forming tactics for making a profit and there are also certain qualities of the trader that must be dealt with so they do not foil his accomplishment in the exchange. So to smooth out the transition from hesitant rookie to superstar foreign exchange trader follow basic guidelines as below:

1. Be Cool

Outstanding traders never let their trading depend on their emotions or their emotions depend on their trading. They do not risk more because they are feeling lucky, they do not dillydally when the hints are right, or abandon a trade prematurely out of fear. Identically, they are unlikely to celebrate a progress, nor will they sulk, bawl or kick the dog when they take a beating.

2. Envision For Yourself

People are diverse and so are sellers. So ideas from one will not necessarily aid the other. analyzing further, other people's advice has no use unless you know for a fact that they follow your strategies and personal trading system.

Do not imitate someone else's system just because they seem to be making money with it. Do your own analysis and scrutinize everything that you are told. Even then, contemplate carefully before withdrawing out of the system that you have picked before.

3. Keep Records

Ideally you should save in a spreadsheet all the facts pertaining to your exchanges to enable you to identify any guidance from the historical occurrences. Alternatively, it can behave not as a tool but as a clue about the many simple factors that eventually determine the triumph of a trade.

So what should you maintain there? Well the lowest you should enter would be your stance, currency pairs and the markets opening and closing rate.

4. When in Suspicion, Hold Your Ground

Do not commence a trade if you are afraid or unsure about it, provided of course that you have a rationale other than anxiety for your hesitation. A trade can only go one way or the other, so if it is not completely merited, it is wrong. Wait. There will be several greater opportunities.

5. Keep your Trade deals controlled.

Not every option has to be chosen. And not every currency should be dealt or every market seen. Just improve your methods and await your turn. - 23229

About the Author:

forex training | forex megadroid

Brief Glance At The Currency Exchange Market

By Rueben Gomez

Forex trading implies the act of buying and selling currencies from a variety of countries. To those that have never traded currencies, forex trading may seem daunting. Fortunately, forex trading is a simple procedure with mechanics that are effortlessly understood.

The foreign exchange market is the worlds biggest trading market. Everyday, 2 trillion dollars in trades are made in this market.

Smaller networks of currency markets combine to make up the forex market. All the worlds currencies are traded here. Trading takes place through various kinds of platforms depending on the forex broker.

The currency market works around the clock. On the weekends however, the forex market closes.

The price of a country's currency depends on economic as well as political factors. Stable currencies are traded often such as the Euro, the US dollar and the Japanese Yen.

Selling high while buying low is the key to making profits in this market. The type of trades taken also differ depending on the specialty of the trader. Some enjoy taking risky short term trades while others opt for conservative long term trades.

Forex trading has the promise for big profits. Some forex brokers offer their clients leverages as high as 400:1. The higher the leverage, the more you can borrow on any one trade.

The forex market can be very unstable. Big profits are achievable with small amounts of investment. There are no commissions charged, you pay what is established as the spread. The currency pair is the determining factor in the spread paid. Conservative currencies have decrease spreads while unstable pairs usually range higher.

While a lot of money can be made in the forex market, there are also risks involved, usually high risk. The risks of forex trading are lowered with the effective implementation of money management and trading strategy. To fully comprehend the personality of the currency market, extensive trading on free demo accounts are needed. - 23229

About the Author:

Click Here and Click Here for information on Forex Online Forex Trading. These have been two of the key areas that the author is specialized in. Rueben Gomez is a Stock and Currency Trader with years of practice in this fields. When he is not trading, he operates an online forex portal.