If your weekend plans include dropping a bet on the Super Bowl, don’t forget that Uncle Sam wants a piece of anything you win. Americans are expected to wager about $6.8 billion on Sunday night’s matchup between the Kansas City Chiefs and San Francisco 49ers in Miami. And no matter where you place your bet — whether at a casino, online, through a pool or ...
The foreign exchange market is where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.
All forex transactions include two currencies, because you are betting on the value of one currency against another. Think of EUR / USD, the best-selling currency pair in the world. EUR, the first currency in the pair, is the base, and USD, the second, is the counter. When you see the price indicated on your platform, this price is equal to the value of one euro in US dollars. You always see two prices, because one is the purchase price and the other is the sale. The difference between the two is in distribution. When you click buy or sell, you buy or sell the first currency in a pair.
More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal." It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.
GBPCAD has gained this week but it managed to still hold within the Ichimoku cloud in the daily timeframe. The price ran to a fresh six-week peak today at 1.7376, climbing above 1.7340, which is the 23.6% Fibonacci retracement level of the upward wave from 1.5875 to 1.7790, following the rebound off the six-month uptrend line. The technical indicators are ...
Challenge: Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is a high ratio but not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.
Since the market is made by each of the participating banks providing offers and bids for a particular currency, the market pricing mechanism is based on supply and demand. Because there are such large trade flows within the system, it is difficult for rogue traders to influence the price of a currency. This system helps create transparency in the market for investors with access to interbank dealing.
Confirmation bias is the one factor that is most common amongst professional traders. Looking for information that will support a decision you have made, even if it wasn't the best decision, is simply a way of justifying your actions and strategies. The problem is that by doing this, you're not actually improving your methods, and you're just going to keep making the same trading mistakes. Unfortunately, this can create an infinite loop in Forex trading psychology that can be difficult to break.
There is only one piece of advice to solve the problems of traders that can be drawn from studying Forex trading psychology - and that is to develop a trading plan and stick to it. As a trader in doubt, you should absolutely feel free to research every other possible remedy available, but the chances are that you will still come back to a simple trading plan. It's understandable for traders to feel fear when they are trading.
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Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the U.S. or the U.K. (dealers in the U.S. and U.K. have more oversight) or in a country with lax rules and oversight. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.
Loss aversion bias derives from the prospect theory. Humans have a funny way of evaluating their gains and losses, along with comparing their perceived meanings against each other. For example, when considering our options before making a choice, we are more willing to give preference to a lower possible loss over a higher possible reward. Fear is a much more powerful motivator than greed. In practice, a trader with a loss bias is more akin to cutting profits when they are still low, while allowing bigger drawdowns.
However, being able to push this fear aside and work through it is absolutely vital for any trader who wants to be successful. Practice trading, make notes, research new strategies and make mistakes. Trial and error is a massive part of the Forex learning curve, and generations of traders have proved that this is the most effective way to eliminate trading fears.
In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.