UTILIZING TRADING SOFTWARE IN THE FOREX MARKET

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UTILIZING TRADING SOFTWARE IN THE FOREX MARKET

Today's Foreign Exchange (Forex) trading is recognized as one of the most lucrative ways in making money online. To trade Forex, all you need is just a computer with Internet connection and an account with a Forex broker. As the market is operating 24 hours a day (for 5.5 days a week), Forex traders basically work freely regardless of the location and time. Despite its high volume of daily turnover (nearly $2 trillion per day), it is surprising to note that only a few currencies are traded very actively: United States dollars, Australian Dollars, Japanese Yen, British Pounds, Swiss Francs, Canadian Dollars, and the Euro Dollars are the seven majors.

In fact, Forex is mainly traded by large international banks even after it was opened to public in 1998. According to Wall Street Journal Europe, 73% of the trade volume is covered by the top ten banks. Deutsche Bank, topping the list, covered 17% of the total currency trades, followed by UBS in the second and Citi Group in third, taking 12.5% and 7.5% of the market respectively. Other large financial cooperation on the list are HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Goldman Sachs, ABN Amro, and Morgan Stanley. For market participants segment, approximately half of the transactions done were strictly between dealers (i.e. Bank, or large currency dealer). The others are mainly between dealers and non financial institutions.

Practically, traders often use one or more than one trading system/software to trade Forex online. This software often comes as a package when you open an account with a Forex broker. In brief, this is how this software works - the Forex trading software is connected to the broker's system via Internet, currency prices are updated live, and you make your call on trade via the software. Such trading software often requires a minimum of computer power, therefore it can be run on most home computers nowadays as long as it is connected to the Internet.

Some basic things you will see in most Forex trading software:

1. Dealing Rates Window: Shows prices of the currency pairs with live updates. Normally market low-high will be shown in this window as well.

2. Open Positions Window: Shows the number of tickets (trades) you have bought. Basic info such as ticket number (trade reference number), amount of trade, currency, open positions, current close position, and orders are normally shown in this window as well.

3. Closed Positions Window: Shows the number of tickets (trades) you had sold. Good trading software will show you the summary of your deals in this window, for example, the gross profit/loss, open/close positions, amount of trade, as well as interest sum.

4. Account Window: A window showing your overall status. Your account cash balance, equity balance, daily profit/loss, your overall profit/loss, usable margin, and real capital. Keep an eye on this window's usable margin. Always keep sufficient amount on margins to avoid 'margin calls' that force you to close all deals.

5. Automated Trade Orders: In most cases, trade order functions are embedded in the Forex trading software. For Forex trading, stop loss order and limit order are the two most used functions.

Automated Trade Orders in Forex Trading

Limit Orders

As a trader, you can place these orders when you wish to buy/sell the currency at a better price compared to current market. Limit orders are often used to take a win automatically when the price reaches a certain level. For example, current EUR/USD is at 1.2693 and your predetermined limit order is to sell all at 1.2700. The order will auto-execute whenever the price reach 1.2700. It is important to note that limit orders can be only placed at least the minimum distance from the current market price. Also, such orders can be cancelled or modified anytime by you as long as the limit order price tag is set further than the minimum distance allowed.

Stop Orders

Stop orders, or sometimes known as stop loss orders, are automated orders used to restrict and limit the losses of an open position. It can also be used to lock on a profit in your trade when the market is going in your favored direction. Stop orders work similarly to limit sell orders. It predetermines what is the lowest price to sell in certain deals. For example, EUR/USD 1.2693 with stop order at 1.2685, the system will sell your portion of USD if the price touches the 1.2685 level. The price 1.2685 is guaranteed on such case, meaning even if the market sinks too fast and it falls below 1.2685, you still can sell your money in the price that you set earlier. Stop order works perfectly well in handling your risks profile.

As this article is meant for beginners in Forex trading, you probably are one of the rookies looking for some learning resources in Forex trading. There is no immediate solution to make you a professional trader. The only answer is education. Take all the time you need to learn this new trading skill well. Practice everything you learn with a demo account before you consider going 'live' with your own money. Seminars, eBooks, Internet, as well as video courses are all available to get you up to speed.