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New to currency trading???

  • #1
  • First Post: Mar 25, 2006 9:37pm Mar 25, 2006 9:37pm
Hi guys,

I'm new to trading forex. I've traded stocks and futures but never forex. I have a question. Is forex trading basically the same thing as trading futures and stocks but your just buying another currency with the U.S. dollar?

For example let's say I think the euro will depreciate. Would I take the U.S dollar and purchase Euros or am I pairing two differenct currencies? If I'm pairing the currencies what if the U.S dollar drops and the Euro drops as well.

I'm a little confused about currencies.
  • #2
  • Mar 26, 2006 10:44am Mar 26, 2006 10:44am
Hi johns...you're pretty close...i have a similar background to you....

Whatever trade you make, you're essentially trading with the first currency and the opposite with the second (they have names, but i forgot what they are). When you're buying one currency, you have to sell another....for example, if you buy EUR/USD, you're bullish on the euro (as you're buying EUR and selling USD).

For example, lets say you have a EUR/USD quote of 1.2036-39. You'd buy at 1.2039 (ask) and sell at 1.2036 (bid).

If you were to buy, you'd be LONG EUR and SHORT USD. Lets say you buy 10,000 EUR worth...you'd be long a static amount of EUR and your USD currency would flucuate based on your 10,000 EUR position.

Hope this made some sense!

If you have any other questions feel free to pm me...I was a n00b here myself not long ago.
  • #3
  • Mar 26, 2006 10:54am Mar 26, 2006 10:54am
It still seems confusing. Do I basically have to predict both markets. If I'm buying the euro and selling the dollar, what if the dollar and euro both appreciate, can this happen??

Is everything basically paired off of the dollar can I pair the peso with the swiss franc.

All in all does currency trading work the same as stocks and futures...are you basically just going long or short?

Thanks for the advice.
  • #4
  • Mar 26, 2006 11:31am Mar 26, 2006 11:31am
Quoting johns
It still seems confusing. Do I basically have to predict both markets. If I'm buying the euro and selling the dollar, what if the dollar and euro both appreciate, can this happen??

Is everything basically paired off of the dollar can I pair the peso with the swiss franc.

All in all does currency trading work the same as stocks and futures...are you basically just going long or short?

Thanks for the advice.
In currency trading, you trade pairs. So when you say you are long EUR/USD, you are saying that you think EUR is going to appreciate and USD is going to depreciate. It is not hard at all. You are trading pairs and that is it. If you think it is going up, you buy, and if you think it is going down, you sell.
  • #5
  • Mar 26, 2006 11:44am Mar 26, 2006 11:44am
Quoting johns
It still seems confusing. Do I basically have to predict both markets. If I'm buying the euro and selling the dollar, what if the dollar and euro both appreciate, can this happen??

Is everything basically paired off of the dollar can I pair the peso with the swiss franc.

All in all does currency trading work the same as stocks and futures...are you basically just going long or short?

Thanks for the advice.
Consider it this way,
INTEL comes out with a revoloutionary new Technology which AMD has no clue about. What would you do? Buy INTEL AND Sell AMD right. That would be two trades. With Currency "Pairs" that would be one trade. BUY INTEL/AMD . Why? Because you expect INTEL to GAIN BY COMPARISON TO AMD
Simple....
But What if SunMicro all of a sudden came out with something Even better. Now you have to consider INTEL/AMD, INTEL/SunMicro and AMD/SunMicro

You might prefer NOT to Trade INTEL/SunMicro as they should BOTH APPRECIATE but you would probably be ok Buying INTEL/AMD AND Selling AMD/SunMicro.

Currency Pairs are divided into two Main Categories.
Majors. {in no particular order}
EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, NZD/USD, AUD/USD.
And
Crosses. Any combinations of the above. ie
EUR/JPY, GBP/JPY, NZD/AUD, AUD/CAD. etc. etc.

There are also other Minors {Zloty, Zar, Krona} but it is primarily up to the br_ker if he wishes to offer them for trade. So, You may be able to find one that trades the CHF/Peso but I kinda doubt it.

The attached xl sheet might help you understand a little more.
Attached File(s)
File Type: zip Calculated Cross Values.zip   19 KB | 542 downloads
  • #6
  • Mar 26, 2006 1:15pm Mar 26, 2006 1:15pm
I think what gets confusing is the nature of 'pairs'. The value is the rate against each other. Not an across the board value. Yes the euro and usd can simultaneously become stronger, or appreciate. Both the euro and the usd can whoop up on the yen let's say. How would that impact the eur/usd pair? It could mean that it becomes rangebound and not move very much even as those individual currencies are gaining in value against the yen. Each pair has it's own dynamics even if a particular currency is experiencing a change in value.
  • #7
  • Mar 28, 2006 12:56pm Mar 28, 2006 12:56pm
So I have to predict two markets and not one. For example I think the dollar is going to continue to sell off I have to pair it with another currency. Are there currency pairs that move in opposite directions? For examle would the euro move in opposite direction of the dollar.

I more or less am interested in trading like I did with stocks and commodities, buying and selling.
  • #8
  • Mar 28, 2006 7:42pm Mar 28, 2006 7:42pm
Quoting nd1377
In currency trading, you trade pairs. So when you say you are long EUR/USD, you are saying that you think EUR is going to appreciate and USD is going to depreciate. It is not hard at all. You are trading pairs and that is it. If you think it is going up, you buy, and if you think it is going down, you sell.
Just to clarify, if your long EUR/USD, your saing that you think EUR is going to appreciate specifically against the USD , or, USD is going to specifically depreciate agains the EUR.
You could find yourself speculating that the USD will depreciate, for example, and buy the EURO, but what if the EURO, too, is depreciating? (i.e., everyone is buying the Koran or the Yen, etc., etc?) Your bet would be right that the USD is depreciating, but the choice of the EURO to play that bet might be the wrong pair to choose.
Profitsee - Knowing the future is not enough.
  • #9
  • Mar 28, 2006 8:19pm Mar 28, 2006 8:19pm
That seems pretty tough. So I have to be right with the pairs I choose. That kinda sucks, it makes it more difficult. You have to be right on two trades on not just one.
  • #10
  • Mar 28, 2006 8:44pm Mar 28, 2006 8:44pm
I suggest you pick one pair and trade that until you get more experience. The fundamentals are different then trading a stock, but reading the charts should not be something you couldn't do having experience in the other markets. Follow the interest rates and the (nonfarm payroll/Trade Balance numbers from The U.S). These releases cause the greatest movement right after they are released. Today 3/28/06 is a good example of what a .25 point raise in interest rates will do to the market. The hour right after it was given was a great time to get in on the action. these two sites will give you the release dates for the rest of the year for each. http://www.bea.gov/bea/newsrel/2006rd.htm

http://www.bls.gov/ces/ces_tabl.htm

RonT
  • #11
  • Mar 29, 2006 12:38am Mar 29, 2006 12:38am
Quoting johns
That seems pretty tough. So I have to be right with the pairs I choose. That kinda sucks, it makes it more difficult. You have to be right on two trades on not just one.
Hello jones,

It is actually the same concept as trading stock/future. Just treat one pair as one stock/future and trade with it!! You can treat Eur/Usd as trading INTC or Corn or whatever you can think off.

However, Forex is different from stock because of its leverage and continous trading period. Therefore, you need to have a good "time" and "money" management for your "trading" plan....similar to stock/future...you should have trading plan for your stock/future, entry point, exit point. The difference is not hugh apart from some technical analysis doesn't work that well in forex.

I am currently using MA with William to trade forex with Metatrader expert advisor (which is pretty cool, I never experienced with automatic trading tools with stock before) and its win:lose ratio is only 36% (but still make $$$ since it is "trend" follower kind of thing) and the difficult part is actually the money management rather than determine the correct position.

It is a very exciting market in forex and don't give up....give trials of demo for the next 6-12 months and you will definitely love it. Hope you enjoy it!
  • #12
  • Mar 30, 2006 6:46am Mar 30, 2006 6:46am
Johns,

Not to confuse you further, but one important thing to remember with currencies are that there are very strong correlations (both negative and positive) between some pairings. For example, EUR/USD has a very strong NEG. correlation to USD/CHF. Why that matters is it can be very easy to double your position one way or the other without realizing it. Or cancelling out any profit. For example, if you were long EUR/USD and long USD/CHF you would essentialy be treading water as any gain in eur would be offset with a loss in swiss. (Not quite pip for pip as swiss has a slightly smaller pip value) If you are long cable and euro at the same time you have doubled you position because they move with a strong POS correlation. This is great when things are moving your way but can be disasterous when they aren't. before you decide what pairings to trade get to know the correlations.
  • #13
  • Last Post: Mar 30, 2006 9:58am Mar 30, 2006 9:58am
Quoting caller2
Johns,

Not to confuse you further, but one important thing to remember with currencies are that there are very strong correlations (both negative and positive) between some pairings. For example, EUR/USD has a very strong NEG. correlation to USD/CHF. Why that matters is it can be very easy to double your position one way or the other without realizing it. Or cancelling out any profit. For example, if you were long EUR/USD and long USD/CHF you would essentialy be treading water as any gain in eur would be offset with a loss in swiss. (Not quite pip for pip as swiss has a slightly smaller pip value) If you are long cable and euro at the same time you have doubled you position because they move with a strong POS correlation. This is great when things are moving your way but can be disasterous when they aren't. before you decide what pairings to trade get to know the correlations.
The attached is a zipped XL sheet of MY Opinion of Mirrors {Pairs that travel in Opposite Directions} an Matches {Pairs that travel in the Same Direction}.

It may seem a little confusing at first, but so is Forex.

HTH.
Attached File(s)
File Type: zip Mirrors & Matches.zip   5 KB | 580 downloads
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