The way trading works (even for a pro) is that you’ll win some and you’ll lose some. However, the goal over time is to have the winning amount outweigh the losing amount. I’m often reminded of a famous group of traders called the “Turtle Traders” back in the 1980s. Many books have been written about their success. However, they only won about 40 percent to 50 percent of their trades. So what was so special about them? Their winners were allowed to run and reap some hefty profits for them.
Forex VS Stock Trading
– There are advantages and disadvantages to both markets, but the forex market offers traders a number of opportunities and advantages that stocks just can’t compete with. A major difference is informational. Currency values are almost exclusively effected by two different types of events: developments of importance to entire macroeconomies and geopolitical events. Stocks are effected by these things as well, of course, but a whole other slew of factors determine the fate of individual companies. Details as minute as which consultant is hired to negotiate with a union can drive a stock up or down.
– Since most of the information that moves forex markets is of a more public nature–often published by governments or major events that everyone has to follow through the media–the forex market does not offer the same institutional disadvantages to individual traders as does the stock market. If you’ve spent your life in a particular industry, you won’t have the same sort of advantage that you would if you traded stocks in just that industry. Even in that scenario, though, you’ll still face an uphill battle against large investment firms.
– Another difference is volatility. Obviously, the stock market itself – which is to say nothing of individual stocks – is far more volatile than the world’s major currencies.
– The mention of leverage brings up another good point. The liquidity of currencies – money being the most liquid thing in the world – is a huge advantage of the forex market. It makes trading on the margin cheaper, and it allows you to get in and out of the market much more easily than with many stocks and bonds.
Forex VS Futures & Options Commodity Trading
– The Forex Market is Always Open for Trading.
– Lack of Commission within Forex Trading, brokers will only take the spread between the asking price and the bid price rather than charge a commission.
– Orders in the Forex Market are Immediately Filled
– Take the Middleman out of the Equation
– Easier Choices, most people that trade on the Forex market only deal in the 4 main currencies making the trading decisions that much easier.
– Less Risk due to margin limits set. The reason for this is a margin call will be issued if the margin amount that is needed exceeds your available account capital.
Next, let’s go over the most commonly traded currency pairs. There are three groups: the majors, the crosses and the exotics:
Major Forex Currency Pairs
The “majors” are those currencies that are the major countries that are paired vs. the U.S. dollar (plus their nick names in parenthesis):
EUR/USD – Euro vs. the U.S. dollar (the Anti-dollar)
GBP/USD – British pound vs. the U.S. dollar (Sterling, Cable)
USD/JPY – U.S. dollar vs. the Japanese yen (the Yen)
USD/CHF – U.S. dollar vs. the Swiss franc (Swissie)
USD/CAD – U.S. dollar vs. the Canadian dollar (Loonie)
AUD/USD – Australian dollar vs. the U.S. dollar (Aussie)
NZD/USD – New Zealand dollar vs. the U.S. dollar (Kiwi)
Forex Currency Crosses
The “crosses” are those pairs that are not paired vs. the dollar such as:
- EUR/CHF – Euro vs. the Swiss franc
- EUR/JPY – Euro vs. the Japanese yen
- EUR/GBP – Euro vs. the British pound
- EUR/CAD – Euro vs. the Canadian dollar
- EUR/AUD – Euro vs. the Australian dollar
- EUR/NZD – Euro vs. the New Zealand dollar
- GBP/CHF – British pound vs. the Swiss franc
- GBP/JPY – British pound vs. the Japanese yen
- GBP/AUD – British pound vs. the Australian dollar
- CAD/JPY – Canadian dollar vs. the Japanese yen
- AUD/JPY – Australian dollar vs. the Japanese yen
- AUD/CAD – Australian dollar vs. the Canadian dollar
- AUD/NZD – Aussie dollar vs. the New Zealand dollar
- AUD/CHF – Australian dollar vs. the Swiss franc
- NZD/JPY – New Zealand dollar vs. the Japanese yen
- CHF/JPY – Swiss franc vs. the Japanese yen
Exotic Forex Currency Pairs
The “exotics” are those pairs that are emerging economies rather than developed/industrialized nations. Here are a few of the more commonly traded exotics:
- USD/TRY – U.S. dollar vs. the Turkish lira
- EUR/TRY – Euro vs. the Turkish lira
- USD/ZAR – U.S. dollar vs. the South African rand
- USD/MXN – U.S. dollar vs. the Mexican peso
- USD/SGD – U.S. dollar vs. the Singapore dollar
The exotics are not the best place to begin as a trader. Start with the majors and crosses first. Then as you gain profitability with them, and then you might try the exotics later on.
Currency Trading Sessions
Generally speaking, the sessions go as follows: The U.S. session starts around 8am EST and goes until around 5pm EST. The European session starts around 3am EST and goes until around 11am EST. The Asian session starts around 5pm EST and goes until about 4am EST. (Also, note that the trading week starts on Sunday evening around 5pm EST and goes through Friday at around 4pm EST. It trades 24 hours a day between those times and is closed for retail trading from Friday evening through Sunday evening.)
The European session tends to carry the most volume and volatility. The U.S. session produces the next biggest moves and volume. The Asian session will consist of lighter volumes than the previous sessions and tends to normally produce smaller movements. The first two sessions are usually when intraday trends form and the Asian session is when ranges are more likely to form.
Now, that’s all “generally speaking”. If you want to trade the pairs that will be the most active, then trade them when their banks are open during their business day. In other words, AUD/JPY will be more volatile in the Asian session than EUR/USD because when Asia is “open for business”, the European and U.S. banks are closed for business. Now it doesn’t mean that forex trading ceases in the EUR/USD during this period but it does mean that it won’t generally have the volatility of an Asian pair in the Asian session.
EUR/USD is the most widely traded pair and therefore carries the absolute highest volume of all currency pairs. It makes up about 27% of forex trading volume. Next is USD/JPY at 13%, followed by GBP/USD at 12% of the total forex trading volume.