For traders who are new to currency trading, it can be quite a confusing experience, not least because everything seems to be FREE!! If you have come from a stock or share trading background, you will be very familiar with all the costs associated with each trade. Firstly there is the cost of receiving the data via a data feed. For realtime data this can be expensive, then there is the brokerage cost of each trade both to open and close, then there is a spread, and finally stamp duty ( a UK evil!!) Anyone trying to day trade is on a hiding to nothing!

In the world of Forex, few of these costs exist. Realtime data is provided free of charge, either by the brokerage, or by one of the many good sites such as fxstreet. There is no commission to pay on a trade, nor is there any stamp duty. The only cost of the trade is the spread – the difference between the bid and the ask. Once a trade has absorbed this spread you are in profit. So how does the broker make his or her money, and do they want you to win or lose?

Go to any chat room or forum, and it is full of on-line members bemoaning there lot, and blaming the broker for everything from widening spreads to entering trades late, or even fixing prices! Virtually all of these are rubbish, and sadly it is awlays these people who refuse to accept that there is only one person to blame – themselves! I ignore them and would advise you to do the same – stay away from these so-called forums – they are bad news and will only colur your judgement or make you feel as though every broker in the world is against you. They are not, I can assure you.

The broker makes his or her money from the spread on the trade – that’s it short and simple. Do they want you to be succesful – ofcourse they do, but knowing full well that on balance there will be more losers than winners. Brokers need active clients to ensure that they are making money on the spreads – if eveyone lost they would have no clients left and go out of business. One of the great temptations in currency trading is to scalp trade. Some brokerages offer a 1 pip to 1.5 pip spread on major crosses such as the EUR/USD – what could be easier than to recoup this and move into profit – try it on a demo account with a stop loss in place – it’s not as easy as it sounds!!

One of the other great complaints that you often read about in the forums, is the widening of spreads by brokers, on major news announcements. Well ofcourse they do, so would you if you were runnning a brokerage. On the first Friday of every month, the NFP ( Non Farm Payroll ) news hits the markets at 1.30 pm ( UK time ). Markets become extremely volatile for some hours afterwards, and prices can move very fast indeed. It would be pretty stupid to be offering the same tight spreads at such a volatile time, and yet many traders try to ‘trade the news’, hoping for a very fast profit. Whilst this is possible to do, you have to accept that the rules change whilst you are doing it! The spreads on a major cross pair may open to 10 or 12 pips or maybe even more. The idiots who complain, moan about how unfair it all is and the brokers are against them – total rubbish. if you are going to trade this way, just understand the rules and don’t complain if you lose.

So, in summary, I do not believe most of the rubbish that is said and written about forex brokers – there are both good and bad as in any other business. They are there to make a profit and the main profits come from the spreads, so they want to keep customers trading. I use Oanda and FXSol – both without any problems whatsoever. Of the two I would say that Oanda is better for tighter spreads, interest on the account, and second by second interest payments. Their charting however is poor and always a source of complaint, but as there are always other sources for charts this is not a major problem. FXSol is really easy for the beginner – very, very simple order entry and trade management, and they were my first account. They currently only offer 20 pairs ( which is fine for a beginner ), and their charting is OK, having recently added Accucharts. Their spreads are generally wider than Oanda. As a long term trader I do not have this obsession with spreads that most traders do – to me the odd pip here or there is of no consequence whatsoever. Far more important is the underlying stability of the company – just remember, brokers can go bust just like any other company so check them out carefully.

One question I am often asked is simply this – Is it possible to trade currency and hold down a full time job at the same time? My answer is always the same – it depends!! There are a whole variety of factors that have to be considered before you can answer such a question with a simple yes or no. Let me explain.

For those of us in the Nothern hemisphere it is proabably much harder to achieve than for those in the Southern hemisphere – the reason is very simple, but ironically it is one of the great myths that is often sold by brokerages and ‘experts’ selling courses, that you can trade currency 24 hours a day, 7 days a week. Firstly this is not true. The markets are closed at the weekends like most other markets, closing late Friday evening and opening again on Sunday evening ( times vary according to which brokerage you use ) – these are Northern hemisphere times. Secondly, the major market movements occur when the largest markets are open, so nothing much happens until Europe opens, followed by the US market later in the day. For those of us in the Northern hemipshere, this means that the major trading hours are from 8 am in the morning, until 9 pm in the evening. As I am writing this, all the prices on the screens, irrespective of which currency pair, have virtually stopped moving as trading moves from Europe and the US, into Asia and the Far East.

These markets are small in comparison, and quite how the Far East traders manage to make any money trading their own timeframe is beyond me. If you don’t believe me, just try sitting up through the night and watch the prices hour after hour ( as I have done many times ) - the movements are tiny in comparison. On odd occassions there will be an announcement of a rate rise or fall which will cause some movement, but these are few and far between. So for us, the only real possibility is to be in front of our screens during ‘normal working hours’ when the major price movements occur. Or is it?

It depends on the type of trader you are – if you follow this blog regularly, you will know that I am a long term trader. I do not sit in front of my screen minute by minute watching the prices moves around. Apart from anything else I find this quite boring, and not very productive. My style is to place trades based on the longer term picture – have a look at some of my posts and you will see what I mean. So do I leave my screens and trades during the day – absolutley !! – all the time. Some of my trades run for weeks, months and in some cases years. I could quite happily go to work and earn a living if I chose to, and with a browser based account such as Oanda, I could always log on at work to open or close positions ( I’m sure many people do, although I do not recomend if from an ethical or moral point of view )

The scalpers among you will no doubt be horrified by the above comments, and I can understand your trading style, but it is not mine and does not figure in any of my trading plans, but it is a perfectly valid way of trading.

So, to answer the question – if you are prepared to trade currency using a long term style, like mine, then I do believe it is possible to do both, quite easily, whilst you learn the ropes. I would urge anyone starting out, not to give up the day job, but to begin in this way, which in many ways is similiar to stocks and shares. You would not sit all day in front of a screen watching a Lloyds share move a few pence, if you were proposing to hold it for month or years, so why not do the same with currency. Provided you have a sufficiently large balance in your account, and have set reasonbly wide stop losses in place, then the rest is up to the market. Your stop will take you out if things go against you, so the only decision you have to make is when to close out for a profit, for which you look at your risk reward ratio – easy!!

Sorry – I almost forgot – this trade is also going well. I would definately leave this one for a few more days, to take some extra pips. Tomorrow I will carry on looking at some of the more unsual pairs, and highlighting trading oportunities for you to follow. if you want to paper trade with me, that’s fine – it’s not a bad way to start, but unfortunately there is nothing like losing real money that sharpens up your trading and makes it all real. Winning or losing, you will feel the real emotion of trading which you will need to control at all times, by having a trading plan. 

Hi – for those of you who followed my advice this morning on the above pair, you should have some nice profits in the account by now. I leave it to your pesonal trading style whether you leave the trade open for the longer term, or close out for a short term profit. For myself, I would leave it for a while, but as always this is up to you and your particular style. If you ever want to ask me a question, just visit my site at www.making-bread.co.uk and click on one of the links. I will always do my best to answer as quickly as possible

An exotic pair, although all now part of the EU. The ticker for the Zloty is PLN and the pair are quoted as EUR/PLN.

If we look at the monthly charts first, the pair could be forming a bottom at the current level of 3.7700. This level has now held for 3 months. On the weekly charts the trend is gently downwards over the last 4 years, but a trend channel seems to be forming with lower highs and lower lows. Week 24 in June is a bearish engulfing pattern, suggesting lower prices over the next few weeks, with confirmation following immediatley afterwards.

The daily charts show a similiar picture, and with a bearish engulfing candle yesterday, I would open a sell trade, but only down to a level of 3.7400. Prices could reverse off this point and retrace upwards, so make sure you  have a stop loss in place on your trade. It is probably not a bad place to enter a trade right now as following a big fall, the price has reversed a little and I would be looking around the 3.7850 to enter.

As I suggested a couple of weeks ago, the only way to trade Cable at the moment is on the long side, and following a breakout abouve the psychological barrier of 2.000, the pair now seem set to move towards the 2.03 level, and maybe higher in the short term. The only danger to this is if prices bounce off the previous level of 2.0088. If this is penetrated then I would expect the pair to break into new high ground above.

Since May 2006, prices have been touching, but not penetrating the 20 day moving average, which is always a good sign. It seems unlikley that there will be a change in sentiment in the pair, until interest rates globally start to fall. At the moment, there seems to be no sign of this occuring, with rates rising across the board! (see yesterdays post on the NOK )

As widely expected, the Norwegian Central Bank raised it’s rates today from 4.25% to 4.5% triggering a jump to a 10 year high in the Krone. In my post earlier today, I suggested that a sort trade should be profitable, and following the huge fall in the last few minutes you should be sitting on some nice profits, having fallen from 8.042 just prior to the announcement to a level of 7.9666 currently.

Given the chart formations that I discussed this morning, I would suggest that you stay with this trade for a long term gain, rather than take any short term ‘profit’ – but this is up to you and your trading style. For those scalpers who trade the news, they will no doubt feel more comfortable closing out the trade and taking the profit off the table. Horses for courses as they say.

This is an interesting pair and one that is difficult to forecast at the moment. If we look at the monthly charts, it would be very easy to open a sell order, and wait for the profits to build up. However, on this pair I am going to suggest a contrarian approach. At some point after such a long period of falling prices, buyers will enter the market. Maybe not quite yet, but at some point soon – after all, we are all looking at the same charts!! If you scroll back to November 2005, you can see quite clearly on the charts, the bullish engulfing candle on the week, followed by a big run up in prices. I am expecting a similiar thing to happen again, but you have to wait for the signal to appear and then for confirmation. On the daily chart this signal did appear back on the 11th June, but it was not confirmed.

So my suggestion would be to wait on this trade for a bullish signal, or doji signal in the weekly charts. Once this appears then it is time to trade on the long side and take some pips on the way back up.

I always call this the knock! – actually it is the Norwegian Krone as opposed to the Danish Krone DKK. If we look at the monthly charts to start with, we can see that there has been 4 months of indecision, represented by dojis, followed by a down bar for this month. Moving to the weekly charts, we see this movement expanded with almost 6 months of prices going nowhere. With the pair currently trading at 8.0298, it seems that prices have now penetrated the support levels of 8.100, and this has now become resistane to a move upwards. In addition the 50 and 20 day averages have also crossed indicating a change in direction.

On the daily chart, the same picture emerges, and this now looks like an oportunity to short the pair. However, if you are going short, make sure it is a longer term trade, as on the hourly charts, prices have moved up for the last few days and the 50 and 100 averages have crossed temporarily. It looks like a good opportunity to open the trade at this level and to benefit from a fall in the next period.