forexeducation

Money, in one form or another, has been used by man for centuries. At first it was mainly Gold or Silver coins. Goods were traded against other goods or against gold. So, the price of gold became a reference point. But as the trading of goods grew between nations, moving quantities of gold around places to settle payments of trade became cumbersome, risky and time consuming. Therefore, a system was sought by which the payment of trades could be settled in the seller’s local currency. But how much of buyer’s local currency should be equal to the seller’s local currency?

The answer was simple. The strength of a country’s currency depended on the amount of gold reserves the country maintained. So, if country A’s gold reserves are double the gold reserves of country B, country A’s currency will be twice in value when exchanged with the currency of country B. This became to be known as The Gold Standard. Around 1880, The Gold Standard was accepted and used worldwide.

During the first WORLD WAR, in order to fulfill the enormous financing needs, paper money was created in quantities that far exceeded the gold reserves. The currencies lost their standard parities and caused a gross distortion in the country’s standing in terms of its foreign liabilities and assets.

After the end of the second WORLD WAR the western allied powers attempted to solve the problem at the Bretton Woods Conference in New Hampshire in 1944. In the first three weeks of July 1944, delegates from 45 nations gathered at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The delegates met to discuss the postwar recovery of Europe as well as a number of monetary issues, such as unstable exchange rates and protectionist trade policies.

In my opinion it impossible to draw up a successful trading plan without getting to know

the psychological make up of yourself, for example how you would react to profit or loss. What

does success mean to you? How would you feel if you failed?

Examine what motivates you and why do you want to become a trader, are there any

other alternatives to you than trading, trading is not easy as 90% of traders don’t make it,

probably the highest failure rates in business. What are your strengths and weaknesses? How can

you keep yourself mentally relaxed? What do you expect from trading? Is it financial passion or

some other reasons?

Your Trading Name

You should treat trading as a business, and operate exactly like any other business, so you

should start off by giving it a name.

Your Business Philosophy

The analysis of your beliefs for the way you trade, the disciplines comprising logic and ethics of your trading.

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Mission for The Business

Why not have mission statements for your business? A mission statement helps to clarify

what business you are in, your goals and your objectives.

The mission statement reflects every facet of your business, for example the range and nature of

the instruments you trade, growth potential, technology, and community.

Consider the statement one entrepreneur developed for his consulting business:

"Raj Consultancy is a company devoted to developing human potential. Our mission is to help

people create innovative solutions and make informed choices to improve their lives. We motivate

and encourage others to achieve their own personal and professional fulfilment. Our motto

is: Together, we believe that the best in each of us enriches all of us.

This is just an idea, to get your brains ticking on how you could put up a mission statement for

your Trading.

Successful traders are clear on which markets they want to trade.

Sometimes many traders trade too many instruments or in case of Forex, too many currencies, I

am not saying that it is not possible to do it, off course it is, but firstly you must establish a

track record of successful trading a few or maybe just one currency.

As a general rule of thumb, professional traders tend to restrict their focus to a limited number

of markets and instruments. By contrast, a novice trader tends to trade index futures one

day, commodities like cotton and oil the next day, and currency pairs the next day etc!

Success in trading requires that you develop absolute clarity about which instruments you will

trade with, that does not stop you from adding more products in future, if you are able to do so.

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Before you start you need to do your homework.

If you were embarking on a journey to a destination you have never been before, would you not

plan the journey? You would check the oil and fuel levels of the car, the tyre pressure before

setting off. You would also check the road maps and decide which route you will take.

So why should trading be any different? You need to start the day by reviewing what you

did yesterday, review your trading journals, review your open positions. What are the general

market conditions, is there any economic news coming out on the day, if so when?

Plan your day, also be sure to factor in time for breaks, lunch etc. This should be away from

the computer.

Review the charts that are on your watch list.

The Forex market, established in 1971, was created when floating exchange rates began to materialize. The Forex market is not centralized, like in currency futures or stock markets. Trading occurs over computers and telephones at thousands of locations worldwide.

The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and speculators exchange one currency to another. The largest foreign exchange activity retains the spot exchange (i.e.., immediate) between five major currencies: US Dollar, British Pound, Japanese Yen, Eurodollar and the Swiss Franc. It is also the largest financial market in the world. In comparison, the US stock market may trade $10 billion in one day, whereas the Forex market will trade up to $2 trillion in one single day. The Forex market is an opened 24 hours a day market where the primary market for currencies is the 24-hour Interbank market. This market follows the sun around the world, moving from the major banking centres of the United States to Australia and New Zealand to the Far East, to Europe and finally back to the Unites States.

Until now, professional traders from major international commercial and investment banks have dominated the FX market. Other market participants range from large multinational corporations, global money managers, registered dealers, international money brokers, and futures and options traders, to private speculators.

There are three main reasons to participate in the FX market. One is to facilitate an actual transaction, whereby international corporations convert profits made in foreign currencies into their domestic currency. Corporate treasurers and money managers also enter the FX market in order to hedge against unwanted exposure to future price movements in the currency market. The third and more popular reason is speculation for profit. In fact, today it is estimated that less than 5% of all trading on the FX market is actually facilitating a true commercial transaction.