Correlation Between Currencies

Correlation between sets of data refers to the statistical relationship that exists between them. In forex trading, if we take two currency pairs, for example, we can calculate how closely their price is correlated, giving us insight that we may be able to exploit for future profit. This can result in improvements to our trade expectancy by refining our entry and exit strategy through analysis of highly correlated pairs, by optimization of exposure to uncorrelated currency pairs, or by several other means. If you are not sure what that means, it's ok, once you become familiar with the concept of correlation, its usefulness will be very clear. In this

Forex Hedging

There are a number of forex dealers, dare I say even the majority, who allow clients to practice what is commonly referred to as “hedging” in the forex. What this means is that they allow clients to open both long and short positions in the same currency pair, at the same time. Other dealers, on the other hand, automatically close your positions when you enter orders that are exactly opposite to your open positions. There is an ongoing debate among retail traders about whether the practice of “hedging” is useful or not. There are traders out there who swear by “hedging” and others who think it is absolute bollocks.

Forex Position Sizing

For many new forex traders, the promise of quick riches is difficult to resist. That is the main reason why every day, so many people from all walks of life begin trading the forex market. While some element of this “keep your eyes on the prize” mentality is necessary to get traders through the tough times, on any given trading day one should really focus on other things first.

When contemplating any kind of trade set up, a trader MUST understand that no matter how perfect the setup is, it is possible for something to go wrong and the trade may end up being a loser. That’s ok – it

Mechanics of a Forex Trade

For those who are thinking about entering the forex market for the first time, there is some very basic information that is often overlooked. For example, what exactly is happening when you enter a trade? Well it’s simple really, but important to understand. Say, for example, that you have a shiny new $10,000 account. You find a great entry on EUR/USD that you want to take. You enter a 1 mini lot long position with a 100 pip stop loss and a 200 pip take profit target at a price of 1.2500. What just happened? In the meantime, what you have done so far is you borrowed USD12,500 and traded it in for EUR10,000. Now EUR/USD moves

Forex Price Dynamics

In order to gain an understanding of what actually moves the prices, or exchange rates in the interbank market, we must first understand that for any transaction to take place, there must be a buyer and there must be a seller – there must be a counter party for every trade. Open interest in the forex can be loosely defined as the combination of all resting (limit) orders. Many market participants set such orders either above (sell limit) or below the current price (buy limit). These orders are to be filled only when price reaches the set level. For example, say we are trading EUR/USD and the current bid price is at 1.2500. We set a sell limit order at 1.2501. When will our order get triggered? Once all the sell orders at 1.2500 have found buyers, the bid