forex guide » FOREX CURRENCIES

Pyramiding in forex and its types

admin — Wed, 02 Dec 2009 19:48:53 +0000

So, what is pyramiding in forex? Pyramiding is adding to positions as price moves in the desired trend direction. An investor who is pyramiding uses excess margin from the increasing price of a security in his/her portfolio in order to purchase more of the same security. Pyramiding is generally a slow method of increasing one’s position size as the margin increases will permit successively smaller purchases. Pyramiding is useful as well as profitable if the trend goes by your side but also it may cause losses in case of reversing of the forex trends.
There are several types of pyramiding techniques and strategies available which if you understand and use can ensure you good profits.
a. The standard pyramid, which is also known as the scaled-down pyramid or upright pyramid starts with a large initial position and is followed by predetermined additions that decrease systematically in size as price moves in the indicated trend direction. As for example, if the initial entry was for 100 shares, then as price moves to the next predetermined level add 50 more shares, then 25 more at the next level, then 13 more, for a total of 188 shares.
b. The reflecting pyramid systematically adds to a position up to a predetermined price level, then it reduces the position systematically as the trend continues, so the reflecting pyramid is not a pure trend following method. If the price does have a major move in the indicated trend direction, the reflecting pyramid would result in less profit than both the standard and inverted pyramids.
c. The maximum-leverage pyramid keeps on adding maximum size up to the limits of accumulated profits and margin requirements. This is the most aggressive strategy possible, and it offers the maximum potential reward, the maximum potential risk, and the worst reward/risk ratios. This pyramid must be combined with tight exit rules, or else it is a formula for near-certain ruin.
d. And the inverted pyramid, which is also known as the equal amounts pyramid, adds to an initial position in equal share-size increments. For example, if the initial entry was for 100 shares, then as price moves to the next predetermined level add 100 more, then if the price continues 100 more, then 100 more, for a total of 400. Here, however, the average cost per share is much higher, such that a smaller price reversal eliminates all profit. And this one is the most used strategy while pyramiding. You as a forex trader have to develop a forex trading strategy that will allow you to quickly identify flaws and make adjustments while continuing to trade and a strategy based on the classical approach in order to evaluate risks in the currency trading system is the inverted pyramid approach.

But in order to understand and utilize the inverted pyramid it is required for you to understand the macroeconomic factors that are a function of the top of the inverted pyramid. This may include international issues that influence the global trading community. So keep tuning in to know the further uses and advantages of pyramiding in forex system.

Changes That Led To the Evolution Of Forex Rates

admin — Fri, 02 Oct 2009 09:25:00 +0000

During the concluding stages of the World War II, USA had come forward with a proposal in July 1944 so as to announce the acceptance of the Bretton Woods agreement. John Maynard Keynes had suggested for building a new system, which mentioned the US dollar to be the new world reserve currency. But then the Bretton Woods Conference turned down this suggestion. Other foreign global institutions like The World Bank, The IMF and the GATT (General Agreement on Tariffs and Trade) were the successful launches after the devastating war. These institutions employed the operational practices that found a way in curbing the economic crisis as the financial reserves weakening was the root cause of the war. Initially the Bretton Woods Agreement introduced the fixed exchange rate system that was made stable later on, as people found it effective once it replaced the gold standard by offering a fixed price for US dollar at 35 USD/oz and related the value of other important currencies of the world with US dollar.

The decades that followed made the forex trading to develop into as the biggest international market undoubtedly. Many countries are free to fix the forex rates in agreement with their estimated values. This eased on the limit on capital flows and hence they were all lifted. Still this system of fixed exchange rates has not perished till date.

European Monetary system was launched in the year 1979 by the European Economic Community to fix the exchange rates beforehand. But this system saw its end in 1993 when some economic pressures enforced depreciations of several weak European Currencies. On the other hand, the search for currency stability was persistent in Europe with the improved challenge to not only fix currencies but also truly substitute many of them with the Euro in 2001.

But the system of fixed exchanged rates seemed to have lost the plot in the concluding part of the year 1997.Many South American currencies started depreciating against the US dollar and hence the remaining countries, which were still holding the fixed exchange rate system for currency trading, started to think over their susceptible and hapless status on the global front. This was ascribed for the fact of the lack of support of the foreign exchange rates system. This belief spread over many parts of South East Asia and hence created a chaotic setting for trade in some important sections of the world. Efforts were made to bring on a globalized money trading system, which made things easy for the foreign exchange.

In the recent years many organizations, business corporations, corporate super powers and financial companies have been facing an unpredictable challenge to survive in the currency environment with all their financial investments vested in it. The investors, the shareholders and the depositors have now found a safer side of the foreign exchange market where they can take shelter to safeguard their entire precious assets. . As the global unions and financial and pecuniary administration centers identified the original supremacy of these systems, the popularity started to grow beyond the world. The presence of the global foreign exchange, market literally overshadows the other small-scale domestic currency markets as people have started to observe its path to enormous success. The total amount that is traded within the foreign exchange markets estimated to be around 3000 billion $ which exceeds the combined trading in the world’s stock and bond markets.

TOP PERFORMING FOREX CURRENCIES

admin — Tue, 08 Sep 2009 06:53:45 +0000

There are many forex currencies playing their role in the Forex exchange market, but besides them there are some major players playing their lead role in the FX market. About 90 % of the forex market is occupied by these currencies. These currencies have been presented below:-

>>U.S. Dollar

>> British Pound Sterling (GBP)

>> Euro

>> Canada Dollar (CAN)

>> Australian Dollar (AUD)

>> Swiss Franc (CHF)

>> New Zealand Dollar (NZD)

>> Japanese Yen (JPY)

As per the market statistics, the USD/EUR and USD/GBP are the two most popular currency pairs on the Forex based upon volume.

The table for progress of Forex market has been presented below, which has been taken from http://finance.yahoo.com. This table is showing the progress list of the year 2009

This is the flat rate progress for the year 2009.

This is the Cross Rate Progress for the year 2009.

And here’s a chart showing the foreign currency progress from 2008 Oct – Sep 4,2009.

Hope this chart will help you to follow the trend and help you to succeed in the Foreign Exchange Market.