Of the many books I’ve read, these are the three that I recommend to every new trader interested in the financial markets.

The Best Forex Books

Here are the three forex trading books to read, in the order I would recommend reading them:

1. Beat the Forex Dealer – This is, by far, a book that everyone has to have if they are serious about forex trading. Written by Wiley Trading, it uncovers the hidden action that shapes price movement on the foreign exchange market. The book reads almost like a novel, and introduces some forex trading strategies to beat the market. (You don’t have to take my word for it – there’s a reason it’s so highly-rated on Amazon.
    
   
    
   This one is worth every penny of the $34 price.
2. The Secrets of Economic Indicators – This is another must-read book for anyone who wants to become familiar with economic indicators. The book carefully dissects each economic indicator and its impact on the market. Fundamental traders should appreciate the depth and detail in this book. The author excellently breaks down each indicator and gives a quick answer to the most important question – why? Listed on Amazon for only $14, there’s a wealth of information to be had.
    
   
    
   Read this immediately after Beat the Forex Dealer. You’ll have a much better understanding of how the forex market works than the majority of forex traders.
3. Technical Analysis: The Complete Resource – This book isn’t inexpensive at $61.00 new from Amazon, but it is certainly exhaustive. The book explains the theory behind technical analysis before moving onto the application with excellent examples of how to use the most common indicators. While it is geared toward equities more so than forex – there aren’t any good forex technical analysis books out there, trust me – the lessons are very applicable to any market.
    
   
    
   This is one to buy and keep on the shelves as a resource and reference book. Definitely read this following the Secrets of Economic Indicators, as it does shine plenty of light on how to use technical analysis with respect to the fundamental developments in the markets.

Forex Trading Books to Profits

The reality is that the foreign exchange market is an ever-changing market with new battles each day. If there’s anything I stress on this website, it’s the importance of furthering your education to be successful. You can’t be a profitable trader until you study to be one.

If you’re not ready to commit more money to forex books, be sure to check your local library for these titles. Most major libraries should carry all three. If not, email me with a list of books available and I’ll be sure to help you select from some of the titles available. Also, if you have any questions about the material in the books, do send me a message. I’m sure I can help with most any of the concepts covered in any of the above.

Now get to studying!

At least, you think you are.

The hardest part about trading forex is making the move.

• When can you justify turning on a live account?

• How can you start trading for real money?

• How many trades prove the worthiness of your strategy?

These are all questions traders have when they first begin to trade forex. I wanted to write this post for people who felt the same way I did before I opened my trading account – people who feel they know enough to trade, but who aren’t yet confident to start trading.

Jump with both feet

 
I’m a big believer in the idea that you don’t know anything until it’s proven. You don’t know your strategy works until you try it. You don’t know if you’re ready to trade until you do it.

And this is why I give out a piece of advice that many find controversial – demo trading doesn’t matter.

That’s right, demo trading doesn’t matter.

I operate under the assumption that you all know the risks in trading anything. Speculation is not a game devised for the unintelligent. I don’t need to tell you that you can lose everything trading foreign exchange. You already know that.

So why do I recommend skipping the demo account? Because demo trading is not a real test of your trading abilities. Demo trading is just a test of patience and discipline to study. It’s also a test of luck.

How to Start Trading Forex and Fail

 
Demo trading gives a false sense of accomplishment for many new traders. For one, demo traders never have to worry about taking a loss. How easy is it to hold a position at a loss of $20,000 if the trade is imaginary? Very.

How easy it is it to hold that same position down only $20 in a live account? Almost impossible.

Having some cash at stake is the only way to judge your trading abilities. It’s true. Ask anyone who has ever traded both live and demo about their experiences trading either account type. If they’re honest, they’ll tell you exactly what I did – demo doesn’t matter.

Learn for Less

 
Plenty of people spend way too much money on teaching programs that purport to teach the secrets of profitable forex trading. I got tired of these programs, so I started this site – which is free, if you haven’t noticed by now.

Throwing $2,000 into a forex help book or a manual on how to start trading forex will not make you a better trader. It will give you the education you need, but it won’t provide the expertise.

Expertise is something you learn by doing.

So to wrap this up quickly, I would suggest to anyone thinking about spending their money on trading books to keep it in their pocket. Keep almost all of it in your pocket.

Take a small slice of that money and open a live forex account. It doesn’t have to be a lot of money – $10-100 is more than enough for many forex brokers. And start trading with this sum. Start applying the principles of risk management that you already know. Start relying on your fundamental trading factors to scope out a trade. Start feeling the pain of loss and the glory of gains.

You won’t make a lot of money. You won’t lose a lot of money. But you will gain something very, very valuable – expertise.

Binary Options Example

An example binary options trade will help clear up any misconceptions about how the options work. Let’s assume that we think the price of the GBP/USD pair will rise to $1.5000 from $1.4800 in the next 3 trading days.

In order to profit on this trade, we want to buy a binary forex option on the GBP/USD pair with our broker. After entering the trade for a quote, the forex broker reveals that this binary options trade will cost $67, and the possible payout is $100, a $33 profit.

We purchase the option, and if at any point the GBP/USD pair rises above 1.5000 in the next 3 trading days, we will receive a $100 payout from the broker. However, if the pair does not rise above $1.5000, then we do not receive a $100 payout, and thus lose the $67 cost of the option.

Types of Binary Forex Options

There are three major types of binary forex options that forex traders can use to generate profits on changing currency values. These varieties are as follows:

1) One Touch – The one touch binary option is exactly as described above. Once the price of the example trade rises to $1.50, our one touch binary options pay out for $100. The one touch binary is the most simple type of binary option available to forex traders.

2) No Touch – A no touch binary option is the opposite of the trade described above. In a no touch option, the trader bets that the forex pair will not touch a certain value. As long as the trade fails to touch this value before expiration, the trade is profitable. If the forex pair does meet the no touch value, then the forex trader loses his or her investment.

3) Boundary – A binary boundary forex option is based on a predefined boundary for a currency pair. In a boundary forex option trade, a trader can wager that a forex pair will stay within a certain boundary for a specific period of time, or avoid a certain boundary. For example, a trader might wager that for the next day the AUD/USD pair will stay between a boundary of 1.07 and 1.08. Or, the trader may wager that the AUD/USD will avoid a certain boundary price…say 1.06 to 1.09. If the trader is right, he or she wins the trade.

Each type of binary forex option has its own pros and cons. However, as a whole, options are an excellent way to reduce downside risk, achieve potentially unlimited upside, and hedge out risks in other spot forex trades.

Forex Options for Traders

The most common form of forex option is the traditional put or call option. Puts and calls are the right to buy or sell short a currency pair at a specific price and time in the future.

• Puts are the trader’s right to sell a currency pair.
• Calls are the trader’s right to buy a currency pair.

So let’s run through a simple example. If you wanted to short the EUR/USD pair, you could purchase a EUR put/USD call contract which would simulate the trade. You would purchase the options with an expiration date set to a specific date in the future…say two months from the current purchase price.

If in two months the price falls from 1.3000 to 1.2000, then the trader would have locked in a profit on a single lot EUR/USD trade. The trader would have the right to sell the EURUSD for 1.3000, thus locking in the 1000 pip profit from the drop.

If in two months the price were to trend up, not down, the trader’s options would expire worthless. The key word is forex “option,” which means the trader has the option, not the obligation, to follow through on the trade. In this case, letting the option go to waste is much better than selling EURUSD short at 1.3000 when the current price is 1.4000.

Forex Option Trade Styles

As with any financial product, there are always strings attached. In this case, though, the strings are the two different types of options available. These two are:

1) American style forex options – American style options allow traders to cash in their profits at any point leading up to the day of expiration. Thus, a March 15th option purchased on February 1st could be exercised at any point between February 1 and the close of trading on March 15th.

2) European-style forex options – European style options only allow for traders to cash in on the exact date of expiration. Thus, if you were to purchase an option with an expiration date on March 15th, the option could be exercised on March 15th and March 15th only.

The difference between the two types of forex options is incredibly important. For one, the ability to cash in an American-style option means that you could buy options out far into the future but still have the flexibility to close the trade early. Naturally, European-style options do not afford the same flexibility, and the value of the option isn’t realized until expiration.

Why Use Forex Options

Forex options open up the world to foreign exchange traders. For one, the option provides the ability to leverage a pair substantially, often to a degree greater than that available on a spot forex trading platform.

Additionally, forex options allow for a whole dynamic. First, the amount of time is just as important as the direction of the currency pair, as traders who get the call right but miss the timing are left holding the bag. Secondly, the option’s market value is tied to time, meaning that American-style option owners have to know when to take profits—should you lock in a quick profit, or wait for further movements before expiration?

But most importantly, forex options are a product which limits investor downside. As we said before, an option is nothing more than an option to buy or sell, not an obligation. If you miss the mark entirely, and thus own an worthless option, you cannot lose more than your original investment. This isn’t true for spot forex trades, where the price can plummet to create a capital loss greater than the initial investment.

In summary, forex options provide:

• Limited downside
• Unlimited upside
• Greater leveraging potential
• The ability to hedge risks inexpensively
• A new financial product where time is as important as the predicted direction

Why buy a Forex VPS?

Forex VPS hosting is a product designed mostly for automated trading strategies and high-volume, high-speed forex trading. When you buy a forex VPS, you essentially buy part of a leased computer (server) connected to an internet connection.

The VPS can then run popular forex charting software like Metatrader 4 or TradeStation to place trades 24/7, whether or not your home or office PC is connected to the internet, or even turned on. It’s like having a dedicated forex trading office kept elsewhere, where server techs and technology gurus insure the VPS never goes down. You’ll never miss a trade due to a computer crash, reboot, or internet downtime. This is what makes a forex VPS a must-have for serious traders who want to boost their trading profitability.

Forex VPS Hosting Companies

We’re on the hunt to find the best forex VPS hosting services. If you have used a forex VPS company in the past, or know of a service that we may be listing, please contact us so that we can list the service below.

How to read the Awesome Oscillator

Reading the Awesome Oscillator is easy. First, we must know that the Awesome Oscillator pivots around a center point of 0. Above zero indicates bullish momentum, below zero readings are indicative of bearish momentum.

In a trading platform you will see the Awesome Oscillator bars change in color from green to red. This change in color happens when the distance between the 5-period SMA and 34-period SMA grows or shrinks. Green means the distance between the two is growing. Red means the distance is shrinking.

When the simple moving averages perform a crossover, the bars go from one side of the zero line to the other, as you can see below:

Awesome Oscillator Trading Rules

The Awesome Oscillator has very simple trading rules to follow. First, for those who wish to trade only with the trend, we have these basic rules:

1. Buy when the Awesome Oscillator reading is above zero.
2. Sell only when the Awesome Oscillator reading is below zero.

Using the Awesome Oscillator with simple rules like these is a great way to add depth to your trading plan. If you enter long positions only when there is bullish momentum, and short only in periods of bearish momentum, your accuracy, and thus your profitability, will improve.

Awesome Oscillator Signals

The Awesome Oscillator does create some–dare we say it…awesome trading signals. The buy and sell signals provided by the Awesome Oscillator require a keen eye, so follow along with the example below:

Buy Signals

You should buy the currency pair when the oscillator’s histogram shows a series of three bars where the first two bars are red, and the third is green.

Think about why this would be a profitable trade to enter. First, the market momentum is obviously bullish, so that’s one reason. Secondly, buying in on a third green bar after two red bars means that the distance between the SMAs is growing again. So, when you follow this rule, you’re more likely to find entry points at the low points of a corrective cycle in a longer-term bull trend.

Sell Signals

You should sell the currency pair when the oscillator’s histogram shows a series of three bars where the first two bars are green, and the third is red.

Again, the sell signals are profitable because you’re trading during a period of broad selling momentum, and because you’ve entered your short position after a very temporary bull swing in an obviously bear market.

Awesome Oscilator Formula

Can’t get enough of the mathematics of technical indicators? Be our guest to study this equation as long as you’d like:

Oscillator Value = SMA (M, 5) – SMA( M, 34) where;

SMA is the simple moving average
M is the midpoint value for the 5 or 34 periods.
The midpoint is equal to the (high + low)/2

Using Charting Software

The goal with any forex charting software is to find entry and exit positions—areas where the trader believes they can derive a profit from market changes.

Forex charting software comes preloaded with technical analysis tools to use on a chart, allowing traders to analyze the markets, and make trades all in the same program.

We have a complete list of the technical tools available on Metatrader 4. Metatrader is by far the leading data company for retail forex traders, and most brokers offer it for free when you sign up for an account. Read more about the available broker trading platforms.

Does Charting Matter?

Charting software is more than just a utility for reading a forex chart. In fact, most traders who use the charting software use it also to test possible trading ideas. A technical trader, for example, can use the backtesting features available in forex charting software to generate trade ideas.

The powerful “Expert Advisor” system available in Metatrader 4 allows traders to use automation to backtest strategies or forward test in real time. An “Expert Advisor” can be coded to test just about any strategy, but in general, an EA is limited to signals based on:

1. Price action
2. Technical analysis tools
3. Data gleaned from the chart, not fundamental news or analysis.

For the long-term traders and fundamental forex investors, charting software is merely an afterthought to their trading process. Remember, fundamental traders are more concerned about economics, news events, and other happenings related to the forex market than the price of a particular currency pair.

Free Forex Charting Software

If your intention is to test out a forex platform before trading, we would highly recommend the Metatrader 4 platform. Available for free with a demo account, or for free download from Metaquote, the company who built the product, it is an excellent avenue for traders to become familiar with charting software for free.

Additionally, TradeStation makes for a great piece of forex trading technology, but be forewarned that it costs several hundred dollars per year in licensing fees. Consider starting first with MetaTrader 4 before seeking out a broker that offers the TS platform for free to traders with an active account balance.

Forex Day Trading Profitability

Day traders flock to forex for a chance at making millions. The forex market has volume of $4 trillion dollars in trading activity each day, meaning that a small slice of the pie to a single person is enough to never work again.

The volume of the market isn’t what makes forex so profitable, though. Instead, it is the leverage that forex day trading professionals can access that really boosts returns. Even in a world post-Dodd Frank legislation, traders can leverage positions up to 50:1 in the United States. Internationally, FX day traders have the capacity to leverage to 200:1 and even higher.

The foreign exchange market has what day traders so badly need—liquidity. Forex day trading becomes more popular with each passing day because the liquidity exists to support large-scale, fast trading operations. One can easily buy and sell millions of dollars of foreign currencies in a matter of seconds. The same conditions do not exist for other markets where volumes are light, the trading hours are restricted, and liquidity is light.

Should you try your hand at Forex day trading?

As we note in several articles of our guide to forex trading, day traders are at a disadvantage to the market. This disadvantage happens structurally; day trading requires that you’re right about the market far more than other trading strategies and plans.

Think about it this way: day trading means you’re taking many small profits throughout the day. As such, the spread between bid and ask prices become more important.

If, for example, a day trader targets 10 pip gains in a pair with a 2 pip spread, a pair must rise 12 pips to make a 10 pip profit. If the pair falls only 8 pips, the trader has already erase his entire gain from one win.

On the other hand, long-term traders significantly reduce the importance of spreads in their trading systems. If you were to target 100 pip gains in a pair with a 2 pips spread, a pair would need to rise only 102 pips for your trade to be profitable. Likewise, the pair would have to fall 98 pips for you to lose a gain from a winning trade.

Do the math: If you need 12 pips to win a trade, and 8 pips to lose it, you have a 1.5 ratio to cover. If you need 102 pips to win a trade, and 98 pips to lose it, you have a 1.04 ratio to cover.

Day trading should be left to professionals

It’s hard enough for individual traders to consistently produce profits in long-term forex trades. If you cannot produce profits consistently with a long-term strategy, it is certain, by virtue of mathematics, that you will not produce consistent profits in the short-term.

Unfortunately, new forex traders rarely heed warnings about the difficulty of forex day trading. Day trading the FX market is alluring; the prospect of making thousands of dollars in mere minutes is enthralling. And yes, some traders do produce profits by day trading, and countless people have become millionaires by day trading the foreign exchange market.

But what all of these day traders will tell you is that they could not be profitable day trading if they weren’t first profitable in long-term trading styles. Alluring as it may be, FX day trading is far more complicated than most everyone makes it out to be. There is no holy grail, though it will not stop new traders from looking for it.

What are forex CFDs?

Essentially, any CFD trade you place is made with another person. This trade is a contract between the two traders to agree to pay a “difference” between when the trade is made and when it is sold.

Let’s say there are two traders, Bill and Jill.

Jill thinks the EURUSD pair is going to go down, whereas Bill thinks the Euro will go up in value. The two agree to a one-lot CFD trade, in which they agree to a contract for difference at the current price.

Assume the EURUSD is trading for 1.4000. If the pair falls to 1.3500, then Bill has to pay Jill the amount equal to the difference in the trade, or 500 pips. If the pair rises to 1.4300, for example, then Jill has to pay bill an amount equal to the difference in the start and end price, or 300 pips.

Forex CFD Risks

The biggest risk with contracts for difference trades is that there is the possibility one party to a trade cannot make good on it. This risk is called counterparty risk—essentially; you make money on the trade only if the other person has the capital to pay you.

Historically, this risk has been very minimal for forex CFD traders. The brokers work to mitigate risk, and make sure that every CFD is hedged with an equal amount of currency, or capital from another trader. The brokers also ensure that the process is very smooth, and that liquidity exists in the event of a defaulted position.

However, the history of CFD trading hasn’t always been so sure. In many cases, brokers themselves have defaulted when traders make successful trades that the broker did not hedge. In this event, a trader makes money from the broker’s loss. The broker then goes bankrupt as a result of too many obligations to traders.

Legitimate CFD Brokers

Trading forex CFDs requires that brokers are honest in their relationship with clients (hedging positions so as not to create excessive counterparty risk) and well capitalized enough to provide for short-term deficits in the case some positions cannot be hedged.

This is expressly the reason why CFD trading is illegal in the United States. It is perceived to be too risky, and potentially too “rigged” for CFD traders to make money. There are plenty of legitimate CFD brokers in the market, however, and many countries including England, Australia, and others have successfully regulated the CFD trading industry to be accountable to investors and safe enough for large transactions.

CFDs are, in some ways, much like bucket shops. However, when appropriately hedged, they can be as safe as any other forex trading product.

There are two different ways to trade forex; futures and spot. The two are best understood when compared against one another:

Futures forex trading – The futures markets allow investors to buy and sell currency at a future date. Therefore, prices vary wildly for currency pairs, since to buy a currency you have to buy it in the future. A futures contract enables you to buy a specific amount of currency at a predetermined price in the future.

Spot forex trading – The spot market for forex allows traders and investors to buy and sell currency at the current exchange rate. When you buy currency on the spot market, you are buying currency right now at the current price.

Spot Forex Trading Benefits

There are several benefits to trading forex at the spot price. These include:

1) Simplicity – Because you’re buying and selling currency at its future price, you need not take into consideration future rates, or the impact of interest rates in the futures price. When you buy in the spot markets, you’re buying currency, not the right to buy currency in the future.

2) Trade sizes – Spot forex trading allows for various trade sizes ranging from mini and micro lots up to a full sized forex lot. Some spot forex brokers also allow traders to buy in units, or single pieces of currency. In the EURUSD pair, a lot would be 100,000 Euros, whereas a unit is a single Euro.

3) Minimum investments – Opening a futures account requires a very serious initial investment, often $5,000 or more. To open a spot forex account at an online forex broker is far less expensive, often requiring an initial investment of only $500. Some spot brokers even feature no minimum account balances, which make trading the spot market even less expensive than trading the futures market.

4) Carry interest – If you buy a currency pair on the spot market, you’re taking delivery of the currency immediately, which earns (or costs) your account money each day you have the trade open. With futures, the interest rate is priced into the price you pay for the futures contract. Those who want simpler transactions and direct cash flow (such as carry traders) would benefit more so from a spot forex account than a futures account.

5) Trading costs – Spot forex trading costs are variable. Generally, the rate one pays to trade spot forex is based on the spread between bid and ask prices. Thus, your trading costs are variable based on the quantity of currency you trade. In the futures market, one pays a flat-rate price for most trades and trade sizes. However, futures-based forex trades only become less expensive as one trades higher volumes. Unless you routinely trade in the magnitude of 1-10 lots of currency ($100,000-$1,000,000 in USD pairs), a spot forex trading broker will cost you less per trade.

Spot Forex Accounts and Platforms

Unless you specifically seek out a futures account, most forex brokers operate in the spot fx markets. Thus, the overwhelming majority—if not all brokers—offer spot forex platforms and accounts as a default type.

Those who wish to venture into FX futures would be best with a futures broker, not a forex broker. A futures broker is directly tied into the futures market, which settles all trades in between futures traders. Forex brokers who identify themselves as such are almost always nestled into the currency market, where currencies are bought and sold over the counter.

Spot forex platforms are vastly different than forex futures platforms.