Tuesday, June 9, 2009

Forex Secret - Forex Fundamental Analysis Authority In FX Rates Movement

The chapter’s abstract: a trader attains much greater success at FOREX unless he is reading analytics by non-trading economists. Here’s some information for meditation below:

What useful can one be taught by FOREX reviews, cooked up by analytical economists, who are incapable of teaching themselves to be FOREX successful?

FOREX economic indicators (released news statistics) are compiled the way required to be interpreted by analysts, who, by the end of the day, may explain any rates travel as the only naturally determined one.

Important objective economic indicators (GDP, Balance of payments, etc.) are leveled up with the subjective ones (University of Michigan, Chicago sentiment, etc.) which in no way may be checked up.

Economic statistics is frequently forged even at the supreme level.
Here is my attitude as a trader towards FOREX fundamental analysis and to its impact upon exchange rates dynamics.

At the outset, we’ll get to scrutinize the gambling done by FOREX analytical economists, who are striving to convince traders in exchange rates being tied up to some ersatz fundamental analysis data, viz. to economic indicators being released under daily streaming news.

We will also present technique background used by the banks’ Consortium to manipulate news and forecasts the way to vector the rates as any certain day requisite.

The earlier example dated April, 01, 2005 (when the trend has reversed against the logics of all the news released that day). The situation is an absolutely typical occurrence at FOREX, where in 50% cases rates are going DOWN the news vector while in 50% cases – AGAINST the news released. Any analysts’ venture to far-fetch the fundamental analysis to FOREX rate quotes has long caused me nothing but smile.

The FOREX analysts’ logics is as follows: as soon as the rates reverse against the news, next day they have the explanation that nothing unexpected has occurred with the market having already been anticipating the news, and these news have already been accounted for by traders in current quotes.

Or, else, the market (or traders or other) spotted in the news release not at all what it has read earlier in the streaming news. As a result, the rates by, normal logics, staged a sharp swivel to move in sort of a wrong direction.

But, my God, are traders really in need of the above analysts’ para-economic freaks on fundamental or other analysis, once THE RATES HAVE ALREADY MADE THEIR WAY in the said wrong direction?

And why, during uptrend, no analyst has recommended going short on a currency instead of going long in case actual news is superior to the estimate? I have never come across the case.

Analysts should have better derived a simple mathematical formula (hopefully they did have studied at universities) as to a FOREX pair average points travel prior and post critical news (National Bank percent rate hike, Balance of payments, etc.).

By virtue of this formula we, traders, could do some calculations to estimate whether either everything is already accounted for in the current rates or further 100-200 pts grow/decline is to be expected.

But there’s nothing of the kind!

And now, here’s my standpoint as a FOREX trader on why traders will never end up by being supplied with the above mathematical prognosis formula by analysts. I will also provide backgrounds of when pro-news and counter-news entries should be effected.


1. All the Fundamental Analysis economic indicators are made a muddle of. See, for instance, 54 US economic indicators, ABC-arranged by analysts instead of being USD importance-rated http://www.forexite.com/forex_for_ beginners/us_economic_indicators.html

2. No difference is made between Fundamental Analysis, the state monetary policy and ersatz fundamental data-related current news (viz.: Chicago business activity index, Michigan University consumer sentiment index, National Managers’ Association business activity index, etc.). But, in what way is the Michigan University consumer sentiment index relevant to the US economy Fundamental Analysis? Is there any other name to be applied to this index besides the name of an ersatz Fundamental Analysis?

3. A portion of economic indicators organic to the above ersatz Fundamental Analysis evoke my personal uncertainty as regards their figures’ objective nature and as regards not being tailored to order of those supplying quotations to the FOREX market.

Let us go attentively once again look into these indices with the view to clarify their manipulation capability with no exposition danger.

- PHILADELPHIA FED INDEX constitutes the polling results of Philadelphia manufacturers as to their sentiment towards the current economic situation:

- Why Philadelphia, not California or Texas.

- May there be any difference in obtained figures depending upon the type of manufacturers being interrogated?

- Is there anyone in position to verify and confirm the above manufacturers’ polling results?

- Consumer price index (CPI), reflects consumer price level per a “basket” of goods and services. But the CPI may be properly built up, if prices differ supermarket to supermarket, from supermarket to conventional shop, from shop in the center and shop in an outskirt, from shop in a capital to shop in a province, from sell off period to new articles presentation period, etc.?

Is it imaginable, how figures can be manipulated in favor of those, requiring them so badly? Or is there anyone to convince me that it’s very hard to change 0.4% into 0.2% or 0.6% depending upon a customer’s demand at any given moment?

- Michigan consumer sentiment index constitutes the results of customers’ polling on current economic situation confidence. No comments, since it looks like interrogating no-one-knows whom on a no-one-knows subject.

- Consumer confidence. A doubtful attempt to measure consumers’ optimism.

-NAPM (National Association of Purchasing Managers) services index is representative of service managers polling results, purported at estimation of in-branch changes taking shape. Very often this index is dictated rather by psychological factors, than by actual state of affairs (???).

- Chicago PMI index. It is closely tracked due to being released shortly prior to NAPM. The index exerts strong authority over the market by prompting a real NAPM value to be released. Please, refer to NAPM above.

- Atlanta Fed index presents polling results of Atlanta industrials on current economic situation (???).

As understandable, the list of these ersatz Fundamental Analysis economic indicators may go on along with buildup of questions and doubts.

4. There’s a so-called factor of anonymous economists’ estimates in relation to economic indicators preceding values.

I wonder WHO are these anonymous economists, each time allegedly interviewed by Dow Jones on their expectations from news to be released the following calendar week? And WHY is THEIR opinion exactly presented to be the whole market’s anticipation of THAT data exactly, but not any other? Below are some sample potential manipulating the world traders’ opinion, frequently encountered by myself:

a frankly superior estimate leading to benign actual data being inferior to the prediction (I repeat, a no-one-knows whose prediction) and resulting in a sharp rates reversal by “disappointed” traders as later on indicated by analysts.
a frankly inferior estimate leading to malignant actual data being superior to the prediction, thus pushing the rates forward with no other market’s objective grounds.
TO SUM IT UP, leveled with objective economic indicators (GP, etc.) are ersatz Fundamental Analysis ones, manipulation by virtue whereof creates simulacrum of the rates being tied up to daily news and the state’s Fundamental Analysis. With prediction manipulation capability added hereto, it turns feasible to faultlessly project traders’ activities throughout the world. But is it accidental or not that worldwide traders’ training programs are as similar as 90-95% losers figures?


A true Fundamental Analysis, based on leading world economies comparative macroeconomic characteristics as well as on their currencies power/weakness, may be experienced not through indices of universities and various US managers’ associations, BUT through economic indicators, recognized by all the world leading economists. These are:

- GROSS DOMESTIC PRODUCT (GDP), the principle national economy condition reflector. According to economy development Keynesian model, GDP=C+ I + S + E – M, where: C is consumption, I is investments, S is state expenditures, E is exports, M is imports. GDP is expressed on terms of an index in relation to a previous period.

- STATE BUDGET, constituting a correlation between state’s incomes and expenditures.

- BALANCE OF PAYMENTS, correlating the country’s incoming and outgoing payments and falling into three major components: trade balance, balance of services and non-commercial payments (invisible transactions balance) and balance of capitals and creditors flow.

- UNEMPLOYMENT RATE in the country, being a 3D structure of:

frictional unemployment, related to higher remuneration job hunting or expectation after layoff (not a negative factor, since it leads to more rational labor resources allocation);
structural unemployment, emerging from labor demand decline in any industrial branch due, for instance, to technological development or change on consumer demand structure;
cyclic unemployment, arising during overall economic recessions.
- MONEY SUPPLY INDICES (M0, M1, M2, M3). M0 = cash circulation; M1 = M0 + cheque deposits; M2 = M1 + cheque less saving accounts + money market deposit accounts + minor deposits (less than USD100K) + money market mutual funds; M3 = M2 + large deposits (in excess of USD100K). These are practically no market influential.


- GOLD AND CURRENCY RESERVES, being a state’s gold and currency backup stored in central bank and in financial institutions, as well as state’s gold and currency assets with international creditors.

- NATIONAL DEBT, constituting state liabilities to physical persons, legal entities, foreign countries, international institutions and outstanding international law subjects.

- REFINANCING RATE, being percent rate utilized by the central bank in granting credits to commercial banks on a refinancing basis, etc.


Macroeconomic indicators are of objective nature, thus being “uncorrectable”, the way it may be done to various Chicago, Atlanta and Michigan indices.

That is why at FOREX we often come across surprising interpretations of the above objective indicators, recognized by the world’s leading economists.

1. Macroeconomic indicators are leveled with ersatz Fundamental Analysis ones, viz.: the University of Michigan one, as above indicated.

2. Absolutely in objective criteria are selected to estimate macroeconomic indicators. For instance, weekly number of jobless claims is released instead of its monthly fluctuation dynamics analysis per its three aspects (frictional, cyclic and structural). This data s released on Thursdays, 08:30 EST, New-York with a disclaimer that “the figures are not always reflective of the actual situation”. The data is under frequent perversion due to short-term factors such, as federal or local holidays. The question is WHAT IS IT ALL FOR?

3. The macroeconomic indicators role is being undermined in every manner. See below:

State budget exerts but an insignificant authority over the market (?!). Curious to know WHY? Is it that the UMich index is more important in understanding the US economy prospects and its perspective currency rating?


Balance of payments is of limited influence on the market (??).


4. Totally different indicators are being quoted when analyzing the leading economies’. See:

the USA: M1, M2, M3 money supply, whereas M3 only for Germany with no indicator as such for the UK; the UK: PPI output, PPI input with no indicator as such for other countries.

Certainly, the relation between Fundamental Analysis and current FOREX rates does exist, however it is greater in depth and mediation, than presented to traders by the majority of analysts, starting from dealers’ basic training.

In my opinion, this DIRECT relation between Fundamental Analysis and FOREX trending finds manifestation on W1 and MN charts only.

Those, supplying us with FOREX quotes, may be “playing” and “fooling” traders within H1 and even H4. But changing trend at W1 and MN timeframes in favor of the USD and establishing the EUR price, say, cheaper than that of the USD in 2005 means going AGAINST depth fundamental data. Those will never be off to commit sort of a thing.

A currency price and that level of fundamental data are permanently coincident. This is not at all the ersatz Fundamental Analysis, whereto the Consortium has schooled the majority of traders (not the University of Michigan index, not the Chicago Managers Association index, not the last month Consumer Confidence index (?!), etc.), and by virtue whereof the aforesaid traders majority have got completely confused in a seemingly elementary issue of entry in favor of the news and against the news.

Hence, below is the USA and Europe macroeconomic indicator related PRACTICAL CONCLUSION for traders: data as of early summer, 2005 are definitely indicative of the incapacity of the long-term USD downtrend change for its uptrend (W1 and MN charts) within the year relative to the EUR, the GBP and outstanding “allies” (See chapter on “Which FOREX indicator is the most impartial and accurate. Ally and adversary currencies”).

Thus, following each short- or medium-term EUR’s recess, its new growth will be witnessed with earlier historic peaks potential breakthrough. The contrary option of the EUR being cheaper than the USD is a NO-NO, exactly due to fundamental macroeconomic indicators, where under European economies enjoy faster development than the USA.


Any ersatz Fundamental Analysis indicator data release (UMich, Chicago indices, etc.) is but the GROUND to urge currencies up-down reciprocation, as a function of tactical objectives of those supplying FOREX quotes.

A PRACTIAL CONCLUSION for traders: I claim no relation between ersatz Fundamental Analysis and FOREX quotes from the intraday trading standpoint.

Upon the above news the banks Consortium may drive the rates in any direction, whereas FOREX analytical economists will snatch on You proving and explaining that there is no unexpected occurrence and that the market with proper advance account has been long anticipating the news released, etc., etc, see aforesaid.

That’s the reason for no analyst to venture to recommend entry against the news prior to its release. NO ONE knows in advance where the rates will travel under the Consortium’s will after the news.

This is the level of technical analysis, not that of Fundamental Analysis.

Being a trader, I observe 3 rules when jobbing on news:

exit all positions prior to the news release; if not – then place pending orders behind resistance and support levels to be a stop-loss “safety cushion” as per B. Williams.
don’t enter upon the first candle after the news release;
enter immediately after the Consortium has definitely indicated the way it interprets the news released (see “Entry and exit manual” on entries and exits under the news released).
IN CONFIRMATION OF MY CONCLUSION ON POTENTIAL CURRENT NEWS AND OTHER STATISTIC DATA FORGERY, I refer to “Dawn of dollar empire and end of “Pax Americana”” by A.B. Kobyakov and M.L. Khazin, (“Veche” publishing house, 2003, 368 pages), see on http://paxamericana.narod.ru/book/paxamericana.zip.

The authors thereof have arrived at conclusions still more aggravating for traders and quoted facts on STATISTICAL DATA FORGERY AT THE LEVEL OF THE USA STATE STATISTICS, see CHAPTER V. STATISTICS AT CURTESY OF ECONOMICS:

“The earlier published data summary maintained, that during seven years from 1995 to 2001 inclusive, the USA boasted positive balance of payments of USD203.2 BN, while the revised data uncovered negative balance of payments of USD89.8 BN (chart 24) within that period. With the account to Q1 2002 the above deficit amounted to USD100 BN already.


A serious Russian “Novaya Gazeta” newspaper (08.09-11.09.2005, in “Writings on the water”, see p. 15) has reiterated on another stock market vivid instance, where for the sake to meet some national (or, probably, SOMEBODY’S) interest, the US governmental circles and information agencies have set on a worldwide advertising of a “greatest modern discovery of nanotechnology: a single-molecule transistor”.

The newspaper quotes: “Prospects were breath-taking. The “fourth wave” subject attained unusual fashion and attraction for investments. Nanotechnologies fell under the US government strictest attention being the issue of strategic importance. Hardly imaginable was the fact that all the sensation would end up in a classic “panama” or a shady enterprise similar to our default. Scientific companies share prices skyrocketed off-scale, whereas 30-yo Jan Hendrik Shone, the main publications author has been thought to be next year’s Noble Prize nominee. It all would have been sliding on smoothly, unless the results of over 100 Shone’s articles turned out to have not obtained confirmation. Tampering has been proved as regards three key reports on single-molecule transistor.

As a result Shone faced being fired along with sharp decline in scientific companies share rates. The companies have been stung for USD100BN approximately, the amount being suspiciously close to the Iraqi war (started only 3 months later) US government expenditures.

An infinite number of similar sample situations may be drawn, with statistics turning into a falsifier.

Hence, the question is natural: what’s the way of a trader using Fundamental Analysis statistics to build up FOREX strategies, provided that at least part of data is forged to someone’s benefit?

I don’t hold it reasonable to go deeper into the issue. A FOREX trader’s gains may not be facilitated by this issue’s deep study.

To get a comprehension of FOREX currencies logics, the simple knowledge is indispensable of WHO, HOW and BY WHAT REASON supplies FOREX quoted to traders. By far we have but only answered WHO are those Internet users to furnish quotes to traders.

Identically, no use sinking into the “BY WHAT REASON” the quotes are supplied at FOREX. Please, attempt yourself to answer by virtue of a counter-question: if You (not the Consortium) have invented a financial result-oriented game with clients – WHO IS SUPPOSED TO BE THE WINNER (the game organizer or clients)?

Hopefully, I have beaten off some green traders’ lust for instant gains at FOREX. You are facing a professionals market and becoming a profi yourself is the only way to earn money at this market.

The underlying chapters are concentrative of the attempt to elucidate the core question: HOW are the FOREX quotes presented, to enable the extra-exchange FOREX market traders to attain steady gains.

Below I will purportedly and repeatedly resort to examples from books by Viktor Suvorov (“Ice-breaker” et al.). Our target at FOREX is a twin sister of V. Suvorov’s one in history: to use official sources (i.e. absolutely verifiable materials) in legal understanding of what is camouflaged by the world’s richest market half-truth and falsehood in Fundamental Analysis and Technical Analysis methods, in published FOREX literature, in websites analytics and predictions, in actions of dealers making millions USD by means of their client traders’ accounts, etc.

Now, please, find below an intermediate conclusion being the starting point in understanding of currencies quote logics as well as in pinpointing of CORRECT and ERRONEOUS method of operation at FOREX proposed by Bill Williams and other scholars:

A trader is to be aware of one single thing – as different from stock markets, FOREX traders are not opposing each other, but they fight against the almighty FOREX Game Organizer – the world banks Consortium being capable of swiveling any national currency to any direction and at any moment by way of using numerous economic indicators, news releases, whose authenticity is not doomed to ever be verified by anyone.

Thus, how is one to realize, at a trend beginning, but not by its end, WHAT FOR and BY HOW MANY POINTS the Consortium is pushing currency rates?

Bearing the above in mind we will dedicate the following book chapters and the Masterforex-V Academy training to this issue exactly.

If you wish to be trained on Trading System Masterforex-V - one of new and most effective techniques of trade on Forex in the world visit http://www.masterforex-v.su/

Vyacheslav Vasilevich (Masterforex-V)
Professional Trader from 2000 year.

President of Masterforex-V Trading Academy

Author of Books:
1. Trade secrets by a professional trader or what B. Williams, A. Elder and J. Schwager not told about Forex to traders.
2. Technical analyses in Trading System MasterForex-V.
3. Entry and Exit Points at Forex Market



Forex Secrets - Delusion No1 - Forex Currency Rate And Economic Factors Impact On Exchange Rate

The delusion conceptually propounds that intraweek and intraday FOREX currency quotes movement is governed by either improvement or by deterioration of the state’s economic situation. But in reality, even in case the actual Forex news is superior to the estimated one, the FOREX quotes up/down movement is of 50/50 probability.

This statement is thoroughly important. Once the job of Forex trader is gambling on FOREX exchange rates differential (FOREX pairs up/down movement), the following is to be realized to obtain faultless profit:

FOREX pairs pricing mechanism (say at point X where you are completing the market analysis)
Factors imparting growth/decline to FOREX rates (up/down from point X).
Thus, having understood the FOREX rates factors effective at the extra-exchange (book-maker) FOREX market and the given currency motive factors, a trader must possess distinct knowledge of whether to buy or to sell the given currency pair.

So, what are these factors?

FOREX student suggest unambiguous interpretation of factors responsible for the price formation and the fluctuations there of:

Forex rate constitutes a demand-supply balance for a given goods (currency).
Any violation of this balance, (for instance, in case where the estimated news is in disagreement with the issued official one), results in the FOREX rates reciprocation in chase of a new demand-supply balance. Poor demand brings about decline in a certain currency rate, with a high demand leading to the growth of the latter. The situation continues as long as the currency buy/sell demand comes to balance at another level or at another point.
Referring to the B. Williams (“Trading Chaos 2” Chapter 1 “The market is what you are thinking of it”):

Each world market is dedicated to distribute or share limited amount of something… among those desirous to obtain it most of all. The market affects it by way of finding out and identifying the exact price? Underlying the buyer’/sellers’ power absolute equilibrium point.

The above point is readily established by stock, futures, bonds, FOREX and options markets, be it either via an open auction or by virtue of a computerized facility. Markets spot this point prior to any misbalance being detectable by you or by me or even by traders at the exchange floor.

With this scenario holding true – and it really does – we are in position to jump at certain simple yet important conclusions as regards the information being circulated through the market and enjoying doubtless acceptance”.

Thomas Demark was more laconic in “Technical analysis - an emerging science”:

“Price movement is governed by demand and supply. Should demand exceed supply, there’s a price rally and if visa versa, there’s a price decline. All economists do share these underlying principles”.

Hence, the role of fundamental analysis for FOREX market is readily apparent.

In scholar fiction one will discover roughly the following explanation, persistently wandering from book to book, from site to site and suggesting attaining successful trading at FOREX market by way of scrutinizing the country’s economic fundamental data, viz. by tracking the factors reflective of the country’s economy condition as below:

State economy condition dynamics indicators (GDP, trade & payments balance, current account, industrial production, etc. It is knowledge, that the higher the above indicators – the faster the economic and the currency price growth);

Stock indices, via average arithmetic index of the country’s securities market condition and dynamics. E.g.: 0.3% daily DJI growth in the USA means that this certain day the shares of 30 leading US companies, being pictured by DJU, went 0.3% more expensive. By similarity, DAX30 is the major German index, incorporating the price of shares of the country’s 30 leading companies.

The country’s interest rate, since the higher the rate, the greater number of investors is eager to invest into the country’s economy and hence into national currency strength.

Rate of inflation (the higher the rate, the quicker the National Bank will hike the interest rate). With this assumption, the CPI constitutes a key factor.

Money supply growth in domestic market, which fact brings about the inflation, leading to the interest rate hike.

The country’s gold and currency reserve assets.

Variation dynamics correlation of: balances of payment, trade balance, state budget, gross domestic product (GDP), etc.

Trade and industry dynamics (industrial production, industrial orders, DGO, capacity utilization, retail sales, etc.)

Construction statistics (construction spending, new home sales, housing under construction, building permits, etc.)

Labor statistics (unemployment rate, new jobs, etc.)
Society investigations (consumer confidence, consumer sentiment, purchase managers and service managers sentiment, etc.)

To be considered additionally are the country’s political stability and tranquility (clearly, any political, natural and other cataclysms are sure to turn investors nervous making them withdraw the investments from the country, thus weakening its national currency). And with the currency being the national economy derivative, changes in economic data will inevitably result in the above currency rate movement.

Progress in economy results in the currency exchange rate rally.

Decrease in economic indicators leads to the national currency rate decline.
To sum it up, critical economic and political news (whose calendar is issued in advance and is familiar to any trader) constitute a standing factor giving rise to misbalance and causing the currency rate fluctuations.

In anticipation of important economic and political news FOREX pair crawl to the rates as inspired by the estimates (“rumored trade”), whereas upon actual news there occurs a pulse motion of FOREX pairs in accordance with the scheme below;

Forex rate grows if actual news are better than the estimated one;
Forex rate declines if actual news are worse than the estimated one.

Do you accept that one can earn money by way of using these basics, known to every trader?

Then why, having absorbed these economic axioms, 90% of Forex traders in the world are losers rather than winners.

Where is the delusion of the above ABC truth, nudging traders towards losses? Let us perform sort of point-by-point analysis.

The currency exchange FOREX market is a book-makers one. It is gambling on rates difference without direct money delivery to the exchange market, except for hedging of traders’ funds by Forex brokers, via buy-sell difference especially during strong trends). Then, www.forexite.com reads: “Trading is performed without actual currencies supply, which fact cuts overheads and enables Forexite to go long and short on the currency” http://www.forexite.com/forexite_advantages/forex_advantages.html.

Comment: Have you ever met any book-makers;

- whose logics was coincident with that of THEIR clients (traders),

- whose stakes were being made in accordance with THEIR technical analysts forecasts, economic laws and common sense?

And what extent of doubt and skepticism should be attached to THEIR free “recommendations”, “advice”, “surveys” and “forecasts”, laid out at THEIR sites through THEIR analysts?

As a regular result, over 90% of the world traders are still loosing their deposits at FOREX each time they follow Thomas Demark stereotype that “All the economists share these underlying principles”.

Comment No.1. In as much as the above underlying principles are 90% contradictory to practice, it gives rise to the following question. Might these “underlying principles, shared by all economists including Thomas Demark” have possibly turned into dogma, alien to life and practice?

Comment No.2. What should a trader lean on: practice or dogma even if supported by great names, provided that the trader is purported at earning money?

FOREX analysts issuing their daily bulky market reviews are not FOREX traders in the overwhelming majority (see detailed discussion below). And on bringing together pairs 1, 2 and 3 there appears certain regularity.

Please, think over A. Elder words, that: “FOREX rates and the fundamental analysis are tied together with a mile-long rope. The fundamental analysis is ultimately decisive. But anything is likely to happen prior to this eventuality”. Another, yet no less renowned trader and analyst, Bill Williams underlines the same mental regularity of an experienced professional trader (level 3 of his trader’s skill rating as per “Trading Chaos 2”): “On attaining level 3 you emerge as a self-provided pro trader. You are always familiar with the market’s basic, usually invisible structure. You no longer need to refer to others’ opinions. You needn’t read “Wall Street Journal”, watch market-oriented TV programs, and subscribe to information bulletins, waste money on information channels”.

Comment: Logically, there is a counter-implication, that if You are eager to become a successful trader, You are to restrict the influence of various surveys and recommendations on yourself even in case they originate from the world famous “Wall Street Journal”, to say nothing of crude gurus in analyst skins who use to know ahead of time where currencies will go.

Forex news is a scheduled issue of fundamental data, which as a rule impairs FOREX rates a sharp pulse of motion. But then, why the currency rates movement vector is only 50% coincident with the ABC truism logics as to where the rate should rush in case of actual news being much better or worse than the estimate. And, please, make an attempt to answer the following question, stirring for every trader: why with the new being worse than expected (say, on US economy), the USD currency would initially fall by 40 pips (news work-off) but in 5 to 10 minutes it would swivel back and would display a 200-point rally, with no account to either the issued news or to common sense.

Below are some examples:

Fig. 1. GBPUSD chart as of April 1, 2005 after the news, positive for the GBP and negative for the US economy.
See Note below

In March the CIPS manufacturing index amounted to 52.0 (with the previous data revised from 51.8 to 51.6). Oil price in NYC has grown by USD 2.40 up to USD57.70 per bbl (new record of the latest 21 years). Non-farm payrolls in the USA was minimum since last July (previous data revised towards lower values). There has been a decline in the Michigan sentiment index to 92.6 (median estimate was 92.9, with 92.9 previously).

All the US indices faced a fall down. DJI at NYSE has fallen by 99.46 pips (-0.95%) towards closing at 10404.30. NASDAQ declined by 14.42 pips (-0.72%) to 1984.81. S&P500 slipped by 7.67 pips (-0.65%) to 1172.92. 30-yr US Bonds yielded 4.729 (0.037 lower as compared to the previous close). By contrary, FTSE100 has grown by 19.60 pips (+0.40%) to 4914.00.

Now, the question is to certified economists: what will happen to the GBPUSD within one day or even several hours upon publication of these data? You are right, USD should not simply fall down, it should collapse. Powerfully, swiftly. Well, well…

And this time, the same question to experienced traders. By FOREX news headlines You might have guessed that the events are taking place at the Friday American session. Correct. Initially, anyway, the GBPUSD chart will go up by 100 pips (news wok-off), followed by a pullback. Then Forex chart starts a new rally.

It is now to be tracked whether the GBP will breach the latest rally high or not. If affirmative, it will rush up by approximately 160 pips (Elliott wave 1 was 100 pips, while EW 3 is 60% longer). But if the high is not breached? The GBP currency quote will in no way come to a standstill, moreover on Friday afternoon. Hence, - down, to the starting point! And, if breached, similar situation takes shape but the counting is performed in a “down” direction (EW1, being the same 100 pips plus 187 pips from 1.8826 to 1.8759 being EW 3).

The FOREX day trading tactics will be given scrutiny in a separate chapter. A still separate chapter will be dedicated to Friday trade at American session due to its inherent specifics and to strong seemingly inappropriate movement. The movement is, of course, appropriate. To say nothing of Friday. But it will be touched upon later.

Now, getting back to the currency chart. As apparent, the GBPUSD pair movement on Friday, April, 01, 2005 is in no way in conjunction with the US economy fundamental data. Each forex trader can provide from tens to hundreds of similar instances, where the news are of a certain vector, whereas, after a fraudulent rush along the news vector, a currency applies reverse thrust.

Thereafter, the next day, in daily currency surveys, certified economists are sure to explain all to us by way of inventing another undisguised nonsense, like: “in spite of certain data, traders decided that the currency has already worked-off this side”. But! How could this occur on Apr, 01, 2005, provided that the currency has been staying flat in a narrow range in the course of the whole of the European session?

Otherwise, another explanation may emerge, that forex traders were expecting still more inferior news on the US economy… But! By how much more inferior, if according to DJ, the US non-farm payrolls MA was equivalent to 180K, with actual being +110K, estimate being +225K and prior being +243K? And in what manner do these economists count up world traders: by capita, by countries or by the funds, lost by those, who continued staying long in a holy belief in renowned academic scholars postulate of FOREX rates being tied up to countries’ economy statistics.

I wonder if I’ll ever chance to witness legal procedures to be instituted against any of those famous scholars, so that no one would dare claim that fundamental data trigger rate spikes.

The same pertains to economists, writing about the way, hundreds of thousands traders throughout the globe have conspired to conclude that it is time to reverse the trends with absolutely no grounds. Is it really feasible?

Such reading-matter is, but hammering a single question into one’s head: is it lie or is it stupidity of those cooking daily reports for taking traders for a ride, fooling them up and keeping them from the truth, which might be of great avail to them in daily trading. Traders are not a decisive factor, thus rates movement is in no way dependent on their will. Practically in no way.

Wanna check? Negotiate with tens of traders of the trading floor and arrange for a simultaneous entry long on some exotic FOREX pair. In so doing, try to push up either the NZDHKD, or the NZDCAD, or the HKDCAD. No need? I think so. You’ll certainly suffer failure with the above, to say nothing of the EUR, GBP, CHF.

Another example:

Fig.2. GBPUSD movement as of May 13, 2005.

See Note below

This is an M15 chart of the American session, where the USD pair has grown by over 100 pips from 1.8583 to 1.8481 against the news, negative for the US economy:

Most indices have dropped down: DJI at NYSE – by 49.36 pips (-0.48%) to close at 10140.12; S&P500 – by 5.31 pips (-0.46%) to 1154.05. NASDAQ has grown by 12.92 pips (+0.66%) to1976.80. 30yr US Bonds yielded 4.484 (0.047 drop from previous close)

There is a fall in Michigan sentiment index. In May UMich was 85.3 with med est 90.0 and prior 87.7. So it was worse than the estimate, reaching the low since March, 2003. The index decline was being observed for the fifth month.

The April US export price index was +0.6% with prior of +0.7%.

Below are other similar examples of that same day.

Fig. 3. EURUSD chart as of May 13, 2005.

See Note below

Hundreds of examples may be offered, where the Forex news vector is opposite to that of the currency movement. Practically, actual news may happen to be superior or inferior to the estimate. FOREX quotes up/down movement is also of 50/50 probability irrespective of the above.

Why does it happen and what is the way for a trader to pinpoint entries and exits? This is going to be discussed in ensuing chapters of this book.


Full text of this article and pictures of examples http://www.masterforex-v.su/

If you wish to be trained on Trading System Masterforex-V - one of new and most effective techniques of trade on Forex in the world visit http://www.masterforex-v.su/

Professional Trader from 2000 year.
President of Masterforex-V Trading Academy.

Author of Books:

1. Trade secrets by a professional trader or what B. Williams, A. Elder and J. Schwager not told about Forex to traders.

2. Technical analyses in Trading System MasterForex-V.

3. Entry and Exit Points at Forex Market



Forex Trading Course - A Must for Forex Beginners

In the world's major economic Marketplace where exchanges achieve up to trillions of dollars each day, many people would really want to take part in this Marketplace. Aside from being the major financial Marketplace in the world, Forex is also the most liquid Marketplace in the world where trades are completed 24 hours a day.

A lot of Traders have turn out to be extremely wealthy Trading in the Forex Marketplace. And, many people who trade in the Forex Marketplace on a daily basis have found a great way to replace their day jobs. Some even became millionaires almost overnight by just Trading in this economic Marketplace.

Trading in the Forex Marketplace can be very attractive. However, you should also know that there have been people who suffered extreme financial losses in the Forex Marketplace. It is true that the Forex Marketplace offers a very good money-making opportunity to a lot of people, but it also has its risks.

It is a fact that people who didn't have the right knowledge and skills Trading in the Forex Marketplace suffered huge financial losses and some even went into debt. So, before you enter the Forex Marketplace, it is essential that you should have the necessary knowledge and skills as a Forex trader in order to minimize the risk of losing money and maximize the potential of making money.

Many people who were doing well in the Forex Marketplace have went through a Forex Course to get the knowledge and skills needed to successfully trade in this very liquid and very large economic Marketplace.

In a Forex Trading Education, you will learn about when it is the right time to buy or sell, chart the movements, spot Marketplace trends and also know how to use the different Trading platforms available in the Forex Marketplace.

You will also be familiarized with the terminologies used in the Forex Marketplace. Even the basic knowledge about Trading in the Forex Marketplace can be a great help with your money-making venture in the world's largest Marketplace.

There are different Forex Trading lessons offered, all you need to do is select one that suits your requirements as a trader. Even crash courses where all the basic things about Forex will be taught to you in a short period of time, full time online courses, where you will learn all about Forex through the internet and there are also full time real life classroom courses where you can learn the ropes about Forex in a real classroom with a live professor.

You can also become an apprentice. On the other hand, in order to become skilled at a lot about Forex as an apprentice, you need to make sure that you have a seasoned Forex trader who can share a lot of things to you about the Forex Marketplace.

Forex Trading Online - 5 Reasons Why You Should.

• Forex never sleeps

• Forex Trading online offers great leverage

• Forex prices are predictable

• Forex trading online is commission free

• Forex trading online is instant

The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds.
Since this is all done electronically with no humans involved, there is little to slow it down!

Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!

A high-quality Forex Trading lessons will also clarify a lot about the primary and technical analysis of charts. As a trader, knowing how to analyze a chart is an essential skill that you should have. So, when you are looking for a Forex Trading lessons, you should look for a lessons that offers essential and technical analysis instruction.

Stress plays a vital part in Forex Traders. Knowing how to deal with stress is also a skill that you should develop. A good Forex Trading Education should teach you how to deal with stress and trade successfully and efficiently.

As much as possible, you should look for a Forex Skill that offer real Trading systems where students can trade real currency on the Forex Marketplace or at least trade on dummy accounts in a simulated Forex Marketplace. This hands-on knowledge will greatly benefit you. In addition, the best way to learn about anything is by actually experiencing it. Live Trading and simulations should be offered in a Forex Trading course.

Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!

Zevs Borealis is the founder of a number of Forex Trading Sites. You can find more info about Forex Trading Online on: More Forex Trading Info You may publish the article on your website. If you do, not change the article, and include all html as direct links to our site.


Forex Options Market Overview

The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market. However, with the plethora of real-time financial data and forex option trading software available to most investors through the internet, today's forex option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online forex trading platforms.

Forex option trading has emerged as an alternative investment vehicle for many traders and investors. As an investment tool, forex option trading provides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement.

Most forex options trading is conducted via telephone as there are only a few forex brokers offering online forex option trading platforms.

Forex Option Defined - A forex option is a financial currency contract giving the forex option buyer the right, but not the obligation, to purchase or sell a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the forex option buyer pays to the forex option seller for the forex option contract rights is called the forex option "premium."

The Forex Option Buyer - The buyer, or holder, of a foreign currency option has the choice to either sell the foreign currency option contract prior to expiration, or he or she can choose to hold the foreign currency options contract until expiration and exercise his or her right to take a position in the underlying spot foreign currency. The act of exercising the foreign currency option and taking the subsequent underlying position in the foreign currency spot market is known as "assignment" or being "assigned" a spot position.

The only initial financial obligation of the foreign currency option buyer is to pay the premium to the seller up front when the foreign currency option is initially purchased. Once the premium is paid, the foreign currency option holder has no other financial obligation (no margin is required) until the foreign currency option is either offset or expires.

On the expiration date, the call buyer can exercise his or her right to buy the underlying foreign currency spot position at the foreign currency option's strike price, and a put holder can exercise his or her right to sell the underlying foreign currency spot position at the foreign currency option's strike price. Most foreign currency options are not exercised by the buyer, but instead are offset in the market before expiration.

Foreign currency options expires worthless if, at the time the foreign currency option expires, the strike price is "out-of-the-money." In simplest terms, a foreign currency option is "out-of-the-money" if the underlying foreign currency spot price is lower than a foreign currency call option's strike price, or the underlying foreign currency spot price is higher than a put option's strike price. Once a foreign currency option has expired worthless, the foreign currency option contract itself expires and neither the buyer nor the seller have any further obligation to the other party.

The Forex Option Seller - The foreign currency option seller may also be called the "writer" or "grantor" of a foreign currency option contract. The seller of a foreign currency option is contractually obligated to take the opposite underlying foreign currency spot position if the buyer exercises his right. In return for the premium paid by the buyer, the seller assumes the risk of taking a possible adverse position at a later point in time in the foreign currency spot market.

Initially, the foreign currency option seller collects the premium paid by the foreign currency option buyer (the buyer's funds will immediately be transferred into the seller's foreign currency trading account). The foreign currency option seller must have the funds in his or her account to cover the initial margin requirement. If the markets move in a favorable direction for the seller, the seller will not have to post any more funds for his foreign currency options other than the initial margin requirement. However, if the markets move in an unfavorable direction for the foreign currency options seller, the seller may have to post additional funds to his or her foreign currency trading account to keep the balance in the foreign currency trading account above the maintenance margin requirement.

Just like the buyer, the foreign currency option seller has the choice to either offset (buy back) the foreign currency option contract in the options market prior to expiration, or the seller can choose to hold the foreign currency option contract until expiration. If the foreign currency options seller holds the contract until expiration, one of two scenarios will occur: (1) the seller will take the opposite underlying foreign currency spot position if the buyer exercises the option or (2) the seller will simply let the foreign currency option expire worthless (keeping the entire premium) if the strike price is out-of-the-money.

Please note that "puts" and "calls" are separate foreign currency options contracts and are NOT the opposite side of the same transaction. For every put buyer there is a put seller, and for every call buyer there is a call seller. The foreign currency options buyer pays a premium to the foreign currency options seller in every option transaction.

Forex Call Option - A foreign exchange call option gives the foreign exchange options buyer the right, but not the obligation, to purchase a specific foreign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the foreign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For every foreign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller. The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

The Forex Put Option - A foreign exchange put option gives the foreign exchange options buyer the right, but not the obligation, to sell a specific foreign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the foreign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For every foreign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller. The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

Plain Vanilla Forex Options - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, in the case of forex option trading, plain vanilla options would refer to the standard, generic forex option contracts that are traded through an over-the-counter (OTC) forex options dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of a standard forex call option contract or a forex put option contract.

Exotic Forex Options - To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla." Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific's investor's needs by an exotic forex options broker, are generally not very liquid, if at all.

Intrinsic & Extrinsic Value - The price of an FX option is calculated into two separate parts, the intrinsic value and the extrinsic (time) value.

The intrinsic value of an FX option is defined as the difference between the strike price and the underlying FX spot contract rate (American Style Options) or the FX forward rate (European Style Options). The intrinsic value represents the actual value of the FX option if exercised. Please note that the intrinsic value must be zero (0) or above - if an FX option has no intrinsic value, then the FX option is simply referred to as having no (or zero) intrinsic value (the intrinsic value is never represented as a negative number). An FX option with no intrinsic value is considered "out-of-the-money," an FX option having intrinsic value is considered "in-the-money," and an FX option with a strike price at, or very close to, the underlying FX spot rate is considered "at-the-money."

The extrinsic value of an FX option is commonly referred to as the "time" value and is defined as the value of an FX option beyond the intrinsic value. A number of factors contribute to the calculation of the extrinsic value including, but not limited to, the volatility of the two spot currencies involved, the time left until expiration, the riskless interest rate of both currencies, the spot price of both currencies and the strike price of the FX option. It is important to note that the extrinsic value of FX options erodes as its expiration nears. An FX option with 60 days left to expiration will be worth more than the same FX option that has only 30 days left to expiration. Because there is more time for the underlying FX spot price to possibly move in a favorable direction, FX options sellers demand (and FX options buyers are willing to pay) a larger premium for the extra amount of time.

Volatility - Volatility is considered the most important factor when pricing forex options and it measures movements in the price of the underlying. High volatility increases the probability that the forex option could expire in-the-money and increases the risk to the forex option seller who, in turn, can demand a larger premium. An increase in volatility causes an increase in the price of both call and put options.

Delta - The delta of a forex option is defined as the change in price of a forex option relative to a change in the underlying forex spot rate. A change in a forex option's delta can be influenced by a change in the underlying forex spot rate, a change in volatility, a change in the riskless interest rate of the underlying spot currencies or simply by the passage of time (nearing of the expiration date).

The delta must always be calculated in a range of zero to one (0-1.0). Generally, the delta of a deep out-of-the-money forex option will be closer to zero, the delta of an at-the-money forex option will be near .5 (the probability of exercise is near 50%) and the delta of deep in-the-money forex options will be closer to 1.0. In simplest terms, the closer a forex option's strike price is relative to the underlying spot forex rate, the higher the delta because it is more sensitive to a change in the underlying rate.

John Nobile - Senior Account Executive
CFOS/FX - Online Forex Spot and Options Brokerage

Article Source:

Forex Trading 101: Learning Guide for FX Beginners

Being new to FOREX trading? Don’t worry, getting started in FOREX trading is easy and you can always test your skills first in a demo account before you go ‘live’ with real money. To get started in FOREX trading, we have to get to know what FOREX is. For the inexperienced, FOREX trading involves buying and selling the different currencies of the world. A FOREX deal is made when one buys one currency and sells another at the same time. It is always traded in pairs, Euro/USD, CHF/USD, USD/JPY…you get ‘short’ in a currency every time to buy another and the profit is made when you buy-low and sell-high.

Facts on FOREX market

FOREX market is the largest trading market in the world. It yields an average turnover of $1.9 trillion daily and the figure is nearly 30 times larger than the total volume of equity trades in United States. FOREX trading is very unique as the trades are done between two counterparts via electronic network or telephone connections. There is no centralized location as stocks or futures markets and trades are done around the clock. Everyday FOREX trade begins when the financial centers in Sydney start their day, and moves around the globe to Tokyo, London, and then New York. Traders can always response to the market regardless of the local time.

Although FOREX trading involves such a big volume of trades nowadays, it is not made available for the publics until year 1998. In the past, the FOREX market was not offered to small speculators or individual traders due to the large minimum business sizes and extremely strict financial requirements. At that time, only banks, big multi-national cooperation and major currency dealers were able to take advantage of the currency exchange market's extraordinary liquidity and strong trending nature of world's main currency exchange rates. Only until the late 90s, FOREX brokers are allowed to break huge sized inter-bank units into smaller units and offer these units to individual traders like you and me. Nowadays with the rapid growth of Internet and communications technology, FOREX trading has become one of the hottest make-money-at-home-businesses for those who wish to avoid conventional 9-5 day job.

As a fact in FOREX trading, FOREX is mainly traded in large international bank. According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades; followed by UBS in the second and Citi Group in third; taking 12.5% and 7.5% of the market. Other large financial cooperation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley. For market participants segment, approximately half of the transactions done were strictly between dealers (i.e. Bank, or large currency dealer); others are mainly between dealer and non financial institutions.

Why FOREX is popular?

There are several reasons why FOREX had became such a popular investment among world wide speculators.

In FOREX trading, you can always use technology for your own advantage. The FOREX market has made an amazing transformation since the advent of the internet. Technology has now made it possible for smaller investors to play on the same level as larger corporations and banks. Anyone with a computer and a will to succeed can start trading currencies from the privacy of their home or office. Online FOREX trading has changed the way that investors do business. With access to your portfolio 24-hours a day, it is really very simple to get started. You can choose whether to hire a professional to handle your transactions, or you could choose to do them yourself.

Also, FOREX trading provides relative large leverage rates to individual traders. FOREX traders can do business with up to 200 to 1 leverage rates. With this advantage, ROI is escalated dramatically and traders can always start up small with capital as little as $1,000.

Getting started in FOREX trading

You don’t need much to get started with FOREX trading. A computer with Internet access, a funded FOREX account with foreign currency exchange broker, and a trading system should be sufficient to get things started.

To reduce the risks of losing money, some basic charting knowledge is as well recommended before you start trading FOREX. FOREX charts assist the investor by providing a visual representation of exchange rate fluctuations. Many variables affect currency exchange rates, such as interest rates, bank policies, geopolitics, and even the time of day may affect exchange rates. As stated by expert FOREX trader Peter Bain, charting is an essential tool in FOREX trading. In his newsletter, he reveals that daily charts, hourly charts, and 15-minute charts are used while trading in FOREX. As quoted from his informative newsletter -- “Daily chart will help you define the overall trend from a position trading point-of-view, and the hourly (one hour) chart will give you a feel for the intraday trend. The 15-minute chart is used for entry and exit – with assistance from the five-minute chart, where price is moving quickly, and you need to be closer to the action.”

Being one of the technical method, FOREX charting is based on the principal ‘history repeats itself’. FOREX traders who study charts predict the market future by evaluating past market performance. The time frame used for charting might differs for different traders, some analyze the past one week, some prefer six months analysis, and there are also traders who analyze the market for the past five to ten years before getting involved in a FOREX trade. A huge variety of FOREX charts are available in the market. Some charting methods are very simple, using a few FOREX indicators to show trading direction; other charts may include up to forty indicators and those are mainly for advance traders that are more skillful. MACD Divergence, RSI, RSI range, and price are some of the well known indicators in charting.

Choosing the right FX dealer is a way to avoid unnecessary risks. FOREX dealers are not all regulated the same way. Although FOREX dealers must be regulated by law, firms and individuals can solicit retail accounts for FOREX dealers and manage those accounts without being regulated. As a trader you should take up the responsibility of finding out if your FOREX dealers are regulated. If they are not, you may be exposed to additional risks.
Also, beware of dealers with investment schemes that sounds too good to be true. Pay extra cautions to dealers that you first knew and always look into the investment offers. If you are from United States, you can always refer to CFTF (at http://www.cftc.gov) or NFA (at http://www.nfa.org) for further information.


You come to this article probably because of you are new to FOREX and were looking for some readings on the Internet. To be frank, FOREX can be very profitable but the risk lie beneath is equally great. Remember to always trade with proper investment plan and strategy. Read books, attend courses, watch video seminars, read papers, or even practice first with a dealer’s demo account to get yourself ready. Trade smartly, and gain the maximum out of FOREX – good luck!

Teddy, experienced writter and webmaster. Learn more on Forex trading education on his latest work at http://www.golearnforex.net.


What are Your Options Regarding Forex Options Brokers?

Forex option brokers can generally be divided into two separate categories: forex brokers who offer online forex option trading platforms and forex brokers who only broker forex option trading via telephone trades placed through a dealing/brokerage desk. A few forex option brokers offer both online forex option trading as well a dealing/brokerage desk for investors who prefer to place orders through a live forex option broker.

The trading account minimums required by different forex option brokers vary from a few thousand dollars to over fifty thousand dollars. Also, forex option brokers may require investors to trade forex options contracts having minimum notional values (contract sizes) up to $500,000. Last, but not least, certain types of forex option contracts can be entered into and exited at any time while other types of forex option contracts lock you in until expiration or settlement. Depending on the type of forex option contract you enter into, you might get stuck the wrong way with an option contract that you can not trade out of. Before trading, investors should inquire with their forex option brokers about initial trading account minimums, required contract size minimums and contract liquidity.

There are a number of different forex option trading products offered to investors by forex option brokers. We believe it is extremely important for investors to understand the distinctly different risk characteristics of each of the forex option trading products mentioned below that are offered by firms that broker forex options.

Plain Vanilla Forex Options Broker - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, in the case of forex option trading, plain vanilla options would refer to the standard, generic option contracts that are traded through an over-the-counter (OTC) forex dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of a standard forex call option contract or forex put option contract.

There are only a few forex option broker/dealers who offer plain vanilla forex options online with real-time streaming quotes 24 hours a day. Most forex option brokers and banks only broker forex options via telephone. Vanilla forex options for major currencies have good liquidity and you can easily enter the market long or short, or exit the market any time day or night.

Vanilla forex option contracts can be used in combination with each other and/or with spot forex contracts to form a basic strategy such as writing a covered call, or much more complex forex trading strategies such as butterflies, strangles, ratio spreads, synthetics, etc. Also, plain vanilla options are often the basis of forex option trading strategies known as exotic options.

Exotic Forex Options Broker - First, it is important to note that there a couple of different forex definitions for "exotic" and we don't want anyone getting confused. The first definition of a forex "exotic" refers to any individual currency that is less broadly traded than the major currencies. The second forex definition for "exotic" is the one we refer to on this website - a forex option contract (trading strategy) that is a derivative of a standard vanilla forex option contract.

To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla." Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific's investor's needs by an exotic forex options broker, are generally not very liquid, if at all.

Exotic forex options are generally traded by commercial and institutional investors rather than retail forex traders, so we won't spend too much time covering exotic forex options brokers. Examples of exotic forex options would include Asian options (average price options or "APO's"), barrier options (payout depends on whether or not the underlying reaches a certain price level or not), baskets (payout depends on more than one currency or a "basket" of currencies), binary options (the payout is cash-or-nothing if underlying does not reach strike price), lookback options (payout is based on maximum or minimum price reached during life of the contract), compound options (options on options with multiple strikes and exercise dates), spread options, chooser options, packages and so on. Exotic options can be tailored to a specific trader's needs, therefore, exotic options contract types change and evolve over time to suit those ever-changing needs.

Since exotic forex options contracts are usually specifically tailored to an individual investor, most of the exotic options business in transacted over the telephone through forex option brokers. There are, however, a handful of forex option brokers who offer "if touched" forex options or "single payment" forex options contracts online whereby an investor can specify an amount he or she is willing to risk in exchange for a specified payout amount if the underlying price reaches a certain strike price (price level). These transactions offered by legitimate online forex brokers can be considered a type of "exotic" option. However, we have noticed that the premiums charged for these types of contracts can be higher than plain vanilla option contracts with similar strike prices and you can not sell out of the option position once you have purchased this type of option - you can only attempt to offset the position with a separate risk management strategy. As a trade-off for getting to choose the dollar amount you want to risk and the payout you wish to receive, you pay a premium and sacrifice liquidity. We would encourage investors to compare premiums before investing in these kinds of options and also make sure the brokerage firm is reputable.

Again, it is fairly easy and liquid to enter into an exotic forex option contract but it is important to note that depending on the type of exotic option contract, there may be little to no liquidity at all if you wanted to exit the position.

Firms Offering Forex Option "Betting" - A number of new firms have popped up over the last year offering forex "betting." Though some may be legitimate, a number of these firms are either off-shore entities or located in some other remote location. We generally do not consider these to be forex brokerage firms. Many do not appear to be regulated by any government agency and we strongly suggest investors perform due diligence before investing with any forex betting firms. Invest at your own risk with these firms.

John Nobile - Senior Account Executive
CFOS/FX - Online Forex Spot and Options Brokerage