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Interested in FOREX Trading?
The Foreign Exchange Market (FOREX) has no central exchange location yet it is the largest financial market in the world. It is over 3xs the size of the stock and futures markets combined and operates via an electronic network of a banks, corporations and investors.
Foreign exchange consists of a simultaneous buying of one currency and selling of another. Currency is traded in pairs, in other words, one currency is traded for another. The major currencies are:
1. USD - United States Dollar
2. EUR - Euro members Euro
3. JPY - Japan Yen
4. GBP - Great Britian pound
5. CHF - Switzerland franc
6. CAD - Canadian dollar
7. AUD - Australia dollar
There are 2 types of investors involved in the FOREX market.The first type of investor is the hedger. The hedger is involved in International trades and utilizes FOREX trading to protect their interest in a transaction from adverse currency fluctuations. The 2nd type of investor is the speculator who invests in currency solely for profit.
Currency prices fluctuate due to a variety of economic and political factors. The major factors are:
1. Interest rates
2. International trade
3. Inflation
4. Political stability
There are many reasons investors take a great interest in FX trading Some of the major reasons are:
1. No fees
2. No middlemen
3. No fixed trade sizes
4. Low transaction cost
5. High liquidity
6. Instant transactions
7. Low margin / High leverage
8. 24 hour market
9. Online access via online trading platforms
10. Always good opportunities to trade, unlike the stock market the market is never bullish or bearish.
11. No one entity can control the market
12. No insider trading can occur
To begin trading in the FOREX market, an investor only needs a computer, a high-speed internet connection and an online trading currency account. A mini account can be opened for as little as $100.
Find out why is becoming a popular form of investing for all types of investors.
The Commitments of Traders Report: How To Profit From Legal Inside Information
The Commitments of Traders report (COT) is a weekly government report that is extremely valuable in knowing what the smart money is doing in various futures markets. There is a report for each futures market. Although COT reports have been around for years, the average investor not only doesnt know how to use it, but doesnt even know that it exists.
Heres what happens -- the government, specifically the Commodity Futures Trading Commission (CFTC), requires all those who hold a number of futures contracts above a specified limit to report their positions. For example, the threshold limit for S&P futures is currently 1,000 contracts. So only the really big players have to report. But they hold 70% to 90% of all outstanding futures contracts.
Here is where to view the reports for the various markets...
http://www.cftc.gov/cftc/cftccotreports.htm
The report is released on Fridays (except for holidays) based on data as of the previous Tuesday. So the information is released three days after the fact. Thats OK, because its timely enough to be valuable.
The column headings at the top of the report will be labeled NON-COMMERCIAL, COMMERCIAL, and NONREPORTABLE POSITIONS.
When an account is reported to the CFTC as holding positions above the specified reporting level number of contracts, the CFTC determines if the account is a commercial hedger or a large speculator.
Commercial - The CFTC classifies a futures account that meets the reporting level as a commercial when that account holder files a statement with the Commission that states it is commercially engaged in business activities hedged by the use of the futures markets. Theyre the ones that were most interested in. For example, the commercial traders of S&P futures are the largest institutional players like banks, pension funds, mutual funds, hedge funds and the trading arms of Wall Street firms.
Non-commercial - Those classified as non-commercial are large speculators. They dont deal with stocks as a part of doing business. An example of a large speculative account might be a large commodity pool (a fund) that trades futures for speculative profit. Managed futures accounts have grown into the billions of dollars and if they meet the reporting levels, their positions would be reported to the CFTC for monitoring.
Nonreportable positions - All traders, speculative and commercial, that have smaller positions than the reporting level are considered the small speculators. In other words, theyre everybody else who participates in the futures markets -- the proverbial little guys.
To know how to use the COT data, its important to take a closer look at the three types of players that are the reports focus -- the commercial trader, the large speculator, and the small speculator. We want to know what makes each of them tick.
Commercial traders dominate the market. That fact really shouldnt be a surprise to anyone given the nature of who the commercials are. For example, in the S&P futures market they are banks, pension funds, mutual funds, Wall Street brokerage houses and the like. They have vast research departments and have inside information that simply is not available to the average investor in a timely manner.
They also dominate because of their sheer size. They are so large that they actually become the market. So the commercial traders are the ones that were most interested in. We want to try to determine what theyre doing and tag along. History has shown that the commercial traders in most futures markets for that matter are right a great deal of the time. And when theyre wrong, they are rarely wrong for very long. They will eventually end up on the right side of the market, whether it be on the upside or downside.
The large speculators tend to be trend followers. After the market has established a trend up or down, they will go the direction of the trend. Its interesting to know what theyre doing in the market, but it shouldnt be critical to your decision making process.
The small speculators are usually on the wrong side of the market. In fact, it has been estimated that as many as 90% of small traders lose money in the futures markets. They tend to serve as cannon fodder for the big commercial traders. After all, the smart money has to have someone to take the opposite side of their trades. The small speculator is usually willing to accept that roll. Think of the Harlem Globetrotters vs. the Washington Generals. The commercials are the Globetrotters. The small speculators are the Generals -- the patsies who are bound to lose.
The commercial traders are the ones to follow. Theyre the smart money. When they have an extreme long or short position in relation to their positions in the past, it is a reliable indicator of market direction.
Larry Holmes invites you to visit http://www.Money-Management-Wisdom.com/ You will learn how to become debt-free, save and invest money, cut taxes, manage risk, and achieve financial freedom in a much shorter time than you dreamed possible.
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