Financial News

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FinWeb.com wants you to keep abreast of news that could affect your personal finances. In today’s world true isolation simply doesn’t exist. Political actions in one country can influence interest rates around the globe. Regional events can have major implications on world markets; oil costs can directly affect the price you pay for energy, gas, even the food that you buy.

Savvy investors gather all the information that they can. Responsible businessmen and women keep themselves aware of current events and financial news. Even if you’re not actively investing, it’s prudent to stay attentive to the forces that could influence your personal finances. We’ve compiled a list of some of the finest world and financial news resources on the internet. Use them to stay informed, because education is the key.

Financial News Sources:

• Yahoo! Finance - The latest breaking financial headlines and articles on companies, the economy, markets and investing ideas.
• Reuters - One of the leading global news sources in the world. Breaking news, business, financial and investing reports.
• The Wall Street Journal Online - International and national news with a business and financial perspective.
• Quote.com - Financial news and exchange data from around the world.
• Bloomberg.com - One of the top five most-visited financial portals on the Web, Bloomberg.com is regarded as a premier site for news and financial information.
• MSN Money - A comprehensive source for your money and personal finance needs.
• Google Finance - Offers a broad range of information about stocks, mutual funds, and public as well as private companies.

World News Sources:

• USA Today - News, sports, weather, classifieds, real estate and more from the world-renowned new source.
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• BBC News - One of the largest, most recognized and respected news-gathering organizations in the world. News, sports, weather from a wide variety of sources, including BBC News, BBC World Service, the Press Association, Associated Press, Reuters and Agence France-Presse.
• ABYZ News Links - Direct links to international, national and local news media, including broadcast, internet, press agencies, newspapers and magazines. Global news sources that you’ve heard of, and regional ones which you haven’t.

Group Life Insurance

With societal and economic transformations, the growth of large cities and the evolution of unions in the United States, the development of group insurance has burgeoned. The influence and political strength of unionized workers have compelled employers to offer group insurance as an employee benefit, typically written as one-year term insurance. The legal requirements of group insurance are consistent throughout the majority of states and include the following basic characteristics:

• All states define a true group as having at least ten people covered under one master contract; however, some states allow even smaller groups.
• Coverage is generally available without evidence of insurability; that is, without the need for individual medical examinations.
• The master policy is issued to the employer, trust, union, or other association, with Certificates of Insurance being issued to the individual insured employees or members.
• The insurance may not be obtained to benefit the employer, trust, union, or other association; it must be for the benefit of the covered employee or member, and his or her dependents.
• Premiums are based on the experience of the group as a whole. It may be paid entirely by the policyowner (employer, trust, etc.), or it may be paid jointly by the policyowner and the insured. If the premium is paid entirely by the policyowner it's known as a noncontributory plan, and all eligible employees or members must be covered. If the premium is paid by both the policyowner and insureds, the policy is classified as a contributory plan, and at least 75 percent of all eligible employees or members must be covered. The term 'eligible employees' refers to an eligible class of employees, such as full-time employees, salaried workers (as opposed to workers paid on an hourly basis), non-union workers, etc. Certain groups of employees may be excluded from the eligible class as long as the exclusions are based on some particular occupational criteria. The policyholder is always required to pay at least some portion of the premium. Insureds, on the other hand, are by law not permitted to contribute more than a specified amount.
• Individuals covered under the plan are classified in such a way (typically by salary, position, or length of employment) that they cannot choose the benefit levels.

Furthermore, group policies have special provisions that are unique to the category of 'group insurance,' though some are along the same lines as their counterparts found in policies for individual insurance. Basically, group policies must contain provisions pertaining to:

• A grace period – usually 30 or 31 days;
• Incontestability – typically one or two years after the policy becomes effective, and/or usually two years from the insured's effective date of coverage;
• The entire contract – the application must be attached to and made a part of the contract;
• Representations – statements made regarding an applicant's health are viewed as representations and not warranties;
• Evidence of insurability – individual insurability must be proven if the employee or member joins the plan after the normal enrollment period;
• Misstatement of age – the insured's premium is adjusted to the correct age; typically under individual insurance benefits are adjusted;
• Facility of payment – this allows payment of policy proceeds to be made to a close relative or friend if no beneficiary is named or still alive;
• Conversion – the right to convert to an individual policy when the insured's coverage under the group policy ends due to termination of employment, the elimination of a class of insureds or termination of the master policy itself; and
• Certificates of Insurance – issued to individual insureds as evidence of coverage under the master policy.

The Certificate of Insurance is a form the employee or member receives which acts as proof of insurance, stating the coverage amount, the benefits under the plan and the beneficiary's name. This is because with group insurance, the master policy is evidence of a contract only between the insurer and the employer, association, etc. (i.e., the sponsor, or policyowner). Of course, the policy is purchased for the benefit of the individuals that are to be covered under the policy, but it's actually issued to the sponsor. The individual insureds do not receive a copy of the policy, since there is technically no agreement between them and the insurer. As the master policyowner, the sponsor retains the life insurance policy itself.

In addition, to the certifying the amount of protection and any designated beneficiaries, the certificate provides enough additional information so that the insured is aware of the benefits available to him or her under the plan, as well as their rights and obligations. The face page of the document typically outlines the coverage effective dates, dependent coverage and benefit amounts. The certificate also includes information regarding benefit descriptions, age limits, notices of claim and the insured's right to convert to individual coverage in the event of policy or employment termination.

Types of group coverage

Generally, there are four main types of group life insurance being marketed to eligible groups: group term life, group whole life, group credit life and group survivor income benefit insurance. In most cases, it's also possible to extend coverage to include the dependents of employees or members that are insured under a group life plan. Eligible dependents may be the insured's spouse, children, parents or any other person for whom dependency upon the insured can be proven.

The insured's children can be stepchildren, adopted children or foster children. They must be under a specified age, usually age 19 (or a few years older if attending school full-time). However, a child may be retained as a dependent beyond those ages if he or she is permanently mentally- or physically disabled prior to the specified age. The law further states that any other person who is legally dependent upon the insured is also eligible for coverage. Dependency is proven by the relationship to the insured, residency in the home, or the person being listed on the insured's income tax return as a dependent. Dependent coverage is not provided under credit life insurance.

Group conversion optionOne disadvantage of group life insurance is that it's usually only temporary coverage, and an individual insured may lose the coverage when he or she leaves the group or is no longer eligible. To lessen this drawback, group term policies must include provisions to allow for conversion of the member's coverage to individual insurance. They may also include continuation-of-insurance- and waiver-of-premium provisions. Some employers offer to continue group term insurance at reduced amounts for their retired workers.

By law (in most states), any employee covered by a group life insurance plan must be allowed to convert the coverage – upon leaving the eligible group or termination of employment – to an individual permanent life insurance policy without evidence of insurability. When converting, however, the departing employee must select a form of insurance other than term. In other words, the employee must choose a whole life policy. The employee must also apply for the conversion within a specified period of time after leaving the group – usually one month – or the conversion privilege is forfeited. Coverage is automatically in force during this time, and is often limited to no more than $10,000 or the amount of coverage under the group policy, whichever is less.

This conversion privilege may also be used if, for any reason, the employer or organization discontinues group coverage. The same rules apply, except that application must be made within one month of the policy's cancellation rather than a month following the employee's termination date.

FEGLI and SGLI Federal Employees' Group Life Insurance (FEGLI) provides automatic group life insurance for federal employees unless they choose not to be included in the plan. Life insurance in the amount of one year's salary is customarily provided. Another one year's salary may be added but is contributory; i.e., the employee must pay a portion of that premium. Servicemember's Group Life Insurance (SGLI) is automatically provided for members of the armed forces. The life insurance is provided on a group term-life basis as soon as a member enters active duty. The maximum insurance amount is currently $400,000, with automatic full-time coverage applicable to qualified reservists, as well. Premiums are deducted from the servicemember's paycheck. Both SGLI and FEGLI are underwritten by private insurers in very large group life insurance contracts.

Insurance

How to Protect Your Financial Assets

It doesn’t take much intuition to realize that insurance is a very necessary, and often legally required, expense. In today’s fast-paced, unpredictable, dangerous world the protection that it affords cannot be overstated. And the knowledge that there will be compensation in the event of the loss of financial assets can provide a high degree of peace of mind for most families.

But many people fail to realize the full value that insurance can provide. Just as its importance in financial coverage cannot be overlooked, insurance’s place as a part of a well-rounded investment portfolio should neither be neglected. The overall impact that insurance can have is substantial, guaranteeing a continued quality of life in the event of unforeseen circumstances.

There are many different types of insurance. From life insurance to pet insurance, auto insurance to travel insurance, homeowners’ insurance to health insurance, there is coverage available for virtually anything imaginable. How do you determine what type of insurance best suits your needs? And in what amounts should it be purchased? It’s probably safe to assume that most people do not understand how insurance works, how companies assign risk and set premium rates, or even know what to look for in a policy.

As with any other critical decision that you will be faced with, your most reliable help is solid, relevant information. You must determine you own financial needs and goals, then find the proper program to help you achieve them. Study the various insurance articles of this educational section; they will provide you with a solid knowledge base from which to proceed. Take advantage of every resource that is available to you. Insurance is a critically important issue; you must be prepared in order to choose wisely.

Small Business Loans for Women

In the past, women seeking to start a small business with borrowed funds often had problems obtaining financing – regardless of how solid their business plan or credit was. Traditionally, small business lenders looked at only the numbers – specifically, the assets owned by the prospective borrower. And, let's be frank; men have typically been the ones with more legal ownership of assets. Women often bring a somewhat dissimilar set of assets to the table when looking for a loan. For this reason, small business loans for women have become increasingly popular and successful. These loans, which can be for amounts up to $250,000 or more, usually focus on the strength of the overall business plan and the woman's character, credit history, experience and reliability. The paperwork is as thorough as that of a standard small business loan, but its focus is just a bit different.

The business plan will need to be just as solid as would be necessary for a traditional small business loan and the prospective borrower must have an equally good credit rating. After that point, however, the paperwork may take a slight turn. Instead of asset assessment, these special loans for women will assess the prospective borrower's character, experience, and reliability as the potential head of a business. A strong resume or portfolio containing a good list of both business and personal character references should be included in the loan proposal package. The borrower should also be able to demonstrate both financial and work reliability.

There are also business loans for women who want to start a small home-based business. These loan packages are designed specifically for women with children who want or need to stay at home with their kids but still require an income. Loan amounts can range from $1,000 to $10,000. They, too, require a business plan and other qualifications, though the applications usually aren't as quite demanding as those for larger loans.

Additionally, small business loans to women can often be a good investment for lenders. Women typically bring special skills and management styles to business that can be successful. Furthermore, in some fields such as architecture and construction, businesses owned by women are sought out – not simply because of their minority status to fill a legal requirement but also because women bring another perspective to the job.

It's interesting to note that women are increasingly helping fund other women's business ventures. Those who've paved the way by starting and owning their own business now see other women-owned companies as good investments. There are venture capital groups in existence comprised solely of women for the purpose of investing in only women's businesses.

If you're a woman and have been unsuccessful in obtaining a traditional business loan, seek out small business loans designed specifically for women. With these specialized loans, you can count on your unique perspectives, experiences and assets being considered highly by any lender offering them. Remember, funding for your dream may be right around the corner. But it's up to you to find that 'right' corner.

Loans

What You Don’t Know Can Hurt You

The business of lending money payable with interest is one of the world’s oldest trades. There are numerous types of loans available from many different types of lenders. And make no mistake; all of them are in the business of making a profit. Of course, they do provide a necessary service. Which of us, after all, has not borrowed money, in some form, at some time?

But do you know the types of loans that are available? And which loans are most suitable for your credit situation? Do you even know what your credit situation is? There are many helpful and honest lenders that are willing to do business with you, regardless of your credit background. There are just as many unscrupulous dealers out there who are more than willing to take advantage of the unsuspecting borrower, especially if he or she is somewhat credit-challenged. It is, therefore, up to the borrower to be extremely careful when considering any type of loan.

The purpose of this section is to provide the information necessary to help you make the best possible decision for your circumstances. Find out what types of loan programs are out there, and how those programs are best utilized. Read the articles; find out what your options are. Analyze your own specific situation and needs. If you have credit problems, be sure to pay particular attention because you could possibly be more vulnerable to the scams and tricks of unscrupulous lenders. The knowledge that you obtain before you get the loan can go a long way toward helping you get the loan that’s best for you.

A Daily Savings Plan

When we think of saving money it always seems like a big job. If we look at saving on a grand scale, we can easily be overwhelmed. However, when broken down, saving money daily can add up over time. Here are some possible ways to cut your expenses that may amount to a lot more than you think:

• How about your early morning stop at the coffee shop? That cup of coffee may wake you up, but the amount of money you save by driving straight to work will be the real eye-opener. Most offices have coffee available for their employees free of charge. If you don't like the brand, buy your own bag of gourmet ground coffee and make a fresh pot when you arrive. It's much cheaper than hitting the coffee shop every day.
• Eating lunch with the crew at work is fun, but it's also costly. You don't have to cut out those friendly lunches, but try limiting it to once a week or so. If you eat in a food court (like the one in the local mall), you can still participate in the conversation; just bring your lunch from home.
• With the spiraling price of gas, more people are watching how many times they jump into the car and go places. In order to save money on petrol, plan to run as many errands as possible in one trip. On your shopping excursions, visit the grocery store, the beauty shop, your doctor's office and anywhere else you have to go all at the same time. That way, when you return home from work the other four days of the week, you can leave your car parked until the next morning.
• You can often find change lying around the house. Everyone delights in paper money but most don't think twice about a few coins here and there, unless they're looking to get something from a vending machine. Collect that loose change in a large glass jar. When it's full, take it to one of those change sorting machines in the grocery store and see how much you've got. This extra money can be set aside in a "rainy day" account. After all, every little bit helps.
• Stop using your telephone to order takeout food. Instead, before you leave the house in the morning, take something out of the freezer to cook for dinner. When dinner is the last thing you want to think about in the evening, place that meal in a crock pot or slow cooker. It will thaw and cook throughout the day. Set the time for the longest setting; add a few spices, a little liquid and some vegetables and you've got an 'instant' dinner when you get home. The money you save on takeout can go towards a night out for a special occasion.

What are some of the things that you spend money on each day? It's very likely that you cut back on some of those expenses. If you can, you'll save yourself some cash. There are usually alternatives to the things we like doing that may be just as enjoyable and yet cost less. The trick is simply taking the time to find them.

Financial Tips for College Students

As a college student, you should be focusing on your financial future as well as your studies. No, not the financial future consisting of next week's pizza fund, but your long-term personal financial future. Since over half of all students that graduate college will exit with student loans, you need to start thinking about future finances now, whether you want to or not. Learning to budget and manage your money at the present time is important for your long-term financial success.

Start by shopping for a checking account. Many banks offer special accounts for college students, but you are mainly looking for features that benefit you the most. If your parents are going to be depositing money into your account regularly, having an account of your own at their bank may allow them to transfer money to you more easily. If you are campus bound, look for an account at a bank that has an ATM on campus or find an account at a bank that offers free ATM usage at other banks' machines. Other special services that banks offer college students can include no monthly fees, no minimum balance, and sometimes even interest can be earned on your balance.

Use credit cards wisely. Know their limits, fees, and due dates. Pay them on time and within your budget. Build your credit by using your card judiciously and paying it off monthly. It's ok to carry a small balance ($10 to $50 or so) to further help build your credit, but don't do it if you might be tempted to let the balance creep up.

Also, set aside a particular credit card for emergency use only. This is especially important for students who don't have any parental financial backup. Sometimes, you will have to use the emergency card. Just make sure it is an actual emergency (you locked your keys in your car, need glasses, or have to buy books before your financial aid money comes in), as opposed to the I-want-it-really-really-bad kind of emergency (for instance, the newest video game just came out or there's a great sale at your favorite store).

Pay all of your other bills on time. Even if you live on campus, you probably have at least one or two monthly bills. For instance, most college students have a cell phone bill. Many students have a car payment, and car insurance to go along with it. Off-campus students have rent and utilities, too. Some companies will tailor their bill's due date to the customer's needs. Ask if you can move your due date on a couple of bills if it will help you pay them on time.

Finally, start saving. Even if you can only save ten dollars a month, starting to put money away at age twenty will more than double your accumulated nest egg by age sixty than if you begin saving that same ten dollars at age thirty.

Make sure you start your life after graduation on the right financial foot by treating your financial future seriously while you're still in college. You'll probably graduate with student loans to pay off, but if you've practiced good financial habits throughout your college years, you'll be prepared to budget and spend your new career's paycheck wisely, including paying off those obligations. Develop good financial habits in college and you'll likely have good financial habits for life.

Saving for that Summer Vacation

Most of us look forward to our vacation each year. Some trek off to exotic destinations, others go back to the same lakeside cabin season after season, while still others of us just stay home and relax. But regardless of where you yearn to vacate, you can make it the holiday you want it to be – without shooting your bank account straight through the heart – by taking heed of the following simple tips:

• Save up! If you have four-to-six months before your vacation rolls around, start socking away ten to fifteen percent of your income in a vacation fund. Having these funds available when you go on vacation will soften the financial blow because, let's face it, getaway excursions can be expensive. (If you're taking a cruise or booking another all-inclusive vacation, you should plan on purchasing your trip six months before you want to travel in order to get the best prices.)
• Shop around! Many destinations offer special prices and discounts for combining travel and accommodations through their own websites or travel sites. But don't let that stop you from talking with a professional travel agent. One ten-minute phone call to a knowledgeable agent can often be as fruitful as hours of online research. They can tell you the in- and off-season times for any particular destination and also when the best prices are likely to come along. Then you can go back to the web to further refine your searches. Additionally, always tell the agent you consulted about what you found online. Some travel agencies will price-match at least a portion of a trip, and booking through an agent may offer other benefits not available with online booking. You won't know unless you inquire.
• Budget for those 'while-you're-there' expenses! Check out the prices for food and other items that you may want or need in your destination area, especially if you've never been there before. But be truthful with yourself; don't plan to spend twenty dollars per person for dinner when you know you'll probably want to spend at least thirty. Budget accordingly. Then, when you get there (and this is a biggie), spend accordingly, too. This point is crucial; it can make or break your vacation. You don't want to have your first four days be wonderful, but only at the expense of being absolutely broke for the final three.
• Take along an emergency credit card! Don't bring this credit card with the intent of using it. Don't take it out with you, but don't leave it in your room. Put it in the hotel's safe or safe deposit box. This action serves two purposes. First, you won't be tempted to buy more trinkets to take home with you; and second, it ensures that you'll have backup funds in the event of a real emergency – such as if your wallet gets stolen or someone gets hurt.

Some of these tips may seem to only apply to 'going-away' destinations, but look at it in another light. If you save for your vacation even if you just plan to stay home, you can hire daily maid service for the week and eat at the best local restaurants every night (or have them delivery to you). If you like to spend time outdoors, there are travel agencies that specialize in RVing, canoeing and fishing destinations. Search around; you'll be able to find – and afford – just the type of 'getaway' that you've dreamed of.

Finances & Savings

In order for you to enjoy long-term financial health, one of the first things that you'll have to do will be to get your everyday financial house in order. Are you on top of your finances? Are you in control of your debt, or is your debt controlling you? How much money are you saving? Have you established an emergency fund? Do you have more money than month, or does it usually seem as if it's the other way around?

You must address all of these questions – and several others – in order to solidly establish your financial footing. After all, if your daily finances are unstable, the long-term prospects for your financial success will be shaky at best. In this section you'll find valuable information to help you with budgeting and digging out of the debt sinkhole. You'll also discover money-saving tips for everything from making your home more energy efficient to funding your kids' college expenses. There are even strategies for saving money when you don't have any money to save. Use this knowledge to not only catch up but also get ahead of the game where your daily finances are concerned. Only then will you be able to confidently look and build toward your financial future.

Financial Planning

Information to Help You Set and Reach Your Financial Goals

Consumer debt in America is near record levels. Recent studies have shown that the average family spends more money annually than it earns. How is this done? By borrowing, of course. Whether with loans or credit cards, the buy-now-pay-later mentality is rampant in our society. And with far too many people reaching retirement with less than one thousand dollars in the bank, it’s quite obvious that planning for the financial future is a subject that has generally been woefully neglected.

With more and more people nearing the age of traditional retirement, the need for a proper financial management plan is becoming more acute. Not only is it more pressing for the aging individuals, but for their families and society as a whole, as well. Without a comprehensive plan to maintain self-sufficiency in the latter years of life, the burden of financial care inevitably falls upon family or government, or both.

The purpose of this educational section is to help you to realize the importance of evaluating your financial position, both currently and for the future. Where do you want to be financially when you retire? Do you know how you’ll get there? With the skyrocketing cost of higher education, how can you ensure your kids’ college education? The articles and resources contained in this section will give you valuable information on many facets of prudent financial planning. Don’t neglect to put them to use. They will help to guide you as you look to set your short- and long-term financial goals, and formulate realistic plans that will allow you to meet those goals in comfort.

What do Successful Day Traders have in Common?

When asked about the attributes of successful day traders, most experts come up with lists that include self-discipline; the abilities to maintain control of ego and to accept loss; a flexible, agile mind; patience; and a passion for the market. And although these traits will not necessarily guarantee your success as a trader, without them, you're virtually assured of never becoming successful in the trading markets. Let's take a brief look at each trait.

Self-discipline

The one trait that's most often mentioned by traders themselves as being the single most essential ingredient of successful trading is self-discipline. It is the one common trait exhibited by every good trader, and it's the catchphrase of every tutorial and seminar you'll ever take on the subject and every day trading book you'll likely ever read.

What exactly is self-discipline? It's defined as "training to act in accordance with rules" and "a regimen that develops or improves a skill." In trading, you must first discipline yourself to learn everything you need to know about trading and the markets; then you must discipline yourself to create your own rules and trading plan; and on a daily basis you must discipline yourself to follow the rules that you've set forth in your plan.

Mercifully for all of humanity, self-discipline is not a talent; it can be learned by anyone. It's a process of learning how to take conscious control of your actions, of operating outside your belief system in order to effect change upon a belief that may be standing between you and your goal. In a very real sense, self-discipline is like a muscle – the more you use it, the stronger it gets. Learning self-discipline should be the main goal in your endeavor to becoming a successful trader.

Master your ego

When it comes to trading, your ego can quickly become your own worst enemy. The reason is that it can prevent you from taking responsibility for a losing trade. Most people don't like to admit that they're wrong about something (and many have a distaste for admitting being wrong about anything), and an oversized and unmanaged ego can compel one to great lengths in order to keep from admitting an error. Nevertheless, it must be realized that being wrong is part of the trading game. (This holds true for all types of investing; for no experienced investor of any longevity has ever been right with each and every decision.) Even successful traders are wrong 50, 60, 70, or even 80 percent of the time. They can be wrong most of the time and still be successful because they keep their losses small and they let their profits run.

But in order to do this you must be able to control your ego and take responsibility for your trades. When a trade turns bad, you can't blame it on the market, because is the market is necessarily neutral. And you can't blame it on the company whose stock you bought, because the company has no direct control over stock prices. Nor can you blame it on the head trader or mentor whose advice you took. If you let someone else call your shots for you, then you've handed over your control to them. So who's left? A quick trip to the nearest mirror will answer that question rather succinctly. You are responsible for your own trades – you, and you alone.

Taking responsibility for successful trades is not difficult at all. But admitting to a bad trade goes against the grain. However, to keep a small loss from growing into a big one, you have to be able to admit when you're wrong, and pull the plug. Cutting losses short is one of the surest earmarks of successful traders.

It's often difficult to give up on a trade because of our perception of the market's endless potential for gain. If our stock (or currency, commodity, or whatever's being traded) is down a point or two, there's always the possibility that it will not only reverse its direction and recover those points but that it'll also increase beyond our break-even point and turn our loss into a profit. Thus, we hold out hope, because it could happen. In this manner so many H&P traders are born – hoping and praying that the trade will somehow turn around. It only takes a small dose of pragmatism injected here to come back to the realization that there will be other opportunities. And as long as we cling to that H&P mindset, our money remains unavailable for of those other opportunities when they avail themselves.

But winning can also be a dangerous event if you give way to your ego. You've heard the old saying, "Success breeds success." Winning builds upon itself; that's what we've all been taught. And in most areas of life, it's a great philosophy to have; but in trading, it's not necessarily true. A big win can give you a false sense of power over the market, a feeling of omnipotence. It can make you feel as if you've beat the market, which puts you in an adversarial frame of mind, so that winning again – and, ultimately, being right again – becomes your goal. But remember, you won't beat the odds; and no matter how successful you become, it's very likely that you'll be making many more losing trades than winning ones.

Controlling your ego is probably one of the hardest things that you will ever have to do, but to become a successful trader you must set yourself to do it. One method of controlling it is to learn to keep an open mind, to be flexible and let the market lead the way.

Keep an open mind

An open mind – which is synonymous with mental flexibility – is a common strong point of successful traders. To more clearly illustrate this quality, let's take a look at two different traders.

Trader Jim has an open, flexible mind. He approaches the market each day free of any and all expectations. He observes various market indicators to get a feel for what the market might do today. He keeps abreast of the news and tunes in to any speech that the powers that be might be making, but his whole direction is wrapped up in the attitude of 'let's wait and see what the market does.' And when the market invariably leads the way, he follows. If it heads down, and the security that he's trading trends downward, he goes short. If it trends upward, he goes long. If he can't discern any trend at all, he stays on the sidelines and waits for a trend to appear. When he makes a trade, she sets his stops and lets his profits run. If the security reverses and triggers a stop, he exits the trade without compunction and waits for the next setup. Jim doesn't really care about being personally right or wrong, and things aren't clouded or jaded for him. He moves into and out of market positions with ease and without remorse, cutting any losses short to make himself both mentally and physically available to grasp the next opportunity that comes along.

Trader Tom, on the other hand, has a closed, rigid mind with opinions about the market that may as well be chiseled in stone. He's already decided that the big speech will have a negative impact on the market, so he sits on the sidelines. He remains there as the market climbs (because it has already discounted the speech's negative comments in a minor correction the day before, but Tom didn't know that because he doesn't really keep a watchful eye). When he finally decides to jump on the bandwagon of his favorite stock, which is trending unmistakably upward, he sells on a minor downtick after a one-point gain because he still believes the market is headed for a fall and so misses the subsequent five-point rise in the stock. When the stock tops out and heads down on an intraday swing, he doesn't even think of shorting it because he believes that the only way to trade is to go long. And what does he do on a losing trade? He hangs on to it, of course, while his losses mount because he 'knows' that the stock will finally recover and give him back all his losses and more.

Mental flexibility allows you to see the market clearly and go where it takes you. It keeps you from trying to control the market (because you can't) or second-guess it (ditto, again!). Mental flexibility arises from a thorough understanding of the markets, which you get can only obtain with much study and practice, and from letting go of your assumptions and beliefs about the market and instead go where the market takes you. Relinquishing ourselves in that fashion is not an easy thing to do, however. By nature we typically trade our beliefs about the market, and once we've made up our minds about those beliefs, we're not likely to change them. Getting rid of those biases and letting go of the assumptions and beliefs that bound the mind are two important steps on the road to successful trading.

Mental Agility

An agile mind is closely akin to an open and flexible mind, but it's not the same thing. You may be open and flexible but still require a lot of pondering and thoughtful reflection to arrive at a decision. This might make you a shrewd investor but a terrible day trader. A day trader must be able to absorb and quickly analyze an abundance of rapidly changing data.

Can a person develop mental agility? Perhaps not. The best day traders seem to have come from careers that required quick, flexible minds. These people are used to thinking on their feet and responding quickly to the changing conditions around them, such as pilots or salespeople. Doctors, according to one professional trader, make the worst traders. Although a doctor must have an open mind to let the patient's symptoms lead the way, they are generally so accustomed to being right that they find it immensely difficult to admit to being wrong.

Patience

Patience is one of the less heralded qualities of a successful trader; indeed, it's probably one of mankind's most underrated virtues. It creates the ability to wait for the most opportune circumstances before you act. Patience allows you to refrain from overtrading. It's not easily developed, but at the same time it's not really a matter of 'either you have it or you don't,' either. A well-thought-out trading plan – along with the discipline to follow it – can greatly facilitate its development.

A passion for the market

Having a passion for the market – indeed, a love of the game itself – is also ingrained in the makeup of successful traders. They're very keen for and enjoy greatly what they do and can't imagine doing anything else. This type of passion might appear to be in direct conflict with self-discipline, but upon closer examination it's quite the contrary. Passion shows itself to be the fuel that propels the trader to learn the market inside and out. It's the energy that they draw on to effect the mental changes necessary to become a great at what they do. And it spawns the resilience necessary to recover from losses and, more importantly, to learn from them.

To be a successful trader, you're going to need practical knowledge of the markets and a well-thought-out trading plan, but the psychological demands of trading should be explored before you make any commitment to a career in day trading. Preparing yourself for these psychological challenges is the most important thing that you can do. It should indeed take precedence over market insight, trading styles, finding currencies or stocks, or memorizing trading rules.

As a matter of fact, trading rules are simply meaningless platitudes unless you have a grasp of the psychology behind them. Transforming the atmosphere of your mind regarding trading can be done concurrently with studying the nuts and bolts of trading. Just don't neglect it or you may end up in the 80 percent losing arena of failed traders. Because developing the right mental attitude is of paramount importance in your journey toward highly becoming a successful day trader.

Why Foreign Exchange Rates Change

While almost every economic event has at least some indirect influence on the relative value of different currencies, there are generally six major factors that cause the value of currencies to rise or fall relative to one another. Let's take a look at each one:

Purchasing power parity. This theory – first presented in the sixteenth century – is possibly the most important factor that causes the relative values of two currencies to change with regard to each other over time. In an oversimplified form, "PPP" suggests that the same goods should cost the same amount of money in different countries, allowing for the then-current rate of exchange. If this were not true, it would create the possibility of a virtually riskless arbitrage (which is the simultaneous or near-simultaneous purchase and resale of the same securities, commodities, or foreign exchange in different markets in order to profit from unequal pricing). The arbitrage would cause the value of the currency of the country in which the goods were cheaper to increase relative to the currency of the country in which the goods were more expensive.

To illustrate the concept, let's assume that – at a time when the exchange rate of Japanese yen to U.S. dollars is 100:1 – an ounce of silver can be bought or sold for 550 yen in Japan and for $5 in the United States. Under these circumstances an investor could conceivably buy silver in the United States for $5 per ounce and immediately turn around and sell it in Japan for 550 yen per ounce. The investor could then straight away buy dollars with the yen received from that sale at the then-current exchange rate of 100:1 for a net of $5.50 – or a $0.50-per-ounce profit. Provided the transactions occurred nearly simultaneously, the tactic would be almost completely of risk. The investor could then repeat these dealings over and over again.

As a result, several things would happen. Because the investor buys the silver in the United States, the price of silver in the U.S. would begin to rise. Further, because the silver is sold in Japan, the price of silver there would decline start to fall. And due to the exchange of yen for dollars, the value of the yen would decline relative to the dollar. The prices of silver in Japan and the U.S., as well as the yen-to-dollar exchange rate, would continue to change until the transactions no longer generate a risk-free profit. Keep in mind, however, that this example is an oversimplification, because transaction charges, import duties, shipping costs and the like aren't factored into the calculation. Although the price differential would strengthen the yen against the dollar, the price differential of other products might result in the weakening of the yen. Whether PPP works to actually raise or lower the value of the yen against the dollar, therefore, ultimately depends upon the net price differential of all the goods and services that are traded between the United States and Japan, always allowing for the then-current rate of exchange.

Relative interest rates. Another factor that affects exchange rates is the size of the differential between the real interest rates available to investors in the respective countries. The real interest rate is simply the nominal interest rate available to an investor in a high quality short-term investment subtracted by the country's inflation rate.

Using our same two example countries again, let's this time assume that the U.S. has a hypothetical nominal interest rate of 8% and an inflation rate of 3%. Its real interest rate would therefore be calculated at 5% (8% - 3%). Assume Japan's nominal interest rate is 3% while its inflation rate is at 2%; this would give Japan a real interest rate of 1%. Because the real investment return available in the United States is five times larger than the investment return available in Japan, some percentage of Japanese investors can be expected to want to invest in the U.S. In order to do that, however, they'll first have to sell their yen to buy dollars. This exchanging of yen for dollars will cause the dollar to rise against the yen. Additionally, U.S. investors will have less incentive to invest in Japan and, consequently, will reduce their buying of yen with dollars.

Trade imbalances. The size of any trade deficit between two countries will also affect those countries' currency exchange rates. This is because they result in an imbalance of currency reserves among the trading partners. Once more using Japan and the U.S., consider the following example:

Throughout the 1980s and 90s, Japan consistently ran fairly substantial trade surpluses with the United States. Consequently, Japanese companies accumulated a large amount of dollars, while U.S. companies amassed significantly fewer yen. Eventually, however, the Japanese companies must convert the dollars that they accumulated into yen and the United States companies must convert their yen into dollars. Given the mismatch in the amount of currencies to be exchanged between the two countries, the law of supply and demand would tend to distort the exchange rate. The American companies found themselves in a strong position to demand a greater number of dollars in exchange for their limited amount of yen. Thus, the U.S. trade deficit with Japan caused the yen to strengthen against the dollar.

Political stability. During the gold standard of the past, currencies were backed by, and interchangeable with, precious metals. Anyone who held a country's currency could present the currency to the country's central bank (or any major bank in the country) and receive a fixed amount of gold or silver. Over the last few decades, however, the tremendous increase in the size of the economy created a need for money that far outdistanced the ability of the mining industry to produce gold. Therefore, the United States, like all other countries, had little choice other than to discontinue the gold standard. This meant that holders of paper dollars could no longer exchange them for gold.

Today, instead of precious metals, "confidence" backs the world's currencies. The only reason that anyone is willing to accept paper money in exchange for their goods or services is because they're confident that they'll be able, in turn, to pass the paper money on to someone else in exchange for the things that they want or need. Most countries require their citizens to accept their paper money as payment; this is known as legal tender. As long as the citizenry's confidence remains intact, the system works. However, if a country's government becomes unstable due to political gridlock, votes of no confidence, revolution or civil war, confidence can quickly be lost. People become less willing to accept paper currency in exchange for their goods and services, primarily because they're unsure whether they'll be able to pass the paper along to the next person.

Government intervention. The relative value of a country's currency is of great importance to its government. The value of a country's currency affects the wealth of its citizens, the competitiveness of domestically produced goods, the relative cost of the country's labor, and the country's ability to compete. As a result, governments often try to influence the relative value of their country's currencies in a number of different ways, including altering their monetary and fiscal policies, and by directly intervening in the currency markets.

The term monetary policy refers to a country's decisions regarding how much money to print. In the United States, this decision falls primarily on the Federal Reserve, commonly called the Fed. The law of supply and demand applies no less to money; therefore, if a country prints more money, the value of its currency declines – a process known as monetary inflation. If a country prints less money, or more specifically, if the money supply grows at a rate that's lower than the growth rate of the economy, the result is deflation. As the value of a country's currency declines, its people become less wealthy but its businesses become more competitive globally. More competitive businesses translate into more jobs. The Fed's policy makers constantly try to balance the preservation of wealth of the country's citizens with the competitive needs of domestic companies.

Fiscal policy refers to a country's decision regarding whether to run a budget deficit or a surplus. In the U.S., Congress determines the nation's fiscal policy. A budget deficit will cause the value of the dollar to decline because such deficits often lead to monetary inflation. A budget surplus will generally cause the dollar's value to strengthen.

Because short-term variations can have a negative impact on business and global trade, most countries will attempt to reduce any short-term fluctuations in the value of their currencies by directly intervening in the currency market. If the country's currency is being sold, they will buy it; if the currency is being bought and becomes too strong, they'll sell it.

Speculators. Perhaps the most powerful factor that can influence exchange rates over short time frames is the role that speculators play. Speculators typically have tremendous amounts of capital that they can use to either buy or sell any currency. Consequently, their actions can cause the value of such currency to fluctuate, sometimes quite significantly.

The Effects of U.S. Dollar Fluctuations

Movements in the foreign exchange value of the United States dollar have an effect on the U.S. economy, interest rates, domestic and international trade, investments, and the monetary policies of not only America but other nations around the world. The effects of a rising greenback relative to other currencies are varied and substantial. Let's examine some of the consequences that a stronger dollar would generate on the global economic stage (a falling dollar would, of course, produce opposite effects). For example:

• Foreign individuals holding U.S. dollars would receive more foreign currency per dollar when exchanging those dollars for their home currency. American travelers abroad would also benefit from a stronger dollar, receiving a greater amount of local currency for each dollar they trade.
• Foreign-based importers who sell goods or services to the United States are paid in dollars and would therefore obtain more of their home currency in exchange. As a result, they can afford to charge less in dollars for their goods or services, and can be more competitive relative to U.S. providers of similar items. Consequently, imports would rise in the U.S. balance of payments accounts. Demand for comparable domestic goods and services would drop, and price competition from imports would further reduce the ability of U.S. companies to increase prices, which in turn would put downward pressures on inflation. The slowing of the economy and downward price influences would help to depress U.S. interest rates.
• U.S. exporters selling their goods and services overseas are paid in foreign currencies and therefore receive fewer dollars when those currencies are changed into dollars. For this reason, U.S. exports must be priced higher or profit margins and profits will be lowered. Exports from the United States are thereby discouraged, and exports in the U.S. balance of payments accounts drop, causing the economy to slow. Again, downward pressure on U.S. interest rates results due to this weakening in demand.
• Foreigners holding investments in the United States receive more income when they convert interest, dividends, and rent from dollars into their home currency. The value of those U.S. investments also appreciates when translated into their native tender. Foreign investment in the United States becomes more attractive, especially if the dollar is expected to continue to appreciate. Foreigners' willingness to invest in the U.S. continues as long as they feel little concern for the safety of their investments and have no fear of default. Because of the supply of funds flowing to America from abroad, U.S. interest rates are forced downward due to lower monetary demands.
• Foreign investors who want to buy U.S. investments in a strong dollar market must pay more of their own currency to acquire dollars for the purchase. Therefore, investment in the United States is discouraged unless the investors believe that the value of the dollar will continue to rise. However, if investing from foreigners becomes sufficiently dissuaded, funds for domestic uses would have to come from domestic sources, thus placing upward pressures on U.S. interest rates.
• Oil prices are denominated in U.S. dollars; therefore, dollar fluctuations have no effect on the cost of U.S. oil imports. However, other countries would need more of their currencies to obtain the necessary dollars to purchase oil, thereby diverting more resources to the procurement of oil and depressing their economies. Conversely, a stronger dollar would help oil-producing nations by allowing them to buy more foreign goods with the more valuable dollars they receive.

Operating in the FOREX Market

Although the purpose is the same, trading and operations of the FOREX market are slightly different from those of other equity markets. There are a few things which the new FOREX investor must become familiar with. For instance, concerning the specifics of buying and selling on FOREX, it’s important to note that currencies are always priced in pairs. All trades, therefore, will result in the simultaneous purchase of one currency and the sale of another. When operating in the FOREX market, you would execute a trade only at a time when you expect the currency which you are buying to increase in value in relation to the one that you are selling. If the currency that you bought does increase in value, you must then sell the other currency back in order to lock-in your profit. Therefore, an open trade, or open position, is a trade in which the investor has bought or sold a particular currency pair but has not yet sold or bought back the equivalent amount in order to close the position.

Currency traders must also become familiar with the way in which currencies are quoted. The first currency in the pair is considered the base currency; the second one is the counter- or quote currency. The majority of the time, the U.S. dollar is considered the base currency, and quotes are expressed in units of “US$1 per counter currency” (for example, USD/JPY or USD/CAD). The only exceptions to this are quotes given for the euro, the pound sterling and the Australian dollar; these three are quoted as “dollars per foreign currency”.

FOREX quotes always include a bid- and an ask price. The bid is the price at which a market maker (or broker/dealer) is willing to buy the base currency in exchange for the counter currency. The ask price is the price at which the market maker is willing to sell the base currency in exchange for the counter currency. The difference between the bid and the ask prices is called the spread.

The cost of establishing a position in the market is determined by the spread, and prices are always quoted using five figures (136.70, for example). The final digit of the price is referred to as a point, or pip, which is the smallest price change that a given exchange rate can make. For instance, if USD/CAD was quoted with a bid price of 136.70 and an ask price of 136.75, that five-pip spread is the cost of trading into this position. The trader, therefore, must recover the five-pip cost from his or her profits, necessitating a favorable move in the position in order to simply break even.

Margin on the FOREX is not a down payment on a future purchase of equity as in other markets, but a deposit made to the trader's account that will cover against any losses in the future. A typical currency trading system will allow for a very high degree of leverage in its margin requirements, up to 100:1 or more. The system will automatically calculate the funds necessary for current positions and will check for margin availability before executing any trade.

As you can see, trading in FOREX requires a slightly different mindset than that which is needed for equity markets. Yet, for its extreme liquidity, the multitude of opportunities for large profits and high levels of available leverage, the currency markets are quickly growing in popularity among investors. Traders should always be aware, though, that with such potential for gain there is also significant risk for loss; they should therefore quickly become familiar with various methods of risk management.

Important Foreign Exchange Terms

ABA - A 9-digit code used by the American Bankers Association to define a specific bank. Each institution has its own unique number code.

Ask price - The price at which a seller offers or it is willing to sell a currency to a buyer; also known as the offer price.

Annualized - The extrapolation of the behavior of a certain measured factor (such as rate, volatility, etc.) from a given period of time to the expanse of one full year.

Base currency - The currency in relation to which other currencies are quoted; the first currency listed in a currency pair; this is most often the currency of the home market in which the investor is trading.

Basis point (or BPS) - A financial unit of measure that describes the percentage change in value of a security. One basis point is equal to one one-hundredth of one percent, i.e. 0.01%, or as a decimal 0.0001 (see Pip). For example, a change of 4.20 percent to 4.85 percent is a move of 65 basis points.

Bid price - The price at which a buyer offers or is willing to pay to purchase a currency from a seller.

Central bank - A particular country's governmental body that controls the nation's monetary policy and currency creation.

Consumer Price Index (CPI) - A measure of the average price that a typical U.S. consumer pays for a standardized basket of goods and services as compared to the average price paid for that same basket of goods and services in an earlier base year.

Cross rates - The foreign exchange rate between two currencies other than the U.S. dollar, which is the currency in which most exchanges are typically quoted. Thus, the cross rate would be expressed as the ratio of the dollar rates of the two currencies.

Currency - the lawful denominated medium of exchange of a country. In the foreign exchange market, each country's currency is represented by a unique three-character ISO code. For example, United States dollars are identified USD, Euros are designated EUR, etc.

Currency pair - The exchange rate relationship between two currencies whereby one currency is expressed in terms of the other. The first listed currency of the pair is called the base currency, and the second currency is known as the quote or counter currency. For example, USD/EUR is a common currency pair, and is pronounced "U.S. dollars per Euro."

Day Trading - A highly specialized type of investing in which market positions are opened and closed with the same day (or within a few days at most). This type of trading is usually speculative in nature.

Discount Rate - The interest rate that a private banking institution pays for loaned funds received from the U.S. Federal Reserve System.

Exchange rate - The amount of a particular currency needed to buy a standardized amount of another currency.

Exchange rate risk - The potential loss that an investor faces from a movement in bid/ask prices (i.e., exchange rates) that is adverse to the investor's open market position.

Euro - The currency adopted as a result of the European Economic and Monetary Union (EMU); it replaced those of the following member countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

Exposure - The risk that an investor accepts from any open investment position; the amount that can be lost; also known as market exposure.

Federal Reserve System - The central bank of the United States, which has the responsibility of implementing the country's monetary policy and regulating the system's member banks.

Fixed exchange rate - The official exchange rate set by the monetary authority of a country, typically its central bank.

Floating exchange rates - Exchange rates that are determined by supply and demand.

Foreign exchange - The exchange or trading of foreign currency (also known within the industry as Forex or FX); also, transactions that cause a change in the foreign currency position of a financial institution. Foreign currency is bought and sold on the foreign exchange market either for immediate (known as spot) or forward delivery.

Foreign exchange market - An area (not necessarily confined to physical borders or boundaries) where buyers and sellers are in contact for the purpose of trading foreign currencies.

Forward contract - A purchase contract that locks in the exchange rate for delivery on a specified future date. The buyer is typically required to put up a deposit (or margin) for the privilege of buying the future currency at today's rate of exchange.

Hedging - A strategy used by traders and investors to protect an investment or portfolio against loss. With regard to currency transactions, a current sale or purchase would be offset by the investor contracting to buy or sell another financial instrument at a specified future date in order to the eliminate a profit or loss on the current sale or purchase by balancing it out. In this manner the risk due to price fluctuations is substantially negated.

Interbank prices - Market rates that apply to currency prices for transactions of one million U.S. dollars or more; these prices differ from retail market rates.

ISO - International Standards Organization, a global standard-setting body.

Long position - A market position in which the investor has purchased a financial instrument (stock, commodity, currency, etc.) that he or she did not previously own, with the expectation of an increase in value (also known simply as long); opposite of short position.

Margin - An investor-contributed cash percentage of the market value of securities held in a margin account; a cash deposit provided as collateral by the purchaser of a forward contract position.

Market maker - An individual or financial institution that provides consistent buy and sell quotations for a particular security or securities. A market maker must carry an inventory of the securities quoted or have ready access to the quoted amounts.

Offer price - See Ask price.

Open position - Any market transaction (whether long or short) that has not yet either been settled by physical payment or effectively balanced out by an equal and opposite transaction for the same date.

Overbought - A market circumstance in which the movement of a currency pair price has risen at least 150 percent more violently than normal, overreacting to net buying activity. As a result, a price correction will generally be expected to soon take place; in other words, investors will expect the price of the currency pair to presently fall.

Oversold - A market circumstance in which the movement of a currency pair price has fallen at least 150 percent more violently than normal, overreacting to net selling activity. As a result, a price correction will generally be expected to soon take place; in other words, investors will expect the price of the currency pair to presently rise.

Point (or Pip) - The smallest incremental move that an exchange rate can make. Because most currency pairs are priced to four decimal places, the smallest incremental move possible would be a change of 0.0001, which is equivalent to one Basis point. For example, a currency that has moved from a price of 1.4580 to 1.4583 has risen three points (or pips).

Portfolio - The total selection of securities held by an investor or financial institution. A primary function of the portfolio is to manage and minimize investment risk.

Price movement - The change in price of a particular currency over a given period of time.

Retail prices - Market currency prices that include commissions and other charges which exchange agencies or banking institutions levy in order to convert currencies for non-corporate (i.e., private) clients.

Risk - The chance that an investor's return-on-investment (ROI) will be different from that expected, including the potential for loss of part or all of his or her investment funds.

Settlement - The final stage or culmination of a transaction, identified by the physical exchange of one currency for another.

Short position - A market position in which the investor has sold a financial instrument (stock, commodity, currency, etc.) that he or she did not previously own, with the expectation of a decrease in value (also known simply as short); opposite of long position.

Spot - A transaction that will reach settlement within two days.

Spot price - The current market price of a spot transaction.

Spot rate - A spot transaction's current rate.

Spread - The difference between a currency's bid and ask prices.

Stop-buy - A buy order that is executed when an investor-specified price (which is above the current ask price) is reached; used to enter the market when prices are expected to continue to rise.

Stop-loss (or Stop order) - An order that is executed when an investor-specified price is reached to close the market position by either buying or selling (depending upon whether the position is long or short) to limit the investor's loss from a damaging price move.

Trend - The direction of the market; generally identified as either a major, intermediate, or short-term trend. A trend's direction may be upward, downward, or sideways.

Volatility - A measure by which prices are expected to fluctuate or have fluctuated during a given period of time.

Introduction to FOREX Trading

In Introduction to FOREX Trading we looked at the origins, structure and proliferation of today’s FOREX market. In this article we’ll discuss the two investment strategies used by FOREX traders: Technical Analysis and Fundamental Analysis.

Most small- to medium-sized investors in the FOREX markets use the form of investment strategy known as Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations can be found in the price chain. In other words, all of the factors which have an effect on the price of the currency have already been considered by the market and are therefore reflected in the price. The investor who uses Technical Analysis bases his investment decision on three essential suppositions: that the movement of the market inherently considers all factors; that the movement of prices is purposeful and directly tied to these events; and that history repeats itself. This investor considers the highest and lowest prices of a currency, its opening and closing prices, and its volume of transactions. He or she does not try to predict long-term trends, but simply looks at what has happened to that currency in the recent past, and supposes that the small short-term fluctuations will generally continue as they have before.

An investor who utilizes Fundamental Analysis studies the current situations in the country of the currency, including such things as economy, political situation, and other related information. A country's economy can be quantifiably defined by measurements of its Central Bank's interest rate, its unemployment level, its tax policy and the rate of inflation. The prudent investor also knows, however, that less measurable conditions and occurrences can also impact a nation’s economy. He or she must furthermore keep in mind the expectations and anticipations of other market participants. Just as in any stock market, the value of a currency is also based in large part on the perceptions of and anticipations about that currency, and not solely on the reality of its condition.

While the risk certainly is substantial, the ability to conduct marginal trading in the FOREX market allows for potentially enormous profits relative to the initial capital investments that are required. The sheer size of the FOREX prevents virtually all attempts by anyone to influence the market for their own personal gain. This has the effect of making the investor feel quite confident that when trading in foreign currency markets he or she has the same opportunity for profit as do other investors around the world. It must be stated, however, that, as with any investment, losses are a possibility. They can, and do, occur. And for the same principle that gives marginal trading its potential for huge gains, the possibility of huge losses is just as great.

Although investing in the FOREX using short-term strategies requires definite assiduousness, experienced investors who utilize a technical analysis can generally feel confident that their ability to read the daily fluctuations of the currency market are sufficient enough to supply them with the knowledge necessary to make informed and prudent decisions.

Getting Started in the FOREX Market

The FOREX market is the largest trading market in the world, and growing numbers of individuals are being drawn to it. But before you begin trading in it, be sure that the broker you choose meets certain criteria, and that you take the time learn the market and find a trading strategy that works for you. The best way to learn to trade FOREX is to open up a demo account and trade with it.

Just as in equity markets, the two basic types of strategy in the FOREX market are Technical Analysis and Fundamental Analysis. But among FOREX traders the most common strategy used by far is Technical Analysis. Let’s compare the two.

Fundamental Analysis in the FOREX market is often very complex, and it's usually only used to predict long-term trends; some investors, however, do trade short-term based strictly upon news releases. There are many different fundamental indicators of currency values, and they’re released at various times.

But these reports are not the only fundamental factors should be watched. There are also a number of meetings that are held periodically, from which come quotes and commentaries, and they can have a very definite effect on markets as well. These meetings are often called to discuss interest rates, inflation, or other issues that affect currency valuations. Even changes in wording when talking about certain issues can cause spikes in market volatility.

Reading these reports and examining the commentary can help FOREX traders using Fundamental Analysis to obtain a better understanding of long-term market trends. They can also help short-term traders to profit from extraordinary events. If you choose to use a fundamental strategy, be sure to keep an economic calendar close-by so that you’ll know when these reports are released.

Technical analysts in the FOREX market evaluate price trends. The only real difference between Technical Analysis in FOREX and Technical Analysis in equity markets is the time frame: FOREX markets are open around the clock,24 hours a day. As a result, some forms of analysis which factor in time must be modified in order to work in the 24-hour FOREX market. Some of the more common forms of technical analysis used in the FOREX market include Elliot Waves, Fibonacci studies, and Pivot points. Many technical analysts combine these studies in order to make more accurate predictions. The most frequent combination is that of the Fibonacci studies with Elliott Waves.

Most successful traders develop an investment strategy, and with repeated use, perfect it over time. Some people focus on one calculation or study; others may utilize a broad range of analysis tools to determine their investments. Most experts suggest using a combination of both Fundamental and Technical analysis. It is the individual investor, however, who must decide what fits and works best for him or her. This is usually accomplished through trial and error.

Here are several suggestions to consider as you get started in the FOREX market: 1) Open a demo account and paper trade until you are comfortable and confident that you can make a consistent profit. In other words, isolate your learning mistakes to the time in which they won’t cost you. 2) Trade without emotion. Don't keep mental stop-loss points. Always set your stop-loss and take-profit points to execute automatically and don't change them unless it’s absolutely necessary. Make your decisions and stick with them. 3) Stay with the trend; if you go against it, make sure you have a very good reason. Movements in the FOREX market tend to be in trends more than anything else; you therefore have a higher chance of success in trading with the trend.

FOREX Fundamentals

The use of Technical Analysis in the FOREX market is much the same as in other trading markets: price is believed to already reflect all news which would have had an effect on the currency’s value. But since countries don’t normally have balance sheets, how can Fundamental Analysis be conducted on a nation’s currency? Since this type of analysis involves looking at the intrinsic value of an investment, its application in the FOREX market will entail the study of the economic conditions that influence the valuation of the country’s money. Here are some of the major fundamental factors that play a role in the price movement of a currency.

Economic indicators are reports that are released by the government or a private organization which detail the country's economic performance. These reports are the means by which a nation’s economic health is measured. (It must be kept in mind, however, that a great many factors will influence a country’s economic performance.) These reports are released at scheduled times, thereby providing a readable marker of whether a nation's economy has improved or declined. Some of the reports, such as unemployment numbers, are well-publicized. Others, like housing statistics, receive very little media coverage. However, each indicator serves a particular purpose, and can be very useful. Four major indicators are listed below:

• The Gross Domestic Product (GDP) is considered to be the broadest measure of a country's economy, and it represents the total market value of all goods and services produced by that country in a given year. Since the GDP figure itself is a lagging indicator, most investors focus on the two reports that are issued in the months before the final GDP is released: the advance report and the preliminary report. Significant revisions from one report to the next can often cause considerable market volatility.
• The Consumer Price Index (CPI) is a measure of the change in the prices of consumer goods across 200 different categories. This report, when compared to a nation's exports, can be used to determine whether a country is making or losing money on its products and services. The exports must be carefully monitored as well, however, because their prices often change relative to a currency's strength or weakness.
• A country’s Retail Sales report measures the total receipts of all retail stores. This report is particularly useful because it’s an indicator of broad consumer spending patterns, and is adjusted for seasonal variations. It can be used to predict the performance of more important lagging indicators. It’s also valuable in assessing the immediate direction of a country’s economy. Revisions to advance reports of retail sales can cause significant volatility.
• The Industrial Production report shows the change in the production of factories, mines and utilities within a nation. It also reports their 'capacity utilizations', which are the degrees to which the capacities of the factories are being utilized. Traders using this indicator are usually concerned with a nation’s utility production.

There are many other important economic indicators, and still more private reports that can be extremely useful in evaluating FOREX fundamentals. It's important to not only look at the numbers, but to also take the time to know and understand what they mean and how they affect a nation's economy. When properly used, these indicators can be a valuable resource for the FOREX investor.

Choosing a FOREX Broker

Just as in any other trading market, there are numerous brokers in the FOREX market to choose from. Here are a few things to keep in mind as you shop for one:

Choose a broker that has lower spreads. The spread is the difference between the price which currency can be bought and the price at which it can be sold at any given point in time. FOREX brokers don't charge commissions, so this difference is how they make their money; therefore, the lower the better for you.

Make sure that the broker is backed by a reliable financial institution. FOREX brokers are usually affiliated with large banks or lending institutions because of the vast amounts of leverage, or capital, that they need to provide. The broker should also be registered with the Futures Commission Merchants (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). This information should be found on the broker’s website or that of the parent institution.

The broker should provide market tools and research. FOREX brokers usually offer many different trading platforms for their clients. These platforms often include real-time charts, technical analysis tools, real-time news and other data. Brokers also usually provide technical commentaries, economic calendars and other research information.

The broker should offer a wide range of leverage options. Leverage is the amount of money that a broker will lend you for trading. It’s expressed as a ratio of the total capital available to the actual capital invested; for example, a ratio of 100:1 means your broker is lending you $100 for every $1 of actual capital that you put up. Leverage is necessary in FOREX because the price deviations, which are the sources of profit, are so small, merely fractions of a cent. Lower leverage means lower risk of a margin call, but also a lower degree of profit. A variety of leverage options allows you to vary the amount of risk that you’re willing to take.

Make sure the broker you choose offers the tools and services that are right for the amount of capital that you have. Many brokers offer two or more types of accounts. The smallest is known as a mini account; requires you to trade with a minimum of, perhaps, $250, and offers a high degree of leverage (which you’ll need in order to make money with such a small amount of initial capital). The standard account lets you trade at a variety of different leverages, but the minimum initial capital required is around $2,000. Premium accounts, which often require significant amounts of capital, allow you to use different amounts of leverage and often offer additional tools and services.

Beware of Sniping and Hunting. This refers to brokers prematurely buying or selling near preset points in order to underhandedly increase profits. Of course, no broker is going to admit doing this. And since there are no blacklists or organizations that report such activity, the only way to determine which brokers do and which ones don't is to talk to other traders.

Make sure the broker follows strict margin rules. When you are trading with borrowed money, your broker has a say in how much risk you take. This is because you are required to sign a margin agreement when you open an account. This agreement states that since you are trading with borrowed money, the brokerage has the right to interfere with your trades, at its discretion, in order to protect its interests. Depending on your position in the market, this could cost you a great deal of money. Again, talk to other traders or visit online discussion forums to find out who the honest brokers are.

Let's start this conversation off by stating that you can make money with any style of trading. In the day trading game, the primary factor that will determine your success or failure is what's between your ears. That said, there are many different styles that can be used in day trading.

It's important to define your trading style as early as possible in your day-trading career, because it will have a direct bearing on a number of important elements. For instance, your trading style will dictate the type of brokerage account you'll need, the type of trading software you'll use, the sort of training you'll need and the kind of mentor you may seek. Each style is a variation on the day-trading game with its own rules and idiosyncrasies – and you can't learn the rules until you know which game you'll be playing. Nor will you be able to develop a trading plan until you know your trading style, because to write a trading plan you must know what, when, why, where, and how much you're going to trade. And knowing these things actually goes a long way toward defining your trading style.

A trading style is defined partly by how much time is spent in the market – do you close all positions by the end of the day, or do you hold them overnight or perhaps longer? It's also defined by the stocks that you trade, whether you use technical analysis or if you base your trades on news events. Many elements go into defining a style but, again, the most important is the organ inside your head.

Your mental makeup will (or should) drive your decision about style. For example, if you, by nature, methodically think through a situation before making a decision, you may never make it as a 'scalper' because such a style requires the ability to make split-second judgments based on rapidly changing data. Or, if you've spent years making investments based primarily on fundamental analysis, you may have a hard time relying on signals emanating from technical indicators. You may feel more comfortable in trading a group of fundamentally sound stocks. The point here is to learn the essentials that make up the different styles, while at the same time learning about yourself. As you do, you'll naturally gravitate toward a style that best fits your personality.

Although combinations are virtually infinite, let's separately examine a few of the most basic trading styles that you might consider using.

Scalping

When people think of the classic day trader, they typically imagine him or her employing this type of trading style. The scalper enters and exits a market position quickly, staying in long just enough to 'scalp' a teenie (i.e., a sixteenth, or 0.0625, of a point) in profit and getting out at the first sign of reversal. The trader using this style may make dozens or even hundreds of trades a day, sometimes on just one stock. Scalpers sit in front of their computer screens, grinding out trades (which is why they're also known as "grinders"), some trading any security that moves, others concentrating on a group of related stocks.

As you can guess, one-sixteenth of a point isn't much. One point is equal to one dollar, so a sixteenth of a point is $0.0625. So, a scalper trading for teenies (or a 'cents,' as teenies are often called now that securities trade in decimals) expects to make slightly over six cents per share on a successful trade. On a 1,000-share trade, that's $62.50; on a 2,000-share trade, it's $125; and on 5,000 shares, the profit is $312.50. Commissions can dig deeply into those earnings, especially on smaller trades. And, of course not all trades will be winners. To make money here, traders must make larger-than-average trades (at least 1,000 or more shares) and try to let their profits run.

Scalpers are also called "trend-" or "momentum traders" because they typically look for intraday trends or momentum. They'll buy a stock on a dip, sell it on a crest, short-sell when it turns downward, and cover when it heads back up. As such, this style requires volatile stocks, a good technical strategy to time entry and exit points, and complete emotional detachment.

Scalping ideally requires a large amount of capital (some say $100,000 minimum), a full-time commitment, a professional-level trading platform with a high-speed connection, a thorough knowledge of the markets, and nerves of steel. According to some experienced in the field, this style tends to be more suited for younger traders, the rationale being that for scalping you need lightning-quick reflexes and an appetite for risk-taking. And let's face it, not only do our reflexes slow a bit as we grow older, but most of us also become more conservative in our thinking and less willing to act boldly with our money. Of course, there are scalpers of all ages, but the likelihood is that the older ones have been doing it for quite a while already.

Swing Trading

Swing traders operate in a longer market time frame than scalpers do. Instead of looking for teenies over the next several minutes, these traders look moves of several points over the span of one- to five days. This trading style usually focuses on technical information, so at least a working knowledge of technical analysis is necessary. You don't have to be a full-blown technician, you simply need to be able to identify short-term uptrends and downtrends and other technical basics. But swing traders may also trade on breaking news events such as earnings releases, stock splits, and up- or downgrades that could present opportunities for short-term profits.

Swing trading typically appeals to the more conservative individual who wants short-term profits but doesn't quite have the nerves (or, perhaps, the bank account) to operate as a scalper. It can be done on a part-time basis because you don't have to monitor your stock every second that your position is open. And you can get by with a smaller amount of capital (and also smaller trades) because you're looking for multiple-point profits instead of teenies. However, the overall risk is greater because you're holding market positions overnight, and sometimes over the weekend.

Position Trading

The principal difference between a position trader and a swing trader is the length of time a market position is held – though the terms are often used interchangeably. Position traders typically buy and hold a stock for up to ten days. Some might argue that a person holding onto a stock for ten days technically cannot be called a day trader, but it must be conceded that he or she is nevertheless a very active trader, distinguishing them from an actual investor. In fact, many traders prefer the term "active trader" to the somewhat stigmatized and more uncomplimentary term of day trader.

Position trading offers the same advantages and similar market risk as swing trading. Traders utilizing this style might be technicians that buy a stock and wait for a technical pattern to develop, or they could be fundamentalists that keep a position open just long enough to get the market impact of a news-driven event. If you're reluctant to start at the 'deep end,' this type of day trading might be a great way to get your feet wet.

Technicians

Most day traders use technical signals to determine entry and exit points; some additionally use technical analysis as a tool to find stocks that are good candidates for trading. Still others, however, are pure technicians, virtually ignoring quotes and market-maker influences and basing all of their trade activity on price trends or technical signals. These traders may be technical scalpers, technical swing traders or even technical position traders. The point to note is that a technician's entire strategy is grounded in technical analysis, with everything else being secondary to it.

The best technicians are not only comfortable with numbers but also understand the theory behind an indicator. Nevertheless, any trader will be in a better position by knowing at least the basics of technical analysis, such as support and resistance, simple trend-lines, and moving averages.

Followers

Identify your Day-Trading Style

Some traders have no style of their own; they simply follow someone else's lead. These are the traders who populate the online trading pits – the chat rooms where a head trader calls the plays and the followers try to duplicate them. They buy when the head trader says to buy, and sell when the head trader says sell.

Some do very well, but there are dangers in being a follower. For instance, if you blindly follow the lead trader without learning the methodology behind the activity, the leader will become a crutch that you won't be able to function without. Furthermore, by simply following a leader, you'll never be pressed to take responsibility for your trades, because you can easily blame any losing transactions on the leader. And, if you never take responsibility for your trades, you'll never develop the 'trader mindset' that's so essential to successful trading. Be aware, also, that as a follower you'll by definition always be at least a step behind, which can be critical in trades that depend on split-second timing. Caveats aside, however, following an experienced lead trader can be a good way to learn how to trade, as long as he or she coaches and teaches as they go.