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U.S. consumer price data led to a lower than expected federal reserve
interest rate cut, causing the strongest one-day dollar rally against the
Euro since May, 2005. By the end of the day Friday the 14th, the Euro fell
1.5 percent to 1.4412, the lowest it has been since October. This is the
third week in a row that the dollar has rallied against major currencies.
Strong consumer spending reports have served to partially abate worries
that the mortgage crisis would force the US economy into a recession, and
widespread inflationary concerns would seem to point to a continued
conservative approach to interest rate cuts by the feds, which is more
good news for the greenback.
Many analysts are now predicting the dollar rally will continue in the
short term, fingering 1.43—or even 1.40—as reasonable support levels.
Moreover, there has been a rising chorus of voices saying that the dollar
will rebound in 2008, due to shrinking budget and trade deficits. If we
are correct in assuming that the Fed will be conservative in cutting
interest rates, this will lead to an increased international appetite for
investment in the US market, creating greater demand for the dollar.
On the other hand, we are wary that the dollar rally is simply a
correction, rather than a trend reversal. Furthermore, we would not be
surprised to see another test of the $1.50 level in the short term, even
if prospects for the dollar are good in 2008
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The Foreign Exchange
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The Foreign Exchange is the
largest financial market in the world, with trillions of dollars traded
each and every day. Initially utilized just by large banks, multinational
corporations and extremely wealthy currency speculators, the influx of
online brokerages tailored to the retail market has created a vibrant
retail foreign exchange market! Now, with a relatively small initial
investment, anyone with an internet connection can take advantage of the
online Forex market.
While banks and large multinational corporations generally execute foreign
exchange transactions simply as a function of doing international business
or to hedge their base currency to protect against devaluation, currency
speculators exploit fluctuations in the foreign exchange market
exclusively for profit. While trading currencies is a bit riskier than
trading other instruments, like stocks and commodities, the potential for
profit is unparalleled. For example George Soros, perhaps the most
successful Forex trader, made $1 billion in a single day when he sold the
pound against the dollar in 1992 T he
major currencies traded on the foreign exchange are the US dollar, the
Eurodollar, the Japanese Yen, the Swiss Franc, and the British Pound.
These different currencies are expressed as pairs. When these pairs are
traded, one of the currencies is bought and the other currency is sold
concurrently. Today, anyone with an internet connection can trade these
pairs under the same conditions once reserved for high value individuals
and corporations. Most retail brokerages offer real time currency prices,
instant execution, advanced charting features and extensive real time news
and analysis feeds.
If you are interested in trying out the foreign exchange, we have
assembled a list of quality brokerages that offer free “fake money”
accounts where one may trade in real
market conditions. Not only is their immense profit potential in the
Foreign Exchange market, it is quite exhilarating as well. Why not give it
a shot
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forex Scalping
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Forex scalping is a trading strategy in
which the trader makes dozens or even hundreds of trades daily, looking to
capture a few pips per trade. Generally, scalpers stay in trades for less
than a minute, bolting as soon as their position captures a few pips.
Brokers do not look kindly upon scalpers, as many times scalpers will exit
a position before the dealing desk has time to deal your order. This means
that the brokerage has to eat the position—a successful scalper will
consistently earn money—money that comes directly from the brokerage’s
pocket.
To avoid this conflict of interest between scalpers and the brokerages,
scalpers often trade with electronic communication network (ECN)
brokerages, which circumvent the dealing desk allowing online traders to
trade directly with one another. ECN brokerages usually have less
liquidity than traditional dealing desk brokerages and charge a per trade
commission, but their pip spreads are narrower.
To be a successful online Forex scalper, traders must follow strict risk
management rules. Because the scalper grabs only a couple of pips at a
time, one big loss can wipe out dozens and dozens of careful, meticulous
trading. Traders should be sure to use stop loss orders, ensuring that the
profit/loss margin on each trade is very small.
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