Easy-Forex™

When choosing a Forex broker or platform, there are many different
considerations to think about, and a lot of questions to ask each of them.
Those raised in this chapter are presented as a guide you should use in your
search for the right broker or platform for you. Please note that some of the
answers below refer to the terms offered by the
Easy-Forex™
Trading
Platform.
We believe that a skilled and well informed trader is a better trader, for
both the trading platforms and the individual traders.
Personal account management
Is anybody there? Are there real people behind the phone (or the e-mail
box)? Do I have a one-on-one relationship with an individual who knows my
account and is able to provide continuity of service online?
Expert
Easy-Forex™
team members are available to you at all times, anytime.
Moreover, you have your own Account Service Manager working closely with
you, while dealing room services are offered to you by expert Forex dealers.
You may speak with us by phone, by e-mail, or over the advanced online CHAT
system that we operate. Depending on your location, you can also visit an
Easy-Forex™ regional office to meet in person.
Yes, it's internet, but we are
real, and we take it personally.
Live training and one-on-one help
Do they offer professional assistance and tools?
Easy-Forex™
offers background information for the Forex market, a Guided-
Tour, seminars, one-on-one training, CHAT, telephone support, as well as
other assistance tools, including technical support. You are never left alone to
trade without help, whenever you want it. Moreover, your personal Account
Service Manager will guide you live on your first trading steps, to help you get
acquainted with the Easy-Forex™ system, and will answer all of your technical
questions.
Guaranteed Rates and Stop-Loss
Is it “around” or “near” the rate I set, or exactly on it?

Easy-Forex™
guarantees your exact Stop-Loss rate by using the latest
technologies. We are committed to the principle that you will never lose more
than the margin risked by the Stop-Loss rate you choose.
The same principle holds true for any Take-Profit rate you set: your deal will
close automatically on the exact Take-Profit rate you define.
Needless to say, you can change both Stop-Loss and Take-Profit rates at any
time while a deal remains open.
It is highly important that you know that, due to the nature of the forex
global market, 100% guarantee to pre-set rates is impossible. Such may occur
under highly volatile market conditions, where other parties to the Forex
trade (e.g. – the trader, the platform, the liquidity provider, etc.) are unable
to execute specific rates, or specific rate range, due to conditions that are
beyond their control.
Simply put: Easy-Forex™ makes any and all efforts to guarantee the rates,
when it is able to doing so, unless market conditions prevent delivering the
rate selected.
No software download
Is the internet platform friendly and easy to use? Do I need to download any
software? Can I begin trading immediately, and am I restricted to a specific
computer terminal?
Easy-Forex™
Trading Platform was the first, and may be the only, Forex
platform that enables users to start trading immediately.
With no software to download, you can log into your account and trade
anytime, from anywhere.
Instant deposit with a credit card
Am I bound to wait for banking hours, or can I deposit trading margins with
my credit card? Will I miss an opportunity if I decide to change the margins in
the middle of the night? When I profit, can I withdraw the profits to my
credit card account?
Easy-Forex™
was the first, and may be the only, Forex platform that allows
you to fund your account with your credit card (or PayPal, or Western Union,
and others), so you can start trading immediately, regardless of banking work
days or hours. Easy-Forex™ cares about protecting your credit card security
and your privacy to the highest standard. To achieve that, we use the latest
technologies and comply with all relevant regulations.
Profits withdrawn can, of course, be transferred back to the source of your
original deposit (i.e., your credit card account).
Start trading in less than 5 minutes
How time-consuming is the account set-up process? Can I immediately
register, deposit the margins for the deal, and start running?
With
Easy-Forex™
, the answer is “Yes”. There is no software to download,
and you have the option of using your credit card to deposit the margin
required to trade. Please note that due to security measures aimed at
protecting you, the scope of deals during the first week of trading with Easy-
Forex™, is limited. This restriction will be removed after making phone
contact with our team.
Banks are closed at nights, weekends and holidays.
Trade, deposit and withdraw at
, 24x7
Easy-Forex™
Margin trading with as little as US$50
What is the lowest amount I can risk?
The
Easy-Forex™
system enables you to trade with very small amounts if you
wish: you can start using Easy-Forex™ with as little as $50. No bank (that we
know of) offers such an opportunity. Starting to trade with such small
amounts is the best way to get acquainted with the Forex marketplace.
“Demo” accounts, which are offered by many but not by
Easy-Forex™
, allow
you to trade only imaginary money. Consequently, you are unlikely to trade
in the same way you would with your own real money, thus minimizing the
value of such accounts as a learning tool. By trading, instead, with very small
amounts of your money, you familiarize yourself with the system, and are free
to increase your level and scope of activity at your own pace as your
confidence and experience grow.
Freeze the rate you see
When I select a rate for a deal, can I "FREEZE" it for a few seconds before I
make my final decision?
Unlike any other trading platform today,
Easy-Forex™
offers you the ability to
freeze an exchange rate for a few seconds, regardless of rate movements.
This means that the rate you see and freeze is the rate you get if you proceed
with the deal. During a “freeze”, the Forex market could change, but you are
guaranteed the rate you have frozen.

Commissions? Fees? Spreads?
(read about the
)
features offered at Easy-Forex™
No hidden costs
Are all costs readily apparent? Am I charged commissions on trading? Am I
charged commissions on withdrawals of profit?
With
Easy-Forex™
, you pay no commissions for the deals you make (see our
Spreads and Commissions page onboard our website). Easy-Forex™ acts as a
market maker, and makes its earnings from the spreads that are embedded in
the currency rates. In the "Day-Trading" zone you may roll over your positions
to the next day for a renewal fee. There are no charges for profit withdrawals
or deposits. Moreover,
Easy-Forex™
does not levy its side of bank costs onto
the trader. Easy-Forex™ performs withdrawal transactions at mid-rate value:
when you want to take profits from a deal involving a currency other than
your operating currency, Easy-Forex™ converts at an average of the current
high and low rates. Some platforms charge the high rate to generate an
additional revenue stream.
Security and Safety
What kind of safety and security measures are taken to protect my
transactions?
Easy-Forex™
treats the issues of data security, privacy, integrity and backup
with the utmost attention and care. These criteria are achieved by:
Ensuring authorized access only. Easy-Forex™ uses two layers of top
•
class firewall: one at the server level and one at the application level;
Using an advanced SSL by VeriSign for user authentication and data
•
transfer;
Separating the application servers (the servers that handle our clients'
•
online activity) from transactional information which is stored on a
different data server;
Locating two different farm servers separately for data recovery,
•
integrity and replication. Data has to be synchronized in both locations,
thus cannot be tampered with. All the information on the servers is
encrypted when stored;

The physical security of each server farm is very high. Armed guards
•
are on location 24 hours a day, and access to the premises is strictly
forbidden except for authorized personnel.
Easy-Forex™
ensures that whatever happens: failure, disaster, etc., your
transactions are intact, secure, and backed up.
To get personal assistance and free training,
Join Easy-Forex™
(registration is quick and free, no obligation)
Special terms for frequent traders
Can the trading terms I am offered be tailor-made to my personal
prefer ences?
The spreads and other terms in our site assume deals of small and up to
medium volumes. If you are a frequent trader dealing in larger volumes, we
offer you a tailor-made account to suit your exact needs (spreads, leverage
ratio, mobile-phone alerts, etc.). Contact us by e-mail or phone to obtain
your special trading terms.
Competitive spreads
How many "pips" are offered in the spread?
The spreads on our site assume deals of small and up to medium volumes. If
you are a frequent trader dealing in larger volumes, we offer tailor-made
accounts to suit your exact needs (spreads and leverage).
Live, real-time streaming quotes
Are the rates presented the most current? Is the information presented in my
account status window updated at the same time so my position is always
current?
The
Easy-Forex™
high-edge system uses the latest highly sophisticated and
advanced technologies in order to offer you up-to-the-second quotes. You may
check your accounts and positions in real time, you m ay do so 24 hours a day,
and make a deal based on real-time information. Easy-Forex™ believes it is
highly important for you to be able to control your funds whenever you wish,
and base your deals on real-time information. That is the level of service we
are committed to providing to our clients.
Refer-a-friend incentive program
Will I be credited and enjoy benefits for referring friends to the trading
platform?
Of course.
: this depends on the user’s country of residence and
HOWEVER
jurisdiction. Such program may be implemented in several world regions,
where in other regions it may not be offered. Please check with your account
sales manager!.
Being an
Easy-Forex™
user, you are entitled to cash and other bonuses for
referrals. Your regional Easy-Forex™ office can provide details.
You can also benefit by joining forces with the trading platform via
IB
(Introducing Broker) programs, and
Internet-Affiliate
programs. Easy-Forex™
rewards performance in these programs, providing online access to its
business partners. When it comes to Forex affiliate programs,
Easy-Forex™
is
number one in the world (by number of Forex-Affiliates enrolled, as well as by
commissions paid to them).
Business partners and reputation
Who are their business partners? Who is their liquidity supplier? Is it a known
international bank? Who do they work with regarding data security?
Easy-Forex™
works only with organizations with the highest reputation in their
fields. This applies to all areas, including the provision of liquidity, data
security, external auditing and others: click on their logos on our homepage to
learn about our partners or read the ABOUT section. We are proud to join
forces with the best! To name just a few, Easy-Forex™ works closely with UBS,
the world-leading Swiss bank to provide liquidity; with RBS (the Royal Bank of
Scotland); with StreamLine (world leading credit card clearing house); with
PWC as our external auditors; with Reuters, our major online data provider;
with VeriSign, for our data and transaction security; and others of similar
reputation.
Full control with online access
Can I control my Forex account from anywhere on the globe, from any
computer, at any desired time, 24x7x365?
Using any computer connected to the internet, anywhere on the globe,
registered traders can access the
Easy-Forex™
system. In case you have
technical difficulties - relating to old versions of PC hardware or software -
please read our TECHNICAL SUPPORT section (linked at the bottom of our
homepage), or contact us by e-mail, phone or chat to get online technical
support.

Full Transparency
May I generate detailed reports with the click of a button, as well as track all
transactions performed in my Forex account, whenever I wish?
Yes. You may check the value of your position at any time, as well as see
historical data (transactions and deals) with the click of a button. Moreover,
you may generate "scenarios" ("what-if?") with possible rates at your position,
in order to see if you are in a gain or loss.
When logic dictates, you can control greed.

Step (1): Deciding to perform a Forex deal
You have an intention to trade Forex, and you have your own reasoning for
doing so – e.g. you feel that the USD will increase compared with the EUR.
The EUR/USD exchange rate is, at the time, around 1.2000 (the common
presentation of the Euro-US$ pair is EUR/USD, meaning 1.2000 US dollars for 1
Euro). Your feeling can be based on your experience, or on technical analysis,
or fundamental analysis, etc. For whatever reason, you believe that the USD
will rise to around 1.1850 (EUR will be down, which means USD will go up).
You want to profit if your forecast is correct, and so choose to make a trade.
Step (2): Determining the deal
Below is a screen-shot of a Day-Trading deal in the making and an explanation
of each step required to put the trade into effect:
Select currencies: Select the currencies in the Forex pair. There is no
connection between your “base working currency” (or “account base

currency”, the currency in which you handle your Forex account and make
deposits and withdrawals) and the currencies in the pair you select. In this
example you selected “BUY USD” because you feel it is low in terms of Euro,
and it will increase in the near future. Once it increases to the level you
anticipate, you will close the deal, and get more EUR for the USD you
previously “bought” - hence, you make profit.
Select the amount: Since Forex trading is “non-delivery” trading (i.e. – no
physical currencies are transacted), the Forex deal (contract) has a “volume”,
or “size”, meaning the amount of the currencies in this contract. You
determine the volume of the contract, but you do not have to purchase the
whole amount. In general, you work in the most common leverage (see
below), 1:100: therefore a deal of 10,000 Euro will require much less money
to facilitate it.
Select the amount to risk: This is your investment. This is the amount you
risk, meaning the MAXIMUM amount you can lose. On a 1:100 leverage, EUR
10,000 against USD thus requires only USD 100 (in fact, the actual leverage
you are offered in this case is 1:120, since you “buy” EUR10,000 with USD
12,000 guaranteed using only USD 100 of your own money).
Stop-Loss rate: This is the currency exchange rate at which your deal would
automatically close in the event the market ran counter to your forecast. In
this event, you would lose your USD 100 investment. You can define another
Stop-Loss rate, however, the “amount to risk” will change accordingly. There
is a direct relationship between the Stop-Loss rate and the “Margin” (i.e the
amount risked) required for the deal.
Freeze Rate: This feature is unique to the
Easy-Forex™
Trading Platform. You
see the rate for the deal and you are almost ready to accept it, but before
you do, you need a few seconds to think. With the freeze rate feature you are
allowed a few seconds more to either decline or accept the deal.
Accept: When you’re ready, click “Accept” and your deal is activated. You
have enough money in your Forex account to make the deal, so it’s in play.
You are holding now an “Open Position” in Forex.
Please note, “Renewal until…: The Day-Trading deal resembles a “SPOT”
transaction (but is not identical). The rates in the deal are the updated
current rates (“spot”), and the deal may be closed anytime during the trading
day. However, the trader can extend the deal to the following day (paying a
small renewal fee). Most platforms offer an automatic renewal of the deal,
for a few days period. The trader may close the position at any time. If the
trader closes the deal before the indicated closing time (usually it is 22:00
GMT), no renewal fee will be charged.

Step (3): Checking account status
Below is a screen-shot of a typical “My Position” report:
With online platform s, traders have 24x7 access in order to monitor open
positions, to close positions, or change parameters (definitions) in the deal.
ID: The reference number of the deal, as recorded in the platform.
Open date: The day the deal was opened by the trader.
Buy: The volume of the currency “bought”.
Sell: The volume of the currency “sold”.
Rolling until: The last day to which the deal will be automatically renewed.
Rate: The exchange rate of the currency pair in the deal.
Stop-Loss rate: The rate defined for automatic “stop-loss” of the deal. The
deal will close if this rate occurs in the market during the time the deal is
active.
Take-Profit rate: (Not defined in this example). This is the rate at which the
deal will close automatically assuming the market moves in the direction
forecast by the trader. When defined, this rate allows a trader to take profit
automatically when a set rate is achieved, thus allowing the trader to focus
on other tasks rather than watching the market closely.
Margin: The amount invested by the trader for the deal. This is the maximum
amount the trader can lose.

Last rate: The last known rate (it is the current rate at the time the trader is
viewing the screen).
Current Profit/Loss: The status of the trader’s position. This will be the profit
(or the loss) from this deal, if it was closed at this very second.
Check closing value: Pressing this key will calculate and present the status of
all of the trader’s open Day-Trading deals (total profit or loss). This is the
place for the trader to manually close a position, before it reaches Stop-Loss
or Take-Profit.
Change Stop-Loss: The trader is allowed to change his Stop-Loss, at any time
while the deal is still active. As previously mentioned, doing so would affect
the amount of margin needed for the deal. If the trader changes the Stop-Loss
downward (in a case where the position is losing, and is now near the
automatic closing), then additional funds will be required for margin. If the
trader changes the Stop-Loss upward (in a case where the deal will already
see a profit, and the trader wishes to define a higher Stop-Loss to decrease
the original risk), then the difference will be credited.
Change Take-Profit: Similarly, the trader is allowed to define, or change, a
Take-Profit rate. Note that unlike a Stop-Loss rate, the trader does not have
to define any Take-Profit rate; it simply allows the trader to focus on tasks
other than rate-watching.
Scenario: The trader can key in various hypothetical exchange rates to see
their impact on their overall position (amount of profit or loss), if and when
such rates occur in the market.
Step (4): Closing the deal manually
Using the deal defined in the screen shot above, the deal definitions are: Buy
USD; sell EUR; EUR10,000; Deal rate 1.1952; Stop-Loss 1.2052; no Take-Profit
defined; margin USD 100.
The table below shows what would occur under various scenarios:
Change in
Rate of
Closing Rate Profit / Loss Comments
Exchange
return on
Rate
investment
Maximum loss; the deal
00
1.2200 Loss USD 100.
was automatically closed
-2.0% -100%
already on 1.2052
Maximum loss; the deal
00
1.2150 Loss USD 100.
was automatically closed
-1.6% -100%
already on 1.2052
00
1.2100 Loss USD 100.
Maximum loss; the deal
was automatically closed -1.2% -100%

Change in
Rate of
Closing Rate Profit / Loss Comments
Exchange
return on
Rate
investment
already on 1.2052
00
1.2050 Loss USD 98.
-0.8% -98%
00
1.2000 Loss USD 48.
-0.4% -48%
00
1.1950 Profit USD 2.
0.0% 2%
00
1.1900 Profit USD 52.
0.4% 52%
00
1.1850 Profit USD 102.
0.9% 102%
00
1.1800 Profit USD 152.
1.4% 152%
00
1.1750 Profit USD 202.
1.9% 202%
00
1.1700 Profit USD 252.
2.4% 252%
The table shows the effect of “leveraged” trading: the trader invests USD 100,
for a EUR 10,000 contract. Therefore, a small change in the currency
exchange rate reflects a much higher change in value.
The Trader may lose up to 100% of the investment (USD 100), but can gain an
unlimited profit.
The table also illustrates the value of PIPs. In this deal, every PIP (the fourth
decimal digit) results in a profit or loss of USD 1.00 to the trader. So long as
the trader gains on this deal, each PIP is worth $1 on a $100 margin leveraged
at 1:100 .
Limit Orders (reserving a Day-Trading deal)
Some dealing rooms and platforms offer the trader the ability to set a
"reserved" rate for a deal, that would "capture", if and when such a rate
occurs in the market, resulting in a Day-Trading deal.
The trader can define the rate he/she wishes, letting the platform do the
watching, until (if and when), it appears in the market.
Easy-Forex™
does not
charge additional fees for Limit Orders. Setting up a Limit Order is very
similar to the process described above for Day-Trading. Should the reserved
deal not be realized, the funds which were allocated for it will be returned to
the trader's account.
You don’t have to miss a trading opportunity when you go on vacation! Make a
Limit-Order with your preferred currency rate, and
Easy-Forex™
will automatically
open the deal for you (if indeed it occurs in the market), at no costs!

Fundamental analysis is a method of forecasting future price movements of a
financial instrument based on economic, political, environmental and other
relevant factors, as well as data that will affect the basic supply and demand
of whatever underlies the financial instrument. In practice, many market
players use technical analysis in conjunction with fundamental analysis to
determine their trading strategy. One major advantage of technical analysis is
that experienced analysts can follow many markets and market instruments,
whereas the fundamental analyst needs to know a particular market
intimately. Fundamental analysis focuses on what ought to happen in a
market. Among the factors considered are: supply and demand; seasonal
cycles; weather; government policy.
The fundamental analyst studies the causes of market movements, while the
technical analyst studies the effect. Fundamental analysis is a macro, or
strategic, assessment of where a currency should be traded, based on any
criteria but the movement of the currency's price itself. These criteria often
include the economic conditions of the country that the currency represents,
monetary policy, and other “fundamental” elements.
Many profitable trades are made moments prior to, or shortly after, major
economic announcements.
Leading economic indicators
The following is a list of economic indicators used in the USA. Obviously, there
are many more, as well as those of other leading economies (such as
Germany, the UK, Japan, etc.). In general, it is not only the numerical value
of an indicator that is important, but also the market’s anticipation and
prediction of the forecast, and the impact of the relation between
anticipated and actual figures on the market.
Such macro indicators are followed by the vast majority of traders worldwide.
The “quality” of the published data can differ over time. The value of the
indicator data is considered greater if it presents new information, or is
instrumental to drawing conclusions which could not be drawn under other
reports or data. Furthermore, an indicator is highly valuable if one may use it
to better forecast future trends.

Note that in the USA most indicators are published on certain weekdays,
rather than on a particular monthly date (e.g. the second Wednesday in each
month, as opposed to the 14
of each month, etc.).
th
Each indicator is marked as High (H), Medium (M) or Low (L), according to the
importance commonly attributed to it.
CCI - Consumer Confidence Index
[H]
The Conference Board; last Tuesday of each month, 10:00am EST, covers current
month's data
The CCI is a survey based on a sample of 5,000 U.S. households and is considered one of the
most accurate indicators of confidence. The idea behind consumer confidence is that when
the economy warrants more jobs, increased wages, and lower interest rates, it increases our
confidence and spending power. The respondents answer questions about their income, the
market condition as they see it, and the chances to see increase in their income. Confidence
is looked at closely by the Federal Reserve when determining interest rates. It is considered
to be a big market mover as private consumption is two thirds of the American economy.
CPI - Consumer Price Index; Core-CPI
[H]
th
Bureau of Labor and Statistics; around the 20
of each month, 8:30am EST, covers
previous month's data
The CPI is considered the most widely used measure of inflation and is regarded as an
indicator of the effectiveness of government policy. The CPI is a basket of consumer goods
(and services) tracked from month to month (excluding taxes). The CPI is one of the most
followed economic indicators and considered to be a very big market mover. A rising CPI
indicates inflation. The Core-CPI (CPI, excluding food and energy, expense items which are
subject to seasonal fluctuations) gives a more stringent measure of general prices.
Employment Report
[H]
Department of Labor; the first Friday of each month, 8:30am EST, covers previous
month data
The collection of the data is gathered through a survey among 375,000 business and 60,000
households. The report reviews: the number of new work places created or cancelled in the
economy, average wages per hour and the average length of the work week. The report is
considered as one of the most important economic publications, both for the fact that it
discloses new up-to-date information and due to the fact that, together with NFP, it gives a
good picture of the total state of the economy. The report also breaks out data by sector
(e.g. manufacturing, services, building, mining, public, etc.)

Employment Situation Report
[H]
Bureau of Labor and Statistics; the first Friday of each month, 8:30am EST, covers
previous month data
The Employment Situation Report is a monthly indicator which contains two major parts. One
part is the unemployment and new jobs created: the report reveals the unemployment rate
and the change in the unemployment rate. The second part of the report indicates things like
average weekly hours worked and average hourly earnings. This data is important for
determining the tightness of the labor market, which is a major determinant of inflation. The
Bureau of Labor surveys over 250 regions across the United States and covers almost every
major industry. This indicator is certainly one of the most watched indicators and almost
always moves markets. Investors value the fact that information in the Employment report is
very timely as it is less than a week old. The report provides one of the best snapshots of the
health of the economy.
FOMC Meeting (Federal Open Market Committee): Rate announcement
[H]
The meeting of the US Federal Bank representatives, held 8 times a year. The
decision about the prime interest rate is published during each meeting (around
14:15 EST).
The FED (the Federal Reserve of USA) is responsible for managing the US monetary policy,
controlling the banks, providing services to governmental organizations and citizens, and
maintaining the country’s financial stability.
There are 12 Fed regions in the USA (each comprising several states), represented in the Fed
committee by regional commissioners.
The rate of interest on a currency is in practice the price of the money. The higher the rate
of interest on a currency, the more people will tend to hold that currency, to purchase it and
in that way to strengthen the value of the currency. This is very important indicator affecting
the rate of inflation and is a very big market mover.
There is great importance to the FOMC announcement, however – the content of the
deliberation held in the meeting, which is published 2 weeks after the rate announcement, is
almost as important to the markets.
The FED’s announcement has shaken the Forex market? Learn about
economic indicators; read the online financial calendar onboard
.
Easy-Forex™ Trading Platform
GDP - Gross Domestic Product
[H]
BEA (Bureau of Economic Analysis); last day of the quarter, 8:30am EST, covers
previous quarter data.

The US Commerce department publishes the GDP in 3 modes: advance; preliminary
and final.
GDP is a gross measure of market activity. It represents the monetary value of all the goods
and services produced by an economy over a specified period. This includes consumption,
government purchases, investments, and the trade balance. The GDP is perhaps the greatest
indicator of the economic health of a country. It is usually measured on a yearly basis, but
quarterly stats are also released.
The Commerce Department releases an "advance report" on the last day of each quarter.
Within a month it follows up with the "preliminary report" and then the "final report" is
released yet a month later. The most recent GDP figures have a relatively high importance to
the markets. GDP indicates the pace at which a country's economy is growing (or shrinking).
ISM (Institute for Supply Management) Manufacturing Index
[H]
Institute for Supply Management; the first business day of the month, 10:00am EST,
covers previous month data
The Manufacturing ISM Report on Business is based on data compiled from monthly replies to
questions asked of purchasing executives in more than 400 industrial companies. It reflects a
compound average of 5 main economic areas (new customers’ orders 30%; manufacturing 25%;
employment 20%; supply orders 15%; inventories 10%). Any data over 50 points shows the
expansion of economic activities, and data under 50 points shows a contraction.
MCSI - Michigan Consumer Sentiment Index
[H]
University of Michigan; first of each month, covers previous month data
A survey of consumer sentiment, conducted by the University of Michigan. The index is
becoming more and more useful for investors. It gives a snapshot of whether or not consumers
feel like spending money.
NFP - Changes in non-farm payrolls
[H]
Department of Labor; the first Friday of each month, 8:30am EST, covers previous
month data
The data intended to represent changes in the total number of paid U.S. workers of any
business, excluding the following:
- general government employees;
- private household employees;
- employees of nonprofit organizations that provide assistance to individuals;
- farm employees.
The total non-farm payroll accounts for approximately 80% of the workers responsible for
the entire gross domestic product of the United States. The report is used to assist
government policy-makers and economists in determining the current state of the economy
and predicting future levels of economic activity. It is a very big market mover, due largely to
high fluctuations in the forecasting.

PMI - Purchasing Managers Index
[H]
Institute for Supply Management; the first business day of each month, 10:00am EST,
covers previous month's data
The PMI is a composite index that is based on five major indicators including: new orders;
inventory levels; production; supplier deliveries and the employment environment. Each
indicator has a different weight and the data is adjusted for seasonal factors. The Association
of Purchasing Managers surveys over 300 purchasing managers nationwide who represent 20
different industries. A PMI index over 50 indicates that manufacturing is expanding, while
anything below 50 means that the industry is contracting. The PMI report is an extremely
important indicator for the financial markets as it is the best indicator of factory production.
The index is popularly used for detecting inflationary pressure as well as indicating
manufacturing activity. The PMI is not as strong as the CPI in detecting inflation, but because
the data is released one day after the month, it is very timely. Should the PMI report an
unexpected change, it is usually followed by a quick reaction in market. One especially key
area of the report is growth in new orders, which predicts manufacturing activity in future
months.
Retail Sales Data; Retail Sales less Automotives
[H]
th
Bureau of Census; around the 12
of each month, 8:30am EST, covers previous
month’s data
Retail sales are a key driving force in US economy. This indicator tracks the merchandise sold
by companies within the retail trade and measures the total consumer spending on retails
sales (not including service costs). The retail revenues are a major part (two thirds) of the US
economy. The Census Bureau surveys hundreds of various sized firms and business offering
some type of retail trade. Every month the data is released showing the percent change from
the previous month’s data. A negative number indicates that sales decreased from the
previous months sales. This indicator is a very big market mover because it is used as a gauge
of consumer activity and confidence, as higher sales figures indicate increased economic
activity.
The data is very timely because retail sales data is released within 2 weeks of the
previous month.
Tankan Survey
[H]
BoJ (Bank of Japan); four times a year in April, July, October and mid-December;
10:50pm GMT
An economic survey of Japanese business issued by the central Bank of Japan, which it then
uses to formulate monetary policy. The survey covers thousands of Japanese companies
with a specified minimum amount of capital, although firms deemed sufficiently influential
may also be included. The companies are asked about current trends and conditions in the
business place and their respective industries, as well as their expected business activities for
the next quarter and year. It is considered a big market mover for JPY currency pairs.

TIC (Treasury International Capital) Data on transactions in long term
[H]
securities
th
Department of the Treasury; around the 12
working day of each month, 9:00am EST,
covers month before previous data
The TIC data provides information about the most important way the US is financing its
ongoing current account deficit: selling long-term securities to foreigners, or exporting debt.
It is important to remember that there are other ways of financing a deficit: borrowing from
foreign banks or attracting net FDI inflows. But since FDI flows have been negative and bank
flows tend to be small, most of the financing the US needs has come from the sale of long-
term securities to foreigners. TIC data are a good measurement of how much a country is
trusted in the international investment community. It is considered a big market mover.
Trade Balance
[H]
Department of Commerce; the second week of each month, 8:30am EST, covers
month before previous data
A country’s trade balance is the largest component of a country's balance of payments. The
balance of trade measures the difference between the value of goods and services that a
nation exports, and those it imports. A country has a trade deficit if it imports more than it
exports. The opposite scenario is a trade surplus. It is considered a very big market mover.
Budget Statement Monthly
[M]
A monthly report by US government (the Treasury Department), showing the monthly
budget deficit or surplus
The level of deficit/surplus affects the level of US bonds issues by the government, hence –
their price. In addition, this report reflects the level of tax collected by the government,
which is indicative of the level of economic activity. Consequently, the April report (the
month in which Americans submit their tax returns) is even more important than those
released in other months.
Composite Index of Leading Indicators
[M]
th
The Conference Board; around the 20
of each month, 10:00am EST An index used
to predict the direction of the economy's movements in the months to come. The index is
made up of 10 economic components, whose changes tend to precede changes in the overall
economy. These 10 components include:
1. the average weekly hours worked by manufacturing workers;
2. the average number of initial applications for unemployment insurance;
3. the amount of manufacturers' new orders for consumer goods and materials;
4. the speed of delivery of new merchandise to vendors from suppliers;
5. the amount of new orders for capital goods unrelated to defense;
6. the amount of new building permits for residential buildings;
7. the S&P 500 stock index;

8. the inflation-adjusted monetary supply (M2);
9. the spread between long and short interests rates;
10. consumer sentiment.
By looking at the Composite Index of Leading Indicators in the light of business cycles and
general economic conditions, investors and businesses can form expectations about what's
ahead, and make better-informed decisions. It has medium importance, as its many
components are already known at the time of its publication.
Current Account
[M]
BEA (Bureau of Economic Analysis); quarterly, around six weeks after quarter end
The difference between a nation's total exports of goods, services and transfers, and its total
imports of the same. Current account balance calculations exclude transactions in financial
assets and liabilities. The level of the current account is followed as an indicator of trends in
foreign trade, so it is regarded as a big market mover.
Durable Goods
[M]
Bureau of Census; the fourth week of each month, 8:30am EST, covers previous
month data
Durable Goods Orders measures new orders placed with domestic manufacturers for
immediate and future delivery of factory hard goods. A durable good is defined as a good that
lasts an extended period of time (over three years) during which its services are extended.
Rising Durable Goods Orders are normally associated with stronger economic activity, and can
therefore lead to higher short-term interest rates. Higher rates often support a currency, at
least in the short term.
GDP Price Deflator
[M]
BEA (Bureau of Economic Analysis); last day of the quarter, 8:30am EST, covers
previous quarter data
The GDP deflator shows how much a change in the base year's GDP relies upon changes in the
price level. Also known as the "GDP implicit price deflator." As it is not based on a fixed
basket of goods and services, the GDP deflator has an advantage over the consumer price
index (CPI). Changes in consumption patterns, or the introduction of new goods and services,
are automatically reflected in the deflator. This indicator is of medium importance to the
markets.
Housing Starts
[M]
Bureau of Census; around the middle of each month, 8:30am EST, covers previous
month data
This economic indicator tracks how many new single-family homes or other residential
buildings were constructed through the month. For the survey, each house and each single

apartment is counted as one housing start. This indicator is not a huge market mover, but it
has been reported by U.S. Census that the housing industry represents over 25% of all
investment dollars, and a 5% value of the overall economy. Housing starts are considered to
be a leading indicator, meaning it detects trends in the economy looking forward. Declining
housing starts show a slowing economy, while increases in housing activity can pull an
economy out of a downturn.
Industrial Production Capacity; Production Utilization
[M]
Federal Reserve; middle of the month, 9:15am EST, covers previous month data
It is a chain-weighted measure of the change in the production of the nation's factories,
mines and utilities as well as a measure of their industrial capacity and of how many available
resources are being used (commonly known as capacity utilization). In addition, the Capacity
Utilization Index provides an estimate of how much factory capacity is in use. They are
important indicators, as the manufacturing sector accounts for one-quarter of the economy.
Initial Jobless Claims
[M]
Department of Labor; once a week on Thursday at 8:30am EST, covers previous week
data
The data states the number of people who applied to receive unemployment pay for the first
time. It has low to medium importance as this relates to weekly data with high fluctuations;
the average of four weeks is more stable.
Philadelphia Fed Index (Business Outlook Survey)
[M]
th
Federal Reserve Bank of Philadelphia; around the 17
of each month, 10:00am EST,
covers previous month data
The Business Outlook Survey is a monthly survey of manufacturers located around the states
of Pennsylvania, New Jersey and Delaware. Companies surveyed indicate the direction of
change in their overall business activity and in the various measures of activity at their
plants. The index signals expansion when it is above zero and contraction when below. This
index is considered to be a good indicator of changes in everything from employment, general
prices, and conditions within the manufacturing industry. It isn't a big market mover, but the
results found in the survey can indicate what to expect from the Purchasing Managers' Index
(which comes out a few days later and covers the entire U.S.).
PPI - Producer Price Index; Core-PPI
[M]
Bureau of Labor and Statistics; the second full week of each month, 8:30am EST,
covers previous month data
The PPI is not as widely used as the CPI, but it is still considered to be a good indicator of
inflation. This indicator reflects the change of manufacturers’ cost of input (raw materials,
semi-finished goods, etc.). Formerly known as the "Wholesale Price Index", the PPI is a basket
of various indexes covering a wide range of areas affecting domestic producers. Each month

approximately 100,000 prices are collected from 30,000 production and manufacturing firms.
It is not as strong as the CPI in detecting inflation, but because it includes goods being
produced, it is often a forecast of future CPI releases.
Beige Book
[L]
Federal Reserve Board; two Wednesdays before every FOMC meeting, 8 times per
year, 2:15pm EST
Beige book is the commonly used term for the Fed report entitled: "Summary of Commentary
on Current Economic Conditions by Federal Reserve District". It is published just before the
FOMC meeting on interest rates and is used to inform the members on changes in the
economy since the last meeting. This report is published eight times per year. The Beige Book
is not considered to be a big market mover. It is a gauge of the strength of the economy and
not a commentary on the views of Fed members. Occasionally it can move markets if the
findings are substantially different from analyst expectations.
ECI - Employment Cost Index
[L]
Bureau of Labor and Statistics; the last Thursday of Apr, Jul, Nov and Jan, 8:30am
EST; covers previous quarter’s data
The ECI tracks movement in the cost of labor which includes wages, fringe benefits, and
bonuses for employees at all levels of involvement The Bureau of Labor surveys over 3,000
private sector firms and over 500 local governments, schools and other public sector
organizations. This indicator is not widely watched, but it is among a select group of
indicators that have enough power to move the markets. This is particularly true in
inflationary times. The idea behind the ECI is that as wage pressures increase, so does
inflation. This is mainly because compensation tends to increase before companies increase
prices for consumers (inflation).
PCE - Personal Consumption Expenditure
[L]
BEA (Bureau of Economic Analysis); last day of each month, 8:30am EST, covers
previous month data
PCE measures price changes in consumer goods and services. The PCE is a fairly predictable
report that usually has little impact on the markets. The Core PCE, which is the index less
prices of food and energy, estimates inflationary trend more precisely.

Patterns and forecast methods used today
Basic Forex forecast methods:
Technical analysis and fundamental analysis
This chapter and the next one provide insight into the two major methods of
analysis used to forecast the behavior of the Forex market. Technical analysis
and fundamental analysis differ greatly, but both can be useful forecasting
tools for the Forex trader. They have the same goal - to predict a price or
movement. The technician studies the effects, while the fundamentalist
studies the causes of market movements. Many successful traders combine a
mixture of both approaches for superior results.
If both Fundamental analysis and Technical analysis point to the same
direction, your chances for profitable trading are better.
In this chapter…
The categories and approaches in Forex Technical Analysis all aim to support
the investor in determining his/her views and forecasts regarding the
exchange rates of currency pairs. This chapter describes the approaches,
methods and tools used to this end. However, this chapter does not intend to
provide a comprehensive and/or professional level of knowledge and skill, but
rather let the reader become familiar with the terms and tools used by
technical analysts.
As there are many ways to categorize the tools available, the description of
tools in this chapter may sometimes seem repetitive. The sections in this
chapter are:
[6.1] Technical Analysis: background, advantages, disadvantages;
[6.2] Various techniques and terms;
[6.3] Charts and diagrams;
[6.4] Technical Analysis categories / approaches:
a. Price indicators;
b. Number theory;
c. Waves;
d. Gaps;
e. Trends;
[6.5] Some other popular tools.
[6.6] Another way to categorize Technical Indicators.

[6.1] Technical analysis
Technical analysis is a method of predicting price movements and future
market trends by studying what has occurred in the past using charts.
Technical analysis is concerned with what has actually happened in the
market, rather than what should happen, and takes into account the price of
instruments and the volume of trading, and creates charts from that data as a
primary tool. One major advantage of technical analysis is that experienced
analysts can follow many markets and market instruments simultaneously.
Technical analysis is built on three essential principles:
1.
Market action discounts everything!
This means that the actual price is a
reflection of everything that is known to the market that could affect it.
Some of these factors are: fundamentals (inflation, interest rates, etc.),
supply and demand, political factors and market sentiment. However, the
pure technical analyst is only concerned with price movements, not with the
reasons for any changes.
2.
Prices move in trends.
Technical analysis is used to identify patterns of
market behavior that have long been recognized as significant. For many
given patterns there is a high probability that they will produce the expected
results. There are also recognized patterns that repeat themselves on a
consistent basis.
3.
History repeats itself.
Forex chart patterns have been recognized and
categorized for over 100 years, and the manner in which many patterns are
repeated leads to the conclusion that human psychology changes little over
time. Since patterns have worked well in the past, it is assumed that they will
continue to work well into the future.
Disadvantages of Technical Analysis
• Some critics claim that the Dow approach (“prices are not random”) is
quite weak, since today’s prices do not necessarily project future
prices;
• The critics claim that signals about the changing of a trend appear too
late, often after the change had already taken place. Therefore,
traders who rely on technical analysis react too late, hence losing
about 1/3 of the fluctuations;
• Analysis made in short time intervals may be exposed to “noise”, and
may result in a misreading of market directions;

• The use of most patterns has been widely publicized in the last several
years. Many traders are quite familiar with these patterns and often act
on them in concern. This creates a self-fulfilling prophecy, as waves of
buying or selling are created in response to “bullish” or “bearish”
patterns.
Advantages of Technical Analysis
• Technical analysis can be used to project movements of any asset
(which is priced under demand/supply forces) available for trade in the
capital market;
• Technical analysis focuses on what is happening, as opposed to what
has previously happened, and is therefore valid at any price level;
• The technical approach concentrates on prices, which neutralizes
external factors. Pure technical analysis is based on objective tools
(charts, tables) while disregarding emotions and other factors;
• Signaling indicators sometimes point to the imminent end of a trend,
before it shows in the actual market. Accordingly, the trader can
maintain profit or minimize losses.
Be disciplined, don’t be greedy.
Close your Forex the position as you originally planned.
[6.2] Various techniques and terms
Many different techniques and indicators can be used to follow and predict
trends in markets. The objective is to predict the major components of the
trend: its direction, its level and the timing. Some of the most widely known
include:
Bollinger Bands - a range of price volatility named after John Bollinger,
•
who invented them in the 1980s. They evolved from the concept of
trading bands, and can be used to measure the relative height or depth
of price. A band is plotted two standard deviations away from a simple
moving average. As standard deviation is a measure of volatility,
Bollinger Bands adjust themselves to market conditions. When the
markets become more volatile, the bands widen (move further away
from the average), and during less volatile periods, the bands contract
(move closer to the average).

Bollinger Bands are one of the most popular technical analysis
techniques. The closer prices move to the upper band, the more
overbought is the market, and the closer prices move to the lower
band, the more oversold is the market.
Support / Resistance – The
Support level
is the lowest price an
•
instrument trades at over a period of time. The longer the price stays
at a particular level, the stronger the support at that level. On the
chart this is price level under the market where buying interest is
sufficiently strong to overcome selling pressure. Some traders believe
that the stronger the support at a given level, the less likely it will
break below that level in the future. The
Resistance level
is a price at
which an instrument or market can trade, but which it cannot exceed,
for a certain period of time. On the chart this is a price level over the
market where selling pressure overcomes buying pressure, and a price
advance is turned back.
• Support / Resistance Breakout - when a price passes through and stays
beyond an area of support or resistance.
CCI - Commodity Channel Index - an oscillator used to help determine
when an investment instrument has been overbought and oversold. The
Commodity Channel Index, first developed by Donald Lambert,
quantifies the relationship between the asset's price, a moving average
(MA) of the asset's price, and normal deviations (D) from that average.
The CCI has seen substantial growth in popularity amongst technical
investors; today's traders often use the indicator to determine cyclical
trends in equities and currencies as well as commodities.
The CCI, when used in conjunction with other oscillators, can be a
valuable tool to identify potential peaks and valleys in the asset's price,
and thus provide investors with reasonable evidence to estimate
changes in the direction of price movement of the asset.
Hikkake Pattern – a method of identifying reversals and continuation
•
patterns. Used for determining market turning-points and continuations
(also known as trending behavior). It is a simple pattern that can be
viewed in market price data, using traditional bar charts, or Japanese
candlestick charts.
Moving averages - are used to emphasize the direction of a trend and to
•
smooth out price and volume fluctuations, or “noise”, that can confuse
interpretation. There are seven different types of moving averages:
• simple (arithmetic)
• exponential
• time series
• weighed
• triangular
• variable
• volume adjusted
The only significant difference between the various types of moving
averages is the weight assigned to the most recent data. For example,
a simple (arithmetic) moving average is calculated by adding the
closing price of the instrument for a number of time periods, then
dividing this total by the number of time periods.
The most popular method of interpreting a moving average is to
compare the relationship between a moving average of the
instrument’s closing price, and the instrument’s closing price itself.
• Sell signal: when the instrument’s price falls below its moving
average
• Buy signal: when the instrument’s price rises above its moving
average
The other technique is called the double crossover, which uses short-
term and long-term averages. Typically, upward momentum is
confirmed when a short-term average (e.g., 15-day) crosses above a
longer-term average (e.g., 50-day). Downward momentum is confirmed
when a short-term average crosses below a long-term average.
MACD - Moving Average Convergence/Divergence - a technical
•
indicator, developed by Gerald Appel, used to detect swings in the
price of financial instruments. The MACD is computed using two
exponentially smoothed moving averages (see further down) of the
security's historical price, and is usually shown over a period of time on
a chart. By then comparing the MACD to its own moving average
(usually called the "signal line"), traders believe they can detect when

the security is likely to rise or fall. MACD is frequently used in
conjunction with other technical indicators such as the RSI (Relative
Strength Index, see further down) and the stochastic oscillator (see
further down).
• Momentum – is an oscillator designed to measure the rate of price
change, not the actual price level. This oscillator consists of the net
difference between the current closing price and the oldest closing
price from a predetermined period.
The formula for calculating the momentum (M) is:
M = CCP – OCP
Where: CCP – current closing price
OCP – old closing price
Momentum
and
rate of change
(ROC) are simple indicators showing
the difference between today's closing price and the close N days ago.
"Momentum" is simply the difference, and the ROC is a ratio expressed
in percentage. They refer in general to prices continuing to trend. The
momentum and ROC indicators show that by remaining positive, while
an uptrend is sustained, or negative, while a downtrend is sustained.
A crossing up through zero may be used as a signal to buy, or a crossing
down through zero as a signal to sell. How high (or how low, when
negative) the indicators get shows how strong the trend is.
• RSI - Relative Strength Index - a technical momentum indicator,
devised by Welles Wilder, measures the relative changes between the
higher and lower closing prices. RSI compares the magnitude of recent
gains to recent losses in an attempt to determine overbought and
oversold conditions of an asset.
The formula for calculating RSI is:
RSI = 100 – [100 / (1 + RS)]
Where: RS - average of N days up closes, divided by
average of N days down closes
N - predetermined number of days
The RSI ranges from 0 to 100. An asset is deemed to be overbought
once the RSI approaches the 70 level, meaning that it may be getting
overvalued and is a good candidate for a pullback. Likewise, if the RSI
approaches 30, it is an indication that the asset may be getting
oversold and therefore likely to become undervalued. A trader using
RSI should be aware that large surges and drops in the price of an asset

will affect the RSI by creating false buy or sell signals. The RSI is best
used as a valuable complement to other stock-picking tools.
• Stochastic oscillator - A technical momentum indicator that compares
an instrument's closing price to its price range over a given time period.
The oscillator's sensitivity to market movements can be reduced by
adjusting the time period, or by taking a moving average of the result.
This indicator is calculated with the following formula:
%K = 100 * [(C – L14) / (H14 – L14)]
C= the most recent closing price;
L14= the low of the 14 previous trading sessions;
H14= the highest price traded during the same 14-day period.
The theory behind this indicator, based on George Lane’s observations,
is that in an upward-trending market, prices tend to close near their
high, and during a downward-trending market, prices tend to close
near their low. Transaction signals occur when the %K crosses through a
three-period moving average called the “%D”.
Trend line - a sloping line of support or resistance.
•
• Up trend line – straight line drawn upward to the right along
successive reaction lows
• Down trend line – straight line drawn downwards to the right
along successive rally peaks
Two points are needed to draw the trend line, and a third point to
make it valid trend line. Trend lines are used in many ways by traders.
One way is that when price returns to an existing principal trend line’ it
may be an opportunity to open new positions in the direction of the
trend in the belief that the trend line will hold and the trend will
continue further. A second way is that when price action breaks
through the principal trend line of an existing trend, it is evidence that
the trend may be going to fail, and a trader may consider trading in the
opposite direction to the existing trend, or exiting positions in the
direction of the trend.
Don’t fall in love with your Forex position.
Never take revenge of your Forex position.

[6.3] Charts and diagrams
Forex charts are based on market action involving price. Charts are major
tools in Forex trading. There are many kinds of charts, each of which helps to
visually analyze market conditions, assess and create forecasts, and identify
behavior patterns.
Most charts present the behavior of currency exchange rates over time. Rates
(prices) are measured on the vertical axis and tim e is shown of the horizontal
axis.
Charts are used by both technical and fundamental analysts. The technical
analyst analyzes the “micro” movements, trying to match the actual
occurrence with known patterns. The fundamental analyst tries to find
correlation between the trend seen on the chart and “macro” events
occurring parallel to that (political and others).
What is an appropriate time scale to use on a chart?
It depends on the trader’s strategy. The short-range investor would probably
select a day chart (units of hours, minutes), where the medium and long-
range investor would use the weekly or monthly charts. High resolution charts
(e.g. – minutes and seconds) may show “noise”, meaning that with fine details
in view, it is sometimes harder to see the overall trend.
The major types of charts:
• Line chart
The simplest
form, based upon
the closing rates
(in each time
unit), forming a
homogeneous
line. (Such chart,
on the 5-minutes
scale, will show a
line connecting all
the actual rates
every 5 minutes).
This chart does not show what happened during the time unit selected
by the viewer, only closing rates for such time intervals. The line chart
is a simple tool for setting support and resistance levels.

• Point and figure charts - charts based on price without time. Unlike
most other investment charts, point and figure charts do not present a
linear representation of time. Instead, they show trends in price.
Increases are represented by a rising stack of Xs, and decreases are
represented by a declining stack of Os. This type of chart is used to
filter out non-significant price movements, and enables the trader to
easily determine critical support and resistance levels. Traders will
place orders when the price moves beyond identified support /
resistance levels.
• Bar chart
This chart shows three
rates for each time
unit selected: the high,
the low, the closing
(HLC). There are also
bar charts including
four rates (OHLC,
which includes the
Opening rate for the
time interval). This
chart provides clearly
visible information
about trading prices
range during the time
period (per unit)
selected.

• Candlestick chart
This kind of chart is based on an ancient Japanese method. The chart
represents prices at their opening, high, low and closing rates, in a
form of candles, for each time unit selected.
The empty (transparent) candles show increase, while the dark (full)
ones show decrease.
The length of the body shows the range between opening and closing,
while the whole candle (including top and bottom wicks) show the
whole range of trading prices for the selected time unit.

Pattern recognition in Candlestick charts
Pattern recognition is a field within the area of “machine learning”.
Alternatively, it can be defined as “the act of taking in raw data and taking an
action based on the category of the data”. As such, it is a collection of
methods for “supervised learning”.
A complete pattern recognition system consists of a sensor that gathers the
observations to be classified or described; a feature extraction mechanism
that computes numeric or symbolic information from the observations; and a
classification or description scheme that does the actual job of classifying or
describing observations, relying on the extracted features.
In general, the market uses the following patterns in candlestick charts:
Bullish patterns
: hammer, inverted hammer, engulfing, harami, harami
•
cross, doji star, piercing line, morning star, morning doji star.
Bearish patterns
: shooting star , hanging man, engulfing, harami,
•
harami cross, doji star, dark cloud cover, evening star, evening doji
star.

Chart system available at
Easy-Forex™
Trading Platform
The Easy-Forex™ Trading Platform offers the following charting tools, for both
professional and beginner traders.
The chart types:
The time scales:
The view types:

The "drawing line on the chart" types:
The Study types:
Please note: the above screen-shots were taken around mid-2006. The Easy-Forex™
platform continuously upgrades its system, while adding new features on a regular
basis.

[6.4] Technical Analysis categories / approaches
Technical Analysis can be divided into five major categories:
Price indicators
(oscillators, e.g.: Relative Strength Index (RSI))
•
Number theory
(Fibonacci numbers, Gann numbers)
•
Waves
(Elliott's wave theory)
•
Gaps
(high-low, open-closing)
•
Trends
(following moving average).
•
[a] Price indicators
Relative Strength Index (RSI):
The RSI measures the ratio of up-moves to
down-moves and normalizes the calculation, so that the index is expressed in
a range of 0-100. If the RSI is 70 or greater, then the instrument is assumed to
be overbought (a situation in which prices have risen more than market
expectations). An RSI of 30 or less is taken as a signal that the instrument may
be oversold (a situation in which prices have fallen more than the market
expectations).
Stochastic oscillator:
This is used to indicate overbought/oversold conditions
on a scale of 0-100%. The indicator is based on the observation that in a
strong up-trend, period closing prices tend to concentrate in the higher part
of the period's range. Conversely, as prices fall in a strong down-trend, closing
prices tend to be near the extreme low of the period range. Stochastic
calculations produce two lines, %K and %D, that are used to indicate
overbought/oversold areas of a chart. Divergence between the stochastic
lines and the price action of the underlying instrument gives a powerful
trading signal.
Moving Average Convergence/Divergence (MACD):
This indicator involves
plotting two momentum lines. The MACD line is the difference between two
exponential moving averages and the signal or trigger line, which is an
exponential moving average of the difference. If the MACD and trigger lines
cross, then this is taken as a signal that a change in the trend is likely.
[b] Number theory:
Fibonacci numbers:
The Fibonacci number sequence (1, 1, 2, 3, 5, 8, 13, 21,
34 ...) is constructed by adding the first two num bers to arrive at the third.
The ratio of any number to the next larger number is 61.8%, which is a
popular Fibonacci retracement number. The inverse of 61.8%, which is 38.2%,

is also used as a Fibonacci retracement number (as well as extensions of that
ratio, 161.8%, 261.8%). Wave patterns and behavior, identified in Forex
trading, correlate (to some extent) with relations within the Fibonacci series.
The tool is used in technical analysis that combines various numbers of
Fibonacci retracements, all of which are drawn from different highs and lows.
Fibonacci clusters are indicators which are usually found on the side of a price
chart and look like a series of horizontal bars with various degrees of shading.
Each retracement level that overlaps with another, makes the horizontal bar
on the side darker at that price level. The most significant levels of support
and resistance are found where the Fibonacci cluster is the darkest. This tool
helps gauging the relative strength of the support or resistance of various
price levels in one quick glance. Traders often pay close attention to the
volume around the identified levels to confirm the strength of the
support/resistance.
Gann numbers:
W.D. Gann was a stock and a commodity trader working in
the '50s, who reputedly made over $50 million in the markets. He made his
fortune using methods that he developed for trading instruments based on
relationships between price movement and time, known as time/price
equivalents. There is no easy explanation for Gann's methods, but in essence
he used angles in charts to determine support and resistance areas, and to
predict the times of future trend changes. He also used lines in charts to
predict support and resistance areas.
[c] Waves
Elliott's wave theory:
The Elliott Wave Theory is an approach to market
analysis that is based on repetitive wave patterns and the Fibonacci number
sequence. An ideal Elliott wave pattern shows a five-wave advance followed
by a three-wave decline.
[d] Gaps
Gaps are spaces left on the bar chart where no trading has taken place.
Gaps can be created by factors such as regular buying or selling pressure,
earnings announcements, a change in an analyst's outlook or any other type of
news release.

An up gap is formed when the lowest price on a trading day is higher than the
highest high of the previous day. A down gap is formed when the highest price
of the day is lower than the lowest price of the prior day. An up gap is usually
a sign of market strength, while a down gap is a sign of market weakness. A
breakaway gap is a price gap that forms on the completion of an important
price pattern. It usually signals the beginning of an important price move. A
runaway gap is a price gap that usually occurs around the mid-point of an
important market trend. For that reason, it is also called a measuring gap. An
exhaustion gap is a price gap that occurs at the end of an important trend and
signals that the trend is ending.
[e] Trends
A trend refers to the direction of prices. Rising peaks and troughs constitute
an up trend; falling peaks and troughs constitute a downtrend that determines
the steepness of the current trend. The breaking of a trend line usually signals
a trend reversal. Horizontal peaks and troughs characterize a trading range.
In general, Charles Dow categorized trends into 3 categories: (a) Bull trend
(up-trend: a series of highs and lows, where each high is higher than the
previous one); (b) Bear trend (down-trend: a series of highs and lows, where
each low is lower than the previous one); (c) Treading trend (horizontal-
trend: a series of highs and lows, where peaks and lows are around the same
as the previous peaks and lows).
Moving averages are used to smooth price information in order to confirm
trends and support-and-resistance levels. They are also useful in deciding on a
trading strategy, particularly in futures trading or a market with a strong up
or down trend. Recognizing a trend may be done using standard deviation,
which is a measure of volatility. Bollinger Bands, for example, illustrate
trends with this approach. When the markets become more volatile, the

bands widen (move further away from the average), while during less volatile
periods, the bands contract (move closer to the average).
Various Trend lines
Pattern recognition in Trend lines, which detect and draw the following
patterns: ascending; descending; symmetrically & extended triangles;
wedges; trend channels.
[6.5] Some other popular technical tools:
Coppock Curve
is an investment tool used in technical analysis for predicting
bear market lows. It is calculated as a 10-month weighted moving average of
the sum of the 14-month rate of change and the 11-month rate of change for
the index.
DMI
(Directional Movement Indicator) is a popular technical indicator used to
determine whether or not a currency pair is trending.
The Parabolic System (SAR)
is a stop-loss system based on price and time. It
is used to determine good exit and entry points.
You are almost ready to trade in real-time, but you want to discuss
something online.
.
Chat with an Easy-Forex™ expert
[6.6] Another way to categorize Technical Indicators:
The indicators and tools aim to provide information in various approaches:
•
Cycle indicators
A cycle is a term to indicate repeating patterns of market movement,
specific to recurrent events, such as seasons, elections, etc. Many
markets have a tendency to move in cyclical patterns. Cycle indicators
determine the timing of a particular market patterns. (Example: Elliott
Wave).
•
Momentum indicators
Momentum is a general term used to describe the speed at which prices
move over a given time period. Momentum indicators determine the
strength or weakness of a trend as it progresses over time. Momentum is
highest at the beginning of a trend and lowest at trend turning points. Any
divergence of directions in price and momentum is a warning of weakness;

if price extremes occur with weak momentum, it signals an end of
movement in that direction. If momentum is trending strongly and prices
are flat, it signals a potential change in price direction. (Example:
Stochastic, MACD, RSI).
•
Strength indicators
Market strength describes the intensity of market opinion with reference
to a price by examining the market positions taken by various market
participants. Volume or open interest, are the basic ingredients of this
indicator. Their signals are coincident or leading the market. (Example:
Trading Volume).
•
Support/Resistance indicators
Support and resistance describe price levels where markets repeatedly
rise or fall, and then reverse. This method shows the price levels at which
the market is expected to reverse and stay within the S/R levels (e.g. –
not exceeding the support or the resistance level). This phenomenon is
attributed to basic supply and demand forces. (Example: Trend Lines)
•
Trend indicators
Trend is a term used to describe the persistence of price movement in
one direction over time. Trends move in three directions: up, down and
sideways. Trend indicators smooth variable price data to create a
composite of market direction. Generally, the trend could be either UP,
or DOWN, or TREAD (flat). (Example: Moving Averages, Trend lines).
•
Volatility indicators
Describe the intensity of fluctuations in the market prices. A change in
the volatility level hints at a coming change in the price. Volatility is a
general term used to describe the magnitude, or size, of day-to-day price
fluctuations independent of their direction. Generally, changes in
volatility tend to lead changes in prices. (Example: Bollinger Bands).
Unlike the fundamental analyst, the technical analyst is not much concerned
with any of the “bigger picture” factors affecting the market, but
concentrates on the activity of that instrument's market.
To read today’s professional outlook and view detailed charts,
Join Easy-Forex™ (registration is quick and free, no obligation):
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Understanding the nuances of the Forex market requires experience and
training, but is critical to success. In fact, ongoing learning is as important to
the veteran trader as it is to the beginner. The foreign currency market is
massive, and the key to success is knowledge. Through training, observation
and practice, you can learn how to identify and understand where the Forex
market is going, and what controls that direction.
To invest in the right currencies at the right time in a large, nonstop and
global trading arena, there is much to learn. Forex markets move quickly and
can take new directions from moment to moment. Forex training helps you
assess when to enter a currency based on the direction it is taking, and how
to forecast its direction for the near future.
Training with
Easy-Forex™
Easy-Forex™ offers one of the most effective forms of training through hands-
on experience. For as little as USD 25 at risk per trade, you can start trading
while learning in real-time. Easy-Forex™ strongly recommends starting with
very small volumes, and depositing an amount to cover a series of trades.
Learn the basics of the foreign exchange market, trading terminology,
advanced technical analysis, and how to develop successful trading strategies.
Discover how the Forex market offers more opportunities for quick financial
gains than almost any other market.
To learn more about the trading advantages of Easy-Forex™, join
Easy-Forex™
(registration is quick and free, no obligation)
The many available resources and tools to train yourself
There are many free tools and resources available in the market, particularly
online. Among these, you will find:
Charts
There are many kinds of charts (see Chapter 6, Technical Analysis). Start with
simple charts. Try to identify trends and major changes, and try to relate
them to technical patterns as well as to macro events (news, either financial

or political). Make an effort to determine the general magnitude of each
change on the chart (meaning: what is the $ value of the change, if you were
trading at that point).
Guided tours
Most platforms provide guided tours, demos or tutorials, either online or via
download.
News / breaking news
Keep abreast of world news. Read all the headlines, particularly those directly
related to Forex. Check the impact of such news, if any, on the charts.
Forex outlooks
Read daily/weekly outlooks posted on Forex or general financial sites. Many
include alerts to upcoming reports and events such as market indicators and
interest rate decisions.
To read today’s professional outlook and view detailed charts, join Easy-
Forex™ (registration is quick and free, no obligation):
www.Easy-Forex.com
Forecasts
Read forecasts, some of which are available free of charge. Bear in mind that
forecasts and predictions are made by people, none of whom can guarantee
the occurrence of future events…
Indices
Follow the indices of the leading markets (e.g. Dow-Jones, NASDAQ; Nikkei;
etc.). Compare them to the changes in the Forex market, as well as to
changes in particular currency pairs.
Economic indicators
Pay attention to the release of economic indicators (for example – the
monthly unemployment rate in the USA), and try to identify their impact on
the market in general, and on specific currency pairs in particular.
Glossary
Don’t hesitate to browse Forex glossaries, which are offered free on many
platforms. A given word may have different meaning as it relates to Forex and
to the terminology used by the Forex market participants.

Seminars and courses
Try to attend professional Forex seminars. Some seminars are offered free,
often as part of a client recruitment process by a given platform; many are,
nevertheless, worth attending. Educational courses are offered online and by
many post-secondary institutions.
Forex books
Read, or even just browse. Many books are offered free, or as part of a
service package to the trader. For many, historical background and technical
analysis are topics better covered in books than in an educational setting.
Internet forums / blogs
Visit and participate in Forex forums. This gives you an opportunity to learn
from the experience of others. Of course, remember that some forum
participants may be biased, promoting a given Forex platform or their own
agenda.
No commissions? How about profit withdrawal fees?
(No hidden costs at Easy-Forex™. Join and trade without banking costs or other
indirect costs. Read more:
)
www.Easy-Forex.com/ - Spreads and Commissions
So much to consider…
To succeed as a Forex trader, you must take into consideration a wide variety
of factors such as:
• spread (“pips”);
• commissions and fees;
• ease of access to the trading platform;
• minimum amounts needed for trading;
• additional amounts needed (if any);
• control over activity and positions;
• the platform software requirements;
• ease of deposits and withdrawals;
• personal service and support provided by the platform;
• the platform’s business partners;
• the platform’s management, offices and outreach;
• the products offered onboard the platform; and many others.

Online training, no downloads
Easy-Forex™
is dedicated to educating its customers. Customers can access
FREE
one-on-one
online training. The training goal is to teach people specific
strategies for trading currencies over the internet. Both novice investors and
expert day traders have benefited from the training provided by
Easy-Forex™
.
The “demo” account idea
Many Forex platforms offer new registrants a “demo” account. A typical
example would provide 10,000 “demo” dollars that can be “traded” as a
means of learning how to succeed in Forex.
Easy-Forex™
does not offer “demo” accounts. Coming to understand that
reason must rule over emotion is the most important lesson a trader can
learn, and it cannot be done with play money. If there is no consequence to
indulging in emotional responses to the market, there is no learning, so
“demo” accounts tend to have little educational value. Rather, Easy-Forex™
allows you to start trading with just $50, including full access to one-on-one
training. New registrants are thus able to garner both an educational and
experiential benefit unavailable through simulated situations.
To get personal assistance and free training,
Join Easy-Forex™
(registration is quick and free, no obligation)

How a Forex system operates in real time
Online foreign exchange trading occurs in real time. Exchange rates are
constantly changing, in intervals of seconds. Quotes are accurate for the time
they are displayed only. At any moment, a different rate may be quoted.
When a trader locks in a rate and executes a transaction, that transaction is
immediately processed; the trade has been executed.
Up-to-date exchange rates
As rates change so rapidly, any Forex software must display the most up-to-
date rates. To accomplish this, the Forex software is continuously
communicating with a remote server that provides the most current exchange
rates. The rates quoted, unlike traditional bank exchange rates, are actual
tradable rates. A trader may choose to “lock in” to a rate (called the
“freeze
rate”
) only as long as it is displayed.
Trading online on Forex platforms
The internet revolution caused a major change in the way Forex trading is
conducted throughout the world.
Until the advent of the internet-Forex age at the end of the 1990’s, Forex
trading was conducted via phone orders (or fax, or in-person), posted to
brokers or banks. Most of the trading could be executed only during business
hours. The same was true for most activities related to Forex, such as making
the deposits necessary for trading, not to mention profit taking. The internet
has radically altered the Forex market, enabling around the clock trading and
conveniences such as the use of credit cards for fund deposits.
Forex on the internet: basic steps
In general, the individual Forex trader is required to fulfill two steps prior to
trading:
• Register at the trading platform
• Deposit funds to facilitate trading

Requirements vary with each trading platform, but these steps bear further
discussion:
Registering
Registration is done online by the individual trader. There are various forms
used in the industry. Some are quite simple, where others are longer and
more time-consuming. In part, this can be attributed to governmental or
other authorities’ requirements, though some Forex platforms require more
information than is actually needed. Some even require a face-to-face
meeting, or to obtain hard copies of required documents such as a passport,
or driver’s license.
The key requirements for registration are the trader’s full name, telephone,
e-mail address, residence, and sometimes also the trader’s yearly income or
capital (equity) and an ID number (passport / driver’s license / SSN / etc.).
Typically, the Forex platform is not required to run a thorough check, but rely
on the registrant to be truthful. Nevertheless, each Forex platform conducts
certain routines, in order to check and verify the authenticity of the details
provided.
Registrants are required to declare that funds used for trading are not in
question, and are not the result of any criminal act or money laundering
activity. This is mandatory as part of a global anti-money laundering effort.
It is advised that the reader becomes familiar with Anti-Money Laundering
regulations, and the procedures associated with the prevention of this
criminal activity.
Depositing funds
New registrants must deposit funds to facilitate trading. However, the
majority of the Forex platforms today require that, in addition to funds used
for actual trading, an additional amount be deposited. Often called
“maintenance margin” or “activity collateral”, its purpose is for the platform
to have an additional guarantee. Some of the platforms that require an
additional deposit do pay interest on the collateral, which is “frozen” under
the trader’s name.
The
Easy-Forex™
Trading Platform does NOT require any additional guarantee,
and allows trading with 100% of the amount deposited. Easy-Forex™ is able to

provide these advantages because it assures “guaranteed rates and Stop-
Loss”. That means that there will never be any additional requirement for
funds as a result of a “gap” that causes you to surpass the Stop-Loss. See “20
issues you must consider” (Chapter 9) for more.
Trading online
The trading platform operates 24 hours a day just as the global Forex market
runs around the clock.
However, many online Forex market makers require the download and
installation of software specific to their own trading platform. Consequently,
accessibility is limited to those terminals that have the software. Since Forex
trading is borderless, and may be performed at any given time, it is obviously
advantageous to have access to trading from as many locations as possible.
The
Easy-Forex™
Trading Platform is a fully web-based system, which means
trading can be conducted from any computer connected to the internet.
Traders are only required to log-in, ensure they have available funds to trade,
or make new deposits, and commence trading.
The Trading Platform: real-time software
The main feature of any Forex trading platform is real time access to
exchange rates, to deal and order making, to deposits and withdrawals, and
to monitoring the status of positions and one’s account.
The
Easy-Forex™
Trading Platform system uses web services to continuously
fetch the most current exchange rates. The most recent data displays without
the need for a page refresh. This includes account status screens such as “My
Position”, which updates continually to reflect changes in rates and other real
time elements.
Easy-Forex™ guarantees the accuracy, security and integrity of all
transactions.
Read more here
Transaction processing and storage
As soon as a transaction is executed, the relevant data is processed securely
and sent to the data server where it is stored. A backup is created on a
different server farm, to ensure data integrity and continuity. All of this
happens in real time, with no human intervention.

Trading via brokers and dealing rooms (by phone)
Performing Forex trading via Dealing Room dealers (over the phone) requires
knowledge about the way dealing rooms work, and the terminologies used in
the course of trading.
At start, the client should specify whether he/she is interested in obtaining a
QUOTE (in order to make a deal) or just an INDICATION. In the case of an
indication, the price given does not bind the dealer, but rather provides
information about market conditions.
When asking for QUOTE, the trader must specify the currency pair and the
deal amount (volume). For example: “Need a quote for EUR/USD in
EUR100,000”.
It is wise to withhold from the dealer the intended direction of the deal,
specifying the pair only. Accordingly, the dealer then provides a quote
comprising two prices, buy and sell (“both sides quote”). The quote binds the
dealer for the very second it is given. If the trader does not immediately ask
for execution, then the price is no longer in force. The dealer would then tell
the customer “risk”, or “change”, meaning – the price quoted is no longer in
force. In such case, the trader should ask for a new price.
On the other hand, in order to make a deal, the trader must proclaim “buy”
or “sell”, together with the currency (or the price).
An example:
• The trader asks for a quote for EUR/USD.
• The dealer says “1.2010/15”.
• If the trader wants to buy EUR, he/she says “buy" (or "buy EURO”, or
“15”.
• If the trader wants to sell EUR, he/she says “sell" (or "sell EURO”, or
“10”.
The moment the trader says “buy” (or “sell”) he/she is bound to the deal,
regardless of the market situation.
Banks are closed at nights, weekends and holidays. Trade, deposit and
withdraw at
, 24x7

Today, the Forex market is a nonstop cash market where currencies of nations
are traded, typically via brokers. Foreign currencies are continually and
simultaneously bought and sold across local and global markets. The value of
traders' investments increases or decreases based on currency movements.
Foreign exchange market conditions can change at any time in response to
real-time events.
The main attractions of short-term currency trading to private investors are:
24-hour trading, 5 days a week with nonstop access (24/7) to global
•
Forex dealers.
An enormous liquid market, making it easy to trade most currencies.
•
Volatile markets offering profit opportunities.
•
Standard instruments for controlling risk exposure.
•
The ability to profit in rising as well as falling markets.
•
Leveraged trading with low margin requirements.
•
Many options for zero commission trading.
•
A brief history of the Forex market
The following is an overview into the historical evolution of the foreign
exchange market and the roots of the international currency trading, from the
days of the gold exchange, through the Bretton-Woods Agreement, to its
current manifestation.
The Gold exchange period and the Bretton-Woods Agreement
The Bretton-Woods Agreement, established in 1944, fixed national currencies
against the US dollar, and set the dollar at a rate of USD 35 per ounce of gold.
In 1967, a Chicago bank refused to make a loan in pound sterling to a college
professor by the name of Milton Friedman, because he had intended to use
the funds to short the British currency. The bank's refusal to grant the loan
was due to the Bretton-Woods Agreement.
Bretton-Woods was aimed at establishing international monetary stability by
preventing money from taking flight across countries, thus curbing speculation
in foreign currencies. Between 1876 and World War I, the gold exchange
standard had ruled over the international economic system. Under the gold

standard, currencies experienced an era of stability because they were
supported by the price of gold.
However, the gold standard had a weakness in that it tended to create boom-
bust economies. As an economy strengthened, it would import a great deal,
running down the gold reserves required to support its currency. As a result,
the money supply would diminish, interest rates would escalate and economic
activity would slow to the point of recession. Ultimately, prices of
commodities would hit rock bottom, thus appearing attractive to other
nations, who would then sprint into a buying frenzy. In turn, this would inject
the economy with gold until it increased its money supply, thus driving down
interest rates and restoring wealth. Such boom-bust patterns were common
throughout the era of the gold standard, until World War I temporarily
discontinued trade flows and the free movement of gold.
The Bretton-Woods Agreement was founded after World War II, in order to
stabilize and regulate the international Forex market. Participating countries
agreed to try to maintain the value of their currency within a narrow margin
against the dollar and an equivalent rate of gold. The dollar gained a premium
position as a reference currency, reflecting the shift in global economic
dominance from Europe to the USA. Countries were prohibited from devaluing
their currencies to benefit export markets, and were only allowed to devalue
their currencies by less than 10%. Post-war construction during the 1950s,
however, required great volumes of Forex trading as masses of capital were
needed. This had a destabilizing effect on the exchange rates established in
Bretton-Woods.
In 1971, the agreement was scrapped when the US dollar ceased to be
exchangeable for gold. By 1973, the forces of supply and demand were in
control of the currencies of major industrialized nations, and currency now
moved more freely across borders. Prices were floated daily, with volumes,
speed and price volatility all increasing throughout the 1970s. New financial
instruments, market deregulation and trade liberalization emerged, further
stoking growth of Forex markets.
The explosion of computer technology that began in the 1980s accelerated
the pace by extending the market continuum for cross-border capital
movements through Asian, European and American time zones. Transactions
in foreign exchange increased rapidly from nearly $70 billion a day in the
1980s, to more than $2 trillion a day two decades later.

The explosion of the euro market
The rapid development of the Eurodollar market, which can be defined as US
dollars deposited in banks outside the US, was a major mechanism for
speeding up Forex trading. Similarly, Euro markets are those where currencies
are deposited outside their country of origin. The Eurodollar market came
into being in the 1950s as a result of the Soviet Union depositing US dollars
earned from oil revenue outside the US, in fear of having these assets frozen
by US regulators. This gave rise to a vast offshore pool of dollars outside the
control of US authorities. The US government reacted by imposing laws to
restrict dollar lending to foreigners. Euro markets were particularly attractive
because they had far fewer regulations and offered higher yields. From the
late 1980s onwards, US companies began to borrow offshore, finding Euro
markets an advantageous place for holding excess liquidity, providing short-
term loans and financing imports and exports.
London was and remains the principal offshore market. In the 1980s, it
became the key center in the Eurodollar market, when British banks began
lending dollars as an alternative to pounds in order to maintain their leading
position in global finance. London's convenient geographical location
(operating during Asian and American markets) is also instrumental in
preserving its dominance in the Euro market.
Euro-Dollar currency exchange
The euro to US dollar exchange rate is the price at which the world demand
for US dollars equals the world supply of euros. Regardless of geographical
origin, a rise in the world demand for euros leads to an appreciation of the
euro.
Factors affecting the Euro to US dollar exchange rate
Four factors are identified as fundamental determinants of the real euro to US
dollar exchange rate:
The international real interest rate differential between the Federal
•
Reserve and European Central Bank
Relative prices in the traded and non-traded goods sectors
•
The real oil price
•
The relative fiscal position of the US and Euro zone
•
The nominal bilateral US dollar to euro exchange is the exchange rate that
attracts the most attention. Notwithstanding the comparative importance of

bilateral trade links with the US, trade with the UK is, to some extent, more
important for the euro.
The following chart illustrates the EUR/USD exchange rate over time, from
the inauguration of the euro, until mid 2006. Note that each line (the
EUR/USD, USD/EUR) is a “mirror” image of the other, since both are
reciprocal to one another. This chart is illustrates the steady (general) decline
of the USD (in terms of euro) from the beginning of 2002 until the end of
2004.
In the long run, the correlation between the bilateral US dollar to euro
exchange rate, and different measures of the effective exchange rate of
Euroland, has been rather high, especially when one looks at the effective
real exchange rate. As inflation is at very similar levels in the US and the Euro
area, there is no need to adjust the US dollar to euro rate for inflation
differentials. However, because the Euro zone also trades intensively with
countries that have relatively high inflation rates (e.g. some countries in
Central and Eastern Europe, Turkey, etc.), it is more important to downplay
nominal exchange rate measures by looking at relative price and cost
developments.

The fall of the US dollar
The steady and orderly decline of the US dollar from early 2002 to early 2004
against the euro, Australian dollar, Canadian dollar and a few other currencies
(i.e. its trade-weighted average, which is what counts for purposes of trade
adjustment), while significant, has still only amounted to about 20 percent.
There are two reasons why concerns about a free fall of the US dollar may not
be worth considering. Firstly, the US external deficit will stay high only if US
growth remains vigorous, and if the US continues to grow strongly, it will also
retain a strong attraction for foreign capital which, in turn, should support
the US dollar. Secondly, attempts by the monetary authorities in Asia to keep
their currencies weak will probably not work in the long run.
When was the last time the EUR-JPY pair was over 150.00?
(Have a look at
).
Easy-Forex™ professional charts
The basic theories underlying the US dollar to euro exchange rate
Law of One Price:
In competitive markets, free of transportation cost barriers
to trade, identical products sold in different countries must sell at the same
price when the prices are stated in terms of the same currency.
Interest rate effects:
If capital is allowed to flow freely, exchange rates
become stable at a point where equality of interest is established.
The dual forces of supply and demand
These two reciprocal forces determine euro vs. US dollar exchange rates.
Various factors affect these two forces, which in turn affect the exchange
rates:
The business environment:
Positive indications (in terms of government
policy, competitive advantages, market size, etc.) increase the demand for
the currency, as more and more enterprises want to invest in its place of
origin.
Stock market:
The major stock indices also have a correlation with the
currency rates, providing a daily read of the mood of the business
environment.

Political factors:
All exchange rates are susceptible to political instability and
anticipation about new governments. For example, political instability in
Russia is also a flag for the euro to US dollar exchange, because of the
substantial amount of German investment in Russia.
Economic data:
Economic data such as labor reports (payrolls, unemployment
rate and average hourly earnings), consumer price indices (CPI), producer
price indices (PPI), gross domestic product (GDP), international trade,
productivity, industrial production, consumer confidence etc., also affect
currency exchange rates.
Confidence in a currency is the greatest determinant of the real euro to US
dollar exchange rate. Decisions are made based on expected future
developments that may affect the currency.
Types of exchange rate systems
An exchange can operate under one of four main types of exchange rate
systems:
Fully fixed exchange rates
In a fixed exchange rate system, the government (or the central bank acting
on its behalf) intervenes in the currency market in order to keep the exchange
rate close to a fixed target. It is committed to a single fixed exchange rate
and does not allow major fluctuations from this central rate.
Semi-fixed exchange rates
Currency can move within a permitted range, but the exchange rate is the
dominant target of economic policy-making. Interest rates are set to meet
the target exchange rate.
Free floating
The value of the currency is determined solely by supply and demand in the
foreign exchange market. Consequently, trade flows and capital flows are the
main factors affecting the exchange rate.
The definition of a floating exchange rate system is a monetary system in
which exchange rates are allowed to move due to market forces without
intervention by national governments. The Bank of England, for example,
does not actively intervene in the currency markets to achieve a desired
exchange rate level.
With floating exchange rates, changes in market supply and demand cause a
currency to change in value. Pure free floating exchange rates are rare - most

governments at one time or another seek to “manage” the value of their
currency through changes in interest rates and other means of controls.
Managed floating exchange rates
Most governments engage in managed floating systems, if not part of a fixed
exchange rate system.
The advantages of fixed exchange rates
Fixed rates provide greater certainty for exporters and importers and, under
normal circumstances, there is less speculative activity - though this depends
on whether dealers in foreign exchange markets regard a given fixed
exchange rate as appropriate and credible.
The advantages of floating exchange rates
Fluctuations in the exchange rate can provide an automatic adjustment for
countries with a large balance of payments deficit. A second key advantage of
floating exchange rates is that it allows the government/monetary authority
flexibility in determining interest rates as they do not need to be used to
influence the exchange rate.
The EUR-USD has dropped? So w
hat!
(you can profit in any direction it takes, provided you chose the winning direction…)
Who are the participants in today’s Forex market?
In general, there are two main groups in the Forex marketplace:
Hedgers
account for less than 5% of the market, but are the key reason
futures and other such financial instruments exist. The group using these
hedging tools is primarily businesses and other organizations participating in
international trade. Their goal is to diminish or neutralize the impact of
currency fluctuations.
Speculators
account for more than 95% of the market.
This group includes private individuals and corporations, public entities,
banks, etc. They participate in the Forex market in order to create profit,
taking advantage of the fluctuations of interest rates and exchange rates.

The activity of this group is responsible for the high liquidity of the Forex
market. They conduct their trading by using leveraged investing, making it a
financially efficient source for earning.
Market making
Since most Forex deals are made by (individual and organizational) traders, in
conjunction with market makers, it’s important to understand the role of the
market maker in the Forex industry.
Questions and answers about 'market making'
What is a market maker?
A
market maker
is the counterpart to the client. The Market Maker does not
operate as an intermediary or trustee. A Market Maker performs the hedging
of its clients' positions according to its policy, which includes offsetting
various clients' positions, and hedging via liquidity providers (banks) and its
equity capital, at its discretion.
Who are the market makers in the Forex industry?
Banks, for example, or trading platforms (such as
Easy-Forex™
), who buy and
sell financial instruments “make the market”. That is contrary to
intermediaries, which represent clients, basing their income on commission.
Do market makers go against a client's position?
By definition, a market maker is the counterpart to all its clients' positions,
and always offers a two-sided quote (two rates: BUY and SELL). Therefore,
there is nothing personal between the market maker and the customer.
Generally, market makers regard all of the positions of their clients as a
whole. They offset between clients' opposite positions, and hedge their net
exposure according to their risk management policies and the guidelines of
regulatory authorities.
Do market makers and clients have a conflict of interest?
Market makers are not intermediaries, portfolio managers, or advisors, who
represent customers (while earning commission). Instead, they buy and sell
currencies to the customer, in this case the trader. By definition, the market
maker always provides a two-sided quote (the sell and the buy price), and
thus is indifferent in regards to the intention of the trader. Banks do that, as
do merchants in the markets, who both buy from, and sell to, their

customers. The relationship between the trader (the customer) and the
market maker (the bank; the trading platform;
Easy-Forex™
; etc.) is simply
based on the fundamental market forces of supply and demand.
Can a market maker influence market prices against a client’s position?
Definitely not, because the Forex market is the nearest thing to a “perfect
market” (as defined by economic theory) in which no single participant is
powerful enough to push prices in a specific direction. This is the biggest
market in the world today, with daily volumes reaching 3 trillion dollars. No
market maker is in a position to effectively manipulate the market.
What is the main source of earnings for Forex market makers?
The major source of earnings for market makers is the spread between the bid
and the ask prices.
Easy-Forex™
Trading Platform, for instance, maintains
neutrality regarding the direction of any or all deals made by its traders; it
earns its income from the spread.
How do market makers manage their exposure?
The way most market makers hedge their exposure is to hedge in bulk. They
aggregate all client positions and pass some, or all, of their net risk to their
liquidity providers. Easy-Forex™, for example, hedges its exposure in this
fashion, in accordance with its risk management policy and legal
requirements.
For liquidity,
Easy-Forex™
works in cooperation with world's leading banks
providing liquidity to the Forex industry: UBS (Switzerland) and RBS (Royal
Bank of Scotland).
Easy-Forex™ guarantees the accuracy, security and integrity of all
transactions.