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Strategies for Forex Trading
Rollover in Forex
You may have heard of the rollover in forex trading, and you might not be familiar with what it is. It's actually a very simple concept. Rollover is a situation that occurs when you hold a trade beyond the ending time of a particular day's trading.
There are different times at which this may happen, and that will depend on which broker you are using for your forex trading. But at any time of day, the rollover is the time when your trade is carried to a new day and you pay, or are paid, for the position you hold on that trade.
When you take a position in the forex market, you are simultaneously buying one currency and selling another. No matter what currency it is, all currencies are paired in forex, so you must sell one to buy another. When you do this, you are, in effect, borrowing one currency from someone to sell it or buy it. The in-depth details of this borrowing are not of much concern to you as a trader, but what is of concern is the interest rate for the currencies involved.
Each currency bears an interest rate that is very similar to the rate established by that currency's central bank. The difference between the rates of the currencies in the pair you are trading is what determines whether you pay, or are paid, when the day changes in the currency market. In some instances, you will pay regardless of the direction you take on a currency pair, such as the GBP/USD pair where the rates are so close at this time that the spread between them leads to you paying whether you buy or sell.
As noted earlier, the times vary as to when you will see the rollover occur. In the case of many US forex brokers and market makers, the time used for the rollover is the end of banking hours on the east coast. Basically, when the banks close in New York, the rollover occurs, and the next day is started. At that time you will either be charged or credited, depending on your trade.
To avoid this, all you have to do is to close your positions before the rollover occurs. In the case of most brokers, you can exit the trade prior to the rollover and incur no charges or credits for that day. However, some brokers have moved to a continuous rate calculation and charge or credit based on how long you held the position, regardless of whether or not it carries through the rollover.
See Also:
Forex Trading Education - Forex Indicator
Bad Forex Strategies
Use Caution In Forex
Although Forex trading is touted as a low risk investment option, an investor should be cautious when dealing with the currency market because of the multiplicity of factors that control this volatile market.
A Forex investor must keep in mind keep abreast of world events, changing interest rates, tariffs, corporate earnings, government impositions and any number of changes in commerce and politics around the world.
A Forex investor must follow certain strategies and read graphs and charts that suggest trends and patterns on the currency market. An investor must avoid fear and greed when making decisions in regard to buying or selling. Keeping up to date on what's going on in the market everyday is also important.
Education and an ability to analyze press releases and news reports, along with a rational strategy is the safest way to approach the Forex Market. A Forex trader should minimize risk and maximize profit.
Although Forex trading is the oldest, safest and most lucrative form of investment in the world, an investor needs to attain skills that often are second nature to a broker.
The Forex investor may be in control of his portfolio, but there are a vast variety of factors that control the currency market. The Forex trader must always keep that in mind. |
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History of Forex Trading
The Babylonians appear to be the first to use receipts and notes made of paper, but the exchange of currencies occurred long before the Babylonians.
Early trade was done through a barter system and was soon replaced with an object of value being tallied up to equal the value of goods in exchange. Gold and silver eventually became the standard object of value in exchange for goods.
Traders in the Middle Ages used an I.O.U. as a means of exchange which finally led to the creation of modern currencies.
Before World War I, currencies were based on a gold exchange. Paper money was valued on a backup of gold. Sometimes, in a panic, investors would appear in mass to exchange their currency for gold.
In those cases, the economy would go bust. When the gold standard was eliminated in 1931 after the Great Depression, Forex Trading became almost non-existent.
Economist John Maynard Kaynes recommended a currency based on a world reserve, but in July of 1944, through a United States initiative, it was decided to base currency value on the United States Dollar, which was valued at $35.00 an ounce in gold.
This arrangement of currency value based on the United States Dollar began faltering in the 1960s and finally tumbled in the 1970s. President Richard Nixon suspended this system in August of 1971 because of the United States Dollars unsuitability as basis of value as a result of American trade deficits and budgetary woes.
With the introduction of the Euro in 2002 after the implementation of the European Monetary System in 1979, the European economy tittered for a time until stability was finally imposed with the signing of the 1991 Maastricht Treaty which established the EURO as currency across Europe in member nations of the European Union.
The EURO became a strong currency and impacted the monetary exchange globally.
With the volatility of currencies in the Third World adding to the mix, investors have become more enamored of Forex Trading so much so that currency exchange has become the largest investment market in the global economy spreading quickly across the world particularly quickly through the Internet.
Related Topics: The Best Momentum Indicator,
Advancing Your Financial, Currency Trading in Forex
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