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When you're making trades in the forex market, you're basically buying or selling the currency of a particular country. But there's no physical exchange of money from one hand to another. That's contrary to what happens at a foreign exchange kiosk—think of a tourist visiting Times Square in New York City from Japan. He may be converting his physical yen to actual U. But in the world of electronic markets, traders are usually taking a position in a specific currency, with the hope that there will be some upward movement and strength in the currency that they're buying or weakness if they're selling so they can make a profit.

There are some fundamental differences between foreign exchange and other markets.

First of all, there are fewer rules, which means investors aren't held to as strict standards or regulations as those in the stock, futures, or options markets. That means there are no clearing houses and no central bodies that oversee the forex market.

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Second, since trades don't take place on a traditional exchange, you won't find the same fees or commissions that you would on another market. Next, there's no cutoff as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time of day. Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford.

Spot for most currencies is two business days; the major exception is the U. Other pairs settle in two business days. During periods that have multiple holidays, such as Easter or Christmas, spot transactions can take as long as six days to settle. The price is established on the trade date, but money is exchanged on the value date.

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The U. The most common crosses are the euro versus the pound and yen. The spot market can be very volatile. Movement in the short term is dominated by technical trading, which focuses on direction and speed of movement. People who focus on technicals are often referred to as chartists. Long-term currency moves are driven by fundamental factors such as relative interest rates and economic growth.

A forward trade is any trade that settles further in the future than spot. The forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies. Most have a maturity less than a year in the future but longer is possible. Like with a spot, the price is set on the transaction date, but money is exchanged on the maturity date.

A forward contract is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries. A futures transaction is similar to a forward in that it settles later than a spot deal, but is for standard size and settlement date and is traded on a commodities market. The exchange acts as the counterparty. As a result, the trader bets that the euro will fall against the U.

Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1. The difference between the money received on the short-sale and the buy to cover is the profit. Had the euro strengthened versus the dollar, it would have resulted in a loss. The foreign exchange market is extremely liquid and dwarfs, by a huge amount, the daily trading volume of the stock and bond markets.

By contrast, the total notional value of U. When you're making trades in the forex market, you're basically buying the currency of a particular country and simultaneously selling the currency of another country. Traders are usually taking a position in a specific currency, with the hope that there will be some strength in the currency, relative to the other currency, that they're buying or weakness if they're selling so they can make a profit.

In todays world of electronic markets, trading currencies is as easy as a click of a mouse. There are no clearing houses and no central bodies to oversee the forex market which means investors aren't held to the strict standards or regulations as those in the stock, futures, or options markets. Second, there aren't the fees or commissions that exist for other markets that have traditional exchanges. There is no cutoff time for trading, aside from the weekend, so one can trade at any time of day. They wanted to trade every time two of these custom indicators intersected, and only at a certain angle.

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The start function is the heart of every MQL4 program since it is executed every time the market moves ergo, this function will execute once per tick. For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe. Once I built my algorithmic trading system, I wanted to know: 1 if it was behaving appropriately, and 2 if the Forex trading strategy it used was any good.

In other words, you test your system using the past as a proxy for the present. MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality. To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows. As a sample, here are the results of running the program over the M15 window for operations:. This particular science is known as Parameter Optimization.

I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this:. You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: for small error values, its return changes dramatically. In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance. But indeed, the future is uncertain! And so the return of Parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability.

Often, a parameter with a lower maximum return but superior predictability less fluctuation will be preferable to a parameter with high return but poor predictability. In turn, you must acknowledge this unpredictability in your Forex predictions. This does not necessarily mean we should use Parameter B, because even the lower returns of Parameter A performs better than Parameter B; this is just to show you that Optimizing Parameters can result in tests that overstate likely future results, and such thinking is not obvious. This is a subject that fascinates me.

Building your own FX simulation system is an excellent option to learn more about Forex market trading, and the possibilities are endless. The Forex world can be overwhelming at times, but I hope that this write-up has given you some points on how to start on your own Forex trading strategy. Understanding Technical Analysis Beginner.

Wide Ranging Bars Advanced. Trading Strategies. A good trading strategy should be well thought-out and tested extensively. It should also encompass your entire approach to trading in a simple and straightforward plan. This plan should include such critical elements as trade entry and exit criteria, position sizes, risk management, and more. Learn about different types of trading strategies and how you can use them to your advantage in the Forex market. Non-Farm Payrolls Advanced. Understanding Commodity Correlations Intermediate.

What is the Tweezer Candlestick Formation Advanced. Trading Gold Intermediate. Keys to Trading Gold Beginner. Fundamental Analysis. When it comes to analyzing currencies from a fundamental perspective, central banks, interest rates, and global macroeconomic conditions take center stage. Learn how to decipher major economic factors and how they play the primary role in moving currency markets.

Use fundamental analysis to help back your trading decisions with knowledge and sound reasoning. Central Banks Intermediate. Consumer and Producer Price Indices Intermediate. Key Economic Announcements Intermediate. Leading Economic Indicators Intermediate. Trading Using Fundamental Analysis Intermediate. What Is Fundamental Analysis Beginner. Your window to the world of Forex trading is the trading platform that you use to place trades. Knowing the platform as thoroughly as possible is crucial to your success as a trader. Learn all of the features and functions of our trading platforms in order to take full advantage of what they offer.

Advanced Trading Platform Customization Beginner. Web Trading Walkthrough Intermediate. Web Trading Charts Indicators Intermediate. Web Trading Charts Basics Intermediate. Mobile Trading Overview Intermediate. MetaTrader Platform Tutorials. Learn how to trade on one of the world's most popular trading platforms with access to dedicated support and integrated trading tools exclusive to FOREX.