Forex Trading Platforms and How They Are Verified

As the popularity of forex trading has surged in recent years, leading more and more retail traders tolearn forex online, so has the proliferation of automated forex systems, expert advisors, forex robots and legions of related products.

What we have found is that some of these products work well for a limited amount of time, some never work and others are consistent performers over the long haul. When it comes to automated trading systems and forex robots you can evaluate 10 or 20 of these products and find few similarities between them. Sure, they are intended to help you make more pips, but beyond that, there is little in the way of commonalities.

One thing that these automated forex systems do have in common is that they all tell you about the profitable results they've accumulated. That's a pretty common sales tactic. After all, the purveyors of these products have to have some hook to get you interested and if they can illustrate that their product produces stellar results, it will normally grab the attention of more than a few prospective buyers.

Of course there are plenty of traders that eschew pre-built automated systems altogether, choosing to use a platform like Meta Trader to develop their own mechanical trading system. No matter what system you decided to go with, one you developed or one developed by someone else, that system is going to be back-tested.

Back-testing is simply the act of taking a system's strategy and applying to market data that has already occurred. Think about that for a minute. The only way to test the efficacy of a trading system is to use old data. It cannot be argued that patterns repeat themselves over and over again in financial markets, but that doesn't mean that backtesting is a fool-proof method of discerning how good a trading system is.

The reality is backtesting can be quite deceiving. Traders need to identify what length of time the backtest encompasses. If the backtest only includes six months of data, it might make the forex system profitable under one set of market conditions, but vulnerable once the market changes.

The other side of this coin is that backtests can reach too far into the past and study market conditions that may never be repeated again or scenarios that only come up once every few years.

Another knock on backtesting is that it doesn't take into consideration the random nature of the market. If there was a way to explain why a currency moves the way it does, there would be a lot more successful traders. Backtesting is good for pattern identification and spotting trends, but the results generated by a backtest don't always include quick price spikes or drops that are often prevalent in short-term trading.

The bottom line is backtesting isn't going anywhere because it's easy to use and easy to explain. In addition, since no one has the benefit of a crystal ball, the only way to test any trading system for any asset class is with historical price data. That said, backtesting should not be the only data point you rely on for testing the virtues of your trading system.

Ava FX

Ava FX is dedicated to providing the FX trader with an online forex trading platform, with no compromise on integrity and fairness. Our state-of-the-art forex trading platform AvaTrader, is easy enough to be used by novice traders and yet it provides even the most sophisticated trader with all the necessary tools.

We offer all our traders personal service, ensuring that their trading experience is efficient and hassle free. We know what you need and are ready to serve you. You can begin by trying our free demo with a $100,000 practice account. Look at our resources, read our daily commentaries, sign up for a real online FX trading account and then start to trade forex.

Our Award Winning forex trading platform will allow you to get the most updated FX market analysis, FX streaming news, up to date forex calendar, technical analysis tools, online forex trading charts and many more.

On the Ava FX forex trading platform you can trade many financial instruments such as: Oil, Stock Indices (DJ, S&P500, FTSE, DAX, CAC, MIB, NIKKEI and others), Gold, Silver, Sugar, Cotton, Gas and all the other major commodities. You can also enjoy the benefits of Ava FX forex auto trading platform.

Ava FX is backed by a large financial institution, which manages over $16 billion in assets. We value your trust and spare no efforts in assuring that your funds are safe and secure with us. Ava FX has a unique partner program for forex white labels and introducing brokers.

Ava Fx offers a world class multi-language Support Center in English, French, German, Dutch, Spanish, Arabic, Chinese, and Japanese.

Ava FX makes Forex trading easy for you. Click here to read our forex book.

*The high degree of leverage that is obtainable in the trading of off-exchange FX transactions can work against you as well as for you. Leverage can lead to large losses as well as gains.
**Ava FX is compensated through the difference between the buy and sell prices.

How to Trade Forex

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

Forex Market Drivers

The forex market is driven by a number of fundamentals, including interest rates and the prices of commodities such as gold and oil.

Rising interest rates strengthen that country's currency

A common way to think about interest rates is how much it's going to cost to borrow money, whether how much we pay for our mortgages or how much we earn on our bond and money market investments. Interest rate policy is a key driver of currency prices and is a popular trading strategy for new currency traders.

Fundamentally, if a country raises its interest rates, its currency prices will strengthen because the higher interest rates attract more foreign investors.

For example, higher rates in the Eurozone may prompt U.S. investors to sell U.S. dollars and buy bonds in Euros. Similarly, if interest rates increase in Switzerland, those investors may decide to sell their Euro-bonds and move into bonds in Swiss francs (CHF), driving Euros down and Swiss francs up.

When gold goes up, the USD goes down (and vice versa)

Historically, gold is seen as a "safe haven", a country-neutral investment and an alternative to the world's other reserve currency, the U.S. dollar. That means gold prices tend to have an inverse relationship to the US dollar, offering several ways for currency traders to take advantage of that relationship.

For example, if gold breaks an important price level, and as a result you expected gold to continue moving higher, you might sell dollars and buy Euros, as a proxy for higher gold prices.

Rising gold prices help major gold producers

Australia is the world's third largest exporter of gold, and Canada is the third largest producer worldwide. These two major currencies tend to strengthen as gold prices rise. You might consider going long these currencies when gold is increasing in value, or trade your GBP or JPY for these currencies when gold is on the rise.

Oil-dependent countries weaken as oil prices rise

Just as airlines and other oil-dependent industries are hurt by rising oil prices, so are the currencies of oil-dependent countries like the US or Japan, both of which are massively dependent on foreign oil.

If you believe oil prices will continue to rise, you might consider buying the currency of commodity-based economies like Australia or Canada, or selling the currencies of oil-dependent economies.

Fundamental Analysis

Introduction to Fundamental Analysis

Fundamental analysis studies the core underlying elements that influence the price of a particular entity, like a stock or currency. It attempts to predict price action and trends by analysing economic indicators, government policy, societal and other factors within a business cycle framework.

If you think of the markets as a big clock, fundamentals are the gears and springs that move the hands around the face. Anyone can tell you what time it is now, but the fundamentalist knows about the inner workings that move the clock's hands towards times (or prices) in the future.

Are you a technician or fundamentalist?

There's a tendency to pigeonhole traders into two distinct schools: fundamental or technical. In fact, most smart traders favour a blended approach versus being a purist of either type.

Fundamentalists need to keep an eye on signals derived from price charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or pressing societal issues that influence price action.

Forecasting economic conditions using models

Fundamental analysis is very effective at forecasting economic conditions, but not necessarily exact market prices. Studying GDP forecasts or employment reports can give you a fairly clear picture of an economy's health and the forces at work behind it. But you still need a method to translate that into specific trade entry and exit points.

The bridge between fundamental data and a specific trading strategy usually comes from a trader model. These models use current and historical empirical data to estimate future prices and translate those into specific trades.

Beware of "analysis paralysis"

Forecasting models are both art and science, with so many different approaches that traders can get overloaded. It can be tough to decide when you know enough to pull the trigger on a trade with confidence.

Many traders switch to technical analysis at this point to test their hunches and see when price patterns suggest an entry.

Look for fundamental drivers first

The fundamentals include everything that makes a country and its currency tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events.

That said, not every development will move a country's currency. Try to start by identifying the most influential contributors to this mix versus following every fundamental out there.

Understanding Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency
2. The value of the base currency is always 1.

The US dollar is usually considered the base currency for quotes. When the base currency is USD, think of the quote as telling you what a US dollar is worth in that other currency.

When USD is the base currency and the quote goes up, that means USD has strengthened in value and the other currency has weakened. In other words, a rising quote means that the US dollar can buy more of the other currency than before.

Majors not based on the US dollar

There are three exceptions when the US Dollar is not the base currency of a pair - these exceptions are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR).

For these pairs, the quote is based on the other currency, and a rising quote means that the other currency is strengthening, and the US dollar is weakening.

Cross currencies

Currency pairs that don't involve USD at all are called cross currencies.

BID, ASK and the Spread

Just like other markets, forex quotes consist of two sides, the BID and the ASK:

The BID is the price at which you can SELL base currency.
The ASK is the price at which you can BUY base currency.

The spread is the difference between the BID and the ASK, and represents the cost of trading. In forex, spreads are tighter than many other markets, making it cost effective to trade on relatively small price movements.

What's a pip?

Forex prices are generally very liquid, and are usually quoted in very small increments called pips, or "percentage in point". A pip refers to the fourth decimal point out, or 1/100th of 1%.

For Japanese yen, pips refer to the second decimal point. This is the only exception among the major currencies

Calculating Profit and Loss

Our online trading platform will automatically calculate the P&L of your open positions, but it is useful to understand how this calculation is made to understand your profit and loss potential on each trade.

Example 1:

Let's say that the current bid/ask for EUR/USD is 1.4616⁰/19⁰, meaning you can buy 1 euro for 1.4619⁰ or sell 1 euro for 1.4616⁰.

Suppose you decide that the Euro is undervalued against the US dollar, and you expect it to strengthen, you would buy Euros (simultaneously selling dollars), and then wait for the exchange rate to rise.

To make the trade you buy 100,000 Euros, paying 146,190 dollars (100,000 x 1.4619⁰). At 1% margin, your initial margin deposit would be approximately $1,461 for this trade.

If as you expected, the Euro strengthens you can realise a profit by selling EUR/USD to close your trade. If the Euro had strengthened to 1.46230⁰/26⁰, you would sell 100,000 Euros at the current rate of 1.4623⁰, and receive $146,230

To calculate your profit:

You bought 100,000 Euros at 1.4619⁰, paying $146,190.

You sold 100,000 Euros at 1.4623⁰, receiving $146,230.

That's a difference of 4 pips, or in dollar terms ($146,190 - 146,230 = $40).

Total profit = US $40.


Let's say that we once again buy EUR/USD when trading at 1.4616⁰/19⁰.

You buy 100,000 Euros paying 146,190 dollars (100,000 x 1.4619⁰) - as in example 1.

However, in this example the Euro weakens to 1.4611⁰/14⁰. To minimise your loss you sell 100,000 Euros at 1.4611⁰ and receive $146,110.

To calculate your loss:

You bought 100k Euros at 1.4619⁰, paying $146,190.

You sold 100k Euros at 1.4611⁰, receiving $146,110.

That's a difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80).

Total loss = US $80.

More leverage means more opportunity - and more risk

Trading using leverage offers significantly increased profit potential, but it is important to remember that it also means significantly increased risk. Your risks can be limited by monitoring your account, and by using stop losses to set the maximum loss you are prepared to take on any one position. Learn more about using stop losses and managing risk on your account in our online training courses.

FOREX.com: No debit balances, no margin calls

At FOREX.com, your risk is limited to funds on deposit. There are no margin calls in forex trading. You need to maintain sufficient funds on your account to keep your positions open, and you will not be able to open larger positions than can be supported by your account balance. If your account falls below the required level to maintain your position(s), we will automatically close out all positions to ensure that you can't lose more money than you have in your account.

Forex Basics

Leverage & Margin

Leverage trading, or trading on margin, means you aren't required to put up the full value of the position. As a result, you can open a significantly larger position that you would be able to if you needed to fund your trade in full. Trading on leverage increases your potential for profit, but also increases your risks.

Forex trading offers leverage up to 200:1, This means that for every £1 in your account, you can trade £200 worth of a position.

About FXCM

FXCM Holdings LLC Releases Financial Data: Over $100 Million in Capital FXCM Holdings LLC has made an unprecedented public release of its balance sheet and invites other firms within the forex industry to follow its example. Highlights of the (unaudited) balance sheet include the following: $114,971,083 In Capital (Assets Minus Liabilities) $126,379,728 In Operating Cash (Excludes Client Funds) Drew Niv, CEO of the global trading firm, commented: "FXCM is proud of our financial discipline and strong balance sheet. We believe clients should have the necessary information to make intelligent choices. By releasing this information, we hope to set an example for the entire forex industry." Balance Sheet (Unaudited) FOR THE MONTH ENDED JUNE 30, 2009 (Amounts in USD) CUSTOMER CASH $307,894,470 OPERATING CASH $126,379,728 OTHER ASSETS $13,034,360 FIXED ASSETS $11,005,400 TOTAL ASSETS $458,313,958 CUSTOMER DEPOSITS $307,894,470 DEFERRED REVENUE $15,000,000 OTHER LIABILITIES $20,448,405 TOTAL LIABILITIES $343,342,875 FXCM CAPITAL $114,971,083 TOTAL LIABILITIES AND FXCM CAPITAL $458,313,958 FXCM Holdings, LLC consists of FXCM Australia LTD., Forex Trading LLC, Forex Capital Markets LLC, Forex Capital Markets LTD, FXCM Asia LTD, FXCM Canada LTD and FXCM DMCC. Forex Capital Markets LLC is one of the largest Forex Dealer Members Forex Capital Markets LLC (FXCM) is regulated as a Forex Dealer Member by the National Futures Association. Forex Dealer Members are U.S. registered Futures Commission Merchants that have greater than 35% of revenue from foreign exchange. More than $600 million in customer funds trading on platforms offered by FXCM FXCM Holdings LLC includes firms regulated across the world, including Australia, the United States, Canada, the United Kingdom, Hong Kong and Dubai. Additionally, FXCM offers its proprietary foreign exchange trading technology to banks and brokers. As of June 2009, there is more than $600 million in customer funds trading on platforms offered by FXCM. Over 150,000 live accounts on platforms offered by FXCM from nearly 200 countries with an average of 8,000,000 trades executed each month via trading platforms offered by FXCM; moreover, customer support is provided in over a dozen languages. Registered with the CFTC as a Futures Commission Merchant, FXCM has received numerous awards from the investment community, including Best Currency Broker from Shares, Best Retail Foreign Exchange Platform from FX Week and Best Foreign Exchange Specialist from Technical Analysis of Stocks & Commodities. In addition to currency trading, FXCM offers educational courses on forex trading, and provides research through DailyFX.com. FXCM Holdings LLC: Expanding and Improving Since inception, FXCM has added over 600 employees in all areas of operation, including customer support, research, technology, and trading. FXCM has been named to the Inc. 500 list of America's Fastest Growing Private Companies in 2004, 2005, and 2006. In 2006, FXCM launched its "No Dealing Desk" service**, which provides lower spreads. FXCM launched many new initiatives in 2007, including the ability to hedge trades*, proprietary trading signals for clients, new currency pairs for trading, and One-click execution.

How are Rate Expectations calculated

Forecasting rate decisions is notoriously speculative, yet the market is typically very efficient at predicting rate movements (and many economists and analysts even believe market prices influence policy decisions). To take advantage of the collective wisdom of the market in forecasting rate decisions, we will use a combination of long and short-term, risk-free interest rate assets to determine the cumulative movement the Reserve Bank of Australia (RBA) will make over the coming 12 months. We have chosen the RBA as the Australian dollar is one of few currencies, still considered a high yielders.

To read this chart, any positive number represents an expected firming in the Australian benchmark lending rate over the coming year with each point representing one basis point change. When rate expectations rise, the carry differential is expected to increase and carry trades return improves.

What are Risk Reversals:

Risk reversals are the difference in volatility between similar (in expiration and relative strike levels) FX calls and put options. The measurement is calculated by finding the difference between the implied volatility of a call with a 25 Delta and a put with a 25 Delta. When Risk Reversals are skewed to the downside, it suggests volatility and therefore demand is greater for puts than for calls and traders are expecting the pair to fall; and visa versa.

We use risk reversals on USDJPY as global interest are bottoming after having fallen substantially over the past year or more. Both the US and Japanese benchmark lending rates are near zero and expected to remain there until at least the middle of 2010. This attributes level of stability to this pairs options that better allows it to follow investment trends. When Risk Reversals move to a negative extreme, it typically reflects a demand for safety of funds - an unfavorable condition for carry.

What is the DailyFX Volatility Index:

The DailyFX Volatility Index measures the general level of volatility in the currency market. The index is a composite of the implied volatility in options underlying a basket of currencies. Our basket is equally weighed and composed of some of the most liquid currency pairs in the Foreign exchange market.

In reading this graph, whenever the DailyFX Volatility Index rises, it suggests traders expect the currency market to be more active in the coming days and weeks. Since carry trades underperform when volatility is high (due to the threat of capital losses that may overwhelm carry income), a rise in volatility is unfavorable for the strategy.

Currency Market Bull Trend Stalling as Growth Forecast and Financial Stability Lose Traction

High volatility has carried over from last week owing largely to low levels of liquidity that amplify intraday market swings. However, despite the high level of activity in the market, direction is still a missing vital component of the long-term bull trend that investors have steadily funded since the reversal in risk appetite back in March. Once again, the question of whether the past six months have represented a genuine bull market or merely a bear market retracement is being posed.

• Currency Market Bull Trend Stalling as Growth Forecast and Financial Stability Loose Traction

• Will Bullish Speculation Relent to a more Bearish Fundamental Outlook?

• Fed Ruling May Test Investors Confidence in Market Stability

High volatility has carried over from last week owing largely to low levels of liquidity that amplify intraday market swings. However, despite the high level of activity in the market, direction is still a missing vital component of the long-term bull trend that investors have steadily funded since the reversal in risk appetite back in March. Once again, the question of whether the past six months have represented a genuine bull market or merely a bear market retracement is being posed. Eventually, genuine fundamentals and the sedate forecasts they project will have to be reconciled with the steady rise in investor sentiment; and at these levels it is increasingly clear which is growing overextended. Most capital markets have shown an unbroken, bullish bias that has retraced a significant portion of the unprecedented losses through the 2007-2008 financial crisis. For the popular equities market, the benchmark Dow Jones Industrial Average has advanced nearly 50 percent from its lows in the first quarter. What’s more, the index has risen for every one of the last eight sessions. Yet, thanks to easily compiled volume data, we can see that the conviction behind this move has become severely taxed. Not only has the general investment in this market cycle started to deteriorate since it began; but the weekly average has fallen to its lowest levels for the year. For the FX market, the progress of risk appetite is reflected in the performance of high potential currencies against those that are stationary or deteriorating (as measured by yield). Both the dollar and Japanese yen have developed relative levels of support over the past weeks against counterparts like the euro, Australian and New Zealand dollar.

While congestion has become a common sight across the markets, it is clear that the general bias is still positive. Speculative interests are well supported – especially with a considerable portion of the market’s investable capital still held in relatively ‘risk-free’ securities like Treasuries and money market accounts. Nonetheless, the influx of capital cannot be sustained on capital appreciation alone. Eventually, the profit potential in investing in an oversold market will dry up as demand for return quickly overwhelms the yield that the global markets can support. Just when will this shift happen is a matter of significant debate. Policy officials have carefully articulated their forecasts for growth by suggesting an initial recovery from the worst recession since WWII will be followed by a period of weak expansion. Naturally, this is not the type of markets that wealth and yields grow in. What we await now is a catalyst to align the markets to fundamentals. The most immediate threat is the recent ruling by a US court that the Federal Reserve must release the details it has on hand of its emergency lending programs (with names and amounts) by August 31st. While this ruling can be appealed and delayed; it could still unsettle confidence in the credit markets and fuel fears of another wave of runs on banks (the kind that led to the collapse of Bear Sterns and Lehman Brothers). Even if this threat never materializes, there are still many other active hazards. Recently, the FDIC reported the number of troubled banks rose to a 15-year high 416. The market cannot support issues like this for very long.

Closing Position with a Loss:

If the sell price had moved in the opposite direction you would have realized a gross loss.

Closing Position with a Profit:

After two days, gold price rises to 835.70 at which point you decide to sell the underlying contracts.

Trading Commodities Example:

FX Solutions quotes gold at 829.60/830.10 and you believe that gold will rise. Below is an example of how your investment in CFD commodities may look:

Opening Position:

Closing Position with a Loss

If the sell price had moved in the opposite direction you would have realized a gross loss.

Closing Position with a Profit:

After two days, the US SP 500 price rises to 1275.6 at which point you decide to sell the underlying contracts.