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The market is confident that Federal Reserve will only lower its interest rates by 25 basis point on Wednesday. However, many analysts also believe that this rate cuts may turn out be the last one for the near term as the FED is fighting double digit inflation with the continual rise of energy and food prices.

If Federal Reserve lowest its interest rate to 2%, this rate may still not be lowest in recent history. During the last recession in 2001, FED lowered its key rate to just 1%, lowest rate in 4 decades. It was held for a year before the FED before it was raised again. Recently, many analysts had criticism that very rate by former FED chairman, Alan Greenspan assisted the very housing boom that has now gone bust. In turn, created havoc for the financial industry with bad mortgage loan and foreclosures. This multibillion losses by the finance companies and all its fallout has sent the global economy reeling.

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With the current high inflationary, European Central bank will not be in a hurry to stop the currency from rising.

And as for the US dollar, with concerns about  recession and the pessimistic outlook of the US economy,  the Federal Reserve will likely continue to cut the interest rate further during their meeting end of this month..

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Online Forex Trading is Risky – Myth 1

Yes, it is very risky, but the risk is in the Forex Trading trader, not the Foreign Currency market. A Forex Trading trader who misuses the leverage available from their brokers is asking for trouble. A Online Forex trader who uses the leverage prudently, coupled with sound money management principles, and does not over-commit on any one trade can effectively control the risk involve in Forex Trading.

The Holy Grail of Online Money Making Forex Trading – Myth 2

If such a Forex Trading Software or method exists, let me know. The key to successful Make Money Online Trading Forex is to use sound money management principles to limit losses and in doing so in the long run become a net winner.

All Forex Trading Trades need to be a Winner – Myth 3

If your Online Forex Trading Software, system or methodologies has high reward to risk ratio, you do not need to win all of the time. Anyway, there isn’t any Forex Trading system or method that can give you 100% winning trade. If such Forex Trading Software, system or method exists, the inventor of such a system or method will be the richest person in the world.

Online Forex Trading is Easy – Myth 4

The physical act of Forex Trading is easy - Log on to the internet, look at few charts and place a few Foreign Currency trades. But Money Making Online Trading Forex consistently is not, otherwise, every Forex Trading traders would be rich.

Making Money Online Forex Trading is Impossible – Myth 5

Profitable Forex Trading can indeed be mastered, but it needs passion, time, commitment and desire.  Forex Trading requires diligence on the part of the trader to follow a good Forex Trading system or method, exercise sound money management principles, and trade with discipline, all of which that are done by successful Forex Trading traders.

All the above are a kept secret, so there you have it! If you have previously believed any of those to be true, hopefully, I’ve convinced you otherwise. If not, go back and read the above again.

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After the rate cut, US dollar moved higher against the Euro and the British Pound. This  was a less aggressive move by the FED as many players were disappointed as they were  anticipating a full percentage point cut.

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After a week, it turned out that my sentiment toward the US$ was right. The US dollar has plunged to a 13 years low against the Japanese Yen at around 99.03, broken the psychological 100 barrier. The Euro has also traded at all-time high versus the US dollar at around 1.5667.

Many market players said it could have been worse for the US dollar if not for the expectation that FED will cut its interest rate by a full percentage point to 2 per cent during its meeting on Tuesday, March 18, 2008.

I can’t imagize what will happen if FED decides to cut its interest rate less than a full percentage point.

At the current junction, many economists believe that it may be wishful thinking that the FED could save the day. To complicate the matter, many market players may even take more FED interest rate cuts as a sign of more weakness ahead.

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In Forex trading, without proper money management is exactly like traveling in a desert without water. Put it bluntly, a trader will not make it without it. For traders, the objective and goal of proper money management system in place is to ensure long term survival in the Forex market. If you can’t survive long enough till your trading system or method prove its worth, you will not succeed in this game.

All Forex newbie must know that they can never risk the whole trading account on one single trade even though their system or methodology has a 95% winning probability. Many traders lose money as they violate this rule by throwing whatever they have in the account on just one trade. For other traders, they continue to trade the same lot or even bigger lots during their drawdown period. Traders must understand that regardless of whatever system of method they use, there bound to be period of losing steak. It is only when you are able to survive such period, that you can make money in Forex Trading in the long term.

Traders who understand money management know that the more money you lose the more difficult to earn it back. Take an illustrative example - if you have a $10,000 trading account and your trade position lose 10%, which is $1,000. Now your account has a balance of $9,000. To recoup your loss, you need to make 11% on your winning trade. However, if you risk 20% on the trade, the balance will be $8,000. Now you will need 25% to recoup back. Now, imagine a trader who risks 50% on a trade, the next winning trade need to make 100% just to cover the loss. Anyway, if a trader who risk 50% on a single trade, it needs just 2 consecutive losses to wipe out the entire trading account.

This is the reason why a trader should never let these kinds of losses to occur. It is only possible if they adhere to a strict money management rule. Professional traders never allow themselves to be such a “never return” position. They always risk a tiny percentage of their equity on a single trade.

There are few method that trader can use to limit their losses. One of the methods is to never trade with more than 2% risk of your total trading account. Even you have a consecutive loss of 5 trades, you will still have 90% of your trading capital intact. To recoup the 11% of losses is definitely much easier than to recoup 20, 30 or 40%. This method of trading will ensure that you will still be around to trade even though you have a short losing steak. Traders must understand that there is no system or method that wins 100% of the time.

As you may know by now, this is how important money management is in Forex Trading. Hence, to be successful in the Forex arena, one must practice some form of money management in order to succeed.

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Driving much of the US dollar’s decline were remarks about the weak U.S. economy by Federal Reserve Chairman Ben Bernanke, who hinted that the central bank would further cut interest rates by 50 bp on March 18th monetary policy meeting.

Many currency experts have predicated that if this Friday’s February employment report is as bad as economists are anticipating, the US dollar could continue its fall.

So, how low can the greenback goes?

Since breaking the key barrier of $1.50, the next ceiling may be $1.55 against the Euro dollar. As for the Japanese Yen, since breaking key support of ¥105 on 29th February, the fall has not been stoppable. The next near term near term mark may be ¥100 or ¥101.

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So how are these currency pairs quoted on the Forex market? The first number is called the bid and the second is known as the offer (or the ASK) price. Take for instance EURUSD, you will see 1.4625/1.4630. The first quote of 1.4625 is the bid price, the price where traders are prepared to buy Euro against the USD Dollar. The second number 1.4630 is the offer or ask price and it is the price traders are prepared to sell the Euro against the US Dollar. You will notice that there is a difference between the bid and the offer price. This difference is known as the spread. Based on the previous EUR/USD quote, you know that 1 Euro is equal 1.4625 US dollar.

The way profit is measured of a currency is by “pips” or point. PIP is the acronym for price interest point. If the EUR/USD moves from 1.4625 to 1.4655 that is 50 pips. A pip or 0.001 is the last decimal place of a currency quotation with the exception of the Japanese Yen and Yen cross rates. A price movement for the USD/JPY from 111.10 to 111.60 will be 50 pips.

For the benefit of Forex Trading newbie, I will proceed to a simple hypothetical Forex Trading investment to show how you can profit in Forex trading. In this example, your pair of currency is the EURUSD. The Forex rate of EUR/USD now is 1.4625, you know that 1 Euro is equal 1,462.50 US dollar. If you buy 10,000 Euros today, you would have paid US$14,625. Two days later, the exchange rate is1.4688, this means that the value of the Euro has increased in relation to the USD. If you decide to sell your 10,000 Euros, you will receive $14,688, which is $63 more than what you have paid a few days ago.

Conversely, if the Forex rate few days later has been EURUSD = 1.4600, the value of your Euro has weaken in relation to the US Dollar. If you sell the 10,000 Euros at this exchange rate, you will receive $1,460, which is $25 less than what you have paid two days earlier.

You may think that the above figure is small and irrelevant. You are wrong if you have this misconception in Forex Trading.

The above example does not take leverage into consideration. You must understand that one of the major advantages in Forex currency is the high degree of leverage provided by most brokerage companies.

In the Forex market, depending on which brokerage firm a trader uses, $1,000 could control $100,000 in currency. Such controlling leverage of 100 to 1 is quite typical of most trading account. Using $1,000 to control $100,000 is also known as “margin”.

With such leverage or margin, a 1% relative change in a currency will equate to about 100% return on investment if the trade is in the trader’s favor. There have been many discussions on the topic of margin or leverage and some argue that high leverage is dangerous. Leverage is a double-edge sword. This is a point for the individual concerned to mange their own risk.

As with other trading instruments, there is always risk involved in Forex Trading. To achieve your short term and long term financial goals in forex Trading, you must manage risk to a level that you are comfortable with and works best for you.

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