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Market Gaps

What are Gaps?

Gaps are sharp breaks in price with no trading occurring in between. Gaps can happen moving up or moving down. In the forex market, gaps primarily occur over the weekend because it is the only time the forex market closes. Gaps may also occur on very short timeframes such as a one-minute chart or immediately following a major news announcement.

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Why Live and Demo Forex Trading Show Differences?

In practice - often because of the lack of a real money commitment - results achieved from trading in a demo account can differ considerably from actual live trading results. Even if a person performs extremely well trading a demo account, their results in a live account often differ considerably. In general, this phenomenon tends to arise because when your own funds are at risk, a different trading mindset often ensues than when trading with virtual money.

This potentially significant difference factor needs to be taken into account by a trader when assessing the value of a particular trading strategy or the services of a forex broker they are testing.

The primary reasons that such differences can be observed between live and demo account trading tend to fall into two main categories: execution related and trader related. Each of these categories will be discussed in greater detail in the sections below.

Execution Related Differences Between Live and Demo Accounts

The following potential causes for performance differences observed between live and demo account trading can be attributed to execution issues:

A forex broker may never requote a price to a demo account trader, but they might often requote live prices in actual practice.

The broker's price feed and dealing spreads for demo trading may well differ from the pricing that is provided for live trading accounts.

The broker may execute demo stop loss orders accurately, but considerable slippage may occur in a live trading environment.

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Non-Farm Payrolls

Non-Farm Payrolls (NFP) measures the amount of jobs gained in the U.S. during the previous month that aren’t farm related. It is typically released on the first Friday of the new month, and also includes the Unemployment Rate, Average Hourly Earnings, and the Participation Rate. While all of those releases can have an impact, NFP is the main driver of market movement and is often times the single most-watched economic event that is released on a monthly basis.

Unlike men, not all economic news events are created equal. Some events create a lot of hysteria and knee-jerk reactions, whereas others barely cause a blip on the radar. The ubiquitous Non-Farm Payroll (NFP) report out of the U.S. is an example of the former.

So much attention is paid to the NFP report that pundits from across the financial blogosphere attempt to predict its eventuality and impact across a variety of financial instruments.

The large reaction is due in part to the Dual Mandate of the Federal Open Market Committee of maximum employment and stable prices. The “maximum employment” part of that mandate means that the Fed looks at NFP to help determine what interest rates will be in the future which has an outsized impact on the health of the economy. If job growth is strong, the Fed would typically look to raise interest rates assuming inflation is in check, and vice versa if job growth is weak. However, simply determining if NFP is weak or strong is another matter altogether due to expectations.

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The Basics of Forex Swaps

In the forex market, a foreign exchange swap is a two-part or "two-legged" currency transaction used to shift or "swap" the value date for a foreign exchange position to another date, often further out in the future. Read a briefer explanation of the currency swap.

Also, the term "forex swap" can refer to the amount of pips or "swap points" that traders add or subtract from the initial value date's exchange rate, often the spot rate, to obtain the forward exchange rate when pricing a foreign exchange swap transaction.

How a Forex Swap Transaction Works

In the first leg of a forex swap transaction, a particular quantity of a currency is bought or sold versus another currency at an agreed upon rate on an initial date. This is often called the near date since it is usually the first date to arrive relative to the current date.

In the second leg, the same quantity of currency is then simultaneously sold or bought versus the other currency at a second agreed upon rate on another value date, often called the far date.

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5 Tips for Trading During Volatile Markets

Increased volatility leads many traders to seeing an increase in trading opportunities. The huge market swings trigger thoughts of monumental upside, but also for potential loss especially if traders do not take the necessary precautions. During times of volatility, traders need to adjust their strategy to compensate for erratic market. When trading during these market conditions, traders should follow the rules below.

  1. Be More Selective Before Placing Trades

Wanting to take advantage of all the trading opportunities that present themselves in volatile markets, traders are tempted to place an increase number of trades. This temptation should be avoided. It is important to remember that in volatile times,

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