The forex market is the world's largest international currency trading market operating non-stop during the working week. Most forex trading is done by professionals such as bankers. Generally forex trading
is done through a forex broker - but there is nothing to stop anyone
trading currencies. Forex currency trading allows buyers and sellers to
buy the currency they need for their business and sellers who have
earned currency to exchange what they have for a more convenient
currency. The world's largest banks dominate forex and according to a
survey in The Wall Street Journal Europe, the ten most active traders
who are engaged in forex trading account for almost 73% of trading volume.
However, a sizeable proportion of the remainder of forex trading
is speculative with traders building up an investment which they wish to
liquidate at some stage for profit. While a currency may increase or
decrease in value relative to a wide range of currencies, all forex trading
transactions are based upon currency pairs. So, although the Euro may
be 'strong' against a basket of currencies, traders will be trading in
just one currency pair and may simply concern themselves with the
Euro/US Dollar ( EUR/USD) ratio. Changes in relative values of
currencies may be gradual or triggered by specific events such as are
unfolding at the time of writing this - the toxic debt crisis.
Because the markets for currencies are global, the volumes traded
every day are vast. For the large corporate investors, the great
benefits of trading on Forex are:
- Enormous liquidity - over $4 trillion per day, that's $4,000,000,000. This means that there's always someone ready to trade with you
- Every one of the world's free currencies are traded - this means that you may trade the currency you want at any time
- Twenty four - hour trading during the 5-day working week
- Operations are global which mean that you can trade with any part of the world at any time
From the point of view of the smaller trader there's lots of benefits too, such as:
- A rapidly-changing market - that's one which is always changing and offering the chance to make money
- Very well developed mechanisms for controlling risk
- Ability to go long or short - this means that you can make money either in rising or falling markets
- Leverage trading - meaning that you can benefit from large-volume trading while having a relatively-low capital base
- Lots of options for zero-commission trading
How the forex Market Works
As forex is all about foreign exchange, all transactions are made up
from a currency pair - say, for instance, the Euro and the US Dollar.
The basic tool for trading forex is the exchange rate which is expressed
as a ratio between the values of the two currencies such as EUR/USD =
1.4086. This value, which is referred to as the 'forex rate' means that,
at that particular time, one Euro would be worth 1.4086 US Dollars.
This ratio is always expressed to 4 decimal places which means that you
could see a forex rate of EUR/USD = 1.4086 or EUR/USD = 1.4087 but never
EUR/USD = 1.40865. The rightmost digit of this ratio is referred to as a
'pip'. So, a change from EUR/USD = 1.4086 to EUR/USD = 1.4088 would be
referred to as a change of 2 pips. One pip, therefore is the smallest
unit of trade.
With the forex rate at EUR/USD = 1.4086, an investor purchasing 1000
Euros using dollars would pay $1,408.60. If the forex rate then changed
to EUR/USD = 1.5020, the investor could sell their 1000 Euros for
$1,502.00 and bank the $93.40 as profit. If this doesn't seem to be
large amount to you, you have to put the sum into context. With a rising
or falling market, the forex rate does not simply change in a uniform
way but oscillates and profits can be taken many times per day as a rate
oscillates around a trend.
When you're expecting the value EUR/USD to fall, you might trade the
other way by selling Euros for dollars and buying then back when the
forex rate has changed to your advantage.
Is forex Risky?
When you trade on forex as in any form of currency trading, you're in
the business of currency speculation and it is just that - speculation.
This means that there is some risk involved in forex currency trading as
in any business but you might and should, take steps to minimise this.
You can always set a limit to the downside of any trade, that means to
define the maximum loss that you are prepared to accept if the market
goes against you - and it will on occasions.
The best insurance against losing your shirt on the forex market is to
set out to understand what you're doing totally. Search the internet for
a good forex trading tutorial and study it in detail- a bit of
good forex education can go a long way!. When there's bits you don't
understand, look for a good forex trading forum and ask lots and lots of questions. Many of the people who habitually answer your queries on this will have a good forex trading
blog and this will probably not only give you answers to your questions
but also provide lots of links to good sites. Be vigilant, however,
watch out for forex trading scams. Don't be too quick to part with your money and investigate anything very well before you shell out any hard-earned!
The forex Trading Systems
While you may be right in being cautious about any forex trading
system that's advertised, there are some good ones around. Most of them
either utilise forex charts and by means of these, identify forex trading
signals which tell the trader when to buy or sell. These signals will
be made up of a particular change in a forex rate or a trend and these
will have been devised by a forex trader who has studied long-term
trends in the market so as to identify valid signals when they occur.
Many of the systems will use forex trading software which
identifies such signals from data inputs which are gathered
automatically from market information sources. Some utilise automated forex trading
software which can trigger trades automatically when the signals tell
it to do so. If these sound too good to be true to you, look around for
online forex trading systems which will allow you undertake some dummy trading to test them out. by doing this you can get some forex trading training by giving them a spin before you put real money on the table.
How Much do you Need to Start off with?
This is a bit of a 'How long is a piece of string?' question but there
are ways for to be beginner to dip a toe into the water without needing a
fortune to start with. The minimum trading size for most trades on
forex is usually 100,000 units of any currency and this volume is
referred to as a standard "lot". However, there are many firms which
offer the facility to purchase in dramatically-smaller lots than this
and a bit of internet searching will soon locate these. There's many
adverts quoting only a couple of hundred dollars to get going! You will
often see the term acciones trading forex and this is just a general
term which covers the small guy trading forex. Small-scale trading
facilities such as these are often called as forex mini trading.
Where do You Start?
The single most obvious answer is of course - on the internet! Online forex trading
gives you direct access to the forex market and there's lots and lots
of companies out there who are in business just to deal with you online.
Be vigilant, do spend the time to get some good forex trading
education, again this can be provided online and set up your dummy
account to trade before you attempt to go live. If you take care and
take your time, there's no reason why you shouldn't be successful in forex trading so, have patience and stick at it!
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