FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few
markets in which it can be said with very few qualifications that it is free of external
controls and that it cannot be manipulated. It is also the largest liquid financial market,
with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving
this fast, it is clear why a single investor would find it near impossible to significantly
affect the price of a major currency. Furthermore, the liquidity of the market means that
unlike some rarely traded stock, traders are able to open and close positions within a few
seconds as there are always willing buyers and sellers.
To make money trading forex requires a forex broker to have discipline in following the
rules of the “game”. If you can stay focused and follow a system regardless of the market
conditions, then you can make money trading forex.
Over the past few years we have seen the Forex market skyrocket in terms of popularity with
investors. There is good reason for this. The currency market requires little start up
capital, trades 24 hours a day, and with the power of leverage can turn out gigantic
profits. So how does one tackle this kind of beast? Here are 3 ways to make money trading
the Forex today.
1. Choose the right style for you.
There are a few styles of the Forex investors. You may feel comfortable with scalping, this
means frequently trading and earning a few pips at a time. Others prefer to "hedge" their
trades by going long and short at the same time. Some like to get in on the big moves and
may have a trade open for days. In this case you can really hit a home run and turn out some
huge profits but also expose yourself to risk.
2. Choose the right strategy. Now that you have decided on a style you need to choose a
strategy. There are literally hundreds of different strategies out there that rely on
signals like moving averages, RSI indicators, stochastics, Bollinger Bands, Fibonacci, ect.
Choose a strategy that will fit in with your style of investing.
3. Use software to automate the two. There are a quite a few advantages to using automated
Forex trading software. Just to name a couple, firstly you can trade your strategy 24 hours
a day. This way you won't miss any big moves that could have happened while you were out or
sleeping. Second it completely eliminates human emotion from trading. No matter how great a
trader you are, often times emotions can play a big part. With a Forex robot this is not a
problem. When it gets a signal it trades it.
Forex profitability is not a pipe dream
I know as a beginner it can be quite difficult to decide on what avenue to take. But
understand that many folks who are Forex novices make a living trading the currency market
because they simply have the right strategies in place.
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Saturday, September 12, 2009
Forex Trading Tips To Help Beginners
In The Foreign Exchange Market Are you one of those who have heard about Forex trading but not sure what it really is? Or
you would like to find forex trading tips on how it works and if you can make money out of
it, but not sure whom to ask? Well, I can tell you are not alone in this situation. Many
people think that they are familiar with Forex trading, but in reality, most of them think
that forex trading has something to do with stocks or bonds.
Forex trading is different from stocks or bonds. It is a type of trading that involves
trading of currency pairs. The currencies that are usually chosen for trading are considered
above the rest because they are stable and have a greater value than other foreign
currencies.
For all the newcomers to the forex market, the first piece of tips is to protect themselves
from frauds. If you’re new in forex trading, it doesn’t hurt to take some advice from the
ones who are already engaged in forex trading. In fact, you can make use of their tips for
your own good, and even to your advantage.
People across the globe participate in forex trading and that’s why it is not surprising to
see the kind of frauds that are able to infiltrate the financial market. To shield the
legitimate traders from these frauds, they must be made aware of these growing facts, so
that they can take suitable actions to protect their trading career.
The opportunities that forex trading provides for different individuals, firms, and
organizations is growing rapidly every year. And accompanying this growth is the widespread
growth of different scams related with forex trading. But you should not worry because there
are a lot of legitimate companies or firms that can help you in forex trading.
The best thing to do is to find these legitimate companies to stay away from fraudulent
ones. However, most new traders fall prey to these scammers because of their savory offers.
Don’t get fooled by the companies that advertise high profits for minimal risks. The fact is
that, if you want to earn high profits, then you are likely subjected to high risks as well.
Higher rate of profit means higher risk.
So, always stay on the safer side. If you’re looking for a forex trading broker, and since
each broker is part of a certain company, make sure that you select a government registered
company. In signing any contract with them, double check if they are registered or certified
brokers. This is one basic precaution that will prevent any misfortune that you might
encounter in the future.
The job of reducing the risk is entirely yours, not that of the broker; so if the company
offers or promises little risks, guaranteed profits, and the like, that is a sure sign that
they are there to make a fool out of you.
Even if you are not a professional trader, a little use of the common sense can help in long
run.
Before actually participating in any forex trade, make sure you have done your homework. Do
the research and jot down all the necessary details about the trading transaction that you
wish to perform. Ever heard of inter-bank market? Stay away from companies which lure you
into trading in the inter-bank market because the currency transactions are negotiated in a
wobbly network of large companies and financial institutions.
Also, make sure to check the background or history of the trading company. If a certain
company does not disclose information about their background, that should serve as a red
flag. It means that you should continue doing transactions with them. Nor is it advisable to
transfer/send cash through the mail or the internet. Practice caution in everything you do,
and you’ll be more than sure that you are always safe.
Fraudulent companies often solicit services and advertise soaring pressure tactics to
attract you in participating or joining their services. An offshore company which guarantees
no risk and return of profit is a big NO. Always be skeptical and don’t give in to any
instant offer that comes your way.
What forex trading tips would you like to know about? Check out the professional advice
below
- Get the latest information on online forex trading brokers system
- Help on learning forex trading
- Recommended forex trading courses
- What you should know about forex trading software
- Advice on forex mobile trading software
- More about forex trading signal software
Take a carefully evaluated decision about your trading company or transaction. These pieces
of advice are merely to guide you. Ultimately, it will entirely depend on you to identify
and reject offers from fraud companies. One wrong decision could seriously jeopardize you
trading career, so act wisely.
The success of Forex trading, like any other trading, lies in your ability to buy for less
and sell for more. You can trade in Forex market successfully if you keep patience and a
little diligence. You can also safeguard yourself from Forex trading frauds if you stay
alert and skeptical.
you would like to find forex trading tips on how it works and if you can make money out of
it, but not sure whom to ask? Well, I can tell you are not alone in this situation. Many
people think that they are familiar with Forex trading, but in reality, most of them think
that forex trading has something to do with stocks or bonds.
Forex trading is different from stocks or bonds. It is a type of trading that involves
trading of currency pairs. The currencies that are usually chosen for trading are considered
above the rest because they are stable and have a greater value than other foreign
currencies.
For all the newcomers to the forex market, the first piece of tips is to protect themselves
from frauds. If you’re new in forex trading, it doesn’t hurt to take some advice from the
ones who are already engaged in forex trading. In fact, you can make use of their tips for
your own good, and even to your advantage.
People across the globe participate in forex trading and that’s why it is not surprising to
see the kind of frauds that are able to infiltrate the financial market. To shield the
legitimate traders from these frauds, they must be made aware of these growing facts, so
that they can take suitable actions to protect their trading career.
The opportunities that forex trading provides for different individuals, firms, and
organizations is growing rapidly every year. And accompanying this growth is the widespread
growth of different scams related with forex trading. But you should not worry because there
are a lot of legitimate companies or firms that can help you in forex trading.
The best thing to do is to find these legitimate companies to stay away from fraudulent
ones. However, most new traders fall prey to these scammers because of their savory offers.
Don’t get fooled by the companies that advertise high profits for minimal risks. The fact is
that, if you want to earn high profits, then you are likely subjected to high risks as well.
Higher rate of profit means higher risk.
So, always stay on the safer side. If you’re looking for a forex trading broker, and since
each broker is part of a certain company, make sure that you select a government registered
company. In signing any contract with them, double check if they are registered or certified
brokers. This is one basic precaution that will prevent any misfortune that you might
encounter in the future.
The job of reducing the risk is entirely yours, not that of the broker; so if the company
offers or promises little risks, guaranteed profits, and the like, that is a sure sign that
they are there to make a fool out of you.
Even if you are not a professional trader, a little use of the common sense can help in long
run.
Before actually participating in any forex trade, make sure you have done your homework. Do
the research and jot down all the necessary details about the trading transaction that you
wish to perform. Ever heard of inter-bank market? Stay away from companies which lure you
into trading in the inter-bank market because the currency transactions are negotiated in a
wobbly network of large companies and financial institutions.
Also, make sure to check the background or history of the trading company. If a certain
company does not disclose information about their background, that should serve as a red
flag. It means that you should continue doing transactions with them. Nor is it advisable to
transfer/send cash through the mail or the internet. Practice caution in everything you do,
and you’ll be more than sure that you are always safe.
Fraudulent companies often solicit services and advertise soaring pressure tactics to
attract you in participating or joining their services. An offshore company which guarantees
no risk and return of profit is a big NO. Always be skeptical and don’t give in to any
instant offer that comes your way.
What forex trading tips would you like to know about? Check out the professional advice
below
- Get the latest information on online forex trading brokers system
- Help on learning forex trading
- Recommended forex trading courses
- What you should know about forex trading software
- Advice on forex mobile trading software
- More about forex trading signal software
Take a carefully evaluated decision about your trading company or transaction. These pieces
of advice are merely to guide you. Ultimately, it will entirely depend on you to identify
and reject offers from fraud companies. One wrong decision could seriously jeopardize you
trading career, so act wisely.
The success of Forex trading, like any other trading, lies in your ability to buy for less
and sell for more. You can trade in Forex market successfully if you keep patience and a
little diligence. You can also safeguard yourself from Forex trading frauds if you stay
alert and skeptical.
Why should I learn forex?
If you hear from anyone that making money in Forex is easy, do not believe. It is a myth. The truth is – being profitable in Forex requires a lot of work, dedication, learn, practice, more than a good discipline, sharp knowledge of money management and understanding of the psychology of the currency market. Learn Forex before you start Trading, because to Earn you should Learn Forex.
If you are ready to Learn Forex / start Forex Trading, then this blog is for you. Here you will learn all details about forex / forex trading,
1) You will learn what is Forex and how to trade forex.2) You will learn forex strategy / forex trading technique / forex trick.3) You will learn how to draw forex trendline.4) You will learn how to determine support and resistance.5) You will learn how to use forex chart / forex indicator for entry & exit in forex market.6) You will learn about risk management & money management.7) You will learn how to calculate forex profit / losses and MORE.
Learn Forex: What Is It And How Does It Work? -
The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world with daily average turnover of US$1.9 trillion, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies.
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.
The other 95% is trading for profit, or what you call speculation. Investors frequently trade on information they believe to be superior and relevant, when in fact it is not and is fully discounted by the market.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
Currency Symbol / Currency Pair
EUR/USD = Euro / US DollarGBP/USD = Pounds Sterling/ US DollarUSD/JPY = US Dollar / Japanese YenUSD/CHF = US Dollar / Swiss FrancUSD/CAD = US Dollar / Canadian DollarAUD/USD = Australian Dollar / US DollarNZD/USD = New Zealand Dollar / US Dollar
Etc.
In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.
Currencies are traded in pairs, meaning that you are really trading one currency for another. A simple way to understand this is to consider what you do when you go on foreign vacations. If you are an USA, and you plan to travel to another country, say Canada, then you might take say $10,000 USD to the bank to change it for Canadian dollars. Let’s say the exchange rate is 1.4000, then for your $10,000 USD they would give you $14,000 CAD. Now let’s say you didn’t spend the money and upon coming home you decide to change it back to USD currency. Now let’s say the exchange rate is 1.3700 (a change of 300 pips that could happen in a week), so your $14,000 CAD would convert back to $10,218.97 US. Therefore you just made $218.97, a 2.19% increase in funds.
Reading a FOREX quote may seem a bit confusing at first. However, it's really quite simple, when you see Forex quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer/ask. If we use the USD/JPY as example 115.37/115.40 the first number 115.37 is the bid price and is the price traders are prepared to buy USD against the JPY. The second number 115.40 is the offer price and is the price traders are prepared to sell the USD against the JPY.
Here in USD/JPY the currency listed first (USD) is the base currency and & the value of the base currency is always 1. A quote of USD/JPY 115 means that one U.S. dollar is equal to 115 Japanese yen. When this currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote increases from 115 to 117, it indicate dollar is stronger because it will now buy more yen than before.
What Next
Well now we have a basic understanding of how Forex market works what next? Now you are going to decide best way to trade the Forex market. The most common approaches are Forex fundamental analysis and Forex technical analysis.
Forex Fundamental analysis: Usually everyday, and often more than once a day, the currency pair will be moving along slowly (sideways movement, consolidation) and then all of a sudden it JUMPS! It very quickly moves up ten or more pips, usually in just a minute, and often continues to move strongly for another hour or so.
This is due to the release of a “Fundamental Announcement”, and of course any experienced trader should understand that they usually create a market movement.
Forex Technical Analysis: It is technique to learn Forex market using chart and indicator to predict the future price of a security.
WHAT YOU NEED
**BROKER:
A broker that provide good platform to trade Forex. MARKETIVA provide very good platform for Forex trading and also give $5 free to open an account.
**Learn Forex Money Management and Risk Analysis:
However, it is common that one afraid of being involved in Forex market because of high risk in this trading field. Although every capital market involves certain level of risk, the risk of loss in foreign currency trading market can be extensive. It would be wise to learn about the potential risk (and managing it) if you wish to trade in Forex market.
If you are ready to Learn Forex / start Forex Trading, then this blog is for you. Here you will learn all details about forex / forex trading,
1) You will learn what is Forex and how to trade forex.2) You will learn forex strategy / forex trading technique / forex trick.3) You will learn how to draw forex trendline.4) You will learn how to determine support and resistance.5) You will learn how to use forex chart / forex indicator for entry & exit in forex market.6) You will learn about risk management & money management.7) You will learn how to calculate forex profit / losses and MORE.
Learn Forex: What Is It And How Does It Work? -
The currency (foreign exchange) market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world with daily average turnover of US$1.9 trillion, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies.
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.
The other 95% is trading for profit, or what you call speculation. Investors frequently trade on information they believe to be superior and relevant, when in fact it is not and is fully discounted by the market.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
Currency Symbol / Currency Pair
EUR/USD = Euro / US DollarGBP/USD = Pounds Sterling/ US DollarUSD/JPY = US Dollar / Japanese YenUSD/CHF = US Dollar / Swiss FrancUSD/CAD = US Dollar / Canadian DollarAUD/USD = Australian Dollar / US DollarNZD/USD = New Zealand Dollar / US Dollar
Etc.
In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.
Currencies are traded in pairs, meaning that you are really trading one currency for another. A simple way to understand this is to consider what you do when you go on foreign vacations. If you are an USA, and you plan to travel to another country, say Canada, then you might take say $10,000 USD to the bank to change it for Canadian dollars. Let’s say the exchange rate is 1.4000, then for your $10,000 USD they would give you $14,000 CAD. Now let’s say you didn’t spend the money and upon coming home you decide to change it back to USD currency. Now let’s say the exchange rate is 1.3700 (a change of 300 pips that could happen in a week), so your $14,000 CAD would convert back to $10,218.97 US. Therefore you just made $218.97, a 2.19% increase in funds.
Reading a FOREX quote may seem a bit confusing at first. However, it's really quite simple, when you see Forex quotes you will actually see two numbers. The first number is called the bid and the second number is called the offer/ask. If we use the USD/JPY as example 115.37/115.40 the first number 115.37 is the bid price and is the price traders are prepared to buy USD against the JPY. The second number 115.40 is the offer price and is the price traders are prepared to sell the USD against the JPY.
Here in USD/JPY the currency listed first (USD) is the base currency and & the value of the base currency is always 1. A quote of USD/JPY 115 means that one U.S. dollar is equal to 115 Japanese yen. When this currency quote goes up, it means the dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote increases from 115 to 117, it indicate dollar is stronger because it will now buy more yen than before.
What Next
Well now we have a basic understanding of how Forex market works what next? Now you are going to decide best way to trade the Forex market. The most common approaches are Forex fundamental analysis and Forex technical analysis.
Forex Fundamental analysis: Usually everyday, and often more than once a day, the currency pair will be moving along slowly (sideways movement, consolidation) and then all of a sudden it JUMPS! It very quickly moves up ten or more pips, usually in just a minute, and often continues to move strongly for another hour or so.
This is due to the release of a “Fundamental Announcement”, and of course any experienced trader should understand that they usually create a market movement.
Forex Technical Analysis: It is technique to learn Forex market using chart and indicator to predict the future price of a security.
WHAT YOU NEED
**BROKER:
A broker that provide good platform to trade Forex. MARKETIVA provide very good platform for Forex trading and also give $5 free to open an account.
**Learn Forex Money Management and Risk Analysis:
However, it is common that one afraid of being involved in Forex market because of high risk in this trading field. Although every capital market involves certain level of risk, the risk of loss in foreign currency trading market can be extensive. It would be wise to learn about the potential risk (and managing it) if you wish to trade in Forex market.
A Beginner's Guide to Forex Currency
Trading Forex currency trading (or Foreign Exchange trading) is one of the most lucrative forms of stock trading today. The Forex market was once limited to lending institutions and government banks, but is now open to all investors. If you are currently a stock investor or are interested in stocks, then you don't want to miss the amazing opportunity the Forex market offers. More than $2 trillion dollars in currencies are being traded daily with Forex currency trading!
This brief beginner's guide will explain what Forex currency trading is and how it can benefit you. Also, the guide will show you how to avoid the pitfalls of Forex currency trading.
Explanation of Forex Currency Trading
If you're familiar with the stock market, then you already know how much research it takes to keep up with the thousands of companies in the market. You could spend hours per day trying to find stocks with the most profit potential and the least amount of risk. With Forex currency trading, this element of trading is almost non-existent. Why? Because Forex currency trading focuses on one type of stock - foreign currency exchange rates.
Buying and Selling in the Forex Currency Trading Market
With Forex currency trading, you are actually buying or selling a "pair" of foreign currencies online, by phone or other methods. "Pair" means two currencies that are being compared by pip, or a common denominator between the two currency values. Bids are placed for the pair based on what buyers are willing to pay. An asking price is what sellers are willing to take at any given time.
For example, you might buy Euro dollars with your US dollars, so you are actually buying the EUR/USD pair. The pair will either increase or decrease, depending on what buyers are willing to bid, giving you a gain or loss for your investment.
The rise and fall of pips in Forex currency trading will depend on each country's foreign exchange rate. The exchange rates can be affected by interest rates, unemployment rates, inflation, national events or disasters. If you have ever traveled to a foreign land, then you understand that your own currency could either be worth more or less than the currency of that nation.
Forex Currency Trading Leverage
Many Forex currency trading firms will allow you a leverage of 100:1 for your trading. Some will offer even more. If you have a 100:1 leverage, you can invest $1,000 of your own money, but trade $100,000! You can actually double your money with an increase of only one pip. However, you can also lose your entire investment with a decrease. This could equal big profits or losses, so be sure to consider the risks before jumping in with both feet.
Major Benefits of Forex Currency Trading
There are several major benefits of Forex currency trading. The Forex market is non-stop. You can trade 24 hours a day easily online from your own home computer. Though the risk is high, the profits can be tremendous. There is also a very high leverage with Forex currency trading, giving you more trading freedom than ever. There are no brokerage or commission fees to pay, and no restrictions on short selling.
Avoid Pitfalls in Forex Currency Trading
There are a few things to watch out for as a new investor. Be sure to choose a dependable registered broker. Be sure to research the company before you commit. Avoid trading mishaps by trying out a Forex currency trading demo first. There are some great demos available on the Web to help you become familiar with the Forex market and how it works. Most Forex currency trading brokers will allow you to have a free 30 day trial of their software making "paper" transactions to see what you can do. Beware of those companies or websites that promise "untold riches" with the Forex market. As with any investment, there is always risk no matter what their claims.
Forex currency trading is a fabulous business opportunity, but without the usual headaches of running a company. Understand your risks, start small with your investments, and watch your portfolio grow with Forex currency trading!
This brief beginner's guide will explain what Forex currency trading is and how it can benefit you. Also, the guide will show you how to avoid the pitfalls of Forex currency trading.
Explanation of Forex Currency Trading
If you're familiar with the stock market, then you already know how much research it takes to keep up with the thousands of companies in the market. You could spend hours per day trying to find stocks with the most profit potential and the least amount of risk. With Forex currency trading, this element of trading is almost non-existent. Why? Because Forex currency trading focuses on one type of stock - foreign currency exchange rates.
Buying and Selling in the Forex Currency Trading Market
With Forex currency trading, you are actually buying or selling a "pair" of foreign currencies online, by phone or other methods. "Pair" means two currencies that are being compared by pip, or a common denominator between the two currency values. Bids are placed for the pair based on what buyers are willing to pay. An asking price is what sellers are willing to take at any given time.
For example, you might buy Euro dollars with your US dollars, so you are actually buying the EUR/USD pair. The pair will either increase or decrease, depending on what buyers are willing to bid, giving you a gain or loss for your investment.
The rise and fall of pips in Forex currency trading will depend on each country's foreign exchange rate. The exchange rates can be affected by interest rates, unemployment rates, inflation, national events or disasters. If you have ever traveled to a foreign land, then you understand that your own currency could either be worth more or less than the currency of that nation.
Forex Currency Trading Leverage
Many Forex currency trading firms will allow you a leverage of 100:1 for your trading. Some will offer even more. If you have a 100:1 leverage, you can invest $1,000 of your own money, but trade $100,000! You can actually double your money with an increase of only one pip. However, you can also lose your entire investment with a decrease. This could equal big profits or losses, so be sure to consider the risks before jumping in with both feet.
Major Benefits of Forex Currency Trading
There are several major benefits of Forex currency trading. The Forex market is non-stop. You can trade 24 hours a day easily online from your own home computer. Though the risk is high, the profits can be tremendous. There is also a very high leverage with Forex currency trading, giving you more trading freedom than ever. There are no brokerage or commission fees to pay, and no restrictions on short selling.
Avoid Pitfalls in Forex Currency Trading
There are a few things to watch out for as a new investor. Be sure to choose a dependable registered broker. Be sure to research the company before you commit. Avoid trading mishaps by trying out a Forex currency trading demo first. There are some great demos available on the Web to help you become familiar with the Forex market and how it works. Most Forex currency trading brokers will allow you to have a free 30 day trial of their software making "paper" transactions to see what you can do. Beware of those companies or websites that promise "untold riches" with the Forex market. As with any investment, there is always risk no matter what their claims.
Forex currency trading is a fabulous business opportunity, but without the usual headaches of running a company. Understand your risks, start small with your investments, and watch your portfolio grow with Forex currency trading!
Foreign Exchange Market
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe exceeds $3.2 trillion/day (on an average) presently. Retail traders (small speculators) are a small part of this market.
According to the BIS study Triennial Central Bank Survey 2007, 30% of transactions were strictly interdealer (ie interbank); 43% involved a dealer (i.e. a bank) and a fund manager or some other non-bank financial institution; and 27% were between a dealer and a non-financial company.
Trading characteristics
There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. Thus, forex trading may be perceived as a competition of minds.
According to the BIS study Triennial Central Bank Survey 2007, 30% of transactions were strictly interdealer (ie interbank); 43% involved a dealer (i.e. a bank) and a fund manager or some other non-bank financial institution; and 27% were between a dealer and a non-financial company.
Trading characteristics
There is no single unified foreign exchange market. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currency instruments are traded. This implies that there is no such thing as a single dollar rate - but rather a number of different rates (prices), depending on what bank or market maker is trading. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs.
The main trading centers are in London, New York, and Tokyo, but banks throughout the world participate. As the Asian trading session ends, the European session begins, then the US session, and then the Asian begin in their turns. Traders can react to news when it breaks, rather than waiting for the market to open.
There is little or no 'inside information' in the foreign exchange markets. Exchange rate fluctuations are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in GDP growth, inflation, interest rates, budget and trade deficits or surpluses, and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. Thus, forex trading may be perceived as a competition of minds.
How to Trade Forex
Now that you know some important factors to be aware of when opening a forex account, we will take a look at what exactly you can trade within that account. The two main ways to trade in the foreign currency market is the simple buying and selling of currency pairs, where you go long one currency and short another. The second way is through the purchasing of derivatives that track the movements of a specific currency pair. Both of these techniques are highly similar to techniques in the equities market.The most common way is to simply buy and sell currency pairs, much in the same way most individuals buy and sell stocks. In this case, you are hoping the value of the pair itself changes in a favorable manner. If you go long a currency pair, you are hoping that the value of the pair increases. For example, let's say that you took a long position in the USD/CAD pair - you will make money if the value of this pair goes up, and lose money if it falls. This pair rises when the U.S. dollar increases in value against the Canadian dollar, so it is a bet on the U.S. dollar.
The other option is to use derivative products, such as options and futures, to profit from changes in the value of currencies. If you buy an option on a currency pair, you are gaining the right to purchase a currency pair at a set rate before a set point in time. A futures contract, on the other hand, creates the obligation to buy the currency at a set point in time. Both of these trading techniques are usually only used by more advanced traders, but it is important to at least be familiar with them. (For more on this, try Getting Started in Forex Options and our tutorials, Option Spread Strategies and Options Basics Tutorial.)
Types of Orders A trader looking to open a new position will likely use either a market order or a limit order. The incorporation of these order types remains the same as when they are used in the equity markets. A market order gives a forex trader the ability to obtain the currency at whatever exchange rate it is currently trading at in the market, while a limit order allows the trader to specify a certain entry price. (For a brief refresher of these orders, see The Basics of Order Entry.)
Forex traders who already hold an open position may want to consider using a take-profit order to lock in a profit. Say, for example, that a trader is confident that the GBP/USD rate will reach 1.7800, but is not as sure that the rate could climb any higher. A trader could use a take-profit order, which would automatically close his or her position when the rate reaches 1.7800, locking in their profits.
The other option is to use derivative products, such as options and futures, to profit from changes in the value of currencies. If you buy an option on a currency pair, you are gaining the right to purchase a currency pair at a set rate before a set point in time. A futures contract, on the other hand, creates the obligation to buy the currency at a set point in time. Both of these trading techniques are usually only used by more advanced traders, but it is important to at least be familiar with them. (For more on this, try Getting Started in Forex Options and our tutorials, Option Spread Strategies and Options Basics Tutorial.)
Types of Orders A trader looking to open a new position will likely use either a market order or a limit order. The incorporation of these order types remains the same as when they are used in the equity markets. A market order gives a forex trader the ability to obtain the currency at whatever exchange rate it is currently trading at in the market, while a limit order allows the trader to specify a certain entry price. (For a brief refresher of these orders, see The Basics of Order Entry.)
Forex traders who already hold an open position may want to consider using a take-profit order to lock in a profit. Say, for example, that a trader is confident that the GBP/USD rate will reach 1.7800, but is not as sure that the rate could climb any higher. A trader could use a take-profit order, which would automatically close his or her position when the rate reaches 1.7800, locking in their profits.
Opening A Forex Brokerage Account
Trading forex is similar to the equity market because individuals interested in trading need to open up a trading account. Like the equity market, each forex account and the services it provides differ, so it is important that you find the right one. Below we will talk about some of the factors that should be considered when selecting a forex account.
Leverage Leverage is basically the ability to control large amounts of capital, using very little of your own capital; the higher the leverage, the higher the level of risk. The amount of leverage on an account differs depending on the account itself, but most use a factor of at least 50:1, with some being as high as 250:1. A leverage factor of 50:1 means that for every dollar you have in your account you control up to $50. For example, if a trader has $1,000 in his or her account, the broker will lend that person $50,000 to trade in the market. This leverage also makes your margin, or the amount you have to have in the account to trade a certain amount, very low. In equities, margin is usually at least 50%, while the leverage of 50:1 is equivalent to 2%.
Leverage is seen as a major benefit of forex trading, as it allows you to make large gains with a small investment. However, leverage can also be an extreme negative if a trade moves against you because your losses also are amplified by the leverage. With this kind of leverage, there is the real possibility that you can lose more than you invested - although most firms have protective stops preventing an account from going negative. For this reason, it is vital that you remember this when opening an account and that when you determine your desired leverage you understand the risks involved.
Commissions and Fees Another major benefit of forex accounts is that trading within them is done on a commission-free basis. This is unlike equity accounts, in which you pay the broker a fee for each trade. The reason for this is that you are dealing directly with market makers and do not have to go through other parties like brokers.
This may sound too good to be true, but rest assured that market makers are still making money each time you trade. Remember the bid and ask from the previous section? Each time a trade is made, it is the market makers that capture the spread between these two. Therefore, if the bid/ask for a foreign currency is 1.5200/50, the market maker captures the difference (50 basis points).
If you are planning on opening a forex account, it is important to know that each firm has different spreads on foreign currency pairs traded through them. While they will often differ by only a few pips (0.0001), this can be meaningful if you trade a lot over time. So when opening an account make sure to find out the pip spread that it has on foreign currency pairs you are looking to trade.
Leverage Leverage is basically the ability to control large amounts of capital, using very little of your own capital; the higher the leverage, the higher the level of risk. The amount of leverage on an account differs depending on the account itself, but most use a factor of at least 50:1, with some being as high as 250:1. A leverage factor of 50:1 means that for every dollar you have in your account you control up to $50. For example, if a trader has $1,000 in his or her account, the broker will lend that person $50,000 to trade in the market. This leverage also makes your margin, or the amount you have to have in the account to trade a certain amount, very low. In equities, margin is usually at least 50%, while the leverage of 50:1 is equivalent to 2%.
Leverage is seen as a major benefit of forex trading, as it allows you to make large gains with a small investment. However, leverage can also be an extreme negative if a trade moves against you because your losses also are amplified by the leverage. With this kind of leverage, there is the real possibility that you can lose more than you invested - although most firms have protective stops preventing an account from going negative. For this reason, it is vital that you remember this when opening an account and that when you determine your desired leverage you understand the risks involved.
Commissions and Fees Another major benefit of forex accounts is that trading within them is done on a commission-free basis. This is unlike equity accounts, in which you pay the broker a fee for each trade. The reason for this is that you are dealing directly with market makers and do not have to go through other parties like brokers.
This may sound too good to be true, but rest assured that market makers are still making money each time you trade. Remember the bid and ask from the previous section? Each time a trade is made, it is the market makers that capture the spread between these two. Therefore, if the bid/ask for a foreign currency is 1.5200/50, the market maker captures the difference (50 basis points).
If you are planning on opening a forex account, it is important to know that each firm has different spreads on foreign currency pairs traded through them. While they will often differ by only a few pips (0.0001), this can be meaningful if you trade a lot over time. So when opening an account make sure to find out the pip spread that it has on foreign currency pairs you are looking to trade.
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