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 WorksAs 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?........
Read more.......
