Introduction To Forex
I’m sure you’ve already heard of Forex trading. it is one of the hottest topics around these days. But what exactly is it and how can the average Joe make money in Forex?
Forex, also called “FX”, is short for foreign exchange. The foreign exchange doesn’t get the big press like stocks, options, and commodities. But the foreign exchange is the biggest market in the world, and it offers investors an incredible opportunity for profit.
When you trade on the foreign exchange, you don’t trade in stocks or bonds, but in currency. Simply put, Forex trading is just the buying of one currency and the selling of another. As exchange rates go up and down, you either make or lose money.
With Forex, you’re not investing in a single company or even a group of companies. You’re investing in the economy of nation. You are betting that the overall economic health of one nation will improve in relation to that of a second nation.
For example, let’s say you are analyzing the US Dollar and the Japanese Yen. Your research seems to indicate that the US dollar is undervalued and is due for a rise in price, and at the same time you expect the Japanese Yen to lose value. In this case you would execute a trade to buy US dollars and sell Japanese yen. If you are correct and the exchange rate rises, you make a profit!
So, it’s a piece of cake, right? Well no, not really. Currency prices can be incredibly difficult to forecast because there are so many factors that can contribute to a change in exchange rates. And you must remember that in currency trading you always trade in pairs. You buy one currency and sell another. So, you can’t just look at one nation’s economy, you must look at two.
Of course, you do not have to limit yourself to only one pair of currencies. There are dozens of different currencies to choose from. But if you are just starting out, I suggest sticking to the seven major currencies:
USD – US Dollar
EUR – Euro
GBP – British Pound
JPY – Japanese Yen
CHF – Swiss Franc
AUD – Australian Dollar
CAD – Canadian Dollar
Most small investors concentrate their trading on just these seven currencies.
The Beginners Forex Trading Primer
With more than 5 trillion dollars worth of business being done each day, the Forex market is the most extensive market on planet Earth. This incredible wealth entices traders from around the globe to participate, each maximizing their potential. Traders in Forex come in every shape and size, from every possible nationality. This market tempts traders with the potential fortunes to be made, while keeping conservative investors wary due to the immense sums lost on a daily basis. Additional benefits of the Forex arena are the non-stop activity, instant liquidity of assets and real-time results.
But prior to reaping the benefits of this lucrative market, you must acquire knowledge in the Forex field. The age-old truism: “Be prepared” rings true as ever. Arm yourself with know-how and skills before plunging into the new field of Forex markets. When you are thus prepared, it will be easier to make your way as a trader, avoid pitfalls and succeed in actualizing your trading goals.
You also need to remember that there are many players in the Forex market. Whereas about 90% of Forex traders lose their money due to lack of education, there are plenty of investors, speculators and traders that make a lot of money and have acquired great wealth by investing correctly in the Forex market. There is a correlation between proper finance and Forex education and success the trading market. Many times, Forex traders lose money because they did not analyze the Forex data correctly and made wrong predictions. The objective of a Forex training is to teach you how to analyze the market correctly and what steps should be taken in many different situations.
Basic Forex training should include a look at the history of the market. By being familiar with the way the Forex market acted in the past, you will be able to spot recurring patterns and similar themes. The dynamic Forex market can always be surprising, with sudden rises and falls, and Forex rates are known to be especially unpredictable. Learn to anticipate these changes, analyze them and then act based on your analysis.
Once you have decided to become involved in the exciting world of Forex trading, the next step is to learn as much as you can about this dynamic market. Be thorough in this adventure and do not become impatient if the going is slow. Huge sums of money may be yours to earn by wisely trading in this huge and lucrative world market. Overcome all the dangers involved and you may make a fortune.
Avoiding Forex Market Risks
The Foreign Exchange or Forex market as it is more commonly known is purely to allow people to trade one currency for another. In fact, this is by far the largest trading market in the world for the value of the cash that passes from buyers and sellers of currencies. Many of the trades which take place on the Forex market occur between large banks, central banks, multinational corporations, Governments, currency speculators as well as all other types of financial institutions and markets.
Currently, the daily trading volume on the Forex is over 5 trillion dollars. However, the individual or retail traders make up only a small part of this market, and they often trade through a third party such as a Forex broker or a bank. This means the market mostly includes sophisticated traders who know what they are doing.
In fact, when some individual investors begin trading in the Forex market it can all seem a bit daunting. The learning curve can be steep if you cannot master the fundamentals, and you can easily lose more money than you can afford if you are not careful. However, some people can learn fast and they can master the basics of the market quickly. If you are not one of the fast learners, you may have beginners luck and your first few trades can make you money. But you should not depend on luck to survive for more than your first few trades. You need a solid foundation to recoup your capital and make a decent income from your trades.
There are many financial instruments which you can use for trading on the currency market. These include forwards and futures, options and spread betting. All of which are similar to those used in equity markets. However, as these instruments maintain a minimum trade size to the base currencies, a margin is included with each trading account.
Volatility is the essence of the currency market. Values for individual currencies rise and fall with news and information happening around the world. Sometimes the fall in a currency can be swift and can help to wipe out your entire account before you can react. So, you must prepare for risks if you decide to trade on the Forex market. The market can change suddenly all because of decisions made by some government or corporation in a distant part of the world. A terrorist attack such as that which occurred on 9/11 did not only affect the Forex market in the US but the world over.
Therefore, if you want to become a successful investor in the Forex market, you must learn the fundamentals about the market and the currencies you wish to trade. Also, read press releases and other financial and political news from around the world. You will do well by learning how to read graphs and charts about these individual currencies, Finally, sign up for a demo account with a broker and learn how to trade without using real money.
Everything That You Could Ever Want To Know About Forex (2 of 4) – https://www.mastersofmoney.com/everythingthatyoucouldeverwanttoknowaboutforex2of4/
Risk disclosure: *All investments involve risk. Before making any financial or investment decisions, we highly advise that you seek the advice of a properly licensed and trained investment professional.