An Introduction to Forex Trading

admin — Tue, 15 Sep 2009 13:52:31 +0000

Before anybody jumps into the Forex market and puts their hard-earned money on the line, they should really be familiar with some of the parts of the market that they are going to be dealing with. To be perfectly honest, it is not necessary for you to know everything in order to get started but it is important for you to understand a few of the basics. Here is a brief introduction to Forex trading, one that we hope will get you started on a long and very prosperous journey through trading in currencies.

The Forex market is a 24-hour currencies market in which individuals trade in currency pairs. You buy one type of currency and you trade it against another type of currency, hoping that the one you’ve purchased will gain in value in comparison to the other. There are a number of different things that can cause currencies to move and many traders look for these signals in order to know when to buy and when to sell. This is probably also something that you are going to want to become familiar with but it is something that can be learned along the way. You may also be interested in some of the Forex trading systems that we review, which can guide you in the right direction.

One of the reasons why Forex trading has become so popular is because it is a market that tends to be less volatile than the commodities market, usually referred to as the stock market. Although there is some volatility that is involved in Forex trading, it does not usually happen so drastically as it does sometimes in the commodities market. Since 1971, Forex has been very important to the world bank market, especially
since many currencies are now floating instead of being based on the gold standard.

The Forex market was not necessarily always something that everybody could get involved in. As a matter of fact, until recent years it was only used by larger lending institutions and the very wealthy sector of the population. Recently, however, Forex trading was opened to the general public but there is one restriction that you are going to have to adhere to in order to get involved. Individuals cannot trade directly on the Forex market. In order for you to do so, you’re going to have to go through a licensed broker who will place the trades for you – check out our Forex trading platforms that we have reviewed to find the one that meets your needs.

One of the most basic things that you’re going to need to understand are Forex quotes. These are simply a way of letting you know how much one currency is worth in comparison with another. For example, if you were trading the euro with the American dollar at 1.3456, that would mean that for every dollar you spend, you would get 1.3456 euros.

The Forex market is certainly something that is worth looking into if you’re interested in trying to augment your income or perhaps invest for your future. Make sure that you get a well-rounded knowledge of the system, however, before you put a lot of money into the market.

Getting Your Hands Dirty with Forex

admin — Thu, 10 Sep 2009 14:31:21 +0000

About Forex

Forex refers to currencies such as the US dollar, Japanese Yen, Pound, and Euro. The forex market is a market or exchange where currencies are traded like other securities such as stocks and commodities. This just happens to be the world’s largest financial market, with a trading value of over $4 trillion a day. Forex, FX, or Foreign exchange are terms commonly used to refer to the market.

The Forex market is considered an Over-the-Counter (OTC) or ‘Interbank’ market because this market is run electronically through a network of banks, continuously over a 24-hour
period. The forex market is highly volatile, offering good trading opportunities which increase the prospects of earning good profits, while also indicate the potential for large
losses.

There are number of major financial centers in which the Forex market is particularly active, including New York, London, Tokyo, Singapore and Hong Kong.

What is traded in FX Market?

In the Forex market, currencies of various countries are bought and sold. But remember, you don’t actually buy or sell actual currencies, you actually trade in currency pairs
where you ‘plus’ (long, increase holding) one currency and ’minus’ (short, decrease holding) the other. For instance, the US dollar with the Swiss Franc (USD/CHF) or the British pound with the Japanese Yen (GBP/JPY).

Who trades in the FX Market?

The main participants in the forex market are Central and Commercial banks, hedge funds, institutional investors and individual investors. Banks are considered for the most part, the market makers in the FX market. Banks gives two way quotes to traders, meaning they provide both a ‘bid’ and ‘ask’ price.

Speculators, Hedgers and Arbitrageurs enter the market for typically different reasons. For instance, hedgers take forex contracts to safeguard their existing corporate finance
position, while on the other hand, arbitrageurs participate in the market to take the advantage of price differences. Over 95% of the forex market activity is estimated to be
for speculative purpose; this helps in providing substantial liquidity.

Why trade Forex?

1. 24 hour Market – Forex markets are virtually non-stop, meaning that forex trading continues 5 days a week, 24 hours a day, as some exchange around the world is always open. This is good particularly for those who are not regular traders but want to trade whenever they are free.

2. Leverage – Leverage is the main advantage in the forex market; brokers provide so much leverage, sometimes even 50X or 100X, which aids traders in taking large positions
without actually betting in cash. Remember, that leverage is a double-edged sword!

3. High Liquidity – The forex market is highly liquid and helps in providing comfort to exit a trade at any time without having to worry about having adequate buyers and sellers in the market.

4. Less Transaction cost – Transaction cost is very low in the FX market, compared to other markets such as equities and commodities. There is no third party or middleman involved in the forex market, which helps in saving on cost of trading.

5. Not easy to operate – The Forex Exchange market is so large and complex, it cannot easily be manipulated by a single entity due to the large volumes and high amount of liquidity. It is not easy to inflate market prices as in equities or commodities.

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An Introduction to Forex Trading

Getting Your Hands Dirty with Forex