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Forex trading - Getting started
Forex trading: a Beginner's Guide
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.Forex trading
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 tradingforex market 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!foreign currencies trading
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!foreign exchange
For access to a mass of
articles on forex and a large number of videos, please visit my site on forex
trading.
Hi, I'm Philippa Holmes (Pippa to my friends) and I have been
involved in education and training and the forex market for a considerable time.
I have written extensively on the subject and can count a considerable number of
successful business people among my many past students. My many reviews all
emphasize the clarity of my writing and the ease with which absolute beginners
can get to grips with the subjects I present. |
