Dear prospective trader, I hope you really gained a lot from the last published article on “introduction to forex trading”. In recent time there has been some misconception about the market that’s why am here unveil the mystery.
What is traded on the Forex market? The answer is money. Forex trading is where the currency of one country is traded for that of another. Therefore, Forex trading is always traded in pairs and the most commonly traded currency pair is traded against the US dollar(USD). They are called the ‘majors’ . the major currency pairs are the Euro against the dollar (Eur/USD); the British pound against the dollar (GBP/USD); Dollar against the Japanese yen(USD/JPY) and the Dollar against the swiss franc (USD/CHF). The notable ‘commodity’ currency pair traded are the Canadian dollar (USD/CAD) and the Australian Dollar (AUD/USD). Because theres no central exchange for the forex market, these pair and their crosses are traded over the telephone and online through a global nework of banks, multinational corporations, importers and exporters, brokers and currency traders. But if you really want to make it big in the forex market , I will strongly advise that as a “beginner” in the business kindly get acquainted with one or two major currency pairs. Study them very well and make sure you understand their volatility period.
And to further simplify Forex trading, you could easily limit your trading to the two most liquid and widely traded pairs, the EUR/USD and the GBP/USD. This really starts to reduce demands on your time for trading activities without giving up good profit potential.
Traditionally, currency trading has been a ‘professional only’ market, available exclusively to banks and and large institutions, however, because of the invention of the new E- economy, online Forex trading firms are now able to offer trading account to trading retail ‘traders’ like you and I. Now almost anyone with a computer and an internet connection can trade currencies just like the worlds largest banks do.
ATTRIBUTES AND BENEFITS OF FOREX TRADING
In addition to the forex attributes explained in the “introduction to Forex trading” the Forex markets are indeed different from the stock markets in that their price behaviour is different with usually more abrupt price swings. This requires different trading methods than those typically used for stocks in order to take full advantage of the profit potential that Forex has to offer while at the same designing the right strategy to minimize risk. On the other hand, they are alike in that both forex and stocks are markets that develop repeatable price behavior that present profit opportunities for those traders with good trading methods, sound money management principles and disciplined trading.
There are many benefits and advantages to trading Forex . Here are just few reasons why so many people are choosing this market as a business opportunity:
1. LEVERAGE: In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make extraordinary profits and at the same time keep capital risk to a minimum. Some Forex firms offer 200 to 1 leverage,which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $ 100,000 dollars and so on. Moreover, one must be careful when choosing leverage because due to experience and research, it is very clear that leverage misunderstood and this misunderstanding is a root cause of forex trading losses and futile attempts to overcome these losses without addressing the root cause.
Because of the high leverage that forex offers, Forex positions require a much smaller account size than stock trading similar sized positions as Forex margin are much smaller than stck margin requirements. And so the reward can be much greater with Forex, but at the same time, the risk is much greater. But this can be dealt with effectively with good trading tactics and good money management rules that allow for maximizing profit potential and minimizing risk.
Now, let me explain in a lay man way that the deposit (money) you have in your Forex account with a broker is reffered to as collateral (margin) for getting a loan (leverage) from the broker to trade any required amount of currencies.
2. LIQIDITY: Because the Forex market is so large, it is also extremely liqid. This means that with a click of a mouse you can instantaneously buy and sell at will. You can even set the online trading platform to automatically close your position at your desired profit level (limit order), and /or close a trade if a trade is going against you (Stop order).
3. PROFIT IN BOTH RISING AND FALLING MARKETS: On the stock markets, you can only make money if shares are rising, but in economic recession and falling ‘bear’ markets, there is little chance of making big money. Forex is different. One of the most exciting advantages of forex trading is the ability to generate profits whether a currency pairs is ‘up/bullish’ or ‘down/bearish’. A trader can profit by taking a long positon (buying at one price and selling it later at a higher price), or (selling the currency pair and buying it back at a lower price). For Example if you think the US dollar will increase in value vs the Japanese yen then you will buy Dollars and sell yen( go long). For example, if you think the yen will increase in value against the dollar then you will sell Dollars and buy yen(go short). As long as the trader picks the right direction, a potential for profit always exist.
4. 24 HRS TRADING: From Sunday evening to Friday afternoon EST the forex market never sleeps. This is very desirable for those who want to trade on a part-time basis, because you can choose when you want to trade morning, noon or night.
5. FREE DEMO ACCOOUNTS, NEWS, CHARTS: You must also take the demo trade serious and maintain the account like a real live account. Apply all strategies on demo account before applying it on live account.
6. MINI TRADING : One might think that getting started as a currency trader would cost a lot of money. The fact is it doesn’t. online forex firms/brokers noe offer mini trading accounts with a minimum account deposit of $200- $500 with no commission trading. This makes forex much more accessible to the average individual, without large, start-up capital. But my personal perspective about the market is that the more money you have to trade the more you would enjoy trading Forex.
No comments:
Post a Comment