An Overview of the Basics of the Forex Market
While you may have only recently heard about the fun and excitement of trading on the world currency market, Forex trading has been around longer than you might think. Forex, or foreign currency exchange, grew out of a fixed exchange rate system developed after World War II, that allowed countries to trade based on a fixed value to the US dollar, which was in turn, based on a fixed value to the gold standard. However, modern Forex trading became prevalent in the 1970's, with currencies around the world fluctuating in value, or going up or down. Traders in Forex deal with these fluctuations, and buy and sell currency with the attempt to make a profit.
Foreign currency trading has become extremely popular for a variety of reasons. Unlike the stock market, the forex market never closes, and you can trade 24 hours a day. Many traders like this because you don't have to watch the market close down, and wait to see how any new financial news effects the market the following morning. Forex also requires few training qualifications, usually you just need to open an account with a broker, provide the necessary identification, and you can then begin trading. Most trades are also made without paying a commission, which keeps the overall costs down.
Another reason Forex has become so popular is that you are able to trade on margin. That means that you will only need to have a percentage of the money available that you will actually be able to trade with. For example, if you have a one percent margin, if you have $10,000 in your account, you can actually make trades of up to $100,000 in currency value.
The large majority of traders on the market are not individuals, but financial institutions and commercial organizations and businesses. Not all companies participate however, such as pension funds. That is usually because forex trading can be seen as more risky than trading on the stock exchange, and is more designed for short-term, rather than long-term gains.
While it is relatively easy to open a Forex account, trading requires a little more learning and specialized knowledge. If you are interested in Forex trading, it is important to do some research and learn the fundamentals first, as it can be quite complicated. With the rise in popularity of Forex, there is a lot more information available, including online resources, that can give the needed preparation.
Many people, when first starting out in Forex, will open a demo account to practice. This is a great way to get started. A demo is an account with no money in it, which allows you to practice making trades and to be able to learn the basics of forex without the risk. You can track your progress, and learn from your mistakes in order to refine your trading strategy.
Forex trading can be fun and exciting, but newcomers should invest in the time and education necessary to become proficient before they jump in. The Forex market has many advantages that lend itself to individual trading, but also has a level of complexity that should be understood before you try it out. If Forex intrigues you, practice will make all of the difference to your success or failure.
So you want to get into online Forex trading but don't know where to start. You have heard many stories about ordinary people getting rich trading forex and you want your share of the pie. Trading forex is like any other skill, you have to take the time to master it. Yes, you might open an account and turn a few winning trades, but it does not make you a competent trader. You have to learn the business from the inside so you can handle those times when you only make losing trades.
The forex market can be downright intimidating but it is no more so than the stock market. If you already trade stocks, you will find the forex trading to be a piece of cake. Like the stock market you can lose money, or you can crack the code and make a good living. Also, you can learn how to limit your losses, or take better than average risk that might see you make great earnings, or incur large losses. But you need to consider that gains or losses in your portfolio don't always run in a straight line. You can enjoy several days of comfortable winnings only to be offset by a string of losses that seem endless.
To begin forex trading you have to open an account with a broker. Some brokers want less than $100 deposit to your account, others could want a few thousand to start trading. Having a deposit means you can trade without having to transfer money to your trading account every time you want to trade. As you make winning trades, the broker will add to your deposit, and take away from your deposit when you incur losing trades. The broker also takes off his commission from your deposit.
The broker also requires you to keep your deposit account at a minimum value. If your account goes below this value, you will get a call from the broker to restore the required balance to the account. If you fail to add more money to the account, the broker could close your forex trading account. On the other hand, if you have winning trades, you can withdraw funds from your trading account once it doesn't go below the minimum deposit.
Forex trading means you buy or sell one currency and match it against another currency hoping to profit from its changing values. For example, you would buy 1 US dollar at a rate of 1.25 against the Euro. If the rate goes up to 1.35, you profit by 10 cents. On the other hand, if the rate falls to 1.15 against the Euro, you would lose 10 cents. The reverse happens if you sell US dollars against the Euro. If the rate goes up to 1.35 you will lose 10 cents, and gain 10 cents if the rate goes down to 1.15.
If you enter a trade and it incurs profits, you must check it to decide when to close the trade and take your profits. It works similar to stock in that you don't take a profit until you sell the stock at a higher value. Once you keep the trade open, the currency can go higher and higher, giving you more profits than you expect. If you leave it open it could amass a fortune for you. On the other hand, leaving your trade to run could involve a reversal of the gains, and a potential loss. So, you should set limits on your potential profits and losses at the beginning of the trade. This way you get the most profit from forex trading.
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