The Foreign Exchange market, also called the “FOREX”, “FX” or the Currency Market, is one of the hotest trading markets on Earth. It is the largest financial market in existence with a daily turnover of USD 3 200 000 000 000 (USD 3.2 trillion). Forex offers investors tremendous opportunities and huge returns.
The Forex is a 24 hour, 5 days a week market. The trading begins Monday morning in Wellington, New Zealand, then it moves on to Sydney, Tokyo, London, New York before the cycle repeats. The Forex trading is not centralized on any particular exchange. The traders can, unlike in any other financial market, respond to the currency fluctuations in real time throughout the day and night.
Currencies
The foreign currencies are always traded in pairs, for example US Dollar/Japanese Yen (USD/JPY) or UK Pound/Euro (GBP/EUR). The most commonly traded currencies are called the Majors and are popular by speculators and investors for their liquidity. Among these currencies are:
- U.S. Dollar (USD)
- Euro (EUR)
- Japanese Yen (JPY)
- UK Pound (GBP)
- Swiss Franc (CHF)
- Australian Dollar (AUD)
Only 5% of the Forex trade’s daily turnover is from governments and businesses that engage in the international trade or need to convert profits from a foreign currency into the domestic one. The other 95% is traded by speculators.
Currency Value
When you do Forex trading and you are buying the currency of a particular country, you do an investment in the economy of that country. The value of the currency depends of the economical and political situation in that particular country. The currency exchange reacts sensitively on any development both locally and internationally and the value of your investment may increase or decrease accordingly.
Trading Opportunities
The volatility of the market is extreme and there are at any time currencies that are moving rapidly up or down offering you the opportunities for profitable trades. It is important to note that currencies are traded in pairs - you are purchasing one currency and selling another one at the same time. Basically you execute the trade only when you expect one currency of the pair to increase in value and the other one to decrease.
Minimal Trading Requirements
Until recently only companies and individuals with tens of millions of dollars in their trading accounts could invest in the Forex market. Fortunately the requirements have changed completely and any investor can start Forex trading with as little as $50 nowadays.
Gains and Risks
Forex is the world’s most lucrative trading market. It is highly liquid and volatile. However it is not for everybody. You can potentially achieve very high profits on one side and incur substantial losses on the other. Therefore it is imperative to invest always only what you can afford to lose.
Leverage
Forex brokers offer highly leveraged trading. If for example your broker offers you a 1:100 leverage, than for a $100 deposit you have a purchasing power of $10 000. It is beneficial, but it can also ruin you. For the inexperienced Forex trader it is not advisable to trade with more than 1:10 leverage at the beginning. In Forex trading it is deadly important to overcome greed and impatience. The extremely high leverage of up to 1:400 benefits mostly your broker and exposes you, the trader to unnecessary risks.
Start Forex Trading
Before you engage in the real money trading, be sure to familiarize yourself with the Forex trading principles and you well understand how it works. It is better not to start your first trade with a big sum of money. The traders that start in small and educate themselves in the process are usually the most successful ones.
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