| What is Forex Trading? | | | | potential to profit in a rising or a falling |
| | | | market. |
| Forex, or Foreign Exchange, is the | | | | |
| simultaneous exchange of one country's | | | | Trends. Fundamentally, the value of a |
| currency for that of another. This market of | | | | country's currency is determined by interest |
| exchange has more daily volume, both buyers | | | | rates and the strength of the economy in |
| and sellers, than any other in the world. | | | | relation to other countries. Currencies, |
| Taking place in the major financial | | | | therefore, have a greater tendency to trend |
| institutions across the globe, the forex | | | | until the fundamentals change. |
| market is open the full 24-hours a day. | | | | |
| Forex currency trading takes place around the | | | | What are the disadvantages of forex trading? |
| world, across the time zones of the globe. | | | | |
| | | | Leverage can be a two headed sword. With huge |
| You should know that currencies are quoted in | | | | leverage available to forex traders the |
| pairs. The first listed currency is known as | | | | danger is that positions which carry too much |
| the base currency, while the second is called | | | | risk for the account size can be taken on, |
| the counter or quote currency | | | | leading to margin calls. Effective money |
| | | | management rules must be adhered to. |
| In the wholesale market, currencies are | | | | |
| quoted using five significant numbers, with | | | | Brokers. Retail traders must use a broker |
| the last placeholder called a pip or the | | | | rather than dealing directly in the interbank |
| point. | | | | market. The broker will be the counterparty |
| | | | in all transactions and is, effectively, |
| The forex market has become the most popular | | | | making the market. They can, therefore, widen |
| of markets for speculation due to its | | | | spreads or even refuse to trade during |
| enormous size, liquidity, and tendency for | | | | volatile trading conditions. To avoid dealing |
| currencies to move in strong trends. A most | | | | with brokers an alternative to forex is to |
| enticing aspect of trading currencies is the | | | | use futures. |
| high degree of leverage available. | | | | |
| | | | Spreads. As the retail trader must use a |
| What are the advantages of forex trading? | | | | broker to trade, they cannot deal at the |
| | | | interbank rates. A broker will generally |
| Leverage. Huge leverage is available in Forex | | | | quote a fixed spread of 3-20 pips depending |
| trading, often up to 100:1 meaning that large | | | | on the currency pair. The underlying |
| profits can be generated from even small | | | | interbank rate might be as little as 1 pip. |
| margin deposits. | | | | |
| | | | Forex is a very large market but for most |
| Liquidity. The enormous size and global | | | | retail traders dealing with brokers the odds |
| trading of the forex markets means that the | | | | are shifted against them. Online futures |
| markets in the major currency pairs are very | | | | trading provide a much more level playing |
| liquid making trade executions almost | | | | field for most traders who want to take part |
| instantaneous with little slippage. This | | | | in forex trading. |
| is due to a great extent to the rapid | | | | |
| communication systems that are available | | | | Forex or Currency trading can be an exciting |
| worldwide. | | | | way to make your fortune. Prepare and |
| | | | understand the concepts and risk factors |
| Ability to go short. Since currency trading | | | | involved. |
| always involves buying one currency and | | | | |
| selling another, there is no structural bias | | | | Remember that a knife can cut both ways ? for |
| to the market. This means a trader has equal | | | | you or against you . |