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