Forex, quite simply, is the foreign exchange market where currencies are traded by governments, banks, corporations and individuals. Forex is a decentralised market with transactions conducted directly between two parties, resulting in a highly liquid market; between three and four trillion US dollars are traded every day.
How forex works
Exchange rates are the rate at which one currency can be traded against another, and the rates are written out in that way. For example, if one Euro buys 1.29550 US Dollars it is displayed as EUR/USD 1.29550.
The value of a currency against another is affected by many factors, including:
- Interest rates.
- Central/government bank meetings.
- National government decisions and policies.
- Economic news and forecasting.
- Global industry news.
- The weather.
Understanding these factors is the key to making a profit, buying when a currency has a low value and selling when its value has risen.
Being able to keep a keen eye on these factors is the key to successful trading, and there are a growing number of specialised websites dedicated to providing you with the best trading information.
We are all aware that currencies fluctuate or move up and down relative to each other. You only have to ask any holidaymaker how a difference in the exchange rate can make them feel richer or poorer when they travel abroad. For example, if the pound rises in value against the Euro, anyone on a holiday in Spain for example can buy more with their pounds and have a cheaper holiday. Of course the reverse can happen when the pound falls against the Euro and our holiday costs increase.
This is the basis of Forex trading which is how you can make or also lose money when your chosen currencies fluctuate. A huge amount of money is exchanged every day - by some estimates, about $3.2 trillion worth of currency changes hands every day. To give an example of how Forex works, this is typically done through a broker. What happens as a Forex trader you would choose a currency pair that in your opinion is going to change in value, shall we say Euros and US Dollars. Let us assume that you had purchased €1,000 at a time when €1 was worth $1.2, this would have cost you $1,200. Over a period of time if the currency changed in favour of the Euro and was now €1 was worth $1.3 your €1,000 would now be worth $1,300 or a gain of $100.
This is the simple basis of Forex trading and you can choose as many different pairs as you wish, if you want to become a Forex trader, the first thing that you should do is to find a good online broker and use their platform to practice Forex trading before you invest.
Investors who visit Tradeforex and similar sites are interested in Forex trading for a variety of reasons. One of the reasons why it is such a popular investment choice is that it offers a very diverse range of options. Most people think of it as an investment activity, although some also pursue it as a hobby. The good thing about Forex is that it offers the advantage of an exciting hobby that can also generate an income.
Because Forex is such a major power in the financial market, many investors have been trying to get their share of the income potential. The currency market generates trades at a rate that far surpasses the securities market. In many ways, it has far fewer risks than the securities market, making it a better choice for more conservative investors. Many people have made a lot of money with much smaller investments.
Forex can easily be seen as a hobby as well as an investment. There is a certain amount of excitement involved with the trading process, especially for those who are interested in finances. Making predictions based on the current market conditions in a given country is very exciting indeed. Those who engage in Forex trading as a hobby often prefer to use fundamental analysis, which relies heavily on data collection.
There is a lot of value in treating Forex trading as both an investment and a hobby. Many people desire to have a hobby that is profitable, which makes currency trading a satisfactory choice. It is quite common for Forex traders to do their trading at night, on weekends or at other times when they are not working. Regularly taking part in profitable trading has allowed some to reduce the number of hours that they work or move into full time investing.
Forex news sites are very valuable resources for any trader. When you have access to good charts and other resources, you can do a better analysis of the trade decisions that you make. This is an effective way to learn from your mistakes so that they are not repeated.
Finding a healthy balance between a good analysis and over-analysing to the point of obsession is essential. Some people follow their trades so obsessively that they become mired. It is more helpful to observe the mistakes and make notes of them whilst moving on to the next task. Traders who spend too much time dwelling on their mistakes could end up repeating them.
Make sure that there is a trading plan that you intend to use and stay with. When you deviate from this plan in any way, you should make note of where your mistake happened. After making note of any mistakes, think of how you can stay with your plan in order to avoid further mistakes. Review the plan that you use regularly to evaluate whether you are closely following it.
Always evaluate losses in light of whether you used a proper trading plan, as well as any wins. It is not uncommon for a trader to try a new technique that brings them a lot of money. You will want to make sure you carefully document anything new that you try. This could be a winning strategy that can be used again.
Traders who use diaries will be able to make the most of any mistakes. The diary can be referred to at any given time to learn what techniques should be avoided. Make note of even the smallest mistakes, because these could prove to be quite important later on. Use either a traditional diary or a word processing document on the computer.
There is quite a bit of analysis that needs to be undertaken in order to make the right trading decisions. If you familiarise yourself with the most common approaches, you will have a better idea of what works in your situation.
Fundamental analysis relies heavily on different factors that may affect the trading process. Local economic issues, such as job rates and inflation, frequently come into play with this method. People who prefer this method generally find these factors to be better indicators of whether they should make a trade or not. When using the fundamental analysis method, most people will rely on economic news to help them make their decisions.
Many others prefer using a technical analysis. Rather than studying economic trends, this method relies on price trends with the currency that is being traded. Most people who prefer the technical analysis method feel that this is more reliable than the fundamental analysis approach. Studying Forex charts is a major part of this particular method.
Before deciding which type of analysis to use, investors should consider what their strengths and weaknesses are where data is concerned. Fundamental analysis requires going through a large amount of data on a regular basis. This approach works best for those who only deal with a single currency pair. Technical analysis makes the comparison process much easier and also requires less research.
Forex is short for foreign exchange market and is also known as currency trading. It is a global marketplace, open 24 hours a day, in which traders buy and sell currencies with the aim of profiting from fluctuations in their values.
Some businesses trade Forex simply to allow them to pay for goods and wages to overseas branches or subsidiaries. Many individuals and businesses trade Forex simply to make a profit. It is one of the fastest growing global marketplaces.
Traders use high-speed internet to buy and sell currency using a trading platform. They often use Forex brokers, who act as intermediaries between themselves and the corporation they are buying or selling currency from. Different brokers offer different leverage, the amount of lending and charge different spreads, the gap between the buying and selling price of a currency at a specific moment.
The aim is to buy currency while it is low in value and sell it when it is worth more. The bigger the difference between the buying and selling price, the more profit will be made.
Forex traders often find themselves quite pressed for time whilst trading. It is all too common for traders, especially those who are new to Forex, to end up spending too much time on their trades at the expense of everything else. Sometimes, realising that even the most seasoned traders take time to live a normal life is just what you need to get back on track.
Many traders spend too much time watching charts in the hopes that something will change dramatically during that time. In reality, this technique sets many back because it causes them to focus too much on the possibility of failure. Conducting research prior to a trade is always a good idea, but this, too, can get out of control. If a solid plan for conducting trades isn't in place, no amount of obsession over current trends or expert advice will correct it.
There are many different advantages to having a working plan for your trading. Organisation is one of the major advantages, but a solid plan will also help you manage your time more efficiently. Remembering the fact that successful people generally have a plan will in turn help you stay focused.
When you have a good plan for managing your trades, you will have more freedom to do other things and feel less confined by your trading activities. You will be able to focus more on the meaningful parts of the trading process and less on worrying about the minor things.
Most investors are aware of the fact that having a really good forex broker will help them succeed in the forex market and make consistent profits. However, finding the best forex broker can be difficult. Today, there are literally hundreds of brokers offering their services on the internet.
Locating a good broker
A novice trader, looking for someone to help him or her start trading will find many a forex brokerage promising effortless and inexpensive forex currency trading accounts. Although most of them are legitimate, some will be fraudulent.
To avoid falling victim to scams, the first thing a newcomer to the forex market should do is contact the Financial Services Authority (FSA). Monitoring forex brokerage firms and individual brokers, this institution provides critical information about its members, including contact details, reviews, complaints and disciplinary actions. In fact, a trader looking for a reputable broker should be aware that all brokerages and professional brokers must be authorised by the FSA in order to perform specific forex trading tasks.
Investors who already trade in other markets should ask their current brokers if they have any experience with forex. If they do not, they may recommend a fellow broker who has a good reputation. The investor should always be sure that the prospective broker really does know how to trade forex. This can be done by simply asking for references from existing clients or looking for feedback on one of the forex forums.
Since the relationship with a broker involves constant contact and financial commitment, investors should never take the decision of hiring a broker lightly. Failure to do so may result in serious repercussions, such as becoming the victim of a scam. In conclusion, if a broker does not have FSA authorisation the investor should look for an alternative service provider.
Whether you’re looking for the latest forex news or for an article on John Keynes economic ideas, the internet is an excellent source of information, and is more readily available than books in many homes in the UK. However, when using internet sources, it’s important to ensure that the information is good.
How can information be bad?
There are a couple of ways in which essays can be tripped up by bad information.
Satirical and spoof internet sites such as The Onion, and the Daily Currant, can appear to be upstanding news sources and it is partly their similarity to websites like bbc.co.uk that adds to their humour. However, whilst the information should be obviously silly and incorrect, it isn’t always.
There are also many people who create websites to use as their own personal soapboxes, but just because the information has been published on the web doesn’t mean that it is factual. It isn’t always obvious that the information is bad, and sometimes writers go out of their way to make it look good.
Spot the signs of bad information
You should always double check your sources. Use books where possible, or check the internet for more sites that say the same thing. If you can only find one instance of the information, or if you find lots of instances but all using exactly the same phrasing, there is a chance this is bad information.
Take a good look at the site you got the information from. Can you spot spelling errors? Grammatical issues? (‘Your’ and ‘you’re’ are common mistakes to watch out for). How about the site itself? Is it a professionally designed site, or one that appears to have been cobbled together?
You may need to carry out some detective work when searching for information on the internet but it’s important to ensure that your sources are solid.
When it comes to currency trading, forex is one of the most liquid exchange markets available today. The market is huge and traders who are involved are looking to achieve profitable results consistently; in order to do so they must develop a complex strategy. Unfortunately, recent reports indicate that about 95 per cent of traders are unable to achieve consistently positive results. That is largely because most of them focus on unreliable information, which means they make the worst possible trading decisions.
Understanding the basic essentials
To develop a lucrative forex currency trading strategy, an investor must consider a number of key elements, such as technical indicators, trading systems and money management techniques. All trading decisions must be made based on certain technical indicators, such as price fluctuations. For example, a broker can make a massive profit by following a simple day trading strategy, which consists in buying when the currency is low and selling when its price goes up.
To get the best out of using a certain strategy; for example, day trading, the individual should develop his or her personal forex day trading system, one that fits their specific needs and goals. This means each trader has to make an ongoing effort to develop a system that works perfectly for him or her.
In addition, multiple money management techniques can help traders make profit without risking too much. A good rule of thumb is to invest around one per cent of the money deposited in their forex account. Although this is likely to result in only small returns on investment, it leads to exponential profit growth over time.
After creating a particular trading strategy, traders should try it on a forex demo account. Once a particular strategy delivers consistent results, it can be transferred to a ‘live’ forex account.