What Is Forex?
Forex can mean two things. It can either mean the trading of foreign currencies or it can mean the foreign exchange market where the trading of foreign currencies take place. Forex is one of the largest markets in the world. It does not have a main center as it is decentralized all over the world. These financial centers conduct their business at different times but keep the market running 24 hours.
Being the most liquid market in the world,the average daily turnover in global forex markets is estimated at $3.98 trillion with 34.1% or $3.1 trillion taking place in London,followed by New York in second place with 16.6% and Tokyo in third place with 6.0%. With these figures we can say that London is by far the main centre for forex. The market continues to grow and according to Euromoney’s annual FX Poll,volumes grew 41% between 2007 and 2008.
Traders in the market include central banks,large banks,currency speculators,corporations,governments and other financial institutions. It operates through a global network in all the major financial centres of the world which is why it doesn’t really stop.
Why Trade Forex?
We have all heard stories of people who have earned a lot of money through forex otherwise we wouldn’t be here reading this. Why shouldn’t that person be you? But of course nothing is as easy as it sounds. 70% of people who trade forex for profit lose their money. To get into the 30% bracket you need to gather knowledge and experience combined with the guts for risk-taking.
When learnt properly it can earn you lots of money. The amount of money you earn is dependent on the level of risk that you’re willing to take. Unlike most businesses once you’re good at it,it is relatively easy to make a 100% profit. For example if you invested USD5000 you could earn a profit of USD5000.
The fact that it can be done online is also an attraction by itself. All you need is a computer with a fast internet connection. You do not need to sell,recruit or advertise in this business. It can be a part-time or a full-time business to suit your requirements.
How Do You Trade In Forex?
People and institutions have been trading in forex for many years. With the advent of computers and the internet we do not need to be physically present or even make a single phone call. Everything can be done online. First and foremost you need to find a brokerage company to sign-up with. Brokerage companies are like middlemen who execute your orders through a software. For each trade that you make you will need to pay your brokerage company a commission.
Proper research has to be done before choosing your brokerage company as different brokers offer different services. So choose one that suits your purpose and sign up with them. You will be given an account which you need to channel funds into. Any money that you make in forex trading will be deposited into this account while money that is lost will be withdrawn from this account as well. You can also add or withdraw funds from this account as you like.
The second part of basic trading is the currency itself. Just like when we deal in stock we use a certain currency to buy stock,we need one currency to buy another. Therefore currency trading is always done in pairs. For example British Pound and USD (GBP/USD) is a pair. The first currency,in this case GBP,will act as the stock that you want to buy and the second currency which is the USD is the money that you will use.
Even though you might be trading from Japan and your account is funded in Japanese Yen,when you want to trade using the GBP/USD pair,the currency conversion will be done automatically by the software provided by your brokerage company.
Although there are many other pairs that are used all around the world the 4 main currencies pairs are British Pound and USD (GBP/USD),Euro and USD (EUR/USD),USD and Japanese Yen (USD/JPY) and USD and Swiss Frank (USD/CHF).
How Is The Profit Made
In simple terms we have to buy a currency when the value is low or has dropped and sell it when the value goes up. Using GBP/USD,let’s say we bought 1 GBP for 2.3 USD and sold it later on for USD 2.5 our gross profit would be USD 0.2.
Since forex trading is a science,you have to learn it up properly so you can read the signs of currency movement and know when it is the right time to buy and when it is the right time to sell. You also need to have lots of patience while waiting for these signs to show up. That is why you should only trade with money that you can spare. Never trade with your expense money or trade in the hope that your profits will help you solve financial problems such as bills or debts. These situations will cause you to act hastily even when the signs are wrong and cause you to lose money at the end of the day.
Apart from using spare money,you should try to gain as much knowledge and experience as you can so that you read the signs correctly and your decisions are always guided by a cool head.
Reading The Signs
A profitable forex business is based on knowledge and experience that takes time to be learnt and mastered. Most successful traders depend on Technical Analysis and sometimes Fundamental Analysis to make predictions on currency movement.
Technical Analysis is more scientific and is based on the reading of price chart using some tools. It can be learnt in a matter of a few months if you are diligent about it. In fact there are courses available that can help you learn it properly so that you avoid making the mistakes that the 70% does and join the sucessful 30%.
Fundamental Analysis is for the extremely experience trader who can predict currency movement following the announcement of certain news that can affect the economy of a country. A simple example is when there is news of a natural disaster in a particular country,forex experts might decide to sell the currency since it might weaken in the face of the crisis or they might buy it after the currency value drops and sell it when it goes up during recovery. Fundamental Analysis is often used by those who are interested in long term investment which requires patience.
Although both methods are used by experts,99% of successful traders still use Technical Analysis to predict their next move. Here are some of the programs available to help you become an expert Technical Analyst in the forex market.
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