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Forex Currency Trading The Basics
orex is the name given to financial markets open in Tokyo,
the foreign exchange London and New York. So it's
market, where international always possible to find someone
currencies are bought and sold. who is willing to buy or sell
Due to the development of free international currencies. This
exchange rates, the market began gives investors the chance to
in the 1970s and has become the respond to price changes caused
world's largest financial market by a variety of economic, social
with a daily turnover of US$1.9 and political events at any time
trillion. To put that into of the day or night.
perspective, that's over thirty
times the daily turnover of the There are two main reasons for
rest of the US equity markets trading currency on Forex.
combined. Approximately 5% of Forex trades
are undertaken by multinational
Unlike normal stock markets which companies and governments who buy
are traded on exchanges that are or sell products and services in
located in a specific place, a foreign country and have to
Forex currency exchange takes convert their profits into their
place via an Over The Counter domestic currency. Forex allows
(OTC) or interbank market. This them to hedge (or protect) their
means that transactions are profits so that in the even of a
conducted electronically between dramatic currency fluctuation,
brokers. their profits won't be reduced.
Thanks to this and global time However, the other 95% of Forex
zones, Forex is a genuine 24 hour activity is due to people or
financial market. The day begins organizations trading for short
in Australia and moves around the term profit. Forex allows you to
globe as each of the leading trade virtually any currency,
although in practice most it an extremely attractive form
activity (85% of total turnover) of speculation.
relates to the major currencies
which include the US Dollar, the First, due to its size and lack
Euro, the Japanese Yen, the Swiss of exchange controls, it's almost
Franc, the British Pound, the impossible for any person or
Australian Dollar and the organization (including central
Canadian Dollar. banks and governments) to
significantly influence prices
Trading on the Forex exchange for an extended period of time.
involves simultaneously buying This means that you can enter the
one currency and selling another. market secure in the knowledge
For example, if you buy USD/EUR, that your investment is competing
that means you buy the US Dollar on a level playing field with
and sell an equivalent value of every other investor around the
the Euro. Closing you position world.
involves buying the Euro and
selling the US Dollar. Second, due to the vast size of
the market, the liquidity is
The price of all currencies excellent. So unlike the position
traded on Forex are influenced by with many stocks and shares where
the laws of supply and demand. If you might find it hard to sell
the demand for a currency certain investments, you can open
outstrips the supply, the price and close Forex trades almost
rises. Alternatively, if supply instantly as there are always
is greater than demand, the price scores of international buyers
of a currency will fall. and sellers.
Forex trading has a number of Third, it's relatively easy and
significant advantages that make cheap to get started trading
Forex. All you need is an there are two basic Forex trading
internet connection, a broker and strategies, technical analysis
perhaps $500 - $1000 to open a and fundamental analysis.
trading account. Once you've got
these things you can trade 24 Technical analysis relys upon
hours a day from Sunday afternoon using price charts, trend lines,
through to Friday evening. And support/resistance levels,
thanks to the availability of highest price, lowest price,
information on the internet it's transaction volumes and various
possible to find all the data other mathematical formulae to
that you need for the purposes of identify trading opportunities.
analysis and decision making. This is based upon the belief
that everything that may
Fourth, it's possible to make influence the price of a currency
substantial short term gains with has been considered by the market
relatively little capital thanks and factored into the current
to the number of daily price.
fluctuations in currency prices
and the ability to leverage your Crucially, technical analysts
capital (often up to 100 times) don't try to defeat the market.
thanks to margin trading. The are content to predict short
term, minor fluctuations using
However, due to rapid fluctuation patterns from the recent past and
of currency prices and marginal the belief that history will
trading, Forex trading carries repeat itself. The main
significant risks, so caution disadvantage of the method is
must be required when deciding that all the results are purely
which trades to make. historic and cannot always be
relied upon as an accurate guide
When it comes to decision making, to the future.
before basing your investment
Fundamental analysis looks at decisions on these factors alone,
wider factors such as the it's important to consider both
national economy of the currency, technical analysis and the fact
the political stability, that market expectations can
employment figures, industry influence the price of a currency
figures, interest rates, tax as much as reality.
policy and a wide range of other
economic indicators. However,
About the Author:
Visit Michael Mancini's website at ForexCurrencyTradingGuide.com for everything you need to know about Forex Trading.
Read more articles by: Michael Mancini
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