Currency Traders

The FX Market: The Facts

The forex or FX market is the currency trading market where foreign currencies are exchanged. It is not located in just one place. By its very nature it is a global market and trading happens all over the world.

In a sense there is a separate market for each currency pair. Every possible combination of currencies has its own price. Although these are related in some ways there is not necessarily a direct connection between them. Obviously if a country is doing very badly in economic terms, then its currency is likely to fall in comparison with most other countries. But another country might be doing even worse and then the opposite would show on that particular currency pair market. For example the dollar could be falling against the euro while at the same time it is rising against the yen.

The biggest participants in the FX market are banks and other large financial institutions who have a lot of money to invest. They employ professional currency traders who do this for their job. But the markets are so huge and access is so easy that anybody can get involved these days.

All you need is a computer with a high speed internet connection. Do not try trading over a dial up connection! You will find it very frustrating. Prices will change too fast for you to act and you will probably lose money.

You will also need access to a broker who will cover your trades by offering you leverage. This means that with say $100 of your funds you can control $10,000. The broker handles this amount, but you can get started with just a few hundred dollars in a mini FX trading account.

The forex market is highly liquid and very volatile. Liquidity is a measure of how easy it is to turn an investment to cash. Currency is already cash so it has high liquidity. What this means for you is that you can buy and sell at any time. You do not have to wait to find a buyer as you often do with stocks.

The high volatility of the forex market means that prices are constantly changing. This makes it a very risky investment but also potentially very profitable. The possibility of gaining or losing a lot of money in a short time is very attractive for people who are prepared to take the risks. Forex trading is exciting and can be very lucrative for the skilful trader.

Traders use charts and graphs to indicate trends in the movement of the prices. The aim of course is to predict whether the price will continue to move in its current direction or when there will be a reversal. These charts and graphs are normally provided by your broker.

At the same time it is important to stay alert to world events that might affect the financial markets. Many brokers also provide a live feed of forex news. This can be very useful if only to remind you to leave the FX market by closing your trades before major financial announcements are expected.

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Sunday, June 28th, 2009 Introduction No Comments

Forex Currency Trading: An Introduction

Forex, foreign exchange and fx trading are all different names for currency trading, where one currency is exchanged for another in the hope of making money when the exchange rates change. These rates are constantly changing due to market news, national events or a knock on effect from changes in the stock exchange.

At the most basic level, imagine you exchanged some US dollars for British pounds. You might give $100 to buy £65. Then the rate changes in your favor so you exchange them back again. Now with the new rate you get $102 for your £65. You just made $2 or 2% of your investment.

Currency traders do this kind of thing all of the time with the aim of increasing their funds through many small trades. They trade on margins so that they can control larger amounts with only a small investment. In the above example, you might only have to hold $10 in your brokerage account to make the purchase even though the amount is $100. The broker covers the rest on the assumption that the market is unlikely to change by more than 10% in a short time.

Forex trading has been around for over 30 years but until the rise of the internet it was almost entirely in the hands of banks and other institutions with large investment funds. These days ordinary people can get involved on their home computers although the financial institutions are still the major players. When I tell you that around US $4 trillion changes hands every day on the currency trading markets you will understand that only a small part of this belongs to ordinary people like you and me.

Foreign exchange is a worldwide market and because of the different time zones around the world you can trade almost any time. Sydney, Australia is the first currency exchange market to open each day, and by the end of the business day in New York the Sydney market is open again for the next day’s trading. So for 5 days per week this is truly a 24 hour market. It only closes on weekends.

You are not limited to dealing in your own country’s currency so if your national economy is in a very unpredictable state you can switch to trading two other currencies that are a little more stable. While it is true that a volatile situation with big fluctuations can give you big profits in a short time, it is extremely risky to get involved in a currency that is experiencing a crisis.

These days brokers are going all out to attract the new type of home investor who does not have a lot of capital, so you can get started with just a few hundred dollars. They will provide you with software that allows you to make trades on your account, and real time market information including charts to show you the direction of movement of the different currency pairs.

With so much money changing hands every day, foreign exchange is a high liquidity market. This means that your capital will not be tied up for the long term as it might be if you bought certain kinds of stocks.

Apart from some funds to invest, the main things that you need to get started with currency trading are good money management skills, self discipline, a profitable system to follow and perhaps a forex robot to apply your system for you. When you have these in place, currency trading can be fun and quite profitable.

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Wednesday, May 27th, 2009 Introduction No Comments