Foreign Currencies

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

Is Forex Investment Safe?

You will see advertisements for forex investment just about everywhere. In newspapers and magazines, on the TV, on the internet … it seems that everywhere you turn, you will meet with somebody telling you that this is a great way to make money. But what is forex? Is it really profitable, and is it safe?

Forex or foreign exchange trading is a way of making money by exchanging foreign currencies. The rates of exchange are constantly changing, so a sharp investor can make a lot of money by buying a currency that is about to rise, then selling it after the price has gone up. In this respect it is a little like trading on the stock exchange.

It would be possible to invest in currency for the medium to long term if you believed that a particular country’s currency was going to rise or fall in a more or less steady way over a period of time. However, this is not what most people do and this is not what the ads that you see are for. Most people use trading techniques to try to make smaller profits over a short time.

Often a trader will enter the market to open a trade and close it again within minutes. He may be buying a currency that he thinks will rise or selling one that he thinks will fall. He will watch the markets until he sees a situation developing that leads him to believe that a pattern or trend is forming, then he jumps in.

The technique of making money with currency trading has opened up for the private investor in the past few years. Now that so many people have a high speed internet connection at home, brokers have seen the opportunity to draw in people whose funds may not be very large. You can begin forex trading with just a few hundred dollars.

There are many systems that you can follow which will help you learn to become a successful forex trader. There are also automated forex trading systems known as robots which will even open and close the trades for you.

Some people who start out in currency trading are hoping to make a lot of money. Often they will be disappointed. You need certain skills to survive in the foreign exchange markets and you also need a lot of self discipline. These can be learned or developed if you do not have them already but it can take time to become successful.

Other people begin foreign exchange trading simply because they enjoy the challenge of trying to increase their starting fund. If they make profits, they may later become serious traders, but in the beginning it is almost a game. This is fine if you like taking risks and can afford to lose a few hundred dollars if things go wrong.

World events can have a big effect on the currency markets and sometimes they are completely unpredictable. Something like the events of 9/11/2001 would be an example. You can put stops in place to make sure that your trade is automatically closed if the market suddenly goes against you, but any trader must accept that losses sometimes happen and must be balanced against the potential gains.

Forex investment can be lucrative but if you are trading on the currency exchange markets it cannot really be described as a safe way to invest. Think carefully before you get involved and be prepared to spend some time learning how to manage your currency trades.

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Tuesday, June 23rd, 2009 Introduction No Comments