Everyone has heard of, and most have indulged in some form of stock trading or the other. However, there is a new kid on the block and its name is Forex Trading.
Online currency trading is a fast growing market. The Forex Market never sleeps. A currency trader may take advantage of all market conditions at any time. There is no waiting for an opening bell as in the case of trading stocks. It is a 24-hour, continuous currency exchange that never closes (normal hours of operation are Sunday 1pm through Friday 2pm Pacific standard time). This is very desirable for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or night.
Trading Forex
The first currency in the pair is referred to as the base currency, and the second currency is the counter or quote currency. The U.S Dollar, as the world's dominant currency, is usually considered the base currency for quotes, and includes USD/JPY, USD/CHF, and USD/CAD. This means that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The exceptions are the Euro, Great Britain pound, and Australian dollar. These currencies are quoted as dollars per foreign currency.
As with all financial products, FX quotes include a "bid" and "ask". The bid is the price at which a market maker is willing to buy (and clients can sell) the base currency in exchange for the counter currency. The ask is the price at which a market maker will sell (and clients can buy) the base currency in exchange for the counter currency. The difference between the bid and the ask price is referred to as the spread.
The most important Forex market is the spot market as it has the largest volume. The market is called the spot market because trades are settled immediately, or "on the spot". In practice this means two banking days.
Why Trade Forex?
- 24 hour trading
One of the major advantages of trading Forex is the opportunity to trade 24 hours a day from Sunday evening to Friday evening. This gives you a unique opportunity to react instantly to breaking news that is affecting the markets. - Superior liquidity
With $2.1 trillion changing hands daily, the FX market is extremely liquid. This means you can rapidly buy and sell currencies at any offered market price. You can even set the online trading platform to quickly close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order). - No commissions
The fact that Forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis. Trading the "majors" is also cheaper than trading other cross because of the high level of liquidity. - 100:1 Leverage
Forex investors are permitted to trade foreign currencies on a highly leveraged basis which could be up to 100 times their investment. An investment of US $1,000 controls US $100,000 of any particular currency. A small margin deposit can control a much larger total contract value. Of course, as with all leverage one must be very careful with it since it can lead to large losses as well as gains. - Profit potential in falling markets
Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines, for example, it is because the US dollar gets stronger against the euro and vice versa. So, if you think the EURUSD will decline (that is, that the euro will weaken versus the dollar), you would sell EUR now and then later you buy euro back at a lower price and take your profits. The opposite trading scenario would occur if the EURUSD appreciates.
Forex trading for newbies!
Forex trading, like most forms of trading is highly competitive and most people would end up losing money by going in uninformed and unaided. However, thanks to the power of the internet and leverage offered by independent brokers the ability to trade forex has become much easier and is fast becoming the number 1 home based business opportunity.
Forex software allows even the most technically challenged among us trade forex successfully for a living. Pretty much all that is required is a computer and a connection to the Internet. Once installed the 'forex tracer' meticulously scans the market for trading opportunities and automatically picks off the trades with good precision. Now you may be a bit sceptical, I know I was, so why not put the system to the test on a demo account first? Once purchased you can download a demo account here http://www.forexmeta.com/freedemo.php which allows you to trade with play money. If it all goes well, then you could set up a real account and do some real trading!
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