Trading In Foreign Exchange
The word 'Forex' is the abbreviation of 'foreign exchange' and is typically used to describe trading in foreign currencies of various countries by traders and investors. Trading in forex market means buying one currency against sale of another. Imagine a situation where US Dollar is likely to weaken against Pound Sterling.
Suppose a trader sells $1000 and buys Pound Sterling at an exchange rate applicable at that time. In the mean time 'Pound Sterling' strengthens against Dollar. Now the trader who bought Pound Sterling has the power to buy more Dollars with his/her Pounds and thus earns a profit.
There is a similarity in the functioning and objectives of a trader in forex and a trader in stock. A trader in stock market buys a stock price of which is likely to rise in future and sells a stock, price of which is likely to fall. In the same way, a trader in forex buys a currency pair whose exchange rate is likely to rise and sells a currency pair whose exchange rate is likely to fall in future
Forex may be described as the largest and most liquid market in the world where billions of transactions take place daily. Unlike stock market forex market is decentralized and functions daily 24 hours a day all over the world. With this feature everybody has the opportunity to make money any time of the day. Any currency bought and sold is done only in an electronic form in an inter bank market.
Millions of transactions occur based on the speculative anticipations of millions of people about the exchange rate of one currency in relation to another currency in future. International forex investing is a highly speculative affair.
It is such a vast market where millions and millions of dollars change hands daily on the basis of speculative assumptions of millions of traders/investors. Forex market is basically a speculative financial game of bulls and bears.
Forex market is the place where currencies of various countries of the world are exchanged. In the beginning one may not have a clear concept about which currencies to trade in. So, below is shown some major and popular currency pairs to trade in.
Some major currencies pairs are :-
- EUR/USD : Euro and U.S.Dollar
- USD/JPY : U.S.Dollar and Japanese Yen
- GBP/USD : Great Britain Pound and U.S.Dollar
- USD/CHF : U.S.Dollar and Swiss Franc
- AUD/USD : Australian Dollar and U.S.Dollar
- USD/CAD : U.S.Dollar and Canadian Dollar
The aim of a forex trader/investor is to sell the base currency in exchange of another cross currency in anticipation that the exchange rate of the base currency is most likely to appreciate in near future. When the appreciation actually takes place, the trader converts the currency he had earlier obtained back to the base currency and makes profit.
Suppose JPY/USD exchange rate today is $1.00 = Jap Yen 113.82. Suppose a trader anticipated a rise in the exchange rate in near future and sold Jap Yen1,000,000. The trader got $8785.80. Now the exchange rate has risen to $1.00 = Jap Yen 117. Now the trader will get Jap Yen 1,027,938.60 (8785.80 X 117) against a sale of $8785.80. Thus a profit is made. The reverse may happen also. If the exchange rate goes down the trader incurs a loss.
The feature of high liquidity and accessibility attracts an innumerable number of traders in the forex market and more and more people are growing interest in it. There are a lot of traders who became millionaires in this field, gave up their daily jobs and became professional forex traders. Like any other business and like stock market, the traders in forex market also run the risk of suffering huge losses because of lack of knowledge and experience.
It is true many traders make sizeable gains in the forex market but at the same time it's a fact that many people fell victims to incredible losses too. You have to undergo training and seek guidance from experienced and professional brokers before you actually start doing it independently and confidently.
A forex trading course not only empowers one with rules and skills but provides one with inner knowledge of how to become a successful trader. A free demo account also helps. You may have a first hand experience about forex market from a free demo account. Read more :-
Be known for sure, an auto robot or some e- books cannot make you an expert in this trade. These things lure inexperienced traders by baseless and unfounded claims of almost 100 per cent success in each and every trade. These people make profit when beginners buy their products believing in their false claims wasting heard earned money.
What one needs most to become an experienced and successful person is a 'Forex Trading Course' provided by expert and reliable professionals in this line. All these courses are easily available online and may be applied for by anybody. Before approaching for any specific course, talk to them and judge their expertise and consider the number of years they are engaged in this profession.
One of the most popular advantage to trade in the forex market is with the help of 'Leverage'. This advantage enables the traders to trade 40 or 50 or even100 times of the amount he/she has deposited in his/her account. With the help of 'Leverage' one can really enjoy attractive opportunity to make money with small investment. The advantage has its risks too. This is a borrowed fund, so never utilise this until and unless you are 100 percent sure of a trade.
It is advisable to start trading in this market with minimum amount of money at first that you can afford to lose and losing that much money doesn't make much difference to your future security. If your financial status is not as solid as it should be to trade in this market and if losing any money may cause havoc to your future safety, then make sure to keep away from this volatile market. Do not attempt to start investing in forex market with the help of borrowed funds from friends and relatives. May God forbid, if your borrowed money is lost the situation may turn out to be alarming.
The key to making a footprint in this market is a reliable strategy and sticking to it. Human emotions like greed, revenge, fear must not win over you. Never trade when you are not sure about the market's trend and moves on a specific day. Watch and wait to trade in foreign exchange market.
Read more
Essentials of an Ideal Forex Broker and Trading Plans
Forex Trading - Checklist for Beginners
Best Tips for Forex Trading
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