The forex market, or Foreign Exchange market, is the largest financial market in the world, with roughly two trillion dollars worth of transactions taking place daily. The source of all this activity is the buying and selling of money - specifically the currencies of countries from around the world. To give you an idea of just how popular forex trading is, the volume traded daily on the forex market is three times that of the stock market and futures market combined!
Until recently only traders with huge amounts of capital available could participate in forex trading -minimum requirements upwards of $ 10 million were required before you were allowed to trade, so naturally the little guy was shut out completely. With the coming of the internet, however, opportunities arose for forex trading firms to offer accounts to everyday traders with limited start-up funds.
So what exactly would you be trading on the forex market? As mentioned above, the simple answer is money, but it's a little more complicated than that. If you look at a forex quote you'll notice that the currencies are quoted in pairs. What this means is that you're actually buying one currency while selling another currency at the same time. For example, you will see quotes for the US dollar and the Euro listed as USD / EUR, or the Japanese Yen and the Canadian dollar as JPY / CAD.
One of the chief advantages to forex trading is the ability to trade 24 hours a day, and almost seven days per week. Because there is no physical exchange, transactions occur electronically every second around the world. And due to the huge volume of transactions that take place every day there is never a worry about filling your order or selling your currency - there's always someone willing to sell to you or buy from you, no matter what time of day it is.
Another advantage of forex trading is the ability to leverage your investment funds. What this means is that you can control large amounts of money with relatively small amounts of actual cash. forex brokers typically offer a 200: 1 leverage ratio, meaning you can control $ 20,000 worth of currency with $ 100 worth of capital. Used wisely, leverage can catapult the average forex trader into the next level of forex trading. Keep in mind, however, that although leverage can provide the forex trader with the ability to trade in levels unreachable in other areas of investing, rushing in without enough knowledge can cause you to quickly lose your investment capital.
So how do you best prepare for profitable forex trading? Fortunately, most forex brokers offer demo accounts along with forex news, reports, and up-to-date charts. Patience is most definitely a virtue when it comes to forex trading, and taking the time to practice trades and learn how to read forex charts effectively can make the difference between huge profits and losing it all. The information is out there, and in most cases it's free, so read until you become confident enough to turn your practice trades into real forex trades.
Source by Yusoff Allian
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