You’ve heard about other people making a full time income from investing in the Forex but you’re just not sure if it is for you. If you’re in this position, we’ll take you on a quick tour of the concept of Forex foreign exchange rates, the benefits and the risk involved.
The Forex market revolves around the buying and selling of money – specifically the various currencies around the globe. The market is huge. To give you an idea of its size, the volume traded is 3 times that of the stock market and futures market combined.
When you start trading the Forex you simultaneously buy one currency and sell another currency. A Forex quote will look something like USD/EUR = 1.2. This can sometimes be a bit daunting to the beginner, but it essentially means that one US dollar can be sold for 1.2 Euros. The 2 currencies listed are known as currency pairs, and there are various pairs that are commonly quoted including USD/GBP (US dollar and British Pound), USD/CAD (US dollar and Canadian dollar), and USD/JAY (US dollar and Japanese Yen).
Trading the Forex has a number of benefits over the stock market. The first of these is the ability to trade 24 hours. Unlike the stock market, there is no physical location that the Forex is traded from. It is a global trading network that runs continuously. This means that you can trade at a time to suit you even if you have other commitments in your life.
Another benefit is the ability to be able to use leverage. This allows you to control large sums of money using only limited funds. If you have a broker that allows you 200:1 leverage, you can control $20,000 with only $100 of your own money. This means that you can increase your profits many-fold. But the downside is that if you do not correctly predict the market, your subsequent losses will also be much higher. Using leverage wisely is something that comes with experience.
A way of building up your experience with Forex is to trade a demo account first. This is a facility that is provided by many of the online Forex brokers. You get an account with ‘virtual money’ in it. You can then start trading without fear of losing any real money. You’ll get to feel comfortable using the trading software and you can even test out trading systems to see if they actually work.
There is a wealth of information available on the Internet about Forex trading. Much of it is free. It is advisable that you start out by getting an understanding of the basics such as Forex foreign Exchange rates, pips, trading signals and trading software. Then if you want to take things further, you can look into buying a trading course.
By: Paul Elms
Posts Tagged ‘Forex Market’
Forex Foreign Exchange Rates – Getting Started In Forex Trading
March 2nd, 2010Forex Trading Leverage Rules – Forex Risk Management Guidelines
March 2nd, 2010
One of the main things which attract people to the Forex market is the high leverage which brokers offer Forex traders. Indeed, Forex leverage can offer substantial profits, yet using too big a leverage can also act against you and cause bigger losses to accumulate in a hurry.
How does Forex leverage work?
For instance, if you place a $500 deposit and are offered a 100:1 leverage, you can open trades of $50,000. This means that if the currency pair which you’ve chosen rises by 1%, you earn $500, or a 100% return on your investment. This is a huge return and can happen within a day or 2. Huge, right?
However, Forex leverage also has it’s own special risks as well. Take the same example of a 100:1 leverage on a $500 deposit and let’s say that your currency pair shifted 0.5% in the wrong direction. This means that you lost $250. That’s right, half of the money you put in, a loss of 50% in one trade.
So, you see, selecting how big a Forex leverage you choose is an important decision which can literally make or break your trading experience. Just imagine a new trader trying a 100:1 leverage and end up losing his or her entire deposit on a 1% shift in the wrong direction. It’s one of the reasons people think the Forex market is so risky. They lose their deposit in their first trade and are so turned off that they never try again.
If you’re new, go for much smaller leverage levels. I recommend not going over 10:1 levels. If your position rises by 1% you gain a 10% return, which is still amazing. But if you lose, than only 10% of the deposit is gone and you have a lot more to work with and earn it back in future trades.
One of the key rules of Forex risk management is to choose a leverage lever which you can handle. If your deposit constitutes a large part of your finances, than choose a lower leverage 5:1 for example. Don’t be tempted by tales of huge forex gains at 500:1 leverage. Most of the people only tell about their winning, not about their losses.
Forex trading is a long term enterprise. Don’t allow yourself to be thrown out of the game by making one bad trade at a huge leverage.
By: John J. Drummond
Review of the Best Forex Trading Software Packages
February 28th, 2010
You need Forex software, plain and simple.
When you look at the fortunes being made on almost a daily basis in the Forex market, you may be thinking that you want to be a part of that. Sure, who wouldn’t? But what you are not seeing is that although the Forex market is one of the largest in the world, where even major banks have complete departments set up to do Forex trading on a regular basis, you need to understand the Forex market.
If you are just beginning, you need to know that there is a tremendous volume of data that needs to be analyzed so that you can make informed and intelligent trade decisions. You also need to be completely on top of things, since the Forex market moves very quickly, and you need to ready to buy or sell when the timing is right.
There are several Forex software systems available out there which allow you various levels of control over each trade. These levels of control range from almost completely automated to somewhat automated to providing analysis only. What are your preferences and how well do you understand the Forex market and all the many factors that affect a currency’s value in various different countries simultaneously? While you don’t know to have all that knowledge at your fingertips at a moment’s notice, you need to seriously evaluate where your knowledge level is, since that will tell you the type of Forex software that can best assist you with your Forex trading.
If you choose a completely automated Forex software package, this is available and can be done. But a word of caution with this. You will need to have a tremendous amount of faith in the software, since it will be making buy and sell decisions with no or minimal inputs from you. Do you feel good enough about a computer software package that could lose you a mint before you could even press the off button? True, such software needs to be very good in order to run with almost no inputs from you, but then again, if it was that good, I have to wonder why anyone of legal Forex trading age would not have their own copy of it and amassing their own wealth on a daily basis.
The Forex software packages in the middle ground provide some automation but take a far less risky approach. They can still run in automated fashion, but you have complete control over each transaction. You specify how much you want to trade, at what point you should execute your stop-loss order, how much profit you want to make figure, and various other parameters. While this could be good, it is still automation and does not maximize how much you could be making. For example, if you say that you want to make $10,000 on a particular trade, the program will execute a sell order when your profits have reached that goal. But there could be conditions in the Forex market where that particular trade would still have been profitable for you, easily reaching the $30,000 profit level, and how because of that automation, you may miss that opportunity.
Still other Forex software packages do the analysis and number crunching of all the data and then present you with the analysis and summary, perhaps also including what the software may consider to be Forex trading signals. Based on your knowledge of the Forex market and what is going on in those countries, you make the decision about buy or sell, and how much quantity. This allows you to maximize your profits and minimize your losses, but it also requires you to have a very good knowledge of the Forex market.
Whichever way you decide to go with your Forex software, choose the one that is best for the way you operate. Using the latest technology to assist you with the in-depth analysis of all data pertinent data is critical to maximizing your success and the right Forex software package can definitely help in that regard.
By: Jon Arnold
