An Introduction to Forex

Many markets are traded on unique exchanges or on an electronic platform or over the counter market that is made up of trading groups or individuals. The Forex is such a market. Grains are traded on the CBOT (Chicago Board of Trade) and cattle and hogs on the CME (Chicago Mercantile Exchange). The Forex (Foreign Exchange Market) is the recognized cash market for trading currencies, spreads and CFDs. These trades are usually for a short term trading pop and not for long-term positions like you can see in the futures market or stock market

The Forex or FX market is critical to international business since currencies are involved when one country's business sells products to a country with a different currency. The cash market enables these transactions to take place with instant currency worth available in another currency. The International banks are huge players in this market and are instrumental in setting the current value of each country's currency. But the other part of this is the big players (about 5000 institutions) only account for 5% of the volume of trades on any given day, traders and speculators account for the other 95%. This allows for a liquid market due to the many players that are available when a trade is offered.

The volume of the Forex is about 1.4 trillion dollars a day and is a huge when compared with the US bond market and the US stock markets combined. These joint markets trade about 400 billion a day. This 3 to one ratio gives a potential trader some idea of ​​the amount of money that is flowing from one trader to another in making this a viable trading market. When one of the big boys wanted to move some currency this could move the market or not depending on the size of the trade. The speculators are usually taking the other side of the big trade.

Many of the brokerage firms allow a $ 1000 dollars to control for a short period of time up to $ 100,000. This huge short-term leakage can generate a profit or loss in a very short time frame. A small change in the value of the currency involved can generate a substantial profit of loss. One-penny change in the direction of your trade can mean a gross profit of 100,000 pennies or $ 1000.

This could take place in minutes or a few hours of exposure. Remember this market trades 24 hours a day five days a week.

After the new trader has learned a few important elements of what a trade in the Forex is about, the trader can open a play money account and trade in real time without risking any of their own money. This play time trading will allow the trader to see what signals work for them and what combinations of trades they seem to be able to make money on.

The basic trade is the buying of one currency and the selling of another currency. This pair trade is quoted as say buy the USD and sell the Yen or buy the Yen and sell the USD. The difference in the spread price will either go up or fall in the difference. The trader would buy the stronger currency and sell the weaker currency, expecting the difference to increase in value. For example the USD has been in a long decline against many of the worlds top treaties. When the US economy shows signs of returning to normal and the deficit begins to be ate up, the USD should rise against slower moving currencies and the difference in the dollar versus the other country will favor the dollar due to rising value when compared with another countries money.

This idea can be put into real time practice by opening a play money account with any of the brokers that advertise on the Internet. The offer is usually a play money account funded with $ 50,000 of play money. Other than the money not being real, the trade is treated as a live trade and any profit or loss is also shown in real time. Practicing with this play money account will quickly teach the ins and outs of pair trading in the Forex environment. When the trader has developed a solid trading history of controlling losses and making money, the trader can open a real money account and start trading for real profits and very small losses.

This type of trading is far safer than trading currency futures as the risk is far less and can be controlled. But this is part of the learning curve that the new trader will learn through practice trading with play money. Once a trader experiences the thrill of making money from this type of trading, the trader will be hooked for a long time.



Source by John T Thompson


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