The simple sense of
Forex (
Forex currency exchange,
Foreign Exchange)
is simultaneous purchase and sale of the currency or the exchange of
one country's currency for the one of another country. The
world currencies
do not have a fixed exchange rate and are always fluctuating, since
each are traded in the currency pairs like Euro/Dollar, Dollar/Yen and
others. 85% of daily trades are taken by major currencies trading.
Investments usually deal with 4 major pairs: Euro against US dollar,
US dollar against Japanese yen, British pound against US dollar, and US
dollar against Swiss franc or EUR/USD, USD/JPY, GBP/USD, and USD/CHF
used to sign these pairs accordingly. These major pairs are considered
as the Forex market's "blue chips.� You will not receive any dividends
on the currencies. Well known "buy low - sell high" gives the profit for
currency trades.
In case you have a forecast that one currency would get higher to
another, you can exchange the second one for the first one and wait for
the profit. If you are lucky to see the trades following your forecast
you can make an opposite transaction and to exchange currencies back
gaining the profit.
Forex brokerage companies, also known as major banks
dealers, carry out Forex transactions. Forex market is worldwide and
your European colleagues may make a transaction with Japanese traders
when it is time for you to sleep in the North America. There are 3
shifts for the major institutions to work in due to 24-hours a day
activity of the Forex market. It's possible to ask for overnight
execution for take-profit and stop-loss orders of the client.
Prices in the
Forex market fluctuate without any
dramatic changes unlike stock market where considerable gaps are likely
to be seen. There isn't any problems entering and exit the market due to
its daily turnover of about $1.2 trillion. Forex market can never be
forced to stop. The transactions were carried out even in 2001, on
September 11th.
Foreign exchange market (also called Forex of FX to
shorten the name) is the oldest market in the world. It is also seen to
be the largest one. Since currencies' primary market work 24-hours a
day, Forex is also the largest market with highest liquidity. This is an
interbank market carrying out spot (or cash) transactions. The currency
futures market, to be compared with Forex is traded only 1% as much.
Forex market does not have any exchange center
unlike the stock market. Forex trading seem to go after the sun around
the world, from banks of the United States to other parts of the world
like Australia, New Zealand, the Far East or Europe and back to the US
some time later.
High minimum amount of transaction and strict financial requirements
used to make this interbank market unavailable for small speculators.
The only dealers of currency markets were banks, huge-amount
speculators, and largest currency dealers. They had an ultimate access
to this market dealing with lots of primary exchange rates of the world
currencies, the market with an extremely high liquidity along with an
unusually strong nature of trends.
Nowadays small traders have an opportunity to purchase the small lots
(units), because of the large inter-bank units being split by market
maker brokers like FX Solutions, at the amount they like.
The traders of any size like small companies and individual
speculators have an access to the market at the same price fluctuations
and exchange rates, which only large players used to enjoy recently.
Market makers monitor the rates so that produce their profit on the
difference of rates at which the currency was bought and sold.
Foreign Exchange Market has an acronymic name Forex. It has the
largest size and the liquidity throughout the world nowadays. Forex
daily transactions are carried out at the common amount from 1 to 3
trillion dollars. No stock market is able to deal with a comparable
amount of money.
This enormous market is like the dangerous sea where you can meet
lots of sharks and dangerous waters but at the same time, it is the only
one where two weeks of trading can hypothetically bring you $1,000,000
out of $1,000 of initial investment.
This is certainly hypothetically because many newbie traders deal
with their trades as gambling, that surely bring them to having nothing
in the end. You should always keep the phrase "be careful!" in your
mind. This market would give you its profit possibilities only if you
learn the basic things hard and make lots of demo trading.
The statistics is that as much as 95% of traders come to losing their
money at Forex, 5% have profit, and less than 1% of traders make large
fortune at Forex. You should not produce, sell, or advertise anything
trading at Forex. Your assets are your knowledge, experience and a small
amount of cash.
This market is a platform for banks, transnational corporations, and
individual traders to change the currencies they possess into other
ones. This is the spot Forex market. In this market, you can trade with
up to 1:400 leverage. This means you will receive $400 (to your account)
for each dollar invested. Therefore, you can trade with the $400,000
sum having invested $1,000 onto your account.
Still, there are lots of experienced traders who consider such
leverage to be dangerous and will not proceed forward. Nevertheless, if
you know how to use such high leverage, it will only do you good.
However, this is the place to stop speaking about the basic things. Keep
reading these articles if you want to be aware of how this market has
occurred and some of its historical matters.
Now it is time to speak about the strategies and the way of making
money at Forex some traders use. First, we should say that the things
that work in one case do not certainly work in another. The fact is that
currency trading surely means risk. Still, there are a number of
strategies for the newbie to use to be the winner.
Forex trading may seem very easy but it is not. Your high today
earnings may turn into considerable losses even of your starting capital
tomorrow. Newbie traders are likely to make the same mistakes several
times. Here is a list of such typical mistakes.
1. There is no use of searching the "Holy Grail"
This phrase is to think for those who are scared of losses or being
too greedy does his best to get rich in no time. You can surely make
lots of money some of the time and there isn't a necessity of producing
and advertising anything but a huge homework is required to learn first.
You have to know how this market works and which factors can take the
exchange rate up or down. You should also be aware of the effective
management for your money not to lose everything.
The majority of traders starting at Forex, look for their ultimate
strategy that will cause no losses and will bring only profit. The
desire of such people is to make a strategy that guarantees stable
profit and millions of earnings in a short time without any losses for
them to quit and enjoy their fortune and the new huge house. This will
never bring any success.
No strategy will give you only profit and such research is only waste
of time. High profits of trading are caused by high risk, and you will
not earn a fortune without being on the knife-edge. Do not be sure that
every trade will close in advantage to you. You will always feel
uncertain and there is no way to vanish it. It means that you should
always be ready to the possibility of your strategy failing even if it
is thought as perfect.
You will save a plenty of time and nerves by avoiding the search for
the perfect strategy of earning millions. Even if you find this
strategy, you will not ever need it. You will see why later.
2. Apply fundamental and technical analysis.
At the beginning of my trading, I relied only on the money management
on which I wanted to base my strategy and saw no sense of these
analyses. However, money management, which is still very important, does
not worth omitting them. You can forecast the direction of the market
basing on your technical and fundamental strategies to see their
effectiveness.
You'll be able to make forecasts of price movements by applying the
past data of the prices and graphs to the technical analysis methods.
You can predict future prices with the level of accuracy dependent on
your technical analysis skills using the graphs of the rates you
observe.
Trading with some brokers you can see technical indicators along with
the graphs. You can apply it to your demo account and estimate your
prediction skills necessary for planning trading decisions.
It is impossible to choose the most effective indicator among lots of
various ones. Each trader has to decide for himself which indicator is
best for him. You cannot find any magic formula; you just see the
graphs, make your forecasts and find out whether they come true seeing
the values in the news later.
Your decisions form this formula along with your knowledge that
occurs out of the practical experience. Starting trading with an online
broker it is best for you to trade with yourself on the sheet of paper
rather than invest real money at once.
There are many technical analysis indicators available but here are
the ones that are the most widespread: the Moving Average Convergence
Divergence (MACD), the Bollinger Bands, Pivot Points, RSI, Stochastic,
Fibonacci, EMA, and Elliot Waves.
The broker's software will automatically make all the necessary
calculations when you add the technical analysis indicator to the graph
so that you will see some facts, which are unavailable without using
these indicators. It is even possible for you to build your own
technical systems basing on these indicators.
Fundamental analysis is another tool that maximizes your profit and
minimizes your losses on the trades. Some traders prefer only one kind,
but the majority prefers both.
Fundamental analysis means trading following the news (e.g. telling
about the economies or unemployment rate) in the countries of the
currencies you trade. They can also tell about the events that can have a
strong influence on the currencies' exchange rate.
You can make forecasts on the market direction by following the news
as well. That is why various trading software of the brokers like
www.oanda.com offer a link to the page containing important news.
- bloomberg.com
- businessweek.com
- economist.com
- money.cnn.com
- markets.ft.com
- reuters.com
- fxstreet.com
3. Use the strategies of money management.
Money management strategies let you win or lose. You should use them
to be in a profit. Many traders make too vast investments in every trade
and this is not always rational and reminds of a saying: "Expect to
make too much and you will make too little, expect to make little and
you will make a lot." It means that even if you invest much trying to
get a lot on every trade you can lose all and even if you make small
investments looking for a small reward you can make a lot in some
period.
1% of the total sum of your account is the maximum sum of the
potential risk. This is the first rule of the money management. Stop
loss and limit orders may help you to follow this rule. This may be the
reason of the small profit, especially if you have small initial
investments. However, by compounding a part of your profit or the entire
amount, you can get an exponentially growing income.
This strategy of compound profits is the one that helped to make
millions on financial market instead of gambling that results in losing
all investments quickly.
Here is the example of the opposite tactics that many traders follow.
Imagine that you have an initial investment of $5,000. You are lucky to
possess the trading account and you enter a $1,000 trade. In case the
market trends down and you lose your $1,000, then your assets become
$4,000. Keep following your strategy and enter a $1,500 trade. Just make
sure the market is at its low and remain hopeful that you get your
$1,000 back on top of an earned extra $500. Then the market keeps moving
against you leaving you with $2,500 on your account, which is only
one-half of your starting capital. This is a very difficult situation to
recover from.
