Before we delve into the actual forex trading guide let’s look at the meaning of the term “forex”. Forex has developed from the abbreviation of the phrase, “foreign exchange” which is a phrased used to refer to trade in foreign exchange markets by companies and individuals.
A quick example of what happens in forex is the following; look at a situation when for example the UK Pound is expected to weaken in value against the US dollar. In a situation like that the investor will sell the UK pound and buy the US dollars. As soon as the US dollar gains value the purchasing power required to buy the dollars increases and the trader can then purchase back more UK pounds than they used at the beginning of the trade, this way the trader makes profit.
What happens in forex is much similar to what happens in stock trading. The main difference being that forex deals with currencies while stock trading pertains to stocks. A stock trader makes profit by buying and selling stock whenever it is favorable and profitable to buy or sell.
Opportunities in Forex Trading
Thanks to the development of innovative currency trading software the nature and dynamics of forex trading presents numerous opportunities to companies and individuals interested in making a fortune from the forex industry.
Forex as hedge
Companies and individuals involved in various business activities across different countries are prone to the risk presented by the fluctuation in the currencies. These companies face such risks when they buy and sell products or services across countries. Forex trading becomes an expedient hedge against the risk by a way of fixing a rate at which a particular transaction can be processed at some point in future. As a trader you can easily accomplish this by buying or selling currencies in what are known as forward or swap markets. In this nature of forex trade the bank locks the rate so as to enable the trader to know the rate at which the transaction will be completed at in future. This way, the bank enables the trader to mitigate against significant financial risk. The futures markets have means to hedge against financial risk relative to the size of the trade as well as the actual currency involved.
Speculation and forex trading
Companies and individuals can tap the opportunities presented by the volatile currency values triggered by various supply and demand factors. Various factors subject the currency values to this volatility and these include trade flows, interest rates, economic strength, tourism and geo political risk, among other factors. Opportunities are available in the prospect of investing in prospects of favorable change after buying or selling one currency against another. This works when the currency being bought will gain strength and the one being sold will weaken.
Currency as Liquid Asset
Currency as an asset class can be viewed from two perspectives. Traders can earn the interest rate differential between the currencies involved in the trade. Secondly the trader can gain value in the exchange rate.
Cyber explosion and forex trading
Thanks to the innovative web 2.0 dispensation forex trading is no longer confined to interbank activity. The forex market has grown exponentially to enable individual traders to have direct access to foreign exchange markets. Traders can still do this via their banks or they can contract independent brokers who make up the booming secondary market.
While automatic forex system trading can be a viable way of going about forex business, it always pays to grasp the basics and the ins and outs of winning forex trading. Companies and individuals set on empowering themselves can explore various resources and online trading forums so as to keep to speed with latest tips and insights on trading profitably.
This section of the forex trading guide focus on forex risk and advantages of forex trading
Forex Trading Guide: Forex Risk, Pros and Cons of Forex trading
As a beginner in forex trading, it is critically important to get well established on how the forex industry and market works. In this forex trading guide we stress the importance of grasping the fundamentals of how the industry works instead of just rushing over to entrust your money with some broker or currency trading software. Forex business is a huge industry which involves numerous banks in what is termed interbank market. The term simply refers to the foreign exchange markets where banks converge and exchange currencies directly with one another. The interbank forex markets are also referred to as the forex wholesale. The terms are confined to the transactions that take place within the banking community.
The Market is not Unregulated-Forex Trading Guide Reveals
For beginners, it is important to note that the commonplace notion that forex market is not regulated is not true. Key to understating this is that the interbank market is made up of hundreds of banks that trade with each other from around the world. The community of banks is the one that determines and accepts what is known as sovereign risk and credit risk. To do this, the banks have to conduct thorough internal auditing processes so as to keep the market as safe as possible. (Link 3) What can be stated here is that the forex market comprises of each bank presenting bids and offers for certain currencies, the market pricing dynamics are reached through the basic supply and demand principles. What the foregoing means is that the forex market is too intricate for any one rogue trader to game or manipulate the system by single handedly influencing the price of a currency. The forex market handles between two and three trillion dollars each day in trade and even central banks are not capable of moving the market without collaborating with other central banks. In a nutshell, this forex trading guide shows that forex trading is a well-established industry where individuals and entities can trade safely.
Key to note also is that traders that have direct access to the forex market through their banks face lesser risks than those who deal with relatively independent and small forex brokers. These brokers can re-quote prices and then trade against their own customers. Traders that approach forex trading as a surefire profit maker are the most gullible to these rogue brokers.
Advantages of forex trading
Forex markets are the largest financial markets in the aspect of trade volume. This means that the markets offer the most liquidity and also simplify entering and exiting positions in any of the major currencies in a very short span of time.
The liquidity as well as the ease of entering and exiting positions gives the trading banks or brokers leverage meaning that the trader has control to some large positions with very little investment of their own. The simple definition of leverage is that it is the degree to which an investor or business is utilizing borrowed money. The leverage in the range if 100: 1 is very common. Traders need to understand the principle of leverage and the principle must be applied prudently if the trader is to conduct meaningful trading. Lack of understanding on how leverage works can result in total loss and clearing up of a trader’s account.
The other up side of forex trading is that forex trading takes places 24 hours a day. Each day starts in Australia and ends in New York. Here are some of the major centers, Sydney, Singapore, Hong Kong, Tokyo, Paris, Frankfurt, and London, New York.
Any trader seeking to make meaningful trading has to invest in gaining basic knowledge of forex. Automatic forex system trading is not entirely automatic. There many resources the forex traders can lay their hands on. Patronizing online trading forums will also help the trader keep tabs on new concepts and trends in the blossoming forex industry.
The next article in the forex trading guide series focuses on the two ways of approaching forex trading.
The section of the forex trading guide focuses on the meaningful approaches of forex trading.
Forex Trading Guide: How to Approach Forex Trading Profitably
In this section of the forex trading guide we will focus on three primary ways of going about forex trading profitably. Traders that approach forex trading with a misconception that this business is a surefire way of making huge profits are often the most gullible and the most prone to huge losses. There are many companies out there that target newbies with no solid knowledge of forex trading. These want to make quick sales of their currency trading software and seek to lure gullible traders with prospects of earning passive profits from automatic forex system trading.
Fact of the matter is that like in any other business grasping the principles and fundamentals of the forex business is key to investing your time and money in this business.
Two Ways of Conducting Forex Trading
Besides providing an opportunity for diversification, forex trading can be approached in these three main ways.
Brokers conducting trade on behalf of individuals and companies can approach forex trade as active traders. This way the broker can earn more spread as the trade is more active.
Forex trading can be approached as leveraged trading meaning that it becomes easier for a trader to open an account with a small amount of money than the trader would need to do stock market trading.
Other than trading for profit or yield forex trading can be conducted as a hedge for a stock portfolio. This scenario is prevalent in cases where traders who build stock portfolio in countries where there is potential for stock to gain value and there is a risk on the aspect of currency. A case in point is what has been happening around the US currency in recent history. A trader could hold a stock portfolio and then sell short the US dollar against the Swiss Franc or Euro. What happens in this scenario is that the portfolio value will increase while the negative effect of the declining dollar will be offset. This applies to investors outside US who will ultimately channel profits back into their currencies.
The third approach we cover in this forex trading guide outlines the overview of a long term forex trading strategy. The long term strategy requires an understanding of certain fundamental as well as the long term benefits of the forex business. In this approach, a trader will have to identify currencies trending in specific direction and yielding positive interest differential that brings a return on investment as well as an appreciation in currency value. A carry trade is a good example of this approach in forex trading.
These possibilities and opportunities have made forex trading easily accessible. For small scale traders plying day and swing trading can be a good way to start off. For big companies and traders with long term trajectories, carry trades can be the best trading approach. There are a lot of resources that can be explored on forex trading approaches and online trading forums are invaluable information resources for expert and prospective traders.
Forex Trading Guide: How and Where to Open a Forex Trading Account
A forex trading account holds the funds of the trader. Most importantly the account enables the trader to conduct trade trough buy and selling currency pairs.
A forex trading account is used to hold as well as to trade foreign currencies. The basic explanation of a trading account is that this is where you deposit your money and then get to buy and sell with it. Profit in forex business is derived from fluctuations in currency values. The basic idea behind forex trading is to match up currencies that are appreciating in value against the ones decreasing in value. In this kind of trade, the trader can buy or sell a currency pair up until the rise or fall of that particular currency pair is over.
As a potential trader, what you need to understand is that opening a forex trading account is not very different from opening a bank account. One of the most standard features of a forex trading account is what is known as leverage. This pertains to conducting trades on the open forex market working with just a percentage of the actual trade amount. Here is an example of leverage; say your forex trading account functions on a 50:1 leverage, if you wanted to purchase about 10 000 worth of a currency you can do so with just 200 units of currency. One of the great advantages of leverage is that as a trader you can conduct very large trades which are larger than the total worth of your account trading balance. The obvious downside to this is that similarly, the trader has an equal loss potential. The trader can therefore lose a lot of money similarly in this kind of trade.
Where should you open your trading account? How to choose the Best Forex Broker
This is one of those niggling questions especially for those that are new to the forex fray. It is important that we highlight some of the key checks for identifying the right broker for a forex trading account.
Before you can plunge to open the forex trading account there are various considerations to be made so that you can make a well informed choice. The world of forex has so much to offer and as a new trader you may find it such a daunting task to identify the brokerage service that can meet your needs.
If you have a low budget to start with, you need to consider brokerages with low spreads. Spread in forex trading account refers to the difference between the price at which a currency is bought and the price at which it can be sold. As you explore the aspect of spreads you will note that spreads vary in forex as much as commissions vary in stock trade.
The other key aspect to watch out for is the credibility of the brokerage. Is the brokerage legally registered with the Futures Commissions Merchant (FCM), also, is it compliant with the Commodity Futures Trading Commission (CFTC). Traders can verify the credentials of the brokerages they want to sign up with to ascertain these requirements. The bottom-line is to work with legit forex companies.
Reportage and Analyses
Key to success in forex trade is access to all the tools and resources than help you to achieve your trading goal. Different brokerages offer various trading platforms to their clients. The primary role of a trading platform is to facilitate trade activity as well as furnishing traders with everything they need to make wise mathematical decisions. Traders need to identify brokerages offering platform comprehensive charts and real time technical analysis tools. Traders must also check if the platform provides real time news and data as well as satisfactory customer service.
The key on this aspect is to get a broker that offers everything you need to achieve your set goals as a trader. As we have also explored the aspect of leverage traders need to check if the broker is offering a wide range of leverage options. Wide range leverage options are a good model for traders with limited capital. A thoughtful consideration of all these aspects will help you get the right broker with all you need to trade fruitfully. The underlying principle is to get a good broker all-round, the one with all the support instruments you need to succeed. Opening multiple trading accounts is another great way of testing the waters and getting a grip of how forex trade goes about.
Global Forex Trading: Join the Gravy Train Today
Since the 1990s, huge leaps in technology have facilitated the opening of the foreign exchange market to a wider span of players. In the past, the foreign exchange market had been an exclusive preserve of banks, big firms and a few financial institutions. Global forex trading is all about what happens in the foreign exchange market. The global market is a decentralized emporium where players (traders) converge either manually or virtually, to trade currencies.
Global forex trading is conducted is various international centers the world over. These centers serve as important anchors for a wide ranging span of buyers and sellers around the clock. Global forex trading is closed over the weekends.
Understanding global forex trading includes understanding the role of Electronic Broking Services (EBS). This comes with understating the role of Reuters 3000 Extra as well. These are the two main interbank global forex trading platforms. Values of different currencies in the global forex market are determined by market forces in the foreign exchange market.
Technology is the main vehicle that carries the robust functionalities and possibilities of global forex trading. Trading instrumentations in this fray are defined by robust analytics, charts and reportage. Service providers provide top of the mark customer oriented service so as to enable the traders to achieve their trading goals in the virtual environment.
What do you get From a Global Forex Trading System?
Virtual forex trading needs to measure up to (if not beyond) the level of service that traders get on a traditional face-to-face encounter with their brokers. For this reason, global forex trading systems are built as robust and comprehensive systems that enable traders to access every needed functionality to conduct trade activity thoughtfully and profitably.
What you can Expect from a Global Trading System
Global forex trading systems vary but the following are some of the common features you can expect from global forex trading systems. Among other things, you can expect to get entry limits and entry stops features. These features normally come with flexible leverage as well as floating rates features.
Trading paraphernalia in many trading systems is completed by a coterie of features and instruments which include hedging tools, instrument calculator, historical charts, news plugins and market orders features. Depending on the platform you have chosen, you can also get features such as account rules management tools, super rates, as well as stops and limits implements. Many platforms also provide trade history so you can keep tabs on all you past trading activity.
Again, depending on the particular forex trading system, the trading platform can be mobile enabled. Some mobile enabled global forex trading systems function seamlessly across various mobile devices such as Apple devices (iPhone, iPads), Blackberry, Pocket PC, Palm and a wide spectrum of smartphones.
The main advantage of online global forex trading is that as a trader you have the incredible privilege and possibility of trading multiple global markets within just one platform. This has great implications on capacity of trade and what you can achieve as a trader in a short space of time. Innovative global forex trading systems such as Metatrader enable you to trade commodities, indices and forex all in just one central platform.
Global forex trading systems bring unspeakable simplicity. You too can jump onto this gravy train and learn the ropes of raking in good profits in this multi trillion dollar industry. The good place to start global forex trading is opening a demo account. A demo account will empower you with a technical grasp of how a particular trading systems works. A combination of sharp technical abilities plus a forex trading acumen will position you to be a successful trader. Some of the best forex trading systems to consider are Forex.com , Metatrader5 and Global FX Club.