Forex Basics
What you should know about Forex Rates before you get on board.
This year has seen record rollercoaster rides, with world record Forex Rates highs and lows dominating the news – but what does this mean to someone wanting to get their feet wet in the worlds largest trading platform?
Firstly, it’s imperative that you understand that trading currencies includes a high degree of risk, and that you could well lose some money initially, so you should never trade with what you can’t afford to lose.
What is Forex Trading?
Well most people are familiar enough with the concept which is where you buy or sell one currency against another.
Currencies go up and down each day but what most people don’t understand is how to actually profit from the movement of currencies.
As technologies have improved, this market has become massively accessible resulting in an astonishing growth over the last couple of years, where part-time traders who trade small sums can quickly quit their day job, but this is achieved only through knowledge, perseverance and some luck.
Compared with the New York Stock Exchange which averages a humble daily trading volume of $55 billion, the FX market, the largest market on earth, circulates more than $3.3 trillion.
Simply put, if you were to place all of the worlds futures and equity markets together, their combined daily volume would only equal a 1/4 of the FX market.
Why is Size Important?
Simply due to the fact that there are so many sellers and buyers the transaction costs are forced low.
As a result, many firms don’t charge commissions, as you pay only the bid/ask spreads and there is 24 hour trading, where you can dictate how and when to trade.
How is Forex traded 2011?
The mechanics of Forex trading is virtually identical to other markets, where you buy a currency in this instance, it’s value goes up, and then you sell it and make a profit – essentially trading basics.
So let’s say the want to trade the USD/EUR currency pair. If you think that the USD will increase in value against the EUR, which will be mainly due to geopolitical, industrial and economic factors, you will buy USD with EUR. If the exchange rate rises, you then sell back the USD and make a profit.
Important: BEWARE of Forex RISKS
Bear in mind however that exchanging currencies brings with it a high level of risk and is not suitable for all. Never trade what you can’t afford to lose.
PDF 