Forex trading – What You Need to Know as a Beginner

Forex trading has provided a lot of people with the best home business ever. This is because it can be done by anyone via electronic means just by the use of the computer and internet. People also get attracted to it because it is on 24 hours a day and they are at liberty to decide when to trade. In Forex, there are day traders that purchase and sell currencies the same day.

Major Banks together with other brokerage firms located around the world are the market makers in Forex. This is unlike stocks and futures that trade through exchanges. Forex involves trading currency pairs like USD/JPY.
To be successful as a Forex trader, a sound knowledge of the skills involved together with risk management principles and correct attitude are required. Many traders loose large sums of money because they see Forex as a get-rich-quick scheme; while others are misled by dishonest individuals or brokers promising overnight riches.

Anybody who wants to succeed in Forex must be determined, focused and master the trading strategies using a variety of indicators. These indicators help in calculating trend, support and resistance in Forex market. Another important factor is your Forex broker. You must make sure you open an account with a genuine and registered broker. The Commodity Futures Trading Commission (CFTC) in United States has jurisdiction over all Futures and Forex activities. It is strongly advised that individuals should only trade with CFTC registered brokers that are also members of the National Futures Association. For other non US brokers, just ensure that they are registered with their country’s appropriate authorities or regulatory bodies.

Most trading platforms offer their traders Demo Accounts. A beginner can use this service to test the effectiveness or otherwise of that particular platform. The only difference between a Demo Account and a Real Account is that in the Demo, you do not invest real cash but you trade as if it is real. Here, you cannot lose your real money. If therefore you are not trading successfully on the Demo Account, it is strongly advised not to go into real trading yet.

Also, important is your broker’s response to your trading needs. You will need to check out how soon they attend to you when you ask for help or need assistance. When you are satisfied with their services and are trading successfully on your Demo account, you may then consider making real time investment by trading live. Depending on the broker, Forex trading accounts can be opened with as low as $250.

Successful traders develop and follow a trading strategy. In fact they stick to their strategy which is based on some kind of market analysis. In this way they interpret and can predict movements in the market. The two basic approaches that are used to analyze the Forex market include Technical and Fundamental Analysis. Most traders prefer the Technical analysis which involves charts and other scientific methods. A fundamental analysis has to do with news, social and economic situations of the country in question and how they may affect the value of the country’s currency. It is however good to have a good knowledge of both.

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Forex Trading – Basic Techniques

Online Forex Trading is enjoying exponential growth and widespread acceptance. It is now gaining popularity among seasoned active traders and other professional money mangers. Large international banks used to dominate the forex market while allowing access via telephone trading to a select few such as high-net worth individuals. However, things have changed with the coming on stream of established online trading firms. These firms provide individual investors with direct access to the largest and most liquid financial market in the world.

Is Forex Trading a Risky Business?

Risk can be measured by comparing a financial products risk relative to its return on investment. When you compare investment in forex with other common investments like equities; you will realize that forex investments provide better returns from a risk/reward basis. An investment in a basket of major currencies (or USD/JPY) last year was comparable to 30-year bond futures (which was one of the best returns for the fixed income markets in years), and clearly outpaced the negative returns generated by the DJIA. Forex trading can lead to very profitable results but there are also risks involved. When it comes to trading forex, you’ll need to worry about exchange rate risks, interest rate risks, credit risks, and country risks — things you may not consider when trading stocks.

TREND IN FOREX
Approximately 80% of all currency transactions last a period of seven days or less, while more than 40% last fewer than two days. As a result of this extremely short lifespan of the typical trade, technical indicators heavily influence entry, exit, and order placement decisions.

Approximately 85% of all daily forex transactions involve “the majors.” These include the US dollar, euro, British pound, yen, Swiss franc, Canadian dollar, and Australian dollar. The depth and concentration of the market in just seven currencies provides a statistically significant dataset for trend analysis. Technical indicators work the same way on the currency markets as they do on the equity markets.

The Short-Term Nature of Forex

Central banks intervene from time to time to affect the price movements of their respective currencies. This makes the forex market unique. For instance, the Bank of Japan once pushed down the value of the yen). On the surface, this may disturb those who use fundamentals to make investment decisions, trusting that the “invisible hand” guiding free-market behavior is not being manipulated. However, the influence of central banks can only affect currency values for short periods; over time, the markets adjust to the changes. This leads to the formation of trends, which your trend-following strategies will help you trade. Since most currency trading is short-term in nature, speculators can cause erratic fluctuations in the exchange rates.

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Forex Trading – How To Trade

Foreign Exchange, Forex or Fx is the fastest growing market on earth with a daily turnover of over 2.5 trillion dollars. Traders include central and commercial banks, institutional investors, and private individuals like you. Trading Forex involves buying and selling of currencies of different countries. For instant, you can buy US Dollars with Euro or you might decide to sell Canadian Dollars for Japanese Yen. It is basically trading one currency for another. In trading Forex, you do not have to sell physical currency; you trade with your own base currency and deal with any currency pair you wish to.

Leverage.

Leverage is the ratio of investment to actual value. If for instance you are using a $1,000 to buy a forex contract of $100,000 value, you will be said to be trading on a leverage of 1:100 ratio. This means that with your investment of $1000, you can actually place deals worth $100,000. You cannot loose more than your $1000 but you can have gains many times greater than your $1000.

Profit.

Basically, making profit in Forex means buying low and selling high. The profit potential comes as a result of fluctuations in the market. You can for example buy your chosen currency at a low price and within minutes, the price can go up and you sell thereby making your profit. Fluctuations in the market are a daily occurrence.

Risks.

Traders are always strongly advised never to invest more than they are prepared to loose. However, you can never loose more than your investment. This is also called your margin. If you incur loses close to your margin, you will get a margin call from your broker and usually, you are expected to deposit more funds to be able to continue trading.

How To Start Trading.

To start trading forex, you will first of all decide on your broker. Then you will have to register and deposit the funds you are willing to invest. Your broker will provide you with a trading platform. Most brokers accept deposits through bank transfers, credit cards, paypal and other online payment solutions. Once you make your deposit then you can start trading. Also, you can monitor your trade online anytime and anywhere. You are basically in charge of your trading. You decide when to place deals and end your trades. You also decide when to withdraw your profits.

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FOREX TRADING – A GOOD WAY TO BEGIN

In the world today, Forex trading is the major financial marketplace where exchanges of up to trillions of dollars occur everyday. Many people are finding this marketplace interesting. It is also the most liquid marketplace where trading occur all 24 hours of the day.

Forex has made a lot of people wealthy and most of them trade on a full time basis. As interesting as Forex trading appears, it is also important to know that a trader can also loose money while trading. Forex trading is an investment and as with every other investment, there are associated risks even as there are benefits.

It is however interesting to note that professionals in the Forex business agree that forex trading has so many advantages when compared with other investments. Apart from the fact that it provides a 24 hour business opportunity, it can be done from anywhere in the world as long as there is internet connection. It offers better opportunity for income resource and has a wide range of adjustable leverage, together with its automated trading platform. Another good advantage of trading in forex is that even with a few hundred dollars; one can start trading and grow from there.

People should always have sound knowledge about forex before venturing into trading to avoid unnecessary losses. This is because many people who did not have the right skills have suffered huge losses. The goal of anybody going into forex should naturally be to maximize profit. A good training will familiarize the beginner with terminologies used in the Forex Marketplace.
Common mistakes beginners make include the following:

- They get to know about forex and develop interest
- They look for easy and profitable ways to trade
- Many go for automated trading without even leaning the basics
- They start gambling with their trades and consequently suffer losses
- They quit trading.

On the other hand, to be a successful trader, the beginner must receive adequate training and if possible have a seasoned forex trader who can teach him a lot about the forex market. There are five reasons that make forex trading really interesting. They include:

- Forex trading online is instant
- Forex is a 24 hour business and never sleeps
- Forex prices are predictable
- Forex trading offers great leverage
- Forex trading is commission free

The beginner should be prepared with a solid and adequate knowledge of forex trading and learn what the forex market really is; know the psychological factors that affect trading while being aware of the risks involved. Then, with a well developed unique and effective trading system based on sound knowledge venture into forex trading so as to maximize profits. The sound trading system should be developed through book reading. There are many books on forex in so many bookstores. Also important is getting information through forex forums and subscribing to forex magazines and newsletters. Forex trading can surely be an interesting experience.

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