Forex Market Basics
One of the most popular trading venues for investors is the Foreign Exchange or Forex market. This market works from the principle that currencies have an exchange rate that varies from day to day – even hour by hour. Buying currencies and working the trades (whether a short-sell or a buy-and hold position) can turn a nice profit. The forex markets are worth roughly three trillion dollars of action each day.
Forex is popular because it’s accessible, and, on the surface, easy to understand. Your trade is aggregated to your broker, and entered straight into the market, meaning that it’s possible to be a very agile trader, playing on the market’s daily volatility. There are trading programs that you can download that can handle the routine actions of buy and sell orders, and even alert you of possible trends.
Forex trading is global; it isn’t tied to a single physical location. Trades are handled completely electronically, which is why this market didn’t open up for small investors until the mid ’90s – the technology wasn’t there. The Forex market pretty much runs from the start of the business day in London on Monday to the end of the business day in Hong Kong on Friday, which is nearly six days a week of 24 hour action.
Like lots of investment opportunities, forex markets allow you to use leverage to magnify the size of your buy and sell orders; most times, this needs to be used cautiously. While leverage can magnify your profits on a trade, it can also magnify your losses. Start out slow and work it carefully until you get a rhythm. Gambling with other people’s money is a great way to get into lots of trouble if you’re not careful.
Forex trading can be lucrative, if you’re willing to be wired in to be a constantly shifting day trader. You’re playing the swings in volatility, and with leverage, even shifts of a thousandth of a unit of currency can create (or lose) large sums of money quickly. With forex trading, it’s very unlikely that your investment will become utterly worthless – it’s still currency at the end of the day.
Like any investment, there is an element of risk. Especially when playing with large amounts of leveraged capital, you run the risk of big losses. Be careful, start out slow, and used strict money management techniques while you figure out if this is a job you like.
There are also an endless amount of strategies and systems that you can use. There are manual trading systems, automated trading systems, and semi-automated systems with indicators. You could trade any number of different currency pairs at any time you wish. The options are pretty much unlimited.
Forex trading is appealing because of its accessibility and lure of ‘fast profits’. Just remember that a gold rush mentality doesn’t change the reality that it’s a job, and one that requires constant attention to do well – and anyone who has a system that could actually beat the markets sure as hell wouldn’t be selling it for $99 on the Internet. Go into this with your eyes open and you’ll have a good paying job that works from home.