What is Forex Trading? Can YOU Make Lots Of Money With Forex?
What is Forex.
There are numerous different terms for the forex market. Forex and fx are both abbreviated ways of saying ‘foreign exchange’. It is also referred to as the currency market, the foreign currency market, the currency trading market, etc. All of these terms refer to the same international market on which the currencies of the world are exchanged and traded.
At its most basic level, think of when you have to travel abroad and you need to change your $’s into the currency of the country you are going to visit. For example. If you were going to travel to England you would need to change your hard earned dollars into pounds. In forex this trade is referred to as Gbp – the great british pound. The exchange rate as of today as I am writing this article (27th June 2009) is 0.60, therefore, $1 will buy you 60 english pennies. (100 pence makes a British pound).
In the forex market currencies are bought & sold just like any other commodity; coffee, steel, coal etc.
The value of a currency is, in a sense, the value of the nation whose currency it is. Just like companies on the stock market. If a nation is successful the value of its currency increases and if it is going though a crisis the value drops.
These fluctuations can be great and can happen very fast on a daily basis. The sums involved can be huge too. the forex market is estimated to exchange $2 trillion per day ! It is these daily fluctuations that we aim to take advantage of as a Forex trader.
We do this via a forex broker, from whom you can download (free of charge) a very sophisticated trading platform (think of the screens you see the guys sat at on any news clip of a wall street trader). Why would a broker be willing to “give” you such a fabulous piece of software at no cost ? Because 90%+ of new forex traders will lose money !
Presuming you are one of the 10% who learn how to trade forex properly,
How does Forex Trading work. Do You need to have lots of money ?
No, because your account with the broker is leveraged. You can open an account with a forex broker these days with a few $100. Before the birth of the internet and downloadable platforms, the minimum amount you would have needed to trade the fx markets would have been nearer to a million dollars.
When you trade the currency markets you are gaining or losing 1000th of a cent, or pips. That doesn’t equate to very much. A currency has to move 100 pips to make your $10 trade $10.01. It would take you a very long time to make any money doing it this way. Brokers will provide you “leverage” to increase the dollar size of your trade. A 100:1 leverage will increase your trade size 100 times. Your $10 trade now becomes a $1,000 trade in the market. Now you’re 100 pip gain is worth 100 times as much as it would be without the leverage.
The flip side of this of course is that your losses will be multiplied 100 fold. It is vital that you learn the basics of the forex market, before opening your wallet. You can, and I strongly recommend that you do, download a free metatrader 4 trading platform from any forex broker (just google it) and open a DEMO account. Here you can play with up to $50.000 and not lose a dime.
As Warren Buffet famously stated, ” Never invest in a business that you don’t understand”.
Where can you learn to trade forex for free ?
I have written a number of articles for beginners (parts of them should be interesting for intermediate traders too). This free advice will give you the basic idea of how to trade the forex markets. You may decide that its not for you. In which case, you have hopefully learned something new & it hasn’t cost you a penny.
If, having read my mini course you wish to take your interest further I will give free, HONEST advice of where to go next (there are lots of courses out there costing many $1000’s – I paid $3000+ 5 years ago).
The best that I have found recently cost $70 !! Check out my free forex training course here;
http://www.forex-fxtrader.com/blog/free-fx-training/
