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Is Forex Currency Trading For You?

May 9, 2008
Forex currency trading is heavily advertised on the Internet. Some ads make it sound easy to make money by trading forex. However, like any activity that requires skill and judgement in order to be successful you had best prepare yourself before engaging in trading for real money.

The words forex currency trading are a bit redundant as forex stands for forex exchange and of course currencies are foreign exchange. Still many forex traders use the term forex currency trading when speaking of their trading activities so I suppose that the term is quite acceptable.

When trading forex you are always trading a currency pair. For example, you might be buying the Euro and at the same time selling US dollars. You have a pair of currencies. Or you might be buying Yen and selling US Dollars.

Or it could be that you live in London and are taking a trip to Japan. At some point along the way you are probably going to want to sell some British Pounds and buy Japanese Yen so that you will have the needed local currency for your trip.

In this way many travelers are involved in the foreign exchange market without even realizing it. Many billions of currencies change hands daily by international travelers selling their local currency for the currency that they will require at their destination. And again, each transaction involves a pair of currencies.

Trillions of dollar are exchanged daily as part of normal international business. For example, an English exporter may be sending goods to Japan and wishes to be paid in British Pounds. The Japanese importer will be required to sell Yen and buy Pounds to pay for the goods.

Interest rate differentials between currencies have a role to play in the demand for a currency as well. In general, speculative money will move towards currencies that offer higher interest rates on deposits. That is when the currency is expected to retain its value. It's no fun to get the interest return but more than give the return up due to a weakening of the currency. This has been happening with the US Dollar over the past few years.

Forex currency trading is by far the largest financial market in the world with trillions of Dollars, Yen, Pounds, and other currencies changing hands daily. All of this activity opens up trading opportunities for the forex trader as the markets are always moving as they respond to the supply and demand factors surrounding each currency. It is the currencies volatility and the financial leverage offered when trading forex that makes forex trading so interesting and so potentially interesting as a speculative trading medium.

In recent years the Internet has played a large role in making forex currency trading popular. The forex trader or forex trader wannabe can now trade currencies from his home or office computer and receive the charting services and information flows, for free, that used to be reserved for the big players or for those willing and able to pay hundreds, even thousands, of dollars a month for similar services.

Forex currency trading is not for everyone as it is a risk management business. If you don't manage the risk well you are going to lose money at forex trading. However, for those traders who have risk capital and are good at evaluating risk and profit potential prior to entering a trade the forex market offers returns that can be much higher than any other.

Since forex trading involves money at every step of the way it has a huge attraction to traders who can afford to take the risk in an effort to get over sized returns. But remember to prepare yourself and learn as much as you can about forex before placing your money at risk.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial related blogs. One of them is at Forex Trading Guru
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