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Forex Trading - Are Currencies The Best Markets to Trade?

May 16, 2008
Forex Trading is catching on like wildfire amongst private traders, and there are good reasons for it. Forex is the largest known financial market in the whole world, and the most liquid to trade in. Also, the requirements to open a currency forex trading account are much less stringent than for stock trades.

The term "Forex" is short for Foreign Exchange. The daily turnover in currency markets is currently $1.9 TRILLION dollars. Amazingly, this is over TEN times the average daily turnover of ALL the global equity markets put together. It's more than 40 times the daily turnover of all securities on the New York Stock Exchange.

So what is Forex? In layman's terms, Forex trading means the simultaneous buying of one currency and the selling of a second currency. In other words, the currencies are traded in pairs, i.e. one currency traded for another.

Interestingly, only 5% of the turnover in daily forex currency trades comes from companies and governments buying and selling products and services from foreign countries. These entities then engage in forex trades in order to convert their foreign currency profits back into their respective domestic currencies. Amazingly, the remaining 95% of turnover is pure speculation, i.e. forex trading entirely for profit!

If you're new to FOREX currency trading, familiarize yourself with the most liquid currencies. These are the most traded, and where you stand your best chance of trading success. They include the US dollar, Euro, Japanese yen, British pound (also nicknamed "Cable"), Canadian dollar, Swiss franc and the Australian dollar.

The good news for small traders is that the Foreign Exchange Markets cannot really be manipulated. Their enormous size and liquidity, as well as the fact that forex markets are not under the jurisdiction of any one country means that no single investor can usually hope to move a major currency market in a serious manner (of course, there are always rare exceptions and George Soros' famous exploits in taking the British Pound out of the EMS is a famous and extremely rare exception to the rule).

Forex Markets entertain a wide variety of participants with varying goals. Some enter the market with a long term investment goals, while other are day traders acting for the extremely short term only.

Forex trading, involving foreign currencies on an exchange, is not centralized. It takes place via telecommunications. Also, currency trading is open twenty four hours a day. Currency dealers will quote all the major currencies in every time-zone in the world.

Forex currency trading can be an extremely rewarding business, provided you thoroughly know what you are doing. However, like any other business there are always risks (and potentially disastrous ones) for the novice who foolishly dives in without thorough preparation.

Where there are risks, there are also rewards. The upside potential, with limited downside risk (provided you know how to place trades with discipline and exercise excellent risk management) can be enormous.

Hence, in order to profit from trading in Forex, it is critical that you become an excellent student first and really STUDY forex markets in particular and good online trading principles in general. The Forex markets lend themselves particularly well to Technical Analysis, i.e. forecasting via price charts.

Some general awareness of current events around the globe, be it political or economic, is important in order to understand underlying driving forces. However, don't get too anal about this and focus your time on the hot air voiced by self-appointed economic market experts on business and market programs. Most of them know nothing about the process of trading itself, and their opinions are often plain wrong.

In conclusion forex trading can be a very attractive and highly profitable business. You can trade currencies very profitably from home and, depending upon your trading knowledge and appetite for risk, the sky's the limit as to how much you can make. However, be prepared in advance to invest a large amount of time and practice before you start to make money from forex trading on a consistent basis.
About the Author
Discover FREE expert Trading videos, podcasts and articles packed with secret strategies to super-charge your Trading and rocket your profits. Dr. Asoka Selvarajah also offers you his vital FREE report, The 7 Deadly Mistakes Of Forex Trading.

Visit His Forex Trading Site (ForexTradingRebel.Com) Right Now!
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