The Forex Market is Risky! It is unlike anything else in the financial world because of its speed, volatility, and enormous size. Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in relation to other currencies in a matter of days, hours, or sometimes, in minutes. This unpredictable nature of the currency market is what attracts so many investors to trade. However, you have to first ask yourself how much you can afford to lose before you start trading.
The forex market is rapidly becoming one of the most popular trading markets today. Many non-professional individual traders are entering the market because they see the forex market as a new way to diversity their financial portfolio and also they see the real potential in the forex market for maximizing their returns on their investments in spite of the current economy.
Among so many forex brokers that exist in the market today, there are some good forex brokers out there as well as bad ones. Selecting the right forex broker is important as it can affect your trading experience greatly.
To be a successful forex trader, it is essential to understand the characteristics of currencies. Although there are a large number of currencies available for trading in the forex market (see the Currency Acronyms), most trading transactions are done on a selected few of the more widely accepted currencies, namely the currencies of major powers, such as EUR/USD, GBP/JPY, or USD/CHR. Because of its financial soundness and economic and political background, each currency tends to carry certain characteristics of its own.
All currencies have an internationally recognized 3 letter acronym. The first two letters represent the country name and the third one denoting the currency unit.
For example: GBP → GB for Great Britain and P for Pound. CAD → CA for Canadian and D for Dollar.
There are different styles and flavors of Forex Trading: Day trading, Swing trading, and Position trading. Day trading style is typically putting on a trade for a day; opening and closing the trade on the same day. Swing trading style is being in a trade typically from a few hours to a few days, but sometimes even a week or two. Position trading style is putting on a trade and stay in the trade for months to years. Each of these trading styles requires a different set of skills.
When trading in the forex market, there are certain types of orders that you need to understand. To have the basic understanding of what they are and what they do is crucial to your success in forex trading.
A pip stands for a “point in percentage” and is the smallest amount by which a given currency pair can change. The actual value of a pip varies depending on the size of your trade. A Long position means you buy, and a Short position means selling. The smallest size in currency trading that you can buy or sell is called a Lot. The spread is the difference between the Ask price and the Bid price.
Forex trading is not a game of chance and therefore, you should gain at least basic understanding of the forex market and what factors determine the value of currencies before you start trading. Some of the main factors that can influence the value of currencies are political environments, monetary flows, and economic conditions.
Forex stands for foreign exchange market, also known as fx, or currency market. Forex is a global-scale decentralized trading market for international currencies and financial centers as well as individual private investors around the world, functioning as trading anchors between several foreign currencies. It functions in a similar way as the stock market except that the forex market is an over-the-counter-market where individual investors can trade freely from all over the world, and the market is open all day, 24 hours a day, except for weekends. The forex brokers are typically large-scale international banks and financial institutions.