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What is Forex
In the international currency exchange market, the currency trader's
goal is to earn as much profit as possible as a result of purchasing and
selling foreign currencies. Currency exchange rates fluctuate
perpetually based on continuous supply and demand by traders in addition
to other more significant factors discussed below.
Currency traders derive substantial gains by taking advantage of
considerable fluctuations in currency price while using the well-known
"buy low - sell high" principle. In comparison to all other sectors of
the financial world, foreign currency exchange is quite unique in that
it is highly sensitive to myriad factors, open access to many classes of
investors, high liquidity, and 24 hour access. Such day-long access to
foreign exchange allows traders the luxury of dealing after normal hours
or even during national holidays in their country of residence. Much as
is the case in equity markets, trading currency comes with potential
risk and considerably higher potential for ROI. However, in currency
trading, as a consequence of the drastic and fluid fluctuations in
currency valuation, the potential for risk, as well as return, is
exceedingly high. It is essential to become familiar with the factors
that affect prices and the levels of risk involved.
When beginning to enter the foreign currency exchange arena, it is
crucial to prepare, much like a saavy investor spends hours analyzing a
stock's fundamentals or technical data before investing in equity. One
way to achieve such preparation is to first look at some key factors and
recent newsworthy events related to the currencies that one wishes to
deal with. In addition, it is also important to use a demo account with
"virtual" money in order to get one's feet wet and get a sense for how
FOREX really works. Why would you want to learn and experiment with your
own capital when you can make mistakes and get some experience by using
imaginary capital. You'll minimize your material damage considerably by
getting some practical experience in this fashion. If you do your
homework, you'll notice that there are many firms out there offering
demo accounts on a trial basis to help you get a taste for what it is
like to trade foreign currency. Such demo accounts and proprietary
software are usually available for free.
We wish you the best of luck in your trading endeavors.
Foreign Exchange (Forex
: Foreign
Exchange)
Forex? What is it, anyway?
The market
The currency trading (FOREX) market is the biggest and fastest growing
market on earth. Its daily turnover is more than 2.5 trillion dollars.
The participants in this market are banks, organizations, investors and
private individuals, just like you.
The goods (merchandise)
Markets are places to trade goods, and the same goes with FOREX. The
Forex goods are the currencies of various countries. You buy Euro,
paying with US dollars, or you sell Japanese Yens for Canadian dollars.
That's all.
How does one profit in Forex?
Obviously, buy cheap and sell for more! The profit potential comes from
the fluctuations (changes) in the currency exchange market.
The nice thing about the FOREX market, is that regular daily
fluctuations, say - around 1%, are multiplied by 100!
.
How risky is Forex trading?
You cannot lose more than your "margin" (your initial investment)! You
may profit unlimited amounts, but you never lose more than what you
initially risked. However, risk only what you can afford and is not
vital for your well-being.
How do I monitor my Forex trading?
Online, from anywhere, anytime. You have full control to monitor status,
check scenarios, change some terms in the deal, or close it.
Foreign Exchange Market
An informal network of trading relationships between the world's
major banks and other market participants, sometimes referred to as the
'interbank' market. The foreign exchange market has no central
clearinghouse or exchange, and is considered an over-the-counter (OTC)
market.
Spot Market
Market for buying and selling currencies usually for settlement
within two business days (the value date). USD/CAD = 1 day.
Rollover
The process whereby the settlement of a transaction is rolled forward
to the next value date with the cost of this process being based on the
interest rate differential between two currencies. Rollover typically
occurs at 5PM EST/10PM GMT. For example, if you open a position on
Monday, the settlement date will be Wednesday, however, if you hold this
position past rollover cutoff on Monday, the new value date will be
Thursday. Most brokers will automatically roll over your open positions,
allowing you to hold a position for an indefinite period of time.
Depending on your broker's rollover policy, if you are holding a
currency with a higher rate of interest in the pair, you will earn
credits, however if you are holding a currency with a lower rate of
interest in the pair, you will pay it. Current central bank interest
rates.
Exchange Rate
The value of one currency expressed in terms of another. For example,
if the EUR/USD exchange rate is 1.3200, 1 Euro is worth US$1.3200.
