Do you know what Forex trading is? Some people have heard of this type of trading, others have not. If you haven't, it might be something you are interested in trying. Forex trading stands for foreign exchange trading. What it consists of is the buying and selling of different currencies. This is done simultaneously, and there are people who make a lot of money with this kind of trading. This is apparent by the 1.9 million dollar turnover in this market that happens every day. Also a lot of it is done online. Online Forex trading is very popular.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges, such as the New York Stock Exchange, in that it does not have a physical location or central exchange. The exchange day begins in Sydney, then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However, this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
There are a lot of things that influence the Forex rate. For instance, economic things, like interest rates and inflation, and also political things, such as political unrest in other countries and major changes in government cause up and down changes in the Forex rate. However, these things tend to be short-term, and don't affect it for long.
Online Forex trading sites are easy to find by surfing the Internet. Most of them provide a wealth of information for the first time trader. You can find out about the history of Forex trading, how to co it, tips on being successful, etc. You can also start trading with as little as $250 in your account on some sites. For anyone who is interested in currency or trading, it is something you should check out.
As with any type of trading, there are no guarantees that you will make money or that you won't make money. It is a smart choice to learn as much as you can about online Forex trading before investing any money and doing any trading. It is a fact that informed investors do better than those who don't know much about what they are trading. So get the fact before you dive in. You might just make a little money in a very interesting currency exchange.
Monday, December 31, 2007
Futures Versus Forex (Foreign Exchange Market)
Todays current futures market is quite unlike the futures of the 19th century. Todays future market is a worldwide one that includes manufactured goods, financial currencies and treasury bonds, and agricultural products.
When you speculate on futures it is not the actual good that is speculated upon rather it is the contract for the goods that is traded as value. Every futures contract includes a buyer and a seller. The following is an example of a futures speculation: A farmer agrees to deliver 1000 bushels of corn to a baker at a price of $5.00 a bushel. If the daily price of corn futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.
Using the above as an example this is how the contract settlement would play out: If the price of corn futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost an equal amount. However, the baker can now purchase corn on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of corn. Also, the farmer must sell his corn on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.
Speculators profit by daily fluctuations in the futures market by choosing to buy from the seller (buying short) or from the buyer (buying long).
The FOREX market has advantages over the futures market. FOREX is the largest financial market in the world. It is a liquid market and stop orders can be executed more easily and with less slippage than in other markets. The FOREX market is open 5 days a week, 24 hours a day. Traders can take advantages of opportunities as they become available. FOREX transactions are usually instantly executed. FOREX transactions are commission free. Brokers earn money on the spread.
Some investors feel that due to built in safeguards that FOREX trading is safer than futures trading.
When you speculate on futures it is not the actual good that is speculated upon rather it is the contract for the goods that is traded as value. Every futures contract includes a buyer and a seller. The following is an example of a futures speculation: A farmer agrees to deliver 1000 bushels of corn to a baker at a price of $5.00 a bushel. If the daily price of corn futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.
Using the above as an example this is how the contract settlement would play out: If the price of corn futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost an equal amount. However, the baker can now purchase corn on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of corn. Also, the farmer must sell his corn on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.
Speculators profit by daily fluctuations in the futures market by choosing to buy from the seller (buying short) or from the buyer (buying long).
The FOREX market has advantages over the futures market. FOREX is the largest financial market in the world. It is a liquid market and stop orders can be executed more easily and with less slippage than in other markets. The FOREX market is open 5 days a week, 24 hours a day. Traders can take advantages of opportunities as they become available. FOREX transactions are usually instantly executed. FOREX transactions are commission free. Brokers earn money on the spread.
Some investors feel that due to built in safeguards that FOREX trading is safer than futures trading.
Forex Trade: Main Drawbacks of a Forex Trader
Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? Although there is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The search for the Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn't that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management.
Most traders forget about this important aspect of trading. They think they shouldn't be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant "the crowd." In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That's right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.
The search for the Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.
Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn't that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.
Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.
Not Using Money Management.
Most traders forget about this important aspect of trading. They think they shouldn't be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.
Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant "the crowd." In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.
Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That's right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.
These are some of the most important barriers every trader faces when trying to trade successfully.
Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.
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