Trading Forex

How to Make Money with Forex Trading

2009-06-26T22:38:00.000-07:00

So how do you make money with Forex Trading?

Forex Trading is a mechanism of trading one currency with another currency at the current trading rate. In a simple word it is a buying or selling one currency to another at a particular rate and then close trading by selling it at higher rate or buying it at lower rate to make profits. Exchange currency are trade in pairs eg GBD/USD, EUR/USD, USD/JPY etc
Here's a simple explanation:

Say you want to exchange US Dollar to Euro currency at exchange rate of 1.3500. This means that you are going to trade EUR/USD currency pair. In forex term, the first currency indicates that it has stronger value so in this case EUR is stronger than USD . In this matter you require 1350 dollars ($1350) United States Dollars (USD) in order to buy Euros at 1000 Euros (€1000). Once transaction is done, your money value fluctuate immediately according to the market demand rate. Since you are buying EUR , in order to make profit you need to close trading by selling it back at a higher rate than your initial buying rate ie 1.350. Assuming the next 20 minutes this pair exchange rate has risen to 1.3750 .

Imagine if you sell the EUR back after holding it for 20 minutes you will be getting a profit of USD 200. That is 20% profit for just 20 minutes. So this is how people are making money with trading forex.The above scenario is profit, how about if it goes the other way round. Definitely if the EUR/USD rate drops your EUR value will also be lesser and if you decided to sell it to prevent more losses should the rate drop further you lose the same amount just in 20 minutes. Therefore please be reminded that Forex is also a risk business.

So let’s take a look at another example using larger values.For years the US Dollar was much stronger than the Canadian Dollar. United States citizens could go to Canada and get about $1.25 Canadian (CAD) for every 1 dollar (USD) spent.So if a person had the vision to see how much the Canadian Dollar would gain on the UnitedStates Dollar (and some people did) then that person would be very rich today.

This is because as it stood toward the end of 2007, 1 US Dollar ($1.00) would only fetch about 1.01 of Canadian. And earlier in the year it would have fetched even less than that. For a time the Canadian Dollar was worth more than the US Dollar.So let’s put this in real terms.

Say a person decided to exchange 10,000 US Dollars ($10,000) for Canadian currency a couple years ago. The person would’ve gotten 12,500 Canadian Dollars ($12,500). That’s calculated by taking the 1 US Dollar ($1.00) equal to $1.25 Canadian. So you multiply the 10,000 by 1.25. That’s 10,000 x 1.25 = 12,500.

So after holding onto the currency for two years, the Canadian currency is then exchanged back to USD at the current exchange rate, which is now 1 US Dollar ($1.00 USD) equals 1.01 Canadian ($1.01 CAD).

So now exchanging the money back, the person would get 12,376.23 ($12,376.23 USD). That’s12500 / 1.01 = 12,376.23. That’s a profit of 2,376.23 ($2,376.23 USD). Not a bad return for twoyears. That’s over a 20% return!

Now imagine you invested one hundred thousand ($100,000) or a million dollars ($1,000,000) a couple years ago. Now you’re talking about making over 23,000 ($23,000 USD) or over 237,000 ($237,000 USD) in just a couple years.

Forex VS Stocks - Reasons to choose

2009-06-26T17:31:00.000-07:00

No Middlemen
Centralized exchanges provide many advantages to the trader. However, one of the problems with any centralized exchange is the involvement of middlemen. Any party located in between the trader and the buyer or seller of the securityor instrument traded will cost them money. The cost can be either in time or in fees.

Spot currency trading does away with the middlemen and allows clients to interact directly with the market-maker responsible for the pricing on a particularcurrency pair.
Forex traders get quicker access and cheaper costs. Buy/Sell programs do not control the market

How many times have you heard that "fund A" was selling "X" or buying "Z"? Rumor had it that the funds were taking profits because of the end of the financial year or because today is "triple witching day", all as an explanation of why this stock is upor the market in general is down or positive on the session.

The stock market is very susceptible to large fund buying and selling. In spot trading, the liquidity of the Forex market makes the likelihood of any one fund or bank to control a particular currency very slim.

Banks, hedge funds, governments, retail currency conversion houses and large net-worth individuals are just some of the participants in the spot currencymarkets where the liquidity is unprecedented. Analysts and brokerage firms are less likely to influence the market

Have youwatched TV lately? Heard about a certain Internet stock and an analyst of a prestigious brokerage firm accused of keeping its recommendations, such as "buy" when the stock was rapidly declining? It is the nature of these relationships.

No matter what the government does to step in and discourage this type of activity, we have not heard the last of it. IPO's are big business for both the companies going public and the brokerage houses. Relationships are mutually beneficialand analysts work for the brokerage houses that need the companies as clients. That catch-22 will never disappear.

Foreign exchange, as the prime market, generates billions in revenue for the world's banks and is a necessity of the global markets. Analysts in foreign exchange don't drive the deal flow, they just analyze the forex market. 8,000 stocks versus 4 major currency pairs

There are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500are listed on the NASDAQ. Which one will you trade? Got the time to stay on top of so many companies?

In spot currency trading, there are dozens of currencies traded, but the majority of the market trades the 4 major pairs. Aren't four pairsmuch easier to keep an eye on than thousands of stocks?

What is FOREX?

2009-06-26T17:27:00.000-07:00

The Foreign Exchange market, also known as "FOREX" or "Forex" or "Retail forex" or FX or "Spot FX" or just"Spot" is the largest financial market in the world, with a volume of about $2 trillion a day. If you compare thatto the $25 billion a day volume that the New York Stock Exchange trades, you can easily see how enormous the ForeignExchange really is. It actually equates to more than three times the total amount of the stocks and futures marketscombined! Forex trully rocks!

What is traded on the Foreign Exchange? The simple answer is MONEY MONEY MONEY. Forex trading is just buying of one currency and the selling of another.Currencies are traded through a broker or dealer,and are traded in pairs;
for example the Euro dollar and the US dollar(EUR/USD) or the British pound and the Japanese Yen(GBP/JPY).

Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buyinga share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy,as the price of the currency is a direct reflection of what the market thinks about the current and future health of theJapanese economy.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country'seconomy, compared to the other countries' economies. Unlike other financial markets like the New York Stock Exchange,the Forex spot market has neither a physical location nor a central exchange.

The Forex market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market isrun electronically, within a network of banks, continuously over a 24-hour period. Until the late 1990 s, only the big guyscould play this game. The initial requirement was that you could trade only if you had about ten to fifty million bucksto start with!

Forex was originally intended to be used by bankers and large institutions - and not by us little guys .However, because of the rise of the Internet, online Forex trading firms are now able to offer trading accounts to'retail' traders like us.

Why Trade Foreign Currencies?

2009-06-26T17:22:00.000-07:00

There are so many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market:

No commissions.
No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread.

No middlemen.
Spot currency trading eliminates the middlemen, andallows you to trade directly with the market responsible for the pricing on a particular currency pair.

No fixed lot size.
In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contractfor silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250.

Low transaction costs.
The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions.At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.

A 24-hour market.
There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST,the Forex market never sleeps.This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.
No one can corner the market.The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.

Leverage.
In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the traderthe ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

High Liquidity.
Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order),and/or close a trade if a trade is going against you (a stop loss order).

Free Demo Accounts, News, Charts, and Analysis.
Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services.All free! These are very valuable resources for poor and SMART traders who would like to hone their trading skills with'play' money before opening a live trading account and risking real money.

Mini and Micro Trading:
You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex brokers offer "mini" and micro trading accounts,some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up tradingcapital.