The Forex market is one rewarding avenue to invest your money in. And if you want to be a Forex trader, you don’t need to work for a b...
The Forex market is one rewarding
avenue to invest your money in. And if you want to be a Forex trader, you don’t
need to work for a bank in one of the world’s financial centers. These days, investors
can trade currencies in the comforts of their own offices or homes, thanks to
the Internet.
Since the advent of the Internet, Forex trading has become
more reachable for anyone who wants to invest their money regardless of whether
they have a few hundreds or thousands to invest.
Now, with all the incessant buzz going around Forex trading,
one could easily get confused and overwhelmed with the vast amount of
information that can be found online. How does it really work?
Forex or Foreign exchange basically deals in currencies of
different countries. A Forex trader exchanges one currency to another for the
purpose of making profits. Forex trading is speculative nature. Traders would
sell or buy a currency based from different factors that indicate the
competitiveness of a currency over another.
In a currency trade, there are always two currencies
involved and these currencies are always expressed in 3 letters. For example,
the US dollar is indicated as USD, Euro is EUR, Japanese Yen is JPY and Australian
dollar is AUD.
A lot of investors
start out trading in the EUR/USD pair because this is the most liquid pair
compared with other pairs in the market. Other most traded pairs include
AUD/USD, USD/JPY, GBP/USD, and EUR/JPY. In general, there are 18 pairs that are
conventionally quotes by the Forex market makers as a result of the overall
liquidity.
The Forex market may be a lucrative market. However it is
also very risky. Currency rates rise and fall steeply and any slight
fluctuation can either make or break a trade. In fact, some losses are
inevitable when trading Forex. No wonder it requires a considerable amount of
patience and diligence from traders.
Having a detailed trading plan is the key to profiting from
the Forex market in the long term. This is important considering the traders’
tendency to make trading decisions based on emotion like greed and fear which
likely lead to huge losses in the end. A complete trading plan consists of a
few simple rules which the trader will check before entering a trade. It also
has the following: entry, stop loss,
target and a risk to reward ratio among several other things.