As foreign exchange trading is by far the most active and largest trading market in existance major participants include commercial banks, corporations conducting international business, hedge funds, international travelers, government central banks, and speculators who hope to profit from the markets volatility and trending nature.
Foreign exchange, or forex as it is commonly called, is a worldwide electronic marketplace and is traded 24 hours a day six days a week. Remember that with time differences around the world it will be Saturday in parts of the world while it is still Friday in other regions. And it will be noon in one place and midnight in another. This alone makes for some interesting challenges in trading.
The volume of daily trading far surpasses that of other markets, including the stock markets of the world. Forex is a big boys market. It's wise to keep that in mind if you want to be a participant.
Forex trading puts one into a zero sum game with some of the brightest and most talented traders in the world. The traders that work for banks may only be taking care of bank customers orders but they still need to be fast thinking and market savvy to handle their accounts well.
A trader who is working for a hedge firm is likely involved in pure speculation. That is the trader is trying to take money from other market players, the more the better. As stated earlier, forex trading is a zero sum game. One traders winnings are other traders losses. Poker is a good example of a zero sum game.
Until Internet trading became possible it was rare for the small independent trader to trade forex. For one thing the cost of the required data feeds, computers, software programs, and computer hardware was out of reach for the average trader.
Only fifteen years ago a top notch trading set up could easily cost you five or six thousand dollars a month in data feed and equipment costs. Not many private traders were trading large enough sums of money to justify that kind of operating expense. Forex trading historically was a big players and institutional game.
The Internet and advancements in computer technology have changed all of that. It is now possible, even easy, for the small speculator to be able to trade from his/her home office and have the use of sophisticated live quote and trade execution services and forex charting services.
There are a large number of online trading firms that cater to individual speculators who offer the formerly very expensive data feed and other services free when you open an account. From five or six thousand a month to free within fifteen years or so is pretty amazing.
So should you trade forex? Well, remember that you will be competing against the best and the brightest. There can be sudden rapid changes of price levels in forex markets and you need to remain alert whenever you have open positions running.
You also need to have trading funds that are truly set aside for speculative trading. Trading forex is a risky enterprise so you need to be darn certain that if you lose your allocated trading money your lifestyle will not be affected.
Trading forex is a real challenge. The challenge is as much psycological as anything else. The greed and fear factor is multiplied in forex trading as you have access to a lot more leverage in your trading account than if you were trading stocks. A lot more.
There are online forex firms that will allow you to trade at a 100 to one leverage factor and more. That is for every dollar you have in your account you can trade one hundred dollars in forex.
My advice; don't take the bait. While trading at 100 to one leverage means that if you are on the right side of a one percent move you will double your money it also means that if you are on the wrong side of the move you will be wiped out.
It's not really the price movements that makes forex risky, on any given day the price ranges in percentage terms are usually no more severe than if you were trading stocks. It's the leverage factor and the failure of many private forex traders to properly control it that makes trading forex risky.
In forex you are the one who choses your leverage factor. Be sure to start out by using a modest amount of leverage, say five to one, not everything that is offered. This is the single most important factor in controling risk.
So again, should you trade forex? If you have spec trading capital, a high degree of discipline, and are willing to do your homework before getting starting forex may just be the ticket for a profitable venture.
To be successful you have to have the discipline to not always be in the market. You must select your entry points with care. Like a great poker player you will probably fold your hand and not be in the game about 85% of the time. For many people, this proves to be hard to do as they like the action and excitment of an open position.
For those individuals who have or can develop the neccesary skill sets trading forex can lead to large profits within short time periods. This is the real attraction of trading forex. A few good trades can multiply your capital several times within a year or less.
If you want to give forex a go do your homework, start small, use reasonable stop loss orders to protect your capital from large single losses, and trade with a reputable online trading firm.
In starting out make sure that you trade only with the major trend. If you make that your rule for opening any position and control your leverage factor you will have a good chance of making winning trades.
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Nice post. It's refreshing to come across some Forex information and advice that isn't claiming you can make 1 billion percent a year using 200:1 margin etc.
My trading partner and I have been looking into Forex recently. We normally trade stocks. I recently read a free article in Stocks, Futures, & Options (SFO) magazine about the Forex market that was quite good. I turned the world markets times into an Excel file and posted it on our blog.
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