Forex currency trading (or Foreign Exchange trading) is one of the most lucrative forms of stock trading today. The Forex market was once limited to lending institutions and government banks, but is now open to all investors. If you are currently a stock investor or are interested in stocks, then you don’t want to miss the amazing opportunity the Forex market offers. More than $2 trillion dollars in currencies are being traded daily with Forex currency trading!
This brief beginner’s guide will explain what Forex currency trading is and how it can benefit you. Also, the guide will show you how to avoid the pitfalls of Forex currency trading.
Explanation of Forex Currency Trading
If you’re familiar with the stock market, then you already know how much research it takes to keep up with the thousands of companies in the market. You could spend hours per day trying to find stocks with the most profit potential and the least amount of risk. With Forex currency trading, this element of trading is almost non-existent. Why? Because Forex currency trading focuses on one type of stock – foreign currency exchange rates.
Buying and Selling in the Forex Currency Trading Market
With Forex currency trading, you are actually buying or selling a “pair” of foreign currencies online, by phone or other methods. “Pair” means two currencies that are being compared by pip, or a common denominator between the two currency values. Bids are placed for the pair based on what buyers are willing to pay. An asking price is what sellers are willing to take at any given time.
For example, you might buy Euro dollars with your US dollars, so you are actually buying the EUR/USD pair. The pair will either increase or decrease, depending on what buyers are willing to bid, giving you a gain or loss for your investment.
The rise and fall of pips in Forex currency trading will depend on each country’s foreign exchange rate. The exchange rates can be affected by interest rates, unemployment rates, inflation, national events or disasters. If you have ever traveled to a foreign land, then you understand that your own currency could either be worth more or less than the currency of that nation.
Forex Currency Trading Leverage
Many Forex currency trading firms will allow you a leverage of 100:1 for your trading. Some will offer even more. If you have a 100:1 leverage, you can invest $1,000 of your own money, but trade $100,000! You can actually double your money with an increase of only one pip. However, you can also lose your entire investment with a decrease. This could equal big profits or losses, so be sure to consider the risks before jumping in with both feet.
Major Benefits of Forex Currency Trading
There are several major benefits of Forex currency trading. The Forex market is non-stop. You can trade 24 hours a day easily online from your own home computer. Though the risk is high, the profits can be tremendous. There is also a very high leverage with Forex currency trading, giving you more trading freedom than ever. There are no brokerage or commission fees to pay, and no restrictions on short selling.
Avoid Pitfalls in Forex Currency Trading
There are a few things to watch out for as a new investor. Be sure to choose a dependable registered broker. Be sure to research the company before you commit. Avoid trading mishaps by trying out a Forex currency trading demo first. There are some great demos available on the Web to help you become familiar with the Forex market and how it works. Most Forex currency trading brokers will allow you to have a free 30 day trial of their software making “paper” transactions to see what you can do. Beware of those companies or websites that promise “untold riches” with the Forex market. As with any investment, there is always risk no matter what their claims.
Forex currency trading is a fabulous business opportunity, but without the usual headaches of running a company. Understand your risks, start small with your investments, and watch your portfolio grow with Forex currency trading!