Online Forex Trading
Currency
Trading Explained Part 1
Forex Trading Explained Part 1
Forex
trading has gained a great deal of popularity of
late due primarily to its flexibility and the size and nature of its
market. The Currency
market is the largest market
in the world.
At $4 trillion of volume on every business day, it
ranks well above any other market on the planet, and its shear size
alone prevents anyone, even a nation's central bank, from ever
manipulating the market to their advantage.
In order to
trade
Forex, an access device and the Internet is all
that is
required, and
as for location or time of day, both factors tend to be
irrelevant. You can trade after work in your nearest
Starbuck's or in your bedroom for that matter.
Beginners are always cautioned that high risks prevail in this
arena. Specialized training and, hopefully, a mentor to guide
your efforts are seen as "essential" if you are to have any chance at
succeeding here. However, as with any investment activity,
the same three factors are required for trading success: knowledge,
experience,
and emotional control.
These tenets are often shouted from
the rooftops and repeated "ad nauseum", but for some reason, many
newcomers are either too impatient or inexperienced to hear these words
of wisdom. As a result, there is a high casualty rate amongst
beginners. Forex
trading is not gambling but you must
approach it like a business, with discipline and finesse.
Learn.
Practice. MAKE MONEY!
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The
Forex
Market
The Forex market is
huge, but over 50% is between large global banks, the "Interbank"
market as it is called. There are no centralized
markets, although some exist for futures contracts and
options. Sophisticated networks provided and maintained by
Reuters and EBS connect major trading partners
electronically.
Brokers establish trading relationships with
the banks, and from there, all manner of other market participants then
become part of the action, including retail forex traders.
The chart below helps summarize the organization of the forex market:
The Forex Market Explained
There are
many forex markets
around the world, but the major ones are in
London, New York, and Tokyo. Each day the cycle begins in New
Zealand and Australia, then Tokyo, and then follows the Sun around the
globe until New York where it closes, only to begin the cycle once more
on the following business day.
The major currency pairs
all relate to combinations with the U.S.
Dollar. Each currency
has a special 3-letter symbol,
established by an international standards organization, and is often
referred by other more familiar names. The "majors" are
listed below:
AUD
- Australian Dollar
(or "Aussie")
CAD - Canadian Dollar
(or "Loonie")
EUR - Euro
JPY - Japanese Yen
GBP - British Pound
(or "Sterling" or £ )
CHF - Swiss Franc
(or "Swissie")
NZD - New Zealand Dollar
(or "Kiwi")
USD - U.S. Dollar
(or Greenback or "$US")
U.S.
Congress
created the Commodity Futures Trading Commission in 1974. The
CFTC is an independent agency of the U.S. government, charged with
regulating commodity, currency, derivatives, and financial futures and
options. The agency has done much to police fraud in the
industry and to protect consumers from unscrupulous brokers.
It is easy now to review reliable forex broker ratings on the
Internet
and to choose your "unseen" but very important business partner after a
bit of due diligence.
Many of the
principles learned in day
trading stocks easily transfer to forex
trading. However, the issue of "intrinsic" value is
nonexistent. Currencies come in pairs. Their values
are “relative” to a comparison of each country’s economic
health.
Forex
Trading - Part 2
Part 2 - Forex
Trading
In
the second part of
this 3-part series, we will discuss how these values are determined on
each and every trading day.
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