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Currency Trading Information Channel |
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FOREX 101: Make Money with Currency TradingFor those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency. FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers. Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies. How FOREX Works Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading. Marginal Trading Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500. EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.) When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account. Investment Strategies: Technical Analysis and Fundamental Analysis The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before. A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality. Make Money with Currency Trading on FOREX FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments. Rich McIver is a contributing writer for The Forex Blog: Currency Trading News ( http://www.forexblog.org ).
 MORE RESOURCES updated Sat. May / 21 / 2022Best books to learn Forex Trading from scratch Free Press Journal Weakened Euro May Become Equal to the U.S. Dollar The New York Times How to Know Which Currency Pair to Trade Startup.info CEO Of Cryptocurrency And Forex Trading Platform Charged With Fraudulent Scheme Involving Over $59 Million Department of Justice Hong Kong Spends $722 Million to Defend Currency Peg The Wall Street Journal Even the Foreign-Exchange Market Is Getting Kind of Crazy The Wall Street Journal BC: Tips for Success in Forex Trading Punch Newspapers Currency trading in overdrive with dollar at highest level in two decades (NYSEARCA:UUP) Seeking Alpha All Those Celebrities Pushing Crypto Are Not So Vocal Now The New York Times Value of Pakistani Rupee touches fresh low at PKR 200 against US Dollar The New Indian Express Why forex trading is not gambling Nairametrics Canada shares higher at close of trade; S&P/TSX Composite up 0.08% Investing.com India Two firms get online forex trade licence Business Daily Crypto stocks plummet and investors lose fortunes as Bitcoin, Ethereum and Luna prices plunge Daily Mail Russian rouble near 5-year highs versus euro, stocks up Financial Post Titan Capital Markets Releases Key Analysis of AI Market Outlook And Trends For 2022 - GlobeNewswire GBP/EUR: Pair Holds Steady Below €1.18 Currency Live ICAI terms arrest of CAs 'ill-treatment', forms group to ensure justice Investing.com India Allied Copper Comments on Recent Promotional and Trading Activities at Request of OTC Markets GlobeNewswire What is forex trading? Bankrate.com Basics of Forex Trading - Part 1 FX Empire Investor's Guide To Forex Trading Seeking Alpha Moscow Limits Foreign-Currency Trading to Shore Up Struggling Ruble The Wall Street Journal Forex Trading for Beginners: The Essentials Business Insider Africa FX trading: A loser's game? ETF Stream Gold forex trading explained City Index Trading Forex vs Futures: Key Differences IG International How to Trade Forex TD Ameritrade The Most Common Warning Signs of a Forex Scam Finance Monthly Forex Trading TD Ameritrade Currency Trading Basics & How It Works Investopedia Is forex trading a way to make a living? Nairametrics FOREX.com Review | The Ascent The Motley Fool How To Compare The Relative Strength Of Currencies Finance Monthly Turks Abandon the Lira for Dollars as Currency Crisis Deepens The Wall Street Journal Forex Trading Hours: Limitless Trading in an Endless Market The Coin Republic Changing the Top Global Currency Means Changing the Patterns of Global Trade Carnegie Endowment for International Peace Basics of Price Gaps in Foreign Currency Exchange Market The Southern Maryland Chronicle What Is Forex Trading? Guide to Foreign Exchanges Investopedia Is forex trading halal or haram? The Armchair Trader Falling Dollar Shows Resurgence of Infamous Carry Trade The Wall Street Journal Bank of England stumbles over FX trading gold mine Financial Times Global currency market seen as the premiere way to trade central banks' pandemic-era policy divergence MarketWatch Currency Exchange Near Me: Find Locations Nearby GOBankingRates A Surprising Reason Why Currency Exchange Rates Fluctuate Kellogg Insight Volume of foreign exchange trading helps predict returns on currency trading, says study Cambridge Network 6 Questions About Currency Trading Investopedia Ukraine crisis hits global FX, but reaction not always as expected Euromoney magazine
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