Welcome to the Trading Forex web site. Here you will find all you need to know to help you with your Forex trading. Whether you are a beginner looking to understand how to trade Forex and which companies you can trade with, a more experienced trader looking to learn more about Forex trading strategies, or simply somewhere in between, this site can help.
So, you’re interested in knowing how to trade forex, are you? Well, Forex – foreign exchange trading – can be a very lucrative activity, but please remember that there are risks. As an industry, it is attracting ever increasing numbers of investors and with a daily turnover in the trillions, it’s a huge global market that can certainly accommodate many more participants.
But let’s be clear from the start: this is a risky business. Just like stock trading, it is speculative in nature. Indeed the prices move very quickly at times and you can be caught out if you aren’t extremely careful. Your returns will not be steady or predictable. In fact, all traders know they will make losses from time to time. Their aim is to make sure that the profitable trades outweigh the losing trades.
So what’s involved? Well, forex trading is another name for currency trading. As you may know, the value of any currency tends to rise and/or fall depending on the underlying economic performance of its country.You may have heard news reports of the dollar strengthening or weakening compared with other currencies. In currency trading you simply take a position on the value of one currency versus another, depending on whether you think a currency price will rise or fall.
Let’s take a very simple example, imagine that sterling was strengthening so you decided to buy GBP. You might exchange $100 for £70 GBP. Then you would wait for the rate to move. If it rose as you expected, you would change them back and you might get $103 for your £70 after broker costs. You have increased the value of your $100 by generating a profit of $3 (or 3% of your investment). When you think that putting your cash on deposit might earn 3% over the course of a year, the 3% you made on your Forex trade (which could have happened in days, hours or even minutes) starts to look very attractive indeed.
And that brings us on to gearing up. Leverage – or trading on margins – is what allows you to gear up. Brokers know that a currency rate is unlikely to change beyond certain boundaries in a very short time, so they are prepared to let you control a large trade with just a small investment fund. In most instances leverage gives you a position size of 100 times your investment.
This means that in the above example, if you placed $100 on the trade through your broker account, you would be controlling $10,000 worth of assets on the market. So instead of having a profit of $3, you would make $300. That would be a pretty good return on a $100 investment….but read on.
And the down side is that this also means you could lose big time too. If the price goes against you by the same amount you could lose $300. Pretty tough against your investment of $100! Elsewhere on this site we will cover the risks in more detail, but rule number one for us is this; ALWAYS USE STOPS TO MINIMISE YOUR RISK! A stop is an order to close your trade if the price goes against you. As you’ll read later though, stops are not necessarily a guarantee…..
EUR/USD (the Euro against the US dollar) has one of the highest volume of trades of all of the possible currency pairs, which makes it a very liquid market, and might be a good one for beginners to start with. However, be aware that you can trade any of the major forex currencies. Also be clear that you are not limited to the currency of your own country. If EUR or USD was going through a very unstable time you might prefer to switch to another pair.
Forex trading can be done from home on your computer or even mobile or ipad. You’re going to need a broadband connection to hook up with your broker to allow you to trade on live prices. Most decent brokers offer a demo account so that you can get to know their software and practice your trading skills before risking any of your own money. However you choose to trade – and there are numerous strategies explained on this site – test out your system in a demo account until you are completely comfortable before switching over to real money.