Forex Trading

A General Introduction to Forex Trading

You may have seen or heard the term ‘Forex’ thrown around casually on the television, Internet or radio, but be forewarned – this is not a new cleaning product for that nasty grime in the bathroom! Forex, or FX, is a shorter name for the foreign exchange, referring to the trade of currency.

Trading currency on Forex may include exchanging dollars for euros, yen, pounds or other forms of foreign currency. Sounds simple enough, right? Not true. The extreme volatility of this market and its sheer size make for some of the largest gains and losses known to man – some within a few short minutes, so any trader had better be sure he’s ready and knows what he’s doing.

There are several markets available, from New York to London and Tokyo – these are the largest locations, though they don’t represent a physical exchange of property like stocks. They simply facilitate the exchange and report changes in currency rates during different times and respective time zones; this means that Forex trading can take place 24 hours a day, no matter where you’re located at.

Exchanging currency happens by phone and computer networks on the Internet, and includes larger international banks, insurance companies and foreign governments via central banks.

Now that the Forex trading market is available to individual investors, they too can profit from the small changes in exchange rates around the world. You may start involving yourself in this type of trading using the Internet or employing a brokerage firm to be at your beck and call.

Even with sufficient study and preparedness, it is possible to lose great amounts of money with Forex trades. There is new terminology, strategies and technical indicators to learn, as well as learning to understand the changes in rates and thus the general direction of the foreign exchange market.

Start by searching the Internet for Forex trading software to help you begin watching daily fluctuations and changes in the currency pair rates. Join online forums and communities and read old threads that are probably full of a wealth of information you can use.

Buy a book or enroll in a course at the local community college, and start to test your knowledge with pretend trading sessions. Once you reach this point, start learning to read, interpret and record important trends and indicators. When you buy or sell your pretend currency pair, track your progress with each trade and develop your own set of Forex trading rules.

Not every strategy will work with every investor, but sticking to a set of rules no matter what will statistically reduce your chances of your profits and losses being as volatile as the Forex market! Interview and research several brokerage firms before choosing to do business with them, or ask a friend for a referral, and read the fine print with every piece of paper they ask you to sign. Ensure you know exactly what you’re getting in to, and there won’t be as many surprises in the future!

The Psychology of Forex Trading

Many seasoned investors have learned that the movement of the financial and investment markets are an indication of changing psychological states of the entire pool of investors. Sometimes it’s hard to keep your own emotions in check when trading in the Forex market, but not doing this can result in lowered returns and large losses if you don’t keep your cool.

Even professional athletes understand the power of the mind when it comes to getting the results they seek. Learning quickly that the Forex market is very volatile and should be respected, but without becoming fearful, will be advantageous in the long run.

First, you must learn to accept the fact that many factors in trading in the currency market exchange are out of your control. Forex markets are so large that any one influence, even national governments and banks, are too small to influence the direction of them.

However, you can control your actions when trading currency. The key is to never become emotional about the situation, and start with a set of rules you employ in every trade, no matter what. This will largely affect your long-term and overall results, making them more predictable over time.

Start by choosing your favorite strategies you’ve read about and learned. Ensure you understand them completely, and that they are used to increase your odds of profiting and minimize odds of losing. Even when you do lose on your Forex trades, this will happen less often and with less dollar signs, making you profitable over time. Never should you experience a loss so great that you can’t recover from it.

Also remember to check your own attitude and ability to take on risk while still sleeping at night. Are you prepared to be an active and hands-on trader? Even if you have a brokerage firm carrying out your trades for you, you need to dedicate the time and energy to understanding the market and realizing current and always-changing trends.

If the idea of losing a few bucks makes your head and stomach turn, Forex trading is probably not for you. Before you know it, you’ll be calling orders based on your emotions and inability to handle the volatile market, making for a bad experience all around.

Only you know you best and what your likely reactions will be when trading currency. Perhaps you need to feel you are absolutely ready to jump in, and require more information. Take the time and energy to enroll in a course, read several books, and research on a daily basis what’s going on in the market. Join public forums to ask questions and share information with other potential and current investors to learn a few new tips along the way.

Avoiding second-guessing your strategies is one of the most important bits to remember. There is no way to tell what works and what doesn’t if you immediately and constantly change them. You need to stick with any one strategy long enough to determine the statistical success or failure of which directly affects the amount of money you have in your pocket!