Product Name: Forex Trading/ Currency Trading
Price: Investment Required: $0 – Unknown
Assessment: High Risk
Website: Various/ Oanda: https://www.oanda.com/
Training and Support: Available through most Trading Platforms,
Online Courses, Self Taught, Books, Banks
What is the Forex Exchange?
Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world currencies trade.
“The Foreign Exchange Market is the place where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business”, according to Investopedia.
Forex Trading takes place on the “spot market”. The spot market is where currencies are bought and sold according to the current price. That price is determined by supply and demand. This is a reflection of many things including current interest rate, economic performance, and sentiment towards ongoing political situations. There is also speculation on the future performance of one currency against another.
When a trade has been completed, it is known as a spot deal. It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. When the position is closed, the settlement is in cash.
The Forex Market is the largest, most liquid market in the world. The average daily trading volume exceeds 5 trillion dollars. All the worlds combined stock markets do not even come close to this.
It is because of this liquidity that people are attracted to the Foreign Exchange Market. People of all ages and walks of life have tried to earn money trading Forex. It is super easy to get into this market. There is no particular person who is described as being a forex trader, however there is a tendency to have people who want to make money fast. They will attempt to trade forex. Because of this, there is a large amount of money lost in the forex market every day. People find it easy to get into this market, but they tend not to enter with the education needed to trade wisely.
Leveraging and Margins.
When you trade Forex, you’re effectively borrowing the first currency in the pair to buy or sell the second currency. With a 5 trillion dollar a day market, the liquidity is so deep that liquidity providers, the big financial institutions, basically allow you to trade with leverage. To trade with leverage, you simply set aside the required margin for your trade size. If you’re creating 200 to 1 leverage, you can trade $2,000 in the market while only setting aside $10 in margin in your trading account. For 50 to 1 leverage, the same trade size would still require about $40 in margin.
But leverage doesn’t just increase your profit potential. It can also increase your losses, which can exceed deposited funds.
The problem that is created by this is that new traders who do not understand leveraging can see that they can deposit as little as $100 into a trading account, yet they have access to many times that amount, depending on what leverage they choose. There is no one to advise on the risks of high leveraging.
If you were to deposit $100 in your trading account and you choose a leverage of 200 – 1, you would have access to $2,000, for the purpose of trading. If you are not experienced at trading, and you chose to put the full $20,000 into a trade and you lost it, you are responsible for that $20,000 not just the $100 of your deposit.
This is where inexperienced traders get into trouble. Traders tend to get into the market too quickly and easily. They try to trade without any knowledge. The result is, they usually quickly lose all their money. Then they either try to reinvest more or walk away never to return.
The unfortunate person is the one who over extends their leverage and becomes responsible for a high loss.
To be fair, there are winners as well. They just seem to be far more scarce.
There are different types of forex trading. One type of trading is called scalping.
When a trader scalps, it is their intent to just take a small profit off of each trade. Because the profits are small, there is an attempt to make as many trades per day as possible.
Because of the spread, which is the difference between the buy and the sell price, there is always an amount you must gain before you can move into profit.
For example, if the spread between Euro and USD is 1, then and the trader who is attempting to profit by 5 Pips, they would have to get 6 pips in order to gain their 5 pips. In other words, you always start out 1 behind.
Often when scalping, the trader is only attempting gain 1 to 2 tips. This appears to be overly simple, but it is not. In order to gain one, you have to earn to 2. Surprisingly this is much more difficult than it sounds.
New traders think this is easy and will gamble that they are the ones that are going to overcome the markets and make a profit.
Overall, the difficulty arises with new traders not understanding what is necessary to be an effective trader.
Traders who are successful have studied and practiced for years. They have gone through their growing pains to become successful.
To be a successful forex trader you have to spend long hours in front of the computer screen.
Another lure of the Forex Market is that it is open 24 hours a day 6 days a week. The only day it is closed is Sunday. The way the world clock works, if you are trading in the USA, on Sunday the Eastern markets have already opened so you can trade as early as Sunday afternoon. This makes forex almost 24/7.
As a result, a person can get involved in the Forex Market at any time of day. There are ideal times to trade, which are known by experienced traders. They know when to be actively trading, and when to be sitting on the sidelines.
A new Trader may try to trade around their work schedule, risking the possibility of trading at wrong times. Or, you may need to trade when you normally would be sleeping.
There are as many Forex Trading lures on the internet as one can imagine. It is difficult to know which ones are reputable or trustworthy. There are so many individuals online who claim to have the best, easiest way to trade forex . They are attempting to encourage you to buy their program because they have the answer. My question alway remains: If you are a successful trader, why are you hawking “How to” courses?
Caveat emptor, buyer beware. The best thing to do if you are determined to become a forex trader is to find a reputable financial institution related company who offers Forex Trading. Their programs will be methodical and thorough and often offered in person, where question-and-answer can take place. This type of company will also give you instructions on risk management and money management. These added instructions are typically left out with the “gurus” on the internet . They do not care if you lose your capital.
On a more positive note, there are success stories in the forex markets.
These people quietly learned the strategies that work well for them for gaining profits. I can attest that they did not learn this overnight. Learning to trade Forex takes determination, time, patience, and having a risk-averse nature.
Another positive note is that most forex trading platforms both allow and encourage the use of a Free Demo Trading Account. This is where you can practise trading with phoney money on a dummy account. It is sometimes called paper trading. It is recommended that you trade on a demo account for at least a year, before using your own money. This allows you to get a true sense of what can happen. Most people do not have the patience to complete this.
Oanda offers a demo account that is easy to use.
In my opinion, trading Forex is extremely risky. It is not a get-rich-quick idea. The person who trades Forex will have to have been trained over several years, and likely has a significant amount of money on deposit.
If you are not trained in forex and have been told you can get started for $100, beware. This is not a safe way to gain profits or be relied upon to create an income. I have wasted much of my hard-earned income by attempting to learn the Forex Market. It was extremely difficult and I regret the effort I put into it.
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