Forex Trading: Everything You Need to Know

Everyone these days is looking for an investment that is somewhat out of the box. They are tired of watching their choice stock picks move up and down liking a roller coaster. That’s where Forex trading comes in. Investors are moving their money from the stock markets to Forex markets hoping to make big bucks in a short time. Forex markets trade over $3.2 trillion daily, considerably more than any other financial market.

But Forex trading is not as simple as people think. Statistics have shown that 80% of new Forex traders lose their money within a matter of a few weeks. Trading Forex without the proper knowledge of how Forex markets work is like jumping into a pool blindfolded only to find that there is no water at the bottom.

forex trading, foreign currency

Know the Basics

So let’s start with the basic fundamentals of Forex.

Forex is a shortened version of Foreign Exchange and when you trade forex (Yahoo.com), you are betting on the ratio of a pair of currencies. If, for example, you decide to trade the USD/EUR pair, you are betting that the ratio of the US dollar and the Euro will go in opposing directions and to what degree. If the pair moves according to predicted, you’ve made a profit. If they move in the wrong direction, you stand to lose all your money.

But what does USD/EUR (Yahoo.com) really stand for?  Let me give you an example. You walk into a wine shop in New York and purchase a very expensive bottle of French wine. Since that bottle of wine was imported from a winery in France, the importer paid for it in Euros. Maybe at the time of purchase, the bottle cost $30.00 and the conversion rate of the dollar to the Euro was 1 dollar to two Euros. Each Euro is worth $.50, making the value of the wine 15 Euros. Now if you hold on to that bottle of wine for a few years, the bottle may appreciate in value and when you come to sell it, it is valued at more than the original $30.00, maybe $35.00. This increase in the dollar value of the bottle lowers the price in Euros and changes the conversion ratio of the dollar to the Euro. This is basically the concept behind Forex trading. A trader chooses the direction the ratio will go and the price it will reach and if he has chosen correctly, he comes out ahead.

Those are the basics of Forex trading. However, learning the basics is not enough to make you a successful trader. In order to really understand Forex, you must delve deeper into the mechanics of how Forex trading is conducted and how to use specific trading systems and trading concepts. There are many tools available for Forex traders but it takes time and effort to fully grasp their significance and use.

Fundamental and Technical Analysis

Both fundamental and technical analyses are resources of information for the Forex trader. Although it is difficult to predict how currencies will fair against each other, there are certain ‘indicators’ that can help forecast their directions. Becoming proficient in reading graphs will help you reach the right conclusions as to market trends. And learning to follow political, economic and cultural changes in foreign countries will give you a heads up on how currencies will react.  Some technical analysis and news reports are provided through a broker’s website. Additional instruction can be obtained through online forex tutorials (Fxacademy.com) and educational courses.

In fact, almost all online Forex brokers provide a comprehensive tutorial to new account members and offer them the opportunity to trade risk-free for a few months in a practice account. Some provide virtual funds of up to $10,000. You can  gain a lot of experience trading in an account when there is no chance of losing your own money. When you feel confident enough, you can move over to a real account and apply what you have learned to live trading.

Forex presents investors with a new direction in trading. But like with any other investment, learning all there is to know before moving ahead is the key to your success.  Take advantage of online seminars, webinars and courses. They are excellent sources of information and most of them are free.

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