Over the years, forex trading has rapidly become one of the hottest topics around town as a way for people to invest their money and get rich. But how does a beginner know if forex trading is right for them and that it will be a safe investment? Here are some crucial elements of forex trading that anyone interested should know about even before attempting it.
Forex trading (some call it FX trading), is actually short for foreign exchange trading. Forex trading is quite different from options, commodities or stocks trading. Among the investment realm, it is the easily the largest market in the world and promises huge profits for the brave investors.
Simply put, forex trading is just the selling and buying of currencies between different nations. Unlike commodities or stocks trading, money is not used to purchase a certain commodity or stock. You either lose or make money depending on the exchange rate between a pair of currencies in forex trading.
One of the main differences of forex trading is that the investment is not made in a single company or a band of companies. Forex trading is actually an investment in the economic wellbeing of a country. In forex trading, you are laying a bet that the general economy of one nation will improve with respect to that of another nation.
Let us use an example where you are trading between the US Dollar and the Japanese Yen. Your analysis of the situation appears to indicate an increase in the value of the US Dollar and therefore a rise in its price while the Japanese Yen will drop in value. You then decide to execute a trade to buy US Dollars and sell Japanese Yen. If your analysis is accurate and your predictions come true, then the US dollar will rise in value while the Japanese Yen drops and you will make a profit!
You may now be asking: "Is that all there is to forex trading?" Unfortunately, the truth is it is not as simple as that. Fluctuations in the value of different currencies are incredibly hard to forecast because there are many factors that can contribute to changes in exchange rates. An important aspect to remember in forex trading is that you are always trading in pairs of currencies. You will always be buying one currency and selling another, thus in order to make an accurate prediction, you must look at both nation's economy and not just one of them.
Of course, there is no need to restrict yourself to trading only one pair of currencies in forex trading. The forex market offers dozens of currencies to choose from, but if you are just beginning in forex trading has only started out, it is highly recommended that you trade the seven major currencies first:
USD - US Dollar
GBP - British Pound
EUR - the Euro
CHF - Swiss Franc
JPY - Japanese Yen
CAD - Canadian Dollar
AUD - Australian Dollar
A good advice for individual investors is to concentrate their forex trading on just these seven major currencies. Gaining a strong understanding and knowledge of the economic wellbeing of these countries as well as their currency trends will allow you to become a master of forex trading.
By Duncan Lee
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1 comment:
Great job Duncan! You've successfully managed to simplify the complex world of ForEx Trading such that even a Newbie (like we all were @ one time) can understand.
Since the ForEx market is massive and often daunting to newcomers, there's a tremendous need for a ForEx trading system that break down the process even further. I've found a ForEx Trading system that's so easy--even PARIS HILTON can make money doing it.
The system is called FOREX KILLER.
For more info, just go to:
http://evenparishiltoncantradeforex.blogspot.com/
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