Why should anybody trade Forex? Is it because it is easy? Or are we being led to believe that Forex is lucrative way to earn a living?
Forex can be both. It depends on individual perspective. To understand what Forex is, we first need to understand what it actually is. Forex market is the world’s most popular market for currency trading. The average turnover is over 4 trillion a day!
Forex trading basically involves buying and selling of diverse foreign currencies in the global exchange, often referred to as FX market. The only trick part is to know what moves the foreign exchange market, how different factors affect it and which direction will move next.
Most traders will speculate on the movement of price going up or down. This in UK is called spread betting. If the price goes above the level you speculate from, it will give you a ‘buy’ profit on every point the price goes above the level you select. If the price goes below the level you select, then it will give you a ‘sell’ profit on every point the price goes below the level you selected.
If the price goes against you, then every point will result in a loss. Most important thing is to get the direction right. If for example, you opted for a ‘buy’ trade and the price moves above your level, you would make money, but if goes down from your level, you would lose money.
Forex market is traded 24 hours a day around the world. UK market opens at 8.00 am then followed by Wall Street in New York and then SE Asia which trades over night. The most lucrative trading period is when market overlaps. You do not have to sit on your computer 24 hours a day, but pick the times when markets are most active during the overlap periods where one market is opening and another closing.
Forex trading on line has become more and more popular in recent years due in large part to the popularity of stock trading on the internet. One only needs an on line broker to open a trading account. Most brokers now provide trading platform and a charting package. They will encourage you to start trading as they make commission out of every trade you place through them. This is called the spread, hence the name is ‘spread betting.’
The spread is the difference between the ‘bid’ and ‘Ask’ The broker will quote you a price if you want to place a buy or sell trade. However, he will take the first 2-3 pips of your profit when the price moves in your direction. You only make money after the broker has collected his commission. If your trade results in a loss, then you still have to pay the brokers commission over and above the points you lose. The broker always makes his money whether you win or lose.
There are many parallels between Forex trading and gambling and your ultimate long-term success will be determined by how you approach this idea. Forex trading is very lucrative business while at the same time is considered to be a high-risk venture.