Forex trading has nothing to do with swapping cans of lager with an Australian! If only it were that simple. Forex trading, means trading or dealing in currency on the foreign exchange market. Foreign exchange, forex or FX all mean the same thing.
Basically you follow how the currency market is moving. Currency moves in response to a country’s requirement for funding investment and trade in stocks and shares, based on the economics of their commerce and industry.
A country may need to raise money for a specific purpose and does so on the strength of their reserves – monetary or gold or oil, commodities with international value. There isn’t normally a huge change in the value of a country’s currency, not in the same way that the stock market can have amazing rises and falls.
Certainly there is money to be made in forex trading from the small increments by which the values change, as the amounts of the funds involved in deposits usually are quite high. Some companies operate ‘super mini accounts’ that require only $100 to get up and going but the profits from these tiny accounts are small.
They are a good way of learning the trade with your own real money. It’s a bit like playing poker at home with matchsticks. When you ‘trade for free -we will let you use $500,000’ with training companies; it’s just pretend and it doesn’t really matter at the end of the day.
Lessons are better learnt when the situation is real, so a small stake may give you the same thrill when you make a profit and less of a heart attack if you happen to come out the loser.
Many people are interested in the exchange rate and are quite knowledgeable about how their own currency compares to that of other major currencies like the British pound sterling, the Euro, the Japanese Yen and the US dollar.
Global travel and holiday cash mean that tourists wish to know the exchange rate for the country they are visiting to see how well their own currency will perform in another. Some people won’t book their holiday until they have seen the bank’s display of exchange rates for popular destinations like Australia, South Africa or Europe.
I know of some women who wait to see how the dollar compares to the pound before they take to the January sales. It can sometimes be better value to take a cheap flight and have a weekend’s shopping abroad rather than stay at home to take advantage of the New Year bargains.
At the end of a news bulletin there is normally a slot given over to the news on the financial markets.
Viewers hear how stocks and shares have performed, whether they are up or down and reasons why they may have risen or fallen. So too do they hear how the dollar has fared against the Euro/pound/Yen when trading has closed on the stock exchanges; FTSE, NASDAQ, Dow and Nikkei are all familiar names even to the layman.
There doesn’t tend to be a great fluctuation between the values of currencies because the international monetary fund (IMF) and the world banks want there to be global economic security, within acceptable parameters.
Devaluing a currency, or producing extra currency, within a country can lead to instability and panic buying or selling of stocks and shares that has a knock-on effect to their economy.
Could You Be Day Trading on Forex?
Now that we are all facing the doom and gloom of the credit crunch and the consequences of a deepening global recession, I’m sure you would love to be able to make a little bit of money to help cover the living expenses in your home.
I decided to check out all my old books and magazines to see if there were any tried and tested trusty money spinners that I could give a go. My daughter thought that I was crazy.
‘Mom, it’s all on the Internet!’ she groaned. I have to admit that apart from a bit of shopping and writing e-mails, I really don’t use the Internet as much as I probably could.
Anyway, I took her advice and began to read articles about people who had lost their jobs and the financial pages of the newspapers online to see what the ‘money’ people predicted for the future.
After all, money makes the world go round – as the song says. While reading through the articles it became apparent that prediction and trends play a huge part on how our economy survives and thrives.
I know it took me a while to catch on but I did, eventually, make the connection between the pages of tables with the trading results of stocks and shares and the price gains and losses linked to the personal stories I had read about in the newspaper.
I hadn’t quite grasped what it was all about, so I Googled for definitions of the terms I was having difficulty with.
Lo and behold, there were squillions of links relating to trading on the foreign exchange market.
Until now, I thought only Gordon Geckos and mercenary traders in red braces were the sole people conducting trade on the foreign exchange market – or the FX or forex, as I can now refer to it.
Further reading revealed to me that it is quite possible for a regular individual to join the day trading on the FX. For as little as $200-250 dollars you can establish an account with a broker and having satisfied their regulations, begin trading.
The regulations, specifically because day trading is regarded as risky, mean they have to inform you of the risk involved and also to enquire whether you have any previous trading experience. If you satisfy their queries, you can begin.
There are lots of training programs and demos available so that you can practice your trading skills with a good forex broker before you enter the market seriously and follow the fluctuations of foreign currency.