Total the amount of money involved in a day’s trading on the US stock and Treasury Bills markets by three, and you’ll still have less than a third of the amount of money which exchanges hands on the currency Forex--foreign exchange--market. The currency Forex market is where the money of one country--US dollars, for instance—is exchanged for that of another, like Japanese yen.
But unlike the world’s other economic markets, currency Forex trading is not centralized. There is no Wall Street or Throgmorton Street with an historic exchange building; Currency Forex trading exists only over telephone wires and Internet connections.
But exist it does; and it involve a global network of financial institutions, individuals, and banks all working around the clock and unhampered by international borders. Time and physical distance have no meaning in the currency Forex market.
At one time currency Forex trading was the domain of banks that held large amounts of money in various currencies so that they could participate in global investment and business opportunities. Individuals could participate in currency Forex trading only by going through their banks. But when exchange rates became unregulated the volume of currency Forex trading began to mushroom.
What Is Currency Forex Trading?
When either a private corporation or government wishes to either buy or sell products or services in another country, it has to engage in “bartering” its national currency against the currency of the country where it wishes to do business. There are also large numbers of investment firms who trade the currency Forex market as a more speculative part of their portfolios. For more info see http://www.e-forextradingsystem.com/ on e-Forex Trading.
And even individuals can participate in trading the currency Forex market, provided they have sufficient risk capital and are willing to do the homework necessary to master the art of currency Forex trading, which can be extremely complicated.
Currency Forex Trading At Home
Many individuals are drawn to the currency Forex market because they see it as a lucrative business which can be run from the convenience of their homes. All that is required is a personal computer with an Internet connection and a workstation organized with to create a minimum of distractions. They see the currency Forex market as both inflation and deflation proof, and a way to make money regardless of the worldwide economic situation.
Investors make or lose money when trading the currency Forex market depending on the fluctuations of the currency exchange rates. All currencies are constantly appreciating or depreciating in value when compared to one another, and it is up to the individual investor to understand how conditions around the globe will increase of decrease currency values before risking his or her money trading those currencies.
Foreign currency trading is a high risk and high reward business. You need to devise strategies to make profits in the market on a sustained basis. Always remember that day trading in foreign currency is not the ideal way if you really want to have a long term perspective.
Day trading in foreign currency exchange is the same concept as day trading in securities markets. You take a short term bet on the price movements of various currencies in your portfolio. Thus you gain or lose depending upon the intra day fluctuations in prices of these currencies. Whether you are long or short at a particular point of time in a day depends upon your assessment of the likelihood movement of prices later on during the day. Let us explain by a simple example. Suppose you are short on Yen in the morning session of trading (meaning that you have sold yen at a price). It means that you expect Yen to decline further in the day so that you would be able to buy back Yen at a lower price and make a profit in the process. Here you are taking a bearish outlook of the market.
On the contrary, if you are long on Yen (meaning that you have bought Yen at a price), it means that you are bullish on Yen and expect it to rise further so that you will be able to sell it at a higher price and make money. Day trading foreign currency thus means taking a very short term view of the market and is fraught with risks and possibility of huge capital losses.
It is always advisable to have a long term outlook especially in the highly volatile foreign currency market. This way, you are not dependant on the vagaries of intra day shocks and expect your capital to build over a period of time. Have an assessment of economy, performance on inflation front, policies of central banks of the country and then take an informed decision, without worrying about short terms movements. A large number of traders have lost heavily while betting on day trading foreign currency. There is still no fool proof strategy which can shield you from losses if you are having an extremely short horizon.
If you really want to start in day trading, take smaller bets, just to have a feel of the market. Keep your stakes on a limited scale and close out as soon as you get a chance. Do not forget to place a stop loss position if you want to avoid carnage and scalp out at an opportune time. It is a high risk proposition and there are better ways to make money than day trading foreign currency.
When you get enamored by so called success stories of day trading foreign currency, remember that Rome was not built in a day. It takes time to build your fortune. Never allow greed to overcome reason.