WHAT IS FOREX?

Forex market is by far the largest market place in the world with an approximated daily turnover of $5 trillion.

'Forex' is an abbreviation referring to the foreign exchange market. This market is decentralized globally with currencies being traded in it by speculators and investors. Forex market is by far the largest market place in the world with an approximated daily turnover of $5 trillion.The pivotal participants in this market are the big international banks, central banks and insurance companies.These banks and companies operate from major financial centers like Sydney,Tokyo,Hong Kong,London,Singapore and London.These centers are spread in almost all the timezones of the world making the Forex market to be active 24 hours on daily basis except during the weekends.

This market is different from other types of markets because;


-It is continuous for 24 hours on the daily basis except during the weekends.


-It has very large trade volumes which represent the biggest class of assets resulting in huge liquidity.


-It involves leverage to boost loss and profit margins with regards to the size of the account.


-It has relatively lower profit margins in comparison to other markets which involve fixed income.


-It has numerous factors which affect the currency pairs exchange rates.


-It is widespread all over the world unlike other forms of markets which are centralized and localized to specific areas.


Risk and Money Management


To become a long term successful Forex trader, you must be able to minimize your risks and maximize your rewards.Proper money management skills and strategies are required to achieve this kind of success.Successful risk management is whats differentiates professional traders from the gamblers who in most cases end up losing all their investments unlike the professionals who keep maximizing their rewards.To minimize the risk, you should ensure that you do not risk more than 2% on every trade you execute. This limits the rate at which you lose money in case you execute a trade which ends up going against your judgement. To add on this, always trade with a stop loss, This is a predetermined amount which in case is lost will not destabilize your account hence you are comfortable when making a decision to execute a trade position and can easily recover the amount with execution of your other winning trades.


Forex currencies trading is the major form of trading in Forex which is way much more preferred by traders than trading in futures. It majorly involves pairing of two different currencies and the profits are obtained by executing trade positions with regard to the constant changes in the rates of exchange between the two currencies.Trading is done spot on and when a currency weakens, it is sold off to make profits and when it strengthens it is bought.Pairing a strong currency and a weak one is the best way to trade because they are highly volatile in their rates of exchange creating numerous opportunities to gain the rewards.Even though reward opportunities are not easily predictable, the risky opportunities can be predetermined by studying the different factors which affect the market directions.Political conditions and atmospheres,economic factors and market psychology tend to highly influence the rate of exchange and strength of any particular currency.


Different economic factors affect the exchange rate which is the pivotal aspect of Forex trading. These are; economic conditions given by various economic reports and indicators as well as governments and central banks economic policies.Government monetary and fiscal policies are projected and represented by interest rates levels.Other economic factors are the trends and levels of inflation; with high inflation making the concerned currency to lose value as the inflation deflates the purchasing power of that particular currency. Although that is the case, at times the value of the currency may strengthen in rising inflation conditions with speculations and hopes that the central bank will raise interest rates in the short-term to neutralize the rise in inflation.Increment in the productivity of an economy and growth in the economic and health sectors also lead to the strengthening of the currency making it to exchange at a higher rate in comparison to its trade partners.


Psychology of Trading


The perceptions of traders and the psychology of the market tend to influence Forex trading in certain ways too; economic numbers often have immediate short-term market trend impacts; business cycles, due to political and economic factors, lead to formation of long-term market trends.Flight-to-quality strengthens the "safe haven' currencies in relation to their trade partners resulting in a dynamic market due to variant exchange rates.A market truism"buy the rumor,sell the fact" also affects the exchange rate when the currency market prices represent the sentiment of a certain action before it occurs, and after the much anticipated event occurs the market reacts at exactly the opposite manner and direction.


Political instability leads to the weakening of a currency while political prosperity and stability strengthens the currency hence affecting the exchange rates significantly.Currencies are undoubtedly the best to trade in when Forex trading is involved.This is due to the facts that; -there is never any discrimination going between long or short trades


-there is a lot of information to base your trading strategies and decisions on


-you can use liquidity of up to $20 million to trade 24 hours a day


-it is impossible to lose more capital than you first invested in


-You are free to trade in any style


-Lot sizes and leverage can be customized hence you may be as aggressive or as conservative as you wish


-you are able to collect the interests you make on your trades on daily and even hourly basis.


All these facts and information undoubtedly make Forex trading the most lucrative market in the world.As long as you have the right strategies for money and risk management, you can gain profits any hour of any day in the week.This clearly is a great investment opportunity.