What Is Foreign Exchange

The foreign exchange market is a very lucrative one. Lots of money can be made easily and it can also be lost in the same manner. When you trade in the foreign exchange market you are trading world currencies, taking advantage of the differences in value, and making money when one currency’s value rises against another currency. The top six traded currencies are the United States Dollar, the Euro, the Japanese Yen, the British Pound, the Swiss Franc, the Canadian Dollar and the Australian Dollar.

The key to successful foreign exchange trading is knowledge. The more you know, the better your speculation about the market will be. When starting out you should start small so that you minimize your potential losses. As you gain understanding and confidence in the trading process, you can gradually move up to making larger trades, which will maximize your profits. You should never consider foreign exchange a get rich quick scheme. You can certainly make lots of money in a short time period, but you will have better results when you make it part of your long term investment strategy.

At first glance, the numbers and charts showing the trading patterns are confusing but you will soon be able to read the Forex quotes with relative¬† ease. A quote will contain the currency pairs that are being traded such as EUR/USD which means that you are buying Euros and selling Dollars. After the abbreviated currencies, you will find two numbers which will look something like this: EUR/USD 1.2225/1.2227. This means that you are buying one Euro for 1.2225 US dollars and your broker will later sell it for 1.2227 US dollars. The 0.0002 difference is the brokers profit on the trade since brokers don’t work on commission. While this looks like a very small amount of money, you should know that most Forex traders trade in lots of 10,000 or 100,000 and so that 0.0002 cents becomes much more.

One of the benefits of Forex trading is that you can trade on margin which means that you only need to have a small percentage of the total sum that you want to trade. If your broker gives you a margin ratio of 400:1 this means that if you have just $250 to invest, you can use 400 times that amount which is $100,000. This allows you to have higher profit margins since you are putting down so little money.

Foreign exchange is part science and part art. Sometimes you can get by with tested strategies that have worked well for years but other times you will just have to make educated guesses. There are many strategies that you can learn to hlep you become successful in the Forex market. Japanese candlestick formations will help you to see how the market is doing and are more accurate than traditional bar charts. You can use the Fibonacci retracement strategy to predict the likelihood of the market returning to its previous highs and lows. Triangle chart patterns are another useful way to check on the market. Many Forex trading software programs can automatically track these for you, but it’s well worth your time in learning these strategies so that you can make trades with full confidence. To learn everything you need to know about the Forex market be sure to visit Lucror FX today!

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