Jumat, 15 Februari 2008

What exactly is Forex Trading?

by Leo Dimilo

Why forex tradingis a great alternative to gamblers AND day traders

So, you want to trade forex but have no clue where to begin?

If this is you, there is no time like the present to stake your claim to what is possibly the most lucrative business market out there. Fortunes are made and lost quickly and this business isn't for the faint of heart.

However, there is literally nothing legitimate out there that matches the high yield possibilities of the forex market. In fact, up until 30 years ago, only the ultra rich and corporations could trade.

So, what is it and how do you do it?

The primary reason why I even got into it was because this market in particular was very much like another hobby I had- gambling. You see, basically the forex market uses currency pairs to trade. Basically, you pick one of the two and decide (usually through careful chart analysis and trends) which one you think is going to rise or fall.

That is the easy answer. Of course, it is more complicated than that but the most successful forex traders totally understand human psychology. And if you understand human behavior and have a stomach strong as steel, then forex trading may be for you.

Simply put, what makes forex trading so lucrative is its ability to leverage huge amounts of currency with very little money. Of course, this could also be a bad thing since the higher the margin, the more chances you have at losing your money.

To use an example, let's say I want to take a trip to Canada. I have $2,000 USD. Canada's currency rate give $1.20 for every dollar I give. What happens when I exchange it? I would have more money to spend in Canada.

Now let's say that I have had my fun and now it is time to come home. I exchange my canadian dollars for US dollars but this time, the Canadian dollar has shrunk. Instead of me losing .20 per dollar I exchange, I lose .25 per dollar. This, in essence, is how the forex market works.

The forex unit is measured in PIPs which is much smaller than a penny. Actually, it is 1/100th of a cent. So, in other words, you rather than trading that $1.10, you would be trading something like 1.1004. See that last number? That is one pip.

And typically, this number will move up and down on any given day no matter what the currency pair. So, how on earth are you supposed to make money if you are trading one pip, or 1/100th of a cent?

Well, the forex trader actually trades in lots. And they trade a ton of pips with huge margins. In other words, if you were leveraging 100:1 (which is typical), then you could carry $100,000 of currency with just $1,000. Now do you see the power of it?

If you want to start trading, I would challenge you to get a training account first. There is a lot to learn and the best thing to do first is to get one of these accounts so you can "test the waters".

Forex trading is fun. I don't trade professionally but have managed to pull in enough to make it worth my while. I suggest forex trading to anyone who is looking to an alternative to day trading.

About the Author

Leo Dimilo has been earning a living online through various streams for 5 years now. forex trading is a profitable hobby for him.

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