Although Forex market has been for less than 50 years, the idea and practice of currency exchange has been since the creation of human beings. People simply had to exchange currencies if there could be some kind of trade between nations. The same is true today. Companies want to trade internationally and do a lot of exchange of currencies. What is interesting that most probably at those times; nobody imagined that exchange of currencies could be a very profitable business in itself. Of course, there have always been people who charged some fees for an exchange, but it has never become such a large business before the arrival of Forex market. So, means became a goal in itself. Those that come to Forex market expect to profit from changes in the value of one currency against another. You have probably heard some stories how this or that guy made millions and even billions of dollars in a matter of a few days in the Foreign Exchange market. As you may understand these and other stories inspired a lot of people to enter the market with expectation to make their living from the activity of trading currencies. I want to discuss a few points that are a must to know if you want to start trading currencies.
First and foremost you have to understand who the driving forces in the market are, so that you would not think that you can make an impact by your trades? Huge mega banks, hedge funds and investment institutions are the biggest players in the market that make prices move in one direction or another.
There is a market that is called spot market, where we have a large number of currencies that are paired. Let us say eur/aud, usd/jpy, gbp/usd and many more. Various traders have various trading strategies. Some choose to watch major pairs and then trade those, others watch only one pair, yet others might watch all possible pairs and then choose those that they think best to trade at a given moment.
Leverage is the thing that has made it possible for an average Joe to come to Forex market and expect to win a lot of money. But what is leverage? It means that your bank or your broker gives you apart from your money that you have as your deposit. This extra amount can bigger than your initial deposit up to one hundred times. It should be quite clear that if you are trading using this kind of leverage you can both easily make tremendous profits and loss.
If one expects to trade profitably risk management is something that should be key element in one’s strategy. A beginner trader should never risk more than two percent of his equity on any given trade. Leverage in this case is one’s enemy, not friend. One has to tame risk by means of stop losses.
I guess I discussed a few points that are the most important in Forex market. I would add more points in my next article. In the meantime, I would recommend visiting website Trend trading and reading: Swing trading strategies , breakout , and triangle .