Introduction to Forex Trading
The foreign exchange (FOREX) market is the purchase or sale of a currency against sale or purchase of another. The object in Forex is to exchange one currency for another in the expectation that the price will change so that the currency you bought will increase in value compared to the one you sold. Through Forex education and training it is possible to speculate the direction of the market and receive a good return on your investment.
The major participants in the FOREX include commercial and investment banks and central banks. Other participants include corporations, hedge funds, and millions of speculation traders like you. Some of the top banks in the world such as Bank of American, Credit Suisse, and Morgan Stanley are major players when it comes to the FOREX. In order to make money within this realm, you will be competing against all of the major banks as well as individual traders.
When beginning in the FOREX, it’s important to select a reputable broker. After all, the broker is going to be the one paying you when it’s time to cash out. A broker acts as a middle man between you and the FOREX. When you place a trade in the FOREX, your position is filled by the broker and the broker sends the order off to the banks. When it’s time to be paid, your money is with the broker and they need to be able to cover your positions in the market. Most brokers offer a 3 to 5 pip spread on all the major currencies pairs, such as the ERU/USD, GBP/USD and the USD/JPY. A 3 to 5 pip spread basically means that the FOREX must move 3 to 5 pips before your trade is in profit. One pip can be worth any amount, depending on how much money you’re willing to risk per trade. There are two types of traders, fundamentalist and technical traders.
Fundamentalist study the cause of market movement, whereas technicians study the effect. Most traders identify themselves as both a technician and fundamentalist. Most fundamentalist will have knowledge of charts, indicators and chart analysis. Similarly most technicians are aware of the fundamentals. However, the problem is that the charts and fundamentals are often in conflict one another. It’s usually a wise decision to have a bit of training in both fundamentals and technical analysis. One of the most important factors in the FOREX is learning to manage your money.
Traders will experience losses in the FOREX; therefore it is essential that a trader utilizes proper money management. In many cases money management is a simple concept, yet to practice money management consistently is very challenging. Generally speaking money management is knowing when to cut your losses. For each trade, a trader should be looking to make three times the amount they plan to lose. This way a trader only has to be right 33% of the time in order to be in profit
There are two main, but at the same time confronting schools in forex analysis. They are the fundamentalists and technicians.
There is no clear answer as to which is right. Sometimes it appears that the technicians make better picks. Other times it seems the fundamentalists are making the right call. One thing is certain, when one group of analysts is wrong the other will surely emerge saying, "We told you so." So, which is right for you? There are many potential answers to that question. Three variants of popular answers are:
If you are a "long-term" Forex investor looking for companies with solid foundation, growth and income potential, the fundamentals may sway you.
If you are a "short-term" Forex investor (Forex market trader) looking for companies who are "on the verge" of being discovered, fundamentals will be useful to you.
If you are a "long-term" investor who is not as concerned about one company's basics because you will diversify to minimize risk, or you are a "short-term" investor waiting for investor sentiment to change, then technical analysis will be helpful to you.
Today, many investors use both fundamental analysis and technical analysis. The technicians can tell you about the broad market and its trends. The fundamentalists tell you whether an issue has the "basics" necessary to meet your investment objectives.
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