What is Forex Trading?

Everyone takes part in Forex trading because we all exchange currencies for one reason or another

Forex trading is simply put, the exchanging of two currencies for one another.

 

Any situation where two currencies are exchanged is basically a Forex transaction and part of the worldwide Forex market. Now, of course, that is the definition in its most basic form and that’s not what we usually mean when we refer to Forex trading.

 

Normally, Forex trading refers to the day to day speculative trading of currencies on the decentralized foreign exchange market for the purpose of earning profits. Even more specifically, the term Forex trading is used in regards to the online, retail trading of currencies by ordinary individuals.

 

The Foreign exchange market is the global marketplace where currencies are traded between banks, corporations, other financial institutions and individual investors. It’s more commonly known by the acronyms Forex or Fx.

 

With the technological advancements in computers and electronic devices in the late 1990s and early 2000s, Forex trading became widely available to almost anyone and currencies can now be traded and exchanged easily from every corner of the globe.

Forex trading offers unique opportunities

Forex trading offers the ability to profit from any market move, regardless of whether prices are rising or falling. In Forex trading going long and going short are two identical things, because when we buy a currency pair we are actually buying one of the two currencies and selling the other one at the same time. Having the option to profit in good and bad times is an advantage and it makes Forex trading a very attractive investment option.

 

Forex trading also offers the opportunity to open and close positions 24 hours per day, Monday to Friday. The flexibility to trade at any time during the day and night makes Forex trading suitable for individuals from all corners of the world. Everyone can trade at a time that fits their time zone and their lifestyle instead of waiting for the market to open at a specific time.

 

Forex trading comes with super-low trading costs mainly because the Forex market is the largest and most liquid financial market in the world. Traders’ profits are automatically bigger when all their costs of doing business are lower.

 

The highest leverage is also offered only in the Forex market. When used wisely and cautiously, leverage can boost profits by a huge margin. Available leverage for Forex usually ranges from 50:1 to 500:1 and sometimes even greater. It simply means that a trader with $1,000 in his account has the ability to manage and trade with $50,000 on a 50:1 leverage and $0.5 million on a 500:1 leverage! Any profits are therefore boosted severalfold, however, the same is true for losses as well.

 

To learn about the dangers of leverage make sure to also check out the section on risk.

Forex trading as a source of income

Most people who trade Forex are in it to make profits and most often with the ultimate goal to trade for a living. With a sufficient starting investment and a good trading strategy, an investor can earn enough on a monthly basis to live on that profit.

 

Now, what does trading for a living mean in a broader sense?

 

For starters, if you find Forex trading a satisfying experience. it can be an exceptional job or business to have. Among many, the main reasons why are the potential to earn big profits and the freedom that comes from working remotely.

 

To trade Forex, all you need is a computer and a connection to the internet. Nowadays even a tablet or a smartphone will do just fine. And, of course, your skills to trade the Forex market are of crucial importance as well.

 

But that’s about it, really. No matter whether you are in New York, on the Bahamas, in the Sahara Desert or the North Pole. If you have an internet connection and a device to open and close trades you can make money with Forex trading.

 

A lot of people are drawn in by the freedom and the high potential for profit that Forex trading offers as not many other jobs do so.

Forex trading for excitement and fun

It might be surprising or shocking, but some people are in Forex trading for the fun of it – like in gambling.

 

There is the potential to make huge gains if you risk a lot, so quite a lot of people get thrilled by the idea of making huge profits quickly even at the expense of losing everything.

 

This is of course not the way to run Forex trading as a source of income, but if gambling gets you thrilled and you are fine with throwing money at the market for fun then sure go ahead and try to bet against the big money.

 

It’s important to note that gambling and Forex trading are two different things. While in gambling the odds are always stacked against your favor in Forex trading there are tools and analyses that can be used to get the probabilities on your side.

 

Scalping and day trading are considered an exciting way to trade Forex and usually, adrenaline seekers will choose those instead of longer-term trading strategies. There are reliable methods to profitably scalp and day-trade the Forex market so for anybody looking to get excitement from trading it’s better to try to master these strategies than purely to gamble with the market.

Forex trading for prestige

Having a prestigious sounding job is what motivates some individuals, and Forex trading can be that job.

 

The fact that most regular people don’t even know that such a thing as Forex trading exists or that currencies can be traded online, makes it compelling enough for some to feel important among their friends or in social gatherings.

Telling your friends or a group of people you’ve just met that you are trading currencies as your job makes you sound important, or so it does for some people. There are individuals who are definitely in Forex trading because it makes them feel important, especially if large sums of money are involved.

 

Although in today’s world everyone can open an account and trade Forex with a few hundred dollars, there are traders that invest tens and hundreds of thousands. Of course that those people will feel important when they say they are trading the Forex market for a living!

Automated Forex trading – A way to make an automated income!

A lot of professional and home Forex traders are using automated trading systems to generate profits for them. These so-called robots are pre-programmed trading systems that open and close trades based on a set of factors that comprise a mechanical trading system. Instead of a human to do it, since it’s mechanical, the system can be executed perfectly by a machine instead.

 

The use of automated systems is on a steady rise, especially for extreme short-term trading. The market can move very rapidly during volatile hours and a computer program can make much better use of those situations than a human trader ever could.

 

Those who have cracked the code and discovered a profitable robot can basically make money while they sleep because the automated software will trade for them on its own. However, most trading robots don’t last for long periods of time and they will usually have inconsistent periods of profitability and unprofitability making difficult to rely on them completely.

 

The fact is, finding or building a profitable trading robot is more difficult than it may sound at first. The unpredictable and complex nature of the Forex market makes it extremely hard for any computer to automatically beat the odds consistently in the long. It usually takes occasional human intervention even for a great automated trading system to adjust for the evolving nature of the market in order to keep the robotic system on the profitable path.

Risks in Forex trading

The risks associated with Forex trading should never be underestimated because they are real and serious! Any complacency at any time by anyone who trades the Forex market will be easily punished by the market in most situations, and in some cases, it may result in the trader losing his entire investment!

 

Regulators are very strict on this matter. The first thing that every Forex broker must comply with, or anyone offering Forex services, is to put a big risk warning on their website and the client agreement. Basically, whenever you decide to trade Forex you must agree that you accept the risk of losing everything before they will let you to open an account.

 

And indeed, you should be prepared for that, even if you intend to be well-disciplined and run it as a serious business. Aside from the usual risks that come with trading financial markets, in Forex there is an additional peril – leverage.

 

Leveraged trading is much riskier compared to unleveraged investment options. For starters, there is the risk of losing more than the initial investment which of course can not happen without leverage.

Leverage works for you when you are right as much as it works against you when you are wrong. It’s really a very serious double edged sword! It can be used correctly to steadily grow one’s investment over time, but it must be done so carefully. On the other hand, any careless large leveraged bets are destined to be punished sooner rather than later.

 

Before you can make money with Forex trading it’s very important to spend enough time to understand all the risks that are involved and also what protective steps and measures you can take to lower the risks when you are trading with leverage. Forex trading is a highly-leveraged financial product and that should make us that much more careful when trading it.

Key to succeed in Forex trading

Knowledge and skills are certainly important in order to be profitable in Forex trading. Although there are a lot of services that will offer trading signals with which you can basically trade without knowing anything about the market, it still helps if you at least understand the basics of how Forex trading works and why certain things happen the way they do. Building the sufficient knowledge and skills takes the longest to achieve of all the pillars needed to succeed in Forex. Luckily being an expert is not required.

 

Discipline is also a huge thing. Emotions have no place in a successful Forex trading plan and over the long run, rigid discipline is bound to bring success. Traders must have a trading plan if they are determined to be profitable and it must be traded in a highly disciplined manner.

 

To tie it all together, full-time Forex trading will require a balanced lifestyle which should include regular periods of breaks from the charts. Trading psychology is a very important part of the success puzzle and taking the time to relax can play a huge part. Trading under stress is unlikely to prove successful or profitable as it usually leads to making irrational and emotional decisions.

Is Forex trading for you?

Many diverse personalities can succeed in Forex trading and even raise it to a level of a consistent source of income. Basically, there is a way for pretty much any personality type to make in Forex.

 

However, the endeavors ought to be bumpy. Some get it sooner than others but still, it’s no easy task.

 

Whether Forex trading is for you or not will depend on a lot of factors when it comes to trading it yourself.

Usually, like in any business or professional field, making money is not enough for someone to be motivated to stick with it for years. In fact, there are many easier ways to make a lot of money so not everyone will find Forex trading to be his or her cup of tea.

 

However, Forex trading does not necessarily have to be something that you will do for years. For instance, the Forex market offers many short-term opportunities and there are many ways for people who don’t understand it to make money.

 

Doing it yourself is the hard way, but it’s not necessarily the best way. Aside from signal providing and trade recommendation services, you can even have other traders, professionals trade your account and make money for you.

 

At the end, we can say that we are all part of the global Forex market whether we want it or not. So, for anyone interested in investing and growing their capital, the Forex market is definitely an option they should consider and there will certainly be a way for them to profit in one way or another.