Forex for Dummies
So you want to be a forex trader?
The forex market (foreign exchange market) is the largest financial market in the world.
Trillions upon trillions of dollars surge through the forex markets each and every day, making it the largest and most important financial market in the world.
If you are reading this article then you probably have two questions:
1. What exactly is the forex market?
2) How did I get started trading in the forex market?
The forex market centers around the exchange of currency.
For an example of how the forex market works, let’s look at a very scaled-down example that you may encounter in your everyday life:
You are currently living in the UK and are about to leave on a two week trip to Las Vegas. You need some American currency (you don’t think that Las Vegas casinos will accept pounds!) so you want down to your local bank and exchange a bunch of pounds for US dollars.
Congratulations! You have just been involved in a currency exchange.
Now, imagine the forex market as a much-expanded version of this transaction. Sovereign governments, hedge funds, corporations - they are all taking part in the very liquid forex market.
A sports team may want to purchase two years’ worth of US dollars in order to protect against currency movements.
A sovereign government may need to purchase US dollars in order to engage in the purchase of commodities.
A hedge fund may engage in a speculative trade by going long the USD against the Euro.
These are all examples of the types of transactions that take place in the forex market every single day. There is a reason why trillions of dollars worth of trades take place on the forex market every day.
During to the high volume of trade, the forex market is considered to be the most liquid market in the world.
Now, if you are thinking about getting into the forex market, then you are likely doing so to speculate on the direction of a currency against another (for instance, you think that the US Dollar is going to strengthen against the Euro, and you want to make money on that bet).
Is it possible to become rich trading in the forex markets? Absolutely. Is it possible to lose all of your money? Definitely.
When you get involved in the forex market, you will be given the opportunity to use a tremendous amount of leverage. Leverage means that you are increasing your buying power - so, even if you had just $1,000 in your account, you might decide to purchase a $100,000 forex position. Now, this obviously gives you the chance to earn a substantial amount of money over a short period of time, but it also means that you could easily bust your account just as quickly as well.
Before you start trading for real, it is always a good idea to do some “paper trading” first.
So - you still want to trade forex?
My recommended broker is Forexyard.com. Opening an account is unbelievably fast (think minutes), and you can even fund your account using a credit card.
In addition, if you want to step outside the realm of forex, then Forexyard also gives you the opportunity to trade commodities as well (Gold, Silver, Oil, etc).
There are many different forex brokers out there, so make sure that you do your research and choose wisely!
Filed under: General Knowledge