What is Forex Trading, Currency Trading and Can I Profit From It?

What is Forex TradingThere is a lot of mystery surrounding Forex trading unless you are actively involved in trading the markets (and honestly, even when you are involved it can still be tricky). Given the nature of the beast, it is very difficult to know where to start writing an introduction without going into too much detail on one of many subjects that I plan to cover.

Perhaps the best thing that you can say about Forex is that it is the single largest financial market in the world. You may already know this, but are you aware of just howlarge the currency market is?

Estimates place the value of trades on the New York Stock Exchange at around $28 billion per day.

Forex trading is generally thought to be around $5.3 trillion per day. This immense volume allows for Forex to be one of the most liquid (and therefore attractive) markets in the world. In other words, serious Spondulix are traded in Forex, and currency markets 😛

And before I forget, we did a review on a very good Forex product recently, by millionaire trader Charlie Burton, which is a master at this stuff it seems, Click Here to Read it.

The real beauty of this hugely impressive financial ‘pie’ however, is the sheer number of people who are involved in Forex trading.

At the top there are banks and hedge funds, investing billions daily. There are companies looking to literally exchange currency (I will look at this later) and then there are individual traders. These are the little guys, often one man operations, who are able to make a living through this financial beast. When you see products related showing you how to be a successful trader, these are usually offered by small operators looking to increase profits on a training capacity.

What is Forex?

Let’s break it down into baby, and  easy-to-learn steps…

The term Forex literally stands for Foreign Exchange and this in turn literally describes what Forex is. It is an exchange for changing currency. That having been said, the main draw and appeal of Forex is that the prices are ever changing in real time.

This is the reason why when you go on holiday, the rate of exchange changes from one year, to the next; which can be annoying sometimes when you get less ‘bang for your buck’..

This means that a trader can come along and make money by trading based on whether or not they think a market is going to go up or down.

Trading based on the currency value is done via something called currency pairs. This looks at the value of one form of currency against another. There are a number of these currency pairs, however the main ones look at the British Pound, the Euro, the United States Dollar and the Japanese Yen.

The prices for Forex trading are typically quoted to multiple decimal places as the volume of trades mean even tiny movements can mean huge sums of money.

Whilst trading commodities isn’t something that is strictly handled through Forex, it is also hard to ignore that a lot of traders find that trading currency and commodities is an interchangeable process. Whilst there are a huge number of commodities that can be traded, the most common examples are oil, gold and silver.

This is mostly down to the fact that there are a large number of buyers and so these markets retain liquidity.

The follow video is also a good example on exactly what Forex is:

What do I need to trade on Forex?

Getting started as a Forex trader on paper is a very simple thing to do. You will need an internet connection, a decent PC, a trading platform, a broker and a (preferably sizable) balance that you have set aside for trading. That having been said, there is a huge amount of knowledge that you will need if you want to trade in a successful fashion.

This is where I feel that it is necessary to highlight the huge number of guides, books, softwre and courses that all claim to teach you how to become a Forex wizard overnight. The fact is that before you even consider trading strategies you should also consider the mental requirements.

It is not always as easy as it seems, folks 🙂

In order to trade successfully you must be disciplined, emotionally stable, not afraid to lose money and most importantly, that you can work well under pressure.

All of these traits are important as Forex trading is very much a solitary activity. You can spend a long amount of time, say, pouring over charts and looking for indicators.

Even then, there is no guarantee that a trade will raise its head and some of the more risk averse traders I know of will go a whole day without actually making a trade. This is where your discipline comes in as you have to fight the urge to start “playing” with your money.

Is Forex Trading hard?

There are very few people who are involved in trading professionally who will tell you that it is easy.

In fact, conservative estimates reckon at about 2 years of trading experience before you can expect to make a consistent profit from your actions. There is also very much a sense of keeping outsiders away, especially if you are new to Forex trading. This is evident in the terminology but it is also just a part of trading.

Of course there are plenty of guides out there that will help you and I will look at these in greater detail below. In the main though, the best way to do well with Forex trading is to try your hand at it. Keep trades as small as possible and try to look for advice on what to trade (there are plenty of forums available related to Forex where members will talk openly about their trading habits).

Over time you should begin to gain a greater understanding and start to look for your own patterns etc. Once you get to this point, then Forex trading does start to become slightly easier – or so I am told…

One thing I will say, is that Forex, unlike trading Binaries, is a viable option to generating a decent income providing you do the research, and find the right training. Binaries on the other hand need much more caution, as you can read on my Binary review here.

What does a Forex broker do?

A broker is a very necessary part of the chain when Forex trading.

They act as an intermediary between you as a purchaser and a seller. Brokers can operate from pretty much anywhere in the world and with online trading such a big thing, many don’t even have a “bricks and mortar” office.

Your broker also acts as your “bank” of sorts, with traders depositing funds so that brokers can make your trades immediately. It is worth shopping around when you are looking for a broker as there can be huge differences between them, especially when it comes to commissions and fees.

This is of particular importance as you can end up paying out quite a lot if you aren’t careful.

You will see many advertisements for Forex brokers, similar to the following:

Find a Forex Broker

When it comes to selecting your broker, research is very much the name of the game. There are some unscrupulous brokers out there also, that actually trade against their own customers! And, because you are using their software to handle the trades, there is mu8ch money to be made for the broker if they sniff out that you are new to the game, and many do take advantage of their new customers this way!

Be careful which broker you use – Some will definitely take advantage of you!

The fact is that there is so much difference from one broker  to another that it can be difficult to know exactly what you are getting yourself into. Again, this is another case where a visit to a forum dedicated to Forex is probably worthwhile. It is also worth ensuring that your broker is registered with the Financial Conduct Authority (in the UK) or equivalent agency in your country. The UK website can be found here: http://www.fca.org.uk/

Can an independent Forex trader make money?

The short answer to this is yes, but it should definitely be seen as a journey rather than a destination. I have already mentioned that it can take up to 2 years before a new trader is able to turn a semi regular profit, and that gives you an idea of just how difficult it is for a trader when starting out. It is like anything really, you must learn the ropes…

Even seasoned pros have been known to blow through their trading bank in a short space of time (one trader I read about during the research for this review of lost $250,000 in a very short space of time).

In my opinion, the thing with Forex trading is that once you are successful at it and know what you are doing, it becomes a skill for life. It also becomes a viable career path and for those who genuinely know what they are doing, it can open all kinds of opportunities.

Another reason that Forex trading should be considered about ‘the journey’ (especially when you are starting out) is that the profits aren’t necessarily as big as you may think. There are plenty of stories of people who have supposedly doubled or tripled their trading bank, and it may happen, but this is very much the minority.

In fact, if a trader can generate a 10-15% profit in a week then they should consider themselves to be doing exceptionally well.

This is where it is important to understand the importance of leverage in Forex. The main idea behind leverage is that by using specialised accounts with a broker, you can essentially trade with significantly more money. Leverage can go as high as 200:1 however you should always keep in mind that this opens you up for losses to be increased as well.

What is a pip and what is the spread?

A pip is the smallest change to the value of currency that you can get. Typically, a pip is represented in the example of being $0.0001 for a dollar currency pair. Pips are also used as a selling point for profit when it comes to Forex trading products. The fact is however, that this doesn’t always demonstrate how much has been made.

This is because the value of a pip changes from one currency pair to another.

Forex Exchange PIP

A spread has multiple definitions, however when you hear the term used, it generally refers to the difference between the bid price and the ask price. The bid price is the maximum price that buyers are willing to pay. The ask price shows the minimum price that a seller is willing to take.

The spread is important to traders as it is often representative of the liquidity of the market.

Are the Forex products I see any worth trying?

There are very different types of Forex trading products that are available on the market, all of which vary massively in quality. At the bottom of the pile you will find that there are numerous products which usually promise a quick buck. These will typically offer “trading bots” or indicators that will allegedly simply show you when to place a trade.

Fortunately, this kind of thing does seem to be somewhat on the wane and I have definitely seen less of them recently.

The next step up from these kind of things are products where users are given information on trades that a professional trader is also placing. These are typically rather expensive however because you are trading along with somebody who knows that they’re doing, but the quality is much better.

If you are going to look around at such products and consider something like this however, it is paramount that you research the Forex trader in advance!!

The final option is a training course however these are arguably as varied, if not more so than when you follow the trades of another trader. This is mostly down to how different traders will train you and the strategies that they will use.

The better quality traders will offer genuine training and whilst this can take time, it will yield the best results in the long term. It is also worth pointing out that this takes a considerable amount of effort, but effort usually equals gain!

Different Forex trading strategies?

There are more trading strategies than one can reasonably list here, however there are a small handful that are utilised more often than others.

The first of these is hedging, a method of trading in which you aim to buy in such a way that you reduce the risk of adverse price movements. In layman’s terms, this is like taking out an insurance policy of sorts on your trade.

Unfortunately, you do have to pay if you want to hedge trades as it involves making additional investments. That having been said, with the right circumstances, hedged trading can be pretty much risk free.

In the main, this is a strategy that you will see larger companies engaging in as they have the capital to do so; banks, etc.

Spread betting is another common method of Forex trading and is one that smaller traders may also partake in. Spread betting essentially involves betting on whether the price of a currency pair will be lower than the bid price or higher than the ask price.

It is a much more specialised type of trading however, and so requires a broker who is willing to engage in the practice. That having been said, there are a large number available and you shouldn’t struggle too much with this.

Forex Strategies

The final strategy and the one that is most often purveyed by product creators is called scalping. Scalping is a method of trading that involves making profit on small trades, something that makes volume key.

This is the method that you will most often see attached to trading bots and software that sends you indicators, etc. Whilst scalping can be substantially profitable, the fact is that you have to work hard and have experience in this field in order to really make it work. This is mostly down to the way that you have to trade.

Conclusion on Forex and Currency Trading

Forex trading is not easy, nor is it a quick fix. It is a difficult way to make money that can ultimately be as rewarding as it can risky.

Despite what some product marketers will tell you, there is no easy way with Forex, no shortcut to making millions. Instead the whole thing is a process and it is one that you should be willing to commit to seriously if you want to make money.

Experience from trading comes as much with losing as it does with winning. It is no coincidence that brokers and any product for sale related to Forex comes with a hefty disclaimer. What Forex trading does can however (if you are doing it correctly) is build you a viable career.

There is no reason why you can’t start out trading part time with small amounts, and be making a full time income in a few years time.

There is also the fact that Forex trading requires a certain kind of person, a certain kind of ego. You have to believe with the utmost conviction that you will be successful whilst at the same time, being prepared to lose your investments sometimes. It requires a very disciplined person to see through successful trades and this is something that almost all genuine traders will stand by.

One of the beautiful things about Forex trading is that if you do have an interest, the majority of brokers will let you trade with a demo account. This means that your first foray into Forex doesn’t have to cost you anything and it gives you a reasonable feel for what is to come. Although as mentioned earlier on, just be wary of some brokers, and make sure you check them out, on Forex forums, etc.

The fact is that Forex trading is a very niche market in a lot of respects. Anybody who says that they are getting into it purely to make quick money is likely to find that their patience will be tested to the limits with such an attitude, and when some losses start to happen, which they will at certain stages, they may not find it as easy on their mental state as they thought.

If you are willing to nurture an interest in financial markets however, then you can build a genuinely good lifestyle for yourself if you are successful. The same as anything in life. It takes dedication, application, and not an attitude that is just about ‘making quick money’, as chances are it will not be quick.

With all of this in mind, I think that for those whom Forex suits, and have done the required research, then you can do exceptionally well. It is an industry that rewards tenacity to a degree. If you find that you drift form one thing to the next then you will be very disappointed with Forex trading in the long run.

…..If this is you, and you usually flit from opportunity, to opportunity, then I would not recommend Forex, or anything. Put some effort in, and you may be surprised, but HARD WORK is needed.

Does that sound familiar? 🙂

Forex and The UK Brexit

I had just finished this Forex review when the UK have now had a referendum, and decided to leave the European Union, and this is having a HUGE impact on the Forex market, and any currency being traded world-wide, due to volatility in the whole market.

For example, 3 days ago the Euro was being sold at your local Post office at 1.28 Euros to the £. Today, 3 days later, it has dropped to 1.17 Euros to the pound. You can read more here on these UK currency issues. This is a PERFECT example of how the currency markets operate. Right now there will be people making serious money based on this volatility… sadly, it is being made at the UK’s expense 🙁

 

 

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