Vi Mellin 's blog ::... no need to allow your learning curve to cost you money. 4... path to elite forex trading. Regardless...some time to review different options before deciding on...
The Forex, FX, or Foreign Exchange currency market is the worlds most liquid market in terms of global liquidity. Unlike, many equity/stock markets,commodity and bond markets, the vast majority of transactions conducted on a nearly 24 hour basis is done electronically between banks, sovereign nations, institutions and individual investors and speculators. The Forex is also unique in terms of it's overall market structure. Most markets have a central location where buying/selling of stocks, bonds and contracts are transacted. The Forex has no centralized location and thus brokers and institutions that trade are regulated by government bodies where they are located. Computers handle the bulk of the billions of transactions conducted every day. Prior to the accessibility of internet and online trading in the 1990's, the Forex was much more exclusive in participation. Usually large banks and sovereign central banks were the only entities that were able to trade. Individual investors and speculators did not have brokers that tailored to creating accounts for various currencies. There are several reasons why Forex appeals to traders and investors today. These exciting aspects of Forex trading can also be the very same hurdles that can cause a Forex trader to fail: Leverage - In recent years, a basic Forex trading account would have 50:1 leverage. A few years ago, before government regulations and laws changed the requirements for brokers, leverage was as high as 400:1. Leverage in simple terms would be how much $1 would buy you in a foreign currency after the exchange rate was calculated. So unlike buying stocks where the leverage was 1:1, the amount each dollar you trade/invest can not only be multiplied by 1, but as high as 50. This means you can make more money, with less collateral or margin required by your broker. The downside of course is you can lose more money per $1 invested/traded. Fixed Losses - Normally most brokers require a margin for you to open a trade. The equity(includes profit/loss from trades open and closed) of your account has to be greater than this value for the trade to remain open. Unlike other trading instruments, with Forex, this margin requirement is the most you would lose if the trade went against you. 24 hour accessibility - Due to the global market that is Forex, when one market closes, another one opens, so you can trade all hours of the day. Lower commissions and trade costs than equity, options and futures markets. A new Forex trader has to be mindful of all these wonderful benefits at all times. With power and flexibility, there needs to be discipline and responsibility. There also has to be an extreme respect for a market that is so dynamic. The Forex market can change from week to week, day to day, minute to minute without warning. While there are a host of other variables involved in affecting the dynamics of currency valuation, lets address the previous items listed above collectively and add some other elements that are required of a good Forex trader. The best Forex traders are able to access and analyze risks at all times. When you're leveraged at 50 to 1, an account is vulnerable to taking very large losses. One of the few variables that a trader can control in trading Forex is the amount you risk on individual trades. 2-5% of your account equity is a common amount many traders risk. So a Forex trader should offset leverage by containing the amount risked within this 2-5% parameter. This should be written in a trading plan. Like any good business plan, goals and objectives should not be violated or changed with impulsive decisions. Remember, it's not how much one can profit, but how much can one lose and whether or not probability of success justify opening the trade. Having more hours to trade, and being able to trade at a lower cost, can have negative outcomes. Temptation is very common when you have a market that is always open. Good traders have to control this urge to always have to be in trades in a 24 hour market. Forex trading teaches you many things about yourself. Specifically, how you react to losses, how you react to profits mentally and emotionally under both stressful and euphoric moments. There will be many things beyond your control, news events, politics, government interventions, and market crashes. That is the nature of most markets, but especially with Forex where you are 1 participant amongst the millions globally competing for profits, and a market that's known for substantial price movements and volatility. A great way to improve your odds of success is to know and define what type of trader you are going to be. There are a few questions you will need to be able to answer, before you invest and trade too heavily in Forex. Are you a short term or long term trader? Will you trade the market on technicals or fundamentals? The more experience you gain, the more you will be comfortable defining yourself as a trader, and whether your trading system matches your trading goals. There is always something new to learn in Forex. The best traders will have a thirst to learn. Whether it be from other experienced traders, texts, courses and educational systems. The rewards from learning to trade Forex is not just the monetary gains and profits, but the satisfaction that is gained from being able to trade the the worlds largest and most exciting market. |
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