FOREX Training for Beginners
The foreign exchange market, often called "FX" or "forex," is an auction-based entity like the stock market. In forex, traders speculate on the values of international currencies. It is one of the four major trading vehicles in the financial industry, along with stocks, futures and bonds. Trading forex requires the same diligence and patience as any other instrument. Certain characteristics about forex make it more attractive to some traders, which has led to the widespread popularity of this market.
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Popularity
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Forex trading is not restricted by the same federal laws that regulate stock trading. Day trading, in particular, is not permitted for stocks on any account less than $25,000 in size. However, forex trading has no restriction. Forex brokers often open accounts for as little as $500. This has led to a large influx of new traders trying the forex market for the first time. Thus, hundreds of forex brokers have entered the business to service this demand. Additionally, an entire industry of forex-related educational services is available to train those seeking more information on the techniques of trading these vehicles.
Warning
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Due to the large number of participants in the forex industry, many of whom are novices, there are many "trading systems" for sale that promise immediate profits for those who do not know better. Trading any financial market can be an overwhelming challenge, and there are no get-rich-quick techniques. It is highly recommended that anyone serious about forex trading refrain from purchasing these expensive programs. The raw experience of trading is much more valuable. Many consider the initial losses in trading as "tuition" for the learning curve. Always carefully consider all your alternatives before blindly buying a system that promises great financial reward.
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Currencies
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In the stock market, the trading instruments consist of corporate shares. In the forex market, the instruments are "currency pairs." The value of a currency can only be quantified by its relationship to another currency. Forex traders speculate on the value of one currency against another. The U.S. dollar, for example, may rise against the Canadian dollar while simultaneously falling against the euro. When all the combinations of all the currencies of the world are created, the forex industry provides hundreds of possible currency pairs from which to trade.
Auction
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The prices of stocks, futures and bonds rise and fall based on the simple system of supply and demand. This auction mechanism also drives the forex market. Thus, all these markets share fundamental structures and patterns. Trading the forex market requires an astute understanding of how auctions take place. The first major theory formalized to explain auction markets was the "Dow Theory," developed at the turn of the 20th century. This theory defines the characteristics of a price "trend" and how to ideally profit from trending environments. No successful trader is ignorant of these fundamental market concepts. Simply stated, an investment vehicle is in a trend if it makes a cycle of higher highs and higher lows. A particularly common practice is to buy into an instrument during its decline from a new high in the hopes of it making another new high.
Order Types
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The transactions that take place in the forex market are identical to those in any other market. "Limit" orders can be placed to ensure that the transaction occurs at a specified price, but they do not guarantee that the price will be met to initiate the transaction. "Stop" orders can be placed to ensure that a transaction occurs with certainty, but they do not guarantee the price of execution. "Market" orders are instantaneous and guarantee immediate execution but at a potentially unfavorable price.
Market Hours
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A particularly attractive aspect of the forex market is that, unlike stocks, the market remains open 24 hours a day. Traders from all over the world trade the same currency pairs, thus your midnight could be mid-day elsewhere. This makes it possible to engage in forex trading at any time of your choosing. The drawback of this system is that you cannot always know when the most activity will take place. Unlike stocks, which make their greatest moves between 9:30 a.m. and 4 p.m. Eastern Time, major forex trends could occur while you are sleeping. Nonetheless, these constant market hours make it possible to try your hand at forex even while working your day job.
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References
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