Criteria for Trading on FOREX
Forex, or foreign exchange, refers to the international market where currencies, such as the dollar, euro, yen, and others exchange hands. Unlike the stock market, Forex is open 24-hours a day, five days a week. It is the biggest market in the world, where trillions of dollars are traded every day. It is also a very attractive market to many investors due to low transaction costs and large potential gains, even for those with relatively small trading accounts.
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Equipment
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Forex is primarily an electronic exchange, so transactions mostly take place online. In order to trade Forex it is necessary to have a computer with high-speed Internet. Most Forex trading systems require a computer that has enough memory and processing speed to manage their software. Most computers five years old or less should be sufficient.
Forex Account
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To buy and sell currency on the foreign exchange it is necessary to have a Forex trading account. There are a wealth of online Forex brokers available and accounts can be opened with deposits as little as $50. It is a good idea to search for brokerages that have good reputations for customer service and that have been around for a while as there are many fly-by-night brokerages offering services that may not be trustworthy.
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Forex Software
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In order to evaluate various currency combinations available to be bought and sold in the Forex markets it is necessary to have a good charting program installed on your computer. Many Forex brokers supply charting software as part of the trading platform they provide for their clients. For those who find their broker's software insufficient, more robust charting and analysis software is available for sale online.
Margin
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An advantage the Forex markets offer over the stock markets is the very liberal leverage options available to investors. Leverage, or margin, refers to money you can borrow from your broker in order to buy a larger size position in a stock, or in this case, a currency. Typically, stock brokers allow for up to 50 percent margin. This means that for every dollar you have in your trading account, you can buy $1.50 in stock. Forex, on the other hand, offers leverage as high as 50 to 1 or even 400 to 1. This means that for every dollar in your trading account, you can control $50 to $400 worth of currency.
Warning
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The idea of controlling a large amount of assets for a small deposit can be exciting. However, using leverage also means that just a small move against your position can incur a very large loss. Investors who buy stock that goes down may only lose a small percentage of their investment capital, depending on how far the stock falls. With Forex, if you are leveraged 50 to 1, a small percentage move against you can potentially cause you to lose your entire investment.
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References
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