DIY FOREX
FOREX is the buying and selling of currency exchange rate contracts on a global market. These currencies are open to individual traders that can DIY (do it yourself) and trade profitably. It is easy to lose capital quickly in this market due to the high level of borrowing. Therefore, it is imperative for new investors to be careful and invest with caution.
Other People Are Reading
-
Resources for Learning about FOREX
-
Before trading FOREX, you should learn as much as possible. FOREX trading is done in currency pairs such as the U.S. Dollar to Euro and Japanese Yen to Great Britain's Pound. Traders bet on the direction that the exchange rate of two currencies will go. Because the daily movements of exchange rates are small, investors use four decimal places on the price and very high borrowing in order to generate adequate returns. Popular resources include BabyPips.com and Forexlive.com to further learn the basics of currency trading.
Advantages and Risks of the FOREX Market
-
The FOREX market is unique from other financial markets for two main reasons. Firstly, there is tremendous liquidity, at about $3.5 trillion traded per day. That means that any trader, no matter how large, can easily enter and exit any investment. The second difference is that the market allows great borrowing ability. In the U.S., traders can obtain 50 times their deposit on an investment. This leads to the main advantage and risk of FOREX. Due to increased borrowing ability, traders can rapidly amplify gains or losses.
-
FOREX Trading Using Technical Analysis
-
Most daily FOREX traders use technical analysis to predict the price movement of the exchange rates. This means that they use charts and statistics to determine how to invest. One popular method is the moving average. A 200-day moving average would look at the average closing price of the previous 200 days and come to a value. Traders generally bet that the current daily price will trend towards the 200-day price. The same equation can be done with different time periods.
FOREX Trading Using Fundamental Analysis
-
Long-term FOREX traders also use fundamental analysis to determine price movements. They base their predictions on the economic output of countries, exports, inflation and interest rates of the central bank. Traders parse the words of central bankers very carefully to determine their long-term intentions. If a central bank raises the nation's interest rate, the currency can provide more income to its owners and is therefore predicted to rise.
-
References
Resources
- Photo Credit information and money image by Vladimir Melnik from Fotolia.com
