What Is a FOREX Trader?
FOREX traders make their living by buying and selling international currencies. FOREX is short for Foreign Exchange. The FOREX market involves thousands of banks, governments and dealers in countries around the world who buy and sell currencies based on their expectations of future value. FOREX traders by a particular currency when they believe it will increase in value, and then sell it at a higher rate.
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Risk
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FOREX trading is infamous in financial circles as a high-risk activity. Because of the potential for high profits in a very short time, dealers who are unprepared or insufficiently trained frequently attempt to get rich quick in the FOREX market, often with disastrous results. The fluctuations in international currencies are dependent on a vast and extremely complicated range of factors, including everything from political events to resources discoveries to the machinations of governmental finance departments. Tolerance for high levels of risk is a necessary personality trait for successful FOREX traders.
Computers
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The introduction of computers to the trading of international currencies rewrote the rules of the FOREX market in the 1980s. Computers now run most international trades, and can be programmed to buy certain international currencies when their price drops to a certain level, and then resell them when the price increases to another predetermined level. The results of this automation is a greatly accelerated currency market in which upwards of $1 trillion per day changes hands.
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Specialization
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Because of the amount of time and work that are required to remain current with the intricacies of a currency, most FOREX traders specialize in a small number of countries and their currencies. By trading only in U.S. dollars and Japanese yen, or in Euros and Mexican pesos, a trader has a greater chance of understanding the situation of those currencies and of being able to predict their future behavior. Experience with the history of a currency and an understanding of what factors will affect its value are critical to making a profit in the FOREX market.
Market Manipulation
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Some FOREX traders work independently, while others work for large agencies, for governments or for banks. Some of these organizations are large enough that the size of their currency trades can actually affect the direction of the market. While small traders simply attempt to predict which currencies will rise and to profit off of that rise, giant traders can actually cause a rise to happen by buying and selling certain currencies in enormous quantities.
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References
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- Photo Credit Money background - Euro image by c from Fotolia.com
