Forex

A Beginners Guide to Forex Trading

Often we hear the phrases “Forex trading or trading in Forex,” yet not many persons out there understand the meaning of these terms. Since we live in a global economy, there is a pressing need for us to trade globally and therefore countries establish mutual grounds to create and enhance successful trading.

What is Forex Trading?  

Forex trading is actually trading in foreign currencies. The word Forex is short for foreign exchange; and so Forex trading takes place in different currencies around the world. To facilitate economic growth in a nation, most countries change their money to invest in tourism, commerce and a variety of other lucrative ventures.

Usually investment and commercial banks trade currencies as a service to their clients. However, since technology boom, traders have begun to trade currencies using the internet and this practice is becoming more popular for business people who may not want to wait in line at the bank. The internet is a great way to help traders and online there a number of FX trading companies that one can use as well as learn new ideas. To find FX trading companies online please do a search, preferable using Google search engine.

Ways in which Forex trading can help traders

As an hedge: Companies conducting business in other countries stand a great risk of losing value in their currency because of dollar fluctuations in the market. During buying and selling of goods and services, currencies change hands and so to facilitate easy transactions a decided currency has to be used. Established foreign exchange markets have to decide on a way to fix rates so that future transactions can still take place. Therefore, exchange markets have to hedge rates so that traders can do business buying and selling currencies. To buy or sell currencies in the futures market, traders must decide to engage in the swap or forward markets if they are to accomplish their goal. Once traders decide which market is most suitable, the bank will do their part by settling on a rate and thus causing each trader to diminish the risk of his or her company.

For speculation purpose: Since countries often change in their supply and demand factors like trade flows, tourism, interest rates, geo political risk and economic trends, traders often take advantage of these changes by buying or selling a currency in the event that the same currency bought or sold will produce a profit.

As an asset: One way by which traders who are trading in Forex currencies can realize a profit is by earning interest on their money when they are trading. They can either buy currency at a lower price and sell it back at a higher amount or sell currencies at a higher price than they bought them. This type of trading is looked at as “gaining value in the rate of exchange.”

Are there any risks involved in Forex trading?

Some Forex traders see it a problem to trust the decision of the interbank market because of unregulated problems carried out by them in the past. The interbank market is a mixture of many banks conducting trading business globally. Traders in each bank must determine the type of credit risk they want to undertake in order to both serve their clients and make a profit for the bank. To help banks to keep proper records as well as to protect themselves, the banks depend on an internal auditing system. In addition, banks follow strict regulations laid down in the industry to help them stay on the right tract concerning their clients.

Since trillions of dollars must pass through the banks during regular trading, it is impossible for a single bank to influence the trading process. Since Forex trading depends heavily on demand and supply, in order to influence the price mechanism there has to be a concentration of a group of banks to bring this about.

Leaders in the industry are working together to establish an Electronic Communication Network (ECN) so that pricing can become more clear to all involved. This move will allow traders in the retail market to take advantage of competitive pricing just like one using a Nordstrom promo code to get better rates at buying goods and services.

Making money in FX trading is almost like using a Nordstrom coupon to get cheaper goods and services at one’s disposal. All it takes for a trader to make money in Forex is to buy at a lower cost and sell higher.

To minimize a trader’s risk, he or she is better off doing business through a Forex bank rather than through a broker. The reason for this is that banks must adhere to certain regulations placed down by the industry they are doing business in, while on the other hand rules that a Forex broker must follow are not so stringent. Take for example some Forex brokers who re-quote prices to customers in the hope of making bigger commissions. In addition, there are also brokers who practice unethical methods by trading against their own clients.

Though Forex trading might seem a challenge at first, beginner traders can still grasp the art of it and eventually become successful traders. The sky can be the limit when trading and all it takes is a bit of determination and patience to get the job done well.