Foreign Exchange Trading|

The modern approach to forex currency trading is different to the olden approach to the trade in a number of ways.

For one, the modern approach to forex currency trading sees the trade as a mass undertaking, a ‘free for all’ undertaking, as it were, which is in sharp contrast to the situation in the olden approach to forex currency trading when the trade was largely the preserve of the rich and the sophisticated. Many barriers that previously hindered the entry of smaller players into the forex trade have effectively been removed, examples of this being the knowledge barrier (which has been removed by easy availability of free or cheap forex education online), the legal barrier (which has been removed by the liberalization of foreign currency holding laws in many countries) – among others. The automation of the forex trade has also gone a long way in making the mechanics of forex trading easy enough for almost anyone to handle. Trading through on these automated forex trading platforms can get as easy as just clicking on a button here and typing in figure there – something anyone who knows how to use a computer can surely do. Now compare this with the situation in the classic approach to forex exchange where trading involved calling the people who might require forex currencies for their transactions, making friends with them, marketing yourself to them and then trying to sell (or buy) actual currencies – in the form of notes and coins – to them. The logistics of going to all these great lengths for the (seemingly) paltry margins that forex trade offers would have seemed like too much work for small scale traders, and in those days, only the big sharks who could leverage on huge volumes could somehow survive the trade.

Secondly, the modern approach to forex currency trading differs from the traditional approach to the trade in that it takes a global view of the trade, rather than a local view of the same as was previously the case. In the old days, a forex trader was largely limited to thinking in terms of buying forex currency and trading it vis a vis his country’s currency, but today’s trader might not even get to do anything with his country’s currency, unless of course that currency happens to be a lucrative one. The globalization of the forex currency trade has been achieved through the power of the Internet.

The Internet has actually opened up the global forex market to an extent that a forex trader operating from India can be trading in American and European currencies exclusively, to a level where such an Indian trader only gets to handle Indian rupees when reloading his account or when withdrawing profits from his account. This is a sharp contrast to what would have been the case a few years back, when such a forex trader would have been limited to just comparing the movements between the Indian rupee and the other currencies, as the forex trade was very much a ‘notes and coins’ and local affair then.

It is difficult to put into words the fast paced excitement that lies ahead for would be forex traders. Globally, the forex markets account for over $3 trillion in daily volume. While trading in forex was once the preserve of the super-wealthy and the banks, it is increasingly becoming popular with the average investor.

Advances in technology, and in particular, the internet, mean that individuals can trade on forex markets from the comfort of their homes. Technology aside, successful trading in forex still requires some knowledge on the part of the investors. The forex markets to the novice will appear different, totally alien and with a totally different language. Some people are too intimidated to even begin down the road to becoming successful forex traders and investors.

Despite these fears, the knowledge can be acquired readily, and easily for anyone willing to take the plunge. A few ways of going about it exist, and are suited to forex traders with different levels of experience.

Internet – The internet has an whole plethora of articles on forex trading. This is particularly so for total novices. Articles are available totally free of charge, on every forex trading topic imaginable. The diligent researcher can find information on everything from the history of the forex markets to the most complicated rocket-science-black-box forex trading models. Again, the price of most of this is FREE, so there really is no excuse for not doing a bit of research.

Books – In the past the books you found on forex markets seemed aimed at people with mathematics degrees. Full of theories and equations. There was actually little practical information to be found in these books. Because banks were the only institutions trading in forex, it was assumed that you learned the mechanics on the job, once you were working for one.

Now, the increase in the number of small investors in the forex markets has seen a similar increase in the number of books aimed at individuals. More than just wax lyrical about the theory, these books now provide valuable and practical tips on the forex markets. Everything from evaluating and choosing investment strategies, to more advanced material is covered. As the topic has become more popular, increasing numbers of libraries are stocking these books, so you do not even have to buy them.

Forex trading courses – Along with the articles and books, there are a lot of courses on forex markets and trading now available for the average investor. Prices range from FREE to six figures. There is something in there for everyone. The advent of sites such as youtube means that in some cases, even video material from other courses is available to anyone with a computer and an internet connection. Those who prefer structured learning, and having their hands held all the way should head for these.

Demo accounts – Last, but by no means least, is the increasing numbers of forex brokerage firms offering demo accounts. Forex demo accounts allow investors the ability to use real systems, trading on real forex market data in realtime, without risking any money. So, having familiarised oneself with the theory, this is the best way of actually getting some trading experience under your belt, risk free. Getting one of these accounts is as easy as applying online via a firm’s website, and in most cases, the accounts are free.

Clearly, as the above shows, there is a wide variety of sources for learning how to trade in forex markets, with a lot of it being available totally free of charge. Log on, explore and learn, and start trading forex profitably.

Increasingly, investors are turning to the forex markets to try and deliver better returns than are possible on the stock or commodity markets. The forest market is huge, accounting for over $3 trillion in daily volumes. Improvements in technology, and in communications tools such as the internet has brought the opportunity to trade forex down to the retail investors. These improvements have also levelled the playing field with institutional investors. Evidence of this, is the tiny spreads found on the forex markets.

With this in mind, it is useful for the novice forex investor to pick the appropriate trading strategy to suit them. While there are similarities between stock market investing, and forex market trading, there are differences. This article will begin to break down those differences by highlighting the different types of trades that influence the forex markets, technical, fundamental, carry and arbitrage.

Technical traders make use of a range of indicators, all designed to show what a particular currency pair is expected to do. These indicators employed tend to be short term predictors. Most people will associate technical traders with the rigorous studies of currency charts. This view, while true in most cases, is rather simplistic. The number of indicators is wider, and more complex.

On the other end of the scale, are the fundamental traders. These traders tend to have trading horizons that are more long term. While less quantitative than the technical traders, the fundamental traders too have a huge arsenal of indicators they employ to arrive at their forecasts and trade. These can be as simple as weather patterns across the globe, or as arcane as the probability that a dictator will get overthrown. Forecasts on economic growth, global demand, and inflation are also used by fundamental forex traders.

Somewhere in the middle lies the carry traders. Carry traders are in effect interest rate speculators. They tend to be found trading in currency pairs that have a narrow historical trading band. The carry trader effectively borrows (sells) in one currency, and invests (buys) another currency whose economy is offering higher interest rates. Their gamble is that the higher interest in the second currency will more than offset any losses due to a movement in the currency prices. There are several methods for participating in the carry trade, including buying EFTs and trading directly using retail accounts.

The fourth, is the arbitrage traders. These traders attempt to discover tiny differences in currency pairs that trade in different markets. So if the GBP/USD pair is trading at 1.35 in one market and trading at 1.4 in another market, the arbitrage traders will buy it in the first market, and simultaneously sell it in the second. This trade is not limited to just two pairs. It can involve 3 or 4 currency pairs.

Arbitrage trade, while risk free, does then require huge computing resources to identify profit opportunities. It is therefore traditionally the preserve of banks with access to these vast computers. As you learn to trade on the forex markets, you would thus be best served by only looking at the first three trading strategies.