Forex Trading

Welcome to our Forex trading mini website. If you want to learn about Forex trading, then you have come to the right website. Here we will discuss what Forex trading is, we will look at the advantages to Forex trading, we will provide the most current news about Forex trading, and we provide a Forex trading chat room. Here you will also find a social network for the Forex trader. This site should help you make that important decision in terms of whether Forex trading is right for you.

You can also increase your knowledge about this highly lucrative form of trading by going to our Forex Trading Book Store. Here you will find a large assortment of books about currency trading. As a mater of fact, if you decide to seriously pursue Forex trading, it is essential to build your knowledge base. Therefore we encourage you to browse our book store and purchase those books which received good customer reviews. To perform Forex trading, you will need a currency trading knowledge base and reference books.

What is Forex trading? Forex trading is foreign exchange trading. Also called currency trading. In Forex trading, currencies are traded around the world. The Forex market is by far the biggest market in the world. Volume of trades per day is 100 times that of the New York stock exchange, with trades averaging more then 1.5 trillion dollars per day.

Forex Trading - Understanding Forex Quotes

Lets take a look at some of the technical aspects of Forex trading, and we will then follow that with a conceptual discussion. The instrument, or product in currency trading is the currency pair. Each product traded is a currency pair. This makes sense because really the only way you can know the value of a currency is to compare it some other currency. Common currency pairs are as follows:

EUR/USD: Euro

GBP/USD: Pound

USD/CAD: Canadian dollar

USD/JPY: Yen

USD/CHF: Swiss franc

AUD/USD: Aussie

It should be noted that 85% of currency trading takes place with these pairs of currency.

The first currency of the pair is the base currency. This currency is always expressed as 1. For example, a quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen. This means 1 US dollar can buy 120.01 Japanese yen. If the quote for USD/JPY goes from 120.1 to 128.1, this means the value of the US dollar has increased because you can now buy more yen with a US dollar.

But what about EUR/USD, GBP/USD, and AUD/USD currency pairs. As always, the first currency of the pair is 1. In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.

A cross currency is simply a currency pair that does not involve the US dollar. Always remember that if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Forex Trading - Concepts

Lets look at the basic concepts involved in this type of trading.

Foreign exchange trading is simply buying one currency with another currency. If the value of the currency that you bought goes up, you can then sell that currency and make some money.
Currencies around the world are always changing in value. There are currently 180 currencies around the world.

The Forex trader is one who is knowledgeable in those factors which have an affect on the value of that currency for that particular country. The Forex trader is always looking for currencies which have decreased in value and are expected to increase in value. In this sense, the Forex trader is like a stock market trader. While the stock market trader is looking for companies where the stock in the company is expected to increase in value, the Forex trader follows the same principle but is looking for currencies which are expected to increase in value. What are some common factors which have an effect on the currency value for a particular country?

First, the currency value is determined by the purchasers of the currency, and these purchasers are primarily travelers, governments and Forex traders. But the purchasers need to determine what the fair market value is for a currency. The fair market value is the price that the buyer and seller agree upon. It is not the economist who determines the value of a currency, but rather simple supply and demand of that currency determines it’s value. Just like supply and demand determines the price of oil, supply and demand determines the value of currency. When looking at the value of a currency, it is always in relative terms because you are comparing it to the value of another countries currency.

The Forex trader needs to perform trend analysis. He or she needs to know if a currency is trending upward or downward in value. To know these trends is the key to successful Forex trading.

So what are the factors which come into play when determining the fair market value of a currency.

Forex Trading - Factors Which Have an Affect on Currency Value

• Political Situation in That Country
  To what degree of law and order exists in that country. Is the political situation very unstable. How much governmental bribery and corruption takes place in that country. The type of government that is in place, and what relationship do they have with the United States, UK, China and Russia. If a country in general is very messy politically, this can lower the value of their currency.
• Economy of That Country
  What is the job and unemployment situation in that country, and to what degree does inflation exist within that country? Is the country high tech or mostly farming or agriculture? Does the country have a growing economy? To what degree does poverty exist within that country? All of these factors play a roll in determining the robustness of the economy of that country.
• Printing of Currency
  If a country is printing an unusually large amount of currency, more then what they normal print, this can lower the value of the currency. Again supply and demand comes into play here. If there is a lot of currency and little demand for it, it’s value will drop. By the same token, if the amount of currency available is low, and there is a high demand for it, it’s value will go up.
• Demographical Make Up of the Population
  If the country consists of a large young population who is open to change, this has a positive affect on the value of their currency. As the work force of a country increases in size, then the economy of that country can grow. This also has a positive affect on the value of their currency.
• How National Leaders Appear
  How a national leader comes across to the rest of the world is very important. Do they seem tricky or untrustworthy, or do they appear to have a solid character, integrity, and a high degree of moral standards. This has to do with not only political leaders, but any prominent individual within the society who is presented to the world through world media sources. Any world known celebrity can play the same role as a political leader in terms of the perception people develop about that particular country.
• How do People Around the World Perceive That Country
  How a country is perceived from outside is very important. News and media play an important role here. Also, the more secretive a country is, and therefore the less which is known about a country, generally speaking the lower the value of their currency.
• Countries Natural Resources
  How much of a natural resource or resources exist in that country, and do they have the technology and infrastructure to remove those natural resources. A case in point. Many of the middle eastern countries have massive oil reserves. Saudi Arabia is such a country. Because of the world demand for oil, this has a positive affect on the value of Saudi Arabia’s currency.
• Extent of Natural Disasters in That Country
  Has the country had a major earthquake or hurricane which has a deleterious affect on their economy. This can cause the market value of a currency to drop, which provides a buying opportunity for the Forex trader.
• How Solitary or Open is the Country
  Is a country starting to open it’s doors to outsiders, and therefore attract business from outside. Or are they more closed. China is a another good case in point. China is becoming more and more open and as a result is attracting companies from around the world to tap into the vast market of China. This has a positive affect on the value of the Chinese currency.
• Is the Country at War and for How Long
  A long term war can have a deleterious affect on the currency for a country. A long term war can drain the economy of a country. The net result is a drop in currency value.
• Degree to Which Population is Educated
  Does the country consists of a highly technical work force. To what degree of Internet connectivity exists within the country. A highly educated work force usually means a robust economy which has a positive affect on the currency of that country.
• Terms of Trade
  If a country makes more money from their exporting of goods, this rising revenue from it’s exports can increase the value of it’s currency.

These are just some of the parameters that a Forex trader needs to be concerned with. But indeed, those listed here are some of the important ones.

Why would a Forex trader even be concerned about these parameters? A Forex trader is concerned about these parameters because they all have an affect on the market value of the currency for that country. A Forex trader will look at trends and perform a trend analysis to determine if one or more of these factors will have an affect on the currency of that country in the future. A Forex trader performs speculative trading the same way a stock broker performs speculative trading, with both hoping the value of the currency or the value of the stock, will increase.

A Forex trader not only needs to know the factors which affect a countries currency, they also need to understand the dynamics of these factors and if new factors are developing for that particular country. New factors can appear and old factors can disappear. Which factors will appear and disappear is speculation, and hence the term speculative trading.

Understanding the complexity of these factors is the type of knowledge your Forex broker should know, but for an individual who does not have the time needed to do this type of research, all you really need to know is whether or not the value of a particular currency, against another currency, displays an increasing trend or a decreasing trend. If the value trend is increasing you buy, and if the trend is decreasing you sell.

Forex Trading - Advantages

• Forex trading is free of controls and it can not be manipulated.
• Superior liquidity. It is the largest liquid financial market in the world.
• Trading can take place at any time. No closing or opening time to trade with Forex trading.
• A very small amount is needed to start Forex trading. As little as $250 is needed by some Forex traders.
• Can trade on small margins. Usually a foreign exchange trading with a 1% margin is available. A margin of 1.0% means you can trade up to USD $1,000,000 even though you only have $10,000 in your account.
• Volatile markets offering profit opportunities.
• No commission or transaction fees.

Forex Trading - Disadvantages

• Forex trading can be very risky. If you do not know what you are doing, you could lose a very large amount of money. In Forex you are operating big sums of money, and it’s always possible that a trade will turn against you.

Forex Trading - Be Careful of Scams

In recent years, their has been an increase in interest by the general public in terms of Forex trading. Along with this increase interest there has also been a rise in Forex trading scams. The Commodity Futures Trading Commission (CFTC) has the authority to investigate and take legal action to close down various unregulated firms offering or selling foreign currency contracts to the general public. The Division of Trading and Markets (now Division of Clearing and Intermediary Oversight, or DCIO) issued an advisory in 2007 concerning foreign currency trading by retail customers. A basic summary of this document can be found at Foreign Currency Trading - Fraud Awareness and Prevention. Make sure your Forex broker’s firm meets the basic requirements as spelled out in the summation of this document, in particular, the basic registration requirement. This should decrease the probability that a scam is taking place.

Forex Trading - Conclusion

If you want to make money from the buying and selling of foreign currency, the prudent investor will create an understanding of what Forex trading is all about. Here we have tried to provide some understanding from a conceptual perspective, and we looked at some advantages and a disadvantge to Forex trading. We encourage those who want to build their knowledge further, to refer to our list of resources located on the lower left navigation bar.

Because Forex trading can carry a high risk, it may not be for every one, but enormous gains can be realized and many find that Forex trading offers more advantages over stock market trading. The value of a countries currency is dependent on many factors. By understanding a countries currency value factors, and what factors are expected to exist and not exist in that country, can lead to successful investing in the Forex trading arena.