Things You Need To Know Before : how to trade foreign currency online ?

1. What is Forex Trading?

Forex is the foreign currency trading exchange market. It is also known as the FX and the Foreign Exchange Market. With more than three trillion dollars traded every day, this lucrative market trades the currencies of the world.

2. How does Forex Trading work?

Forex trading involves trading one currency against the other. An example of this would include purchase of Canadian money using the American Dollar or using the Yen to purchase a Euro. The most often traded currency pairs are: EUR/JPY, CAD/USD, EUR/USD, USD/JPY, et al.

3. Is Forex Trading risky ?

All trading is risky. The risk is tempered by the amount of money that you invest into the exchange market. However, there are many techniques and tools that a person can use to limit the risk, but even the best laid plans can cause significant risk and loss. A good way to experience the Foreign Exchange Market without the risk is to use a demo account for an extended period of time before dabbling in the real exchange market. This will allow you to see the risk without actually risking your money.

4. When is the Forex Market Open ?

The Foreign Exchange Market is one of the few markets that is actually open twenty four hours a day. The market is open all over the world and remains active the entire time. This is because there is no central trading location and all trades are conducted between two or more parties via the telephone or computer. It would definitely be useful for you to know Sydney is the first location where it begins and continues further to Tokyo, followed by London and then New York.

5. How does Forex Trading compare to stocks or mutual funds ?

There is a lot of similarity between stocks and forex. However, the only difference is that forex normally involves trading for a shorter term, in comparison to other markets. Forex traders often avert leaving their positions open even when they are not active in the market, which charges them a "Rollover Fee." Also, forex market is more vast than the stock market, so it becomes more difficult to master the trade in the latter. 

6. How long are Forex positions maintained ?

This usually depends on the preferences and strategy of the traders. If we go by the statistics, more than 80% of the forex trades last within a week. And more than 40% last for up to two days only. Usually, positions are closed by the forex traders when they have their lucrative targets in relation to that trade. Stop Loss is initiated when a trader reaches the maximum loss he/she can afford. Or, they make available a new position if the trader is interested in the allocation of their funds.

7. How often are Forex trades made ?

As there are no commissions that brokers charge when a new position is opened and since the trades are not made in a centralized location and are made between individuals, the exact numbers are impossible to determine. A recent survey put to Forex traders shows that each one of them usually changes positions around 10-20 times everyday.
Starting in the Forex Market

8. What Do I need to Start Forex Trading ?

There are no licenses or other requirements to start trading. It is possible for someone to sign onto a Forex trading site and begin with nothing but luck and some money. However, it is advisable that a person starts out by learning as much as possible about Forex strategies, the factors that can change the Forex and the most important, a reliable broker. There is a lot to be gained from the Forex Exchange Market but there is also a lot that can be lost if a person attempts to trade while not being properly prepared.

9. What is the best way to learn Forex ?

It is essential that a person researches the Forex market before attempting to engage in trading. A great way to start is to read our articles section, gain some knowledge and start off. Another way out is to engage in a simulation program. This will allow you to practice different strategies without risking any of your money.

Currencies of the Forex Market

10. How are the prices of the currencies determined ?

There are many different factors that change the price of the currency. Political stability, economic stability and ability as well as the interest rates and inflation rates are all different factors that can affect the Foreign Exchange Market. A country can change their own rate by buying out or selling some of their stocks in order to increase or decrease their standings. There is no single factor that can affect the currencies.

11. What do terms like "Bid", "Spread" and "Rollover" mean ?

There are many different terms that are used in the Foreign Exchange Market. These terms have specific definitions and uses. To find the right use and definition for a term used in the Forex, please Google for Forex Glossary online and you will have your answer.

12. How can I manage my risks in the most efficient way ?

There will always be risks when trading in the Foreign Exchange Market. The only way to prevent any loss is to not trade. When looking to limit the losses, it is important to begin by putting a stop loss on any account that is failing. It is also important to follow your strategy and know when to walk away. There are many articles that will help you to determine the best way to manage your risks efficiently.

13. Is Forex trading lucrative ?

There is always the potential to make a large amount of money on the Foreign Exchange Market. It can be very lucrative to those brokers who make it a point to follow their strategy, do their homework and research each move before making it. This is not an easy or surefire way to make money though, and there is the risk of losing big just as there is the potential to score big.

14. Is Forex an expensive habit ?

There are often no commissions and limited fees with Forex trading. This does not mean that it cannot be expensive. It is up to the investor how much money he or she is willing to invest in trading. If you feel that you are being pressured into investing more than you are comfortable with, it may be in your best interests to look into a new broker. If you feel that you are losing control of your habit and that it is becoming almost an addiction, you might want to look into counseling for gambling.

15. What is the best Forex strategy to use ?

There is no one strategy that is most likely to provide you with riches. The strategies to use change on a continual basis depending upon what other people are doing and what the governments are doing. If there was a single strategy to use, everyone would be using it and making money hand over fist. The best strategy to use is to do your research, attempt to predict what the market will do and act upon that. Know when to pull out and stick to a strategy until it has ran its completion. Changing strategies will most likely result in losses.

16. How to choose a Forex Broker ?

There are many different brokers that a person can pick between. Most of these brokers work for large corporations that specialize in trading. First check the different companies and pick a company that you are comfortable with. If you do not know of any of the companies, you can look at the reviews for the different companies and brokers to find the right broker for you. Do not be afraid to ask for references that you can speak with. It is your money, and you have the right and responsibility to verify the legitimacy of any individual who claims to want to invest it.

17. What features should I look for in a Forex broker ?

The Forex broker that you pick should be upfront and honest at all times. There will be times when he has to inform you of bad news and he should be able to do so without difficulty. He should also be very detailed oriented while not losing sight of the big picture. The Forex broker should also be easy to reach and have a high return rate. Read the reviews on the broker and the company before investing with them. This will help you to know what to look for in a broker and if the broker is trustworthy.

18. How do I know if a Forex broker is a scam ?

There are many people in the world that would rather scam you out of your money than make money on their own. When researching the broker, look for minor inconsistencies and problems with their website. Also deal with brokers from your own country rather than ones that are in other countries. Finally, ask for references to people you can talk to. Anyone can write a review and lie, but many people have a difficult time lying over the phone to someone.