Friday, November 2, 2012

Forex Trading: How it Works

By Henry Patterollid

With the growing availability of electronic trading networks, trading in the Forex market is now more accessible than ever before. Decades ago, the currency marketwas dominated by government central banks, multinational corporations, and extremely wealthy individuals. Nowadays, brokers already provide micro and mini accounts and a massive amount of leverage so that even individuals with average income can give Forex trading a try. Needless to say, trading in Forex is not without risk. For example, leverage can substantially amplify your profits, but if the market moves in a direction opposite to what you predicted, then it can lead to massive losses.

Money-making opportunities in Forex

Currencies traded in the Forex market are always priced in pairs, and consequently every trade ends up with the simultaneous purchase of one currency and selling of another. The number of currencies bought and sold around the world ensures that there is constant volatility on a day to day basis. As the prices of currencies swiftly increase and decrease relative to another, there will always be plenty of opportunities to make money.

How to start trading

Forex trading is done via a brokerage firm, and they usually provide trading platforms so that you can keep track of the market and manage the account you set up with them. Signing up for a Forex account is similar to starting an equity account. Their only difference is that with the former you are required to sign a margin agreement, which states that you are trading with borrowed money. After signing up, you just deposit money to your account, and you can start trading. There are many brokers out there, but not all of them are reliable. So, make sure you spend time searching for excellent brokers so you don't find yourself transacting with one whose goal is to scam you. One reputable Brokerage is IC markets.

Bear in mind however that risk in the currency market can never be completely eradicated. So, you should only risk money that you can afford to part with. To succeed in Forex trading, you need to develop strategies to mitigate risk and increase returns and perfect these over time.

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