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Currency Trading Information Channel |
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Currency Trading Information Channel |
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FOREX 101: Make Money with Currency TradingFor those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency. FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers. Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies. How FOREX Works Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading. Marginal Trading Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500. EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.) When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account. Investment Strategies: Technical Analysis and Fundamental Analysis The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before. A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality. Make Money with Currency Trading on FOREX FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments. Rich McIver is a contributing writer for The Forex Blog: Currency Trading News ( http://www.forexblog.org ).
 MORE RESOURCES updated Wed. February / 05 / 2025Kickstart North American FX trading day with a technical look at EURUSD, USDJPY & GBPUSD - ForexLive EUR/USD Pulls Back Ahead of December High FOREX.com US Russia adds Nigeria, Tunisia, and Ethiopia in currency trading list Business Insider Africa Integral Provides FX Trading Tech to Access Bank in African Push Finance Magnates Stock market today: Asia shares trade mixed as investors weigh impact of US-China tariffs FOX 31 Denver What is Forex? FXCM How Currency Trading Works Investopedia Exclusive: MetaTrader Fee Bill Arrives with a 25% Increase Finance Magnates EUR/USD Analysis Today 05/02: Recovery Stalls (Chart) DailyForex.com VFTradings Review 2025 Investing.com Exclusive: Trump's meme coin made nearly $100 million in trading fees, as small traders lost money Reuters Research: 2024 Overall Situation and Regulatory Trends of Virtual Currency Crimes in China ChainCatcher Stocks rapidly cut steep earlier losses as Trump pauses Mexico tariffs, Dow down just 150 points: Live updates NBC Connecticut Gold Analysis Today 05/02: Reaching All-Time High (Chart) DailyForex.com 6 Most Popular Currencies for Trading Investopedia FxSpotStream Reports Near-Record Trading Volume in Early 2025 Finance Magnates USD/MXN Forecast Today 05/02: Stable (Video) DailyForex.com Aussie, New Zealand dollars get respite ahead of China's reopen The Economic Times BTC/USD Forecast Today 05/02: Holds Near $100K (Chart) DailyForex.com 3 Reasons the Mexican Peso Is So Liquid Investopedia Forex Trading: Comprehensive Guide for Beginners and Experts Business Insider Forex Trading for Beginners NerdWallet AUD/USD Forex Signal Today 05/02: Continues to Rally (Video) DailyForex.com MT5 Brokers Gain Access to STICPAY’s E-Wallet and Payment Services Finance Magnates Currency Pairs: What They Are and How They Work Investopedia USD/CAD Forecast Today 05/02: USD Falls Against CAD (Video) DailyForex.com EUR/USD, USD/JPY, U.S. Dollar Price Action Setups FOREX.com US EUR/USD Forecast Today 05/02: Relief Rally (Video) DailyForex.com What is Forex? FXCM GBP/USD Forecast Today 05/02: Look for Higher Levels (Video) DailyForex.com Research: Overall situation and regulation trends of virtual currency crimes in China in 2024 Binance Top 5 Books for Beginner Forex Traders Investopedia Russia expands its currency trading list to 40 countries, adding Nigeria, Tunisia and Ethiopia The North Africa Post 8 Forex Trading Tips Investopedia How Leverage Works in the Forex Market Investopedia When Foreign Exchange Intervention Can Best Help Countries Navigate Shocks International Monetary Fund BYD resorts to forex trading strategy to counter yuan’s volatility South China Morning Post 5 Forex Careers for Financial Professionals Investopedia EUR/USD Analysis Today 04/02: Further Losses Expected -Chart DailyForex.com Forex Trading Online | Forex Currency Trading CMC Markets How to Trade Forex on News Releases Investopedia Forex Currency Pairs FXCM 15 Banks and Credit Unions That Exchange Foreign Currencies Business Insider Euro: forex turnover 2001-2022 Statista GBP/USD Forex Signal Today 03/02: Drops Amid Tariffs (Chart) DailyForex.com EUR/USD Analysis Today 03/02: Renewed USD Strength (Chart) DailyForex.com Dollar Dominance in the International Reserve System: An Update International Monetary Fund What Is the USD/JPY Currency Pair? Investopedia Best Forex Brokers: Top Choices For Currency Trading Bankrate.com What Is an ECN Broker? Investopedia Russia adds Tunisia to currency trading list African Manager EN Kickstart the FX trading day for Jan 29, w/ a technical look at the 3 major currency pairs ForexLive Mexico & Canada Pause Tariffs, USD Falls DailyForex.com
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