Exactly What is Forex Trading &
How Do I Make Money Trading FX?
. . . Forex is the largest financial market in the world and trades around the clock 24X7. For those of you who actively trade (or desire to learn how to trade) the financial and forex futures markets, there are a lot of other things outside the markets you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a significant impact on what happens in the other financial markets, including forex, currencies, options and stocks.
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Currencies are traded in pairs, such as US dollar/Japanese yen (USD/JPY) or Euro/US dollar (EUR/USD), or trade the US Dollar using currency futures dollar indexes, such as the CMEdollar/INDEX (TM) and other currency and financial markets at futures exchanges such as the London Commodity Exchange in the U.K., for example.
The FX interbank sm/fx market is a global network of the world's banks with no centralized location for trading. Much of the business is conducted over the-phone or electronically bank-to-bank. The SMFX Forex trading market is a 24-hour-per-day market during the FX business week.
The long trading day starts in Asia, extends over to Europe and then into the U.S. daytime trading hours. Currencies are traded around the world 24X7 from Monday morning (Sunday afternoon Chicago/New York time) in New Zealand/Asia to close of the trading week on Friday afternoon in Chicago and the New York Commodity Exchange.
Another good forex trading and forex market research tool is Forex Trading Guide.
Forex trading market traders are active in the FX markets, as they are attracted to the opportunities that volatile and changing market conditions create. A multitude of economic forces impact the world's currencies. Some of the forces at work include interest rate differentials, domestic money supply growth, comparative rates of inflation, central bank intervention and political stability.
In times of global uncertainty, some currencies may benefit from real or perceived "flight-to-safety" status. Or, if one country's economic outlook is perceived as strong by market forces, its currency may be firmer than another country's currency, where economic or political conditions are viewed with caution.
FX traders include governments, corporations and fund managers doing business with foreign countries, that need to exchange one currency for another, and speculators who seek to profit from price movements in the markets.
The highly liquid and volatile currency markets offer opportunities for speculators every day. Most speculators tend to focus on the so-called "majors," which are the most actively traded currencies and include the U.S. dollar, the euro, the Japanese yen, the British pound, the Swiss franc, the Australian dollar and the Canadian dollar.
Spot FX transactions are usually based on currency rates quoted for 2-day settlement (U.S. dollar versus Canadian dollar is traded for one-day settlement), in order to transfer currency among the counter parties on the spot or value date. On the over-the-counter (OTC) market, FX traders also determine a forward exchange rate, such as for 30, 60 or 90 days in the future. A forward FX agreement specifies a currency exchange rate used for delivery at the stated time, or value date, in the future.
An exchange rate transaction is termed a cross-rate when the home country currency is not a party in the trade. For example, for a trader in the U.S., a cross rate would be euro/yen, or the euro against the Japanese yen.
Why Trade Forex
The FX markets are open 24X7 during the FX business week.
Individuals looking to profit from market movements can act any time of the day or night during the FX trading week to take advantage of changing market conditions. CME® offers electronic access to its entire range of FX futures, virtually 24X7 during the FX trading week. The extended access throughout the day was made possible with the introduction of "side-by-side" electronic trading with floor trading, occurring in CME forex futures trading pits.
There is a new FX futures market known as the Forex 500 which has great profit potential for smforex traders. Trading FX-markets offers good diversification to Forex market traders and fx day-trading.
In today's equity market environment, diversification is a critical factor in individual portfolio management and trader success. FX Futures can offer valuable market risk diversification for an investment portfolio that has trading market risk.
Exchange rates march to their own beat. On a historical basis, changes in exchange rates have had very low correlations with price movements in stock market values and interest rates. This lack of any systematic relationship can be exploited to lower portfolio risk and generate positive returns when other financial markets may be depressed.
When a trader initiates a position in a currency, it is either a bullish or bearish outlook versus other currencies. If the outlook is bullish, a trader can profit by purchasing that currency against other foreign currencies. However, if an outlook is bearish, a trader can profit by selling that currency against other currencies.
The Parker FX Index*, a benchmark which measures the returns of global currency managers, reveals healthy returns over the last three years. The Parker FX Index revealed gains of 3.24 percent over a 3 month time period, a 7.99 percent gain over the 12 months, a 12.63 percent gain over two years and a 20.8 percent gain over three years. Past performance in a particular financial instrument or index is not necessarily indicative of future results. There is a substantial risk of loss in trading futures on any type of investment product.
FX markets are deep and liquid, offering traders the opportunity to efficiently enter the market. CME FX futures over cash market products have produced an active trading environment through which customers collectively place trades worth up to U.S. $32.1 billion (CME single-day volume record). The success of FX futures has created a robust trading environment.
As the worlds largest exchange for trading FX futures, CME has a wide network of traders who trade via connected futures brokerage firms. CME FX enjoys automated pricing support via electronic links to some of the world's leading financial institutions. These institutions supply the exchange with consistent liquidity and aggressive dealing spreads. When participating in the largest financial market in the world, the ability to execute trades regardless of position magnitude is critical. CME FX Forex markets offer needed market liquidity and required pricing via transparent, publicly available FX prices. - written by CME
The Advantages of Trading the FOREX market are:
- The largest number of traders and volumes of transactions
- Superior liquidity and speed of the market: transactions are conducted within a few seconds based on online price quotes
- The forex market trades 24 hours a day, every working days
- A trader can open a position for any period of time he wants
- No fees, except for the difference between buying and selling prices
- An opportunity to get a bigger profit that the invested sum
- Qualified work in the FOREX market can become your main professional activity
- You can make deals any time you like
The Foreign Exchange market ("Forex"/"FX") is the the largest money-market in the world. Forex is where currencies are traded in pairs such as Euro/US Dollar (EUR/USD) and one currency is bought and another is sold at same time.
The 24 hour Forex Trading financial markets starts the day in Sydney and move around the world as the business day begins for each financial center, first to Tokyo, London, and New York. Investors can respond to economic, social and political events events as happen.
If you want to make money in the business of online forex trading you better have a well thought out business strategy and approach. Don't make that most common mistake and think this is all about finding a system to enter and exit trades. You will lose your shirt. My approach to trading is discretionary and like most successful traders I have started to implement it more mechanically. You cannot change this order of things around.
You first need to trust a trading system you understand the basics of. Since their inception, the advantages You will only trust the system after it turned real profits over an extended period of time. Then you can mechanize such a system. However, a mechanical trading system should not change the fundamentals of the system.
Most of the trading done in the FX Forex 500 futures market is for profit by traders and by floor-traders (also known as locals). Roughly 5% of the turnover for the trading day is from companies and governments that buy or sell products/services in another country, or they need to convert profits made into their domestic currency.
The FX market is similar to over the counter (OTC) markets since business is done over the phone or by electronic trading network.
Much of the trading done (the majors) is liquid and best for speculators and includes US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
The trader skills required to trade effectively on the Forex can be acquired. Patterns and technical applications traded on Forex are understandable and clear.
A forex trader or investor wanting to learn to trade forex can greatly benefit from a detailed, well-developed FX trading system which instructs the FX trader how to understand the logic of forex-trading, identify and benefit from currency market trends, react to international events affecting world-wide currencies, decrease trading-risk and also protect your open trade positions with protective stops and help to establish valid price target levels to trade forex futures successfully.
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