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Monday, October 4, 2010

What Are The Financial Markets?

What Are The Financial Markets?

Financial markets let people buy and sell financial products. Organizations use this currency to do business in different countries. Individuals trade to profit from price fluctuations. These fluctuations happen daily. The currency value increases and decreases, sometimes within seconds, between currency pairs. Currency is not traded against a commodity such as gold. It is traded in pairs, against the value of another currency.

One currency may have several values, at one time, against other currencies. The value of a currency has nothing to do with the exchange rate at the local bank. The fluctuations are caused by supply and demand. The currencies market is the largest, in terms of quantity traded a day.


Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

The Currencies Market: Foreign Exchange Market, FX market, or Forex

The Currencies market goes by several names: Foreign Exchange Market, FX market, or Forex. There are two types of traders on the Forex market. The first group are the banks and companies that must trade to do business. They would convert their profits in one country, to another countries currency. Converting through the central bank will cost too much, so these entities trade through the Forex market. The second group are individual traders who speculate on the market and trade in the hopes of earning a market, often single traders forex trading online from home.

To the uninitiated, this second group may seem like a type of parasite. However, they are a vital element of the market that lends to the success of many currencies around the world. The value of a currency depends on many factors including the country’s economic health, interest rates, employment rates, and the amount traded.

Financial market prices fluctuate due to supply and demand. If there was not enough demand, many of the world’s currencies would be lower. This is where the individual investors come in. The UK economy is currently suffering terribly, as is the USA economy. However, individual traders who are forex trading online have speculated so much on the currencies that they have remained strong and not bottomed out, like the Canadian currency did a decade ago.

Currency values are influenced by several global factors including economic, politics, weather, war, natural disaster, even ‘gossip and rumors.' In 1971, the world markets allowed the world's currency exchange rates to fluctuate.



Low Risk Forex Start Up Strategies

There are several ways to enter the Forex trading online world without risking your capital. The most popular is a service such as gnutrade.com, or a broker’s software, which allows you to do forex trading online without using real money. Several forex trading services and software subscriptions let traders practice in the real Forex market, with real second-by-second data. The two main types are ones that let traders run months of trades within a few minutes. The second works on ‘real time’ with the markets.

Each of these systems let investors test different strategies and methodologies without using legal currency. The user can also learn how to track the news feeds and watch how the simplest news report, or editorial can impact a currency pair. It makes forex trading online safe for beginners.

Practice Makes Perfect

The reason investors need to spend a few months trading, daily, in non currency accounts is to help train the investor to Read the Markets. Traders conducting forex trading online must be able to use fundamental, technical, and quantitative analysis to control their trading decisions. There is no room for hunches or luck in the Forex markets. Some trades happen so fast that the positions have opened and closed, based on the investor’s pre-determined strategy signals. Sometimes this happens before the investor is aware of it.

The first step is to subscribe to several different Forex news feeds and read the news every day. There will be no obvious correlation between the reports and the news at first. As the weeks pass, traders will start seeing a relationship.

The second step is to pick one or two pairs, and one market. Trade the same currency, with the same strategy, at the same time every day, on the same markets, and the same currency pairs. With forex trading online it is possible to set up more than one demo account and compare the results of different trades, strategies, and entry or exit positions.

Step three is to establish entry and exit positions that will increase profits and reduce risk. This cannot be done until you feel secure in a single strategy and working between two or three currency pairs. This can take experimentation and exploration.

1. How much can I risk?

2. Do I have the nerve to trade in a volatile market?

3. Outline the logic behind entering a trade.

4. Do I have enough skill to understand whether the assumptions/logic behind a forex trade are/is correct or wrong?

Picking A Forex Broker

The choice of online forex broker or trading company can limit the risk involved. It is important to realize that there is always risk involved. Everyone expects to lose trades. Winning 30% of trades is a good average. Most entry points are wrong. The best strategy makes use of expectations. Some traders feel this is a useless concept. Learning how to trade with different expectations against two systems will reduce risk.

A trader who'd forex trading online needs to pick strategies, trades, and have an idea of their leveraging and margins before picking a broker. Some strategies will favor a forex broker who may use higher spreads, but are more lenient when a trade threatens to deplete the margin. Other forex brokers be incredibly strict on the margins, but they offer narrower spreads.


Opening a Forex Trading Online Live Account

The most important question is, “Am I ready for a live Forex account.” Many traders enter the market before they are ready. Their emotions get the better of them. Instead of focusing on educating themselves, they start to focus on the money they would have made if they’d been trading live. The ‘itch’ to start earning a profit starts to wear away their logic and common sense.

Forcing yourself to stay in training, and continue to learn, is part of the training process. Forex traders need nerves of steel. They need to hold their positions as the markets fluctuate, especially if they employ a long-term strategy.

There are several ways to determine answer the question, “Am I ready for a live Forex account.”

1. Do I have enough capital to invest safely?

2. Will my ‘exit’ positions protect my capital?

3. Have I balanced my investment-stake against the risk?

4. Can I rebuild my stake in a few months?

5. Am I winning an average, or above average level of trades?

6. Can I afford to lose my stake?

Networking With Other Forex Traders

One of the best ways to reduce to Limit The Risk is to network with other traders. Do not be drawn to the big names. Look for places where new traders discuss their frustrations, what works, and who talks about resources.

There is no such thing as risk free trading. This does not mean that the concept of forex trading online without losing the stake, and without profit is not a realistic expectation. It is all a numbers game. Learn the subtle nuances of the game, and you’ll reduce the risk, and increase the profits.


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Forex Trading in the News

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  • Forex Weekly Trading Forecast - 10.04.10Daily FX2 days ago

    DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.

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