Forex Trading

Forex Trading


Forex trading is the trading of currencies of different countries against each other. The buying of the US dollar against the Euro is an example of forex trading. Such trading is typically done through a broker. You have the liberty to choose any foreign currency which in your opinion has the potential to rise in value over a period of time. Forex literally means foreign exchange.Forex Trading

Trading in forex markets gives the investor some unique advantages unlike other tradings tools. Since the market is spread through out the world, and some market or the other is always open in certain time zones, trading goes on uninterrupted. It begins when the markets open in Australia on Sunday evenings and closes when the markets close in New York on Friday.

Forex markets offer high levels of liquidity. Large amounts of money can be traded and profits booked even with minimal price movement. It is one of the instruments that offers leverage to the trader. This means the trader can trade with much more money than what is available in their account. For example if you were to trade at a 50:1 leverage, you can buy currencies worth $ 50 for every single dollar available in your account.

Another advantage is what is known as the spread. In currency trading the cost of transactions are  incorporated into the trading price. It reflects in the difference between the buying and  selling price. The profit potential from the difference in prices is huge because there is always some movement in the currency markets. A true reader of the trends of the market can hold for long if they feel that the currency pair is going to rise appreciably. Similarly, if the chances are that a pair of currency is going to fall or decrease in value, one can sell short.

One needs to be aware of the pitfalls of the currency markets before investing in them. The forex markets are decentralized markets and transactions are usually conducted by the traders involved. The markets or its movement are not controlled by any exchanges. In the absence of any regulatory body, the market is vulnerable to manipulations by unscrupulous brokers.

Another disadvantage with this trade, especially in retail trading is that the retail broker has access to data regarding all customer orders. This data can be used to manipulate the prices and retail broker pockets the difference as their own profit. This, many a times can result in losses to a group of investors, without them knowing that they have been taken for a ride.

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