Forex Trading Is A Trade Of One Country
Forex trading is a trade of one country's currency for another at a certain exchange rate
. The exchange rate, often called a price, can be the result of supply and demand for the currency in the open market, but it can also be a fixed value set by government fiat.Forex trading may be as rudimentary as when two individuals exchange dollars for euros on the street enabling a tourist to call from a phone booth in Hungary, for example. The more sophisticated Forex trading experience is in the interbank market. The interbank market is not a single location; like the Internet it is accessible from millions of locations. Forex trading in the interbank market lies in the complex network of the world's banks.
From the beginning, Forex trading has been done in two forms over-the-counter cash trading, and currency futures and options trading in a currency exchange. The Forex trading broker operates in both markets; you as an individual investor probably are familiar only with cash trading.
Forex trading, whether over-the-counter or futures, is very exciting. The amount of leverage allowed you is what enlivens Forex trading. managed forex in futures can have a leverage ratio of 10 to 1, or more. But over-the-counter Forex trading can have leverage ratios as high as 100 to 1. Admittedly, leverage is a double-edged sword, but this huge leverage can make minor price fluctuations in Forex trading seem tremendous to the bottom line in profits and, more importantly, losses.
When companies promote Forex trading, they typically put emphasis only on the over-the-counter cash market. This is limiting. Since Forex trading exists in two forms simultaneously, the over-the-counter cash market and the futures market, small speculators actually have access to a lot of the same Forex trading capabilities as large banking institutions. This capability is something unique, not to be found in other investment opportunities.
The capability for simultaneous managed account in the two markets places you on a level with hedgers. Large speculators and investment funds trade both sides of Forex with great ease. They know there is no easy way to predict the direction of the over-the-counter Forex market, but once a direction has been set you can rely on the market movement. They are also aware that all Forex trading is a zero-sum game: if you win, someone else loses money.
Having such considerations in mind, the big players long ago realised that Forex trading requires discipline, and that disciplined Forex trading requires them to explore all of their options. This is the only route to success. Being a small speculator, you will have to be equally disciplined, if not more so. The keys to that discipline would be:
First, prepare for the losing trades. There are many small speculators who put all of their limited risk capital in one trade. Several more will add to losing trades. Some of these will actually try to fight against the market. You must try to avoid traps like these.
Second, prepare for the winning trades. In Forex or FX trading, you should not be afraid ' and should not forget' to lock in the profits from a winning trade with a futures or options Forex contract. You will want to avoid getting caught in a currency reversal and having to give back profits.
Lastly, have faith in yourself and your decision-making process. Don't wait for your sure-fire trade to prove itself and in the process miss out on all the profits by picking the top of a market.
Remember that every preventable mistake in Forex trading finds its roots in two emotions, fear and greed. Small speculators consistently react with either one of these emotions, thus setting themselves up for failure by leaving no room for discipline.
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