As foreign exchange trading is far and away the most active and largest trading market in existance major participants include commercial banks, corporations conducting international business, hedge funds, government central banks, international travelers, and speculators who hope to benefit from the markets volatility and trending nature.
Foreign exchange, or forex as it is generally called, is a worldwide electronic marketplace and is traded 24 hours a day six days a week. Remember that with time differences around the world it will be Saturday in areas of the world even though it is still Friday in other regions. And it will be noon in the same place and midnight in another. This alone makes for some interesting challenges in trading.
Actor Bill Nighy is known for his roles in romantic comedies such as Love Actually, rather than for his fiscal expertise. So it is tempting to view the open letter by Nighy to bank bosses this week calling on them to pay a ‘Robin Hood Tax’ as a quixotic thespian gesture. But, under the more sober guise of the Tobin tax ? after the Nobel laureate James Tobin who came up with the idea in the 1970s ? Nighy’s notion has …
The volume of daily trading far surpasses that of other markets, including the stock markets of the world. Forex is a big boys market. It’s wise to keep that in mind if you wanna be a participant.
Forex Zero Sum Conundrum
Forex trading puts one into a zero sum game with a few of the brightest and most talented traders in the world. The traders that work for banks may not be taking care of bank customers orders but they still need to be fast thinking and market savvy to handle their accounts well.
A trader who’s working for a hedge firm is probably involved in pure speculation. That is the trader’s trying to take money from other market players, the more the better. Forex trading is a zero sum game, as stated earlier. One traders winnings are other traders losses. Poker is a good illustration of a zero sum game.
Until Internet trading became possible it was rare for the small independent trader to trade forex. For one thing the price of the required data feeds, computers, computer hardware, and software programs was out of range for the average trader.
Only fifteen years ago a top notch trading set up could easily cost you five or six thousand dollars a month in data feed and equipment costs. Not many private traders were trading large enough sums of money to justify that sort of operating expense. Forex trading historically was a big players and institutional game.
The Internet and advancements in computer technology have changed all of that. It is now possible, even easy, for the small speculator to be in a position to trade from his/her home office and ask the use of sophisticated live quote and trade execution services and forex charting services.
There are a large number of online trading firms that cater to individual speculators who offer the formerly very expensive data feed and other services free when you open an account. From five or six thousand a month to free within fifteen years or so is fairly amazing.
So should you trade forex? Well, remember that you’ll be competing against the best and the brightest. There can be sudden rapid changes of price levels in forex markets and you need to remain alert whenever you have open positions running.
You also need to have trading funds that are truly set aside for speculative trading. Trading forex is a risky enterprise so you need to be darn certain that if you lose your allocated trading money your lifestyle won’t be affected.
Trading forex is a real challenge. The challenge is as much psycological as anything else. The greed and fear factor is multiplied in forex trading as you have access to a great deal more leverage in your trading account than if you were trading stocks. A lot more.
There are online forex firms that will enable you to trade at a 100 to one leverage factor and more. That is for every dollar you’ve got in your account you can trade one hundred dollars in forex.
It’s not really the price movements that makes forex risky, on any given day the price ranges in percentage terms are normally no more serious than if you were trading stocks. It’s the leverage factor and the inability of many private forex traders to properly control it that makes trading forex risky.
In forex you’re the one who choses your leverage factor. Be sure to start out through a modest amount of leverage, say five to one, not anything that is offered. This is the most important factor in controling risk.
So again, should you trade forex? If you have spec trading capital, a large degree of discipline, and are ready to do your homework before getting starting forex may just be the ticket for a profitable venture.
To be successful you’ve got to have the discipline to not always be found in the market. You must take your entry points with care. Like a great poker player you’ll probably fold your hand and not be found in the game about 85 percent of the time. This proves to be difficult to do as they wish the action and excitment of an open position, for many people.
For those individuals who’ve or can develop the neccesary skill sets trading forex can lead to large profits within short time periods. This is the real attraction of trading forex. A few good trades can multiply your capital several times within a year or less.
If you want to give forex a go do your homework, start small, use reasonable stop loss orders to protect your capital from large single losses, and trade with a reputable online trading firm.
In starting out make sure that you trade only with the main trend. If you make that your rule for opening any position and control your leverage factor you’ll have a good chance of making winning trades.