Lately, currencies have been on a rollercoaster ride with record breaking highs and lows. The world of foreign exchange is dominating news headlines; but what does it mean, and more importantly, what do you need to know before you get on board?
First of all, it's important that you understand that trading the Foreign Exchange market involves a high degree of risk, including the risk of losing money. Any investment in foreign exchange should involve only risk capital and you should never trade with money that you cannot afford to lose. You may have noticed that the value of currencies goes up and down every day. What most people don't realize is that there is a foreign exchange market - or 'Forex' for short - where you can potentially profit from the movement of these currencies.
The best known example is George Soros who made a billion dollars in a day by trading currencies. Be aware, however, that currency trading involves significant risk and individuals can lose a substantial part of their investment.
As technologies have improved, the Forex market has become more accessible resulting in an unprecedented growth in online trading. One of the great things about trading currencies now is that you no longer have to be a big money manager to trade this market; traders and investors like you and I can trade this market. The Forex market is the largest financial market on Earth. Why is size important? Because there are so many buyers and sellers that transaction prices are kept low.
If you're wondering how trading the Forex market is different then trading stocks, here are a few major benefits. The mechanics of a trade are virtually identical to those in other markets. The only difference is that you're buying one currency and selling another at the same time.
The exchange rate represents the purchase price between the two currencies. Finally, it cannot be stressed enough that trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone.
Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose.
If you have any doubts, we recommend that you seek advice from an independent financial advisor. If the exchange rate rises, you sell the Euros back, and you cash in your profit. Please keep in mind that forex trading involves a high risk of loss.
Do you know what tools and techniques professional traders use? What is Currency Trading?More...