Forex Trading School?. An Introduction to Disciplined Trading with High Risk
a Forex trading school?:
***Series provided by Tom Cleveland, guest columnist representing Forex Traders***
It is near impossible these days to go anywhere on the Internet without getting bombarded by ads that proclaim the popularity of currency trading, but most retail investors do not have a clue when it comes to understanding or explaining this investment genre to their friends or family. Many look for a forex trading school to no avail.
Foreign exchange, or “forex” for short, has grown enormously in the past decade, a natural outgrowth of the era of globalization and the creative efforts by several forex brokers in the business.
The forex market is actually the largest and most liquid of our financial markets, trading over $4 trillion per day in volume primarily to support the activities of international banks, corporations, and the investment community.
The market opens Sunday afternoon, EST, in New Zealand and continues non-stop, 24 hours a day, until closing Friday afternoon, EST, in New York. More than half of the transactions, the “Interbank” market, are between major global banks, while the balance relates to commercial needs and speculation.
For the newcomer, the best advice at the outset is to read as much about the topic as possible, sort of like doing your own forex trading school.
There are many websites and articles that will answer basic questions, and, as with any other profession, forex trading has a jargon all its own that must be committed to memory and understood. The first fact to acknowledge is that forex trading has a high-risk profile. Specialized training and hours practicing on free “demo” systems are a basic necessity before any real money should be placed on an active position.
Forex online trading is all about speculating and managing risk. There are a few long-term investment strategies, but, typically, you do not “buy-and-hold” as with stocks. You “buy” a position in a currency pair, either going long or short on the “base” currency. For example, the “EUR/USD” set of symbols stands for the Euro versus the U.S. Dollar.
If you purchased one “standard lot” (100,000 units), you would be long in Euros, the “base” currency, and short in Dollars, the “counter” currency. The following diagram depicts relative market shares of major trading pairs:
Forex brokers enable access to the retail portion of this market and provide trading software and real time quotes for your use. There is a “Bid/Ask” spread that generally compensates the broker, and the foreign exchange rate represents the market’s comparative assessment of the two economies of the two associated countries.
Any economic data, the “fundamentals”, will drive market activity that can be volatile at times when traders disagree about their interpretations of important news events. This volatility is what creates opportunity for speculative trading. Buying low and selling high is also the way to make money in this investment vehicle.
Technical analysis is the favored “tool” for trading currencies on a consistent basis. The process involves pricing pattern recognition and the interpretation of various signals from technical indicators to guide your market entries and exits.
As your experience grows, you will begin to recognize potential trade “set-ups” that have a higher probability for success, but this process is not intended to be “perfect”.
The market can be fickle, but these tools are designed to give you an “edge” over time. The reality is that you will have many losing trades, but if you stop your losers early and allow your winners to run, then the possibility of consistent “net” positive gains can work in your favor if you stick to your “step-by-step” trading plan.
This brief introduction will continue with three more articles, the next focusing on fundamental and forex technical analysis (click below to learn more). Both approaches form the foundation of any forex trading school. Stay tuned for more!
2) Go to forex technical analysis from forex trading school
***Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.***
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