Forex Currency Trading - Frequently Asked Questions

What is FOREX?

FOREX stands for the FOReign EXchange market, which is an
international financial market where currencies are traded. The
foreign exchange market began in the 1970s and is now the
largest financial market in the world, with an average daily
turnover of US$1.9 trillion. That's thirty times the amount of
daily activity on all of the US stock exchanges.

Each Forex trade involves simultaneously buying one currency
and selling another. For example, if you think that the Euro
will rise relative to the dollar, you would place a Euro/Dollar
trade. The forex system would then buy the Euro and sell an
equivalent amount of the Dollar. Then, when you want to close
your position, you would place a Dollar/Euro trade. This would
buy the Dollar and sell the Euro. If the Euro had risen against
the Dollar, you would make a profit, but if it had fallen
relative to the Dollar you would make a loss.

What currencies are traded?

Most of the world's currencies are available to trade, but the
majority of market action involves a group of major currencies,
including the US Dollar, the Euro, the Yen, the Swiss Franc and
Sterling.

Where is the Forex market located?

Unlike most financial markets around the world, Forex is not
centralized on an exchange. Instead it operates on a basis
known as the interbank market or Over the Counter (OTC). As
each Forex trade involves two reciprocal trades (buy one
currency and sell another), these are conducted electronically
with any broker who is willing to accept the trade.

Who can trade in the Forex market?

Traditionally, access to currency trading was restricted to
banking organisations, including central banks, commercial
banks and investment banks. That's the reason it operates on a
system known as the interbank market.

However, the number of non bank participants in the Forex
market, which includes multinational companies, money managers,
money brokers and private speculators, is growing rapidly. And
thanks to the relatively small amount of capital required to
open a trading account (often $500) Forex is opening up to more
and more people all the time. If you're over 18, have internet
access the enough money to open a trading account, the world of
Forex is open to you.

When is the Forex market open for trading?

As Forex doesn't exist within a traditional exchange, it's the
only 24 hour financial market in the world. Forex trading
begins every day in Sydney and then moves around the globe as
the major international financial markets in Tokyo, London and
New York open.

In other words, there are always traders somewhere in the world
who are actively trading foreign currencies. This means you can
make trades and respond to major social, economic and political
events day or night. However, there is a short rest period from
close of trading on the American financial market on Friday
until trading begins in Australia on Monday morning. However,
due to the time differences around the globe, this period only
lasts for approximately 48 hours.

What is a trading margin?

Forex trades are made in lots of $100,000. If you had to
provide that amount of money to cover your position before you
could trade, the market would once again be restricted to banks
and other institutional investors. So brokers have established
the principle of margin trading. In effect they allow people to
trade $100,000 blocks of currency if they can provide an element
of security against potential losses.

For example, they may allow people to trade on a margin of 1%
(in comparison, traditional stock brokers often require a 50%
margin). This means that they can trade $100,000 blocks,
provided their account contains at least $100,000 x 1% = $1000.
One thousand dollars will protect the broker against any
potential losses that their client makes (currency values
rarely fluctuate by more than 1% in a single day). If a
client's account is reduced by losses (i.e. reducing the
broker's security below acceptable levels), the broker will
close all trades and require an additional deposit before
further trades can be made.

Trading margin allows people to control vast amounts of
currency wiith relatively small amounts of capital (often 50,
100 or even 200 times the amount of capital that they have
invested). This can lead to massive gains, but increases the
risk of losing most or all of your investment capital.

How much does it cost?

Thanks to the trading margin offered by most Forex brokers,
it's possible to open an account and get started trading with a
relatively small amount of capital.

Forex trades are made in lots of $100,000. However, most Forexs
brokes will provide you with a leverage ratio of up to 100:1,
which means that you have the ability to control a $100,000
trade with as little as $1000 in your account. Some brokers
will provide leverage of 200:1 or even 400:1, which allows you
to start with as little as $500 or $250 in your account.

However, please remember that although greater leverage allows
you to maximize your profit potential, it also increases the
risk factor. The higher the leverage ratio, the smaller trading
fluctuation that will be required to wipe out your trading
capital. So choose the amount of leverage that you use wisely.

For new traders, it may be safer to begin with leverage of 20:1
or 50:1. This will increase the amount that you need to open an
account, but it will reduce the risk of seeing all your trading
capital disappear due to a small shift in the value of a
currency.

About The Author: For more information on Forex Trading, visit
Michael Mancini's website at
http://www.forexcurrencytradingguide.com

John V
http://urlfreeze.com/JCV/Forex/

John C. Vincent/CEO/The Opt-In Magic System
http://www.linkbrander.com/go/37009
http://lawofattractionsite.blogspot.com/