subject: Forex Trading – There's Always Money to be Made [print this page] Forex Trading There's Always Money to be Made
Forex, for Foreign Exchange, is a term used to describe the trading of the world's many currencies. Unlike trading on the stock market, the Forex Trading is not conducted by a central exchange, but on the "interbank" market, which is similar to an OTC (over the counter) market. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers 24 hours a day, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. A currency trade is the simultaneous buying of one currency and selling of another one. Because currencies are constantly being bought and sold for one another, there is always money to be made.
The foreign exchange market has benefits:
Huge trading volume, leading to high liquidity
Continuous operation: 24 hours a day, except weekends
The low margins of relative profit compared with other markets of fixed income
The use of leverage to enhance profit margins with respect to account size
Geographical distribution
Key things to know:
Liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value.
Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually conducted with relatively small margin deposits. A margin of 1% corresponds to a 100:1 leverage. Using this much leverage enables you to make profits very quickly. It is not recommended to maximize your leveraging; the risks can be very high.
In finance, leverage (also known as gearing) refers to the use of debt capital to supplement equity capital. Companies usually leverage to attempt to increase returns on equity capital, as it can increase the scope for gains or losses.
Electronic trading is a method of trading stocks and bonds, foreign currency, and exchange traded derivatives electronically. It uses information technology to bring together buyers and sellers through electronic media to create a virtual market place. An electronic communication network (ECN) is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies.
