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Learn Forex Trading / Currency Trading Tips
Forex
Traders: Money Management Basics
Money management in the foreign exchange currency
market requires educating yourself in a variety of financial
areas. First, a definition of the foreign exchange currency
or forex market is called for. The forex market is
simply the exchange of the currency of one country for the
currency of
another. The relative values of various currencies in the world
change on a regular basis. Factors such as the stability of
the economy of a country, the gross national product, the gross
domestic product, inflation, interest rates, and such obvious
factors as domestic security and foreign relations come into
play. For instance, if a country has an unstable government,
is expecting a military takeover, or is about to become involved
in a war, then the country’s currency may go down in relative
value compared to the currency of other countries.
There are five
major forex exchange markets in the world,
New York, London, Frankfurt, Paris, Tokyo and Zurich. Forex
trading occurs around the clock in various markets, Asian,
European, and American. With different time zones, when Asian
trading stops, European trading opens, and conversely when
European trading stops, American trading opens, and when American
trading stops, then it is time for Asian trading to begin again.
Most of the trading in the world occurs in the forex markets;
smaller markets for trade in individual countries. Simply put
forex trading is the simultaneous buying of one currency and
selling of another. Over $1.4 trillion dollars, US of forex
trading occurs daily and sometimes fortunes are made or lost
in this market. The billionaire George Soros has made most
of his money in forex trading. Successfully managing your money
in forex trading requires an understanding of the bid/ask spread.
Simply put the bid
ask spread is the difference between the price at which
something is offered for sale and the price
that it is actually purchased for. For instance, if the ask
price is 100 dollars, and the bid is 102 dollars then the difference
is two dollars, the spread. Many forex traders trade on margin.
Trading on margin is buying and selling assets that are worth
more than the money in your account. Since currency exchange
rates on any given day are usually less than two percent, forex
trading is done with a small margin. To use an example, with
a one percent margin a trader can trade up to $250,000 even
if he only has $5,000 in his account. This means the trade
has leverage of 50 to one. This amount of leverage allows a
trader to make good profits very quickly. Of course, with the
chance of high profits also comes high risk.
People who do forex trading do so because they are attracted
by 24 hour trading days, by strong liquidity – unlike stocks,
buying and selling is almost instantaneous – and the fact that
forex trading usually occurs without paying commissions.
Like many other speculative investments, a key part of money
management for the forex trader is only using money that can
be put at risk. It is wise to set aside a portion of your net
worth and make that the only money you use in forex trading.
While the chances of good profits are there, if you should
have a problem and get wiped out, you’ll only have a limited
amount of money placed at risk. Also remember that the market
is n constant motion. There are always trading opportunities.
If a currency is becoming stronger or weaker in relation to
other currencies there is always a chance for profit. For instance,
if you believe that the Euro is gong to become weak compared
to the US dollar then selling Euros is a good bet. If you believe
that the dollar is going to become weaker than the yen, or
the pound sterling, then selling dollars is wise. Staying current
on the news and current events in the countries whose currency
you hold is a smart move. Many people reach points where they
can predict currency changes based on political or economic
news in a given country. Remember though that forex trading
is speculation, so be careful when managing your funds and
only invest what you can afford to risk. # # # # # SolveYourProblem.com : 2007
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