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Foreign
Exchange Trading - High Risk and Reward by
John Eather
Defining
Forex- The definition
of foreign exchange trading is very straight forward as the trading of
one currency in exchange for another. This market is the largest,
richest and most liquid on the face of the earth. Trades are conducted
twenty-four hours a day, seven days per week, non-stop trading in other
words. An estimated US$1.5 trillion dollars is traded per day. Market
participants include banks, corporations, individuals and speculators.
Government and commercial currency conversions make up five percent of
daily volumes, the volume difference consists out of speculations and
trading.
Pro's- The pro's to foreign exchange trading are incredible including
immense liquidity, non-stop trading due to overlapping trade sessions,
traders can take advantage of market, economical and political events
by imminently trading in accordance, very low transaction cost and
margin trade opportunities.
Risk- It is very important to understand the risk involved with foreign
exchange trading. The rewards are high but the risk is just as
significant. If you plan to trade with capital you are unwilling to
loose you are going to encounter pretty big problems should the market
turn on you with the possibility of losing both initial investment and
profits. Make sure that you know all there is to know about the trade
type as there are many tricks, tips and pitfalls you can encounter
along the way, requiring immediate handling of the situation. If you
feel even the slightly uncertain- avoid trading and the market as a
whole. Take a course in foreign exchange trading to make sure that you
understand the market thoroughly before attempting trade.
Different Forex rates- Foreign exchange is usually traded on the spot
rate. This means that trades are completed on the spot rate and settled
within 2 working days. However in rare instances the positions can
remain open, rolls over and expires on the closest settlement day. The
rate at which trade occurs is known as next rate.
Quoting- Quotes refer to offer or asking price of the two currencies.
The asking price will be on the right and offer on left side when
indicated.
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