Many people don’t know about the largest traded market in the world. Currently, over 1.2 trillion dollars is traded on a daily basis in the forex market. Forex or the foreign exchange marketplace was a marketplace that only large traders could play in and until simply recently provides become obtainable to smaller sized traders.
For those of you that don’t know, here is an example of how the forex market works. If one were to take a vacation to Europe from the United States, you would have to exchange your US dollars into the Euros. When you came back to the United States, you would then have to exchange your Euros back to US dollars. During the time you were on vacation market news may have caused the US dollar to strengthen against the Euro. Therefore, you can get more cash when exchanging Euros back to US dollars.
The popularity of Forex Market
What makes the forex arena so popular is the leverage one can use when trading in this market. Most brokers offer a 100:1 leverage. Typically a trader needs 100,000 US dollars or we say 1:1 leverage (trading cash). However, with 100:1 leverage, a currency trader is only required to deposit 1/100th of the amount needed, 1,000 US dollars. Some broker agents give as much as 400:1 leverage.
Forex Market for Beginners
Learning how to trade forex and using the accessible leverage, it can be extremely feasible to make great cash. However, at the same time, it’s very possible to lose a lot of money. Approximately 95% of forex traders lose when they decide to play in the forex market. The reasons that will impact on your trading success are possibly the psychology, discipline, greed, and fear.
When looking at the forex market, the price is constantly changing every second. Forex investors measure the cost fluctuation in pips also known as the minimum fluctuation or smallest increase in price movement. One pip could end up being $1, $5, $50, or $100, whatever you decide to risk on each trade.
Using excellent cash management with a very well thought program can certainly change into gains in the forex industry. Learning to cut your losses and let your winners run is the key to success. A simple money management system to follow is to always look to win 3 times the amount you plan to lose. Yes, you will lose and it’s important to accept losses when trading. For example, if a stop-loss is certainly placed by you to 10 pips, you need to earn 30 pips. If a stop-loss is certainly established by you to 20 pips, you need to look to win 60 pips then. This way you only have to be right 33% of the time to be profitable in this market.