Saturday, June 24, 2017

Forex Trading Online

forex trading onlineFor investors and traders, the internet has created an environment that allows anyone to participate in forex trading online. What makes this so different from other markets is the fact that currency trading, despite it’s huge global volume was only available to huge banks and international monetary funds who had the ability and capital to trade in large numbers. The little guy was precluded from participating in this market for many years. Once the internet and several other factors all came together, forex trading on-line became accessible to anyone and everyone. This created a new and exciting era for retail currency traders.

With the volatility and manipulation that can take place in other trading instruments around the world, small individual traders are coming over to the foreign exchange as their preferred market to trade. The purpose of this article is to introduce the basics to anyone first looking into this exciting, fast paced world of currency trading. We’ll take a quick look at some of the most common questions first asked by anyone looking into forex trading online for the first time.

What is Forex and Why Trade It?

Forex stands for the Foreign Exchange and has been around since 1970 when President Richard Nixon signed legislation removing the gold backed standard from the US dollar. This changed the value of the US currency from being historically backed by gold inventories, to being backed by the “full credit and ability” of the US government.

However, this market was not opened to retail traders until the 1990’s and it wasn’t until 2000 that we began to see brokers who could provide a platform for the average person to participate in forex trading online. Once these brokers began to do business, it opened up the trading of world wide currencies to anyone that had an internet connection and an account. Being the most heavily traded market in the world, the small retail trader can enjoy the tighter spreads, reduced volatility and investment opportunities that not too long ago were not available.

 

Understanding Currency Pairs

In the forex market, all currencies are traded in pairs. A currency pair is simply the simultaneous purchase of one currency and the selling of another currency. The value of each currency is determined by the exchange rate. The currency pairs value is based on the corresponding value of one currency in relation to another. In other words, the Euro may be strong when compared to one currency, but it could also be weak when compared to another one. Money is made or lost on a currency pair dependent upon the speculator’s analysis of how one currency will perform when compared to another one.

What in the world is a PIP?

A “pip” is a unit of measurement that is used to determine the value of a given currency pair. Similar in concept to the decimal or fractional increments used in a stock quote, the pip is a bit different because the pip measurement is unique to each currency pair. Understanding a pip’s value and knowing how to calculate this value are mandatory before you ever consider forex trading online. Yes, at first it will seem like you’re having to do mathematical gymnastics… and yes, you’ll also need to ask your broker to explain fractional pips and lots. But don’t worry, If I can learn it anyone can, and with a little practice you’ll have it down as well.

Forex versus Stocks

As with any tradeable instrument, there are advantages and there are disadvantages. However, the differences between trading currency pairs and stocks are worth noting, and in my opinion, prove quite easily that stocks simply cannot compete with the advantages offered in the foreign exchange.

The forex markets have tremendous liquidity which makes it easy to enter and exit the market at a fair price. Forex markets are open 24 hours a day, allowing traders from anywhere in the world to participate at the time that best suits their schedule. Information that affects the pricing of currencies is relatively limited and somewhat predictable. With stocks, the investor has so much more to study, analyze and in the end… worry about. No market is without risk, but trading currency pairs removes much of this volatility that stock traders must endure.

What’s the Next Step to Trading Forex Online?

The first step for anyone wanting to become a forex trader is really quite simple. Find a reputable, well capitalized broker that can provide you with excellent support, a large community of fellow traders, and a platform for trading a simulated account (paper trading). Commit to your education and become knowledgable in your new craft by studying and learning before committing real money trading forex online.

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