If you live in Queensland, then it’s a beer. But technically, that‘s spelt differently – XXXX. Forex is an abbreviation for Foreign Exchange. It may also be referred to as FX or the currency market.
Forex trading refers to the exchange of global, decentralised currencies, basically, the buying and selling of different currencies.
Around the world, the financial markets function on different buyers and sellers. Underpinning all of this trading is the relative value of different currencies. The forex market assists with international trade and investment by enabling the conversion of currencies.
How much you can buy, and how much you can get for currency you have bought, hangs on the exchange rate – the very same exchange rate you monitor when you’re about to embark on an overseas holiday.
The forex market is defined by some unique factors:
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It trades in huge volumes (around US$4 trillion a day) but profit margins can be low compared to other investments
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It is geographically dispersed, and so trades 24 hours a day
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It can be affected by a huge number of factors that influence exchange rates
So, while the market can be volatile, profits can, and are, made.
How do I become a forex trader?
First of all, you’ll need to educate yourself. There are many providers of education programs designed to introduce novice traders to the market.
There is also a lot of ‘self help’ out there from other traders. Some run their own blogs and websites, and some provide in depth YouTube tutorials on various topics. There are investor forums where you can seek recommendations about which programs might be the best programs for you, to start your learning.
It may be a case of exploring some of the available options before you find an education program you like. If you have friends, family or colleagues that you know trade on the foreign exchange market ask them for their suggestions.
A good forex trading course should provide you with:
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A good understanding of the basics of trading, jargon and how the transactions work. It should also explain the benefits of different software programs and tools that traders use
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The basics of good money management skill. It should also explain the psychology of forex trading and how this may affect your trading tactics. It should show you how to manage your emotions when the stakes, and the risk, increase
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The skills to read market analyses. It should cover how to avoid common mistakes, as well as providing tips for success
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A comprehensive course should provide you with the opportunity to trade under an apprenticeship with an experienced trader. This may be real-time trading, or running a demo account
Selecting a forex trader
Once you’ve done the training you need to select a forex trader.
There are many online forex traders that are vying for your business. You need to select one that has a solid reputation and a trading platform that is easy to use.
Some of the education programs are in partnership with specific traders, but there are also many that are independent, online traders. If you were trained on a specific platform as a part of your education course, this may be a good starting point.
When selecting your trader look for one that:
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Provides online help, chat services, and other benefits such as alerts, news updates and market analysis
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Provides charting and assessment tools
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Offers an online demo account that you can use to sample the service before opening an account
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Has low account opening fees and reasonable trading fees
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Has the option for automatic, pre-set trading tools to buy and sell to your specific rules
What’s the risk?
Forex trading is a high-risk investment. Currency markets fluctuate dramatically, and so will the value of your investments.
Knowing when to enter, or exit, a trade is the key to forex trading. And there are no hard and fast rules – that’s why is a high-risk investment.
One rule of thumb that many investors follow is never invest more than two per cent of your capital in any single trade. This will limit your overall exposure to any single currency or event that may impact currency values.
Those who invest in the forex markets usually develop their own system that includes reading market analyses and predictions, professional analyst recommendations and current market news. From here, they develop their own system of limits and triggers for buying or selling.
The only way to develop this system is to start trading.
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