Information about Trading On the Foreign Exchange Market

Posted by admin 11/11/2013 Comments are off 1047 views

This article provides information on trading the foreign exchange market.

Foreign Exchange Market Trading Information

Foreign exchange trading was, at one point, an activity conducted when people where travelling to foreign countries.  They would exchange their home currency for the currency of the country they were visiting, and the amount they received would be based on the presenting currency exchange rate.

Nowadays, trading on the foreign exchange market refers to exchanging currencies on a financial market.  It involves a form of investment trading where individuals predict currency price movements and exchange currency pairs in the hope of making a profit.  Foreign currency trading is now conducted to make money instead of just exchanging it.

Trading on the foreign exchange market

The concept of trading on the foreign exchange market is simple – exchange on currency for another at the current market price.  However, many forex traders experience more losses than profits.  In fact, approximately 90% of traders will experience at least one account depleting loss in their trading career.

Based on this statistic, some potential traders may think the foreign exchange market a scam; this is a misconception.  Due to the volatility of the forex market, all trades present with a degree of risk.  It is due to this risk that some traders profit and others experience losses; success is measured not by the amount of profits you achieve, but rather by the amount of reduced losses.  In order to reduce losses one must be prepared for the market as it is only through preparation that one will achieve success.

New traders are advised to undergo some form of forex training before entering the forex live market.  There are numerous new traders who enter the foreign exchange market without any practical experience, and it is these individuals who face damaging losses almost immediately.  Once you have educated yourself, it is recommended you practise your skills on a demo account.  This demo or practise account will provide you with the opportunity to hone your trading abilities and develop a sound strategy before entering the live market.

Leverage on the foreign exchange market

As is mentioned, all forex trades present with a degree of risk.  One aspect of trading that raises this risk is leverage.  While leverage is very dangerous, it is also very attractive as it allows you to trade large positions with small amounts of capital. For example, if you are using a $1,000 deposit with 2:1 leverage, you would then have an amount of $2,000 with which to trade.  Many new traders utilise leverage as a means of making great profits on small accounts.  They generally make the mistake of trading on a 50:1 leverage immediately, which can lead to account depletion if the trade turns bad.

Emotions on the foreign exchange market

In addition to the risk of leverage, there is the psychological pitfall of emotional trading.  Many times an individual will face a particular trade result that can trigger a surge of overwhelming emotions.  A succession of profitable trades has led to greed, and losses have shown increased anxiety.  These heightened emotions may lead to emotional trading which is trading based on gut rather than analysis.  Although one means to gain profits with this type of trading, it only leads to more losses.  The best way to avoid emotional trading is by sticking to your trading plan.

 

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