| What is Forex? Foreign Exchange popularly known as | | | | volatile. You will succeed trading Forex only if you |
| Forex or FX is a market for the buying and selling of | | | | appreciate this fact and inculcate it in your trading |
| different currencies and it is one of the fastest | | | | style. |
| growing avenues to making money online. | | | | As far as I am concern, the real opportunity to make |
| Transactions on the market are done through | | | | money in Forex trading lies in directional trading. Most |
| electronic means (internet and telephone) through an | | | | often than not, the market moves in a particular |
| intermediary called the Forex broker. However, major | | | | direction. A trader must be able to detect and follow |
| trading 'centers' exists in London, New York, and | | | | the markets direction or trend. This could be a |
| Tokyo. Other trading 'centers' are: Singapore, | | | | short-term trend or a long-term trend. A careful |
| Frankfurt, Geneva & Zurich, Paris and Hong | | | | study of the chart especially higher time-frame chart |
| Kong. | | | | will reveal the trend. It should be noted that a trend |
| Forex market is made up of different players: | | | | on a lower time-frame chart could be a mere |
| individual trader, institutional traders, banks, other | | | | consolidation on a higher time-frame chart. So, it is |
| financial institutions (investment firms, pension funds | | | | advisable to study the market from an holistic point |
| and hedge funds etc), and governments through their | | | | of view. |
| Central Banks. An estimated $3.5trillion worth of | | | | As much as making the trend your friend is |
| transactions are being traded daily on the market and | | | | important, so is entering and exiting the market. The |
| it is opened 24/6. Forex market is an unregulated | | | | secret of successful Forex trading is in entering the |
| market, making it accessible to everyone and easily | | | | market at the optimal point. The optimal point or |
| exited by its players. This makes it impossible to | | | | price is where the trader could trade with the |
| know the total number of players in the market at a | | | | bearest minimum risk while at the same time |
| particular time. | | | | maximising possible profit. A good trader would not |
| The history of Forex trading could be traced to the | | | | enter the market to make just some pips without |
| abandonment of the Bretton Woods Agreement in | | | | considering the risk at stake. A good Forex trader will |
| 1971, and the US Dollar would no longer be | | | | never play around with his/her capital. He would only |
| convertible into gold. This led to currencies of major | | | | trade when the risk level is very low and profit |
| industrialised nation becoming more freely, controlled | | | | margin high. I would recommend a risk-reward ratio |
| mainly by the forces of supply and demand, which | | | | of at least 1:3. |
| acted in the Foreign Exchange Market. Prices were | | | | However, it is equally important for a trader to know |
| floated daily, with volumes, speed and price volatility | | | | when the party is over and exit the market. A trader |
| all increasing throughout the 1970's, giving rise to new | | | | should have a definite target in mind when opening a |
| financial instruments, market deregulation and trade | | | | trade and this should be set in the trading platform. |
| liberalisation. In the 1980s, cross-borders capital | | | | Many a time, the market may not get to your |
| movements accelerated with the advent of | | | | target; a good trader must be able to read the |
| computers and technology, extending market | | | | charts to envisage this and close the position. I have |
| continuum through Asian, European and American | | | | seen many promising trade go bad at the end of the |
| time zones. Turnover on foreign exchange rocketed | | | | day. It is necessary for a traders to manage their |
| from about $70 billion a day in the 1980s, to more | | | | trades by using trailing stop loss to protect some of |
| than $3.5 trillion a day in 2008. | | | | the gains made. This will help you to rank in some |
| The avenue to make money on Forex market was | | | | pips if the market goes against your trade. This is |
| created since the Bretton Woods Agreement was | | | | why the use of trailing stop loss is inevitable. |
| abandoned in 1971, allowing for changes in prices of | | | | Having the right psychology is paramount in currency |
| currencies as dictated by the forces of demand and | | | | trading. You must appreciate the fact that absolute |
| supply. Making money in Forex is as simple as buying | | | | no one can influence the market. So you must |
| a currency and holding it for few minutes, hours, | | | | develop the right mind set that you have done your |
| days, weeks or months depending on your kind of | | | | own part by applying your strategy and the golden |
| trading and selling it when it has appreciated in value | | | | rule and it is left for the market to play out. No |
| or vice-versa. This simple act could fetch you more | | | | matter how good your trading strategy is, you can |
| than 100% of your capital in few minutes! But as | | | | never by right every time. There will some bad |
| simple as it sounds, it requires adherence to a golden | | | | trades. As a matter of fact, expect it - that is why |
| rule. | | | | you cannot trade without stop loss. This will help you |
| The Golden rule of trading Forex successfully is | | | | to control your emotion. The most important thing is |
| taking position in the right direction, at the right price, | | | | to develop a working trading strategy and adopt |
| with the right stop loss and the right target. Following | | | | sound money management. You will definitely make a |
| this golden rule must, however, be with precision. The | | | | success trading the foreign exchange market. |
| precision can only be achieved by formulating a | | | | In summary, forex trading is all about taking position |
| profitable equation in which risk is minimised to the | | | | in the right direction, at the right price with the right |
| bearest minimum. Whether or not money will be | | | | stop loss and target coupled with a sound money |
| made in Forex is not the issue because the market is | | | | management policy. If you can apply this principle, |
| huge and highly liquid; the real issue is how to reduce | | | | you would have joined the 5% of successful Forex |
| the risk on your trade because the market is very | | | | trader. |