Trillions of dollars are exchanged on a daily basis in the Foreign Exchange Currency Market (FOREX). Governments, banks and businesses trade currencies with one another for various reasons, but all of them seek to do so in a way that is to their greatest advantage.
In the late 1990s, the currency exchange market was opened to individual investors in a process known as retail forex trading. Estimates vary, but it is thought that retail trading accounts for $50-100 billion in daily volume.
Retail traders use the Internet along with trading software and two types of forex broker to trade using margin. The term margin simply means that the trader must risk only a small percentage of the trade size in order to control a much larger block of currency. Forex brokers offer traders the ability to buy or sell currency pairs.
Using the largest currency pair in terms of daily volume, the EUR/USD, Australian brokers like Thinkforex match traders who think that the euro will increase in value compared to the dollar with traders who think the euro will decrease in value compared to the dollar.
Another type of broker is known as the market maker, which involves the brokers automatically taking the opposite side of a currency transaction to that of their customer. This may sound contradictory, as though the broker is working against the customer, but consider this example. Customer A wants to buy a currency pair, so the broker sells it to that customer. Customer B wants to sell the same currency pair, so the broker will buy it from that customer. It is the fact that some customers will want to buy and others will want to sell that makes it possible for the market to function. Without buyers and sellers, there would be no forex market.
Getting Started Trading Forex
Trading currency is a quite simple business to establish. All it takes is a computer or other Internet capable device, a broker, trading software and funds with which to speculate on future currency prices.
Learning to Trade Forex
Brokers and financial education providers offer a comprehensive set of learning resources for both new and experienced traders. Brokers do this for two reasons. One is to attract new customers. The other is to help those customers become successful so that they can continue to trade. This is because the broker earns a fee on every trade, regardless of whether or not that trade is profitable. Competition between brokers is so intense that the fee is a very small percentage of the trade, so the broker needs a lot of traders and preferably traders who will do a large volume of trades.
Training can take the form of printed books, e-books, DVDs and live or archived webinars that permit the learner to participate according to their schedule. Much of the training resources forex brokers offer is free of cost or obligation.
Third party financial educators sometimes charge for their training programs, but many offer free trials so that potential customers can determine the value prior to making any financial commitment.
Practicing Forex Trading
All forex brokers offer what are known as demo accounts. Forex trading is one of the few businesses where you get to practice before risking any money. This is the best way to learn forex math, observe what a typical day in the market is like and to practice different trading strategies to find the one or ones that are best suited to any particular individual person. It also is an exceptional opportunity to learn how to operate different trading software, so that when real trading commences, there will be no unpleasant surprises regarding what happens when certain commands are given. Many experienced traders consider demo accounts so valuable that they will maintain one or more even after they are trading with real money.
Retail forex trading offers an ideal opportunity for a home-based business as a source of either a primary or supplemental income. There are risks involved, but taking time to appreciate those risks and learning to manage them is simply a matter of exploring thoroughly before you risk any actual money.