If you have heard anything at all about the foreign exchange market, it’s probably that it’s the largest money market in the world, at least re daily trading volumes. To be completely sure, the forex market is unique in many respects. The volumes are, indeed, massive, which means that liquidity is ever present. It also operates around the clock six days every week, giving traders access to the market any time they need it.
Few trading limitations exist – no daily trading limits down or up, no limitations on position sizes, and no wants on selling a currency pair short.
Selling a currency pair short means you’re expecting the price to decline. Thanks to the way currencies are quoted and because currency rates move up and back down all the time, going short is as common as being long.
Most of the action happens in the major currency pairs, which pit the U.S. Buck (USD) against the currencies of the Eurozone (the Western european countries that have adopted the Euro dollar as their currency), Japan, Great Britain, and Switzerland. There’s also plenty of trading possibilities in the minor pairs, which see the U.S. Dollar traded against the Canadian, Australian, and New Zealand greenbacks. On top of that, there’s cross-currency trading, which immediately pits 2 non-USD currencies against each other, eg the Swiss franc against the Japanese yen. Altogether, there are anywhere from 15 to 20 different currency pairs, dependent on which forex brokerage you deal with.
Most individual traders trade currencies through the Internet thru an agent. Online FOREX trading is sometimes done on a margin basis, which allows individual traders to trade in larger amounts by building on the amount of margin on deposit.
The leverage, or margin trading proportions, can be really high, infrequently as much as 200:1 or bigger, meaning a margin deposit of $1,000 could control a position size of $200,000. But trading on margin carries its own rules and wants and is the backdrop against which all of your trading will occur. Leverage is a two-edged sword, increasing gains and losses similarly, which makes risk control the key to any successful trading system.
Before you ever begin trading, in any market, check you are only risking money you can stand to lose, what’s commonly called risk capital. Risk control is the key to any profitable trading plan. Without a risk-aware methodology, margin trading can be a very short-lived endeavour. With a proper risk plan in place , you stand a much better possibility of surviving losing trades and making winning ones.
Felix Richman is an FX trader and hack on subjects like forex robots, and well-liked FX programs like FAP Turbo.
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Posted under Currency Trading
This post was written by admin on January 17, 2012
