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2. HOW LONG HAS FOREX BEEN
AROUND?
In one sense, the Forex market has been
around for thousands of years, even going
back to the time of the Roman, Egyptian, and
Chinese empires. However, in modern times
the Forex market has been limited to the
central banks of various countries and large
commercial banks. In just the last few
years, the internet has made it possible,
for the first time, for individual day
traders to have access to this extremely
lucrative market.
3. WHAT CURRENCIES ARE
TRADED?
Hundreds of different currencies are traded
in the Forex, although 80% of all trading
volume is concentrated in a few major
currencies. These are the U.S. Dollar (USD),
the Euro Dollar (EUR), British Pound (GBP),
the Japanese Yen (JPY), the Swiss Franc (CHF).
Other widely traded currencies include the
Australian Dollar (AUD), the New Zealand
Dollar (NZD), and the Canadian Dollar (CAD).
4. WHY TRADE FOREX WHEN I CAN
TRADE STOCKS & OPTIONS?
There are many advantages to trading the
Forex market as opposed to stocks and
options. The following are most significant
advantages:
a.
MUCH GREATER LEVERAGE.
The stock market gives you on average 2:1
leverage. The futures market provides
leverage of about 10:1. However, the Forex
market provides leverage 100:1, and in some
cases up to 200:1 leverage. The greater
leverage means that much less trading
capital is needed in order to make large
gains. In otherwise, you get far more bang
for bucks! Remember that without proper risk
management, this high degree of leverage can
lead to large losses as well as gains.
b. The FOREX MARKET IS OPEN 24 HOURS PER
DAY.
Unlike the stock market in which trading is
essentially limited to 6.5 hours per day
when most people are working, the Forex
market is open 24 hours per day - meaning
that you can trade at a time that is most
convenient for you. You can work a full time
job and still trade Forex after work since
it is the Forex market is open and active at
anytime of the day or night.
c. EASY AND QUICK EXECUTION OF ORDERS.
Unlike the stock and options markets, orders
are filled rapidly at the quoted price.
d. NARROWER SPREADS
This is a particular advantage of trading
currency over stocks and equity options. The
sheer volume of trading activity in Forex
makes the spread between the bid and asked
prices very low relative to the price
spreads in stock and options trading.
Narrower spreads lowers the cost of trading
significantly which results in more money in
your pocket.
e. NO RESTRICTIONS ON SHORT SELLING
Unlike trading stocks, there is no "up tick"
rule for selling short. Also, the stocks you
can sell short are limited by the stocks
available for shorting in your broker’s
inventory. There is no such limitation with
currency. You are free to buy and sell at
anytime, without limitation and with equal
ease.
f. MORE STABLE AND TREND ORIENTED
Currencies tend to trade more in trends -
either up or down - over an extended period
of time. This means that there is overall
less volatility and more predictability in
the direction of a currency's price. This
contrasts sharply with the U.S. stock market
in recent years in which trends are not
easily identifiable, and even when they are
identified, they often reverse sharply
without notice or rational explanation.
g. LESS SUBJECT TO PRICE MANIPULATION.
Again, the sheer tremendous size of the
Forex market makes it much less vulnerable
wild price swings and manipulation due to a
single analyst’s report as many traders
experienced during the stock market boom and
bust of the late 1990's and early part of
the century. The fact that speculators only
account for a portion of overall trading
activity in Forex also makes the Forex
market a much less subject to manipulation
and irrational volatility.
h. UNLIMITED TRADING IN A SINGLE CURRENCY:
NO "PATTERN DAY TRADER" RULE.
In 2001, the Securities and Exchange
Commission imposed the "pattern day trader"
rule which requires a trader to maintain at
least $25,000 in his or her trading account
in order to make multiple intraday trades
with a single stock.
Unlike the stock market, there is no such
requirement to trade currency intraday.
Every Forex trader, regardless of the size
of his or her account, is free to buy and
sell whatever currency he or she chooses,
and for as many times during an intraday
period as he or she desires.
5. WHAT IS THE PROFIT
POTENTIAL IN TRADING FOREX?
The typical 100:1 leverage a
Forex trader receives in a standard account
means that a trader can control up to
100,000 units of currency with only $1,000
worth of trading capital. With this amount
of leverage, a small move in the trader's
direction can result in hundreds or
thousands of dollars in profit for the Forex
trader. Moreover, such a move can occur in
only a matter of minutes. Leverage is a
double-edged sword. Without proper risk
management, this high degree of leverage can
lead to large losses as well as gains
6. WHAT ARE THE POTENTIAL
RISKS IN TRADING FOREX?
Like any trading or investment vehicle,
there is a level of financial risks in
trading Forex. In particular, the high
leverage of Forex trading means that a
trader can lose all, or a large portion of
his or her trading capital if the market
makes a significant move against the
trader's position (Click
Here for risk disclosure). Successful
traders are aware of this risk, and
carefully plan their trades in order to
minimize the risk to their trading capital.
7. WHAT CAN I DO TO LIMIT THE
RISKS INVOLVED IN FOREX TRADING?
We believe that the single most effective way to minimize your risk inherent in Forex trading is to obtain a quality education in Forex trading before you trade real money
We feel that a quality Forex education is essential to success. Specifically it will provide you
with clear, understandable, and
comprehensive coverage on the basics of how
to profitably trade the Forex market.
Specifically, your education should include
training on a trading system that will
provide you with buy and sell signals as
well as specific rules for limiting the
amount of capital you risk each trade.
Even after you have mastered the basics of
Forex trading, your chances of success will
increase dramatically if you have on-going
guidance and support from an experienced
trader who can mentor you. This guidance
will be invaluable in assisting you in
consistently applying the trading concepts
and principles you have learned to
situations where real money is on the line!
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