If you're a beginner looking for information on how to trade forex, you've come to the right place. The currency market is a global, decentralized financial market for the trade of currency. This guide explains the basics of how this global market works and how you can make money by participating in it.
Foreign Exchange Fundamentals:
Imagine going to Brazil to buy coffee. The local coffee-seller refuses to accept US dollars (USD), because he won't be able to use them there. One will have to go to a bank to buy the local currency, the Brazilian real (BRL).
On that particular day, 1 USD might be is equal to 1.7660 BRL. This means one will get 1.7660 BRL for every 1 USD. This price is called "exchange rate", and it fluctuates constantly. Factors like supply and demand and export-import ratios influence exchange rates.
Fluctuations in exchange rates create the potential for profit. For example, you exchange $100, when the rate is 1 USD = 2 BRL. You would get 200 BRL at that time. Several days later, if the rate has become 1 USD = 1.33 BRL, you would get $150, if you exchange 200 BRL for USD. This is a simple example of profit-making through foreign exchange.
In reality, currency markets operate on much larger scales. Transactions of over 1 trillion dollars occur every single day, making forex the world's most traded commodity. This large volume creates market liquidity, meaning currency can easily be sold or one can always find a buyer.
Another major advantage is that unlike the stock market, no insider trading occurs. Information about factors affecting exchange rates, like government economic policies and tax measures, is freely available to everyone. Furthermore, unlike stock exchanges, the currency market stays open 24 hours, only stopping between 2200 hours UTC on Friday and 2015 hours UTC on Sunday.
How You Can Trade Forex
There exists an online marketplace called the Interbank Forex Market. All you need to start trading is a computer and a program that can connect you to this marketplace. Many such programs exist, one of the most popular being Metatrader 4.
This not only enables users to trade online, it also provides several analytical tools. These tools help study market trends and patterns and develop trading strategies. But effective use of Metatrader requires knowledge of a complex programming language called MQL4. This can be very demanding, and users with little prior programming experience may find it too difficult.
However, there's now a clever system that allows the use of all Metatrader features, through Microsoft Excel's simple interface. This user-friendly forex excel system gets rid of the need for complex programming.
With this tool, one can use Excel's powerful calculation abilities with historical price databases as well as live data. This greatly aids in creating profitable trading strategies, which can even be automated to optimize buying and selling, with no user intervention.
Before You Begin To Trade Forex, Consider These Two Tips:
• Try Out A Forex Simulator - it allows you to hone your skills with the fluctuations of a virtual currency market.
• Start Small - start with small amounts of money while you learn how the market works.