What is Forex Trading?

Trading was mainly carried out by banks and large industrial companies; private individuals hardly participated at all in international foreign exchange trading. However, this has changed due to the Internet, because the foreign exchange exchanges are now either closed or they have almost completely lost their importance. Instead, global forex trading takes place online and any investor interested in forex trading can participate.

The requirements to participate in Forex trading

Anyone who wants to participate in Forex trading needs an account with a Forex broker. This account can be opened online and a minimum deposit must be made. Most Forex brokers accept deposits via bank transfer, credit card, Paypal or electronic payment systems such as Moneybookers. Withdrawal of winnings is done through the same way as the deposit was made. In addition to an account with a Forex broker, a Forex trader needs reliable software that allows him to react quickly to changes in the international economic markets or in world politics. The speed with which the trader reacts to economic and political news that influence international currency rates is what matters most in Forex trading.

How Forex Trading Works

In Forex trading, one foreign currency is always exchanged for another. This means that a Forex trader buys one currency while selling another currency at the same time. His profit comes from the exchange rate difference. A successful Forex trader should always think of a strategy according to which he will participate in Forex trading. In working out this strategy, he can get help from his Forex broker, because most brokers offer seminars and other assistance to learn Forex trading. It is also often possible to imitate the actions of other successful traders in order to share in their profits and get tips for your own trading. A good Forex broker also offers a free demo account, which can be used to simulate Forex trading in order to gain experience. In Forex trading, levers are used which allow the trader to make a much higher profit with a small amount of money invested. However, this leverage can also cause the trader’s loss to be correspondingly higher. Therefore, a good familiarization with Forex trading is a prerequisite to be successful and make money.

Important terms for trading

Risk Management

In order to optimize foreign exchange trading, one uses different financial instruments, which pursue the goal of counteracting unexpected fluctuations and developments of the foreign exchange trade. In order to keep the risk of a loss as small as possible, one sets for this e.g. a so-called Stop Loss course and adjusts this, depending upon situation, the TakeProfit accordingly.

Chart technique

The first step should be the acquisition of a corresponding theoretical knowledge regarding the functioning and the peculiarities of the foreign exchange market, as well as chart-technical patterns. The chart technique plays a special role in trading, since the correct interpretation of chart sequences and signals makes a significant contribution to the success or failure of a trader. The prerequisite for a well-functioning Forex strategy is definitely the presence of up-to-date information about the current development on the market.

Technical Analysis

As part of the Forex strategy, technical analysis, for example, uses the information about the Forex developments of the past by examining all price and volume movements of the previous epochs and the resulting consequences for the Forex market. From the knowledge gained from this, one can ultimately conclude on the development of future events.

Fundamental Analysis

With the fundamental analysis however not only the developments, which concern the own investment, are more near taken under the magnifying glass, but here a total overview of all events is aimed at. Through this forex strategy, the investor tries to find the most promising form of investment for him.

Demo account

If you have basic knowledge of the foreign exchange market and chart technique, the next step is to set up a Forex demo account to test the validity of various strategies.

• Such a Forex demo account can usually be set up free of charge and also without obligation at any good Forex broker.
• Here, investors are confronted with the same conditions as traders where real money is at stake.
• In addition to the evaluation effect of different strategies, a Forex demo account offers the additional possibility to get acquainted with the software.
• Unlike ordinary trades through a bank, Forex traders depend on being able to execute trades in real time at any time, while being provided with various analysis tools to locate and correctly interpret charting signals.