Forex Made Simple

It is frighteningly easy to come home, switch on the laptop, update your Facebook status, set up an on-line forex trading account and start buying and selling euros, pounds and dollars. The first you need to learn about the currency market is that it is very risky. You can lose everything you have invested. Just like Vegas, never invest what you can't afford to lose. The technical term for this is 'risk capital'.

There are two methods of analyzing currency markets, depending on whether you are a 'numbers' person or an 'ideas' person. The 'number' person's way is called, 'Technical Analysis'. This involves studying historical charts of a currency's past peaks and troughs. There are special names for the boundaries above and below which currencies go up and down. The upper boundary is called, 'resistance'.

On the other side of the coin is the floor, or the lower boundary below which the currency does not sink below. This is called its 'support'. If that particular currency crashes through either its resistance or support, this is called, 'breakout', and usually signals a period of increased activity in that particular market. You look at your charts and spot when the graph starts to change direction. If you think a currency is going to increase in value, you buy while it is still low and then sell it when it goes up. If, on the other hand, you think it is about to embark on a downward trend, you sell it while it is still high, wait for it to go down and then stock up on some more while the price is still low.

The other method of analyzing the market, the 'idea' person's way, is called, 'Fundamental Analysis'. Select this option if you like to read a lot. Read about the social, economic and political drivers behind supply and demand. Read about the prevailing macroeconomic indicators like interest rates, unemployment and inflation.

You've chosen your currency. How long do you want to hold your position - Minutes? Hours? Days? Next you must set your limits. If your currency goes up, when do you sell? If your position is a loser, how long are you prepared to hold out? Make these decisions and set your stops and limits accordingly.

Where there is cash, there are scammers. The currency exchange market is worth a whopping USD 4 Trillion a day. Everybody wants a piece and there is no reason why you shouldn't grab yours. Just don't be too greedy or impatient. If some comes along and promises he'll make you a fortune in a short time with little investment on your part, don't believe a word of it.