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Your Forex Options

Updated on July 30, 2009

A lot of people have heard of the Forex, of Forex trading and that people are making money with it, but not everyone actually knows what it is or what Forex options are available to the regular person at home, wanting to trade from their own computer.

Forex stands for the Foreign Exchange which represents the exchange where governments, banks, large international corporations and individual investors exchange foreign currencies. The Forex market is the largest financial market in the world with over $3 trillion being traded every day between various currencies.

If you travel to another country one of the first things you do before you leave or when you arrive is to exchange the currency you usually use, say U.S. dollars, for the local currency, from Japanese Yen, to Euro, to Australian dollars. You do this because otherwise you know you cannot pay for services rendered in that country nor can you purchase products. This is a micro Forex transaction. Now imagine that there are huge amounts of currencies being traded all over the world by many institutions, governments and people. It is a truly massive market.

You have observed that currency rates change all the time, what not many people know is that they change every second and not just once a day. They rise and fall and it is from this change that traders make their profits. They buy low and sell high, or sell high and buy low.

Now you can trade many currencies versus others but the most common pairs, or the majors as they are known, are the US dollar vs the Swiss Franc (USD/CHF), the Euro vs the Us Dollar (EUR/USD), the Great Britiain Pound vs the U.S. dollar (GBP/USD) and the U.S. dollar vs the Japanese yen (USD/JPY).

With the rapid expansion of the internet it has become possible for the small trader to participate in the Forex with small sums of money due to online forex brokers. Online trading is made possible via the use of various forms of forex trading software platforms, some free and some not. These software packages chart the price action of these pairs and many more and allow you to place trades buying or selling a currency for another using their interface.You can start even with as little as $50 because Forex brokers will offer you what is known as leverage. This means that for every $1 you put in they will offer you $4 to $100 depending on the broker. There are many Forex options available to you if you search the internet. It is compulsory that you understand how to trade first and practice on a demo account until you feel comfortable.

ANother very important tip is to only trade money you can afford to lose. Forex can be your best friend or your worst enemy so you must be disciplined since there will always be winning and losing trades. You cannot have 100% winning trades.

There are two types of analysis in Forex. There is technical analysis which relies on analyzing Forex price charts which plot price movement with bars or candles. The bars and candles plot the opening price, the closing price, the high and the low of the time period you choose. For example a 5 minute bar will plot the open, close, high and low of that 5 minute time frame. There are a host of indicators used for analysis and that is why it is wise to take a Forex course or a Forex seminar to learn as much as you can before venturing into trading.

The other part of analysis is fundamental analysis which relies on the economic data of the country of that particular currency. For example, if Japan has a really good quarter economically then the Japanese yen will gain strength and may rise versus the U.S. dollar if the American economy is not doing so well.

There are traders who vouch for one or the other but most will tell you that a combination of these methods is the best way to go.

As you can see there are lots of Forex options out there but the best advice you will ever receive in Forex trading has nothing to do with the trading system you apply but with discipline. You must be a disciplined trader to make money. Discipline means that you are not greedy, hoping your profits increase, only to end up losing all your profits and more, it means knowing when to get out of a losing trade so that it does not turn catastrophic. Discipline means understanding that the Forex market is unpredictable and doing the exact same thing twice will not always have the same result. You can make a lot of money on the Forex just as you can lose a lot of money so practice before going live.


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