| The Forex market is used to trade one currency | | | | position). |
| against another. The professionals refer to this as | | | | Many speculators are day traders, meaning that they |
| foreign exchange, more commonly referred to as | | | | set out to take advantage of regular market |
| Forex or FX trading. This is an international market | | | | movements over very short time periods, often |
| covering the entire planet, and has no specific central | | | | buying a currency and then selling it again very soon |
| exchange, unlike all the other financial market you can | | | | afterwards (sometimes in just a few seconds). |
| think of. It is also the biggest markets you can | | | | Until a few years ago the Forex market was very |
| imagine, with almost 2 trillion dollars changing hands | | | | difficult if not impossible to enter for an individual |
| daily (that's an awful lot of zeros)) | | | | trader, because of the huge investment and very |
| Why do we need a Currency Exchange? Well, An | | | | expensive facilities needed. The market was totally |
| international currency exchange is necessary in many | | | | the preserve of the big banks and other huge |
| situations:- | | | | institutions. |
| Consumers will come into contact with a currency | | | | There has been an explosion in interest in trading the |
| exchange whenever they travel abroad. They go to | | | | Forex markets over the last two or three years, as |
| their bank or a local exchange bureau to convert one | | | | single individuals have learned that they too can set |
| currency (usually their home currency) into another | | | | up and compete on equal terms with the huge |
| (the currency of the country they intend to visit) so | | | | trading corporations. Individuals working from home, |
| that they can buy goods or services in that country. | | | | using a desktop pc and an internet connection can |
| Consumers often purchase goods in a foreign | | | | now download the training and expertise they need, |
| country using their credit cards. They will find that | | | | together with the trading software and forex data |
| their credit card company will convert the amount | | | | feeds they also require, and soon be running their |
| they paid in the foreign currency to their local | | | | new business - often making more money than they |
| currency, and will appear on their credit card | | | | could ever have managed if they had been working |
| statement at the converted rate. Although each such | | | | for one of those huge corporations referred to |
| currency exchange is tiny, the sum total of all the | | | | earlier (and keeping all of it). |
| millions of such transactions every day is very | | | | FX Traders are attracted to currency trading for |
| significant. | | | | several reasons, including:-the volatility of the market, |
| Businesses must convert currencies when they | | | | which gives them regular opportunities to earn |
| conduct business outside their own country. For | | | | money.the enormous liquidity of the markets. Unlike |
| example, if they export goods to another country | | | | most other markets, there is just so much money in |
| and receive payment in that country's currency, the | | | | the system at any one time that it is hard to imagine |
| payment must be converted back to their own | | | | a situation where you could not trade.the currency |
| home currency. If they import goods or services, | | | | exchanges are open 24 hours a day. From Monday |
| then businesses will often have to pay in a foreign | | | | to Friday, 24 hours per day, the market is active and |
| currency, which requires them to first convert their | | | | money can be made.currencies can now be traded |
| local currency into a foreign currency. Big companies | | | | with no brokerage charges. Nowadays an account |
| convert huge amounts of currency every year, often | | | | with a spread trader can be set up and funded in |
| tens of billions of dollars. The timing of these | | | | seconds, and the only charge is the spread or |
| transactions can have a huge effect on their balance | | | | difference between the buying and selling price, which |
| sheet and overall profits. | | | | can be as low as 2 pips (pip is the smallest unit |
| Commercial and Investment Banks trade currencies | | | | traded, and you can often trade as low as one or |
| to support their banking processes. They also use | | | | two dollars per pip). |
| the currency markets for hedging and trading | | | | Very low entry costs. A newcomer can enter the |
| purposes. | | | | market for as little as the cost of a PC, some training |
| Governments and central banks trade currencies to | | | | books, videos and software, probably one or more |
| improve national trading conditions or to manipulate or | | | | trading systems to get him started, and a datafeed |
| adjust economic and/or financial imbalances. Although | | | | to provide instant currency prices (good free ones |
| they do not take part for speculative reasons they | | | | are available too). Probably less than a thousand |
| are often very profitable, because they usually trade | | | | bucks for a genuine business that (if you are |
| on a medium to long-term basis. | | | | successful) can produce an extremely good lifestyle. |
| Investors and/or speculators (traders) require | | | | Even lower ongoing costs. No staff, no offices, no |
| currency exchange whenever they trade a foreign | | | | expensive travel (unless you want to). Costs are |
| investment, whether it is in equities, bonds, bank | | | | limited to broadband running cost, a little electricity, |
| deposits, or real estate. If a Swiss investor buys | | | | and lots of coffee. |
| shares in an American company on the NASDAQ | | | | Tax-free status. In my country at least (The UK) I |
| exchange, he must pay for the shares in U.S. Dollars. | | | | pay no tax on my trading income. With tax at 40% |
| He'll probably have to convert Swiss francs to U.S. | | | | on earned income here, this means that instead of |
| Dollars to complete the deal. Similarly, an English real | | | | getting just 60 bucks out of every 100 bucks I earn, |
| estate investor selling a New York property will need | | | | I keep the lot. And this equates to around 66% |
| to convert the proceeds of the sale from U.S. Dollars | | | | extra income (60 x 1.66 = 100). Now that's an |
| to British Pounds. | | | | incentive! |
| Because the value of a currency continuously varies | | | | So if you are thinking of trading as a way of earning |
| against all the other currencies, investors and traders | | | | an online income, I say, come on in, the water's |
| can trade these currencies directly in order to profit | | | | lovely. And if you are thinking that maybe you aren't |
| from their movements. For example, if an English | | | | cut out for this sort of thing - no math qualifications, |
| investor has an opinion that the Japanese economy is | | | | no talent with numbers, I say rubbish! |
| strengthening and expects the Yen to rise in value | | | | It will cost you very little to find out if you are cut |
| (i.e., go up relative to other currencies including the | | | | out for a trading life or not, certainly less than getting |
| pound), then he will want to buy Japanese Yen, | | | | into internet marketing or establishing an offline |
| taking what traders refer to as a long position | | | | business only to find you don't like it or can't cut it. |
| (expecting a rise). Similarly, if an American investor | | | | You could even surprise yourself. |
| believes that the Euro is about to go down, he may | | | | Some of the very best traders I know are really |
| sell the Euro to take a short position (expecting a | | | | average, self-taught folk who didn't think for a single |
| decrease in value). To square his position and get out | | | | moment that they could handle forex trading. Oh, |
| of the trade, he will later buy the euros he sold | | | | and many of them are women! |
| earlier, but at a much lower price. Therein lies his | | | | This is the first of a short series of articles aimed at |
| profit. Importantly, investors and traders can profit | | | | introducing newcomers to internet-based forex |
| whether currencies becoming stronger (by taking a | | | | trading. The follow-on articles will be launched at |
| long position) or get weaker (by taking a short | | | | regular intervals. |