An Introduction to Forex Trading

By Charles Hopkins Published 10/14/2006 | Finance

Forex is a complicated market that should not be approached without first gaining a good understanding of the way it works. Forex is the term used to refer to the Foreign Exchange market in which supply and demand determine the value of each country's currency. It is basically an investment in whichever form of money you think will have the highest value. Five days a week, literally trillions of dollars are exchanged by investors trying to trade their currencies for those of a higher value.

Why choose to make Forex investment rather than in normal stock? This market is based on your strategies of determining which currency you would be willing to invest in due to whichever factors you choose to factor in. The fluctuations that occur in the price of currencies is small, which means that you are taking less of a risk of losing it all in one bad decision. Another positive point in choosing to deal in Forex, is that the worth of a currency is based on supply and demand, bank trading, corporations, and the governments between every country. This open market cuts out the possibility of being manipulated by investors, which is a big problem in the stock market and its insider trading.

The first step more people take to getting their foot in the door of trading in Forex is to find a broker that works for a sizable financial institution. There are a number of brokers offering their assistance in trading Forex. Be wary of any broker because you do not want to end up roped in by a scam. Research exactly how much a broker expects to get paid compared to what is considered to be a fair amount. As with most services, word of mouth is the most honest and reliable way to know if someone is reputable. However, if you do not know anyone who could recommend someone, the Internet is a great place to start looking. Search around for reputable broker sites, message boards, chat rooms, and search engines to find someone you are willing to trust to handle your dealings in this particular market.

Once you have established a relationship with a broker, they will be able to help you with any questions that you may have regarding strategies, ideas, risks, advice, and anything you do not fully understand about Forex so that you can get started in buying and selling. There are two types of strategies that are used by most traders in making decisions. One is technical analysis and the other is fundamental. Technical relies mostly on the trends of currencies that have been documented to have a steady growth over time. Fundamental analysis of the Forex market relies more on the economic conditions of a country based on variables such as inflation and unemployment rates. The best traders are believed to use a combination of both types of analysis in order to come up with what in their opinion is the best trade strategy. Once you have a little experience, you will get a better understanding of what to expect and what actions you should take.