What is FOREX?
FOREX stands for FOReign EXchange. The Foreign Exchange market is the biggest financial market in the world, with a daily turnover of over $4 trillion dollars (that's a whopping $4,000,000,000,000!). Almost all forex trades are of speculative nature, without physical delivery of currency; it's basically numbers flickering around on computer screens. Chances are your currency trades will be of the speculative kind, too.
How to Read a Forex Quote
Here's an example: EUR/USD = 1.50 means that 1 euro equals 1.50 US dollars. If you buy 10,000 euro, you would simultaneous sell 15,000 US dollars. If you sell 10,000 euro, you would simultaneously buy 150,000 US dollars. That was an example of a straight quote. The reverse quote is USD/EUR, that is how many euro does a dollar buy? In your forex trading platform you will most probably see straight quotes.
There are 3 main approaches to trading the currency markets:
Let's talk about the gambler's approach. This is the method of "trading" of those who "think" that, for example, the euro is going to go up. Other gambling types "think" the euro is going to go down.
Technical analysis is the study of price action, meaning you work exclusively with charts. Technical analysts believe that if you study the past moves of prices, it will help you successfully forecast where prices wil be in 5 minutes, tomorrow, the day after tomorrow or even next year. Sometimes they get it right, sometimes they don't. Sitting glued to your computer and studying the charts, you could "discover" patterns and trends that could help you find good setups for successful trades.
Many people consider trading as a sort of exact science, something like maths or, at the very least, arithmetic rather than something as subjective and fuzzy as psychology. The truth, of course, is quite different.
In order to be successful in forex trading, it's not enough to learn the basic concepts and processes related to the forex market. Any newbie will sooner or later (usually, later) do that. No matter how many books and articles on forex get published every year, the ratio of losers versus winners is kept at about 95 to 5. Why is that the case?
Forex Trading Plan Samples
Forex currency trading is a negative sum game. (Zero sum + spread and slippage = negative sum). In other words, unless you are a forex broker, it’s a tough business.
Those forex traders with a trading plan and the requisite discipline to abide by it have an overall higher chance of survival in the market.