F.A.Q.What exactly is Forex?
How fair is the Forex market?
Where is the central location of the Forex market?
When does Forex trading occur?
What are the primary currencies traded in Forex?
Why is Forex so popular?
How much profit can actually be made?
Can you illustrate more specifically how a trade is structured and how profits are calculated?
But wait, how can I buy or sell a currency lot worth $100,000 with just $5,000 in my account?
What if I don't have $5,000 of risk capital to open a trading account?
Sounds impressive, but how much risk is involved?
So, what can be done to reduce risk and increase the potential for success?
Frankly, I don't have time to self-trade. But I would like to energize my investment portfolio with some currency trading. How does a managed trading program operate?
What else should I know?What exactly is Forex?
Forex is an acronym for FOReign EXchange and is the worldwide cash inter-bank or inter-dealer market that uses a floating exchange rate system. Most people have never heard of Forex. Yet, it is the world's largest financial market with an estimated daily average of more than $1.5 TRILLION. Some say that it would take the entire New York Stock Market about 3-4 months of daily trading to equal one day of trading in Forex!
How fair is the Forex market?
The Forex market is so large and is composed of so many participants that no one player, not even a large government, can completely control the direction of the market. So, many experts have called Forex the "fairest market on earth."
Where is the central location of the Forex market?
The word market is a bit misleading in describing Forex trading because there is NO central location where trading takes place. The bulk of Forex trading is between approximately 300 large international banks that process transactions for large companies and governments. These institutions continually provide exchange rates for each other and the broader market. The most recent quotation from one of these banks is considered the market's current price for that currency. Trading occurs over the internet, by telephone and through computer terminals at hundreds of locations worldwide.
When does Forex trading occur?
The first session, which is the Asian session, begins on Sunday evening at approximately 7:00 p.m. EST. The second session, which is the London session, begins at approximately 2:00 a.m. EST. The third and final session, which is the New York session, begins at approximately 7:00 a.m. EST and ends at about 5:00 p.m. EST.
What are the primary currencies traded in Forex?
For online brokers here in the United States, there are four currency pairs that are heavily traded and that offer almost immediate liquidity: USDollar/Japanese Yen, USDollar/Swiss Franc, British Pound/USDollar and Euro/USDollar.
Why is Forex so popular?
Forex trading is attractive because it offers unparalleled personal and financial freedom. A Forex trader can virtually live anywhere in the world as long as he/she is within reach of the internet. A Forex trader can work from home or office, and in some cases, even trade on the beach! A Forex trader can usually choose his/her own hours to work since the global foreign exchange market is open 24-hours a day. A Forex trader avoids many common headaches associated with running a business because there is NO inventory, NO shipping, NO billing, NO collections, NO employees, NO commuting and NO dress code. And finally, since Forex traders can potentially earn a very high income, they enjoy the possibility of never, ever working for someone else again!
How much profit can actually be made?
Of course, results can and do vary among individuals and no guarantees can be made as to profitability. However, let's look at some sample numbers based on averaging just +10 pips a day and each pip having an average value of about $7.50. A beginner working just four days a week and trading just one(1) unit/lot could earn about $300/week or about $1,200/month. A more experienced trader still working four days a week and trading three(3) units/lots could earn about $900/week or about $3,600/month. An advanced trader still working four days a week and trading ten(10) units/lots could earn about $3,000/week or about $12,000/month.
Can you illustrate more specifically how a trade is structured and how profits are calculated?
Let's consider a hypothetical example that is actually very realistic of how you could trade the US Dollar/Swiss Franc which is quoted in Franc per Dollar:
1. You have $5,000 in a trading account with your Forex broker
2. You identify a high-probability BUY opportunity
3. You BUY one lot of 100,000 Dollar/Franc at 1.6010
4. You calculate potential 80-pip profit and place a limit order at 1.6090
5. You calculate potential 40-pip loss and place a stop order at 1.5970
6. Two hours later, Dollar rallies to 1.6080, stalls and begins to reverse
7. You SELL your one lot at 1.6070 to lock in a 60-pip profit
Let's analyze:
You BOUGHT $100,000 worth of Dollar/Franc at 1.6010
You SOLD $100,000 worth of Dollar/Franc at 1.6070
+60 pips of profit X $6.00 per pip = $360
Let's summarize:
In just two hours of trading, you realized
a gross profit of $360 which is a
gain of approximately 7.2% on your $5,000 investment!
But wait, how can I buy or sell a currency lot worth $100,000 with just $5,000 in my account?
It is the high degree of leverage available to Forex traders that enables you to do this. With margin requirements as little as 1%, a day trader with $5,000 in a trading account can open a position worth up to $500,000. It is this leverage that makes it possible for even a part-time day trader to earn double-digit monthly returns on investment. (Please note, however, that Learn:Forex does NOT recommend opening such a large position with just $5,000 in your trading account. Under most circumstances, proper money management dictates opening a position no larger than $100,000 to $200,000 with a $5,000 trading account.)
What if I don't have $5,000 of risk capital to open a trading account?
There are a few online brokers that permit new traders to open margin accounts with less than $5,000. However, you must be even more careful with a smaller account since any loss magnifies reduction of your trading capital and the ability to continue trading your system. That is why most experts do NOT recommend self-trading with less than $5,000.
Sounds impressive, but how much risk is involved?
Since leverage can work against you as well as for you, the risk factor is very high in currency trading. So, a person who does not have extra capital that he or she can afford to lose should not trade in the currency markets. However, please keep in mind that most income opportunities involve risk. In fact, some are even riskier than trading currencies. We invite you to read the disclosures posted on this web site that provide more details regarding the risk factor in trading currencies.
So, what can be done to reduce risk and increase the potential for success?
First, you must be willing to allocate enough time to study and master basic trading skills/disciplines before putting real money at risk. An experienced currency trader or company that offers training can help in this area. Second, you must acquire a proven trading system or methodology that should be strictly followed to eliminate trading on emotions. Such a system will incorporate good money management including correct stop loss placements. Third, you must have a real-time data feed with quality charting software. This will enable you to clearly analyze the market and follow your trading strategies. Finally, you must have a good Forex broker that offers demo trading accounts and will enable you to execute your real trades without excessive delays and slippage. Of course, an up-to-date computer, a fast modem and reliable internet service provider will also increase your potential for success.
Frankly, I don't have time to self-trade. But I would like to energize my investment portfolio with some currency trading. How does a managed trading program operate?
A professionally managed Forex currency program can be structured in a number of ways. Most have minimum account requirements of at least $25,000 or more. They usually require an investor to enter a written agreement with the management company which includes a maximum risk tolerance level. Investors then deposit funds into a special account held at a bonded institution (bank). If the funds are from an IRA, they are transferred to a trust company before being forwarded to the bank. Thereafter, the management company trades for the investor attempting to achieve a 3-9% net return per month. For their services, a trade commission and/or incentive fee is charged and deducted from the gross profit. Some programs even provide segregated accounts, insurance policies and trading audits to increase investor safety and peace of mind. For more details, feel free to click on our managed-trading page or contact our office.
What else should I know?
The visitor to this web site hereby acknowledges that he/she fully understands the risk factor is high in currency trading and only "risk" funds should be used in such trading. A person who does not have extra capital that they can afford to lose should not trade in any currency market. No "safe" trading system has ever been devised and no one can guarantee profits or freedom from loss. In fact, no one can ever guarantee to limit the extent of loss.
The visitor to this web site also acknowledges that he/she fully understands the parties providing the information of this web site are not CTA's (Commodity Trading Advisors) or Commodity Brokers. The information contained herein is subject to change without notice and was obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness and in some cases may contain errors. Any techniques or methods presented are those that have been found to work in the past but may not be indicative of future results. Any visitor using information from this web site for trading purposes is responsible for his/her own actions.
The visitor to this web site confirms that there have been no promises, no guarantees and no warranties that the trading of currencies will result in a profit or will not result in a loss. Results can and do vary between individuals.
The visitor to this web site also acknowledges that Sazky Forex and/or any of its independent agents DO NOT endorse the trading of futures or options contracts, in fact, they suggest NOT trading futures or options contracts. Any reference to futures or options contracts is for educational value only and NOT to be used for trading futures or options.
The visitor to this web site agrees to indemnify and hold Sazky Forex and/or any of its independent agents harmless from any and all losses, costs, liabilities, or indebtedness arising from any information they may share with visitor such as, but not limited to, trading techniques, names of books, software programs, training courses, brokers, dealers, money managers, ISP companies, and data feed companies. Each visitor is encouraged to perform their own due diligence on any company they intend to do business with prior to any purchase or opening any account.
The visitor to this web site also acknowledges that he/she is aware that, at times, hypothetical performance results may be posted on the web site or transmitted to the visitor by another method and HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS . Some of these limitations are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown as hypothetical performance results. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve the financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect trading results.