Copyright 2006 Richard WrightForex trading
Recently forex markets have been opened up to the average
investor as it was the domain held exclusive to large
financial firms, such as banks and funds management
companies. Now days it?s possible to start with $250 or
less.
Forex trading is trading foreign currency and is traded in
foreign currency pairs, for example: Australian / United
States dollar which is represented as AUD/USD. This means
when you are buying one currency you are selling the other.
Unlike shares you can trade in an upward or downward
trending market.
A lot of times you will claims of forex been commission
free trading which is not entirely true as the commission
is in the spread, this is difference between the buying and
selling price. For example when go to a currency exchange
booth at an airport you may notice a board with different
currencies listed with a buying and selling price, this is
the spread. The buying price will be less than the selling
price.
Leverage This is a two sided sword that can increase your
profits when the markets go your way. Should the markets go
against you, it can multiply your loss. Some foreign
currency brokers allow you leverage of 400:1, most will
offer 100:1. This allows you buy $100,000 worth of currency
with only $1000 margin deposit.
Leverage used, should be controlled as a trade going
against you even slightly could wipe your entire trading
funds.
Funds management
This is about protecting money from the trades that go
wrong, by not having too much money on one trade. You will
get wrong sometimes no matter how well you predict the
market. Put too much money on each trade is a recipe for
disaster. A good guide would to only 2.5 and 4 percent on
each trade.
You may setup trade using a stop loss and a take profit
order, allowing the freedom of not having constantly sit in
front of a computer watching the market 24 hours a day.
A stop loss will reduce the size of the loss by closing the
deal at a preset level automatically.
Take profit will close the deal and take the profit made a
preset level automatically, the opposite to a stop loss.
The difference between a good trader and a bad trader
The good trader has a system which they have tested and
proven to work using solid analysis, keeping control of
emotions. Has good money management skills
The bad trader trades by gut instinct (flying by the seat
of their pants approach to trading), dominated by greed and
fear with no proven system. Has bad money management skills
and will risk too much on 1 trade. This is gambling, not
trading.
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Written by Richard Wright owner of
http://www.extraonlinemoney.com and private forex trader,
trading from home online. My site is setup for the newbie
trader.
