Trillions of dollars trade round the clock on foreign currency exchange markets - forex trading, for short. The forex trading system is conservative and dominated by governments, banks and large companies looking to hedge against potential losses. However, ordinary people also trade foreign exchange, often attempting to ride the differences as currency values rise and fall.
Getting into forex trading requires nerve and some technical skill, as well as an understanding of how global events affect the value of money. In this guide, you'll learn:
1. Which foreign exchange currencies are most commonly traded and why
2. How to do forex trading online through forex trading system Web sites
3. Hedging foreign currency exchange and other risk-abatement concepts
4. Using a managed forex trading account
Action Steps
The best contacts and resources to help you get it done
Learning about major foreign exchange currencies
Currencies trade in pairs, expressed as two currencies in relation to each other. You are buying one and selling the other simultaneously during forex trading. The U.S. dollar is the most widely traded currency. A huge percentage, 65%, of foreign country reserves are held in dollars, making it extraordinarily stable. The euro is 25% of foreign reserves, making that currency a strong second choice. Also popular are the Australian dollar, Japanese yen, British pound and Hong Kong dollar.
I recommend: It's easy to track foreign currency exchange markets without necessarily trading them first through sites like
Oanda,
ExchangeRate, and
Yahoo! Finance.
Forex trading online via forex trading system sites
The most common way individuals trade currencies is through foreign exchange brokers who operate online. They typically offer access to real-time data, moving price charts and free practice accounts. While legit, they also often promote trading on margin, which can be highly risky for a beginner. Read the fine print and always trade with money you can lose.
I recommend: Among the better-known forex trading system sites online are
Forex.com,
Forex Club,
FXCM, and
FXStreet.
Hedging foreign currency exchange and other risk-abatement concepts
Forex trading system scams are legion, and no amount of fine print can protect you if you are bent on losing money. However, it does pay to educate one's self on the proper ways to manage forex trading risk, including how big companies hedge against risk in the foreign exchange market.
I recommend: Take a look at the resources at the
U.S. Commodity Futures Trading Commission and the
National Futures Association.
Managed forex trading for passive investors
The newest wrinkle in forex trading is managed forex, where investors place money into an account for professional traders to manage on their behalf. It works a little like a mutual fund, but buyer beware -- like in any investment, foreign currency exchange losses can mount quickly if a trader bets big and wrong in your name.
I recommend: Some providers of managed forex trading accounts include
Fenix Capital Management,
Pinnacle Resource Management, and
ForexTradingUSA.
Tips & Tactics
Helpful advice for making the most of this Guide
- Absolutely begin with a free practice account. If you're going to lose thousands in a few minutes of forex trading, it might as well be funny money.
- Do not ever put your retirement fund at risk. Unlike bank accounts, there is no federal insurance to bail you out if you lose big on the foreign currency exchange markets.
- Be a student of global news. Real foreign-exchange traders working on behalf of corporations live for headlines from real-time news services like Bloomberg and Reuters.
- Beware companies shilling expensive foreign currency exchange lessons. They often claim astounding result that cannot be proven. If it sounds too good to be true, it probably is.
The official source of Forex Trading is the Forex page at Business.com
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