Forex is an abbreviated term for Foreign Exchange and references the buying and selling of world currencies on a 24 hour market cycle.
A simple explanation is that currency trading occurs when one takes advantage of the differences in value of one currency against another. This is accomplished through the use of brokers and is not unlike the trading of stocks and commodities on the world stage.
On the surface, Forex trading looks like an easy way to make money.
This can be misleading to a novice investor. Foreign exchange markets are notorious for their volatility. Although an investor can use the ample online information sources to learn the technical side of trading, that investor must also be aware of world events that could impact the various world currencies. This is the fundamental side of the exchange market.
The technical approach to currency trading;
Fortunately there are numerous technical tools available to an investor. One of the most important is a system of charts that show the movement of each currency. These charts come in different forms from simple to complex.
• Line Charts: The most common chart used, a line chart is simply a visual aid used to see the difference between the opening and closing price of a given currency. • Bar Charts: These charts use a vertical bar to show the opening and closing prices of a currency as well as the highest and lowest prices that occurred in a given time period. These time periods will vary, and can be changed easily. • Candlestick Charts: By far the most complex of the 3 examples. Besides giving the same information as a bar chart, an investor that understands a candlestick chart can also use the history of a certain Forex market to pick out currency trends, either up and down.
Charts can be set for multiple time frames; Day traders will use charts set for as small an interval as 5 minutes, while normal short term traders usually opt for 1 to 4 hour intervals. An expert using candlestick charts might use daily or monthly charts trying to pick up on trends.
There are numerous different Chart Indicators that an investor can take advantage of;
• Bollinger Bands
• Relative Strength Index
• Many more….
The fundamental approach to currency trading; Fundamental analysis is far different than using technical analysis because it is very important to know what is happening in the global currency arena. Here, an investor needs to be able to evaluate world events to see if one currency may have an advantage over another. This includes political events and the state of world economies.
Keeping track of world news can help an investor evaluate the foreign exchange market. It is possible to use currency trading to make immense amounts of money. It is also possible to lose all of your working capital. As in any trading program, educate yourself and know your limits. Be an investor not a gambler!