When it comes to trading opportunity, there’s no market that can compete with the foreign exchange (Forex) markets. Part of the reason Forex trading online offers so many options is the sheer amount of liquidity. Generally speaking stocks will trade in the tens of billions in a day, while commodities trade about 6 to 8 times as much daily. However, the Forex market dwarfs them all with literally trillions in currency exchanged daily. The opportunity to profit in the Forex market is amazing thanks to this very liquidity and the leverage used to trade on it.
However, as many inexperienced traders have found out, the Forex market is unlike any other trading market out there.
What Makes Foreign Currency Trading Online Unique
All trading on the Forex is done in pairs. You’re not buying shares of a company or shares of one commodity, but for one currency to be bought another currency has to be sold. That’s why all Forex trading online is done in pairs. There are 8 major currencies that are involved in virtually every trade. When it comes to foreign currency trading pairs on the Forex, understanding technical graphing patterns is just as important as reading up on the fundamental reports of each nation whose currency you are trading.
Aside from the sheer volume, the liquidity of the Forex means that prices between two major currencies are constantly changing. Not only by the minute, but even every few seconds. Along with that is the importance of leverage. Leverage is what provides so much opportunity in the markets but also is the very trait that also creates so much risk for traders.
Generally speaking, $1,000 put down in a trade will be leveraged to control $100,000 in the markets. Profits and losses are measured by pips, which are generally .0001 dollars of whatever currency you are buying. The exception is any trade with the Japanese Yen, where the pip value is slightly different. This means a mere .0009 change in a currency pair like USD/CAD can result in very good profits or if the movement is against you, major losses.
The Best Way to Learn Forex
The single best way to learn foreign currency trading online is to sign up for Forex trading software and setup and account, then immediately log into the practice account. Because of leverage and the overall liquidity of the market, too many traders get overwhelmed early. Practice accounts use the real life market prices and changes, while allowing a trader to learn from trial and error without losing a large fortune of their own money. Since the practice trading reflects how real trading works, it is by far and away the best way to learn how to trade the real Forex market.
There are many opportunities available with foreign currency trading online, but this isn’t a practice that should be taken on lightly. Even extremely successful stock and commodity traders have run into serious problems trading the Forex when they rushed in too quickly. Tread carefully and use the practice software available and you will quickly learn when you’re truly ready to tackle the most challenging and intense of all the trading markets.