Short history of the Currency Market
Foreign Exchange Market Trading, in a short Forex is the international name for the currency exchange trade market referring to pairs of currencies and their changing values worldwide. In 1971 this currency market was opened by the decision of the international banks to allow the unalterable currencies to float up and down with their real values on the international market. This historic decision opened one of the most gargantuan markets in the world, which is now open not only to professional brokers but also to private persons. Every day over 70 milliards of USD were traded in the years after 1980 and actually the market reached over 1.5 trillions of USD. Is this deluge of online currencies in exchange still real?
Currency Trading - how it works!
A currency trader opens his account with one of the internet brokers on the market and then he can buy and sell currencies immediately. The deal in currency trading is to buy a currency at a low price and sell them when they go high, so that the difference is the win of the day. As currency pairs float up and down a lot, there is a daily chance of winning and loosing constantly. Currencies are traded originally on the inter-banking market by brokers who are employed at those national banks who use the chance to profit from currency changes. The broker himself has his own customers, business and private investors who bring in their money to earn a profit on this market.
Since several years it is also possible for every private person to directly invest on a bank account for currency trading and just buy and sell currencies in many different directions, but mostly with the well known currencies like USD, AUD, EUR, GBP, CHF and some Asian currencies too. The private customer opens his online account and has access to the currency trading platform of the bank with realtime currency values. It is very important that the customer of the bank has a good and quick internet connection as some break down of the connection or his computer might cost him a lot of money or even ruin him, if he didn't put in security stops for the trade. The more traders of the Bank deposit money into this market, the more value can be traded by the professional brokers too. The bank broker is in a lucky situation as he cannot lose much because the bank is winning from the so-called spread, a small percentage of cost which is taken from the private trader for every trade he enters into the market. It is the difference between the buying and selling price of a currency which is given on the market between banks. So every online broker or bank will naturally get rich by having always income from the spread whereas the private dealer pays for his losses immediately and has to be very cautious about his personal risks.
Who wins and loses in the end?
The bank as a very cautious institution in general does also observe what her customers do on this online market and the software has a tool which gives an alarm if some customer is risking his whole money and the bank account is falling under a certain level of value. In case the dealer doesn't close his trades in this situation, the trades will get closed automatically by the software in case they fall under a positive value. This is a security for the bank and the private trader that his account cannot go into the negative. He can lose a lot but never more than he invested on the trading account. Some banks also change the spread in times of a hot market situation and then the customer has to be very cautious because he will suddenly pay more than expected. With a 100:1 rate of spread you invest 1000 USD to handle a total of 100.000 USD for currency trading. That's a lot for a beginner and a big chance to win, but at the same time a lot of risk to lose. Be aware of your risk and take precautions to prevent losses by activating stop-loss and take profit stoppers for your trades.
What online accounts and brokers are available on the international market?
In Germany for example, the 'FX-Bank direkt' offers currency trading accounts for everybody and they also offer practical instruction with online chat, email service and a phone service for several weeks. The service is really good, but every private person has to start with a capital between 4.000 and 50.000 Euro by a postident- registration to be accepted. The next step is to bring in one's personal information from having read some starter books for currency trading in one's mother tongue or in English by training to use the software of the chosen broker and bank. Every bank uses a different software for currency trading which is in general similar and easy to learn within a few days. For this purpose the banks offer Demo accounts with the same currency pairs and conditions but without real money so that every apprentice can learn how to handle the account and see his results in wins and losses to study how it really works. With some skill a newcomer is able to trade for a few weeks and get some good idea about the interdependency of some currency pairs like EUR- USD and USD-DKK or AUD and GBP or EUR and CHF.
In the United States OANDA Fxtrade is a big bank who offers the same services for private persons with a similar software based on Metaplan 4. The program is easy to learn and the hotline 24 h a day available. For a beginner who likes to try in real it is here easier to enter with a paypal payment quickly and without any limits to the sum. If you like to try for a small sum, you are treated not differently from a big investor. That's an advantage. OANDA offers also a special way of using boxes for future trades if you are able to predict a market direction you can put a trade with the help of a framed box and win if the currency touches the field of your box after a given time delay. That's a way to trade differently without sitting in front of a computer constantly watching the market go up and down.
A recently founded internet forex bank is EToro which also offers costfree accounts for everybody and won a world foreign exchange market price as the most innovating trading platform for day trading. EToro offers newsletters and trading workshops for beginners online under the name of private trainer. A demo account is quickly installed and the beginner starts with 8.000 USD of fictive electronic money to test. There are games between the dealers where the best trader can win a price. That might be an appetizing offer for young people who wish to learn currency trading. The advertising strategy of EToro sounds often a bit exaggerated as there is constantly some young housewife presented who got an income of over 100.000 USD in some months by trading only 3-4 hours per day and the rest was free time for her family tasks. From personal experience this seems to me rather unbelievable. The optimist might just test it and get his own experience and opinion.
How to get Currency Trading Experience without Loosing too much?
The trading experience from the Demo-Version of the account is slightly different as there is a very short time delay between the demo trading and the realtime trading but this doesn't hinder the practical learning effect. During the learning phase it is good for the new trader to use his time to study the market and the currency pairs and to allow himself to make all mistakes ever possible and see what happens, because then the chance to risk too much and lose in real is less. The trial - and learning phase of several weeks is useful for a beginner to see if his intuitive feeling for the market trend is good enough to risk his money on this market. Moreover the newcomer has to study the economic and political situation of the countries whose currencies he desires to trade as every incident of the government or of allied countries and even diplomatic wars like fights around the gasoline prices or the oil production not only real war situations can influence the currency value from one second to the next one. Low household budgets and big debts of nations in Europe like the so-called PIGS - Portugal, Italy, Greece, Spain can cause an unexpected drop of the Euro.
Analysis of Charts - technical question or intuition?
The charts can be shown in the software in various ways such as candle sticks with tendencies in colours to choose or line charts or point and figure charts. This can be chosen by personal taste but in general the professional brokers recommend to use candle stick charts as they offer 4 different ways of information. The highest or lowest point is seen and middle part of the candle shows the first and last value of a currency value. The candle stick chart can be watched in a grid between a minute timing or a quarter of an hour or half an hour, an hour and up to one year. There are additional analytic instruments offered on every platform which have to be studied thoroughly and cannot be discussed in this short article here. You can do a lot of technical analysis for yourself and with some tools, but be aware that the FOREX market is completely emotional, steered by political and economic news every day in different directions. So there is no garantuee that your analysis will really help you to forecast the trends. Most of it is trial and error and getting experienced with practicing it.
Big Deals to win by day trading with Currencies? Risks, Chances and more...
Currency trading online is open 24 h daily and 5 days per week as the exchange market for currencies opens on Monday morning Australian time and ends on Friday afternoon New York time. It is fascinating too for the hobby trader if he is able to watch the market round the clock for a longer time and develop his own strategy. The private trader can trade with a leverage of 100:1 and so move values up to 100.000 USD on the market with a small trading bank account, but that offers a big risk of greater losses and so the leverage of 40:1 or 20:1 is more useful for a beginner to see what happens. There is a lot of trader training books and biographies and informational literature about trading available on amazon and in other bookstores. It is hard to give any recommendation as the help which can derive from theoretic information depends on the state of information and practice of every trader and of his personal mother tongue. So everybody might just read the customer feedback of online bookstores and decide himself.
Winning money up to 20 or 25 % per day is possible when a market trend stays in the same direction for some hours, but naturally it is also possible to lose a lot when the trader has taken several times the wrong direction. The biggest risk is that when the trader has to leave a trade with a loss of money it costs him 4 times the effort to bring back this lost money again and restart winning at the formerly present level. This insight is normally paid with big losses as mostly every trader on this market who writes articles or even books will admit when asked that in the beginning he lost his whole capital or even more of it before he got somehow a winner in this risky brokers' game. If you try it you will see that nobody tells you about such effects like it is written here from personal experience got just by practice and real curiosity to see how this day trading works. Don't believe aggressive offers and promising housewife advertising, just make up your mind if you wish to try it and practice with low costs and low budgets to learn until you are able to win in a low range game. Only then go fore more if you are able to win in a stable way for more than several weeks.
There is a rule which is often talked about and for a good reason. When you enter the market with some trades, just stay present and don't leave your place as the trend might change and then you might get surprised with sudden unexpected losses. The problem of currency trading is that you can use risk minorizing tools as setting stop-losses with the software or take profit marks and so just make sure that you will not bring down your account when the internet connection gets lost, but allow me to report here that currencies move in big curves up and down and often it is not possible to set immediately a stop-loss or a take profit when you start some trade. You just have to sit there and watch it until the curve went into a longer trend so that it is useful to set your risk preventions then in a distance from the trend as the curve would move up and down and your set precautions by stop-losses would constantly put you off the trade and cost new spread for new trades.
Some Top Secret Rules for you....
5 Golden Rules for Start ups and Beginners in Currency Trading
There is five golden rules to observe for the beginner until he or she develops more skills to find his or her own strategy. Be sure that observing these rules can save you from loosing a lot of money:
Watch the market permanently for longer times and enter a trade when you see that the direction is holding on for a while so that you might be able to follow a longer trend. Don' t trade overnight or in absence when you didn't make sure that you already went along with a winning trend and set at least your stop-losses so that you will leave the market with a win instead of a big risk to lose.
Stay on a trend as far as it moves in the same direction, use longterm trends
Keep away from swing trading like going with quick trend direction changes as it happens in high risk periods of currencies and politically or economic critical exchange market periods when many people have quick reactions and the internet connection or the software might break down unexpectedly and then you really lose without being able to influence this.
Keep away from trading when you risk to get addicted to games as you need to be free of a personal feeling of wanting to control the market and the trends. As far as you are in a feeling of neediness to win or make money, you will be out of control and not follow your best intuition but cause lack for yourself and your account.
Develop your own strategy by choosing special currency pairs after having observed market trends and recurring trends of related currencies. Develop short term and long term trading tendencies to observe. On this field you might read about successful traders and their strategies, but don't believe what you didn't practice and trust your own skills.
Dr. Karin Wettig Munich January 2, 2011
Dr. Karin Wettig is Author, Coach and Trainer at Munich in Germany. As detailed on her webpage she is a musicologist, specialized in Classical Italian Belcanto Singing. Since 2007 she published books about the technique of Opera Singing, Belcanto Body and Voice Training. Moreover she does Concerts with a young pianist and writes literature under a pseudonym. Find out more yourself, if you are interested.
