Forex Trading: Is it Right for You?

What is Forex Trading?

Forex is the largest financial market in the world. When you trade in the foreign exchange, you’re simply trading one currency for another. You make money by trading for currencies that are going to increase in value. Think of it like the stock market – when you buy stocks in a company, you want to purchase stocks that are going to increase in value. You then sell those stocks at their increased value if you want to make money (and you lose money if they decrease in value).

Forex trading is similar. You essentially are converting your money into another currency, and betting that currency will be worth more than your starting currency after a predetermined period of time.

All transactions in Forex trading are done in pairs because of this conversion process. For example, you may invest a certain number of dollars, by converting them to Euros, because you’re anticipating that in a few hours’ time the Euro will increase in value compared to your starting dollar. If the Euro does increase in value, you then sell it back (converting it back to your starting Australian dollar) in order to earn the profit.

Unlike most markets, the Forex is a 24-hour market (during the work week), which begins every day in Sydney.

Benefits of Forex Trading

Why should you consider Forex trading over the stock market and trading equities?

• The 24-hour market means you can make deals with other traders at just about any hour of the day.
  
• Funds are more liquid due to the sheer size of the Forex market (there are always going to be buyers and sellers available to trade in the currencies you’re looking to trade in).
• Forex brokers (both traditional and online) generally charge much lower fees than those of stock brokers.
• Forex traders have equal access to market information (the changing values of currencies worldwide) unlike stock market information.
• Unlike equity trading, you can trade on the foreign exchange in both bull and bear markets, where you may have problems making trades in other types of markets.

Disadvantages of Forex Trading

“Forex trading sounds great!” you might be thinking. But before jumping in, there are still a few things to keep in mind. For example, while a 24-hour market allows you to trade at any time, it may also become a very time-consuming job or hobby just trying to keep an eye on the market. Other things to keep in mind are that retail traders are required to use brokers in Forex trading, and Forex trading can involve a great deal of risk.

Evaluate the pros and cons of Forex trading, and compare it to other investment opportunities or markets before getting involved to determine if it’s the right market for you.

Article correct at its author date: August 2008. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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