Currencies As The Trading Tool

If you have heard anything at all about the FX market, it’s probably that it is the largest financial market in the world, at least re daily trading volumes. To be sure, the forex market is unique in numerous respects. The volumes are, indeed, massive, which means that liquidity is ever present. It also operates fulltime six days each week, giving traders access to the market any time they need it.

Few trading limitations exist – no daily trading limits up or down, no restrictions on position sizes, and no requirements on selling a currency pair short.

Selling a currency pair short means you are expecting the price to decline. Due to the way currencies are quoted and because currency rates move up and back down all the time, going short is as common as being long.

The majority of the action occurs in the major currency pairs, which pit the U.S. Dollar (USD) against the currencies of the Eurozone (the European countries that have adopted the Euro dollar as their currency), Japan, Great Britain, and Switzerland. There’s also plenty of trading opportunities in the minor pairs, which see the U.S. Dollar traded against the Canadian, Australian, and New Zealand bucks. On top of that, there’s cross-currency trading, which without delay pits 2 non-USD currencies against each other, eg the Swiss franc against the Japanese yen. Altogether, there are anywhere from 15 to 20 different currency pairs, depending on which forex brokerage you deal with.

Most individual traders trade currencies thru the Web thru an agent. Online FOREX trading is typically done on a margin basis, which allows individual traders to trade in larger amounts by building on the amount of margin on deposit.

The leverage, or margin trading ratios, can be really high, sometimes as much as 200:1 or greater, meaning a margin deposit of $1,000 could control a position size of $200,000. But trading on margin carries its own rules and requirements and is the background against which all of your trading will happen. Leverage is a two-edged sabre, intensifying gains and losses equally, which makes risk administration the key to any successful trading system.

Before you ever begin trading, in any market, check you are only risking money that you can stand to lose, what’s commonly called risk capital. Risk management is the key to any satisfactory trading plan. Without a risk-aware strategy, margin trading can be a very short-lived endeavour. With a correct risk plan in place , you stand a much better chance of surviving losing trades and making winning ones.

Felix Richman is an FX trader and columnist on subjects like forex robots, plus well-liked FX software programs like FAP Turbo.