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Online Currency Trading - Top 10 Novice Trading Mistakes

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How Online Currency Trading Works

By : Doug Dearing
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Forex provides traders with the ability to conduct online currency trading. The term FOREX is an acronym and is derived from 'Foreign Exchange', which is the hugest and greatest financial market in the world, with an estimated turnover of $1.5 trillion a day. The big players in the FX market are brokers, banks, financial institutions, and some private individuals. Most trades are executed online, most of the time using some sort of high-tech trading software platform. Some people, however, still execute their trades right over the phone, like most trading has been done for decades. And there is no shortage to the number of online firms who offer trading platforms and/or trading on the phone.

You will find an primary, everyday term in Forex terminology: 'interbank', which means that the two trading sides (buyers and sellers) are ready to make an exchange transaction, i.e. make a currency exchange. Now again, on Forex, traders exchange different currencies at different rates. And here’s a useful fact: statistics have shown that over 80% of all world currencies trade against the USD (U.S. Dollar). So, the USD is the currency that is always being traded the most. The most popular traded currencies after the USD are the Pound Sterling (GBP), the Euro (EUR), the Swiss Franc (CHF), and the Japanese Yen (JPY). These currencies are what are known as major currencies or simply “majors”. And the rate that a currency is traded at is called the “exchange rate”.

When you trade, you always exchange one currency for another. For example, you could buy some USD and sell some EUR, or just about any other combination you choose. Your goal in the Forex game is to know which currency will go up in relation to another. So if you know that the USD will go up (in the next few hours, or maybe in the long term) in relation to the EUR, then you could Sell Euros for US Dollars, and when the USD goes higher, you sell it for EUR, and you will end up having more EUR than at the point when you started. In other words, you would have made a gain -- and therefore a profit.

On a daily basis, traders in the FX market might have to endure profit and/or loss swings of 15% to 35% or more. So you can make - or lose - a lot of money very quickly. The main objective of the trader here is to learn how to consistently turn one “coin” into several coins – if you will -- and to protect themselves from every conceivable loss. And the greatest part about this game is that the market is open 24-hours a day, Monday thru Friday. So you can react and trade, at almost anytime, to almost any market changes, and therefore you’ll always have the opportunity to get into a winning trade, or get out of a losing situation.

You can also use a Stop-Loss mechanism as a safety valve on all your trades. A Stop-Loss order will automatically take a trader’s position(s) out of the market -- if the position travels too far the opposite way (if were losing money), and/or if the funds in your trading account should fall below a certain level.

The FX market is so liquid that there is never a shortage of buyers or sellers. (A highly liquid market is one that always supplies enough constant financial transaction to instantly satisfy all buyers and sellers.) And here is some icing on the cake: some Forex trades can be executed without having to pay any commissions. This feature is very attractive for investors who make deals on a frequent basis, which is most common for day traders. And here’s some good advice to newbies: you should play mostly with the major currencies, since they are safer due to their higher liquidity. And remember, you don’t have to get in a hurry to trade, since the market never sleeps. So remember: market quotes change constantly, and great opportunities come up all the time. And it does not matter whether a currency is gaining strength or falling in price, because money can be made on either side of the coin.

About the author:
Doug Dearing owns http://www.currency-trading-pro.com an information site on the subject of Currency Trading


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