An Overview for the Novice of the Foreign Currency Exchange

you purchased and make a profit. On the flip side, if you sell (go short) a currency pair, you expect the base currency to decrease in price. Your objective is to buy later at a price that is lower than the price you originally sold, and thus make a profit off the difference.

There's more to it than can be explained in this overview, but you should get the basic idea.

What are the benefits?

1. With FOREX trading, there is no inventory, no employees, and no customers. Your overhead can be as minimal as a home computer with internet access.

2. You can get started with a "mini-account" investing as little as $300.

3. Currency prices tend to repeat in relatively predictable cycles creating strong trends. Once you learn how to trade properly, you can compound your money, and potentially turn a little into a lot.

4. You can trade for a few hours per week, or much more if you want to. It's all up to you.

5. The FOREX market is very liquid, with trillions of dollars traded every day. On its slowest day, orders can usually be placed within a few seconds if you stay with the major currencies. Instantaneous execution (1 to 2 seconds) is the norm during normal trade volume days (for the major currencies).

6. You can trade from just about anywhere as long as you have a computer with internet access to your account.

What are the risks?
1. The market can be very volatile, especially during times of major news releases, also known as "fundamental announcements." The time of these announcements is usually known in advance. Many traders simply stay out of the market during these announcements and wait until market volatility has settled back down.

2. If you use too much margin or risk too much on any one trade, your account could suffer badly on a trade that doesn't go your way. Proper risk management, including sound placement of stops and not risking more than 2 percent of your account on any one trade, can alleviate this risk. Do not risk more money than you can afford to lose.

3. A major world event could trigger a huge volatility swing that could wipe out your account (or even more). However, some brokers limit the loss to the amount in your account. (Of course, a major world event could also cause the trade to go your way.)

4. Trader psychology (fear and greed) can play a big role in your success or failure as a trader. Trading education is one of the keys to overcoming these human flaws.

5. You could fail to place a stop loss with your order. A change in price could force a liquidation of your trade if your account falls below the required margin maintenance. To alleviate this risk, always set a stop loss when you place an order.

This list is not meant to be inclusive. There are other risks.

How can I get started?

You can easily open an online account by selecting one from many available FOREX brokers. You can, and should open a demo account to practice (and learn) for several months for free. The practice account makes simulated trades using real-time data. This is called "paper trading." You should not trade your real account until you have proven to yourself that you can be profitable in your demo account.

Once you get started, you can trade currencies from just about anywhere. About all you need is a computer with internet access to your trading account. Many brokers also provide free charting software.

Jim McCabe

To read about anthurium plants and anthurium care, visit the Anthurium Flowers site.