FOREX Secrets

How did the taipans and billionaires get so filthy rich?!

Besides the more obvious hard work and diligence and always saving little by little in their piggy banks, the really rich guys know how to work up the foreign exchange.

Basically, foreign exchange trading or simply FOREX trading is just the buying and selling of the world’s currencies. Money today is not the same as money tomorrow. Money has time value. The worth of a currency can go up or down.

There is one secret that FOREX traders live by. And it is buy low, sell high. Don’t ever forget that rule.

However, the trick is to know when to buy and when to sell. In FOREX trading, everything is by speculation. Sure, there are graphs to aid decisions. Business pages also give out strategies for the day. But the next step is always a guess based from the previous actions.

FOREX traders like to call their speculations as smart guesses. Usually, patterns on the currency values can be derived from how the politics of a specific country is running.

For example, if there is a plan to oust the president, most probably the value of that country’s currency will go down—how low, we don’t know. Usually. Because there are still a lot of factors to consider why a currency is going strong or not.

Improvement on the tourism sector can mean more foreign investments. This will be good for a particular currency, but this may affect how the other countries are doing.

These are just trade scenarios. As the cliché goes, one man’s medicine may be another man’s poison. One country’s good tidings may be another country’s, well, downfall.

That is why in FOREX trading, another secret to live by is to be aware of the national news in the country concerned.

Current events have a say on the economics of a country. Money makes the world go round, so to speak.

But, if one is truly serious in earning their first million in FOREX trading, another secret is—it might be a good idea to invest in a FOREX trading training school. Learn from the pros and conquer the world afterwards.

Let me leave you one last secret I learned from my father. If everyone is going in this direction, go the other way. This applies to FOREX and other areas of life. You won’t ever get rich by following the crowd.

Besides buying low and selling high, follow that last secret and you might just join the ranks of the taipans and billionaires.

What is Forex?

      

 FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.

In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.

Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.

Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.

This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).

Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.