Friday, November 27, 2009

Forex Currency Exchange Market Basics

It is important to know that day trading the Foreign Exchange Markets (Forex) or (FX) adheres to the same concept of other styles of currency trading but differs slightly in the terms of execution, functionality and risk tolerance levels.

In order to avoid the risk of an event happening somewhere in the world that could have an adverse affect on the currency they buy, the trader will sell the currency at a loss if it is needed. A geopolitical event, governmental reports released regarding a countries economy or an increase in the price of a commodity, such as oil or gold are those factors that could cause a decrease to a currencies value.

By day trading the currency investor has substantially decreased their risk of an occurrence out of their control happening and not being able to react to it immediately.

There are two types of a currency day traders system; it could be either manual or software based. Today’s statistics show vast majority on all FX traders utilizes a computer based trading system and this is growing yearly, not only for day traders but all traders. The day trader’s style is mostly based on either signals or trends or a combination of both. They assemble the information in the form of fundamentals, utilization of various charting systems, technical analysis and gathering of new information.

Every professional currency day trader has developed his/her own specific personality towards trading and even might have found another market form they prefer to trade in. A highly volatile market offers the day a huge upside for profits where as their downside risk is controlled and considerable less than the upside gain potential.

They control the downside risk through the use of a Stop Loss (SL,) which the trader will set when initiating the trade or anytime the trade is still open. The SL is usually set very low and this means that even the smallest downside in the currency could force a sale. There is one big advantage that you must be aware of, that it is a highly liquid market where the sale of the currency occurs instantly in most circumstances.

A market where a trend in a particular currency has been established thus ensuring profits is the other type of market day traders like to concentrate on.

“Trend” - means an established movement that is able to be predicted and the day traders usually are the first ones to recognize the trends starting and the first to realize a trend changing.

If you are interested in it you can use numerous commercial Forex training courses and currency trading software systems (that are not expensive!) that have been developed especially for the day trader in order to improve your knowledge and to make you ready for day trading the Foreign Exchange Markets.

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