If you've heard anything whatsoever about the FX market, it's potentially that it is the largest financial market in the world, at least apropos daily trading volumes. To be sure, the forex market is unique in several respects. The volumes are, indeed, enormous, which means that liquidity is ever present. It also operates full time six days every week, giving traders access to the market any time they require it.
Few trading limitations exist - no daily trading limits down or up, no limitations on position sizes, and no requirements on selling a currency pair short.
Selling a currency pair short means you're expecting the price to decline. Because of the way currencies are quoted and because currency rates move up and down all the time, going short is as common as being long.
Most of the action happens in the major currency pairs, which pit the U.S. Buck (BUCKS) against the currencies of the Eurozone (the European states that have adopted the euro as their currency), Japan, Great Britain, and Switzerland. There's also masses of trading possibilities in the minor pairs, which see the U.S. Dollar traded against the Canadian, Australian, and New Zealand greenbacks. On top of that, there's cross-currency trading, which immediately pits two 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, dependent on which forex brokerage you deal with.
Most individual traders trade currencies through the Internet thru an agent. Online fx trading is generally done on a margin basis, which permits individual traders to trade in bigger amounts by taking advantage of the quantity of margin on deposit.
The leverage, or margin trading proportions, can be terribly high, infrequently as much as 200:1 or larger, meaning a margin deposit of $1,000 could control a position size of $200,000. But trading on margin carries its own rules and wants and is the backdrop against which all of your trading will occur. Leverage is a two-edged sword, increasing gains and losses similarly, which makes risk administration the key to any successful trading methodology.
Before you ever start trading, in any market, check you are only risking money that you can stand losing, what's typically called risk capital. Risk administration is the key to any satisfactory trading plan. Without a risk-aware methodology, margin trading can be a very transitive endeavour. With a proper risk plan ready you stand a much better likelihood of surviving losing trades and making winning ones.
Felix Richman is an FX trader and reporter on subjects like forex robots, and popular FX software packages like FAP Turbo.
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