Have you heard about FOREX? How currencies are traded?

When you think about Forex, what do you think of first? Which aspects of Forex are important, which are essential, and which ones can you take or leave? You be the judge.

Let’s talk about FOREX and advantages of FOREX trading.

The good thing about FOREX is that the amount of money you need to place a trade (known as “margin”) is all that can be lost!

Of course, with the proper self-taught education you will win more than you will lose, but you should know  that despite the high leverage of FOREX trading (200:1 is possible, which means that when you put up $1 the trading vendor will allow you to trade it as if you have $200), it’s still  less risky than futures (commodities) trading. And when you trade stocks you can’t get this type of leverage.

Because of the FOREX market’s liquidity and twenty four hours continuous trading, dangerous trading gaps and limit moves are eliminated. Orders are executed very quickly, without slippage. If you do your research and find good brokers, they will automatically close some or all of your open positions if your account’s equity falls below the level required to hold the positions. You’ll never lose more than you have in your FOREX account.

Currencies are traded in dollar amounts called *lots* — One lot is equal to $1,000, which controls $100,000 in currency.
This is the “margin” I talked about above. You can control $100,000 worth of currency for only 1,000 dollars.

Currencies are always traded in pairs. The most popular currencies and their symbols are:

USD – The US Dollar
EUR – The currency of the European Union “EURO”
GBP – The British Pound
JPN – The Japanese Yen
CHF – The Swiss Franc
AUD – The Australian Dollar
CAD – The Canadian Dollar

A currency can never be traded by itself, so you can’t trade a USD by itself. You always need to compare one currency with another currency to make a trade possible.

The most commonly traded currency pairs are:

EUR/USD   Euro / US Dollar
“Euro”

USD/JPY   US Dollar / Japanese Yen
“Dollar Yen”

GBP/USD   British Pound / US Dollar
“Cable”

USD/CAD   US Dollar / Canadian Dollar
“Dollar Canada”

AUD/USD   Australian Dollar/US Dollar
“Aussie Dollar”

USD/CHF   US Dollar / Swiss Franc
“Swissy”

EUR/JPY   Euro / Japanese Yen
“Euro Yen”

The currency on the left is called the base currency. The currency on the right is the counter currency. For example, when you place an order to buy EUR/USD pair, you are actually buying the EUR and you are selling the USD. When you place an order to sell EUR/USD you are selling the EUR and you are buying the USD. Buying or selling a currency PAIR means buying or selling the base currency, and doing the opposite with the counter currency.

It might seem a little confusing, but actually it is easier to treat the currency PAIR as one item. It means when you place trades you simply sell or buy the pair. The base/counter concept is only important for fundamental analysis.

To decide when to sell or buy you will need to learn technical analysis and/or fundamental analysis.

In currency trading you can make money both, when the currencies go up or down.

The FOREX currency trading is a great way to work from home in your free time. You can trade any time you want, from Monday to Friday. But you must know that you can lose money in FOREX. So, getting the proper education and trading before doing any real trades is a must. Fortunately you can first practice on a demo account, until you get to the point that you win 70% of your trades. Nobody wins 100%. But you can be in profit even with 50% wins.

There are plenty of books and courses to learn currency trading, but be careful with all those $1000+ courses. Usually you can find courses with the same content for much less.

If you want to learn more about FOREX go to: http://www.currencytradingmethod.com. You will get a free e-book “Forex Freedom”.

A lot of people have been ‘burnt’ from scam operations on the Internet. Their sites may look so perfectly legitimate that you doubt whether they would have gone through all that trouble building a trading platform just to steal your money. Beware.

The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.

I started out with an Australian broker. Currently I am using an American one. I have not tried UK-based brokers but the British financial industry is one of the best. Companies that are based in countries such as Japan , Germany and France are probably just as good too, if their website speaks your language.

Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.

Take note that there are some fake regulatory bodies being thrown around in cyber-space as well. Take a look at how long they have been operating for. Try and search out any reviews or comments made about them. See if you can find forums where traders have discussions about their brokers.

Below is a list of things to keep in mind to help you avoid being a victim of a scam:

• Stay Away From Opportunities That Sound Too Good To Be True

There are people who may have just acquired a large amount of money just and recently are the same and are shopping around for safe investment vehicles. These may include retirees who have access to their retirement funds. It is understandable why retirees would be drawn to ‘high-return, low-risk investments’. This is also what makes them very vulnerable. If you identify yourself to be one of these people, be careful. A lot of deceitful characters are after your money. Furthermore, only allocate a tiny amount of your money to trading until you can start growing it. Not all people can trade successfully, so it is a venture you should take on haphazardly. It is your life savings at risk.

• Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large Profits

Any form of trading is hard. Trading currencies is no different. Be wary of statements that make it sound easy. Statements like:

• “Whether the market moves up or down, in the currency market you will make a profit”;

• “Make $1000 per week, every week”;

• “We are out-performing 90% of domestic investments”;

• “You’ll make returns of 70% a year”;

• “Here is a no-risk strategy”.

If they could make such returns, why would they even bother letting you know about it.

• Be Wary Of Companies Who Downplay Investment Risks

Hold your wallet tight and zip up your purse when companies say that written risk disclosure agreements are routine formalities imposed by the government. Watch out for statements like:

• “With a $10,000 deposit, the maximum you can lose is $200 to $250 per day”;

• “ We promise to recover any losses you have ”.

• Be Wary Of Companies That Claim To Trade In The ‘Interbank Market’

Do not believe it when some people say that they have access to the ‘Interbank market’ or that they can give you access to trade in that market because that’s where bargain prices can be obtained. This is not true. The ‘interbank market’ is not a place, it is not a physical building. It is simply a loose network of currency transactions that are negotiated between big financial institutions and other large companies.

• Ethnic Minorities Are Often Targeted

Ethnic newspapers and television ‘infomercials’ are sometimes used to attract Russian, Chinese and Indian minorities. Sometimes these ads offer so-called ‘job opportunities for account executives to trade foreign currencies’, whereby the recruited ‘account executive’ is expected to use his own money to trade currencies and would often times be encouraged to recruit members like their friends and family to do the same.

• Seek Out The Company’s Background

Check any information you receive to be sure that the company is who they claim to be. If at all possible, try and get the background of the people operating the company. Do not rely solely on oral statements and promises made by the company’s employees.

• If You Are In Doubt, It Is Not Worth Risking Your Money

If after trying to solicit information and at the end of it all, you are still in doubt about the credentials of a particular company, my suggestion is to start looking elsewhere.

You may find further information by contacting government ‘watchdogs’ because they keep up to date with trends and reports regarding scams and other fraudulent activities. Please check the resource section of this site for the information of organizations that regulate the securities industry, sorted by country. There is also a list of brokers that you may want to look at.

This is an excerpt, modified from the book: The Part-Time Currency Trader.

While foreign currency trading offers its rewards, especially when you are able to trade in major currencies like the US dollars and Euro, caution against advertisements and brokers that offer instant riches must be observed.

There is move to regulate foreign currency traders. Unfortunately, not all in the industry are registered. Not entirely illegal, many unregistered brokers populate the financial markets. Extra precaution is suggested for individuals and companies when they deal with forex brokers.

The United States has passed a federal law, the Commodity Futures Modernization Act of 2000 that gives authority to the commission to investigate suspicions of frauds in the transactions.

Frauds in Forex trading have telltale signs and you must be aware of these. Be wary of schemes that offer quick riches. An experienced Forex brokers will tell you currency trading is not a risk free business and only those with real analytical methods can succeed in the field. And, even when projections seem sound, there is no way of telling exactly how strong a currency will hold out against many factors. So watch out for those who promise large profits no matter the economic condition is.

Most brokers ask for margin investments. If you are not fully aware of how this works, do not venture into it. You may be losing s more than you earn in the long run. Beware also of the “interbank market” service that brokers may offer. In reality, only large banks, corporations and investment institutions have access to this loose network of currency traders.

To be sure about the credibility of the brokers you are getting, study their profiles and company background seriously and extensively. Stick with a shortlist of firms that are registered with the regulatory commission on commodity futures.