Foreign Currency Trading - Forex A Basic Explanation

By Arthur U. Fellon

The story was once told by a proud father of his young boy who previously had no business sense or acumen what so ever. It seems that this young lad had parlayed a meager sum of his money and cash into a rather large sum of funds simply by changing his wealth on a regular basis from one currency to another. As the young fellow instructed his father. Anyone can do it. You simply read the newspaper for current currency rates. It does not cost anything. Then I went to the bank and purchased traveler's checks , which to his good fortune his bank included in his service fee package. If the paper told me that dollars went up , I cashed in my US dollar denominated Amex travelers checks. If British pound sterling was low , I would use those funds to buy units in that currency. Add in Japanese Yen and E.U. European money into the mix , and all in all you have a simple explanation of forex , foreign currency trading. Interestingly the young man was able to place down a substantial down payment for a substantial new home in Coquitlam Canada.

There are two main theories related to analyzing forex transactions. The 1st is fundamental analysis which looks at the economic conditions surrounding the value of a currency to determine if its price is fair. The 2nd main analysis method is technical analysis which depends on analyzing historic patterns of a currency to predict where it will go in the future.

Generally a smart forex trader will use both forms of analysis when operating in the currency markets. Interestingly the world renowned British financial magazine "The Economist" uses a scale of McDonald's hamburgers and their comparative pricing around the world , back to a standard reference point as to the relative value of foreign currencies vis- a-vis each other. The method has been more than criticized in the staid world of international finance yet the Economist's ledger seems to be remarkably accurate in its statical record and history.

Currency markets are heavily influenced by news happenings. A change of political fortune or an election can change the value of a currency. A storm or natural disaster can do the same. Forex trading has the potential for large gains, but conversely there is the risk of large losses. If you enter the forex speculation Market you need to be clear what your risk profile is.

Forex trading is not for everyone , nor the weak of heart. Speak to knowledgeable investors who have been in a varied grocery basket and index of differing forms of investments and financial products. Experience tops all . Benefit from both their good and bad insights. Forex can be seen as a gold mine or it can be seen as gambling. If there are several rules to follow they are , do your homework , check your facts , limit your exposure to any one currency holding and lastly don't "invest" what you cannot afford to "lose - 23217

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