HOW TO MAKE PROFIT FROM THE FOREX MARKET

The forex, or foreign exchange, is simply a marketplace for the sale and purchase of various world currencies. Forex trading aims to take advantage of the floating exchange rates of these currencies, which literally fluctuate moment-by-moment, 24 hours a day. It is this volatility in the market which creates enormous opportunities for profit.

Forex trading used to be solely the domain of large financial institutions and investment groups. Thanks to the advent of online trading platforms on the internet, more and more individual traders are now able to participate in the market. There are many online brokers with whom you can open and fund a trading account. Most of them offer a free demo account, which allows you to learn to read the various charts, evaluate different types of technical analysis indicators, and practice risk management techniques, all without risking any of your own capital.

It is important to understand that currencies are traded in pairs on the forex. While there are countless combinations of different currencies, it seems that the most commonly traded pairs are: Euro/US Dollar (EUR/USD), Great British Pound/US Dollar (GBP/USD), US Dollar/Swiss Franc (USD/CHF), and US Dollar/Japanese Yen (USD/JPY). Many traders, especially in the beginning, will choose to settle on one currency pair such as the EUR/USD, and focus on the nuances of that one particular market. After gaining some experience and knowledge of currency interactions, many traders eventually go on to trade several currency pairs in order to increase their profit potential.

As with other financial markets such as stocks or futures, the market responds to the classical influences of "support and resistance." These are simply price levels that are determined by well-established mathematical models of price action over time, and serve to provide the trader with a reasonable expectation of the range that a particular market will trade within, on any given day. This fundamental knowledge (which is very easy to acquire), combined with even a minimal amount of technical analysis (also very easy to acquire), gives even the beginning trader the basic tools to trade the profitably.

It is widely known that every investment activity carries with it a certain risk of loss, and the forex is no exception. The extreme volatility of the market serves to amplify this risk factor at times. It is therefore imperative that traders implement an effective risk management strategy from the beginning. Fortunately, most online trading platforms simplify this task by providing the ability to place "stop loss" orders, either at predetermined levels or according to a rule specified by the trader. In this way, trades can be automatically terminated if they are going against the trader, thereby minimizing any loss of capital.

Success in trading the forex depends upon learning to balance the risks and rewards inherent in this market. There are many, many tools available online to accomplish that goal, even for the beginning trader. Overall, the dynamics of the forex market make it a very attractive investment vehicle for the individual investor, providing a unique profit potential with a minimal investment of time and money.