All about forex

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What is FOREX trading?
          
 
Forex (Foreign Exchange) trading is the buying and selling of currencies, managed by the market makers, which are mostly banks and other financial companies around the globe. There is no actual physical delivery of currencies: the trading is done by closing FOREX deals online (agreements to trade one currency for another at an agreed exchange rate). Trading FOREX can be done through a software or a website provided by the market makers, or alternatively by giving the buy or sell order by phone to a broker.
 
What are the advantages of the foreign exchange market over the stock markets?
 
1.     
Foreign exchange is the largest and fastest growing market in the world. The huge volume and quantity of transactions mean that no player, as big as he might be, can control the market. Free of manipulations, the FOREX market can be traded equally by large financial institutions and private individuals.
      
2.     
By working directly with the market makers, you pay no commissions to brokers or stock exchanges, unlike in stocks, futures or options trading.
      
3.     
The small margins required for a FOREX Deal allow you to trade large sums with little collateral. The common leverage in FOREX is around 1:100 - it practically means that you can trade a $10,000 account with a margin of $100 only.
 
 
          
What does trading with margin mean?
 

Let’s say for example that by analyzing the graphs or other data, you have noticed that the US Dollar is going to strengthen against the Euro. You want to limit your risk to more than $50 but to maximize your profit in case your prediction turns out right.
 
You log into the system and give an order to enter a Forex deal of US Dollar Vs. Euro. You specify the collateral sum to be $50 (your margin), and the leverage to be 1:100 (the ratio between the margin and amount you want to trade).
 
With a $50 margin and a 1:100 leverage the size of your trade is $5,000. If the US Dollar goes up by 1% only, your $5,000 trade gains 1%, which is $50. Since you only gave $50 as collateral, you have effectively doubled your money and made a return of 100%.  And that’s in a single trade! Exactly in the same way, if you choose a collateral of $1,000 and the same leverage, you will be trading an account of $100,000 in which each 1% movement means a profit of $1,000.
 

Are there additional ways to minimize risk?
 

A good trader will use ways to protect himself even in the worse case scenarios. You should always set a stop-loss order in the system specifying a point in which your position will be automatically closed, to make sure you control the outcome even if your prediction did not come out right. Even if you don’t set a stop-loss order, you can never lose more that the margin you deposited.
 

 
What is the minimum I need to trade FOREX?
FOREX trading systems make it easy to for beginners to start and learn step by step. You can start trading with margins as low as $25. Once you are confident, and sure of your abilities, you may increase your trading account to receive proper returns for your time!

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