What is Forex Trading
When the United States went off the gold standard in 1971, national currencies became increasingly controlled by supply and demand. Volume of trading expanded, and volatility escalated. With the flourishing of the Internet and technology, capital flowed more freely from country to country, and continent to continent. Today, time zones are irrelevant. Forex trading follows the sun.
Known as the Interbank, the trading and exchange marketplace is over-the-counter. Currency trading is done electronically, by telephone, computer, or Reuters. No such entity as a stock exchange exists in the world of spot Forex trading. With over $1.5 trillion traded daily, foreign currency trading is the world's largest financial forum.
Buying and selling foreign currencies electronically in Forex trading results in high liquidity. The marketplace is open 24 hours a day, from Sunday evening to Friday afternoon. With constant liquidity, the forex trader can respond instantly to any event in any country in the world. All the more reason for only very experienced investors to participate in the forex market, namely, those who understand and can interpret trading signals. Margined currency trading is among the most perilous of financial transactions. Only seasoned, knowing professionals should participate.
Successful, that is profitable, currency trading demands careful attention to economic conditions and political decisions in countries worldwide. These matters affect the value of each national currency relative to other national currencies. Confidence in the country's policies and decisions is reflected in the buying and selling of its currency. A country's stability is a strong factor in the flow of foreign investment into its economy.
The spot forex trading market is unique in the financial world. It is the largest market, with a daily volume of $1.5 trillion. Buying and selling are nearly instantaneous because of electronic transactions. It is open for business 24 hours a day, from Sunday evening until Friday afternoon.
Unlike the stock market, for instance, the spot Forex trading forum is unregulated. Firms that offer services to the retail (general) public in this off-exchange market are under the authority of the
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Commodity Futures Trading Commission (CFTC). However, the worldwide forex trading market itself is unrestricted. No government can intervene unilaterally in the currency trading marketplace. The foreign currency trading forum developed after the United States went off the gold standard in 1971, and the market sustains itself only because there continues to be willing buyers and sellers.
Electronic Transactions in Spot Forex Trading:
The bottom line here is price. The spot market in foreign currency is cash transactions only via phone, computer, or Reuters. An investor's funds are, therefore, always liquid. The buyer-seller agreements can be lightning-fast. Risks are high, and profits and losses can be significant.
All the more reason that firms which manage these accounts caution that only sophisticated, experienced investors should become involved in this market. For instance, it takes a savvy investor to fully comprehend and appreciate the perils of trading on margin, especially in the spot market. Any potential investor should be aware that funds placed in spot Forex trading accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), or any other government entity
Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.
It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade.
There are different money management strategies. They all aim at preserving your balance from high risk exposure.
First of all, you should understand the following term Core equity
Core equity = Starting balance - Amount in open positions.
If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$
It's important to understand what's meant by core equity since your money management will depend on this equity.
We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.
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