Everybody needs money, that is clear enough, but how do you get it, or enough of it, on a regular basis to be able to enjoy a fairly comfortable life? Most people work for somebody else, some others prefer to set up their own company in order to be their own bosses and still others choose to buy and sell intangible goods like stocks and shares. A concept comparable to this last one is trading currencies on the foreign currency exchange, which is normally shortened to Forex or even FX.
The Forex is the largest market in the world. It turns over trillions of dollars every day and is actually open 24/7. Every country in the world has access to the Forex and every government and every bank trades on it every day. With all this money sloshing about it is obvious that there is a lot of money to be made from trading on the Forex. However, one must never forget that when someone wins, someone else loses. Billions of dollars are made and lost every day.
Never let anyone persuade you that making money on the Forex is easy. If it were straightforward, everyone would be rich and if everyone were rich no one would be. There is no easy money. However, what Forex traders try to do is establish a strategy that works for them. Once a profitable strategy has been developed, traders try to apply that same strategy over and over again. This is a way of minimizing risk and, it is hoped, maximizing profits.
As you are developing your own strategy or maybe adapting one that you have read about in a book on Forex strategies, you will come across various terms which describe tools that are used in parts of those strategies. One of the most common tools is known as ‘Leverage’.
Leverage actually multiplies the value of your trading account. Leverage is often 100 times the actual, funded value. Therefore, if you have $1,000 in your account, you can exploit leverage to ‘play’ with $100,000. This evidently gives you higher gains or losses and is a dangerously useful tool.
Another tool to be utilized in your general strategy is the ‘Stop Loss Order’. In many ways, the stop loss order can be used to stop you making a total idiot of yourself with leverage. For example, if you bought the USD/GBP at 1.50 and expected it to go to 1.60 and it does head off in that direction all well and good. However, you could place a stop loss order on the transaction at, say, 1.47, so that if it goes in the wrong direction you can only lose a ‘little bit’. The stop loss order is there to permit you to run your profits, but minimize your losses.
An ‘Automatic Entry Order’ allows you to enter the market at a price prearranged by you. So, for example you may think that the USD would never sink below GBP 0.66 in a million years, but if it does hit 0.66, you are so sure that it will rebound that you want to buy at that price at any time. You set an automatic entry order and you will never miss that chance, if it ever arises.
These tools or strategies can be used in an overall strategy to minimize risk, but not eliminate it, you still have keep your eye on the ball and learn the rules of the game.
Owen Jones, the writer of this article, writes on many subjects, but is currently concerned with a currency trading tutorial. If you are interested in dealing with an FX Trading Account, please go to our web site.