Between 5 p.m. EST Sunday and 4 p.m. EST Friday every week, millions of Forex traders around the world make profits by predicting, future movements in currency exchange. With nearly 1.8 trillion dollars changing hands daily, the Forex market is the largest, most fluid market in the world. Traded 24-hours a day, with investors having instant access to price changes internet trading platforms, it is possible to watch your fortunes ebb and flow—one pip at a time.
A pip is equal to the smallest price increment that any currency can make. For the U.S. dollar and most major currencies, that amounts to 0.0001 of a currency unit. It may seem impossible to make any money when dealing with such small numbers but this is not the case. The standard transaction unit on the Forex is $100,000 and is called a lot. Thus, the movement of just a few pips can turn into big profits or big losses very fast!
So why Forex?
The good news is, trading the Forex is very different from gambling as the odds are not stacked against you. That being said, you can still lose your shirt if you over trade. Any experienced gambler will tell you that playing against the house is a losing proposition. Similarly, professional and successful Forex traders know that trying to trade too often is simply stacking the odds against them.
For whatever reason, most of us are simply not going to risk $100,000 of our own money on something as volatile as the Forex. This is why the margin is such an important factor when thinking about buying and selling positions. Typically, an investor would need to put up $1,000 of their own money to buy a lot, or 1/100 of the total. Leveraging a position may be a practical necessity but it also means the average investor is more at risk from price fluctuations. The more leveraged the position, the greater it will be affected by pip movements—up or down.
How to Read and Trade the Market
Making a profit in the Forex market boils down to knowing when to enter and exit a position. Investors place stops on orders to help limit losses and they need to rely on those stops to prevent them from losing too much, or bailing too soon! Investors who track the market every minute of the day and constantly monitor their positions are not only more likely to go crazy, they are also more likely to bail when the price starts to dip. As long as you have stops in place and are sticking with your investing strategy, be patient! Check the market at the close of each day and just hold to your strategy until the charts indicate otherwise.
It is difficult not to worry about your investments so the natural impulse is to monitor them closely. However, the time to do your homework is before acquiring a position not during. Backtesting will help you find the best currency pairs for your investment preferences. Once you have the stops in place, check the charts and market once a day and let the investment ride. Losses are part of the game and your stops should protect you from losing more than you are comfortable with. Forex can make you a lot of money with moderate risk but the odds will turn against you if you play too often!
Learn how to read the charts to make your profit explode.