What is Forex Trading?

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Forex is short for foreign exchange. Forex trading therefore is trading in the foreign exchange market. When you trade Forex you’re not trading a single currency, but you are trading a currency pair. A currency pair, as you may have already guessed, consist of two currencies. You may have seen the symbols for these currency pairs displayed in such ways as, EURUSD, EUR-USD, or EUR/USD. The symbol EURUSD is the symbol for the euro US dollar currency pair.

With a currency pair symbol EURUSD the first part, EUR is known as the base currency and the last part, USD is known as the counter currency. The price action of a currency pair indicates the relative strength of the base currency in relation to the counter currency. For instance if the price of the EURUSD is 1.5000 and the price goes up to 1.5100 then the euro has increased in relative value compared with the US dollar. If on the other hand the EURUSD is 1.5000 and the price goes to 1.49500 then the US dollar has increased in relative value as compared to the euro.

Now that we’ve covered a bit about currency pairs and their symbols let’s talk more about Forex trading. In general Forex trading is a speculative activity. In other words, traders look to profit by speculating whether a currency pair’s price will move up or down. A trader anticipating that the euro will increase in strength relative to the US dollar would buy the currency pair, EURUSD. On the other hand a trader anticipating that the euro will decrease in strength relative to the US dollar would be looking to sell short the EURUSD.

In general, trading can be considered to be much more short-term in nature than investing. Whereas an investor may hold a position for months and years a trader may hold a position for only a few minutes and even up to several days or weeks.

Forex scalping – Scalping is a short-term trading method designed to capture small profits, often just several pips. Scalpers often place numerous trades during a single Forex trading session.

Forex day trading – Day trading in the traditional sense is different than Forex day trading. In the traditional sense of day trading there are no overnight positions held. Since the Forex market trades essentially around-the-clock day trading Forex can take place any time within a 24-hour time period. For instance, day trading could take place from the close of the New York session on one day till the close of the New York session on the next day. It is important to note that a trade of this length which is essentially 24 hours would be considered a long time to stay in a single day trade.

In general, in Forex trading you’re looking to profit from choosing the correct direction of a currency pair. Although trading in general can be spoken of to be, “short term” your objective is a trader is to profit consistently for long-term success.

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Why Forex Trading Should Not Be Viewed As An Income Opportunity

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The ways you see Forex trading systems and courses advertised these days you would think that trading Forex is the greatest thing since sliced bread. Everywhere you look there seems to be some young, successful-looking person standing next to either a mansion or an expensive exotic car. You’re supposed to think that the super-successful person acquired these things using their extreme Forex trading acumen.

Okay, now that I sound like I’m such a Forex trading pessimist let’s do a little myth busting if you don’t mind. When you think of income opportunity, what comes to mind? If you ask me I would think of something like selling Amway or maybe Avon or Tupperware or perhaps Mary Kay. If I’m not mistaken each of these requires a modest capital investment and has real, tangible products to sell. This isn’t to say that an income opportunity can’t be service-oriented, these are just some common examples.

So how did Forex trading come to be thought of as an income opportunity in the first place? Is it the fact that you can start trading Forex with as little as $25? This small amount money would certainly not be a huge barrier to entry and is also something that most anyone can afford. The fact that it doesn’t cost much to become involved in Forex trading may have a lot to do with the high level of appeal that it has. Along with this we would have to include the almost bottomless pit of hype surrounding Forex trading. Basically, everywhere you look it appears that people are getting rich and making their financial dreams come true simply by trading Forex. Does this happen for some people? Absolutely, I’ll be the first one to acknowledge that some people do extremely well in Forex trading…but let’s dig a little deeper into what Forex trading really is.

I’m not here to discourage anyone or to burst anyone’s bubble about Forex trading, not in the least. I may sound like I am against Forex trading I most certainly am not. In fact I love trading Forex, always have and always will. So what exactly am I here to say? Good question! I’m here to say unequivocally that Forex trading should not be viewed simply as an income opportunity. This skews expectation levels of beginning traders to the point that they believe they can simply place money in account and instantly become a successful Forex trader. Let me set the record straight. Forex trading is speculation. Merriam-Webster defines the speculation as “assumption of unusual business risks in hopes of commensurate return”. The key word in that definition is “unusual”. In the world of global financial market speculation we can translate the word “unusual” to basically mean “high”. In other words, Forex trading is a high-risk venture any way you slice it. This is evidenced by the extremely high percentage of individuals who enter into Forex trading, but lose money by doing so.

So your expectation level should be that Forex trading is high risk. For those who trade without the proper training and skill level trading is not only high risk it is a virtual impossibility for them to make money.

Now that you have your expectation level adjusted the prospect of Forex trading may even be a little bit scary to you. Actually, that’s a good thing, because if you are scared or nervous it simply means that you are unprepared for the risks of Forex trading. If you feel unprepared then you have two choices; 1 – either prepare yourself or 2 – don’t trade Forex. If you decide to take the first option then it’s time for you to start to learn how to trade Forex. By learning to trade Forex you will increase your probability of success simply by increasing your level of preparation.

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How to Choose the Best Forex Day Trading System

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Finding the best Forex day trading system will be important to your Forex trading success. There are many products available to choose from, so you’ll need to learn how to evaluate them in order to make the best possible choice.

The very first thing to keep in mind, of course, is that all Forex day trading systems are not created equal. Some will clearly perform better than others and some will simply not work well at all. Here are a few of the criteria for selecting the best day trading system for you:

Does the Sales Material Sound like Hype — it’s understandable that there should be a certain amount of hype in any sales material, after all it is advertising isn’t it. Unfortunately, in the Forex trading arena ridiculous performance claims have become the rule rather than the exception. Even more unfortunate is that most of these performance claims simply either are not true or are certainly not sustainable for the long term. The lesson to be learned here is that if it sounds too good to be true it probably is.

Does the Vendor Leave out Important Details — some vendors of Forex day trading systems may leave out important details in their performance reporting. One such important detail is the systems maximum drawdown level. In short, the maximum drawdown level is the largest drop in equity that the trading system has experienced. It is important know the drawdown level because you will need to understand how much of your account equity may be at risk at any time during your trading of the system.

Does the Vendor Make Ridiculous Claims — does the vendor make claims like “100% winning trades”? Fortunately, you and I are smart enough to realize that that is a ridiculous as well as a fraudulent claim. In reality, if I personally possessed a 100% accurate for extreme system I wouldn’t breathe a word about it. Would you? The percentage of winning trades is not nearly as important as most beginning Forex traders might think, so don’t be overly impressed by a high percentage of winning trades.

Does the System Have a Long Track Record — in order to evaluate any Forex day trading system we want the longest possible track record that we can get. A short track record such as a two-month track record is basically useless. That’s because even some of the poorest performing Forex day trading systems can have two months of stellar results.

As you can see it will be important for you to learn how to evaluate trading systems before you choose the best Forex day trading system for you. While the evaluation process may seem tedious to some, it will serve you well in the long term by helping you avoid those trading systems which might keep you from the success you desire.

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