4X Trading

By: Mel Joelle


Trading in the foreign exchange currency market (Forex) deserves close consideration for inclusion in all investors’ portfolios. It offers some distinct differences and advantages that make it an ideal complement to other types of investments. One of these advantages is the sheer volume of trading activity the Forex market presents.



On average, daily volume of all world currency transactions is over $5 trillion. This means that Forex markets have liquidity that is unparalleled. An order to buy or sell currency is typically filled instantaneously, unlike some stock, future or option orders that can experience delays in execution that result in a fill price that is frequently less advantageous to the trader. A major difference between Forex and exchange traded financial instruments is that activity takes place 24 hours a day, five days a week. This makes it possible for someone who has regular job responsibilities to participate outside traditional business hours.



Perhaps the primary advantage, however, offered by the Forex markets is that the staggering monetary volume involved is so great that no single trading equity, even one of the world’s major governments or international banks can exert undue influence on currency prices. This means that the individual investor is participating on a level playing field and has access to the same exchange rates as every other participant.



The concept of Forex trading is elegantly simple. Two currencies are combined in what is known as a currency pair. For an example, let’s examine the currency pair that accounts for close to 30% of daily Forex trading volume, the euro/United States dollar (EUR/USD). In this pair, the euro is referred to as the front or main currency and the dollar is called the quote currency. A quote for this pair will typically look something like this: 1.38765, meaning that each euro can be exchanged for one dollar and almost $.39. Currency quotes are given out to five decimal places because the large trading volume makes them extremely significant. A trader who believes that the euro’s value against the dollar will increase would purchase the pair by instructing his Forex broker to buy a certain quantity of the euro while simultaneously selling an equal quantity of the dollar. If he was right and the euro increased in value compared to the dollar, he would make a profit when he instructed his Forex broker to close the transaction. If, however, he was wrong and the euro lost value, he would lose money and continue to lose money, until the transaction was closed. A trader who believes that the euro’s value against the dollar will decrease would sell the pair, selling euros while purchasing dollars. In this instance, the trader profits if the euro loses value and experiences a loss if the euro gains value.



Depending on the Forex broker chosen, there can be up to 100 currency pairs available on which to speculate, but new traders should focus on major currencies. The EUR/USD currency pair in our example would make an ideal choice for a new trader because prices tend to move slowly, allowing ample time to acclimatize to Forex trading. Currency pair prices can do one of three things: they can go up, go down, or remain steady. This makes Forex trading simple, some would say deceptively so.



For more information, Forex education resources and a complete introduction to all the necessary components of Forex trading, visit Lucror FX at www.lucror.com today.

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