What Is Forex Trading All About

What Is Forex Trading All About

In this article we'll discuss some of the pro's and cons of Forex and answer the question, what is Forex Trading all about? Hopefully by the end you'll know whether Forex is for you.

 

What Is Forex Trading All About

Forex trading is all about leverage. Yes, forex is short for 'foreign exchange' and traders are buying and selling different currencies in order to make profit. However, they wouldn't be able to do this without leverage. This is especially true for everyday people who are trading on the web from home.

Leverage is a loan provided by the broker who is handling the trade. In general, leverage may be between 50:1 and 200:1. A leverage of 100:1 means a trader can turn $1000 of his or her own money into a $100,000 trade. However many online platforms allow people who are forex trading on the web to access leverage of up to 500:1.  This allows people to trade with very small amounts of their own money.

You'll probably get sick of hearing this, but while leverage allows you to trade with a large amount of money, when you lose you can lose big. I won't go into too much detail, but the amount you trade with (your initial deposit) is your margin. If you are trading with a leverage ratio of 100:1 it means you must have at least 1/100 (1%) of the total value of your trade available as cash in your account.

What is Forex Trading All About - Video

Forex Trading on the web

Forex trading on the web has become very popular over the last few years as more and more people find it accessible. All you need to get started is a computer, a small amount of money, and the willingness to take a risk. You don't even need to ring a broker every time you want to make a trade.

Anyone wanting to take that risk and get "skin in the game" would have no trouble finding an online trading platform. A quick Google search turns up seemingly hundreds of options. I'm not a trader myself, nor am I an affiliate so I am not going to give anyone advice about which platform they should choose, if any.

Is Forex Trading For Dummies

You may wonder, how is forex trading for dummies if you can make so much with so little? That is the upside of leverage: you are able to risk money you don't have. But you can't take the big gains and think that leveraging can't hurt you on the downside. All traders need to remember they are risking real money that can potentially put them in a big hole.

Is forex trading for dummies? Even brokers seem to think so. In fact some brokers actually work out who their worst traders are and don't even pass their trades onto the market. These brokers are so confident their "B" traders will fail that they are willing to take on any losses they may incur if the trade is actually successful. In essence they are betting against their own clients. This is a pretty shady practice and few brokers will admit to it.

So  while there are plenty of websites promoting the guy who makes thousands of dollars a week by forex trading on the web, there are many more people making bad trades - and not just the occasional one. And even the best traders can get hit by unexpected shocks.

So what is forex trading all about? It should be clear that it is definitely not some get rich quick scheme. Just like payday loans, Forex may look good at first glance, but there are plenty of risks. The bottom line is: if you don't want to be a dummy make sure you trade with your head, not your heart.