What is forex trading and currency investing, and how market speculators and hedgers engage in both methods to profit from the global financial markets.

What is Forex Trading and How Traders See it

Forex trading is a broad and inclusive term which includes many different methods and forex strategies for trading the underlying currency pairs that each strategy, or each specific trader focused on. The variety of these techniques and methods is very large, as the global forex converter mechanism offers non stop trading from late Sunday through to late Friday hours. And this includes many different pairs of currencies. So ultimately it offers traders a lot of choice and flexibility, so as to enable them to make money. Most traders by definition of the word trade, are short term investors. We can think of trading as short term investing, and all investing and trading can either be for speculative, directional objectives on market price, or for hedging purposes where the objective is to limit the risk on another, opposite investment. The question of what is forex trading used for in today’s world, goes far beyond simple investing and trading. It is used largely as a way to make profits in the speculative way, but also just as largely in a hedging way, by where businesses, of large and medium size, reduce the risk that the open market imposes on them. Hedging is about limiting risk, and ultimately increasing profitability in those businesses.

The global foreign exchange market bridges distant continents and countries together, making the trade world smaller and more efficient. Ultimately, it’s all for the better.

What is Investing and Long Term Hedging All about?

Traders and investors often engage in long term strategies, such as the Carry trade, where the objective is to profit from price movement as well as interest rate differentials on various currencies. One has to exercise extreme caution and use a forex calculator when planning such investments. The smallest miscalculation can sabotage the entire strategy, resulting in very poor profitability, or even a loss. You may ask what is forex trading used for, in these longer term strategies where mostly macro economic factors such as interest rates play the most part. But the two are strongly related. In order for one to plan long term currency investments right, such as the Carry trade type of investments, they have to also be a knowledgeable forex trader. By being both a trader and an investor, one is able to hedge short term adversity and volatility, while maintaining long term objectives. The big money is usually made in the long run. Some investment banks do make money trading the forex market on a day to day basis, but their techniques are more about chasing price momentum than having a real speculative trading plan. By contrast, the longer term strategies, are much more complicated and require meticulous planning, but once in place, the trader or investor only need to check the market few times a week and not spend the whole day at a computer screen.

Forex training can provide important directions to help new traders focus better on what they want to achieve, and select trading methods best suited to them.

What Forex Training Can and Cannot Offer

Forex training can offer great guidance to new traders so they learn few basic things to help them gain more orientation and specific knowledge as to what they want to get out of trading, By seeing the tasks and benefits involved in various trading and market analysis methods, they are able to choose what they like most. After all, we are all different, and everyone of us prefers different things. Trading forex is quite a challenge, especially when utilizing forex news and various volatility tools. News in particular is tough because it often defies common sense and it seems to work in counter intuitive ways. But it is profitable to trade because it offers so much volatility, excitement and makes trading so much more interesting. Traders always learn new things and tips from older traders, which is good. Above all, it is the encouragement and confidence that all new traders get from the old guys. There’s nothing like an old wise trader telling you that it is possible to beat the market, and showing you all the proof in the world that it really is so.

What new traders learn in a training course usually includes basic indicators, momentum trading techniques and a lot of trendline analysis methods. These start from basic generic methods and may extend to some proprietary level, as developed by the teacher of the traing course. The fact is some of these methods do work, more often than not, and there is always a teacher who has found a new way for using classic indicators, so training does have something to offer!

 What Training Cannot Offer

Forex training cannot offer overnight success, even with the best instructors and mentors one cannot achieve overnight trading success. This is because of the nature of financial trading and the markets themselves, risk will always tend to make things go wrong, and the best thing traders can do is prepared for uncertainty. The global forex converter mechanism is impossible to put in words and come up with a model to simulate, predict and trade the currency rates based on that model. Therefore the training courses cannot teach anything absolutely solid, like they successfully do in fields of applied science for example. Here the foundations are not solid, and the very things that new traders are taught, may work well for 6 months, and still fail to work at all over the following 6 months. So learning how to handle trading goes far above and beyond any training course material. So, over-hyped training courses are likely to under-deliver, whereas simple training courses are likely to be useful. Because in a simple course, the learners are constantly reminded that nothing is guaranteed, nothing is served on silver platter. And only personal effort and drive is the way to successful, and profitable financial trading in the forex market.

The good forex trader knows that chance favours the well prepared, so they spend a good deal of time reading world events and market news before trading.

How the Wise Forex Trader Prioritizes Tasks and Remains Focused

The wise forex trader is simply a trader who has found ways to make money in the financial markets, through a delicate balancing act of information processing. They use simple and flexible methods for assessing what news is relevant and what is not so relevant. A process which is difficult and not easy to master, and one which is more of an art rather than a science. Traders think in logical ways, but their minds tend to think in all kinds of different ways. So ultimately one person’s logical analysis might be totally contrary to another’s. Trading forex is all about information processing, and breaking down the events and price movements of the day. Prioritizing what is relevant to that day or week is very important, perhaps critically important. If one analyses too much information, and to huge depth, things will get overwhelmingly complicated. If one analyses too little information, again there will be failure and lack of directional clues. These wise traders use judgement, to figure out what they perceive as the fair forex converter mechanism’s market rates. Wise trading is all about prioritizing and weighing information. So while a story is good for today, it may be totally irrelevant tomorrow or simply dwarfed by another bigger story.

The USDJPY exchange rate, a rate which concerns many countries so far apart, at different time zones. And yet the wise trader knows that the same piece of information, bad or good, may be perceived differently by the market, depending what time of the day it is, and how the specific countries involved directly (USA and Japan), view the overnight trading of their currencies.

Some People Can Never Become Wise Traders

While most people tend to think in an optimistic way, the reality is that the delicate balancing act between over-analysing and under-analysing all this information, is something few can handle. Because it’s an art and not so much a logic process. The wise forex trader is willing to make mistakes, but they want to be able to understand how the rest of the market thinks each time it makes a move. So this is so important, because even though the bottom line is to make money, few pay attention to the process and skills required. The global forex currency converter mechanism is too complex for computers to handle, perhaps more complex than a chess game. And even though scientists can program a computer to play chess extremely efficiently, they cannot do the same for a forex trading computer. In fact it has been argued that the nature of the markets is so complex that no computer can beat them. Human traders, when well balanced and working without pressure, are able to process and prioritize many information sources and reach the few relevant pieces of information that matter most.

What is forex trading in the minds of people… it’s an activity where traders make or lose millions in highly risky conditions where no one else fits.

The forex market is characterized by a community of independent traders staking their personal capital on speculative positions with a sufficient chance success that a measurable percentage actually profit from their endeavors. The allure of online trading has imbued it with a rarefied mystique, replete with gnomes and quant wizards who generate market movement from behind silk screens a-la Wizard of Oz. But this is not so, the market is actually made up of ordinary businesses, small and large, as well as millions of ordinary people. They are all forex traders more or less. Admittedly, some players have access to greater financial and computing resources, giving them something of an advantage. In some cases it takes meticulous planning and strategy to be able to profit from the currency market. And despite all the planning, the risks are equal for everyone.

Currency Trading is Essential and Good

The activity of trading has thousands of years of precedence, even if its humble origins were anchored in precious-metal-based lucre. National currencies were in fact backed by the value of reserved gold until around WWII but this soon created a problem. As the world started to recover from WWII economists in countries such as England came to the conclusion that the gold standard posed a problem. It simply made exports too expensive and manufacturers of exportable goods were unable to compete in the open market. That’s why the gold standard was abandoned and a free floating currency exchange rate mechanism was put in place. It evolved into what is now known as the forex exchange and functions relatively well in comparison with the previous fixed-rate gold regime.  The evolution of forex trading in the modern era has progressed from analog voice confirmation and execution to digital virtual marketplaces, dramatically expanding the set of traders in the process.

What is forex trading less famous for is the Carry trade. On pairs such as AUDJPY, the difference in interest rates was massive for many years. Being as high as 4% on AUD, and zero on JPY. Anyone who bought AUD and sold JPY, through a leveraged account, and knew how to hedge the price fluctuation risk through another currency, made effortless millions, literally! Because they got paid 4%, or close to 4% on one currency but had to pay zero on the other currency.

Forex Trading Today

Deep down, today’s market poses the same levels risks as any other business endeavour does. There’s nothing obscured or super secret about the currency market, at least no more than there is in classic trading, antiques dealing or real estate. Those in the know always profit in all these markets. The “forex market” is a concept implemented both in many different venues and platforms, both real and virtual. Traders, acting on forex signals engage in the entire range of commercial activity, from hedging physical position offsets to outright speculation. One example of a non-speculative forex transaction is initiation of a carry trade, in which money is borrowed in a lower interest currency and then lent/invested in a higher interest currency for better returns and the forex transaction sterilizes the risk to the initiator.