Forex Trading Basics

Answer 1

Forex trading is the practice of attempting to earn a profit by correctly predicting the future value of the currency of one country compared to the currency of Another Country. A minor exception involves the euro currency that is commonly used by the 17 member countries of the euro zone.

Every day, world governments, multinational banks and companies and private speculators contend with each other to exchange one currency for another at rates that provide an advantage for one of the parties versus the other. On average, this practice produces a daily volume of around $4 trillion, a simply staggering figure when you consider that the entire annual GDP of the world's third largest economy, that of China, is around $5 trillion.

Forex trading is frequently compared gambling. There are both similarities and differences to be considered.

The main similarity is that both gambling and Forex trading involve the risking of money on an unknown future event.

A second similarity is that Forex traders and dedicated gamblers devote much time, energy and financial resources to devising a system or systems that supply an advantage of one sort or another in predicting the possible outcomes.

The main difference between gambling and Forex trading is that every gambling event has an ending point. Forex trading, on the other hand can go on indefinitely, as long as the trader's resources remain intact and the currency involved still exists.

The other key difference between the two is that with gambling events, the supplier determines the amount of risk that is available. With Forex trading, it is the trader who determines the risk. It is essential to comprehend the difference this represents. At a casino game that has a minimum wager attached to it, that amount also represents the maximum risk for the one finite event. A Forex trader can maintain a currency transaction for an indefinite period of time. Profits are capped only when the trader decides to close the transaction. The trader also determines when the level of acceptable losses has been reached.

Forex trading does offer a valid opportunity for a primary or secondary source of income, as long as the differences between trading and gambling are recognized.