Forex Folklore

One myth that has been spread by various scam artists looking to swindle naïve investors is that trading in the forex market is a low risk proposition.  

In fact, trading in currencies can be more risky than trading in equities, as the market for currency is considered “over the counter” (OTC), and is not a highly regulated market such as the New York Stock Exchange or NASDAQ.  
Because of this lack of regulation, the market is open to manipulation, which can often leave the small retail investor with huge losses.  
As the forex market is not centralized like a large equities market, it can often be difficult to prove that any manipulation has occurred, so investors are not as protected.  
In addition, the forex market is open 24 hours a day, except on weekends, and is influenced by events all over the world, so often things can happen internationally that will affect the market while an investor is caught unaware.  
The forex market is also typically more volatile than the various equity markets, which can mean huge price fluctuations, which compound the risk to the investor.

A corollary to this myth is that some believe trading on margin is risk-free.  When an investor trades on margin, he is borrowing money from the investment brokerage to invest in a market, using what is called leverage.  By using this loan, one can keep any profits that are generated by the investment without having to come up with the initial money.  
The loan is eventually repaid when the investment is sold.  Many traders use this tool extremely well, making much more money than they would earn using only their own money. But this opportunity also involves a substantial risk, in that if the price of the investment goes down substantially, the brokerage may be forced to give the trader a “margin call”.  When this happens, the investment is sold automatically to pay back part of the loan, and the investor is left with a bill for the remaining part of the loan that was not repaid.  Brokerage houses do this to protect their equity in the loan and to make sure that they get at least part of the amount back.

Another myth that has been circulating is that jobs involving the trading of currencies on the forex market are plentiful and easy to come by.  Particularly in ethnic minority neighborhoods, many poor individuals with high aspirations are taken in by advertisements touting highly-paid account executive jobs requiring no experience.  In fact, most of these opportunities require the candidate to invest his own money, and that of his friends and family as he tries to recruit others to join in the profits.  The job opportunity turns out to be just another way that the trading company scams the individual out of money.


Forex Definitions, Terms and Acronyms:

    * NASDAQ - National Association of Securities Dealers Automated Quotations, a U.S. electronic stock market.
    * Biggest foreign exchange trading centre - London, followed by New York and Tokyo.
    * United States dollar - USD, the official currency of the United States.



While many myths involving trading in the forex market have been circulated regarding the risk level and employment opportunities, the truth is that many people have made a substantial amount of money trading in foreign currencies.  
By finding a reputable broker, one can mitigate the risk and still take advantage of one of the most volatile and exciting investment markets in the world.

Forex Trading Rules

Being new to trading in Forex markets can be a little intimidating.  

Although many people desire to learn about trading in the Forex, those who begin learning about the trading system find the rules and strategy tactics to be overwhelming at times. While there are rules that you will simply learn along the way, such as price limits and such, there are a few steadfast rules you should know before you make your first move in the Forex market.  Use these three rules to help you get started and successfully maneuver throughout the foreign exchange market.

Don’t Over Leverage Your Portfolio

When you are just starting out in the Forex, it can be really easy to get caught up in the leverage of the market.  The great thing about leverage is that someone who is not investing as much as other larger traders can play with the “big boys” and potentially makes a good profit. An investor can expect to only need to back their investment up to 4% in most cases.  This can get some people in trouble however.  When you choose to abuse this system, you can end up with a lot of debt.  You should never over leverage your portfolio.  

Be responsible when trading and remember that you are trading larger amounts that you probably have in your portfolio.  Keeping yourself grounded is the best way to make sure you use the Forex market to your best potential.

Know When to Quit

Another simple rule for trading in the Forex market is to know when to quit.  In turn, this can also mean knowing when to let things stay as they are.  There are no way around having occasional trades that have a negative impact on your finances.  Not every trade you make will be a hugely successful one.  If life were fair, this may not be true, but in the foreign exchange market, where things change by the minute, there is no way to guarantee every trade will reap rewards.  Keep in mind that even the most seasoned foreign exchange market traders have bad trades.  Your ultimate goal in trading in the Forex should be to try to come out with more wins than losses. 

To make it easier to come out ahead at the end of the day, you should always know when to fold on a deal.  Never let deals that you know are losing simply happen because you are praying something will change or to save your pride.  Be sure to get out losing the least amount of money as possible.  This is a strategy every great trader uses.  Watch your trades closely so you can get out when you should.  If you have researched the trade before, you will know what the breaking points likely are and be able to make this decision easily.  Knowing when to leave well enough alone, alone, is another thing you must learn.  Learn to be patient with your trades, especially if they are not in a negative position. 

Forex Definitions, Terms and Acronyms:

• Rocket scientist (slang) - a financial consultant with exceptional mathematical and computer programming skills.
• Day trading strategies - trend following, playing news, range trading, scalping, technical analysis and covering spreads.
• Direct quotation or price quotation - quotes using a country's home currency as the price currency.

Research Trades:

                                Researching trades beforehand can seem very boring.  However, you should never make an order in the Forex market without knowing exactly what you expect to happen.  You can look at trends and the history in order to get a better idea of what to expect.  If you simply go out into the market with no background on the issues, you will likely lose a lot of money.  So, take the time to do a little research before you begin. 

Place Stop Loss Orders

You should always be familiar with a stop loss order before you begin trading in the Forex market.  The stop loss order is something that should be places right along with your entry order.  This type of order protects you from a potential loss getting out of hand.  If the market takes a dive, you will be protected with the stop loss order.  You must figure out however, before placing the order, at what point you would want to cut your losses.  You should always do this way before placing an order.  Although you may find that many traders do not utilize the stop loss order process, you will find that the more successful traders use it often.