There are so many currencies, how do you decide which one to follow?

The key is to follow the currencies that you enjoy following and believe you have a good chance of profiting from. Instead of extensively following all currencies, just focus on a few to develop your expertise. The point is to build enough knowledge on certain currencies to boost your chances of making a profitable trade.

Is there one dominant factor that affects the movement of the currencies?

There are many factors that influence the currencies. The major ones are the country’s economic outlook, political developments and their fiscal and monetary policies. Once factor could be dominant over the other but they tend to be all taken into consideration by the market.

What makes a successful Forex trader?

Successful Forex traders are disciplined, have a game plan and are quick to sell a losing position. In essence, these participants maximize their gains and minimize their losses. They consistently make money in the long run.

The foreign exchange market is comprised of a global network of interbank traders executing buy and sell orders through telephone lines and computers. Prices for currencies are continuously negotiated between these traders. The ensuing price agreed upon on for that particular currency is entered into computers and seen on official quote screens. The main foreign exchange players are:

Commercial Banks: Interbank traders execute buy and sell orders on behalf of the bank and their clients. These financial institutions tend to dominate the trading in the Forex Market.

Central Banks: Central banks implement their respective country’s monetary policy. These institutions intervene in the Forex markets and set interest rate policies for their countries.

Global Firms: These are companies that operate in different countries. These companies buy and sell currencies to make foreign acquisitions or to repatriate their profits.

Investment Funds: Firms that make investments outside their respective countries.

Broker Companies: Foreign exchange brokers who execute buy and sell orders on behalf of their clients.

Private Individuals: Individuals who buy foreign currencies for personal consumption or investments.

Forex trading is the act of buying and selling foreign currencies for profit. Most people heard of trading stocks for profits but seldom of currencies of other countries. Forex stands for foreign exchange. A foreign exchange rate is the relative value between two currencies. It is the measure of one currency needed to buy or sell one unit of another currency.

For traders looking for a fast paced market where orders are quickly filled within seconds, the Forex market is ideal. Since the 1970s, the creation of a global foreign exchange market allows money to be freely bought and sold. This market is probably the least cumbersome. There is open competition, minimal external control and huge liquidity. Approximately 1 to 1.5 trillion U.S. dollars is traded daily. Currency transactions are done 24 hours a day. There are dealers in major financial centers of different time zones such as London, New York and Tokyo doing currency trades, creating a fluid market.

This market is made up of a worldwide network of interbank traders, participants who transact on behalf of banks, connected by telephone lines and computers. Forex traders constantly negotiate prices between one another. The resulting market bid/ask price for that specific currency is entered into computers and shown on official quote screens.

The currency market reflects the traders’ current view on that particular country’s financial status, political environment and economic prospects. If one country’s economic outlook is promising relative to another country, traders tend to purchase that particular country while selling the other. The market participant hopes to profit when the currency of the country bought rises relative to the other currency sold.

Getting started is relatively easy. All you need to begin trading currencies is an account set up with a foreign exchange broker. Before one can commence trading, the account must be funded. The amounts range from a few hundred dollars for mini accounts to a few thousand dollars for a standard account. Given the quick developments in the Forex market and just as rapid price changes, the bulk of currency transactions are done online.

Besides the quick fill of buy and sell orders due to the elevated liquidity, the attraction of Forex trading is leverage. The currency trader only have to put up anywhere from 0.5 to 4 percent of the contracts outstanding depending on the broker. For example, for an order of buy or sell of 100,000 US dollars for Euros, the trader only needs to put up anywhere from 500 to 4,000 US dollars. Given the leveraged nature, enormous profits can be quickly made. As an example using the same contract, assume the value increased to 105,000. The trader had originally put up 1,000 US dollars. After the contract is winded, leaving the individual with 5,000 US dollars in windfall. The return is 500 percent.

The potential for huge payouts exists but the aspiring Forex trader can lose their money just as quickly. To boost the odds more in their favor, the trader must do the proper research to become familiar with the basic workings of the currency market. Before using their cash to commence trading, the individual should take advantage of the free trading platforms provided by the brokers to become familiar with the buying and selling of currencies. Once the individual feels that they are sufficiently prepared, they can begin actual Forex trading.