Currency Trading For Dummies
Whether you're just getting started out in the foreign exchangemarket or an experienced trader looking to diversify yourportfolio, Currency Trading For Dummies sets you up fortrading success.
Currency Trading For Dummies
Currency Trading 101
In This Chapter
Looking at currency trading as a business
Getting a sense of what moves currencies
Developing trading strategies to exploit opportunities
Implementing the trading plan
The forex market has exploded onto the scene and is the hot new financial market. It's been around for years, but advances in electronic trading have now made it available to individual traders on a scale unimaginable just a few years ago.
We've spent our professional careers in the forex market and we can't think of a better traders' market. In our opinion, nothing quite compares to the speed and exhilaration of the forex market or the intellectual and psychological challenges of trading in it. We've always looked at our work as essentially doing the same thing every day, but no two days are ever the same in the forex market. Not many people can say that about their day jobs and we wouldn't trade it for the world, no pun intended.
What Is Currency Trading?
At its heart, currency trading is about speculating on the value of one currency versus another. The key words in that last sentence are speculating and currency. We think that looking at currency trading from those two angles - or two dimensions, if you allow us to get a little philosophical - is essential.
On the one hand, it's speculation, pure and simple, just like buying an individual stock, or any other financial security, in the hope that it will make a profitable return. On the other hand, the securities you're speculating with are the currencies of various countries. Viewed separately, that means that currency trading is both about the dynamics of market speculation, or trading, and the factors that affect the value of currencies. Put them together and you've got the largest, most dynamic and exciting financial market in the world.
Throughout this book, we approach currency trading from those two perspectives, looking at them separately and blending them together to give you the information you need to trade in the forex market.
Speculating as an enterprise
Speculating is all about taking on financial risk in the hope of making a profit. But it's not gambling and it's not investing. Gambling is about playing with money even when you know the odds are stacked against you. Investing is about minimizing risk and maximizing return, usually over a long time period. Speculating, or active trading, is about taking calculated financial risks to attempt to realize a profitable return, usually over a very short time horizon.
To be a successful trader in any market requires
Dedication (in terms of both time and energy)
Resources (technological and financial)
Discipline (emotional and financial)
But even if you have all those traits, there's no substitute for developing a comprehensive trading plan (see Chapters 11 , 12 , and 13 ). You wouldn't open up a business enterprise without first developing a business plan (at least we hope not!). So you shouldn't expect any success in trading if you don't develop a realistic trading plan and stick to it. Think of trading as if it were your own business, and approach it as you would a business enterprise, because that's what it is.
Above all, try not to take your trading results too personally. Financial markets are prone to seemingly irrational movements on a regular basis, and the market doesn't know or care who you are and what your trade idea is.
Currencies as the trading vehicle
If you've heard anything at all about the forex market, it's probably that it's the largest financial market in the world, at least in terms of daily trading volumes. To be sure, the forex market is unique in many respects. The volumes