Forex trading involves buying or selling a specific currency against the U.S. Dollar or other major currencies like the Euro, Yen or Pound, using a PC and an Internet connection.

This kind of trading is often very confusing to people because they are not buying anything physical. Let’s simplify this. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the valuation of currencies are a direct reflection of the market's perceptions of the value, potential and growth prospects and risks associated with that economy. In general, the value of a currency versus other currencies is a reflection of the condition of that country's economy with respect to the other major economies.

The most often traded currencies, the major currencies, are those of countries with stable governments and respected central banks that target low inflation. Currencies that often trade along with the U.S. Dollar (USD) include the Japanese Yen (JPY), the British Pound (GBP), the Swiss Franc (CHF) and the European currency - Euro (EUR). These currencies are therefore the most liquid currencies, unlike "exotic" currencies which are often tightly regulated and simply too illiquid (for example the South African Rand - ZAR) to trade with the same ease.

Traders can speculate whether a currency is rising or falling by buying one currency (which is anticipated to gain value) against another currency or selling one currency (which is anticipated to lose value) against another currency. Taking a long position is one in which a trader buys a currency at one price and aims to sell it later at a higher price. Alternatively, a short position is one in which the trader sells a currency that he anticipates will depreciate and aims to buy the currency back later at a lower price.

Online forex trading is the domain of the so-called day trader. Day traders have a very short time horizon when trading. Day traders rely on their knowledge of market dynamics, technical analysis and fundamental analysis and the selective application of high gearing, adjusted to market conditions, to make profits, over a relatively short period which can range from minutes to a few days.

Foreign exchange is a continuous global market, providing participants with 24-hour market access. The only breaks in trading occur during a brief period over the weekend. Although foreign exchange is the most liquid of all markets, the fact that it is an international market and trading 24-hours a day, the time of day can have a direct impact on the liquidity available for trading a particular currency. The major dealer centres and time zones are that of Sydney / Tokyo, London, and New York. Thus, every 24-hour day has THREE TRADING DAYS! Day traders must consider which players are in the market, and on what known data / information they form their opinions, as well as what their expectations are for the trading day before them, since in the modern interconnected financial world, events that occur at any hour, in any part of the globe, can affect some or all parts of the investment community. The individual day trader must also keep in mind that the major role players who really moves the market operate during their respective office hours.

A proficient trader employs both technical and fundamental analysis prior to entering any trades.

Fundamentals include following the world news, and particularly studying variables that may cause the market price of a currency to fluctuate, including monetary and fiscal policy, political conditions, trade patterns, economic indicators (i.e. GDP, CPI, PPI), interest rates, inflation and employment data. Faith in a government's ability to stand behind its currency also affects currency prices. From time to time, central banks use intervention as an effective method of enforcing market adherence to their desired exchange rate comfort zones.

Technical analysis, which has grown dramatically in popularity in the foreign exchange market since the 1980's, involves computer charting, using trend lines, support and resistance levels, reversals, and numerous patterns to study the historical behaviour patterns of market crowds to track and identify buying and selling opportunities. Over long historical periods, currencies have displayed identifiable trends and patterns which provide investors with profitable opportunities. Note however that technical analysis in the day trader's very short-term time horizon is beset with problems! It is in this regard that continuous training, or mentoring, by an experienced trader is invaluable.

Many training courses ignore this fact, simply adopting longstanding technical analysis investment theory, when a month was seen as "very short term" and a year as "medium term" and several years as long term.

To become an Online Forex Day Trader and learn from a knowledgeable professional how to day trade forex online click here.

RISK WARNING :

Customers should be aware of the risks associated with over-the-counter, spot Forex trading. In the off-exchange market, also called the over-the-counter market, a retail customer trades directly with a counterparty and there is no exchange or central clearing house to support the transaction. Forex trading can be highly speculative in nature, which can mean prices may become extremely volatile. Forex trading can be highly leveraged. Since low margin deposits normally are required, an extremely high degree of leverage is obtainable in over-the-counter trading. A relatively small market movement will have a proportionately larger impact on the funds you have deposited. You may sustain a total loss of your funds. Since the possibility of losing your entire cash balance does exist, speculation in the over-the-counter market should only be conducted with risk capital you can afford to lose and which will not dramatically impact your lifestyle.

Leverage risk

Forex trading can be highly leveraged. Since low margin deposits normally are required, an extremely high degree of leverage is obtainable in over-the-counter trading. A relatively small market movement will have a proportionately larger impact on the funds you have deposited. You may sustain a total loss of your funds. Excessive leverage increase this risk.