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Forex trading, is the science and the art of dealing in the different currencies of the world, basically, it is the currencies that are readily convertible into other denominated currencies which are not bounded by that nations central banks exchange control regulations. The currencies are freely exchangeable and do not suffer from states exchange control requirements. In other words, a nation’s currencies are inherently strong due to the countries external account growth.
Main Currencies used in Forex trading
The examples of such main currencies are US Dollar, Pound Sterling, The Euro, Yen, Saudi Rial, UAE Dirham etc.
How is Forex trading done?
In forex trading, the person who executes by selling one such currency and buying simultaneously either on spot or on forward basis is technically called a "dealer". He is trained and educated to forecast which currency is likely to gain and which currency will fall in value looking and taking into account those countries economic indicators of growth. Once his vision is perfect, he sells that currency which he feels will fall in value and buys the one he feels will appreciate in future. If his forecast turns out otherwise, he stands to loose and
suffers a loss. At times, in distress, in order to minimize his initial loss, he may tend to loose further if he speculates and buys or sells than what he has on hand.
Advantages of Forex trading
Trading in forex enjoys the following advantages vis a vis other forms of investments:
1. No manipulation of market: Through a range bound of freely available currencies, the amount of loss and gain is greatly minimized as no one individual or institution can greatly manipulate the dictums of a free market.
2. Global 24 round the clock market: A level playing field is available to the dealers from across the globe to take individual position in any currency of his choice by watching the trends of the currencies movements on Reuters round the clock. The forex market operates 24 hours a day as when one market in the far east closes, other markets in the middle east and finally the
markets in the western hemisphere opens.
3. No fixed rate of interest: The gain or loss in forex is not based on a fixed rate of interest
and the dealer can adjust his stake in any currency any time by swapping the deal.
Disadvantages of Forex trading
Apart from the above advantages, Forex trading boasts of many disadvantages as well:
1. Greed and lust for money: The main drawback of a forex dealer is when greed overpowers
his emotions and he works much more beyond his capacity/resources.
2. No surety of profit: The investor has to educate himself regarding Forex trading, analysis if currencies and monitor their present and past trends. Without having an adequate knowledge of the essentials of Forex Trading, he might eventually end up losing a lot of money