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Friday, October 30, 2009

4x Currency Trading & Everything About It!

By James Tolleti

Traders are finding that one of the easiest markets to enter is the 4x currency trading market. The volume of transactions in the segment is exploding. Over $4 trillion is traded daily. It is a very liquid market making it easy to buy and sell. The arena itself is a high risk form of trading. Leverage is used that can multiply gains or loses. This means only a small amount of each trade is required to actually be deposited. If a trade is profitable the gains are high. However, if a lose is realized it can be much larger than expected.

To make a profit by trading in currencies it is necessary to accurately predict the direction of a currencies price movement just as it is with any other type of trading. Buy the currency if prices are expected to rise so it can be sold at a higher level later. The spread between the prices is the profit. If the currency price is expected to decline in the near term, sell it first with the goal of covering the position by buying it back at a lower price later. Currencies trade in pairs. The four most common pairs are the USD/euro(dollar/euro), GBP/USD(British pound/dollar), USD/JPY(dollar/Japanese yen) and the USD/CHF(dollar/Swiss franc).

There are all types of participants in the 4x currency trading market. The top trading level is that of the inter-bank market. This group consists of the largest investment banks. They have access to the best execution prices in the market. The reason for this is that they trade huge volumes of currencies daily. Prices for a specific currency will differ at different levels of trading as well as different locations. These differences are generally not large though. The banks primary objective is to trade for themselves in a profitable way, although they do trade for their customers also. They are over 50% of the daily volume.

The Federal Reserve and the European Central Bank as well as other central banks are active in the 4x currency trading market. Their objective in buying and selling currencies is to counteract world events that may affect inflation and other conditions in their countries.

One of the most rapidly growing groups in the currency markets are hedge funds. These are funds primarily intended for higher net worth clients. The funds are permitted to trade in a more aggressive manner than most mutual funds. Trades for speculate purposes is thought to be over 70% of the market volume.

Having an understanding of the things that move currency prices is critical to making money in the market. Some things that will affect prices of a particular currency are the inflation expectations of that country. Moves in interest rates can have an impact. Employment levels and levels of deficits or surpluses of a government cause prices to change.

Becoming a success in the currency markets is not easy. Transactions take place constantly. Markets are open 5 days a week, 24 hours a day. The ability to make fast decisions is an absolute must.

Finally, trading profitably in 4x currency markets requires a lot of hard work. Having a high level of understanding of the factors that move the market is important. Having a level head in making trading decisions is also helpful. - 23212

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