Why Trade Forex?

The main reasons for embarking in a new business adventure are to improve your earning power and enhance your lifestyle. So, is trading Forex Market a good choice? Yes, it is because the opportunities of achieving good profits are very real. However, caution is advised as Forex is a gigantic entity that is capable of vicious movements without warning.

As such, it is essential that you develop the correct mindset in order to cope with everything Forex can throw at you. The following description of Forex will undoubtedly show that it is definitely worth your time achieving a winning psychology that will enable you to trade successfully.

So what is Forex? Forex stands for FOReign EXchange and is also known as FX. The Foreign Exchange Market (Forex) involves the simultaneous buying of one currency and the selling of another. Today, Forex is one of the largest and most liquid financial markets in the world which includes trading between large banks, central banks, currency speculators, corporations, governments, other institutions and ordinary folk such as you and me. The daily turnover of this market is reported to be well in excess of $3 trillion compared with about $25 billion dollars traded daily on the New York Stock Exchange.. The purpose of Forex is to facilitate trade and investment. All the US equity markets combined do not reach 3% of the volume traded on the FX market.

Most trades are focused on the biggest, most liquid currency pairs called the ‘Majors’ which include US Dollar(USD)(FREE stock trend analysis), Japanese Yen(YEN), Euro(EUR), British Pound(GBP), Swiss Franc(CHF), Canadian Dollar(CAD) and Australian Dollar(AUD). In fact, more than 85% of daily forex trading happens in these major currency pairs i.e. EUR/USD, YEN/USD, GBP/USD, USD/CHF, AUD/USD and USD/CAD.

As currencies are traded in pairs, you can profit from an exchange rate move by purchasing the currency that you expect will strengthen and sell the other. For example, if you believed that the Euro (EUR) is going to appreciate against the dollar (USD)(FREE stock trend analysis), you would buy the EUR/USD or, more simply put, buy the EUR and sell the USD. Alternatively, if you believed that the EUR was going to depreciate against the USD then you would sell the EUR/USD.

When you buy shares in a particular company, you are in effect investing your money in that company. You hope the company will be successful and prosper, so the value of your shares will increase. In just the same way, when you buy the currency of a particular country on Forex, you are investing your money in the economy of that country. If the economy of the target country is healthy, then the value of your currency will increase, and you will make a profit.You can trade Forex using borrowed capital. This is called Margin Trading. Margin trading is where you use between 0.5 and 4 percent of your own money to control a much larger amount of borrowed money. This enables you to leverage your investment. Forex is traded in lots whereby a standard lot is worth $100,000. Some dealers allow you to trade in smaller lots called Mini-lots and Micro-lots.

FOREX-U.S. dollar hits 3-1/2-month high vs euro

The dollar rose to its highest level against the euro in more than three months on Thursday, a day after the Federal Reserve drew attention to the improvement in the U.S. economy and stood by plans to wind down most of its emergency lending by February.

The euro, which tumbled to near $1.43 for the first time since September, also struggled after Standard & Poor's became the second rating agency to downgrade Greece in just over a week, stoking fears about the public finances of the euro zone member.

The dollar's gains were tempered by data showing U.S. jobless claims unexpectedly increased last week, although a rise in a regional U.S. factory index kept the greenback near a two-month high against sterling and up 1.5 percent on the Australian dollar. For more, see [ID:nN17380585].

"The dollar's rally is due to a combination of several factors -- the residual effects from the Fed's upbeat statement on the U.S. economy and also the view that monetary policy could be normalized sooner than most people thought," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

"There are also mounting concerns about Greece and that has weighed on the euro. Greece could be symptomatic of the broader fiscal problems in the euro zone."

The euro fell more than 2 cents to $1.4305 EUR=, according to Reuters data, its lowest level since Sept. 7. It was last at $1.4351, down 1.3 percent on the day and on track for its biggest daily decline in two weeks. The euro also fell against the yen, down 1.2 percent to 128.98 yen EURJPY=.

Light trading volume ahead of the holidays may have contributed to the scope of the dollar's gains, as did investors squaring up their portfolios before year-end.

Assets that have gained over the course of the year such as stocks, commodities and emerging market currencies have come off going into the year-end on profit-taking and this has benefited the dollar, traders said.

Against the yen, the dollar rose 0.1 percent to 89.87 yen JPY=, its third straight day of gains against the Japanese currency. Analysts said a recent push higher in U.S. bond yields reflected U.S. economic improvement while Japan faces deflation risks.

Marc Chandler, head of global currency strategy at Brown Brothers Harriman in New York, believes, however, that the dollar's gains are more about technical factors and less about a shift in U.S. interest rate expectations.

"We continue to believe that the primary factor behind the dollar's rally in recent weeks is largely technical in nature having to do with year-end considerations. In turn that implies that the foreign currencies are likely to bounce back in early 2010 before a more sustainable dollar rally ensues," he said.

To be sure, the Fed gave no indication in Wednesday's statement that it was set to raise interest rates from near zero percent, stressing that rates would stay low for an extended period. But it highlighted improvements in the economy, which markets have seen reflected in a slower pace of job losses and improved retail sales data.

Greek assets, meanwhile, took a lashing after Standard & Poor's cut Greece's rating by one notch to BBB-plus from A-minus late in European hours on Wednesday. [ID:nLDE5BG1RK]

Sterling hit a two-month low below $1.61 and was last down 1.1 percent at $1.6160 GBP=. The dollar also hit a 3-1/2-month peak against a basket of currencies .DXY at 77.943.

The Norwegian crown fell sharply versus the U.S. dollar, a day after the Norges Bank surprised the market with an interest rate increase to 1.75 percent. The dollar was last at 5.8643 crowns, up 1.81 percent NOK=. (Additional reporting by Steven C. Johnson; Editing by Leslie Adler)