Sunday, July 20, 2008

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Learn Forex Trading - Dealing With A Market That Is Always On The Move

The foreign exchange market never stands still and, while it may move slowly at times, it is always on the move. In many ways this is one of the great benefits of Forex trading as it is this movement which provides the opportunity to profit from buying and selling global currencies, but it can also make it difficult to decide when to get into a trade, get out of a trade or simply stay out of the market altogether.

Perhaps the biggest problem with a market which is constantly presenting the trader with the opportunity to make a profit is that it plays on our natural sense of greed and this is a very real problem if you are not aware of the danger you face.

We all love to make a profit, but how much profit is acceptable? If you're in a trade and looking at a profit of $800 should you close out your position and take that profit or hang on in there for $1,000? You trade to make money and the more money the better so, when the market is moving in your favor it's only natural to want to ride the wave all the way to the beach. The problem however lies in knowing when you've hit the beach and not waiting until the undertow starts to drag you back out to sea again. Once you get caught up in the undertow it can prove to be very strong and drag you out again very quickly.

Many people enter Forex trading with a picture in their mind of just what they're going to do with all the money they make and that's no bad thing. It's extremely important to have a goal, and a plan to reach that goal, and to plant a visual picture in your mind as something concrete to aim for. However, the other side of this coin is that you may well be tempted to try to reach that goal faster than you had originally planned or to create a bigger and better goal as you go along, allowing your natural tendency towards greed creep in and begin to take control of your trading.

Another problem here is a simple failure to recognize that money does not drive the market.

Think about it for a moment. Whether you have $5,000 or $500,000 in your trading account is not going to make any difference at all to the way in which the market moves. Similarly, whether you have a $700 profit or a $700 loss in an open trading position isn't going to make the slightest difference as far as the market rising or falling is concerned.

The fact that you've done well in a trade and have made a profit of $700 doesn't mean that this is going to turn into an $800 or $900 profit if you wait a while longer. However, it's perfectly natural to find yourself caught up in your 'winning streak' and to convince yourself that there is more to come.

It's also perfectly normal to find that, having lost $700 in an open trade, your natural fear of losing is going to convince you that things will turn around if you just keep your nerve and hold on a little bit longer.

Setting yourself a goal and making a plan to reach that goal is essential, but your trading decisions need to be based not on your goal but on the market. Money should have nothing to do with whether you enter or exit a trade, or stay out of the market, and such decisions should be based solely on what your analysis and the numbers tell you. is the ideal place to learn Forex trading and provides information on a wide range of topics including currency exchange rates and the benefits of testing the water through mini Forex trading

Small Investor Dilemma - Forex Or Stocks?

If you had a limited amount of capital to invest, would you invest it in the foreign exchange (FOREX) or the stock market? This is a question that is, undoubtedly, pondered daily by small potential investors worldwide. In the ideal world, there should be a well-balanced portfolio including stocks, FOREX and other types of asset holdings. However, due to limited capital and the real need to start somewhere, the investor may not be able to immediately diversify. Incidentally, the investor could seek out some sort of diversified mutual fund, leaving all the ultimate control and decision-making to a fund manager. Nevertheless, for the small investor who wants to maintain full control and decision-making capacity over trading decisions, both the FOREX and the stock market offer such opportunity.

How does one decide which avenue to pursue, FOREX or stocks? Naturally, some sort of meaningful analysis needs to precede any decision on the matter. One approach would be to weigh the advantages and disadvantages of each. Let?s first look at the advantages and disadvantages of the stock market.


1. It is a regulated market; traders have more protection, generally speaking;

2. Some brokers have in-house researchers to help with trade recommendations;

3. A company would have to be virtually defunct for the stock to be totally worthless;

4. The retail market is well-established and has been around a long time; and,

5. The stock market has a greater abundance of books written about it; and,

6. Stocks may (or may not) pay out dividends, according to the vote of the Board;


1. Does not offer great leverage, comparatively speaking;

2. Not as volatile as FOREX, and, thus, lacks better potential for short-term profits;

3. There are thousands of stocks to be researched before deciding on the right stock;

4. Generally requires more capital due to the relatively high per share cost; and,

5. Margin calls may occur more frequently due to lower leverage; and,

6. Limited trading hours, compared to the FOREX.

By comparison, the advantages and disadvantages of FOREX trading are as follows:


1. High leverage is possible, in some cases up to an incredible 400:1;

2. There is a low barrier to entry, with some brokers allowing margin as low as $1.00;

3. Extreme volatility in FOREX makes for great short-term profits;

4. Only few dozen currency pairs are available for trading, making choosing easier;

5. Largest market size of any financial market, moving almost $2.0 trillion daily;

6. It offers 24/7 trading, closing only from 4:00 p.m. Friday to 4:00 p.m. Sunday; and,

7. Pays above-bank interest on margin funds, even when no trading is being done.


1 High leverage can result in substantial losses, if leverage is not used properly;

2 Because it is an unregulated market, some brokers may take advantage of traders;

3 The retail side is relatively new, so there are not as many well-written resource materials.

4. There is substantial risk involved and one can literally lose all of their investment in one trade.

After viewing the advantages and disadvantages highlighted above, this writer is of the opinion that the FOREX offers the best opportunities for profitability both long and short term. Of course, the underlying assumption here is that a profitable trader, prior to getting involved, will obtain the necessary education and learn strategies for properly managing risks while achieving profitability. To do otherwise would be courting financial disaster.

Starting with a relatively small amount of risk capital, such as $300, a trader in the FOREX, using proper money management techniques, can theoretically build a substantial nest egg by compounding the profits consistently over a period of time. Albert Einstein once commented that compounding is the greatest force in the universe. Whether or not that is true, it is readily apparent through mathematical computation that compounding can lead to the amassing of large amounts over a rather short period of time. Test this conclusion for yourself on paper by starting with $200 and compounding returns of 10% per month for 24 months. The results may astound you.

In conclusion, it would take substantially longer to accomplish the same financial results in the stock market as it would in the FOREX under the same economic circumstances and with the same amount of limited capital. Such likelihood would seem to favor investing in the FOREX, given a choice. As would any prudent investor, diversify your portfolio as soon as you are in a position to do so.

by: S. C. Robinson, III, J.D.
copyright 2007

WTA is a forex trader's club of 2800 members.


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