Forex trading is just trading the currency of one nation for the currency of another at the current exchange rate. Sounds simple enough, but there are some important things you need to know about forex trading.
1. With $3 trillion daily turnover, the volume traded on the Forex market is massive compared to the other trade markets. And because the market is so huge, one trader's buying or selling, even in very large amounts, will not cause a significant movement in market price.
2. The forex market operates 24 hours a day, and is always open for business. Trading locations are located all around the world, rather than being based in just a few major cities of the USA or Europe.
3. The forex market is of course volatile, and it is this volatility that forex traders use to make returns. But there is always a demand for money, so it's not like stocks where you can lose all if you purchase shares in a company that becomes insolvent.
4. Anyone can enter the forex market and begin to trade foreign currencies. Entry requirements are minimal which is great because you don't have to input much cash to get started, but also creates a false simplicity and a lack of experience can bring losses very quickly.
And this is where automated forex trading can help. Forex trading can be partially automated by using software or robots that can compensate for some of a beginner's lack of experience in the market. And automated software doesn't have to be expensive, but you do need to choose carefully.
Automation brings a number of important benefits to Forex traders, especially for beginner traders just entering the market.
Your computer will deal with much of the trading process for you, so transactions can be done in real time. Although manual systems are well established, they have never offered the speed that an automated Forex trading system does. All trades are initiated and completed within microseconds, which can be a huge benefit because they virtually eliminate any lag time and minimize price slip that may occur within this time lag. Automation also means that your computer can continue to trade while you are asleep or at work.
Furthermore, problems that occur with manual trading methods can be addressed and minimized with automation. For example, if a trader were hit by a few losses in a row, they could be wiped out and unable to make new trades. This problem can easily be addressed using an automatic trading system and putting automatic stops on running losses.
Automated Forex trading also allows more diversification, allowing you to trade more currency pairs simultaneously without relying on your memory and concentration.
And probably most importantly, risk becomes easier to manage with automation. International checks, now commonly used in Forex market purchases, are synchronized with automation technology. Since automated transactions are handled in real time, there is little chance of delayed payments, reducing the risk of non-payment by either party. And although issues still exist with the use of automated systems, they can easily be addressed and resolved through consistently updating the technology.
Given the fast, efficient trades between any and every time zone that automatic trading offers, Forex trading is certain to remain one of the most profitable business models in today's world.
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