Forex Trading: Can Technology Improve Success Rate?
Trading on foreign exchange market – better known as “forex”, can be a volatile yet exciting form of investment and it certainly has the potential of bringing vast returns. Just imagine, about USD 2 trillion worth of currency is traded daily, so the potential for high earnings from taking part in this market is extremely tempting. Unfortunately, about 95% of beginning traders fail and as any seasoned investor will tell you, there is no potential of high gain without high risk. Many practitioners today guard against such risk by amassing a larger and varied portfolio to spread the risk. For beginners with limited funds to invest, this is not always feasible.
Forex trading is basically trading the world’s currencies. It is traded in pairs, such as the Euro against the US Dollar (EURUSD), US Dollar against the Japanese Yen (USDJPY) and so on. The first currency in the pair is the base currency which is the basis for buying and selling, while the second is the counter or quote currency. For instance, if you are quoted EURUSD at 1.2833 means €1 is worth US$1.2833 at that point in time, and similarly, USDJPY at 117.55 means US$1 is worth ¥117.55. The idea is to buy one currency while selling the other. So, if we expect the US economy to be strong and the Euro to weaken against the US Dollar, we will execute a SELL of EURUSD. By doing this, we would have sold the Euros and bought US Dollars, with the anticipation that the US Dollars will appreciate while the Euro will depreciate.
If you’d noticed, the common currency is the US Dollar. Not surprising since it is commonly traded around the world and has much international acceptance. However, there is no centralized location for forex trading, hence, when the Australian market opens on Monday morning and stops when New York closes at the end of Friday, it is effectively a 24-hour-a-day market. This is one of the benefits as there are always ready buyers and sellers around the world, thus, boosting liquidity. Other benefits include zero-commission trading offered by most brokers and given that we are trading on money, which is every country’s staple of life, it is unlikely for the market to fold overnight unlike investing in the shares of listed companies.
A skilled forex trader takes into consideration fundamentals such as interest rate changes and economic news which are key indicators of currency value. Further detailed technical analysis of countries’ currency performance will include charts, indicators such as the Stochastic, RSI, MACD indices and many more. As there are so many mind boggling factors to consider while trading, it is little wonder why trading forex is not easy and takes considerable time and expense for any individual to build up the right skills set to trade successfully.
Since so many of us have already developed the habit of Googling for anything, technology can also make a tremendous impact on trading and improve the success rate of forex investing. Already with the Internet, many investors (including professional traders) are trading forex (or even stock) from the comfort of their own homes. In April 2006, the launch of a brand new forex strategy tool in the United States created a whole new demographic of traders – housewives, retirees, junior office workers, or in other words, people who have never had any forex trading training or success. They found that they could also participate in the forex market and earn great returns.
The strategy tool takes away the guesswork and risks involved in forex trading by adopting a simple structured “hedging” approach so that the risk is less exposed to market fluctuation. At the same time, it focuses on the concept of “buy low, sell high” and with an automated trading system, the triggered “buy low, sell high” points lock in profits without having to monitor the market. As a side bonus, daily interest can be earned when there are open positions left overnight.
For new traders, the element of fundamental and technical analysis is no longer in the picture. Using the online strategy tool requires less than 25 minutes a week to trade with a higher success rate. The tool focuses more on consistent income building rather than quick and speculative gains, has already found its users and given many the confidence and opportunity to trade in a market which was formerly the domain of skilled professionals.
The writer, Renee Loh, started trading forex in 2003 and has left behind 10 over years of corporate life to be a full time home based forex trader in 2006. She helps people (even for beginners) who are keen to build wealth through forex trading. Her official website is www.forex4aliving.com
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