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So what is Forex Trading? It is simply the buying and selling or currencies in the FOReigh EXchange market. Before this, I thought that trading Forex is buying say, some US dollars, hold it and sell when the value increases. I though that's very risky and you need a big capital that will be tied down for some time since you don't know when it will increase or if it will increase at all. I was partly right - yes, trading Forex is risky but not more so than trading stocks or options (the other current popular trading vehicle). In fact, with the current economic state, trading stocks or options is definitely more risky since a particular stock can be wiped out overnight; it won't happen in Forex unless you trade in Zimbabwe dollars!
When you trade Forex, you do not buy a single currency, you always buy in pairs and trade the relative movement in value of the two currencies, e.g. in Euro and the US dollar which in Forex term, the pair is called the EURUSD. Not only can you make money when the value goes up, you can also make money when the value goes down if you trade in the right direction. You do not need a big capital to get started, you can open an account for as little as USD100 for a micro-account because of the high leverage offered. Your capital will not be tied down for months unless you choose to do so (in that case it would be investment and not trading) as you can close your position in matter of hours or even minutes. In fact, there are many advantages of trading forex as oppose to options and other trading vehicles. Unlike options, there is no expiry date and this alone makes it much simpler. (Options enthusiasts are welcomed to comment and give their opinion here.) In Forex, you just Buy or Sell, no Put or Call and no ifs or buts. I will list out more advantages of trading Forex in a later post, this first post is just to get you interested.
There are many terms used that may sound foreign to you and I do not intend to explain everything here. There are few ways you can learn more about Forex trading. One is to google "forex trading" and you can get tons of free material online. Next is to get hold of a book and read all about it. I will give reviews of some books that I have in my later post. The best way I think, is to attend those previews or introductory seminars that are being advertised quite often in the daily newspaper to get a taste of what Forex trading is all about. And if you find one that's good for you and intend to proceed further, sign up for their workshop/seminar. I have attended quite a number of these free previews and I will give my opinion on them in my later post.
I must add one other point, trading Forex is not some effortless get rich quick scheme, or something that can be guaranteed. You need to put in some effort but after you have mastered the basics and follow all the rules, you can make money. However, I read somewhere that 80-90% of traders lose money. Where do you thing the winners get their money?
Ronald Kwok
http://ronaldkwok.atomicblog.hop.clickbank.net/
Hi Ronald! I'm also considering trading in FOREX, but just want to know, when u trade in FOREX, is it legal? Does our government allow us to trade freely in FX? What about income tax issues? Appreciate yr replies.
ReplyDeleteHi swiftlet,
ReplyDeleteI'm no lawyer but this is what I know. Forex trading is just another investment like trading stocks, options, futures, etc which can also be done online. If you are trading as an individual, it should be legal; otherwise all the above trading will also be illegal. However, it would be illegal to collect the public's money and trade on their behalf since only banks are allowed to do that. As far as I know, online income from a foreign source is not taxable here since you are helping the economy by bringing in foreign money!
Hi swiftlet, just an update if you are still following Forex. I presume you are in Malaysia, and recently (on Jan 4 or 5) there was a news item in the Star thus:
ReplyDelete"Bank Negara has warned the public to not participate in any illegal investment or training programme on foreign currency trading offered by local or foreign individuals or companies.
The central bank warned that it was an offense under the Exchange Control Act 1953 (ECA) to buy or sell foreign currency or do any act involving or related to buying or selling foreign currency with any person, other than an authorised dealer."
There's a lot of argument (check out Lowyat.net Forum on Forex starting from pg.85 if interested)as to whether trading Forex is really illegal or not. But as a result, there's no more Forex training being advertised locally. To me BNM is not targeting individual traders but more for those making fantastic claims or running Forex scams.
Since it is not crystal clear, it's a personal decision if you want to trade Forex or not.