WHAT IS FOREX TRADING?

This really is the best place to start. What is Forex Trading?

Most of us are familiar with the Term "TRADING" many of you I'm sure have bought or sold stock. Don't think you have, do you own a 401k or some other type of retirement plan which is based on purchasing and holding stock?

The fact is some 34% of Americans own some type of equity. Equities include stocks, mutual funds or any combination of similar products.

So What is Forex Trading?

Forex Trading is "Trading of Foreign Currency". Simply, buying and selling of the Euro or Pound Sterling or other currency in lieu of the Dollar.

You may wonder what I mean by saying in lieu of the dollar. When you receive money you typically deposit your funds in the bank.  By depositing your funds in Dollars you are effectively buying Dollars.

Why, Trade in Foreign currency you may ask? Well the facts show that the potential to make many is very real. Personally I think the real reason for Forex Trading is Diversification. Stocks rise and fall, so do Moneys. Moneys rise and fall for potentially different reasons. Which we'll talk about later.

I'd like to give you an example using the same strategies in Stock Trading for Forex Trading. We'll use the Pound Sterling(AKA British Pound)and we'll use January 1st as the comparison date going back 10 years.

In 1998 the Pound Sterling was worth 1.641$ ( 1pound= 1.641$)

Now, for the next 3 years this price held steady rising and falling a few cents during the year.(+-.05cents)

This is really where this gets interesting. During the next 3 years the Pound fell. The result is that the Pound was below by as much as .20cents. As a note, between our test dates in 2000 the Pound was 1.637$ one year later it was 1.493$. Interesting don't you think? Why, did it fall so much in 12 months? We will talk about that later.

Ok, moving on in 03 the pound was 1.604$ in 04 it was an astounding 1.790$ and climbed another .20 plus cents. At the time of this writing the Pound was 1.973$.

Let's go back a minute and do some simply math. Had you started Forex Trading in 98, and lets say you committed 100$ per year to purchase Foreign Currency.

Year      Pound=$            100$/Pound                                               

1998      $1.641                 £60.938

1999      $1.658                 £60.314

2000      $1.637                 £61.087

2001      $1.493                 £66.979

2002      $1.445                 £69.204

2003      $1.604                 £62.344

2004      $1.790  

2005      $1.883  

2006      $1.758  

2007      $1.958  

2008      $1.973  

                                                 £380.867

 

Average based thru 2003                                      1.579

                                        

Total invested thru 2003                                        £380.867

Convert to Dollars                                                      $751.451

Amount of Investment                                             $600.000

Total if sold in 2008(Profit)                                    $151.451

That comes out to 25.24% profit over a 10 year period.

Ok, so there is definitely some money to be made. Are you ready to head out and start Forex Trading. .......... Yeah I'm not either. I want some more info. It sounds great, money to be made, and watching when to buy, when to hold, and when to sell sounds interesting.

I want to talk about that next time. Forex Trading is not stock trading. When do you jump into Forex Trading, when or more importantly what factors push the Forex Trading markets.