***What is the Forex?

First, a little history…

If you’ve watched any infomercials lately, you may have heard of an exciting “new” market called the forex, but the truth is, it is not a “new” market at all. The “Off Exchange Foreign Currency Market”, or forex, was initially established in 1973 as a way of tracking exchange rates between world currencies.

Although it began in 1973, it was not made available to “retail investors” until 1997 when the introduction of the internet made it more accessible to individual traders. Before 1997, participation in this market was limited to large corporations or institutions because of trading account minimums ($500,000 to $1,000,000 USD) and the high cost of data feeds from the centralized banks.

But because of the increasing demand for a system that would give the individual trader access to this potentially lucrative market, forex brokers (aka Futures Commission Merchants, FCMs) were created to act as an intermediary between liquidity providers and “retail investors”, people just like you and me, who wanted to be able to trade on their own with smaller amounts of money.

The forex is the world’s largest financial market with more than $2 TRILLION dollars traded daily. To put that in perspective, more money is exchanged in the forex in just one day than exchanged on the New York Stock Exchange (NYSE) in ninety days! For you, that means almost unlimited opportunity.

Why the forex? According to Investopedia, a Forbes Digital Company, “…currencies benefit from some of the same things that may hurt stock indexes, bonds or commodities and can be a great way to diversify a portfolio.” So when other markets seem very uncertain (sound familiar?), diversification into the forex might be just what your portfolio needs.

Now, for some basics…

The forex is a market that is based on fluctuations in the exchange rates between pairs of currencies. For example, a rate of 1.2147 for the USD/CHF pair represents the rate of exchange between the US Dollar (USD) and the Swiss Franc (CHF). It means that 1 US Dollar is worth 1.2147 Swiss Francs. This rate is constantly changing and that creates the market. The exciting thing about the forex is that it is possible to make money as the rate goes up and as the rate goes down.

A trade is the simultaneous buying and selling of currencies. Now that may seem a little strange to you if you are familiar with other financial markets, so we won’t go into detail here, but suffice it to say that you would enter a “buy” trade if you anticipate the rate going up and you would enter a “sell” trade if you anticipate the rate going down.

Is the rate going up or down??

The truth is, nobody really knows! Some analysts will predict the rate going up while others will predict the rate going down and many sophisticated tools have been designed to assist traders in answering that very important question. The fact remains however, that it is mostly a guessing game. The key is to guess correctly more often than not so you can realize an overall increase in your account. But how?

How can you participate in the forex?

1. Trading courses: There are several companies that will teach you their methods of “guessing” the direction of the market. If this is how you choose to participate, you will likely spend several thousand dollars, and hundreds of hours, trying to learn these methods, but the sad reality is that more than 90% of people who try to “learn” to trade will FAIL. They will either give up because it is much too complicated or they will lose all of the money in their trading account. Many people who think that they will be one of the successful minority are disappointed when they find out they are not.

2. Signal Services: These services are designed so that you won’t have to do any of the trading analysis. This can be a great way to participate IF a) you are near your computer when you get the signal, and b) you don’t mind staying up all night waiting for a signal (since that is when a majority of the movements take place in the market, at least for those of us in the United States) and finally, IF the company/person providing the signal is consistent and reliable.

3. Managed Accounts: Some companies will manage your money for you and this can be a good option for some people, but be prepared to pay some fees in conjunction with this type of service:

a. Management fees: 2-3% of your account balance. As your account gets larger, so do the management fees. You pay the management fee regardless of whether the balance increases or decreases.

b. Performance fees: 15-25% of the growth in your account. If the management of the account results in a loss, however, the management company does not pay you a “non-performance” fee!

4. Expert Advisors: An Expert Advisor (EA) is a computer program that runs on a specific trading platform. The EA will place buy or sell trades based on specific parameters built into the program by the creator of the EA. There are some good reasons to use an EA as a tool for participating in the forex:

a. An EA will run 24 hours a day while the market is open, so you don’t have to watch the market or stay awake when you want to be sleeping.

b. An EA simultaneously evaluates the price data and places consistent trades based on whether or not specific parameters are met.

c. Because it is a computer program, it is not subject to the “psychology” of trading that can be the ruin of many novice, as well as experienced, traders.

While EAs can be a great tool for participating in the forex, there are also some challenges that come along with using an Expert Advisor:

a. With hundreds of EAs available for purchase, how do you choose one that will be consistent and reliable for the long term?

b. If you don’t know how to download and install a trading platform, you’ll need to learn and then modify it to run an expert advisor properly.

c. Many EAs come with installation instructions that consist of little more than a one to two page PDF file and little, to no, support.

d. Because it is a computer program, it will only run when, 1) your computer is connected to the internet, and 2) you have the trading platform running on your computer. This requires that you leave your computer running 24 hours a day while the market is open. If your power goes out or your internet connection goes down or your computer does an automatic update, it will shut down your trading platform which results in missed trades and lost profits.

At Profits to Passion, we realize that time is one thing you cannot replace, so we have designed a service that will enable you to participate in the market without the headaches and the steep learning curve. Our goal is to make your experience in this exciting market simple, consistent and profitable.

Find out more about what Profits to Passion can do for you by clicking HERE…