The Forex “Risk,” Make Some Big Coin? Or “LOSE” The Bank?

There are a number of reasons why forex trading has gained growing popularity.  Among some of the main points are; greater leverage, constant 24 hour liquidity and extremely low trading cost.  A large position in the market can be acquired by a relatively small deposit.  Again, this relates to leverage, and it is this dangling carrot that creates such hunger in the stomachs of novice investors.  Unfortunately, most beginner investors continue to realize the illusiveness of this fleeting carrot.

A Little History

In the beginning, there was a barter system where people and even countries, to a large degree, exchanged goods with one another per individual need.  It soon became apparent that this system would eventually become very limiting. Since necessity is the mother of invention, consequently, the metal coins arrived on the scene.  During the Middle Ages, a thing called “politics,” close to its current form, was adopted.  After its long journey through the political process, paper currency was born.

It soon became a realization that printing money at will with nothing to back or support it, could become a problem, and it was.  This resulted in governmental and political instability and devastating inflation.  As a result, the major central banks moved ahead to support their currencies with convertibility to gold.  This move stabilized governmental instability just enough so that local and national economies would not crumble.  However, the permanent answer to this problem was introduced by the U.S. in July 1944 by means of the Bretton Woods Agreement.  As a result, this agreement led to a system of fixed exchange rates that reestablished the gold on which the dollar was based.  All other currencies were fixed to the dollar.  Throughout the ages, other countries also developed their own currency and thus became somewhat independent.  This independency has allowed for these countries to settle forex rates as to their own perceived value.  The difference in the rate between two currencies is what allows for the existence of the forex trade market.

Risky Business

Learning about the foundation of the market and how it is structured is fundamental for the forex trader.  It is also critical to understand how currency pairs are structured and how to understand each currency as a tradable instrument.  Understanding terminology such as “buying” and “selling” in relation to the actual charts.  Understanding the terms “bid” and “ask”, “pip”, “lot” and “lot sizes” and various types of orders.

Complex charts, lines, graphs and other analytical tools must be studied and mastered in order to reduce losses.  It is this lack of understanding and knowledge that keeps the carrot just beyond the reach of many novices.  It is the lack of self discipline and the rush to greed that cause over half of all newbie’s to lose their shirts.

Prescription

Ironically though, there is a prescription for this disease of LACK.  Whether it is lack of motivation, energy, or knowledge, we all have suffered the disease and with growing economic concerns and increasing demands on our time, it is only human to look for shortcuts.

The onset of the age of technology has truly been remarkable.  Automation technology applied to the stock market is not new, BUT, this ever evolving technology is now being used aggressively in the forex market where trading profits can literally dwarf regular stock returns.  This relatively new approach to  trading forex is facilitating droves of newbie traders pouring into the market on a daily basis as the knowledge required to execute a trade is extremely minimal. 

New automated forex trading technology is said to be advantageous for the beginner trader as well as the seasoned traders.  It seems to be taking on more recent popularity as these types of intelligent systems now have the ability to analyze the market in real-time and correct their predictions dynamically.

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