Introduction

Today, millions of individual traders and investors all over the world are discovering the excitement and challenges of trading in the forex market. You don’t even have to be at your desk to trade — these days, you can trade on the go using a smartphone or other handheld device.

No question about it, the forex market can be one of the fastest and most volatile financial markets to trade. Money can be made or lost in a matter of seconds or minutes. At the same time, currencies can display significant trends lasting several days to weeks and even years. Most important, forex markets are always moving, providing an accessible and target-rich trading environment.

In contrast to stock markets, which are more familiar and relatively intuitive to most investors, the forex market somehow remains more elusive and seemingly complicated to newcomers.

In this book, we show you how the forex market really works, what moves it, and how you can actively trade it. We also provide you with the tools you need to develop a structured game plan for trading in the forex market without losing your shirt. We cover the following:

• Getting a handle on the forces that drive currency movements
• Understanding forex market trading conventions and strategies
• Interpreting economic data and official statements
• Finding sources of data and market intelligence
• Gauging market psychology, sentiment, and positioning
• Identifying key traits of individual currency pairs
• Utilizing technical analysis to spot trade opportunities
• Developing a regimented and disciplined approach to trading currencies
• Focusing on risk management to minimize losses and keep more of your gains

About This Book

If you’re an active trader looking for alternatives to trading stocks or futures, the forex market is hard to beat due to its sheer size (more than $5 trillion turnover per day at last count) and the depth of the market.

But as an individual trader, gaining access to the forex market is only the beginning. Just because you’ve got the keys to a Formula One race car doesn’t mean you’re ready to compete in a Grand Prix. First, you have to understand how the car works. Then you have to figure out some of the tactics and strategies the pros use. And then you have to get behind the wheel and practice, developing your skills, instincts, and tactics as you go.

To succeed in the forex market, you’ll have to do the same. This book gives you the no-nonsense information you need, with the perspective, experience, and insight of two forex market veterans.

Whether you’re an experienced trader in other markets looking to expand into currencies, or a total newcomer to trading looking to start out in currencies, this book has what you need. Best of all, it’s presented in the easy-to-use For Dummies format. Divided into easy-to-follow parts, this book can serve as both your reference and troubleshooting guide.

Note: Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the forex market, you should carefully consider your investment objectives, level of experience, and risk appetite. Most important, don’t invest money you can’t afford to lose. The leveraged nature of forex trading means that any market movement will have an equally proportional effect on your deposited funds; this may work against you as well as for you. (To manage exposure, employ risk-reducing strategies such as stop-loss or limit orders.) Any off-exchange foreign exchange transaction involves considerable exposure to risk, including, but not limited to, leverage, creditworthiness, limited regulatory protection, and market volatility that may substantially affect the price or liquidity of a currency or currency pair. Using the Internet to trade also involves its own risks, including, but not limited to, the failure of hardware, software, and Internet connection.

Finally, this book is a reference. You don’t have to read it from beginning to end, in order; instead, you can use the table of contents and index to find the information you need right now. Sidebars (text in gray boxes) and anything marked with the Technical Stuff icon are skippable — they’re interesting but not essential to your understanding of the topic at hand. Also, within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and you want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

Making assumptions is always a risky business, but knowing where we’re coming from may help put you at ease. Obviously, not all these assumptions will apply to you, but at least we’ll have it all out in the open. In writing this book, we assume the following:

• You’ve heard about currency trading, and you’re looking to find out more about what’s involved before you try it.
• You’re intrigued by the international dimensions of the forex market, and you want to find out how to profit from currency movements.
• You’re seeking to diversify your trading activities or hedge your investments.
• You want to discover more about technical analysis and how it can be used to improve trading results.
• You understand that trading currencies carries the risk of losses.
• You’re prepared to devote the time and resources necessary to understand what’s involved in currency trading.
• You have the financial resources to pursue margin trading, meaning that you’ll never risk more than you can afford to lose without affecting your lifestyle.
• You aren’t gullible enough to believe the infomercials that promise easy money by trading currencies.
• You understand that there is a big difference between gambling and speculating.

These assumptions should serve as a healthy reality check for you before you decide to jump into currency trading actively. A lot of it is similar to being a weekend golfer and being disappointed when your play doesn’t reach pro-level scores. But when you think about it, why should it? The pros are out there practicing and playing all day, every day — it’s their full-time job. Most people can only hope to get a round in on the weekend or get to the driving range for a few hours a week. Keep your perspective about what’s realistic for you, and you’ll be in a much better position to profit from actively trading.

Icons Used in This Book

Throughout this book, you see icons in the margins, highlighting certain paragraphs. Here are the icons we use and what they mean:

Theories are fine, but anything marked with a Tip icon tells you what currency traders really think and respond to. These are the tricks of the trade.

Paragraphs marked with the Remember icon contain the key takeaways from this book and the essence of each subject’s coverage.

Achtung, baby! The Warning icon highlights potential errors and misconceptions that can cost you money, your sanity, or both.

You can skip anything marked by the Technical Stuff icon without missing out on the main message, but you may find the information useful for a deeper understanding of the subject.

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. Check out the free Cheat Sheet at www.dummies.com/cheatsheet/currencytrading for tips on choosing a broker for currency trading, the fundamentals of currency rates, and more.

You can find articles on trading forex with other asset classes, determining what kind of trader you are, and more at www.dummies.com/extras/currencytrading.

Where to Go from Here

This book is set up so you can jump right into the topics that are of greatest interest to you. If you’re an absolute newcomer to trading in general and currencies in particular, we recommend reading Parts I and II to build a foundation for the other topics. If you have more experience with trading, use the table of contents and index to find the subject you have questions about right now. This book is a reference — keep it by your computer, and turn to it whenever you have a question about currency trading.