FOREX EXPLAINED (IN BRIEF)

FOREX or FOReign EXchange trading is (in a nutshell) betting that one currency (the US $, Japanese Yen, Euro, etc) will rise or fall against another currency. More officially it is described as "the simultaneous buying of one currency and selling of another."
It is rapidly becoming very popular among traders, especially as the stock market becomes more unpredictable .. and uncertainty about the housing market, oil, dollar devaluation, possibility of recession .. causes 'unnatural' market movements.
You may have heard that Forex is complicated .. or risky. But, as with options, if you learn correctly, you can make money a lot faster & more consistently with less risk.
And with a highly liquid, 24-hour worldwide market that can not easily be manipulated, there is far more predictability. Plus you can trade Forex in & out without daytrading restrictions and you can fund an account with as little as $500.00! Recommended funding levels for mini accounts is $2500.00, for a standard account is $10,000.00 in both cases with an extra $1k or two in case you make too many mistakes in the beginning :-))
Also most brokers will give you a demo account for free with $50k 'play money' deposited in it .. this is an excellent way to learn, in my opinion, you can trade as much as you like, and get a feel for how fluid it is compared to the stock market.

There are usually no commissions in Forex, instead brokers give you a "spread" of 2 or more pips which is their cut of each trade. As each pip can be worth $10 when you are trading full lots, a 2 pip spread can be equivalent to $20 per trade on a standard account, although only $2 per trade on a mini account. But since it is built into the trade itself, not a separate charge, you really don't notice it. If you are practicing good money management, the average losing trade in Forex will be -20 pips max ($200 in standard account, $20 in mini account). The average gain will be 60+ pips ($600+ in a standard account, $60 in a mini account). But gains of 100, 200 or more pips are not uncommon!

You may have heard scary stories of the 100 or even 200 to 1 leverage you are given when trading Forex. 100 to 1 leverage means that for every $1000 you have in your account, you can trade $100,000.00 worth of currency! That scared me away for a long time .. until I understood it properly.

It is a lot like options ... say I buy 10 Google calls for $15 each, calls are sold in lots of 100 stock shares = 1 call. So I pay $15 x 100 = $1500 and now I control the RIGHT (but not the obligation) to purchase 100 shares of Google at my strike price, say $650.00. Now if I actually wanted to exercise my right to buy 100 shares of Google, it would cost me $650 x 100 = $65,000.00!! And I only have $10k in my account! Obviously I have no intention of buying Google! So what happens? If I am right about Google and it goes up (duh!) my options could be worth $20 each in a short time. So my gain is $5 x 100 = $500. And maybe GOOG will make one of its mighty moves so the options could double ... $15 x 100 = $1500 profit. I have $10 k in my account and made $1500 .. that is 15% of the account value in a couple of weeks. Compounded that would be well over 1000% per year! If I were wrong, the MOST I could lose is my entire $1500 .. but if I am wrong, I would probably cash out much sooner, losing at most $200 or $300.

That is an example of leverage .. using a small amount of money to "control" a much larger amount without ever having the obligation to pay the larger amount. Forex is similar. You open an account with $2500, and the MOST you can ever lose is $2500 (with a reputable broker). Open an account with $5000 and that is the MOST you can lose. But it would be really hard to lose it all unless you just buy a currency pair, don't put a stop in, and leave town for a few days ... you would come back to either find yourself very wealthy ... or broke! (NOTE: make sure your broker has built in safeguards to 'zero out' your account without letting it go into the negative. The reputable ones should all have this built in, so you will never end up owing them money!)

Many millionaire Forex traders today will tell you they initially 'blew through' 3 or 4 accounts of $5k each before learning how to do it right. But with the demo accounts now availalbe and the option to trade mini accounts .. where each pip is only worth $1, it should be much harder to completely annihilate an account!

To learn Forex, if you are a complete beginner, the best (and cutest) site I have found is
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THERE IS RISK IN TRADING FOREX!
You can lose ALL the money you put into an account.
Do not ever trade with money you cannot afford to lose!