Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets

CHAPTER 3

Questions and Answers

Forex differs from any other market, and traders must first understand it in order to trade successfully. Along the way, some questions will inevitably occur. In this chapter, I answer some of the most common questions about forex.

WHY DOES THE BIG MONEY TRADE FOREX?

The forex market (which goes by many names, including FX, foreign exchange, the global market, and the currency market) may seem like the new kid on the block, but it has been the market of choice for global hedge funds and institutional investors for years. The “big money” has always traded forex, because the huge size of the market allows these traders to enter and exit large trades without creating price distortions and disrupting exchange rates. Yet this market seems brand new to many individual traders, because the barriers to entry that used to keep the little guy out of the forex market have only recently fallen away.

In the past few years, the popularity of forex trading has taken off—and for good reason. The forex market’s daily volume, estimated at about U.S.$1.9 trillion and growing, is unmatched by any trading market in the world.

Forex traders also have the ability to use tremendous leverage, which can be greater than 200-to-1. Leverage allows a trader to “magnify” his or her trading positions, and also serves to magnify gains and losses. Compare this to a typical stock trading account, which normally has leverage of about 2-to-1. Because of this superior leverage, the ...