Forex trading for beginners faq
Forex trading is a demanding activity that is nothing like the promoters of trading systems portray it to be.
Because an estimated 95 – 98% of people who trade forex, trade at a loss, there is a continuous demand for information. But the demand is for information that will allow forex trading to be easy, not knowledge that will enable the trader to become profitable. Information makes it possible to know, but does not ensure anything will be done.
Frequently asked forex questions
There are certain questions that repeatedly pop up on the Internet when people consider forex trading, so I thought I would write a blog post dealing with some of them.
It will give prospective forex traders a place where they can find most of the answers they have.
What is forex trading?
Forex trading is the buying and selling of currencies.
But, before we get into the technicalities, there is one concept that the prospective forex trader should understand very well, otherwise fx trading will become clouded, frustrating and unsuccessful.
That concept is called “probability”.
Probability in forex trading
If you don’t understand and accept probability and how it finds application in trading, you won’t be able to accept losses and you will allow wins to create euphoria that will lead to losses.
The reason for that is that you will expect every trade to be a success, while probability dictates that not all trades can be successful.
Probability is the likelihood that something will happen.
How likely is it that something that suits me or doesn’t suit me, will happen? This likelihood or probability is expressed as a number between 0 and 1, with 0 indicating no probability that it will happen, and 1 indicating a 100% probability that it will.
In forex trading we are more concerned with mathematical probability which is a measure of quantifying the likelihood that an event will occur.
Probability is the likelihood that an event will occur, measured by the ratio between favourable cases and the whole number of possible cases. Probability is important because it helps us understand risk.
It differs from when we say “what are the chances that the ball will fall on black?” when we talk about something like spinning a roulette wheel at the casino.
When the amateur gambler asks that question, he does not consider the probability because he never calculated it. His chance to win is a wish.
What the casino knows and accepts in the game of roulette, is that the more the wheel spins, the better the chance that it will win. It also knows the probability will settle between 2.6% and 48.6% in favour of the gambler. That is between 51.4% and 97.4% in favour of the casino.
Here are the probability and payouts for roulette bets.