Introduction to Forex Trading
Forex is an abbreviation for Foreign Exchange, the system by which one currency is exchanged for another. For such reasons, an exchange rate needs to be established between currencies of all countries. Generally, all currencies are expressed in terms of U.S. dollars, while the U.S. dollar itself is commonly quoted in the Japanese yen, British pound and the Euros. Here is an example to depict why foreign exchange service is required. A person traveling from the U.S. to Australia would require the Australian currency during his stay there. He would then be required to go to a money exchanger and get dollars exchanged for Australian Dollars at the exchange rate existing on that day. How Forex Trading Works All trades related to foreign exchange are based on purchasing one kind of currency against another. This gives rise to the concept of pairs like the Euro/U.S. Dollar. The first currency in the pair is referred to as the base currency (the one that provides a baseline for the purchase or sale) while the second one is termed as the counter or quote currency. While buying, an exchange rate specifies how much should be paid in the counter or quote currency to obtain one unit of the base currency whereas selling involves how much shall be received in counter or quote currency upon selling one unit of the base currency. The 15 important currency pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, EUR/JPY, EUR/GBP, EUR/CHF, GBP/JPY, AUD/JPY, CHF/JPY, EUR/AUD, GBP/CHF, and NZD/USD . Foreign exchange quotes are a relation between currencies. For example, quote USD/JPY 108,91 would mean that 1 U.S. Dollar costs 108,91 Japanese Yens. The forex market is considered the largest and most liquid market in the world, trading around $2 trillion on an average every day. It is larger than all equity markets combined. The forex market does not have a single centralized location as the exchange market operates through the electronic network. The prime location where forex is handled includes U.S., U.K., Australia, Japan and Germany. Exchange markets work all the time as their twenty-four-hour operation period is started in the Far East, in New Zealand (Wellington), passing the time zones in Sydney, Tokyo, Hong Kong, Singapore, Moscow, Frankfurt-on-Main, London, then finishing the day in New York and Los Angeles. As a result, the forex markets operate 24 hours a day, 5.5 days a week. Trading sessions imply the period of trading activity from the time the market opens until it closes. In London, the standard trading session is from 7am to 6pm. In New York the session extends from 9.30am to 4 pm. ( EUR (Euro), USD (American Dollar), JPY (Japanese Yen), GBP (Great Britain Pound), CHF (Swiss Francs), CAD (Canadian Dollar), AUD (Australian Dollar), NZD (New Zealand Dollar) ) The sheer number of currencies traded brings an extreme level of volatility on a day-to-day basis. Exchange rates fluctuate rapidly, offering opportunities for profit risk to astute traders. Yet, like the equity markets, forex offers plenty of instruments to mitigate risk allowing the individual to make profit in both rising and falling markets. Forex also allows highly leveraged trading with low margin requirements in comparison to its equity counterparts. Leverage - An Important Concept: To trade on the forex market one can open either a standard or a mini account. It is possible to deposit small margin money with the concerned bank and then borrow up to 100 times that sum in standard accounts and 200 times the sum on mini accounts, to trade in foreign currencies. When the amount of initial margin deposited is small relative to the value of the contract, the transaction is known to be 'leveraged' or ‘geared’. This may work against the investor or in favour of him. If the unrealized gain/loss of the net total open position falls below the margin balance, the account would be under margined and all open positions could have to be liquidated. To avoid liquidation of positions, it is best not to use the entire account balance as margin for open positions. Instead, it is better to leave enough funds in the account to withstand a market movement against the open positions. Stop loss orders should be used to limit downside risk. Margin Trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it, it is necessary to have only a small part of the sum. In marginal trading, each transaction has two obligatory stages; buying (selling) of currency at one price, and then selling (buying) it at another, or same price. The first transaction is called opening the position, the second one, closing the position. When you open a position, you can choose the number of lots you want from 1 to 10. The deposit sum for one lot will vary from $500 to $2000, depending on the credit leverage you choose. Leverage is a financial mechanism that allows crediting speculative transactions with a small deposit. A trader wanting to trade in 4 lots of USD/JPY would require a margin of $4,000. The total transaction value of $400,000 divided by a leverage of 1:100, calculates the margin requirement. Let us now consider another example in more details. For a trader anticipating an upward movement in the rate of Euro vis-à-vis the U.S. Dollar, a good deal would be to buy the Euro cheap for dollars and later sell it back at a higher price. The margin required for this deal would be $1,000 (the account being a standard account operating at a leverage of 1:100). This deal would fetch the trader 104591.56 euros ($100,000/$0.9561). If the Euro does move up as anticipated by the trader, he can sell the euro at the higher price and make a profit. If he manages to sell the euro say at a price of $0.9661, he stands to make a profit of $1,045.91 ($101,045.91-$100,000). Players in the Forex market Until recently, only banks, hedge funds, and occasional high net worth individuals were able to participate in the forex trading market since one had to invest in a large minimum transaction size and meet stringent financial requirements. However, forex currency trading has now become one of the most lucrative businesses in the world with retail traders also playing an important part as indirect players, operating through banks or brokers. Traders can place trades for foreign exchanges online, with the most popular sources including Interbank FX, Gain Capital Group, Forex Capital Market in the U.S. and Saxo Bank in Denmark. According to the report published in 2004 by the Wall Street Journal, Europe, 73% of the entire forex trading volume depends on large international banks. These are Barclays Bank, Citibank, Chase Manhatten Bank, Deutsche Bank, Swiss Bank Corporation, Union Bank of Switzerland, etc. Conclusion: For people trading in the forex market it is important that they verify the authenticity and efficiency of the services offered. They should ensure that trading facilities in all major currencies are available, besides availability of updated forex market news and supporting tools like charts and software. The extreme liquidity of the currency market, and the multitude of opportunities for large profits, makes it hard to resist for the advanced trader. With such potential, however, comes significant risk, and traders should get familiar with methods of risk management.
Other Currency Trading Articles
Forex Day Trading Systems Usually, we associate trading with purchasing a commodity, bringing it home or to our business premises, and then selling it. Similarly, we purchase stocks and shares in the stocks and shares market, hold them until their value increases and then sell them off.Times have changed, and now trading can be done on a daily or even hourly basis ...Risks of Trading Forex in Retail Market Forex nowadays had become one of the most fast growing trading markets in the world. There are several reasons why Forex had became such a popular investment among world wide speculators. In Forex trading, you can always use technology for your own advantage. The Forex market has made an amazing transformation since the advent of the Internet. T ...Day Trading Tips Worth Reading Are you tired of the same old day trading tips? Like, “cut your losses and let your profits run.” “Never let a gain turn into a loss.”, or the most repeated tip, “Buy low, sell high.”So how about something new? Let me give you some specific day trading tips that will turn your trading around.A good defense beats a ...Feel the Gold Rush with Gold Coins A lot of people find collecting gold coins as not only an incredibly interesting hobby but a fairly lucrative one as well! Over time, your collection will accure value and parts of it can be sold if you desire. This way, you will have additional income for yourself later in life in addition to a fantastic collection of valuable coins.1. F ...The Best Free Currency Trading Courses If you are just starting out in currency trading, or looking to sharpen your trading skills, there are plenty of currency trading courses to choose from - and this article will help you find the information you need to make big profits.One advantage of the Internet, is that most of the information is available free of charge – once you kn ...Learn E-Currency Exchange To Make Money: Is this a Scam? Should you attempt to learn e currency exchange trading if the system a is just scam? Is what many courses like Matt Gagnon's mazu are promoting a scam? If not, why are there rumors of e currency exchange being a scam?If you have asked yourself questions along these lines then I highly recommend you keep reading my review for whether you ...Trading the News: Non-Farm Payrolls, October 6th 2006 Why Does The Non-Farm Payrolls Report Cause Volatility?The NFP generally falls on the first Friday of every month and offers an insight into the health of the US labour market. A healthy labour market is an important driver of consumer spending which, in turn, stimulates economic growth and prosperity. The health of the US economy ...Earn Risk Free Profits With Arbitrage Trading Arbitrage trading is a well-unknown thing. Not many people know about arbitrage trading or how amazing it is. Arbitrage trading can earn a very good stream of income. Imagine taking $200 and turning it into $1000 in a month. Sounds good doesn’t it. Well with arbitrage trading you can do exactly that.Arbitrage trading is taking two bookkee ...Forex Mini Account - Am I Eligible? If you were just learning about Forex Markets a good idea for you would be what is called the Forex mini account. The mini account is also great for those who want to start off with a fairly low investment. A mini account can be opened with only $250 while a regular one has to involve a minimum of $2,500. The option of the Forex mini account is ...Candlestick Patterns Part 2 The Morning and Evening StarThe Morning and Evening Star patterns take their names from the planets Mercury (appears just before sunrise) and Venus (appears just before complete darkness sets in). As you can gather from the analogies they use to take their names they are both examples of reversal patterns. The Morning Star appears ...Learn Forex Trading - a Guide for Beginners One can learn forex trading as easily as one would like to learn other subjects or train in other professions. The criteria for learning forex trading is an analytical / logical bent of mind and some number crunching abilities. Reading specialized books on the subject matter, enrolling for college and other programs, which specifically teach on ...Basic Forex Strategies Explained When it comes to successful Forex trading, there are two basic strategies used by the majority of traders: fundamental analysis and technical analysis.Fundamental AnalysisIn fundamental analysis, Forex traders look for causes that might trigger market fluctuations. These may include political activities, financial ...Forex Trading Courses To put things simply, Foreign Exchange (FOREX) Trading is the buying and selling of international currencies. Just like any other work you engage in, you need to have a basic knowledge on what makes the industry work and how it works, in order to make decisive analysis and intelligent decisions on each transaction. If you do not have any idea on ...5 Useful Tips For Your Success In Forex Trading 1. Implement a trading plan.A trading plan is especially crucial in Forex trading to stay ‘in-control’ against the emotional stress in speculative situation. Often, your emotions will blind and lead you to the negative sides: greed causes you to over-ride on a win while fear causes you to cut short in your profits. Hence, a well organized ...A Guide to Forex Trading System There is no other market in the world that can compare itself to the foreign exchange market. With almost USD 2 trillion in daily average the Forex market is bigger than all the stock and bond markets of the entire world. A better way to understand its enormous size would be to compare it with any national stock exchange. Let's use the New York ...Mazu E-currency Exchange If you are like many of the thousands of people trying to make money online today, then you are probably trying to find a program that works. I have tried Quixstar, Market America and Amway, all of which require you to build a down line and sell a product. The one and only program that I found to work is the e-currency exchange program.E ...Day Trading Tips For Beginners When primitive people have invented money, all they have in mind is to find some means to solidly show the actual exchange of goods or services between two persons or groups. Since then, any exchanges of goods have been centered on money, bearing the most tangible form of trade.As time pass by, trading has significantly evolved in differe ...Futures Trading – 3 Secret Tools Of The Pro Traders For Bigger Profits Here we will outline three trading tools for bigger profits all futures traders can use.These tools tend not to be used by many traders, but are heavily used by the savvy pro traders to enhance profit potential and you should consider them to in your futures trading.Check them out for yourself and they will add a new dimension to y ...The Pros and Cons of Trading a Forex Trading Demonstration Account Trading is a skill that takes time to learn. Think of it like Boxing it’s also a skill that takes time to learn. If you get into a professional boxing ring without any training, you’ll get beat up physically! If you get into the Forex ring without any training, you’ll get beat up financially!The similarities are that both the examples are ...W.D. Gann Trading Methods - Genius Trader or Overrated Guru? W.D. Gann is one of the most famous traders of all time, and has a huge devoted following - however the fact is, Gann never made the huge profits many of his disciples claim.He did not have a success rate of 90%, as is often claimed - the logic his methods are based upon are unsound, and his predictive methods don’t predict - they leave e ...Forex Currency Trading Basics: Are You A Bull Or A Bear Forex currency trading is booming around the world and is quickly becoming the preferred choice of many online and offline investors, but what is Forex and how can you get involved in this attractive new investment arena.First of all lets explain what Forex actual stands for and what it involves.Forex stands for Foreign Exchange an ...FX Currency Trading If you have ever traveled outside the United States, you have probably traded in a foreign currency. Every time you travel outside your home country, you have to exchange your country’s currency for the currency used in the country you are visiting. That’s why it is very important that you should know the exchange rate of various currencies use ...Understanding the Forex Trading System The forex trading system involves buying and selling foreign currencies, it is the biggest financial market in the world and on an average the trading ranges anywhere between united states dollar one and a half trillion to two trillion everyday. Trading goes on round the clock on all working days throughout the globe. If you plan to explore inve ...Beginner Day Traders - Easy Money? In day trading you are pitting your wits against every other person in the market. Every dollar you make is on the back of someone else's losses.Every losing trader has failed at trading. Every successful trader has also failed at trading in their past.It is a very rare individual that can make money off capital loaned - the psycho ...
|
