EDUCATION

Forex (Foreign Exchange) Trading

What is Forex Trading?
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex markets currently exceeds US$ 4.9 trillion. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks.

What is traded in Forex Trading?
The answer is Currencies. Currencies are always traded in pairs, such as EUR/USD, GBP/USD, etc. When you trade forex, you are exchanging 1 currency to another currency simultaneously (buying 1 currency and selling the other at the same instance). You will gain from differences of traded currency price rates.

Trader's Action mean Buy EUR/USD, Meaning Buy EUR by Selling USD  

Trader's Action mean Sell EUR/USD, Meaning: Selling EUR to Buy USD

Example:
BUY EUR/USD means you are buying EUR and at the same time selling USD. SELL EUR/USD means you are selling EUR and at the same time buying USD.

A currency pair depicts a quotation of two different currencies. The first currency in the pair is the base currency. The second currency in the pair is labeled quote currency or counter currency. Such a quotation depicts how many units of the counter currency are needed to buy one unit of the base currency.

Current forex quote displays GPB/USD = 1.8500, this means to BUY 1 pound GBP needs 1.85 USD. Another example the quotation of EUR/USD 1.2500, while Euro is the base currency and USD is the quote or counter currency.

It means that one euro is exchanged for 1.25 US dollar. If the quote moves from EUR/USD 1.2500 to EUR/USD 1.2510, the euro is getting stronger and the dollar is getting weaker. On the other hand, if the EUR/USD quote moves from 1.2500 to 1.2490 the euro is getting weaker while the dollar is getting stronger.

Cross Rate is an exchange between two currencies that does not include official currency of a particular country which the exchange is taking place. For example, a transaction of GBP/JPY is taking place in the US. Then GBP/JPY is considered as cross rate for United States.

Here is another example:

Pair EUR/USD:
If you predict that EUR will be stronger than USD, then you can Buy EUR/USD. If you predict that USD will be stronger than EUR, then you can Sell EUR/USD.

Pair USD/JPY:
If you predict that USD will be stronger than JPY, then you can Buy USD/JPY. If you predict that JPY will be stronger than USD, then you can Sell USD/JPY.

Commonly Traded Currency Pairs:
Majors are the most liquid and widely traded currency pairs in the world. Trades involving majors make up about 90% of total Forex trading. The Majors are: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD

Forex Market Schedule:
Forex can be traded 24 hours a day and 5 days a week. The main trading centers are in London, New York, Tokyo, and Singapore, but banks throughout the world participate. The biggest foreign exchange trading center is London, followed by New York and Tokyo. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the US session and then back to the Asian session, excluding weekends.

Why Trade Forex ?

Forex Has 2 Ways Opportunity:
Unlike stock market, in forex you can earn profit from upward or downward price movement. For example, if you BUY (go LONG) and the price is moving upward, you will be in profit. and the other way, if you if you SELL (go SHORT) and the price is moving downward, you will be in profit.

Long Trading Hours
Forex allows you to trade 24 hours a day and 5 days a week (except on weekends)

High Liquidity
Forex is the most liquid market in the world, and that means you can buy or sell anytime you want.

Without Middleman
Forex Online trading involves no middlemen. Traders execute their trade directly and each decision is taken by the trader themselves. There is no Dealing Quotes intervention.

No Possible Market Intervention
Forex Market is the largest Financial Market in the world, it is impossible for any entity to drive the market for any length of time.

Free of Commission
Forex Brokers usually charge no trading commission, and other trading fee. However, brokers get their compensation from spread (Bid Price / Trader’s selling price to brokerage and Ask Price / Trader’s Buying Price from brokerage).

What Do You Need to Start Trading Forex?

Personal Computer and Notebook/Laptop, PC/Notebook is a main device you have to use to start Forex trading online, while PDA is optional for mobile trading.

Stable and high speed internet connection:
Minimum recommended internet connection is dial up (512 Kbps connection). Broadband connection (ADSL, Cable, 3.5G (HSDPA), WiMAX) is preferred.

Limited Fund:
We strongly recommend beginner trader to try demo accounts before using real money. Whenever you are ready to trade forex with real money, the minimum amount to have is US$250 (for micro/mini lot accounts 1000/10000 unit).

Reliable and Trusted Forex Brokerage:
Trading at Reliable and Trusted Forex Brokerage is very crucial. Do not easily attracted to any promotional Bonus without checking your broker’s legal aspect and reputation.

 

For more details about Forex Currency Trading please write to us.