What is Forex?
FOREX market is where banks, international corporates or organizations, governments, investors and traders come to exchange and speculate on currencies. It is the largest and the most liquid market in the worldwhere all of the world’s currencies tradewith an average daily turnover of over USD $3.98 trillion dollar. The only difference between stock trading and Forex trading is you can buy as well as sell currenciesfor 24 hours a day, 5 days a week, and you also gain access to margin trading and exposure to the international markets.Forex and FX are both abbreviations for “Foreign Exchange” also known as the foreign currency market or the currency trading market with over 5000 trading bodies including reserve banks, large international banking institutions, commercial companies and brokers in FOREX.
The market provides the physical, virtual and institutional structure through which the money of one country is exchanged for that of another country. It is where the rate of exchange between currencies is determined and so then Foreign Exchange Transactions are physically completed. The world major trading starts each morning in Sydney and Tokyo, then moves west to Hong Kong and Singapore and continuing to Europe with finishing on the West Coast of the U.S.
All activities that involves currency transaction of Forex Markethappens over-the-counter; unlike other investment such as stocks where all orders processed takes place at a central marketplace like NYSE. All Forex currency pricing are all quoted by all the major banks and varies from bank to bank. The brokers would take the average feeds from all the banks or liquidity providers and sells to you, so meaning you are buying currency pair from your broker, not from ‘another trader’. Forex investor, traders or fund manager main target is to focus on currencies price fluctuation to place their investment trades between the currencies and gain their respective profits.
A foreign currency exchange rate, or exchange rate, is the price of one country’s currency in units of another currency or commodity. The system, or regime, is classified as a fixed, floating, or managed exchange rate regime. Par value is the rate at which the currency is fixed, or pegged. If the government doesn’t interfere in the valuation of its currency, the currency is classified as floating or flexible.
There are four major trading sessions: the Sydney session, the Tokyo session, the London session, and Pip crawler’s favorite time to trade, the New York session. Actual open and close times are based on local business hours. Know the active sessions, so know the volatility.
What is traded in the foreign exchange market?
|EUR||Euro zone members||Euro||Fiber|
Is MONEY! Yes, FOREX trading can be confusing because you’re not buying anything physical. There are eight most frequently traded currencies (USD, EUR, JPY, GBP, CHF, CAD, NZD and AUD) which are called the major currencies. However, in FOREX trading, commonly you see a higher frequency on the 4 major pairs - Euro against US dollar (EUR/USD), US dollar against Japanese yen (USD/JPY), British pound against US dollar (GBP/USD), and US dollar against Swiss franc (USD/CHF).
In FOREX trading, when you buy the Japanese yen, you are basically buying a “share” in the Japanese economy and betting that the Japanese economy is doing well, and will even get better as time goes so when you sell those “shares” back to the market you will end up with a profit. The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy.
How Does Forex Work?
All FOREX quotes are quoted with two prices: the bid and ask (bid is lower than the ask price).The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you (the trader) will sell to the market. The opportunity for profit is based on the constant fluctuations that occur between currencies. Even minimal changes can produce a substantial gain because of the high amounts of money invested in each trade. Trading is available at any time with the major world Forex trade starts every morning at financial centers in Sydney and moves on to Tokyo, London, and then New York.
FOREX market has neither a physical location nor a central exchange, unlike other financial markets like the New York Stock Exchange (NYSE). It is considered an Over-the-Counter (OTC) or “Interbank” market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period. Meaning the spot FOREX market is spread all over the globe with no central location and can take place anywhere, even at the top of Fujiyama or underneath Pacific Ocean as long as you have internet connection.
What Leverage Represents?
Leverage is buying or selling power. The higher the leverage the more quantities a trader can trade. This is how it works, a leverage of 1:50allows a trader to trade up to 50 times, his equity value. In other words, a leverage ratio of 1:100 allows a trader to control USD100, 000 and applies the same for losses.
What is Margin?
Margin is the amount of funds required to allow a trader to open and maintain a position of large amounts of money. If the allowed leverage is 1:100, the required margin to open and maintain a FOREX position is 1/100 of the value of the position. Of course, any gains or losses will be added or deducted on the remaining cash balance in your account.
What is a Pip?
A pip is the unit of measurement to express the change in value between two currencies; it is the commonly seen smallest unit of price increment on any currency. The difference is your measure of profit or loss. Nearly all currency pairs consist of five significant digits and most pairs have the decimal point immediately after the first digit, that is, if the EUR/USD moves from 1.2295 to 1.2297, so the movement is two (2) pips.
What Do Short and Long Positions Mean?
Traders take short positions to sell currency which they anticipate will drop in price. In this way, the investor may profit if the price declined. Sell means sell the base currency and buy the quote currency in expectation the base currency to fall in value and then you would buy it back at a lower price. This is called “going short” or taking a “short position”.
Long positions are taken when a trader buys a currency at a low price with the intention of selling it later for a higher price - means buy the base currency and sell the quote currency, as forecast the base currency to rise in value and then you would sell it back at a higher price. This is called “going long” or taking a “long position.”
Just remember that long = buy and short = sell.
What Are The Benefits To Trade Foreign Currencies?
In FOREX trading, there are so many benefits and advantages. To name a few:
- No commissions. No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail brokers are compensated for their services through “bid-ask spread“.
- No middlemen. Spot currency trading allows you to trade directly with the market responsible for the pricing on a particular currency pair.
- Flexible Lot Size starts from micro lot (0.01) which means 1000 amount of any particular currency. In spot FOREX, you determine your own lot, or position size.
- Low transaction cost. Under normal market conditions, the retail transaction cost (the bid/ask spread) is typically less than 0.1%.
- FOREX market never sleeps; it’s a worldwide market that opens 24 X7. This is absolutely awesome for part-time traders. You decide your trading time, be it in the morning, noon, or night.
- No manipulation, no one can corner the market as it is so huge for any individual or single entity to be able to control the market price for an extended period of time.
- Leverage is up to 500 times. Meaning a trader can control a much larger total contract value with a small deposit.
- High Liquidity due to an enormous market size, so it is also extremely liquid. Under normal market conditions, you can instantaneously buy and sell at will as there is someone in the market willing to take the other side. You also can preset closing position once your desired profit level has been reached, or when it is time calling for a stop loss.
- Low Barriers to Entry - Online FOREX brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of less than a hundred dollar. This offer makes open an account more accessible to the average individual who doesn’t have a lot of start-up trading capital. Doubt you can find this in stocks, options or futures market. In the past, only the big speculators and highly capitalized investment funds could trade currencies, but now with the retail FOREX brokers and the Internet, anybody could just contact a broker, open up an account, deposit some money, and trade from home.
- Free stuffs, free practice on Demo Account everywhere available for newbies.
Now you get it what excites and motivates many people to choose FOREX.
What Are “intraday” and “overnight Positions”?
Intraday positions is when all positions opened at anytime during the 24 hour period before the close of business trading hours at 22.00 GMT. Overnight positions are positions that are still on after the usual trading hours.
How Much Amount Needed To Trade Forex?
As little as 100 USD will do for micro lot trading account, but recommendable is to start with at least 1000 USD for the purpose of good money management. For a Mini and Standard lot, it is best to go with at least 5000 USD.
How Do I Manage Risk?
The most frequently used risk management tools in Forex trading are stop-loss and limit orders. The stop-loss order automatically liquidates a position at a chosen price.
This prevents any possible movements against the position beyond the chosen level. Please note that in case of irregular or adverse market movements, a trade maybe stopped beyond the stop loss level.
Do I Pay Any Interest On My Open Positions More Than 1 Day?
This interest is called Swap or roll-over fees in FOREX. It depends on the currency pair you are trading and the direction of the trade which will determine pay or earn swaps.
What Trading Strategies Are Useful?
Traders should consider the prevailing economic conditions and take into account the various financial reports and analysis available. Technical traders rely on trends, support and resistance levels in conjunction with analytical data to identify trading opportunities.
Significant unexpected events can drive price movements such as a sudden change in interest rates or a major political crisis. Often it is the expectation of an event rather than the event itself that influences price movement.
* In dollar cents.
The spreads above are the typical initial spreads that are available for the two account types.
Please note that during extreme market conditions or during low or vigorous activity, spreads may change. You will see this change in the market watch, or on the order ticket, when you try to open or close a position.
All positions left open from 23:59:45 to 23:59:59 (Server time) will be rolled over with swap depending on account type.
For all pairs above, each lot represents a size of 100,000 units, except for Silver, Gold and Oil, each lot is equal to 5000, 100 and 1000 units respectively.
How To Make Profit From Forex?
Most forex beginner traders started their real trading accounts with the wrong concept on how to make money from the market. in reality, forex is a live market so by totally relying on the automated trading robots or expert advisor (ea) is not a very sound decision.
Money is not free, and never comes easy either, unless one was born with a silver spoon. however, regardless of the forex market volatility, using the right approach and with the right mindset making consistent money or profit can be relatively easy. each traders must firstly bear in mind that the focus should be on consistent pace, not always targeting huge gains to be only followed by huge loses. it is hard to deny, when comes to money, everyone can be emotionally shaken so as a precaution, one need to be always aware of the emotions and ensure a consistent trading routine to keep on the profiting path. only with awareness, mistake is realisable for diagnostic and better chance in finding the best approach to continuously making profit and covering losses.
For beginner traders to learn on how to make money in forex, on how to trade effectively and using a simpler, yet effective trading strategy is always better to learn from an experienced and successful forex trading mentor. keep in mind that there is no short cut for a good lesson and not every day is sunday. it is also very important to be constantly aware of own emotions and actions during trading, also always make a trading plan on entry and exit, and keep a trading journal for references. for the traders who don’t do all these, sooner or later are going to lose money.