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Forex Trading Basics-1

What is It?

Different currency signs

This is just another name for Foreign Exchange Trading or if you like ‘Trading in Currencies’ – in short you may sell one currency and buy another. This can be done for business but also for speculation purposes. Individuals can trade by themselves either over the internet or on the phone.

What Does it Do?

It allows you to predict or speculate on the price fluctuations of various pairs of currency around the world. You only ever trade in pairs and it’s the largest market global market. $2 trillion are traded each more than 80 per cent purely for speculation purposes.

Who Takes Part in Forex Trading?

Individual traders apart it’s a mixture of corporations, banks, Investment managers, forex brokers, hedge funds and many many more financial parties.

How Much Money Do You Need to Trade?

Not so long ago you needed a very big fund to trade forex. But with the development of online brokers individual investors with a home pc can begin trading with as little as $200-$250

When Can I Do This?

 
Forex trading market

Forex is a market which never stops so it’s available 24/7. You can trade full time or part time – you can trade as a hobby or to make another income. You can fit his around your work schedule or daily routine. The choice is yours. This can be done manually or even with the help of a trading robot so you can set levels and just get on with your day. The big benefit about using a bot is ‘It takes out the risks of human emotion’ – individuals can panic if something goes wrong and so end up chasing losses which is always dangerous. They can also push things too far when on a roll. The approach must be methodical and disciplined.

Can I Trade Alongside Others?

Yes you can do this through a managed account supervised by a professional trader who trades your money along with other individuals. Everyone investing in the trade will get a share of the profits and will endure an equal share of any losses. You have to be sure to select a good manager – someone you can trust – and there may be management fees associated with this. It can take the onus of you and you let someone else use their professional expertise to help make you money.

How Do Currency Pairs Work?

You’ll see the currency you are buying at the top and the selling currency at the bottom. When you see for example: EUR/USD – this means you are buying the Euro and selling the dollar. If you think the Euro is going to increase relative to the dollar then you can purchase that pair.

 
confused between Dollar and Euro

If you speculate the dollar is going up relative to the Euro you can sell the pair. All pairs are quoted on what total of the currency you are selling is required to buy 1 unit of the currency you will ultimately purchase. If 1.4 US dollars will purchase 1 Euro then this will be displayed as 1.4000. This will go to four decimal points. The fourth digit after the decimal point is what we call a ‘pip’. This is one unit of movement for the pair.

Two prices are available for each pair of traded currency – the selling price is called ‘The Bid’ and the buying price is called ‘The Asking Price’ the ask price will generally be higher than the bid price which is the price you’ll pay for executing the forex transaction. There are a great many forex trading examples on the internet so do your research.

Currency Pairings

  • GBP/USD = “Cable” or “Sterling -EUR/USD = “Euro”
  • USD/JPY = “Dollar Yen”
  • USD/CHF = “Swissy”
  • USD/CAD = “Dollar Canada” (CAD referred to as the “Loonie”)
  • AUD/USD = “Aussie Dollar”
  • NZD/USD = “Kiwi”

Currency Codes

  • USD = US Dollar
  • CAD = Canadian Dollar
  • GBP = British Pound
  • EUR = Euro
  • CHF = Swiss Franc
  • AUD = Australian Dollar
  • NZD = New Zealand Dollar
  • JPY = Japanese Yen

There are more Forex articles on this site so information can be broken down into small sections!

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