Forex Trading - A Basic Overview

Forex trading is becoming more popular as time goes by. Perhaps you have heard of forex trading, or heard things such as "the dollar fell sharply against the yen". Not sure what all this means? Here is a basic overview of forex trading.

The foreign currency exchange market (forex) is the largest market in the world. Much larger than the stock market! Some of the reasons for its popularity are that leverage allows maximum usage for your money and there is very high liquidity. The forex market is also open 24 hours a day, although some hours are much better trading times than others.

Forex is traded on margin. This means that you can control a large amount of money for a small bit of cash. With a 1% margin, $1000 in cash would leverage you one hundred thousand in the forex market trading. What this basically means is that your rate of return (or ROI) is going to be 100% for each percentage change upwards. Of course, this means that your loss would be equally as great if the market went against you.

Forex trades are always done in pairs. You always purchase one currency at the same time as you sell another. While there are many pairs in the forex market, there are really four major currency pairs: USD/JPY, USD/GBP, GBP/USD and USD/CHF. These pairs see the most market activity.

When you work with forex trades, you do not pay a commission fee per trade, unlike the stock market. What you do pay is a spread. That is the difference between the asking rate and the bid rate of the currency pair. The spread is determined by the trading company you work with. The spread is how they make their money. Be careful in trading, as some brokers will increase the spread during big news breaks (such as non farm payroll announcements), or during off peak hours.

Since you are buying and selling currencies at the same time, it doesn't matter whether the market is up or down. You can make money either way. For example, if the GBP/USD is going up, it means the pound is stronger than the dollar. If you think good economic news is coming for the dollar, you may want to sell the GBP/USD and buy USD/GBP.

Price quotes are based on pips - which is the smallest unit that a pair can trade at. It is the very last number on the right of a quote. For example if a currency bid is 1.0345 and the ask is 1.0347 - the difference is equal to 2 pips. This is the spread that was mentioned earlier.

There are two types of forex traders, those that are technical traders and those that are fundamental traders. Technical traders base their trades on a lot of different statistics and parameters. Viewing past patterns the currencies form will give a technical traders strategies on which pairs to buy or sell. Technical traders don't necessarily take news into consideration and often don't trade during big news breaks. Fundamental traders work only with news. They have a calendar marked with big market news days, such as job numbers, consumer confidence, retail sales, etc. They then plan their strategy to buy and sell based on what those numbers are predicted to be.

If you are interested in learning more about forex, there are many website with free training available, or you can purchase courses to learn. Take the opportunity to open a free 'game' account, such as at oanda.com - and practice trading whichever strategy you want to follow until it becomes second nature. This is a great tool before you actually put real money into the market!

Michael Russell

Your Independent guide to Forex Trading

Article Source: http://EzineArticles.com/?expert=Michael_Russell

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Online Forex Trading – The Meaning Of Forex

Online forex trading is the future of the global financial markets. Many traders from other markets like stocks, futures, options and commodities markets are moving into online forex trading in droves on a daily basis. The reason is that, the global forex market today, can boasts of average of over $4 Trillion Dollars daily turnover. This is over 10 times greater than what all the major stock exchange markets around the globe. So what is forex?

The word Forex stands for the foreign exchange market. This is also referred to as the FX, Spot FX or Currency market or simply FOREX. All of these names are just several ways of describing the very same market. Formerly, only the “big boys” could play around in this market. They usually had a minimum of $10 million to $50 million to throw around in this market. It was reserved basically for banks and big institutions.

However, with the advent of the internet, online forex trading had been opened to the general public, as they can now trade in smaller sizes that would be feasible for the “average man”. That means, you and I can now benefit from this “goldmine” anywhere in the world trading forex online. 

Forex trading simply means the trading (exchanging) of money. It involves the simultaneous buying of one currency and the selling of another. The “exchange rate” is what you will see quoted. This determines how much currency that another currency can buy, for instance, buying currency pair of GBP/USD or USD/JPY.

This informs the reason one single news report like the Non-Farm Payroll (NFP) from the U.S.A. and so many others like it can move the market such that that a trader can make profits of over $5,000 in less than 30 minutes on a very good day. I mean $5,000 cool pure profits in 30 minutes. Mind you only 50 pips can generate such amount in 30 minutes or less.

Let’s do a little calculation on this. Let say with standard account where 1 pip equal $10, a trader could enter with 10 standard lots and it can be calculate like this: 10 lots x $10 per pip. Then, 50 pips x $100 = $5,000. I believe this logical enough to convince you that there is no hype but absolute truth.

A very important point to note is this; if a company in United Kingdom with branch offices in United State of America, Japan, Canada or even any other country decide to transfer say U$D10b in the next five minutes to their US branch, whether you know it or not, that singular move is going to move the GBP/USD down by a great number of pips and all these can translate into profits to a trader who is holding short position (s) on the GBP/USD pair.

However, for you to successful in your online forex trading, you need to equip yourself with the basic fundamentals like learning forex, the tools, Brokers, Charts reading, Signal review and more.

For more information on how to be successful in your online forex trading, and how to equip yourself with the basic fundamentals like learning forex, the tools, Brokers, Charts reading, Signal review and free downloads and more click here.

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