trading or Foreign Exchange Trading refers to the simultaneous
trading—that is, buying and selling-of two different currencies. It is
done between and among major financial institutions, central banks,
retail currency traders or speculators, large international companies,
government institutions, companies with overseas operations and the
Forex Market operates 24 hours through a global electronic network where
trading occurs over the telephone and computer networks.
Top Forex Currencies
world currency is given a three letter code which is used in Forex
quotes, the instrument traded by Forex traders and investors are
currency pairs. A currency pair is the exchange rate of one currency
over another. The most traded currency pairs are:
GBP/USD, USD/CAD, USD/JPY, USD/CHF, AUD/USD.
happens when you accept the offered price and when the dealer confirms.
currency can never be traded by itself. So you can not ever trade a EUR
by itself. You always need to compare one currency with another currency
to make a trade possible.
have the EUR/USD and AUD/USD for example.
for instance, if a trader goes long or buys the Euro, she or he is
simultaneously buying the EUR and selling the USD. If the same trader
goes short or sells the Aussie, she or he is simultaneously selling the
AUD and buying the USD.
first currency of each currency pair is referred as the base currency,
while second currency is referred as the counter or quote currency. Each
currency pair is expressed in units of the counter currency needed to
get one unit of the base currency. If the price or quote of the EUR/USD
is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.
are no further costs in the trade. There are no commissions and other
fees as well.
currency pairs are commonly quoted with a bid and ask price. The bid is
the price your broker is willing to buy at, thus the trader should sell
at this price. The ask is the price your broker is willing to sell at,
thus the trader should buy at this price.
contrast with other financial markets where you require the full deposit
of the amount traded, in the Forex market you require only a margin
deposit. The rest will be granted by your broker.
leverage provided by some brokers goes up to 400:1. This means that you
require only 1/400 or .25% in balance to open a position (plus the
floating gains/losses.) Most brokers offer 100:1, where every trader
requires 1% in balance to open a position.
standard lot size in the Forex market is $100,000 USD.
instance, a trader wants to get long one lot in USD/YEN and he or she is
using 100:1 leverage.
open such position, he or she requires 1% in balance or $1,000 USD.
course it is not advisable to open a position with such limited funds in
our trading balance. If the trade goes against our trader, the position
is to be closed by the broker.
very important to understand every aspect of trading. Start first from
the very basic concepts, then move on to more complex issues such as
Forex trading systems, trading psychology, trade and risk manage