What is Forex?

Foreign Exchange (FOREX) is an arena where a nation's currency is exchanged for that of another. The foreign exchange market concurrently is the largest financial market in the world, with over $1.5 trillion dollars changing hands daily. Unlike other financial markets, the Forex market has no physical location and no central exchange. It operates through an electronic network of banks, corporations, institutional investors and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another across the major financial center of the globe.

Benefits of Trading Forex

Leverage - FOREX investors are permitted to trade foreign currencies on a highly leveraged basis - up to 100 times their investment. For example, an investment of US $1,000 would permit a trade up to US $100,000 of any particular currency.

Liquidity - a powerful attraction to any investor as it suggests the freedom to open or close a position at will anytime during the 24-hour trading sessions.

Utilizing only a small portion of initial investment (anywhere from 10-30% of total investment) for margin deposit, no predetermined cost is assessed.

Currencies are traded in pairs, for example USD/JPY or USD/CHF. Every position involves the selling of one currency and the buying of another. Added to the fact that gains can be made when the market is to the upside as well to the downside.

"Past performance is not indicative of future results. Forex Trading involves substantial risk of loss and it is not suitable for all investors. Levaraged trading magnifies profits and losses"

Introduction the Forex

What is Forex?

The extrangeira exchange describes the purchase of particular a current currency of an individual or an institution and sell simultaneous of one another current currency in the value equivalent or the tax of current exchange. Essentially, the process to change a current currency for another one is a based simple commerce in the current taxes of the two involved current currencies.

In the nucleus the level of the necessity of the world for the money exchange is the international traveller. When travelling of the E.U England, for example, you of course will need the local current currency to pay for the transport, food, and so on. On of the arrival in the airport you it will relieve (sell) its dollar of E.U the end to receive (purchase) the equivalent in British pounds. In this example, you it vendeu the USD and it bought the GBP, inversely the accountant of the extrangeira exchange bought the USD and vendeu the GBP. The prices where you purchase and the current currencies of sell in are known as exchange taxes. This tax or price floats established in the events of the demand, the politicians, and the economic ones that they surround the current currency of each country.

The example above illustrates the extrangeira current currency that negocía in basic terms while it becomes related the travellers of the world. However, the market is also used global by the central banking of each country (that is, federal reserve of America), the investment and commercial banks, company of the deep management of (deep deep loans and of hedge), corporaçõs main, and investors or speculators individual. Depending on the synchronism of such transactions, to later buy a current currency with the intention of vender it in a tax of better exchange (and in it turns it vice) it can potential relieve profits for investors, of course is a strong potential for current currencies negotiating of the loss there also.

The use for thus many parties is because the market of extrangeira exchange is the financial market the greater of the world, with a volume of daily dollar that exceeds $1,9 trillion ($1.900.000.000.000). This volume boggling of the mind is probably what it lead to it to search the topic.

Now we go to put the volume being negotiated of the market in perspective. In 2003 the told volume negotiating for the NYSE (exchange conserved in supply of New York) was mere $9,6 trillion; the preceding year age just above of that one in $10.2 trillion. These seem as respectable figures, but in the comparison with the market of extrangeira exchange, that is negotiating generally $1,9 trillion in an only day, these numbers pale in the comparison. That is probably because thus many controlling of deep and company of 500 richness invest heavily in this highly liquid market. The high volume of this market makes one to it of the markets more riskiest to the commerce inside.

It is important to write down that the traders retail, such as yourself, very probable will be reaching the market of extrangeira current currency off-exchange (or the market of Forex) through a FCM (trader of Commissions of the futures) or of the corrector. You he will not be negotiating in proper real the Interbank market. Its access to the total market will be determined by limitations of its chosen corrector. FCMs or correctors acts as a bridge between you and its partner of liquidity (global banks to the times biggest) this you in another way would not have the capital enough to make the business with. The great majority of correctors retail off-exchange of the extrangeira current currency acts as the market manufacturers, meaning that keeping many commerce in the house they críam its proper liquidity. Some correctors retail directly cancel commerce completely to the banks biggest that supply to its liquidity. If you he was new to the market of wise Forex to search and to understand the model of the business of its particular corrector and the method of commerce of clearing.

In contrast to other financial markets, the market of Forex operates 24 hours the one day, 5,5 days one week (6: 00 p.m. EST in sunday until 4:00 p.m. EST in friday). Through an electronic net of the banks, corporaçõs and individual current currencies of the exchange of the traders, though while the market is used as first half for investing speculative, real the physical delivery of the current currencies is intended almost never. To negotiate of Forex starts daily in Sydney, is moved finally for Tokyo, followed for Europe and for the Americas.

Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the basics, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.
What is traded in the Forex market?

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:

EUR/USD: Euro
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
USD/CHF: Swiss franc
AUD/USD: Aussie

These currency pairs generate up to 85% of the overall volume generated in the Forex market.
So, 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.

The 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.

Bid/Ask Spread
All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) 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.

EUR/USD 1.2545/48 or 1.2545/8

The bid price is 1.2545

The ask price is 1.2548

A Pip
A pip is the minimum incremental move a currency pair can make. Pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.05 to 113.10 equals 105 pips.

Margin Trading (leverage)
In 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.

The 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.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.
To open such position, he or she requires 1% in balance or $1,000 USD.

Of 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. This takes us to our next important term.

Margin Call
A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader “theoretically” with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 60 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 26 (26 pips plus the 4 pip spread equals 30 pips) pips against us.

It’s 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 management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

How Individual Investors Can Benefit from Forex Trading

Indeed large multinational and individual banks and other major financial institutions have dominated FX trading (also known as Forex trading), but there is a paradigm change in the nature and type of investing. According to one estimate, in the new millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new technologically driven economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy in Forex trading.

We know Forex trading is direct access trading of currencies. In the past, foreign exchange trading was limited to large banks and institutional traders but recent advancements in technology have allowed small traders to take advantage of the many benefits of Forex trading using online trading platforms to trade. Virtually Forex trading is done 24 hours day and almost 5 ½ days of a week. In the recent times, online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor.

The Forex trading is perhaps the largest financial market in the world, with a daily average turnover of approximately $1.5 trillion. Foreign Exchange is the simultaneous buying of one currency and selling of another. The world's currencies are on a floating exchange rate and are always traded in pairs, for example EUR/USD or USD/JPY or USD/INR etc.

In the new millennium, the Forex trading has become accessible for an individual investor or small group of investors. In the current scenario, investors reap many benefits from Forex trading than stock market, e-mini futures and such other trading. Today mostly traders are choosing Forex trading than stock trading because there are approximately 4,500 stocks listed on the New York Stock exchange. Another 3,500 are listed on the NASDAQ. In spot Forex trading, you have 4 major markets, 24 hours a day 5.5 days a week. If you are so inclined, you have approximately 34 second-tier currencies to look at in your spare time. You can concentrate on the major forex and can find your trade. When you are investing in forex you can spend your afternoon on the golf course or with your spouse watching movie or celebrating holidays—in short it is easy and hassle free than stock/future market.

Not only is it an accessible, easy and less capital-intensive business opportunity, but it is much more cost efficient too to invest in the Forex market, in terms of both commissions and transaction fees. Generally, commissions for stock trades range from a low of $7.95-$29.95 per trade with on-line brokers to over $100 per trade with traditional brokers. Opposite to that, typically stock commissions are directly related to the level of service offered by the broker. At the high end, traditional brokers offer full access to research, analyst stock recommendations, etc. In contrast, on-line Forex brokers charge significantly lower commission and transaction fees.

An Introduction to Currency Trading

The simplest definition of currency trading is the practice of exchanging one country's currency for another country's currency. Basically, currency trading involves four main variables: currencies, exchange rate, time, and interest rate. The interplay of these variables creates opportunities for small investors to obtain investment returns that are generally unheard of in the traditional investment world. It is also referred to as foreign exchange, FX or Forex, but the essence remains the same that currency trading is the exchange of one currency against another.

Perhaps, in terms of trading volume, the currency exchange market is the world's largest market, with daily trading volumes in excess of $1.5 trillion US dollars (although the figures may differ, but this is just an approximation to show its importance). One thing is for sure that in orders of magnitude it is much larger than the bond or stock markets. For example, the New York Stock Exchange has a daily trading volume of approximately $50 billion. So you can easily imagine its importance in the trading world of today. Moreover, contrary to earlier thoughts, currency trading is not limited to just larger organizations and other large banks and financial institutions, but open to everyone who has enough expertise and determination to hard work.

You can start playing the currency trading market with real market conditions immediately. Trading opportunities in the forex currency trading market are now available to individuals through technology interfaces such as those used by major currency trading brokerage firms (usually large corporations with big tummies). If you decide to hire a professional who takes advantage of this technology, you will be able to view your accounts' closed trades 24 hours per day through a secured, online access portal.

Historically, SMBs and individual investors have had limited access to the forex market. For decades, major banks, multinational corporations and other participants, trading in large transaction sizes and volumes, have dominated this market. However, just like many other business segments technology has lowered the barriers of entry and opened up this attractive marketplace to a new breed of investors and speculators.

Technological advancement, along with liberal market sentiments, has allowed almost everyone to deal in currency trading, unlikely to the past when there were only few organizations that could trade the currency. You also can open a mini account with as little as $300 US although $2000 US is recommended. You can open a regular account with as little as $2000 US although $10,000 US is recommended. Mainly major banks, international organizations and some other are doing well in currency trading.