Understanding Forex Trading |
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Understanding Forex TradingThe Forex market does not have any fixed exchange. The Forex Market is considered an over-the-counter (OTC) market. The Forex market is totally electronic and trades are carried out on the Internet or over the telephone. Until 10 years ago, the forex market was the preserve of large financial organizations. Now, more and more of the various economic operators with the introduction of the Internet and more online forex brokers are trading forex. In Forex Trading, the Currencies are always traded in pairs. A usual pair would be EUR/USD (Euro over U.S. dollars). The first is called as the base currency. The second currency is called as the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro and at the same time selling U.S. dollars. If the pair was sold the reverse would happen you would sell the Euro and buy the U.S. Dollar. This will sound confusing, but simply consider of the pair as one item and you are buying or selling one item. If you think the Euro will increase against the U.S. Dollar you buy the EUR/USD pair. If you think the EUR will decrease against the U.S. dollar you sell the EUR/USD pair. When you see the prices of currencies, you will see two numbers. If the EUR/USD is used for example, you might see 1.2350/1.2355 the first number 1.2350 is the bid price and the price traders are prepared to buy Euro against the U.S. Dollar. The second number 1.2355 is the offer price is the price and traders are willing to sell the Euro against the U.S. Dollar. The difference between the bid and offer price is called the Spread. The spread for major currencies is usually 3 to 5 pips (more understanding on Forex Trading is explained later on). Most often, the increase in foreign currency is the pip. If the EUR/USD rose from 1.2350 to 1.2351, which is one pip. A pip is the last decimal place of the quotation. Most currencies quoted to 4 decimal places. With the exception of the Yen, this is quoted to 2 decimal places, example 139.41 points. The term is just pip forex lingo if a forex trader said the euro rose 20 pips against the U.S. dollar added 20 points to the decimal part of EUR/USD pair. Forex is usually traded in lots also called contracts. The size of a standard lot is $100,000. In recent, mini lot size of $10,000 has been introduced, and it has become increasingly popular. Forex trading is involved with most currency brokers offer margins of 1%. This means that you can control one standard lot of $100000 with $1000. In general, you need a minimum of $ 2,500 to open a forex account size standard. Forex Trading is a very profitable market to enter and it is suggested that traders of new trade forex trading a mini account for an extended period of time. A mini trading account is a low cost of entry to the Forex Market, as only $300 is necessary to open an account. You can gain profits and make lot of money while you become more experienced in Forex Trading. You can trade a mini lot until you've made your first $100 dollars to start trading 2 mini lots. As you gain experience, you can trade standard size lots. In recent days, Forex trading is becoming more popular with traders of other financial products. It can be traded for much smaller amounts than other financial products, which makes learning Forex trading safer than other markets. Forex trading can be a very lucrative market, which can reject operator. |
Understanding Forex Trading
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