In FOREX market, currency trading is done in currency pairs such as GBP/USD, EUR/USD or USD/CAD, reflecting the exchange rate between the two currencies. An exchange rate is the ratio of currency valued against another currency. For example, the GBP/USD exchange rate specifies how many Britain Pound can buy one U.S Dollar. The first currency in the pair is called based currency and the second currency is called counter or quote currency. For practical purpose, when you buy a currency pair means you are buying the base currency and selling the counter currency. A trader buys the pairs if he believes a base currency will appreciate relative to the counter currency. Selling the currency pairs means selling the base currency and buying the counter currency. A trader sells a base currency if he believes the base currency will depreciate relative to the counter currency. Therefore, all trades will result in the simultaneous purchase or sales of one currency and the sales or purchase of another. When operating in the FOREX market, you would execute a trade only at a time when you expect the currency which you are buying to increase in value in relation to the one that you are selling. If the currency that you bought does increase in value, you must then sell the other currency back in order to lock-in your profit. Therefore, an open trade, or open position, is a trade in which the investor has bought or sold a particular currency pair but has not yet sold or bought back the equivalent amount in order to close the position. The exchange rates of all currencies are changing strictly under the action of the demand and supply alteration, which is influenced by human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies fluctuate towards its higher and lower meanings.Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” or "sell higher - buy cheaper" makes it possible for traders to gain in both bullish and bearish direction of the market. You can open your position for more than a day, FX trading also allow a day trading (day traders invest by buying and selling securities, or opening and closing their market positions, on the same day).
FX market is quantified in lots. The term lot equals 100,000 units or 10,000 units for standard or mini account respectively. The standard and mini account can be opened with $2,000 and $200 depending on the your chosen broker. Standard or mini lot can be traded with just $1,000 or $100 with the use of 100:1 leverage which is exclusive to FX market. Here’s an example: You speculate with the help of Fundamental or Technical Analysis that British Pound will go up against the US Dollar. You open 1 lot for buying the Pound at an exchange rate of 1.4989, and then you wait for the exchange rate to climb. At some point in the future, your predictions prove accurate; the exchange rate climbs, and you decide to sell. You close the position at 1.5050, thus earning 61 pips, or about $405. So, on an initial capital investment of $1,000 you realized over 40% in profits. When you close a position, the deposit that you originally made is returned to you and a calculation of your profits is performed. This profit is then credited to your account.
Before trading forex, you will need a live account and trading platform with a reputable broker, the account can be opened with amount as low as $200 for mini account depending on the broker. This is possible because of Forex high leverage as high as 200:1. Leverage is the ratio of investment to actual capital. This is an example of how the leverage works, using a $1,000 to by a Forex contract of a $100,000 value, the leverage is 1:100 ratio. The $1,000 is all you invest and all you risk, but the gains you can make may be many times greater. This is called Marginal trading. Marginal trading simply means trading with borrowed capital. It has its appeal in the fact that FOREX investments can be made without a huge supply of capital. This allows traders to invest much more money, establishing bigger positions in the market, with much smaller amounts of actual money. This makes FX market very easy to enter into for the new investors. While the risk certainly is substantial, the ability to conduct marginal trading in the FOREX market allows for potentially enormous profits relative to the initial capital investments that are required. The sheer size of the FOREX prevents virtually all attempts by anyone to influence the market for their own personal gain. This has the effect of making the investor feel quite confident that when trading in foreign currency markets he or she has the same opportunity for profit as do other investors around the world. It must be stated, however, that, as with any investment, losses are a possibility. They can, and do, occur. And for the same principle that gives marginal trading its potential for huge gains, the possibility of huge losses is just as great. This implies that Forex trading is all about market direction and good money management. You must also take your time to learn the market and find a trading strategy that works for you. The best way to learn to trade FOREX is to open up a demo account and practice with it for two or three months.
FX market is quantified in lots. The term lot equals 100,000 units or 10,000 units for standard or mini account respectively. The standard and mini account can be opened with $2,000 and $200 depending on the your chosen broker. Standard or mini lot can be traded with just $1,000 or $100 with the use of 100:1 leverage which is exclusive to FX market. Here’s an example: You speculate with the help of Fundamental or Technical Analysis that British Pound will go up against the US Dollar. You open 1 lot for buying the Pound at an exchange rate of 1.4989, and then you wait for the exchange rate to climb. At some point in the future, your predictions prove accurate; the exchange rate climbs, and you decide to sell. You close the position at 1.5050, thus earning 61 pips, or about $405. So, on an initial capital investment of $1,000 you realized over 40% in profits. When you close a position, the deposit that you originally made is returned to you and a calculation of your profits is performed. This profit is then credited to your account.
Before trading forex, you will need a live account and trading platform with a reputable broker, the account can be opened with amount as low as $200 for mini account depending on the broker. This is possible because of Forex high leverage as high as 200:1. Leverage is the ratio of investment to actual capital. This is an example of how the leverage works, using a $1,000 to by a Forex contract of a $100,000 value, the leverage is 1:100 ratio. The $1,000 is all you invest and all you risk, but the gains you can make may be many times greater. This is called Marginal trading. Marginal trading simply means trading with borrowed capital. It has its appeal in the fact that FOREX investments can be made without a huge supply of capital. This allows traders to invest much more money, establishing bigger positions in the market, with much smaller amounts of actual money. This makes FX market very easy to enter into for the new investors. While the risk certainly is substantial, the ability to conduct marginal trading in the FOREX market allows for potentially enormous profits relative to the initial capital investments that are required. The sheer size of the FOREX prevents virtually all attempts by anyone to influence the market for their own personal gain. This has the effect of making the investor feel quite confident that when trading in foreign currency markets he or she has the same opportunity for profit as do other investors around the world. It must be stated, however, that, as with any investment, losses are a possibility. They can, and do, occur. And for the same principle that gives marginal trading its potential for huge gains, the possibility of huge losses is just as great. This implies that Forex trading is all about market direction and good money management. You must also take your time to learn the market and find a trading strategy that works for you. The best way to learn to trade FOREX is to open up a demo account and practice with it for two or three months.
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