The Forex trading market is a new and innovative market that is quickly becoming the top investment strategy. Forex stands for foreign exchange and this type of trading deals with trading currency. This type of trading is the largest in the world, but it also has many risks involved. It is very important to understand how to trade and understanding this will greatly benefit you in the future.
The Forex Market
The market mainly takes place in New York, London, and Tokyo, but it there is no physical exchange that takes place so the field is primarily composed of international banks, insurance companies, and governments. The exchange can take place either via e-mail or on the telephone.
The first part to trading Forex is finding a broker and becoming familiar with the common Terminology such as pips and spread. When obtaining a broker make sure to get one that gives you 100:1 leverage on your trades. Currencies are traded in pairs so become familiar with world affairs and make yourself very knowledgeable on that pair.
For instance, you could trade the US dollar against the Japanese Yen. By knowing everything on both these currencies you will be much more capable of making a profit. It is very important to deal with only one pair at the beginning.
Charting information is very important when trading Forex. This type of information will allow you to view current prices as well as competitor’s prices and where they may wish to sell their currency at. Through this you will also learn when to enter and exit trades which is extremely crucial.
Forex trading is set as a system where individuals will ask a specific price to sell at while others will offer a bid price to buy at. Individuals can then make this transaction as long as both parties agree to the terms involved in the deal. Brokers play a major role as they each have the benefit of their customer in mind. Remember that in Forex you can buy currency on margin so the profits/ losses can be huge.
Example of a Forex Trade
Suppose you begin by investing $100 with a broker. You can wager up to $100,000 based on what changes will occur in the market. If you believe that the British pound will rise 5% against the Japanese Yen then you would begin by purchasing the British pound. An investor will quote you against the Yen at this point and you can see where your starting point is with a quote such as Yen 1.5567.
After you receive this quote you will then watch the market and observe how your currency is doing. If you see your money doing well and you decide to sell then you will receive a new quote which could be higher or lower than the original quote based on how it did. If the new quote was Yen 1.5570 then you have gained 3 pips. This amount of gain is based on how much you wagered and changes in the interest rate.
As you can see trading Forex is based on first buying Forex then re-selling it at a new price. Trading takes time and you need to pay special attention to each trade.