Trade Forex Trading

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Forex Tutorials for Beginner Currency Traders

This Forex tutorial aims at providing the basic knowledge to beginner forex traders. The following basic trading concepts are covered in this tutorial.

Introduction to Forex Trading

Forex or Forex or Forex is the largest financial market in the world where currencies are exchange in this Over The Counter market (OTC market). The forex market has a daily trade turnover of $7.2 trillion dollars and this makes Forex the largest and most liquid market in the world. Due to the size of the forex market there is always someone willing to exchange their currency for the currency that you want to trade at any given time of the day.

This liquidity and size of the forex market also means that transaction costs of trading this market are very low and this is what attracts many forex traders to the currency exchange market.

The forex market is also open for 24 hours throughout the day for 5 and a half days every week.

About Forex Market

The forex market is an Over The Counter Market (OTC Market) which means that there is no centralized exchange market place where forex transactions take place. Instead Forex is carried through a network of big international banks known as the Interbank network.

Popularity of Online Retail Forex Trading

The retail Forex traders in the currency market account for 95% of all transactions carried out in the forex market. Retail forex market has become more and more popular among retail forex traders and investors because of the advancement of technology. A beginner currency trader only needs a computer that has an internet connection to setup and start forex trading.

Once a trader wants to start trading the online currency market, they can open an account with an online forex broker. There are many online forex brokers from which a trader can choose from. Once a trader opens an account with a Forex broker then they can trade any forex currency from this account. The trader will just use a trading software known as a trading platform and the trader can then place trades directly to the online forex market through their online forex broker.

The forex broker provides access to the forex market to retail forex traders and investors by providing trading technology that connects these forex traders to the forex market.

Currency Pair

Forex Currencies are traded in pairs of two commonly known as Currency Pair. For example the EURO and the US Dollar currency pair which is denoted as EURUSD will be traded by traders wanting to exchange EUROs for US Dollar or US Dollars for EUROs. A currency trader wanting to exchange EUROs for US Dollars will be trading this currency pair EURUSD.

Currency Exchange Rate

The currency exchange rate is the price at which one currency is quoted against another currency. This exchange rate determines how much one currency will be exchanged for compared to another currency. For Example if EURUSD exchange rate is 1.2500 it means that a trader will exchange 1 EURO for 1.2500 US Dollars.

Pip

Pip means Price Interest Point and this is the unit used to calculate currency pair moves. A pip is equal to a one point movement in the exchange rate of a currency. A pip is the minimum price increase in the exchange rate of a currency. For example in EURUSD exchange rate is 1.2500 and the currency moves 1 pip then this will mean the current exchange rate will now be 1.2501 - the pip is the last point in this example and can be denoted as 0.0001. A pip is one hundredth of 1 cent, therefore 100 pips movement is equal to 1 cent.

Spreads

In Forex trading there are two prices for a currency pair, these two prices are:

Bid - or sell price

The bid is the price at which a trader can sell the currency

Ask - or buy price

The ask is the price at which a trader can buy the currency

The difference between these two is what is known as the spread. For example EURUSD may be quoted at Bid/Ask price of 1.2600/1.2602 which means the spread is the difference between the two prices which is 2 pips. The spread for this example is therefore 2 pips.

What is Leverage

Because many traders cannot afford to trade 100,000 units of currency or even 10,000 units of currency, there is the option of leverage provided in Forex trading which means that forex traders can borrow money and use this borrowed money to open trades with. For example leverage of 100:1 means that a Forex trader with capital of $1,000 can borrow up to 100 times using this 100:1 leverage option and therefore after borrowing using this leverage option the currency trader will have a total of $1,000 multiplied by 100, which means the trader will have a total of $100,000 and can therefore trade one standard lot of $100,000 units of currency. This leverage is what makes Forex accessible to many retail forex traders because retail forex traders can start with little capital of their own and use leverage to borrow the rest of the money required for trading currencies. The money that the trader deposits is referred to as their margin and one can continue borrowing money using this leverage option as long as they have the required margin in their trading account. This is why traders must have the required account balance in their account to open the trades they want, for example a trader using leverage 100:1 must have more than $1,000 in their account to be able to open and trade using standard lots.

What is Margin

Margin is the specific amount of money that a currency trader is required to put aside in order to continue holding an open leveraged trade transaction. Margin can also be explained as the deposit that a trader is required to keep in their account so as to maintain his open positions. This margin is a percentage of account equity that has to be set aside and allocated as a margin deposit for the open positions that are held by a forex trader.

Forex Charts

A forex chart is the basic tool used to represent what is happening in the forex market. A forex chart will represent the currency price movements over a period of time. Traders use these charts to analyze market movements and to try and predict which direction the market is likely to move in the future.

A Forex chart represent the demand supply of a currency and it is a reflection of the market psychology and shows the demand supply of a currency pair in relation to the participating buyers and sellers trading that currency.

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