The Basics of Trading the Forex Market (Foreign Exchange)
Basics of Forex online trading to help you get started. Foreign exchange market terminology is provided.
Before you begin trying to trade the Forex (foreigh currency exchange), you should be familiar with the main terminology and ideas used in this market.
PipPip stands for "percentage in point". This is the basic unit of price in the Forex market. This is similar to stocks, for example, which use dollars and cents to as the base numbers. Pips can refer to the number of ticks or units a currency pair has moved. For example, assume you are trading the EUR/USD (the Euro Dollar and US Dollar) pairing. If the price has moved up from 1.5480 to 1.5485, that is a 5 pip movement.
A pip is also a unit of money you are trading. A standard lot is based on a 100,000 units and each pip is valued at approximately $10.00. Typically, to trade a standard lot, you will need approximately $1,000 per lot (or unit). Using the same example, that 5-pip move up would have been equal to a $50 move. There are also mini accounts that allow you to trade with much less capital, while also reducing the pip value. Typically, most brokers with mini accounts will base their mini lots on 10,000 units per lot, with a pip value of approximately $1.00 per pip. With mini accounts, you will need approximately $100 per lot/unit you want to trade.
LeverageLeverage trading, or trading on margin, means you do not have to put up the full value of the position. As mentioned above, a standard lot is worth approximately $100,000. If there were no leverage involved (or a leverage of 1:1), you would need to deposit the full amount to trade one lot. However, all brokers will offer you leverage of 50:1 to 400:1.
While more leverage makes it much easier to trade more lots, there is a danger with it as well. Think of leverage as a double-edged sword. Yes, it can help you control more money, but if you have a loss, you can also lose more of your own money.
Here is an example: assume you have $5000 in your account. Your broker offers you 100:1 leverage. This means that you can trade up to 5 lots and control $500,000 worth of currency. This also means that for every 1 pip in price movement, you will gain or lose $50. Remember, typically for every $1000 in available margin at 100:1 leverage will control $100,000 in currency and that every pip (i.e. price movement) will be worth $10.
Using the same information: if a broker were to offer you 400:1 leverage, then your $5000 would be able to control $2,000,000 in currency. This gives you the ability to trade 20 lots at a time, which means each pip movement would be approximately $200…so that 5-pip movement from above would equal to a gain or loss of $1000!
So, you can see that while a higher leverage can help you control more currency and give you the ability to make more money, if you are wrong, you will lose more. Take the use of leverage seriously and with respect and you are already ahead of the game.
Margin CallYou never want to get one of these. Basically, a margin call is when you are contacted if your account falls below a certain level (you will know that level that is when you open your account with your broker.)
Here is a simple example: You open an account with $2000. You open a position with one lot. You have now have only $1000 in usable margin to either open another lot or to buffer any losses you had on your first open lot. Let’s say that you use that remaining $1000 to open another lot. You now have $2000 of USED margin, with ZERO remaining usable margin. Your trade goes against you by 10 pips (which with 2 lots is $200). Depending on your broker, they will either automatically close the trade and you will have nothing left in your account or you will be contacted via phone or other means saying you must deposit additional capital to cover the deficit. Fortunately with most Forex brokers, your risk is limited to the funds you had on deposit.
Price Quotes: Base Currency / Quote CurrencyAll transactions are based in pairs, buying one and selling another. The first currency quoted is called the base currency, while the second one quoted is called the quote currency. As an example, here is a typical currency quote: EUR/USD 1.5280
In this example, the base currency (EUR) is the Euro Dollar and the quote currency (USD) is the US Dollar.
So, using this example (if you were buying), the quote of 1.5280 means that you would have to pay 1.5820 US Dollars to buy 1 Euro Dollar. Conversely, if you were selling, you would receive 1.5280 US Dollars for each Euro Dollar you sold.
SpreadThis is also called the bid/ask spread. This is the price difference between what a currency pair is being bought and sold for…or a difference between the bid and offer price.
The bid is the price at which the Forex market maker is willing to buy the base currency in exchange for the counter currency. On the other hand, the ask price is the price at which the Forex market maker is willing to sell the base currency in exchange for the counter currency.
Remember that all trades involve the simultaneous purchase of one currency and the sale of another.
Spreads will vary from pairings to pairings. This spread is where your broker will make their money. Every time you make a trade, they make the spread. This is why they charge no commission – because there is no need for it.
Sunday, September 13, 2009
Forex Online Trading
Forex Currency Trading - FOREX
Forex is the only market in the world which is trading around the clock. 24 consecutive hours. Speed in completing the transactions, the cost is very low, liquidity is high. All these factors make foreign currency trading market (or the foreign exchange market), more exciting for the market traders. The market for trading currencies that can not be equated with market share trading in terms of form, here, there is no known stocks the traditional sense of the word. But is composed of a huge global network is simply connecting a large number of currency traders in the world. Here are hundreds of trading between the banks over the phone or via the Internet.
The major currencies traded are: the U.S. dollar, euro, pound sterling, Japanese yen, Swiss franc, in addition to all the currencies of the world. How it works currency trading: In this market you can buy or sell currencies. Objective is to profit from the value of your contract. The implementation of the debate in the currency market is easy: a mechanical trading is the same in other markets, making the transition to a market exchange easy. The five largest centers are traded between banks, which account for two thirds of the volume of global exchange are: London, New York, Zurich, Frankfurt and Tokyo. Who are the players on this scene? 1 international banks. It is no secret to anyone that the banks are the largest and most important players in the arena of global trade in currencies. Are conducting thousands of transactions daily around the clock, which they exchange among themselves, or with Albrookr Aoualemsttmaren ordinary, through the permanent representatives in this area. It is well known that the biggest impact in moving the market and to identify and exclusively in the hands of his senior international banks, as their transactions amounting to billions of dollars daily. 2 Central Banks. Central banks conduct their transactions in this market on behalf of their governments, which often move in to influence the course of the direction taken by the private currencies, according to the interest to be consistent with financial policies, and thus protect its economic interests. 3 investment funds. Is due mostly to the institutional investors or pension funds or insurance companies, interfere in the market, according to the dictates of their interests. Recall the most famous of these funds, "H", a fund owned by renowned investor George Soros, who wrote a history in this area is still considered one of the largest direct investors who are able to influence the course of the market. 4 clients trade currencies. Important of these are limited in linking between buyers and sellers. In other words they are moving from the point as mediators between the different banks, the other hand between the banks and ordinary investors. In return for their work that they Ihzbon commission, or the so-called Brockerj. 5 independent people. These are ordinary people who have huge daily turnover of currency to finance their trips planned, or to secure access to their salaries, or at retirement, and so on. Today, the impact of the revolution that brought the Internet to the global communications and, after the successive collapses in the stock markets, and under the influence of the foggy atmosphere, which the Treasury bond markets in the world, is growing little by little the role of the independent dealers who have modest amounts of money in buying and selling daily, "the Day Trader. " Growing influence and grow the market in foreign currency exchange, so that many of them are engaged in this work, and spend their days in front of computers and buy all the selling, according to his vision of the course of today's events Circulation around the clock. As previously stated, the work on the currency markets over the past 24 hours. In the Calendar Today the most visible, start first in the Far East, in New Zealand, then moved to the role of Sydney in Australia, then to Tokyo and from there to Honkkong, Vsingaporp, and then Moscow, Frankfurt, London and finally New York, Flosse Angeles. Begin the work of foreign currency traders in Western Europe, seven in the morning. In the eighth in the work. It is necessary to devote the first half hour each day to analyze the market conditions, and study the latest developments of the day to bring about substantive, technical art, after which access to the new daily newspapers, or the exchange of information and contained the leak to the market, which could influence the course of the market. And thus have a clear idea, from which today's program, which is applied must be adjusted if needed to be the work of the day.
Forex technical terms
Ratio / quota or quota Rate is the rate of currency compared with the others. Key currency The base currency is the first currency in any exchange of my husband. Determine the value of currency in exchange for the interview. (For example, if the ratio of the exchange pair Euro / U.S. $ 1.3525, the euro is the base currency and the value of 1.3525 U.S. dollars). The counter (also known as the indicative price or a point).
The counter is the second currency in any exchange of my husband. And define the basic value for the currency. value. (For example, in the exchange pair is the next Euro / U.S. Dollar currency, the opposite is the U.S. dollar). Offer price (also known as the purchase price)) Offer price (the price to give the area the left) is the price at which traders buy the base currency. If you think that the value of the euro will go down if you choose to buy - you can buy the euro price of the dollar before the indicative price given. Rate of demand (also known at the sale price or demand) Demand the application rate (to give the region the right price) is the price at which dealers sell the base currency. If you think that the value of the euro will rise if you choose to sell - could sell the euro to the dollar before the U.S. price in the price of the application. The difference between the price of supply and demand.) Points (also known as points) One point, 0.0001 of a unit, Journal of Trading Trading is open daily and close deals on the same day of trading. The cost of trading The cost of trading is the price when trading against. Calculated in this way the cost of trading = sale price - purchase price Avoid loss Type of Trade Center to close upon the arrival of a fixed rate to avoid a sale of the loss. You can choose to sell to avoid the loss to reduce the loss when the market affected by the opposite of what you expect. The margin of Is a sum of money placed in trust as collateral to cover possible future loss. Leverage (× 400) Lifting Almaliho get a loan from the seller or dealer, and then you can do to a business transaction fast and cheap, a small amount of the capital. Expressed as a percentage of total capital (located) and real capital (which is the amount of money we borrow). (Eg, 1:400, which allows the lifting of financial purchase or sale of 10000 U.S. dollars to 25 U.S. dollars). Please Note Trade currencies on margin, or lift more than a purchase. If you have 25 dollars in cash in the calculation of the margin has 400:1 Leverage, you can buy the currency value of U.S. $ 10000 that you have to put 0.25% of the purchase price as collateral. This means that while you have 25 dollars in cash and now you have 10000 dollars value of the purchase. On the other hand, while the purchasing power of your profitability more than it increases the Ksartk. We advise you to take the advice of very little time to understand the risks. Make sure to read the margin agreement in order to understand how it works for calculating the margin, and ask questions when going through things is not clear to you.
Sitting on the Fence – China and England Watching the Economy Go By
The Chinese stock market has all but collapsed the past several weeks, falling off nearly 25% in a six week span overall, capped by a 6.7% drop yesterday. The causes for concern in the Forex world relate specifically to the Dollar.
As you might recall from several weeks ago, I spoke of the Chinese selling off some of their US treasuries and diverting that money to support their commodity purchases.
This tactic is proving to be detrimental to the short term stability of the Chinese economy, as with the information on the stock exchange shows that industry is not moving, which means the metals and durable goods they are buying are sitting in warehouses, instead of feeding the economic machine.
For the US Dollar this is a signal that could spell out a difficult Fall/Winter once again, as China commits more money to helping their own corporations and diverts more and more funds away from Treasuries.
Already, the US has held three Bond issue auctions in which the Chinese bought nothing – a fact that is not getting as much attention at this stage as it should. I would bet, since my blogs have been a few weeks ahead of the mainstream news, that this will become a bigger deal in the coming months, as more auctions go by and China continues sitting on the sidelines.
Aside from this, we have the British Economy which is sputtering along, as it seems the politicians are doing nothing. Political sensitivity aside, the Sterling has been suffering because the establishment in Parliament is still trying to get over a spending scandal which dominated the headlines for two months. They are timid and afraid to do anything significant for fear of more backlashes, so they are also sitting and watching.
What Forex investors need is a clear sign from governments, that they are doing something, being proactive and working to turn the economy around instead of hoping that it will all by itself.
This week will be a slow one, many in the US are off for the week, and Europeans are spending the last week catching the remnants of the summer sun. The ECB meets this week – don’t look for anything shocking there – they too are catching rays.
Dollar experiencing a Seesaw Ride
The Dollar fell broadly on Wednesday, after an informal data release showed a higher than expected rate of unemployment. US employers in the private sector shed 298,000 jobs in August according to the ADP payroll report.
The Dollar initially rose on risk aversion sentiment, however continued fears over the mounting governmental debt load along with a very light volume combined to bring the Dollar down in late session trading.
The ADP jobs report is an early indicator of how the official government “non-farm payroll” (NFP) report will look. The NFP report is set to come out on Friday and includes both public and private industries.
The consensus on the Forex market is that 225,000 jobs will be reported as lost, although with private industry alone shedding close to 300,000, the NFP is likely to disappoint.
At 11:00 PM GMT, the Dollar was down .42% to the Euro to 1.4282, down .9% to the Japanese Yen to 92.15, down .85% to the British Pound to 1.6286, down .05% to the Canadian Dollar to 1.1041, down 1.2% to the Australian Dollar to .8357 up .2% to the Kiwi to .6736 and down .55% to the Swiss Franc to 1.0594.
