Forex trading is basically buying one currency and selling another simultaneously, or vice versa. It has become the most popular form of trading for retail traders of any financial market in the world. As a result it’s also the largest market in the world with over $4 trillion in daily trading volume, making it larger than all the world’s stock markets put together. Are you searching for a forex Trading Guide? Continue reading..
Its popularity stems from a number of factors including high leverage and low entry barriers. Forex brokers offer their clients the highest degree of leverage available in any financial market, ranging anywhere from 20:1 to 500:1. This means that if you make a $100 deposit in your trading account, you can control a position size equivalent to $10,000 if your broker offers a leverage of 100:1. Additionally, the low entry barrier means that Forex brokers require a very low minimum deposit for retail trading accounts, with some starting as low as $25.
The Forex Market
The foreign exchange market is the only financial market that does not have a centralized exchange where trading is conducted. All trading is done through a network of banks and financial institutions, either online or via telephone. This means that as long as there is a financial center open somewhere in the world trading can continue. Therefore, due to time zones, this means that Forex trading can be conducted 24 hours a day for five days a week.
Most Forex trading is based on speculation despite the fact that there are plenty of financial and commercial transactions that take place and these involve very large amounts of money. The estimate is that more than ninety percent of transactions conducted on the Forex market are speculative, meaning that traders are looking for short-term profits from the incremental price changes taking place every second on the market.
Forex Trading: Trading Guide
Many new traders find it hard to understand the Forex market because nothing physical is actually being purchased and instead you are buying a currency and selling another simultaneously. For this reason, all currencies are traded in pairs, such as the British Pound against the US dollar or GBP/USD, where the GBP is referred to as the base currency and the USD as the counter currency.
The rate of a particular currency against another is determined by a number of factors including the economic health of the country of origin, the political situation and market psychology. In fact, you might be surprised to discover that market psychology can often have a greater impact on price than any other factor. Market psychology refers to the perceptions and behavior of the traders in the market.
Profiting from Forex trading is similar to any other type of financial trading where traders make money from the incremental movements in price that take place every second. Therefore, if you believe that the EUR/USD will rise, after analyzing the market both from a fundamental and technical viewpoint, then you can take a long position. So, if you buy the EUR/USD at 1.3450 and it moves to 1.3465, you can close your position and walk away with a 15 pip profit.
The value of a pip is determined by your position size as well as the currency pair you are trading. For the previous example, though, if you open a $10,000 position in EUR/USD, one pip will be worth $1. Therefore, you would have made a $15 profit. This might not seem like much, but considering that you can open a $10,000 position with only $100 in your account and that the market can move 15 pips in a few minutes, that’s not a bad return on your investment.
Forex trading can be a very profitable occupation but also very risky. This is why beginners should never trade with money they can’t afford to lose and you certainly should never start trading until you have learned how to analyze the markets. Likewise, you should never start trading live until you have spent a significant amount of time trading on a demo account. Once you are making a profit consistently on your demo account you can consider moving into live Forex trading. Read this and other Trading guide books and understand fully what they are saying before you get started!