Forex trading experience

The FX market is the largest financial market in the world. Daily average turn over now exceeds 4 trillion US dollars. All the US equity markets combined do not make 3% of the volume traded on Forex Market.

What is Forex Trading?

Forex Trading involves transactions in which one may purchase an amount of a currency by paying a certain amount of another currency. The Forex market is global and it is a regulated financial market for the exchange of currencies. Across the globe various financial centers act as mediums for trading between a wide range of buyers and sellers 24 hours a day throughout the week(not weekends). One of the biggest reason why foreign exchange exists is to facilitate international trades and investments by giving businesses the power to convert one currency into another. It is this financial institute that determines the value of a country's currency relative to another.   

Basic Concept

By foreign exchange it means selling currency and buying another simultaneously. Currencies are traded in pairs so in order to profit from an exchange move, you need to buy the currency that you expect will rise from a current market price to a relatively bigger one and sell the other. 

For example if you believe a US dollar(USD) was going appreciate against the Japanese Yen (JPY) you would then buy USD/JPY or in other words you would buy USD and sell JPY.

Why Trade in Forex?

There is no instrument that makes the same amount or even close to the forex market. It is the largest financial market in the world. You can trade at any hour of the day because unlike other instruments forex trading is a 24 hour trading instrument. The forex trading day will always start at Wellington and the last to open is London then it will remain open throughout the weekdays(not weekends). 

Who Trades in the Forex Market?

Foreign Traders can differ and are separated into two distinct groups which are hedger and speculators.

Hedger: are governments, companies(exporters and importers)  and some investors have foreign exposure. Difficult moments(or less business) between their local or even domestic currency also the foreign currency of the group they are either doing business with(for exchange of goods and services )  

 or investing in will affect their profits. This is the center of all foreign exchange trading, however it only makes up approximately 5% of the actual market.

Speculators: These include banks, funds, corporations and individuals create artificial rate exposure in order to gain from the variations and movements in the price.

Buy and Sell

There are always 2 numbers given after the currency pair, the first always has a smaller numerical value than second. Example below illustrates (GBP/USD 1.2550 1.2553). The first number is known as the "Sell" and second number as "Buy"

A pip

This is calculated as follows 1.2867-1.2847 = 0.0020, therefore 1 pip = 0.0001 on a 100 000USD position 1 pip is 10 USD. In a crude oil position  where the market rate 76.12 one pip is 0.01. We can therefore conclude that a pip value is equal to the decimal points shown on the rate. The value of one pip crude oil for a 100 position can be calculated : 100*0.01=1USD

Orders

When you are looking to enter into a trade at a current condition, you simply execute buy or sell market order. Often a trader will want to either limit the loss of the positions currently held(in which case he is able to execute the stop order) or may want to enter a trade that is more attractive than the current market(in which he can execute the limit order).

Stop order can be placed on an existing open position to limit the possible loss on the open trade. For example a trader is long 100 000 USD/JPY at 1.2830, he obviously expecting the USD/JPY rate will appriciate to where he will be able to make satisfactory profit on the trade.

In other instances a trader may wish to limit the loss that he is willing to take on a trade. If the maximum loss a trader is willing to take is 160 USD and he knows every pip is worth  10 USD in this case(calculate by 100 000*0.001 = 10 USD) 

NB: During times of very high volatility it can be difficult or impossible to execute orders.

For a good experience on foreign exchange trading ensure your broker is a registered financial institution.

free eBook available read and learn

Donnot consider any of the above as financial advice consult with your financial adviser before making decisions. Enjoy your jouney on the forex market with one of the most trusted financial instution.
For other books 

 Kindle 

Roku Player