the money trader foreign exchange corporation
Wednesday, September 1st, 2010
With the increasingly prevalent use of the internet, trading of foreign currency has never been more available to investors. The involvement of large international corporations, hedge funds and banks makes the foreign currency (Forex) market the most highly traded and most liquid market in the world. The Forex market is open 24 hours a day, 5 days a week, with in excess of $1.4 trillion dollars changing hands every day.
This enormous liquidity together with the availability of diverse currency pairs can result in a high level of turbulence on a daily basis. Forex markets are also affected by financial news releases which are reasonably frequent and can cause large swings in the price of a currency. These variations in price give traders a chance to make money. Forex markets offer traders the ability to make money in both rising and falling markets. With a large variety of instruments to trade and highly leveraged trading, it is possible to start trading Forex with very limited funds.
Nearly all of the instruments that are traded on the Forex market have a minimum trade size, calculated on the base currency, a common minimum trade size is 100,000 units, for this reason the use of leverage is vital for traders. Most forex brokers offer mini accounts, where traders are able to place trades with a minimum size of 10,000 units.
Currencies are priced in duos, with each trade resulting in the purchase of one currency and the sale of another. If the currency you are purchasing increases in price relative to the currency you are selling, you will make profit. The first currency in a pair is the base currency and the second is the counter currency.
Forex quotes have two prices, a bid and an ask price. The bid price is the value at which you can sell the base currency in exchange for the counter currency. The ask price is the value at which you can purchase the base currency in exchange for the counter currency. There is always a gap between the two prices, called the spread. The spread can be calculated by reviewing the last two numbers in the bid and ask prices, for example if the prices are 1.8967 / 1.8971, the spread is 4 pips, this means the trade would need to move in your favor by 4 pips for you to breakeven.
Margin in Forex is an amount taken from the trader’s account to cover any future trading losses. The margin required is calculated by your Forex broker prior to the trade being placed. Your Forex broker will generally liquidate all positions held if the trade turns against you and your trading losses are close to emptying your account.
Holding a currency pair overnight will result in being charged or paid the variation between the two interest rates of the currencies you are holding. Your interest will be calculated each day as part of the rollover process. If you don’t hold a trade overnight you will not pay or receive any interest.
Trading in Forex can be quite akin to trading other instruments but does need a slightly different way of thinking. The best way to learn how it all works is to start trading in a currency trading demo account. The high amount of leverage available to Forex traders can bring great opportunities but also has the possibility to bring significant risk. Prior to trading with any real money traders should have a money management plan to ensure the decisions they make are suitable for their investment funds.
http://www.iblogforex.com is an excellent resource for those interested in Foreign currency trading and contains many Forex training articles.
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