Stock Market Information

It’s easy to see why many investors are attracted to the global foreign exchange market. Given the high liquidity as well as a tremendous amount of trading activity each day (Roughly $3.2 Trillion USD in daily turnover), as well as the relatively low costs of trading, many investors and firms come to get a piece of this lucrative market. Like anything else though, you’ll need to do your homework. Proper research, vigilance and an understanding of the Forex basics will be key in your ability to succeed and profit. Listed below are some basics to get you started, and we’ll continue to elaborate on other strategies and terms as we go along.

Knowing Your Margins

Foreign exchanges usually trade on margin. What this means is that small deposits hold sway over much larger positions in the market. Trading main currencies typically requires a 1% margin deposit. In this way if you want to trade a million dollars, you’ll need $10,000 USD.

This means that the potential for profit is much greater, but so too is the risk. A change of 2% in the value of your trade could mean a 200% profit or loss on your deposit. You’ll need to be disciplined if you expect to take advantage of opportunities.

Currency: Variable and Base

When trading, you’ll use a combination of 2 currencies. So you’ll buy U.S. Dollars and sell Japanese Yen, for example, or any combination that you like. This means that you’re speculating on one side or the other, expecting one currency to strengthen in relation to the other. You’ll typically trade in the currency with the highest value. For example you’ll buy or sell a fixed amount of US dollars. When closing your position out, it will also use the same amount of USD. Your profit or loss will be denominated in the other currency you decided to use, known as a price currency.

Try to digest what you’ve read and we’ll move on to Spot and forward trading, Interest Rate Differentials etc. in part 2.