Stock Market Information

In our previous post we covered a general outline as to what the Foreign Exchange Market is, how it operates, and why some savvy investors can profit from it (albeit with a significant amount of risk). To continue along that track, we’ll cover some additional methods and terminology for getting started with Forex Trading:

All About Dealing Spreads

When beginning to trade on the foreign exchange, you’ll be quoted a dealing spread. The dealing spread offers you a buying and selling point for your trade. If you decide to accept the price that’s offered, you’ll receive confirmation from your dealer and the trade is complete. Live streaming prices are available so you can keep track of fast-paced markets. You’ll be able to follow your trades and know whether your order has been filled or not based on your specifications. Under most circumstances, a dealing spread is typically 3-5 points.

Interest Rate Differentials and You

Depending on the currency, each will pay a different interest rates. This is an important factor to consider when gaging foreign exchange trends. In most cases, it’s attractive to buy a currency that pays a high interest rate or short a currency that has a low interest rate.

Utilizing Stop-Loss

Given the inherent risk of the foreign exchange market, many traders will use stop-loss positions to prevent unfavorable positions from moving against you for too long. Since there are no daily limits on foreign exchange trading, many traders react to moves in the markets very quickly.

Hopefully our basic Forex Trading Guide gave you some insight into the operation and strategies employed by traders on the market. I recommend doing quite a bit of research and due diligence before engaging in trading, however, given the high risks involved and constant volatility in the markets that could see 20-30% swings in a short period of time. Good luck!

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.

Forex trading has been gaining in popularity in the last decade.  Numerous people are now trading in the forex market online.  Forex trading is present where ever one currency is traded for another.  Forex is very complicated.  We will be discussing the parts of it in this section and will also be providing links to other resources.

Just how big is forex?  The forex market is enormous and is also very complicated.  Numerous factors effect how currency’s behave.  These factors include political news in different countries and other news making events.  We will discuss all different types of factors that have an effect on the forex market in this section.