Thursday, April 1, 2010
FOREX TRADING TIPS ---PART 1
Forex Trading Tips - Part 1
Forex is always priced in pairs between two different types of currencies. When you make a trade, you have to buy one currency and sell another at the same time. If you want to exit the trade, you must buy/sell the opposite position. For example, when you think the price of the Euro is going to rise against the US Dollar. In order for you to enter a trade, you will have to buy Euros and sell US Dollars.
If you want to leave the trade, you will have to sell Euros and buy back US Dollars. You will be hoping that you were right in your guess and that the exchange rate for EU/USD has actually risen, which means that you will get more Euros back than when you bought them, which is how you will make a profit.
These days just about every forex broker is claiming to have the tightest spreads in the industry. But marketing does have the ability to be deceiving. The topic of spreads in the forex spot market is very complicated and often not easy to understand. However, nothing affects your trading profitability more.
First of all in order to understand the spread, you need to know what it is. A spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at) that is quoted in the pips. If the quote between EUR/USD at a given moment is 1.2222/4, then the spread equals 2 pips. If the quote is 1.22225/40, then the spread is going to equal 1.5 pips.
The spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The consequence to this is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit
Brokers generally don’t earn the full spread, especially when they hedge client positions. The spread helps to compensate for the market maker for taking on risk from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).
Spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn’t profitable.
The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected.
When this occurs repeatedly, it means that your broker is showing tight spreads but is effectively delivering wider spreads. Rejected trades, delayed execution.
FOREX TRADING TIPS---PART 2
Forex Trading Tips - Part 2
Spreads should always be considered in conjunction with depth of book. Oddly enough, when it comes to economies of scale, forex doesn't even act like most other markets. On the inter-bank market, for example; the larger the ticket size, the larger the spread is. So when you see a 1-pip spread on an ECN platform, you have to wonder if that spread valid for a $2M, $5M or $10M trade, which it probably isn’t. In many cases, the tight spread that is offered applies only to a capped trade sizes that are very inadequate for most of the common trading strategies.
Spread policies change a great deal from broker to broker, and the policies are often difficult to see through. This certainly makes comparing brokers much more difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you are paying an insurance premium during most of the trading day so that you can get protection from short-term volatility.
Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if quality of execution is good.
Some brokers have different spreads for different clients based on their accounts. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some offer the same spreads to everyone.
Problems can come up when you are trying to learn about a company's spread policy because this information, along with information on trade execution and order-book depth is rather difficult to get. Because of this, many traders get caught up in all of the promises they hear, and take a broker's words at face value. This can be dangerous. The only real way to find out is to try out various brokers
THE COST OF FOREX TRADING
The Costs Of Forex Trading
The costs of trading depend on several factors, including the instrument and market you are trading. Most of the costs you pay are to your brokerage firm. They need to make a living in exchange for the services they provide.
Commissions
Slippage
Spread
Platform Fees
Expenses
However, if you want to look at trading as a business, you may have to minimize them and make sure you are getting the most for every dollar you spend to ensure your long-term survival.
Happy Forex Trading!
The costs of trading depend on several factors, including the instrument and market you are trading. Most of the costs you pay are to your brokerage firm. They need to make a living in exchange for the services they provide.
Commissions
Slippage
Spread
Platform Fees
Expenses
However, if you want to look at trading as a business, you may have to minimize them and make sure you are getting the most for every dollar you spend to ensure your long-term survival.
Happy Forex Trading!
THE HIDDEN TECHNIQUES OF FOREX
The Hidden Techniques of Forex
Forex is a big market to participate in and surprisingly only the top 5% are making money. That means the remaining 95% of traders are either breaking even or losing money. The small minority at the top in this business have their own hidden techniques and strategies that they use to profit. I hope to give you a glimpse into what they do.
There is risk of losing your whole investment!
There is always risk of losing your money in investments. Any Amount of money can let you hold a Forex position many times bigger than the value of your account. This is called “gearing”.
I would say you don’t buy too much shares all at once, in that case you can lose a lot of money, and you don’t want that. I suggest you talk around with the forex dealers and other people or those who have knowledge about this and you will surely get profit in this business.
Forex Forecast Signal Strategy Services
You can use automatic orders such as restrictions and stops which allow you to leave your computer terminal for a while. This ensures that your losses will be kept to a minimum, but you may miss out on prospective profits.
Forex forecast signals are time-tested indicators of trends in the market. Breakouts, support levels and resistance levels, envelope patterns, currency pairs near moving averages, stochastic lines, oscillators, and Fibonacci levels are few of indicators.
Forex Brokers
Most FOREX traders use a broker to handle their transactions. What exactly is a broker? Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor’s decisions. Brokers earn money by charging a commission or a fee for their services.
FOREX FUTURE INVESTMENT
There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the European and then the Asian. One of the great times to trade is during the over lapping periods. The USA and European overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.
Forex is a big market to participate in and surprisingly only the top 5% are making money. That means the remaining 95% of traders are either breaking even or losing money. The small minority at the top in this business have their own hidden techniques and strategies that they use to profit. I hope to give you a glimpse into what they do.
There is risk of losing your whole investment!
There is always risk of losing your money in investments. Any Amount of money can let you hold a Forex position many times bigger than the value of your account. This is called “gearing”.
I would say you don’t buy too much shares all at once, in that case you can lose a lot of money, and you don’t want that. I suggest you talk around with the forex dealers and other people or those who have knowledge about this and you will surely get profit in this business.
Forex Forecast Signal Strategy Services
You can use automatic orders such as restrictions and stops which allow you to leave your computer terminal for a while. This ensures that your losses will be kept to a minimum, but you may miss out on prospective profits.
Forex forecast signals are time-tested indicators of trends in the market. Breakouts, support levels and resistance levels, envelope patterns, currency pairs near moving averages, stochastic lines, oscillators, and Fibonacci levels are few of indicators.
Forex Brokers
Most FOREX traders use a broker to handle their transactions. What exactly is a broker? Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor’s decisions. Brokers earn money by charging a commission or a fee for their services.
FOREX FUTURE INVESTMENT
There are many many advantages over the various other ways of investing. First of all it is a 24 hr market, except for weekends of course. You have the US market then the European and then the Asian. One of the great times to trade is during the over lapping periods. The USA and European overlap between 5am & 9am eastern and the Euro & Asian between 11pm & 1am eastern. Usually the busiest time and best to trade.
FOREX TRADING TIPS
Forex Trading Tips
There are thousands of successful Forex traders making money trading foreign currency, but did you know that 90% of new traders lose money doing this? In order to be successful, there are a few things you absolutely must know. The following are some of the more important forex trading tips to understand if you plan earn money trading currency.
Learn In Pairs – Know Both Sides Of The Currency
It is absolutely impairitive that you understand the relationship that both currencies you’re trading have with each other. Understand how swings on one currency affects the other, and their cyclinicals. Failure to have the basic understanding of learning what you’re trading will likely end up cost you alot of money.
Watch Global Influencers – News and Events
One of the largest contributers in currency fluctuation is events happening around the world. News good or bad, especially in the financial sector, will cause a swing in global currency values. Instability in one market will likely lead to upturns in another – make sure you know your pairs! Remember, instability and volatility is where you make your money.
Tiny Margins and Over-Cautious Trading
We’ve all heard the old addage “slow and steady wins the race.” Well, it’s this trader’s opinion that those types of investments will lose the race. This is a player’s game, if you don’t give your position a chance to demostrate it’s value you’ll end up undercutting yourself in trading fees. Making big trades is where the money is, then again you must know and be confident in your position.
Have A Strategy But Stay On Your Toes
Would you start a business without a business plan? If so, Forex trading isn’t right for you. You must have a plan that details the approach to take, the currencies to trade and how to manage the risk your taking. But with that said, always be aware of your market and don’t be afraid to call an audible if you see indicators suggesting a change of plans Remember the global influencers?
Emotional Trading and Confidence
This goes back to having a strategy. If you’re emotional then you’re not thinking with your head, much like a poker player who goes on tilt. Keep cool stay confident and stick to your plan. Learn to manage stress and understand that as long as you play a winning strategy, they’ll be ups and downs but in the end you’ll be successful as long as you keep your cool.
There are thousands of successful Forex traders making money trading foreign currency, but did you know that 90% of new traders lose money doing this? In order to be successful, there are a few things you absolutely must know. The following are some of the more important forex trading tips to understand if you plan earn money trading currency.
Learn In Pairs – Know Both Sides Of The Currency
It is absolutely impairitive that you understand the relationship that both currencies you’re trading have with each other. Understand how swings on one currency affects the other, and their cyclinicals. Failure to have the basic understanding of learning what you’re trading will likely end up cost you alot of money.
Watch Global Influencers – News and Events
One of the largest contributers in currency fluctuation is events happening around the world. News good or bad, especially in the financial sector, will cause a swing in global currency values. Instability in one market will likely lead to upturns in another – make sure you know your pairs! Remember, instability and volatility is where you make your money.
Tiny Margins and Over-Cautious Trading
We’ve all heard the old addage “slow and steady wins the race.” Well, it’s this trader’s opinion that those types of investments will lose the race. This is a player’s game, if you don’t give your position a chance to demostrate it’s value you’ll end up undercutting yourself in trading fees. Making big trades is where the money is, then again you must know and be confident in your position.
Have A Strategy But Stay On Your Toes
Would you start a business without a business plan? If so, Forex trading isn’t right for you. You must have a plan that details the approach to take, the currencies to trade and how to manage the risk your taking. But with that said, always be aware of your market and don’t be afraid to call an audible if you see indicators suggesting a change of plans Remember the global influencers?
Emotional Trading and Confidence
This goes back to having a strategy. If you’re emotional then you’re not thinking with your head, much like a poker player who goes on tilt. Keep cool stay confident and stick to your plan. Learn to manage stress and understand that as long as you play a winning strategy, they’ll be ups and downs but in the end you’ll be successful as long as you keep your cool.
TYPES OF FOREX TRADING
Trading
Congratulations! You’ve gotten through the Pre-School and are ready to begin your first day of class. You did go through the Pre-School right? By now you’ve learned some history about the Forex, how it works, what affects the prices, blah blah blah.
We know what you’re thinking…BORING! SHOW ME HOW TO MAKE MONEY ALREADY!
Well, say no more my friend; because here is where your journey as a Forex trader begins… This is your last chance to turn back… Take the red pill, and we take you back to where you were and you will forget all about this. You can go back to living your average life in your 9-5 job and work for someone else for the rest of your life. OR
You can take the green pill (green for money! Yeah!) And learn how you can make money for yourself in the most active market in the world, simply by using a little brain power. Just remember, your will never stop. Even after you graduate from BabyPips.com, you must constantly pursue as much knowledge as you can, so that you can become a true FOREX MASTER! Now pop that green pill in, wash it down with some chocolate milk, and grab your lunchbox…School of Pipsology is now in session!
Note: the green pill was made with a brainwashing serum. You will now obey everything that we tell you to do! Mwuahahaha! <--evil laugh
Two Types of Trading
There are 2 basic types of analysis you can take when approaching the forex:
Fundamental analysis
Technical analysis.
There has always been a constant debate as to which analysis is better, but to tell you the truth, you need to know a little bit of both. So let’s break each one down and then come back and put them together.
Fundamental Analysis
Fundamental analysis is a way of looking at the market through economic, social and political forces that affect supply and demand. (Yada yada yada.) In other words, you look at whose economy is doing well, and whose economy sucks. The idea behind this type of analysis is that if a country’s economy is doing well, their currency will also be doing well. This is because the better a country’s economy, the more trust other countries have in that currency.
For example, the U.S. dollar has been gaining strength because the U.S. economy is gaining strength. As the economy gets better, interest rates get higher to control inflation and as a result, the value of the dollar continues to increase. In a nutshell, that is basically what fundamental analysis is.
Later on in the course you will learn which specific news events drive currency prices the most. For now, just know that the fundamental analysis of the Forex is a way of analyzing a currency through the strength of that country’s economy.
Technical Analysis
Technical analysis is the study of price movement. In one word, technical analysis The idea is that a person can look at historical price movements, and, based on the price action, can determine at some level where the price will go. By looking at charts, you can identify trends and patterns which can help you find good trading opportunities
The most IMPORTANT thing you will ever learn in technical analysis is the trend! Many, many, many, many, many, many people have a saying that goes, “The trend is your friend”. The reason for this is that you are much more likely to make money when you can find a trend and trade in the same direction. Technical analysis can help you identify these trends in its earliest stages and therefore provide you with very profitable trading opportunities.
Now I know you’re thinking to yourself, “Geez, these guys are smart. They use crazy words like "technical" and "fundamental" analysis. I can never learn this stuff!” Don't worry yourself too much. After you're done with the School of Pipsology, you too will be just as....uhmmm..."smart?" as us.
So which type of analysis is better?
Ahh, the million dollar question. Throughout your journey as an aspiring Forex trader you will find strong advocates for both fundamental and technical trading. You will have those who argue that it is the fundamentals alone that drive the market and that any patterns found on a chart are simply coincidence. On the other hand, there will be those who argue that it is the technicals that traders pay attention to and because traders pay attention to it, common market patterns can be found to help predict future price movements.
Do not be fooled by these one sided extremists! One is not better than the other...
In order to become a true Forex master you will need to know how to effectively use both types of analysis. Don't believe me? Let me give you an example of how focusing on only one type of analysis can turn into a disaster.
Let’s say that you’re looking at your charts and you find a good trading opportunity. You get all excited thinking about the money that’s going to be raining down from the sky. You say to yourself, “Man, I’ve never seen a more perfect trading opportunity. I love my charts.”
You then proceed to enter your trade with a big fat smile on your face (the kind where all your teeth are showing).
But wait! All of a sudden the trade makes a 30 pip move in the OTHER DIRECTION! Little did you know that there was an interest rate decrease for your currency and now everyone is trading in the opposite direction.
Your big fat smile turns into mush and you start getting angry at your charts. You throw your computer on the ground and begin to pulverize it. You just lost a bunch of money, and now your computer is broken. And it’s all because you completely ignored fundamental analysis.
(Note: This was not based on a real story. This did not happen to me. I was never this naive. I was always a smart trader.... From the overused sarcasm, I think you get the picture)
Ok, ok, so the story was a little over-dramatized, but you get the point.
The Forex is like a big flowing ball of energy, and within that ball is a balance between fundamental and technical factors that play a part in determining where the market will go.
OPENING A FOREX TRADING ACCOUNT
Opening a Forex Trading Account
Opening a new online trading account with BROKER can be done in three simple steps:
Selecting an account type
Registration
Activating your account
Before trading a dime of your hard earned money, you may want to think about opening demo account. Actually, open up two or three demos - why not? It’s all FREE! Try out several different brokers to get a feel for the right one for you.
Account Types
When you're ready to open a live account, you have the choice of opening a Forex trading account under your personal name or a business name. Also, you will have to decide whether or not you want to open a "standard" account or a "mini" account (or "micro" account if available). Inexperienced traders or traders with a small amount of capital to trade should always open a mini account. Only experienced traders with lots of money should open a standard account.
Always read the fine print.
Some brokers have a “managed account” option in their applications. If you want the broker to trade your account for you, pick this, but obviously you’re here to learn how to trade the Forex for yourself. Besides, opening a managed account typically requires a pretty big minimum deposit - $25,000 or higher - and the broker also takes a portion of the profits.
Also, make sure you open a Forex spot account and not a “forwards” or “futures” account.
Registration
You will have to submit paperwork in order to open an account and the forms will vary from broker to broker. They are usually provided in PDF format and can be viewed and printed program.
Account Activation
Once the broker has received all the necessary paperwork, you should receive an email with instructions on completing your account activation. After these steps have been completed, you will receive a final email with your username, password, and instructions on how to fund your account.
So all that’s left is for you to login and start trading. Pretty easy huh?
But wait a darn minute!
STOP!
We strongly advise you spend some time at our entire School of Pipsology before you start risking real money.
Why?
Because if you don’t, you will lose all of your money and freak out!
You’re probably thinking, “So if I read through your School of Pipsology first, I will not lose any money?”
No, we’re not saying that. You will still probably lose money...
Opening a new online trading account with BROKER can be done in three simple steps:
Selecting an account type
Registration
Activating your account
Before trading a dime of your hard earned money, you may want to think about opening demo account. Actually, open up two or three demos - why not? It’s all FREE! Try out several different brokers to get a feel for the right one for you.
Account Types
When you're ready to open a live account, you have the choice of opening a Forex trading account under your personal name or a business name. Also, you will have to decide whether or not you want to open a "standard" account or a "mini" account (or "micro" account if available). Inexperienced traders or traders with a small amount of capital to trade should always open a mini account. Only experienced traders with lots of money should open a standard account.
Always read the fine print.
Some brokers have a “managed account” option in their applications. If you want the broker to trade your account for you, pick this, but obviously you’re here to learn how to trade the Forex for yourself. Besides, opening a managed account typically requires a pretty big minimum deposit - $25,000 or higher - and the broker also takes a portion of the profits.
Also, make sure you open a Forex spot account and not a “forwards” or “futures” account.
Registration
You will have to submit paperwork in order to open an account and the forms will vary from broker to broker. They are usually provided in PDF format and can be viewed and printed program.
Account Activation
Once the broker has received all the necessary paperwork, you should receive an email with instructions on completing your account activation. After these steps have been completed, you will receive a final email with your username, password, and instructions on how to fund your account.
So all that’s left is for you to login and start trading. Pretty easy huh?
But wait a darn minute!
STOP!
We strongly advise you spend some time at our entire School of Pipsology before you start risking real money.
Why?
Because if you don’t, you will lose all of your money and freak out!
You’re probably thinking, “So if I read through your School of Pipsology first, I will not lose any money?”
No, we’re not saying that. You will still probably lose money...
HOW TO KNOW P'S AND L'S
Know Your P’s and L’s
Here is where we’re going to do a little math. You've probably heard of the terms "pips" and "lots" thrown around, and here we're going to explain what they are and show you how they are calculated.
Take your time with this information, as it is required knowledge for all Forex traders. Don’t even think about trading until you are comfortable with pip values and calculating profit and loss.
What the heck is a Pip?
The most common increment of currencies is the Pip. If the EUR/USD moves from 1.2250 to 1.2251, that is ONE PIP. A pip is the last decimal place of a quotation, given that four decimal places are used (as some quotations display five or more decimal places, indicating a fraction of a pip). The Pip is how you measure your profit or loss.
As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency. In currencies where the US Dollar is quoted first, the calculation would be as follows.
Let’s take USD/JPY rate at 119.80 (notice this currency pair only goes to two decimal places, most of the other currencies have four decimal places)
In the case of USD/JPY, 1 pip would be .01
Therefore,
USD/JPY:
119.80.01 divided by exchange rate = pip value.01 / 119.80 = 0.0000834
This looks like a very long number but later we will discuss lot size.
USD/CHF:
1.5250 .0001 divided by exchange rate = pip value .0001 / 1.5250 = 0.0000655
USD/CAD:
1.4890 .0001 divided by exchange rate = pip value .0001 / 1.4890 = 0.00006715
In the case where the US Dollar is not quoted first and we want to get the US Dollar value, we have to add one more step.
EUR/USD:
1.2200
.0001 divided by exchange rate = pip value so .0001 / 1.2200 = EUR 0.00008196
but we need to get back to US dollars so we add another calculation which is
EUR x Exchange rateSo 0.00008196 x 1.2200 = 0.00009999
When rounded up it would be 0.0001
GBP/USD:
1.7975 .0001 divided by exchange rate = pip valueSo.0001 / 1.7975 = GBP 0.0000556
But we need to get back to US dollars so we add another calculation which is
GBP x Exchange rate
So 0.0000556 x 1.7975 = 0.0000998
When rounded up it would be 0.0001
You’re probably rolling your eyes back and thinking do I really need to work all this out and the answer is NO. Nearly all forex brokers will work all this out for you automatically. It’s always good for you to know how they work it out.
In the next section, we will discuss how these seemingly insignificant amounts can add up.
What the heck is a Lot?
Spot Forex is traded in lots. The standard size for a lot is 100,000 units. There is also a mini lot size and that is 10,000 units. As you already know, currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments, you need to trade large amounts of a particular currency in order to see any significant profit or loss.
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.
USD/JPY at an exchange rate of 119.80(.01 / 119.80) x 100,000 = $8.34 per pip
USD/CHF at an exchange rate of 1.4555(.0001 / 1.4555) x 100,000 = $6.87 per pip
In cases where the US Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange rate of 1.1930(.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
GBP/USD at an exchange rate or 1.8040(.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Your broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they'll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.
How the heck do I calculate profit and loss?
So now that you know how to calculate pip value, let’s look at how you calculate your profit or loss.
Let’s buy US dollars and Sell Swiss Francs.
The rate you are quoted is 1.4525 / 1.4530. Because you are buying US you will be working on the 1.4530, the rate at which traders are prepared to sell.
So you buy 1 standard lot (100,000 units) at 1.4530.
A few hours later, the price moves to 1.4550 and you decide to close your trade.
The new quote for USD/CHF is 1.4550 / 14555. Since you're closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the 1.4550 price. The price traders are prepared to buy at.
The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
Using our formula from before, we now have (.0001/1.4550) x 100,000 = $6.87 per pip x 20 pips = $137.40
Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote.
When you buy a currency you will use the offer price and when you sell you will use the bid price.
So when you buy a currency, you pay the spread as you enter the trade but not as you exit. And when you sell a currency you don't pay the spread when you enter but only when you exit.
What the heck is Leverage?
You are probably wondering how a small investor like yourself can trade such large amounts of money. Think of your broker as a bank who basically fronts you $100,000 to buy currencies and all he asks from you is that you give him $1,000 as a good faith deposit, which he will hold you for but not necessarily keep. Sounds too good to be true? Well this is how forex trading usingworks.
Here is where we’re going to do a little math. You've probably heard of the terms "pips" and "lots" thrown around, and here we're going to explain what they are and show you how they are calculated.
Take your time with this information, as it is required knowledge for all Forex traders. Don’t even think about trading until you are comfortable with pip values and calculating profit and loss.
What the heck is a Pip?
The most common increment of currencies is the Pip. If the EUR/USD moves from 1.2250 to 1.2251, that is ONE PIP. A pip is the last decimal place of a quotation, given that four decimal places are used (as some quotations display five or more decimal places, indicating a fraction of a pip). The Pip is how you measure your profit or loss.
As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency. In currencies where the US Dollar is quoted first, the calculation would be as follows.
Let’s take USD/JPY rate at 119.80 (notice this currency pair only goes to two decimal places, most of the other currencies have four decimal places)
In the case of USD/JPY, 1 pip would be .01
Therefore,
USD/JPY:
119.80.01 divided by exchange rate = pip value.01 / 119.80 = 0.0000834
This looks like a very long number but later we will discuss lot size.
USD/CHF:
1.5250 .0001 divided by exchange rate = pip value .0001 / 1.5250 = 0.0000655
USD/CAD:
1.4890 .0001 divided by exchange rate = pip value .0001 / 1.4890 = 0.00006715
In the case where the US Dollar is not quoted first and we want to get the US Dollar value, we have to add one more step.
EUR/USD:
1.2200
.0001 divided by exchange rate = pip value so .0001 / 1.2200 = EUR 0.00008196
but we need to get back to US dollars so we add another calculation which is
EUR x Exchange rateSo 0.00008196 x 1.2200 = 0.00009999
When rounded up it would be 0.0001
GBP/USD:
1.7975 .0001 divided by exchange rate = pip valueSo.0001 / 1.7975 = GBP 0.0000556
But we need to get back to US dollars so we add another calculation which is
GBP x Exchange rate
So 0.0000556 x 1.7975 = 0.0000998
When rounded up it would be 0.0001
You’re probably rolling your eyes back and thinking do I really need to work all this out and the answer is NO. Nearly all forex brokers will work all this out for you automatically. It’s always good for you to know how they work it out.
In the next section, we will discuss how these seemingly insignificant amounts can add up.
What the heck is a Lot?
Spot Forex is traded in lots. The standard size for a lot is 100,000 units. There is also a mini lot size and that is 10,000 units. As you already know, currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments, you need to trade large amounts of a particular currency in order to see any significant profit or loss.
Let’s assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.
USD/JPY at an exchange rate of 119.80(.01 / 119.80) x 100,000 = $8.34 per pip
USD/CHF at an exchange rate of 1.4555(.0001 / 1.4555) x 100,000 = $6.87 per pip
In cases where the US Dollar is not quoted first, the formula is slightly different.
EUR/USD at an exchange rate of 1.1930(.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip
GBP/USD at an exchange rate or 1.8040(.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.
Your broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they'll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.
How the heck do I calculate profit and loss?
So now that you know how to calculate pip value, let’s look at how you calculate your profit or loss.
Let’s buy US dollars and Sell Swiss Francs.
The rate you are quoted is 1.4525 / 1.4530. Because you are buying US you will be working on the 1.4530, the rate at which traders are prepared to sell.
So you buy 1 standard lot (100,000 units) at 1.4530.
A few hours later, the price moves to 1.4550 and you decide to close your trade.
The new quote for USD/CHF is 1.4550 / 14555. Since you're closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the 1.4550 price. The price traders are prepared to buy at.
The difference between 1.4530 and 1.4550 is .0020 or 20 pips.
Using our formula from before, we now have (.0001/1.4550) x 100,000 = $6.87 per pip x 20 pips = $137.40
Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote.
When you buy a currency you will use the offer price and when you sell you will use the bid price.
So when you buy a currency, you pay the spread as you enter the trade but not as you exit. And when you sell a currency you don't pay the spread when you enter but only when you exit.
What the heck is Leverage?
You are probably wondering how a small investor like yourself can trade such large amounts of money. Think of your broker as a bank who basically fronts you $100,000 to buy currencies and all he asks from you is that you give him $1,000 as a good faith deposit, which he will hold you for but not necessarily keep. Sounds too good to be true? Well this is how forex trading usingworks.
HOW TO MAKE DOLLARS BY FOREX
ForeX market, you buy or sell currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.
The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Example of making money by buying euros
Trader's Action
EUR
USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18
+10,000
-11,800*
Two weeks later, you exchange your 10,000 euros back into US dollars at the exchange rate of 1.2500.
-10,000
+12,500**
You earn a profit of $700.
0
+700
*EUR 10,000 x 1.18 = US $11,800** EUR 10,000 x 1.25 = US $12,500
An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.
How to Read an FX Quote
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:
GBP/USD = 1.7500
The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.
The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.
You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.
Long/Short
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.
The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price at which you (as the trader) will sell.
The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price at which you will buy.
The difference between the bid and the ask price is popularly known as the spread.
Let's take a look at an example of a price quote taken from a trading platform:
On this GBP/USD quote, the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker makes it so easy for you to trade away your money.If you want to sell GBP, you click "Sell" and you will sell pounds at 1.7445. If you want to buy GBP, you click "Buy" and you will buy pounds at 1.7449.
In the following examples, we're going to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry! We will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on…
EUR/USDIn this example Euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar.
If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold Euros in the expectation that they will fall versus the US dollar.
USD/JPYIn this example the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen.
If you believe that Japanese investors are pulling money out of U.S. financial markets and converting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USDIn this example the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the United States in terms of economic growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar.
If you believe the British's economy is slowing while the United State's economy remains strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHFIn this example the USD is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.
If you believe that the US housing market bubble burst will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
I don't have enough money to buy 10,000 euros. Can I still trade?
You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with as little as $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.
Margin trading in the foreign exchange market is quantified in “lots”. We will be discussing these in depth in our next lesson. For now, just think of the term "lot" as the minimum amount of currency you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg; they come in dozens or "lots" of 12. In Forex, it would be just as foolish to buy or sell 1 euro, so they usually come in "lots" of 10,000 (Mini) or 100,000 (Standard) depending on the type of account you have.
For Example:
You believe that signals in the market are indicating that the British Pound will go up against the US dollar.
You open one lot (100,000), buying with the British pound at 1% margin and wait for the exchange rate to climb. When you buy one lot (100,000) of GBP/USD at a price of 1.5000, you are buying 100,000 pounds, which is worth US$150,000 (100,000 units of GBP * 1.50 (exchange rate with USD)). If the margin requirement was 1%, then US$1500 would be set aside in your account to open up the trade (US$150,000 * 1%). You now control 100,000 pounds with US$1500. Your predictions come true and you decide to sell.
You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency).
The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Example of making money by buying euros
Trader's Action
EUR
USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18
+10,000
-11,800*
Two weeks later, you exchange your 10,000 euros back into US dollars at the exchange rate of 1.2500.
-10,000
+12,500**
You earn a profit of $700.
0
+700
*EUR 10,000 x 1.18 = US $11,800** EUR 10,000 x 1.25 = US $12,500
An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.
How to Read an FX Quote
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:
GBP/USD = 1.7500
The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.
The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.
You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.
Long/Short
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.
The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price at which you (as the trader) will sell.
The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price at which you will buy.
The difference between the bid and the ask price is popularly known as the spread.
Let's take a look at an example of a price quote taken from a trading platform:
On this GBP/USD quote, the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker makes it so easy for you to trade away your money.If you want to sell GBP, you click "Sell" and you will sell pounds at 1.7445. If you want to buy GBP, you click "Buy" and you will buy pounds at 1.7449.
In the following examples, we're going to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry! We will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on…
EUR/USDIn this example Euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar.
If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold Euros in the expectation that they will fall versus the US dollar.
USD/JPYIn this example the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen.
If you believe that Japanese investors are pulling money out of U.S. financial markets and converting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USDIn this example the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the United States in terms of economic growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar.
If you believe the British's economy is slowing while the United State's economy remains strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHFIn this example the USD is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.
If you believe that the US housing market bubble burst will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
I don't have enough money to buy 10,000 euros. Can I still trade?
You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with as little as $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.
Margin trading in the foreign exchange market is quantified in “lots”. We will be discussing these in depth in our next lesson. For now, just think of the term "lot" as the minimum amount of currency you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg; they come in dozens or "lots" of 12. In Forex, it would be just as foolish to buy or sell 1 euro, so they usually come in "lots" of 10,000 (Mini) or 100,000 (Standard) depending on the type of account you have.
For Example:
You believe that signals in the market are indicating that the British Pound will go up against the US dollar.
You open one lot (100,000), buying with the British pound at 1% margin and wait for the exchange rate to climb. When you buy one lot (100,000) of GBP/USD at a price of 1.5000, you are buying 100,000 pounds, which is worth US$150,000 (100,000 units of GBP * 1.50 (exchange rate with USD)). If the margin requirement was 1%, then US$1500 would be set aside in your account to open up the trade (US$150,000 * 1%). You now control 100,000 pounds with US$1500. Your predictions come true and you decide to sell.
You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency).
WORLD WIDE FOREX MARKET
What the value of the dollar may be one day could be higher or lower the next. The trading on the forex market is one that you have to watch closely or if you are investing huge amounts of money, you could lose large amounts of money. The main trading areas for forex, happens in Tokyo, in London and in New York, but there are also many other locations around the world where forex trading does take place.
The most heavily traded currencies are those that include (in no particular order) the Australian dollar, the Swiss franc, the British pound sterling, the Japanese yen, the Eurozone eruo, and the United States dollar. You can trade any one currency against another and you can trade from that currency to another currency to build up additional money and interest daily.
The areas where forex trading is taking place will open and close, and the next will open and close. This is seen also in the stock exchanges from around the world, as different time zones are processing order and trading during different time frames. The results of any forex trading in one country could have results and differences in what happens in additional forex markets as the countries take turns opening and closing with the time zones. Exchange rates are going to vary from forex trade to forex trade, and if you are a broker, or if you are learning about the forex markets you want to know what the rates are on a given day before making any trades.
The stock market Is generally based on products, prices, and other factors within businesses that will change the price of stocks. If someone knows what is going to happened before the general public, it is often known as inside trading, using business secrets to buy stocks and make money - which by the way is illegal. There is very little, if any at all inside information in the forex trading markets. The monetary trades, buys and sells are all a part of the forex market but very little is based on business secrets, but more on the value of the economy, the currency and such of a country at that time.
Every currency that is traded on the forex market does have a three letter code associated with that currency so there is no misunderstanding about which currency or which country one is investing with at the time. The eruo is the EUR and the US dollar is known as the USD. The British pound is the GBP and the Japanese yen is known as the JPY. If you are interested in contacting a broker and becoming involved in the forex markets you can find many online where you can review the company information and transactions before processing and becoming involved in the forex markets.
The most heavily traded currencies are those that include (in no particular order) the Australian dollar, the Swiss franc, the British pound sterling, the Japanese yen, the Eurozone eruo, and the United States dollar. You can trade any one currency against another and you can trade from that currency to another currency to build up additional money and interest daily.
The areas where forex trading is taking place will open and close, and the next will open and close. This is seen also in the stock exchanges from around the world, as different time zones are processing order and trading during different time frames. The results of any forex trading in one country could have results and differences in what happens in additional forex markets as the countries take turns opening and closing with the time zones. Exchange rates are going to vary from forex trade to forex trade, and if you are a broker, or if you are learning about the forex markets you want to know what the rates are on a given day before making any trades.
The stock market Is generally based on products, prices, and other factors within businesses that will change the price of stocks. If someone knows what is going to happened before the general public, it is often known as inside trading, using business secrets to buy stocks and make money - which by the way is illegal. There is very little, if any at all inside information in the forex trading markets. The monetary trades, buys and sells are all a part of the forex market but very little is based on business secrets, but more on the value of the economy, the currency and such of a country at that time.
Every currency that is traded on the forex market does have a three letter code associated with that currency so there is no misunderstanding about which currency or which country one is investing with at the time. The eruo is the EUR and the US dollar is known as the USD. The British pound is the GBP and the Japanese yen is known as the JPY. If you are interested in contacting a broker and becoming involved in the forex markets you can find many online where you can review the company information and transactions before processing and becoming involved in the forex markets.
Forex is a trading 'method' also known as FX or and foreign market exchange. Those involved in the foreign exchange markets are some of the largest companies and banks from around the world, trading in currencies from various countries to create a balance as some are going to gain money and others are going to lose money. The basics of forex are similar to that of the stock market found in any country, but on a much larger, grand scale, that involves people, currencies and trades from around the world, in just about any country.
Forex is a trading 'method' also known as FX or and foreign market exchange. Those involved in the foreign exchange markets are some of the largest companies and banks from around the world, trading in currencies from various countries to create a balance as some are going to gain money and others are going to lose money. The basics of forex are similar to that of the stock market found in any country, but on a much larger, grand scale, that involves people, currencies and trades from around the world, in just about any country.
Forex is a trading 'method' also known as FX or and foreign market exchange. Those involved in the foreign exchange markets are some of the largest companies and banks from around the world, trading in currencies from various countries to create a balance as some are going to gain money and others are going to lose money. The basics of forex are similar to that of the stock market found in any country, but on a much larger, grand scale, that involves people, currencies and trades from around the world, in just about any country.
FOREIGN EXCHANGE MARKET
The foreign exchange market is unique because of
* its trading volumes,* the extreme liquidity of the market,* its geographical dispersion,* its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),* the variety of factors that affect exchange rates.* the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)* the use of leverage
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
* $1.005 trillion in spot transactions* $362 billion in outright forwards* $1.714 trillion in foreign exchange swaps* $129 billion estimated gaps in reporting
* its trading volumes,* the extreme liquidity of the market,* its geographical dispersion,* its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),* the variety of factors that affect exchange rates.* the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)* the use of leverage
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
* $1.005 trillion in spot transactions* $362 billion in outright forwards* $1.714 trillion in foreign exchange swaps* $129 billion estimated gaps in reporting
Wednesday, March 31, 2010
FOREX TRADING
So what is is Forex trading you may ask? Forex is the exchange you can buy and sell currencies. For example, you might buy British pounds (by exchanging them to the dollars you had), then, after pounds / dollar ratio goes up, you sell pounds and buy dollars again. At the end of this operation you are going to have more dollars, then you had at the beginning.The Forex market has much higher liquidity, then the stock market, as much more money is being exchanged. Forex is spread between banks all over the planet and as a result it means 24 hour trading.
WHAT IS FOREX
FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is the largest financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The average daily trade in the global forex and related markets currently is over US$ 3 trillion.As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The main principles of trading.)The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.
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