Beginner Guide on How to get started in Fore Trading Foreign Exchange (Forex) trading can make all of your dreams come true. Forex trading can allow you to quit your day job and potentially make millions, literally. As long as you have an active internet connection, you can embark on a Forex trading career of your own; from your desktop computer, or even from your handheld device. Forex trading is about exchanging currencies from different countries against each other, hoping to profit from the fluctuation in exchange rates between two countries. This article is intended to provide a brief overview of the basics of Forex Trading. In explaining Forex trading for beginners, we start with the basics of trading. Forex trading takes places with brokers, traders, and market makers. You place an order and your broker opens your position on the Interbank Market and fills it. When you close your trade, the broker closes the same position and credits your account with the loss or gain. With $1.3 trillion in daily volume, there is more action in the Forex market than any other market in the world.
Beginner Guide on How to get started in Fore Trading (Courtesy of HenryLiuForex.com)
Beginner Guide on How to get started in Fore Trading
Currencies are quoted in pairs, and as a broker, you can pair any two currencies you like. For example, we use a classic pair: Euro/US Dollar (EUR/USD). In this pair, the base currency is the Euro and the “basis� for buying or selling of Dollars. The idea is that when the exchange rates between your currency pair fluctuate, you make gains (and potentially losses) based on the difference. For example, you buy 1,000 EUR in January for 1,200 USD. In February, you sell your 1,000 EUR for 1,300 USD, a net gain of 100 USD. If you believe that the US economy will weaken, hurting the dollar, you execute a BUY EUR/USD order, purchasing Euros (simultaneously selling US Dollars) hoping the Euro will appreciate against the Dollar as the exchange rate decreases. If you expect the Euro to weaken against the Dollar, you execute a SELL EUR/USD order, selling Euros (simultaneously buying US Dollars) to make gains when the exchange rate increases. Beginner Guide on How to get started in Fore Trading (Courtesy of HenryLiuForex.com)
Beginner Guide on How to get started in Fore Trading Forex accounts tend to be “margined”, allowing a trader to hold a much larger position that the actual value of their account. The margins will vary between trading systems. Leveraging accounts is dangerous as it exaggerates gains and losses and can lead to your account falling in to a negative balance (loss) no matter what the market conditions may be. Rollovers apply to the “spot” Forex market where all trades must close within two business days. For example, we give a SELL EUR/USD order on Monday for 100,000 EUR. This means we must deliver 100,000 EUR on Wednesday of that week. The settlement period can be extended by executing a rollover of our position, or a “rollover”. The rollover exchanges a position about to expire for one with a later closing date. In keeping with our example, our Monday SELL EUR/USD is a rollover on Wednesday, meaning we have to close it on Friday. This is not without its cost as the positions exchanged are usually not of equal value because of the currency pair, interest rates, and daily fluctuations in interest rates. The easiest way to avoid Rollover is to close all trades before the end of your trading day.
Beginner Guide on How to get started in Fore Trading (Courtesy of HenryLiuForex.com)
Beginner Guide on How to get started in Fore Trading
In order to widen your Forex trading knowledge, you will have to read a lot, study fundamental analysis, technical analysis, and strategies. Creating and developing both a Forex trading plan and practicing on a demo trading account is also important, but these tend to come naturally over time. In conclusion, the Forex trading basics are somewhat dwarfed by the complexities of currency trading. However, once you begin to develop an understanding of the Forex market and how Forex trading works, you should begin your Forex trading career early, so that you can start to build some much needed experience. It goes without saying though, that Forex trading is of course risky, so do be careful and take your Forex trading career as slow as you like. Beginner Guide on How to get started in Fore Trading (Courtesy of HenryLiuForex.com)