Introduction to Forex Trading

Introduction to Forex Trading

If you are interested in trading on the Foreign Currency Exchange (FOREX) market, then you have probably heard the stories of people who become millionaires while working from their homes. These stories are not exaggerations – there really is millions to be earned with Forex trading. But the truth is that 70% of Forex traders are going to lose money. If you want to put yourself up with the top 30% who are making it big, then you will have to do a lot of research to make sure you know what you are doing.

The Forex market is larger than any other trading market worldwide with nearly $2 trillion being turned over every day. To put this amount in perspective, it is about 30x more than all of the equity trading in the US.

Forex trading involves the trading of a pair of currencies which are bought and sold against each other. One example of a Forex trading currency pair is USDEUR, which refers to US dollars and Euros. All of the major world currencies are traded on the Forex market with the most popular trades occurring in US dollars, Euros, Swiss francs, British pounds, Australian dollars, and Japanese yen. In a currency pair, the first currency is called the base and the second is the counter, also called the quote. The quote is always given in terms of the base currency. Quotes consist of two prices. The first is the bidding (selling) price and the second is the asking (buying) price.

Currency quotes are frequently changing. These changes in the rates are known as pips. A trader’s command of predicting pips is key to making money on with Forex trading. What is unique about the Forex market is that traders can react to any market fluctuations 24 hours a day, every day with the exception of weekends. This means that an attuned Forex trader can take advantage of an opportunity if he/she finds out market news (like a political event), even if it is the middle of the night.

When you invest in a trade, you trade at a certain margin requirement but also have a stop-loss order. The stop-loss order is to protect you against too much loss. If your currency pair goes below a certain amount of pips, then you remove your assets. You also can have a limit order amount for when you are profiting. With the right risk/reward amount, you can make it so you will be more likely to profit even if your predictions are wrong most of the time.

An Introduction to Forex TradingForex trading is not like stocks because Forex traders are high leverage, usually in the 100s. For example, if you invest $2,000, you could control $200,000 and have increasing profits accordingly. There are some miniature Forex trading markets where you only need to have investments equaling $100. This makes Forex trading more accessible to all people.