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Is Forex Trading Right For You?

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Is Forex Trading Right For You?

Author : Melvin Noel

Submitted : 2014-01-06 18:23:25    Word Count : 715    Popularity:   Not Rated

Tags:   forex trading, forex trading explained, forex system, forex trading system, trade forex, how to trade forex, forex market, forex online, forex chart, forex investment

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Forex involves the trading of currencies. It is the biggest financial market in the world and has an estimated daily turnover of 1.9 trillion dollars. This turnover is larger than all the worlds' stock market on any given day.

The forex market does not have a set exchange. The forex market is considered an over-the-counter (OTC) market. The forex market is totally electronic and trades are executed over the phone or on the Internet. Until 10 years ago the forex market was the preserve of large financial institutions. Now an ever-increasing amount of individual traders due to the advent of the Internet and an increasing amount of online forex brokers are trading forex.

Currencies are always traded in pairs. A typical pair would be EUR/USD (Euro over US dollars). The first currency is the base. The second currency is the counter currency. The pair can be viewed, as the amount of the secondary currency that is needed to buy 1 unit of the first currency. If you were to buy the above pair you would buy Euro while simultaneously selling US dollars. If the pair were sold the reverse would happen you would sell the Euro and buy the US dollar. This might sound complicated but simply think of the pair as one item and you are buying or selling one item. If you think the Euro will go up against the US dollar you buy the EUR/USD pair. If you think the EUR will decrease against the US dollar you sell the EUR/USD pair.

When you see forex quotes you will see two numbers. If we use the EUR/USD as an example you might see 1.2350 / 1.2355 the first number 1.2350 is the bid price and is the price traders are prepared to buy euros against the US dollar. The second number 1.2355 is the offer price and is the price traders are prepared to sell the EURO against the US dollar. The difference between the bid and the offer price is the called the spread. The spread for the primary currencies is usually 3 to 5 pips (explained later).

One of the most common increment of currencies is the pip. If the EUR/USD moves from 1.2350 to 1.2351 that is one pip. A pip is the last decimal point of quotation. Most currencies quoted to 4 decimal points. The exception is the Yen, which is quoted to 2 decimal points eg 139.41. The term pip is just forex lingo, so if a forex trader says the EURO has gone up 20 pips against the US dollar, add 20 points to decimal part of EUR/USD pair.

Forex is traditionally traded in lots also described as contracts. The standard size for a lot is $100,000. In the last few a mini lot size of 10,000 dollars has been introduced and this has become increasing popular. Forex trading is leveraged with most forex brokers offering 1 % margins. This means you can control one standard lot of $100,000 with $1000. Typically you would need a minimum of $2500 to open a standard size forex account.

A mini account can be opened with $300 with most forex brokers. To trade a one mini lot you need a margin of $100, which in turn controls $10,000. If the currency goes up 1 % and if you traded one mini lot of $10,000 you would make $100 dollars or 100 % of your original margin. Forex trading is a very profitable market to get into and it is suggested that traders new to forex trading trade a mini account for an extended amount of time. Trading a mini account is a low cost entry to the forex market, as only $300 is required to open an account. You can still make money while you become more experienced in forex trading. You can trade one mini lot until you have made your first $100 dollars then start trading 2 mini lots. As you acquire more experience you can trade standard sized lots.

Forex trading is becoming increasingly popular with traders of other financial products. It can be traded in amounts a lot much smaller than other financial products, which makes learning forex trading safer than other markets. Forex trading can be a very lucrative market, which no trader can dismiss.

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Mevlin Noel is a prominent writer, internet marketer, investor, and a leader in the business industry. For more information on Forex trading please visit: http://forexdailytradingtips.com

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