Ryan Galiotto

Posts Tagged ‘currency trading forex investment’

 

This really is a series of articles about The Foreign Exchange Marketplace. You’ll learn here what Forex is , how it works and how profitable it can be. The whole series contain the following articles

1. What is Forex

2. Technical analysis

3. Fundamental analysis

4. Money management

5. Compound curiosity

 

What’s Forex?

 

The word Forex is an acronym for The Forex Exchange Industry. This is the most liquid marketplace on the globe where you can buy and sell or exchange one currency for another. For example, if you think that the Euro will appreciate in value and you have US dollars, you can buy and sell the dollars for the Euros. If you’re right as well as the Euro appreciates in value in relationship with the dollars, then you can close the position realizing a profit.

 

That’s the basic idea behind the Spot Forex Market. That is an interbank system which means that it isn’t centralized. There is certainly no central exchange where currencies are traded. It is a global marketplace. You can buy and sell Forex online 24 hours per day, 6 days per week.

 

This industry emerged at the beginning with the 70′s decade. The reason was that currencies where not backed up by gold anymore. They began floating freely. Their value depended on forces of supply and demand due to monetary elements, speculation, etc. This originated the Forex Market.

 

You can buy and sell Forex on the Internet as I said above. You will find several brokers like www.oanda.com that allow you to open an account with just $300 to $500 and commence trading online. You can also get a demo account very first and buy and sell with play money just to “test the waters” and see should you like this marketplace or not.

 

Demo accounts are free with most brokers. Some brokers offer demo accounts which expire within 30 days while others in no way expire. It can be important to trade on paper, due to the fact you can test your strategies and see if they work or not.

 

Buying and selling Forex is risky, but it may be extremely profitable too. You can trade at anywhere from 20: 1 to 400: 1 leverage. This means that the broker will lend you more cash than you have on the account to trade.

 

For example, let’s say that a broker allows you to trade at 100: 1 leverage. If you use all the leverage, for each dollar that you have on the account you can trade 100. Let’s say that you have $1,000. With $1,000 at 100: 1 you can buy and sell $100,000 worth of dollars in exchange for other currencies. You multiply your buying and selling potential a lot. This allows you to realize bigger profits, but you also incur in bigger risks.

 

Let me show you an example. Let’s say that you simply have 100: 1 leverage on the account and you trade at full leverage with $1,000. The EUR/USD pair (Euro/US Dollar) is dealing at 1.2500. So, you enter a position on this pair.

 

Let’s say that you are long. If the market moves in your favor by just one cent (1.2600), you may double your cash and end up with $2,000 on the account. If the marketplace moves against you by just one cent (1.2400), you’ll lose all the funds that you have on the account or most of it depending on the broker you’re buying and selling with.

 

This can happens truly quick. The market can move this very much in a matter of minutes or hours. This really is what makes Forex extremely profitable, but also extremely volatile. I don’t know if novice dealers can realize the magnitude of what I am saying here. Numerous people get into Forex dealing only seeing half of the truth. They get pulled into this marketplace by all the hype flying around it.

 

I do think that no other industry in the globe offer the opportunity to make money like this industry does. On the other hand, there are some risks involved. It’s crucial for new traders to trade on paper very first before compromising real capital. We learn doing. I didn’t learn many basic concepts about this industry until I started buying and selling with a demo account.

 

Now, let me explain other essential facts. The Spot Forex Market is traded in currency pairs. Whenever you enter a position you buy and sell one currency for another. For example should you buy EUR/USD you might be buying Euros and selling US Dollars. In case you sell EUR/USD you are selling Euros and buying US Dollars.

 

When you enter a position, you can not trade other currency pairs unless you have additional funds on your account, but you can trade several currency pairs at the same time as long as you have enough margin/funds to buy and sell. Should you have never traded Forex before, you can see how all this works when you practice with a demo account.

 

Another point that you would like to understand is always that Forex is traded in pips. Your profit on each and every trade depends on several aspects. One of individuals aspects are pips. Another one is how much leverage you might be using per buy and sell. A pip may be the minimum unit that the price tag of a currency pair can move.

 

For example, within the case of the EUR/USD a pip is equal to 0.0001. If the price tag is at 1.2500 and it moves to 1.2501, it moved one pip. If it moves from 1.2500 to 1.2600 it moves 100 pips, like within the example above.

 

Now, how much you make on each and every trade depends on how several pips you make and how a lot funds you invested on that buy and sell. Also, what exactly is the leverage for that account. Should you trade at full leverage having a 100: 1 leverage account and you buy and sell $1,000, if the marketplace moves 50 pips in your favor, then you will make $500. This can happen within just a few minutes after you enter your order.

 

Most experienced dealers wouldn’t recommend you to trade this way though. The reason is that if the market moves against you, then you could lose everything within minutes. It’s better to have lower profit goals for each single trade and compound your profits over time.

 

Funds management principles stay that it’s better to never risk more than 1% – 3% of your capital, specially if you are an inexperienced trader. This is something that I will explain more under other article of this series.

 

Well, I hope this info have been helpful to you. This was an introduction to the Forex Market. You can read more about Forex on my other articles.

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