Currency Trading Basics: The Seven Basic Elements of Currency Trading

Currency trading, foreign exchange trading, forex trading or Fx trading are just four different titles often given to act of investing in the currency exchange market. If you are interested in investing in the foreign exchange market, then you need to understand the seven currency trading basics:

1) What is currency trading?

Currency trading is simply buying and selling currencies and making a profit from a positive price change between two different currencies involved in a trade. The two currencies involved in a trade are known as the forex pair. The most common currency involved in forex trading is the US dollar which is involved in 85% of all trades.

A forex trader will monitor the financial markets and react to trends in the movement in price between one currency and another. He makes a profit if he buys or opens a trade at a low price and sells or closes at a higher price. The skill is being able to understand what is happening in the market and correctly anticipate the upward or downward movement of currency prices. There are many tools available to help with the analysis of the market - the most common being a variety of charts which show historical trends and patterns. Increasingly, there are new trading software packages entering the market which automates much of this process eg Click Here!
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2) The forex market

The volume in the foreign exchange market is massive, with around $4 trillion dollars being traded every single day. The international banks and financial investment companies are the main players but especially now with the internet and high speed connections, the market has opened up to the small private investors who are entering the market in their droves. The constant fluctuation in price between currencies provide a lucrative market for the shrewd investor.

3) Investment Capital

Just a few hundred dollars is enough to get started. You need to open an account with a broker but generally they do not charge any upfront fees or commission and make their money from the spread in buy and sell prices of the currency and from leveraging.

4) Trading hours

Because the currency market is Global, it is effectively open 24 hours per day, 5 days per week. It opens in Sydney Australia at 22:00 UTC on Sunday evening and closes at 22:00 UTC on Friday afternoon in New York.

5) Risk

Unfortunately, too many people enter the forex market and expect to get rich quick. Forex trading is not gambling, it's a skill which can return good profits if you enter with the correct mindset and are prepared to learn the various tricks and techniques. In any form of investment where the potential profit is high, then so too are the potential losses. Even the most skilled and experienced traders will lose money and should not be put off when you do. The important thing is to make more gains than losses, so start small and learn from your mistakes. Always trade with a stop loss, particularly if you are using any form of automated trading software, this will protect you from huge losses if the market should suddenly turn against you.

6) Strategy and Systems

You need a clear strategy and to develop a profitable system within that strategy. Fear and greed are your worst enemies. Work hard at understanding the markets, study the charts and get a feel for the many factors which influence price movement. Persevere and above all be consistent.

7) You are in control

You are in total control of your investment. Unlike most other forms of investment such as stocks and shares, you are not dependent on the performance of a third party. So long as you learn the currency trading basics and learn to recognise the world events which influence currency prices then you are in a strong position to take advantage of positive trends in currency price movements.

Foreign Exchange Market and the Five Secrets of its Success

The foreign exchange market or forex market as it is more commonly known used to be the preserve of the big international banks and to a degree they still try to control and manipulate it. However, largely due to the internet and high speed connections, the market has opened up significantly to the smaller traders. The forex market is unique and offers a better opportunity to make money than most other forms of investment for five basic reasons:

1) Global Market

Forex trading is carried out all over the world and whilst it is influenced by domestic events in the countries of major financial importance, the effects are often balanced out between negative influences in one corner of the world and positive influences elsewhere. Forex trading is always between two currencies or forex pairs as they are known and the individual currencies have no absolute value in isolation. The value of a currency can only be measured in comparison with another currency and if one of them falls in value the other will rise in value. This is unique because in other forms of investment such as the stock market, a negative influence in one corner of the world can ripple around the world and create a fall in value in stocks around the world. The current economic crisis is a perfect example of this. The sub-prime lending market in the USA crashed and the effects were soon felt around the world with the biggest stock market crash since the 1930's.


2) Trading Volume

Simply put, this is the amount of money being traded at any given time and within the foreign exchange market the trading volume is immense. A survey carried out a couple of years ago put the amount of money being traded in the forex market at $4 trillion per day. The US Dollar is the single most traded currency involved in 85% of all forex trades, followed by the Euro at 35%. The largest forex trading center is London, followed by New York and Tokyo.


3) Liquidity

The liquidity of an asset is the ease with which it can be turned into cash without loss of value or at least without any significant loss in value. Currency is money and money is cash and is therefore more liquid than any other asset making it very easy to trade.

4) Leverage

Leverage is about controlling something big with something small. The leverage that is achievable in the forex market is one of the highest that investors can obtain. Leverage is a loan that is provided to a trader by the broker handling his or her forex account. When a trader decides to invest in the forex market, he or she must first open up a margin account with a broker. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the trade. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for trades of $50,000 or less.

To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage provided on a trade like this is 100:1. Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market. Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during a days trading.

5) 24 Hour Market

Because the foreign exchange market is global, forex trading can carried out 24 hours a day over 5 days per week. The market effectively opens in Sydney, Australia at 22:00 UTC on Sunday evening and closes on Friday afternoon in New York at 22:00 UTC.

FX Trading: The What, the Who, the Why and the How.

What is FX trading, who can do it, why would they want to do it and how can they do it? In this brief article I will attempt to answer these basic questions.

What is Fx trading?

FX or forex is an acronym for foreign exchange. Therefore, FX trading is foreign exchange trading. In other words it is trading in foreign currency. FX traders will trade in forex pairs with the US Dollar and Euro being the most popular pair. Forex traders will buy and sell currencies and make money from the currency price movements.

Who can do Fx trading?

Anyone can do it. It is no longer a special preserve of the banks and other financial institutions. You do not need a lifetime of knowledge and experience from working in the investment and forex markets in the London Stock Exchange, New York Wall Street or other financial centers around the world.

The internet, particularly with the advent of broadband and high speed connection, has opened up these markets to ordinary people working from the comfort of their own home. They can access real time data in the form of latest currency prices, charts and other data. They can open an account with an online broker and carry out all trading transactions online. Recognising this potential, brokers have made the whole task relatively easy and inexpensive to get started. Of course, to be successful, you need to learn some basic rules and techniques.

At the same time, the ongoing development of special trading software is so sophisticated now that forex robots can automatically do the trading for you. You do not have to understand the market or decide when to open and close a trade - the robot does it all for you on your own computer.

Why become a forex trader?

It is a way of making money from the comfort of your own home and given the current economic climate, many people are choosing or being forced to look at other ways of creating an income. Forex trading can supplement other forms of investment trading on the stock market as an extension of your investment portfolio, thereby spreading the risk. It can be a full time or part time activity and it can be fun too for people who enjoy a challenge. Beware though not to be too casual about forex trading. It's not gambling and should not be viewed upon in this way; otherwise you will make more losses than gains. Of course there are risks and even expert traders will make some losses but with the right mental approach, patience, motivation and commitment to succeed, it can be very rewarding.

How to get started?

It's very easy. You will need to sign up with a broker before you can make any trades. You will find many of them with a simple search on the internet. Shop around and compare fees and other charges. Make sure you understand the basics of how to open and close a trade and how to use stop losses to safeguard your position if a trade should make a sudden adverse movement.

You might want to take advantage of the many automatic Fx trading or forex robot software packages on the market. If so, make sure you understand how they work and trial by 'paper trading' first before letting a robot loose with real money in your Fx trading account. (Forex Megadroid Click Here!).

Which Forex Pairs to Trade?

Forex pairs are the two currencies involved in currency trading. You exchange or trade one currency say US Dollars for another currency say British Pounds Sterling. The forex pair in this example is USD/ GBP.

Of course it is possible to trade with any pair of currencies from around the world. In practice, however, it is the currencies of the major economically powerful countries which account for most trades. Note that I say economically powerful and not politically powerful. The Swiss Franc is the currency of a small country, physically and politically but because of the special nature of the Swiss banking system it is very economically powerful and therefore a major player in the financial markets.

Around 90% of all forex trading involves just 6 forex pairs, all involving the US Dollar as the most significant trading currency:

1) US Dollar/ British Pound Sterling USD/ GBP (sometimes known as the Cable Pair)
2) US Dollar/ Euro USD/ EUR
3) US Dollar/ Japanese Yen USD/ JPY
4) US Dollar/ Swiss Franc USD/ CHF
5) US Dollar/ Australian Dollar USD/ AUD
6) US Dollar/ Canadian Dollar USD/ CAD

According to a recent study, the US Dollar is involved in 85% of all trades and the Euro 37%, followed by the Japanese Yen, British Pound Sterling, Swiss Franc, Australian Dollar and Canadian Dollar in order of significance.

When first entering the forex trading market, it is advisable to begin with the USD/ Euro forex pair because there is so much more information concerning these currencies which because they tend to me more stable and more easily manageable result in lower costs.

Some currencies can make difficult forex pairs and should be avoided by the beginner to start with. For example, the Canadian Dollar and the Japanese Yen can be a difficult partner in any forex pair because they are both influenced by fluctuations in the price of oil (Canada is a large oil exporter and Japan a large oil importer).

Of course oil as an example is just one of many influences effecting currency movements and the experienced forex trader will know what to look out for. However, for the beginner my advice would be to trade with the USD/ EUR pair for a while to gain experience and then maybe the USD/ GBP (Cable) pair as an alternative before moving on to the more volatile forex pairs.

Forex Investment - The Risks.

Forex investment is being advertised across all forms of media right now as a great way to make money. The advertisers imply that it is an easy and profitable way to invest your money and let’s face it under the current economic climate we are all looking for an easy low risk option to make some extra cash. So let’s take a closer look at forex, understand what it is and evaluate the true risks.

Forex is an acronym for 'foreign exchange' and forex investment trading is a form of investment by taking advantage of the movements or exchange differences between foreign currencies.

Because the rate of exchange between a pair of currencies is constantly changing, it is possible for a shrewd trader to make a lot of money by accurately predicting these changes. It's very similar to trading in stocks and shares on the stock market, you buy when the price is low and sell when the price is high.

As is common with investing in the stock market, forex traders can take a medium to long term view based on a steady drift in currency prices over a period of time. However, the advertising suggests short term gains and to be fair, this is what most forex traders do. They use trading skills and techniques to make relatively small gains over a short period and repeat the process over and over.

A forex trader will buy a currency when he thinks it will rise in price. This is called opening a trade. A closing trade is when he sells a currency because he thinks it price is about to fall. Often he will open and close a trade within minutes. The skill is in watching the markets and recognising a pattern developing which he knows from experience will lead to an upward or downward trend and thereby chooses to jump in and open or close a trade.

Many traders use a system which either they have developed themselves over many trades or they buy an 'off the shelf' system which can provide a short cut through the learning curve to becoming a successful trader. This is what most of the advertisements are trying to sell and it is necessary to be very wary about some of the claims made with some of these systems. There is also software available which automate the whole process and robots open and close the trades for you based upon parameters built into the software. There are one or two of these robot systems emerging in the marketplace now which look very promising (for example Click Here!).

With the ever increasing accessibility and popularity of the internet, brokers have seized the opportunity to attract a lot of a new breed of investor to the forex investment market - people with relatively small funds can begin with just a few hundred dollars. Many are encouraged to think that they can make a lot of money in a short time and are often disappointed. It is necessary to learn some specific skills and require a lot of self discipline to be successful. It takes time, motivation and commitment.

Some people take up forex investment simply because they are looking for a new challenge. Maybe they already invest in the stock market and are looking at other ways of increasing their portfolio of investments. These people are more likely to succeed because they have a better understanding of the risks and are prepared with sufficient funds to lose from time to time. The skill comes in making more gains than losses over a period of time.

There are many influences on the market and some of them completely unpredictable even to the most experienced trader. Take disasters such as the terrorist attack on the Trade Center in New York on 11 September 2001 for example. It is wise to set up an automatic stop loss if things suddenly turn against the trade. A stop loss is a pre-determined amount your trade is allowed to lose before it is automatically closed. A very sensible precaution.

In summary, forex investment has risk attached to it but it is a risk that can be controlled and managed provided you learn the skills, tricks and techniques required before becoming heavily involved.

Make Money Online From Home with Forex Trading

The idea of working from home is nothing new and more and more people are doing it in the offline world because a) with modern communication technology many companies are encouraging their employees to work from home because it saves them the cost of office space and b) saves the employee the cost and inconvenience of commuting to an office each day, not being tied to fixed office hours and gives them more time with the family.

An increasing number of people are taking this a stage further and setting up their own online business from home, especially under the current economic climate when good offline jobs are becoming more difficult to find.

Even as a part time activity the idea of earning some extra money online is very attractive. People from all walks of life including the unemployed, retired and disabled are getting in on the act. All that is needed is some basic computer skills and a willingness and motivation to succeed.

Forex currency trading is an ideal way to make money from home but it is important to approach this with the correct mindset in order to be a successful online trader.

Many people start out with the mindset of a gambler and expect rich rewards overnight. As a result, many of them lose money, particularly in the beginning. It is not a game of chance, it a serious form of investment which rely on the skill of a trader being able to recognise a trend or pattern in currency movements and pick the right moment to open or close on a trade. It's not guesswork.

This type of trader has become more prevalent in recent years probably due to the banning of online casinos in the US. They were used to getting a buzz or kick out of the risk associated with a game of pure chance and think that they can achieve the same thing with currency trading which is totally legal simply because it isn't a game of pure chance. Ok, some strike lucky but believe me, as in all forms of pure chance gambling, the majority will lose.

Once you understand that and take time out to learn what is happening in the forex market and train yourself in the application of a few necessary skills, techniques and tactics you have a real chance to make money online from home with forex trading. Don't misunderstand me, there are many systems which traders use and some are profitable and some are not. Whatever system you use you will always have some bad trades. The skill is in developing and using a system which gives you more gains than losses.

So to summarise, before you jump in and start trading, you need to learn and understand the currency market and then concentrate on learning the skills and finding a reliable system before you start. When you have spent this time on your forex training you can look forward to make money online from home with forex trading.

Forex Trading with Charts and Trends

There are two ways of analysing the foreign exchange markets. One is to study price movements - known as forex technical analysis. The other is to look at outside influences such as economic factors, political climate etc - known as fundamental analysis.

Let's look in detail at forex technical analysis using charts and trends. The idea is to look back in time at historical data and see how prices have moved and identify trends which can be used to predict what might happen in the future. Trading opportunities exist when you recognise a familiar pattern emerging. There are generally three types of chart used for this - line, bar and candlestick charts:

Line charts are simply a line representing the closing price of a currency pair over a period of time which gives a general visual indication of price movement. However, this only shows the closing price and not the price fluctuations within the trading period.

Bar charts on the other hand will show vertical lines or bars spanning the lowest to the highest price in a given time period. The opening and closing price is represented by a short horizontal bar to the left and right of the vertical line respectively. They are sometimes referred to as OHLC charts because they show, open, high, low and closing price positions.

Candlestick charts are similar to bar charts in that they show the same information but presented in such a way that makes it easier to interpret at a glance. Instead of a thin vertical line showing the high and low price, there is a column whose width represents the opening and closing prices. the columns are traditionally coloured white for rising and black for falling prices but colours such as green for rising and red for falling are now becoming more common. This type of chart is preferred by many traders because it is easier to see the turning points where a price has reversed from an upward trend to a downward trend and visa versa.

Currency traders refer to the trend as your friend because the time to trade is when you see a trend forming and a profit is made by trading in the same direction as the trend. Learning how to spot the trend is vital to success in currency trading and candlestick charts make the complex process of forex technical analysis easier.

Of course there are various software programs on the market which claim to make the whole process of forex technical analysis easier, particularly for the beginner and regular readers of my articles will know that there are some very good products emerging in the market place.

See my Forex Magadroid product review dated 21st May.Click Here!