Archive for March, 2010

Currency Trading Course Experiences

March 18th, 2010 No Comments

A currency trading course may analyze the details of currency trading in a different perspective. It is similar to a Forex Trading course in many ways. Let us see what is the difference between the two courses?

At first, let us find out some of the currency trading terms. In currency trading, one currency is purchased for another currency. Normally it is expected that the value of purchased currency is appreciated relative to the currency which is sold. Buying a currency is called taking a long position while selling a currency is known as short position.

An open trade position is defined as in which the buying or selling one currency pair is not supported by the sale or purchase of adequate amount of that currency pair to effectively close the trade. In an open trade position, a trader stands to gain or lose due to fluctuations in the price of currency pair. International Standard Organizations code abbreviations are used for quoting currency exchange rates. For Example, USD/INR is for two currencies. The first currency USD is the base currency and the second currency INR is the quote currency. In purchase transactions, it explains how much quote currency you have to pay for purchasing one unit of base currency. In the sale transactions, it defines how much of quote or counter currency you get by selling one unit of base currency.

Currency Exchange Rate

A currency exchange rate is mentioned as bid price and ask price. The bid price is always lower than the ask price. In the above example, 40.50/53, the 40.50 is the bid price and the 40.53 is the ask price. The difference between the bid price and ask price is the spread. In the above case the spread is 0.03. Normally, the spread is mentioned in terms 4 or 5 decimal places. When a currency is directly traded against USD, then such exchange rates are called direct rates, in which the base currency is the USD.

In some transactions, the USD becomes the quote currency and such exchange rates are called indirect rates. Cross rate is that exchange rate in which both the traded currencies are other than USD. Though US dollar does not appear in such rates, the trading is completed by first trading one currency in USD and then trading the second currency in USD. A spot deal or market is defined as a contract in which the delivery of the currencies takes place within two business days. Market order is executed immediately at the market rate. Limit orders are executed at future date on certain conditions.

Forex Trading course

Forex trading course offers details about trading in foreign exchange. It is done under two broad parameters. One is Technical analysis and the other is fundamental analysis. In tech analysis, the past data regarding the rates are analyzed. But fundamental analysis takes in to account the country as a company and analysis various data pertaining to the nation as a whole.

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Forex Trade: Main Drawbacks of a Forex Trader

March 17th, 2010 No Comments

Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? Although there is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.

The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.

The search for the Holy Grail
Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.
Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.

Looking for Easy Money
Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.
Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isnt that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.

Looking for Excitement
Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.
Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.

Not Using Money Management.
Most traders forget about this important aspect of trading. They think they shouldnt be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.
Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.

Not Being Psychology Tuned
This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant the crowd. In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.
Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.

Lack of Education
Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.
Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. Thats right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.

These are some of the most important barriers every trader faces when trying to trade successfully.

Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.

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FOREX or Futures. Where to Trade

March 17th, 2010 No Comments

Our modern futures market originated in the 19th century when farmers began selling contracts to deliver agricultural products at a later time. They did this to attempt to anticipate market needs and to smooth the supply and demand during the off-season.

The futures market has changed dramatically since then, in current times the futures market is no longer restricted to agricultural products. This worldwide commodities market now includes such things as manufactured goods and financial products as well as agricultural products. A futures contract is a guarantee that a certain product will be sold at a fixed price on a certain date.

When speculators play the futures market there is no expectation of the products being delivered and the actual goods are not even important. It is actually just the contracts themselves that are traded and the value of these contracts is in constant fluctuation.

In every futures contract there are two positions a long position and a short position. The short position is filled by the seller and the long position is the buyer. Futures accounts are settled on a daily basis.

As an example a farmer enters into a contract with a grocer to sale him 1000 bushels of corn at $10 a bushel. At the end of the specified time the contract is settled, if the current market price of corn is at $9 a bushel the farmer will realize an extra profit of $1000 dollars on the contract and the grocer will have lost the same amount. In this situation the farmer now sells his corn at $9 a bushel on the open market but his loss is covered by the profit from the contract. The grocer now will buy his corn for $9 a bushel but in reality he is still paying $10 a bushel because of the cost of the contract. If he had not entered into a contract he could have bought his corn for $9 and saved $1000. However if the price of corn had risen significantly to $13 a bushel he would have saved himself $3000.

Speculators try to guess the direction of the market fluctuations and make a profit by buying and selling contracts.

FOREX

The FOREX market has numerous advantages over the futures market. Since it is the largest financial market in the world it is far larger than the futures market. The FOREX market is also far more fluid, which makes it easier to execute stop orders with very little slippage.

The futures market is usually only open 7 hours a day where as the FOREX exchange is open 24 hours a day 5 days a week. This extra time makes the FOREX market more fluid and allows traders to take advantage of this by trading at any time instead of waiting for the markets to open.

There are no commissions in FOREX trades; the brokers make their profit through the spread. This is the gap between the currency buy price and selling price. In futures contracts the trader has to pay commission fees on every transaction.

Due to the extremely high volume of trades in the FOREX market most transaction are executed almost immediately, this allows for better price control of your trades. In future contracts the price the broker quotes will be from the last transaction and your price could be significantly different.

In the futures market debits are a constant possibility due to daily fluctuations. The FOREX exchange has many built-in safeguards in the trading system that helps protect the traders.

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Forex News Trading Alchemy from Forex Signals to Consistent Profits

March 16th, 2010 1 Comment

Forex News Trading Alchemy from Forex Signals to Consistent Profits

Forex currency trading has been a hot subject lately. Imagine a business with no employees, no customers, and no inventory; with possibility of reaping great profits every single month, week, or day. It is only you, lap-top computer, and your favorite sofa Attractive? Sure, but the secret ingredient of success is missing in the formula.

It is estimated that only 5% of retail forex traders have consistently profitable currency trading system. It is usually based on deep understanding of economy (fundamental analysis), awareness of the patterns of market reaction on specific economic events (technical analysis), and proprietary set of “tools and instruments”. Clearly, you want to jump in to get your feet wet in forex trading, but what if your toolbox is almost empty. One way to start is to follow professional trader guidance. It does not break your wallet to subscribe to quality forex trading signals (for instance, I offer them free), then test their consistency on your training account and finally apply these alerts for live trades.

I call this “forex news trading alchemy”, loosely referring to the clandestine process of transmuting substances of no or little value into pure gold. Economy news that people watch on TV just to have something to chat with their friends later apparently aren’t of great value. The very same news disturb currency market, providing possibilities to make money on the market movements and therefore become remarkably tangible. Training and experience is required to interpret news into the trading terms and the final product of such interpretation is called Forex Trading Alert or Signal.

High-quality FX trading signals provide final price projection based on the deviation between prior number, actual number and possible revision combined with support and resistance levels. Timing of the indicator is of crucial importance here as well as the same deviation may have completely different impact on the market. It is advisable to eventually get familiar with these forex technical terms; however generally you can follow the simplified summary explaining optimal trading strategy for this particular news event including entry and exit points and stop loss limit.

Following news trading signals is a good way to reap some profits, but more importantly it is extremely beneficial for the general forex trading education. The trader is able to observe elements of fundamental and technical analysis comprised into the signal that pertain to the certain economic situation. Live trade execution teaches various trading strategies besides educators agree that practice is by far the best way to increase the comprehension level and retain the knowledge. After trade follow up with step-by-step scrutiny is simply invaluable.

Remember, your goal is to establish your very own perfect business by making it into the five percent of successful forex traders. If you read this article, that means you already have computer with internet access. The only thing between you and your dream is that illusive secret ingredient of proper currency trading education.
Try the alchemy of forex news trading to access that covert element.

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Forex Home Trader Facts You Need To Know About

March 15th, 2010 No Comments

Forex Home Trader Facts You Need To Know About Trading Forex

Forex trading (foreign exchange) become the latest trading activity for beginner traders. Some of them see this as an opportunity to earn a living by trading from home as a Forex Home Trader. The foreign exchange market also known as the Forex is the trading between different currencies of different countries. This very liquid market only became available online for trading, to the individual private trader in last couple of years.

Every currency has it own three-letter symbol that will represent that country of the currency that is being traded. For example, the Japanese Jen is the JPY and the United Stated dollar is USD. So you will note that these currencies are always quoted as USD/JPN

These trades are facilitated through a Forex broker, with whom you will sign up, in order to get your own online trading account. It is strongly advised that you first sign up for a Demo trading account where you can trade currencies in a simulated environment so none of your own funds will be used in real time. This type of account is excellent for developing your own trading strategy and for you to get the feel for the markets; it also prepares you for trading your own funds in a Live account. Warning! The degree of discomfort in trading in Demo mode varies greatly from Live trading as there is quite a difference between trading cyber money and trading your own funds Real time. Sign up for various Demo accounts at various brokers and test drive their online trading software or trading platforms make sure that you start trading with the software you are most comfortable with, it is only in you own interest!

Be very aware of the following: You can lose some or all your funds in trading the Forex market! This market is extremely fast and some times very volatile! ensure that you complete at least a comprehensive Forex trading course and try to enlist the help of a seasoned Forex trader that you can use as a mentor, before starting to trade actively in the market. To lose a lot of money in a trade when the market goes against you is not easy, you must be mentally strong to absorb you losses and have the drive to learn out of your mistakes!

Ensure that the broker or Forex Company which you decide to trade through is fully authorized to deal in Forex. In the United States, numerous rigid new laws and regulations regarding the trade of Forex for US citizens are being implemented. If you are searching the internet for a Forex broker, ensure that you read the fine print on their brochure, proposal or website make sure that your company or broker is legal.

Before entering any trade make sure that you did your homework, did you do Fundamental analysis of the markets take a look at your economic calendar, what are the other countries doing? Will there be announcements that will influence the currency you are going to trade? Did you decide where your entry and exit point will be? Do not forget to set your stop loss! Otherwise your trade can be disastrous for you if the market turns against you and you dont get out of your trade in time.

Remember that by preparing yourself well before entering any trade in Forex, can only benefit your own pocket, so be informed and enjoy Forex Trading!

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Forex For Beginners Making Money From Currency Trading

March 14th, 2010 No Comments

FOREX stands for Foreign Exchange and it stems from the international financial market. That is, the Forex market, the place where currencies of different countries are bought and sold in a similar manner to the buying and selling of share market in the ASX, Australian Stock Exchange.

Forex market started in the 1970s and that is when floating of currencies and free exchange rates began. Like share prices, it is the people who traded in the Forex market that affects the prices of the currencies traded in accordance to the law of supply and demand. Hence, if the market force dictates, e.g. if the US Federal Reserve decides to raise interest rates to curb inflation while Australia Reserve Bank have the interest rate on hold, that should stimulate a change in exchange rate. One should therefore see interest rate effect with the US $ worth more in value than AUD when this happens.

The amount of money traded daily in the Forex market is uniquely enormous. The rate of exchange makes Forex the single most liquid financial market with currency traded amounting from 1 to 1.5 trillion US dollars per day. Owing to this enormity, it is not possible for the Forex market to be manipulated externally. Hence, no single trader or even any financial institution trading in it has the wealth to influence the price of any currency in its favour.

The Forex is so fluid and so much exchange at such a fast pace that it is just impossible for anyone to affect the market of any one major currency. The sheer liquidity of the Forex market with so many exchange taking place, enable the traders to open and close position within seconds. This is because there are always willing buyers and sellers available at any one time since the collective exchange of the various world Forex centers is considered open for 24 hours as it spans across different time zone.

Forex is naturally unique compared to the stock market which is normally associated with long term investments. In currency trade, a minute change in prices of a currency generate situation that permits investors to apply all sorts of strategies to their advantage. However, there are also long term hedge investors involved in Forex and also short term investors that make use of credit lines to seek large gains over a short period.

HOW FOREX WORKS

Unlike NYSE (New York Stock Exchange) or ASX (Australian Stock Exchange), there is no central marketplace for Forex. Instead the exchange takes place over the counter 5 days a week on a 24 hour basis, via satellite, among major financial centers in London, Paris, Tokyo, New York, Sydney, Hong Kong, Frankfurt, Singapore and Zurich. Dealers, including online ones, around the globe are always available to quote any major currency.

MARGINAL TRADING

Marginal trading is like using a credit card and it is like borrowing money to trade currency. This encourages investors to take additional risk by opening a bigger trading position with less out-of-the pocket money and relying more on borrowed capital that is provided by the brokering company.

Marginal trading in the Forex market is traded in lots of which 1 lot is about 100,000 of unit currency. The margin requires to hold that $100,000 position is 1.0% of $100,000 and that is equivalent to a personal capital outlay of $1000 (i.e. taken from 100,000 x 0.01) while the balance of $99,000 is covered by the broker.

If the currency traded increases in value you make the difference when you close your trading position. You capital outlay and profit gained minus any transaction cost from the trade are credited into your margin account.

INVESTMENT STRATEGIES: TECHNICAL & FUNDAMENTAL ANALYSIS

Of course, one cannot just trade without any knowledge of the currency market. To be successful in Forex trading one has to be analytical and this is what all experts do. They do what we call Technical and Fundamental Analysis.

Technical analysis is associated with studying data gathered on all the fluctuations of the various currency prices over time. From the data, chart patterns are formed and movement of the currency prices can be observed for trading decisions to be made.

The behaviour patterns of each currency prices are the reflection of all factors in the market place such as an event, overbought and oversold situation, interest rates, etc. Most of these patterns in chart forms are instantly provided by the brokerage firm you trade from.

Fundamental analysis is an event based analysis like political situation, rumours, economy, interest rate setting by central or reserve bank of the country concern, news on tax policy, GDP, countrys economic performance, political unrest, natural disaster, employment or unemployment figure announcement, etc. Value of a currency can also be influenced by expectation, anticipations and perceptions of the participants in Forex trading, i.e. it could be driven by sentiment of these Forex participants.

MAKE MONEY WITH CURRENCY ON FOREX

To profit out of Forext tading one need sheer diligence and trading experience and getting familiar with Technical and Fundamental analysis to place once trade. Anyone who participates in it should have equal opportunity since it is one market that is so liquid and rapid moving that it is impossible to be influenced by anyone person or fund management.

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Forex E-Book Of Trading Strategies

March 13th, 2010 No Comments

With Forex trading, you can be in charge of your finances. It has the reputation for being the largest market in the world, and the cost at the beginning is also low. This industry is tuned to several billions of dollars, and there is the opportunity to earn a lot of money by a few hours. All one needs to do this, is the determination and an Internet connection.

When it comes to Forex trades, one must keep growing with learning about methods to make more money. There are excellent Forex e-books that deal with trading strategies, and which are highly informative for the growth of an individual in this industry. There are several Forex trading strategies that are available in the e-book, which will take individuals to greater heights.

The e-book states several methods that can be followed, and not one of them has false claims. Each one has been proved, and the methods will allow you to maintain a consistent trading record. This e-book can be vouched for, because a professional team has taken effort into researching the best ways to optimize the trading strategies.

If you are the one who has lost money in this business, and needs professional help with what you want, there is no better place to look for plans, other than this Forex e-book. In any business, one needs determination and focus to succeed, and so it is with this one. The loss must not stop you from trying these strategies to get where you want to get.

With the help of this e-book, you will be able to understand when and how to enter the market, and also when you need to find exits. This has to be done at the time, when you think you are about to lose money. These Forex trading strategies have been coined in such a way, that a trader needs to spend only a few hours gaining access to success.

Not only is the e-book charted out with simple steps, it is also a moral boost for those who have lost money. It allows the trader to understand the market better. Once these strategies are understood, one can make sure that he is never going to lose money in this business again. Once you understand the methods, you will also know when you need to enter a trade.

This way, you will not be left out from the crowd.

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Forex Currency Trading System Choosing The Best System For

March 12th, 2010 No Comments

Forex Currency Trading System Choosing The Best System For You

OK, you’ve decided that you want to trade on the Forex currency market. You’ve decided that you need a system to help you navigate your way through things and help you to make a profit. But how do you make sure that you choose the best Forex currency trading system for your needs?

Sure, you could rely on the sales pitch on the sites of the various software vendors. But you really need to do some more research. This is a big decision and choosing the wrong system could affect the profits you make from your currency dealings.

The sales site will give you a features list. That’s a good start. Check through the features and see whether there’s anything missing. Check them against the features shown on other sites that’s when you will start to notice subtle differences in the various system offerings.

Next, see if you can get access to a demo version of the systems you are interested in. Some of the sites will ask for your email and other details before they will let you have access to a demonstration. That’s OK there is legislation to protect you from being bombarded by emails forever.

Make sure that you will be undisturbed when you take your demo or tour of the system. This needs your full concentration!

Go through all the different things on offer. Decide whether you like the layout of the screen as well as the depth of information available. Maybe the system has different modes so that as you get more proficient, you can turn on extra details and features that would only confuse you when you are just starting out.

Do this for each of the different systems that you are interested in.

Chances are, one system will stand out as being the one for you.

But don’t open your wallet yet!

Go back to your favorite search engine and check what other people have said about the system. You’re looking for negatives and positives. Ideally, you should be able to find reviews on some forum sites where you can go back over time. You may get a sense of how well supported the system is and how often it is updated. When there are bugs, how fast do they get fixed?

Once you’ve got all this information, you should be ready to take the plunge and start making cash on the Forex markets.

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Forex Currency Trading Online: 5 Steps To Avoid The Common

March 10th, 2010 No Comments

Forex Currency Trading Online: 5 Steps To Avoid The Common Tragedy

Just like you, every single person that enters Forex currency trading online does so with the sincere intention of making money. Every one, including you. There isn’t a single one that intends to lose money, yet the statistic of 90% losing their money is very real.

This is a very sad tragedy that good people experience everyday. The problem isn’t that people lack the intelligence or ability, nor is currency trading online impossible to master. It is that they skip steps in their development.

Forex currency trading online offers a very real and very achievable opportunity for those that will simply follow the proper steps to reach their goal of consistent profits and approach the matter in a sensible manner. There are several components to a traders development in becoming the confident trader that produces consistent profits.

Gaps in a traders education will have to be filled before the end-goal is achieved, just like price gaps as in the markets.

The primary reason that the statistic in currency trading online exists is because those that lose money don’t focus on developing themselves and their Forex currency trading online business. They choose to focus almost exclusively on making money right now. Thus the gaps cause them to lose their money before theyve filled their educational and developmental gaps.

Second-wave traders are people that have blown out their account, or come close enough to realize this, and subsequently take a more business-like and realistic approach to their currency trading online.

So that they can have better chances of success the second (or third) time around, they pay attention to the fact that they missed some steps and now consciously pursue them. They don’t want to repeat the vicious cycle of regular and repeated large losses that they experienced as first-wave traders.

There are five steps to avoid the tragedy so commonly found in Forex currency trading online.

Step 1. Develop a thorough understanding of currency trading online. This means what the markets are really about, what drives them, how to read a price chart, how to properly plan trades, how to identify good setups, entries, exits, etc. The basics are essential to master.

Step 2. Seek out the mistakes made by others. There are over 39 different mistakes commonly made by traders. This means that there are numerous opportunities to lose money in currency trading online.

If you dont make yourself aware of mistakes made by others, then that leaves you open to making them yourself and you’ll pay the price when you make them. Learn from the mistakes of others and save both money and regret.

Step 3. You’ve heard that you should treat your trading like the business that it is. The problem is that if you haven’t run a business before you may not know how to go about it. Any endeavor engaged on a regular basis for profit is a business. Even the government looks at it this way.

The more structured a business is, such as your currency trading online, and the more it includes sensible formalities such as reporting, the more consistent it will become. This is the end goal of most traders consistent profits so treating it as a business will surely help in achieving that goal. There are resources available on sites such as YouTube, so seek them out.

Step 4. In addition to having a system for selecting and placing trades, you should systemize what you do in your currency trading online. This goes right along with treating your trading as a business, but in more detail and from more of an operational perspective.

Systemizing what you do will bring repeatability and predictability to your activity, and this is desirable in trading as well.

Step 5. Manage your your emotions as they are often the cause of large losses and missed profits, even for veteran traders. It is not necessary to try to be a inhuman and turn off your emotions.

By educating yourself on the psychology of trading to have an understanding of how your emotions play into your decision-making process and what factors affect your currency trading online, this will again help you achieve the goal of consistency.

Forex currency trading online presents a tremendous opportunity for people that will simply approach the endeavor from a business like and long term perspective. Most who enter currency trading online, do so very ignorant of what it takes and this is quite understandable, as it is something totally new to them.

Educate yourself and seek out the developmental resources to help you through these five steps to ensure that you give yourself the best chances of realizing what currency trading online has to offer. Make sure you give yourself a happy ending.

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Currency Trading: Understanding the Basics of Currency Trading

March 9th, 2010 No Comments

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the basics, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

EUR/USD: Euro
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
USD/CHF: Swiss franc
AUD/USD: Aussie

These currency pairs generate up to 85% of the overall volume generated in the Forex market.

So, for instance, if a trader goes long or buys the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency.
Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency.
If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2545/48 or 1.2545/8
The bid price is 1.2545
The ask price is 1.2548

A Pip

A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.05 to 113.10 equals 105 pips.

Margin Trading (leverage)

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call

A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader theoretically with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

Its very important to understand every aspect of trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

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