FOREX – For the Beginner
Anyone with a computer and an internet connection today would be able to trade currencies in the comfort of their own home.
If you plan to venture into the FOREX market, the very first step that you should take is to educate yourself on currency trading. The rewards of FOREX trading are high but so are the risks. You would need to learn the meaning of many FOREX jargon such as currency pairs, pips, quote currency and the various strategies in currency trading. It is highly recommended that you attend a course of trading currencies where you can learn the various techniques of currency trading.
As a rule of thumb, you should put is at least 6 months of research and training before you start to trade. Like the stock market, marginal trading is also available in the FOREX market. For as little as $500, brokers will sometimes allow you to trade to a margin of $100’000. This would be very tempting especially for beginners but it is also the very thing that all beginners should avoid. As much as possible, beginners should stay away from trading on margin as they are bound to make some strategic mistakes when they first start trading.
Most online currency brokers offer a demo or dummy trading software. The demo trading account allows you to practice in live market environments without the use of real money. You should only commence real FOREX after you have developed a proven money making strategy on the demo software.
Do you want to trade in the Forex market? Before you learn to use any forex trading software, and before you consider the best times of the day to trade the forex, there are the several terms that you must know. Here are the vital forex trading terms:
Currency Pairs: Every forex trade incorporates two currencies, one that you are purchasing, and one that you are selling.
(1) Major and Minor Currencies:
The major currencies are the following: United States Dollar (USD); European Euro (EUR); Great Britain Pound (GBP); Japanese Yen (JPY); Australian Dollar (AUD); Swiss Franc (CHF); Canadian Dollar (CAD).
(2 Base Currency:
The Base Currency is the first one indicated in the trade pair. The base currency is compared against the secondary currency. For example, a EUR/USD = 1.33300 means that 1 Euro (EUR) is worth 1.33300 United States Dollars (USD).
(3) Quote Currency:
This is the second currency mentioned in the currency trade. The amount of money that you make or lose is calculated from this currency.
(4) Cross Currency:
This is a trade in which neither of the two currencies involved is the US Dollar (USD). These trades actually involve the buying and selling of two different currency pairs. All currency trades include the US Dollar. Here is an illustration of this point: if you are to trade the EUR/JPY pair, you are actually buying a EUR/USD pair and at the same time you are selling a JPY/USD pair. These trades typically typically have higher commissions as they involve two trades.
(5) Pips:
Pips are the smallest price for any currency. The pip represents the change in the fourth decimal place.
If you want to trade in the currency market, you need to fully understand these terms. Do you want more information about trading currencies?
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