Forex For Newbies- Will Forex Investing Work For Me?

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Forex For Newbies- Will Forex Investing Work For Me?

What is Forex? The FOREX (Foreign Exchange Market), is the international market, started in the 70's where currencies are bought and sold.

What currency is traded in the Forex market?

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

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

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency.

All currency pairs are 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.

When dealing in Forex you will frequently hear the term pip. A pip is the minimum move a currency pair can make. Pip means price interest point. A move in the EUR/USD from 1.2545 to 1.2554 equals 9 pips.

The purpose of trading is to buy low and sell high. The foreign currency market FOREX is no different. The product traded are rates of currencies of different countries.

FOREX is a really unusual market for a variety of reasons. First, it is one of the few markets that it is free of any outside controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.7 trillion US dollars a day.

When this amount of money moves this fast, you can easily understand why a few investors would find it almost impossible to radically increase or decrease the price of a major currency.

The liquidity of the market means that unlike some stocks, traders are able to open and close positions within a few seconds as there are many buyers and sellers.

Margin Trading:

Margin trading refers to the leverage dollars given to the traders in the market.

One of the best features in Forex trading is that traders are able to trade foreign currencies with high margin.

In Forex, normal trade margins are 100:1 and 150:1, or even 200:1 trade margins. You get 1:1 margin for stock exchanges, 2:1 margin for equity trading, 15:1 margin for futures market. You can easily see how much more attractive Forex Trading is for the average trader.

This very attractive feature can also be dangerous. Traders should be very aware of the margin call and should always avoid them at all cost.

The typical broker will require a minimum account size, also known as account margin or initial margin. Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.

There are many automatic trading systems available. Do your research!