The Basics of Forex Trading

 

The Foreign Exchange or Forex or Fx is the global market where governments, banks, corporations, and traders meet to exchange currencies. 

 

What is the Foreign Exchange or Forex market?

 

The currency market is the world’s largest and most liquid financial market with an average daily turnover of over 4 trillion US dollars.

 

These are some facts regarding the Forex Market:

 

-The Forex market is open 24/5

-The most important currency trading centers are London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, and Singapore

-Currency trading uses the ECN network (Electronic Communicational Network)

-The most traded currency is the US Dollar and the most traded pair is EURUSD

 

Different Instruments for Trading Forex Currencies

 

There are more than 100 different currencies worldwide. However, most transactions involve four (4) currencies (US Dollar, Euro, Yen, and the British Pound Sterling). Other key currencies include the Swiss Franc, the Australian dollar, the Canadian dollar, and the New Zealand dollar.

 

Forex currencies can be traded using a wide number of different financial instruments:

 

1. Spot transactions
2. CFDs (Contract for Difference)
3. Futures Contracts
4. Currency Forwards
5. Currency Swaps
6. Currency Option Contracts (American, European, Binaries, etc.)

 

Spot trading (1) and CFDs (2) are the common financial instruments used by retail Forex traders. Gaining access to currency derivatives (3, 4, 5, and 6) is considerably difficult for non-institutional traders.

 

 

 

Trading Styles

 

These are the main Forex trading styles:

 

• Intraday Trading (very difficult and very risky)
• News Trading (demanding, requiring the use of top technology)
• Swing Trading (an efficient way for retail traders to trade the market)
• Carry-trade (can be very profitable, requiring good timing)
• Position and Long-term Trading (requiring a perfect understanding of the macroeconomic environment
• Automated Trading (very demanding, requiring the use of top technology)

 

Basic Forex Trading Terms

 

These are the basic terms when trading Forex:

 

• CURRENCY PAIR

A currency pair includes two currencies and shows the value of a currency by its comparison to another currency.

 

• BASE CURRENCY

The base currency is the first currency quoted in a currency pair. For example, EUR is the basic currency of the EURUSD pair.

 

• QUOTE CURRENCY

The quote currency is the second currency quoted in a currency pair in the forex. For example, USD is the quote currency of the EURUSD pair.

 

• ECN FOREX

ECN means Electronic Communication Network and refers to a bridge between retail traders and liquidity providers through an ECN Forex Broker.

 

• PIP

Pip is the smallest price change in an exchange rate. As most Forex pairs are priced to four decimal places (0.0000), the smallest price change happens to the last decimal point (0.0001). That means 1 pip equals 0.0001. Note that the smallest price change in Forex pairs including the Japanese Yen (JPY) is the second decimal point (000.01).

 

• FOREX MAJORS

The Forex Majors are the most traded Forex pairs including the US Dollar (EURUSD, USDJPY, GBPUSD, USDCHF, USDCAD, AUDUSD, and NZDUSD).

 

• CROSS-CURRENCY PAIRS

Cross-currency pairs or else Forex crosses are currency pairs that do not include the US dollar. For example, EURGBP, EURJPY, GBPJPY, and EURCHF.

 

Key Forex Trading Recommendations

 

Foreign Exchange trading is very demanding and it is not suitable for all traders. Here are some key recommendations:

 

(1) A Demo Account is a Great Start

If you are a newbie, start with a Demo Account, and trade for at least 2-3 months to test your skills in every market condition. Then move to a micro-lot or a mini-lot account type, not a standard-lot account.

 

(2) Trade Small Sizes

Trading small sizes is very important, especially for not-advanced traders. Small-sized trades can be easier to maintain and allow traders to run their profits without anxiety. Furthermore, small-sized trades limit the overall portfolio risk and leave room for losses.

 

(3) Run Your Profits

The general rule is that 80% of the annual profits are generated by 20% of all trades. To be profitable in the long run, you must let your positions grow. You can use mental stops or trailing stops to secure your profits.

 

(4) Trading Leverage can be a Disaster

Trading leverage sounds like an opportunity, but actually, it increases your trading risk and at the same time your trading cost. The trading leverage is useful only for intraday traders who really know what they are doing.

 

(5) Select Carefully your Forex Broker

Select an ECN/STP broker that is regulated and headquartered in a serious country. Mind your trading cost, not your trading bonus.

 

 

Fx Currency Symbols

 

A currency symbol is a graphical symbol representing a form of money. This symbol is usually unique to a specific country. This is a List of all popular Forex Currencies and their Symbols.

 

FOREX CURRENCY	ISO	CURRENCY SYMBOL
Argentine Peso	ARS	$
Australian Dollar	AUD	$
Bahraini Dinar	BHD	n/a
Barbadian Dollar	BBD	$
Brazilian Real	BRL	R$
British Pound	GBP	£
Canadian Dollar	CAD	$
Central African CFA franc	XAF	n/a
Chilean Peso	CLP	$
Chinese Yuan	CNY	元
Czech Koruna	CZK	Kč
Danish Krone	DKK	kr
East Caribbean Dollar	XCD	$
Egyptian Pound	EGP	£
Estonian Kroon	EEK	kr
Euro	EUR	€
Hong Kong Dollar	HKD	元
Hungarian Forint	HUF	Ft
Icelandic Krona	ISK	kr
Indian Rupee	INR	₹
Indonesian Rupiah	IDR	Rp
Israeli Sheqel	ILS	₪
Jamaican Dollar	JMD	J$
Japanese Yen	JPY	¥
Jordanian Dinar	JOD	n/a
Kenyan Shilling	KES	n/a
Latvian Lats	LVL	Ls
Lebanese Pound	LBP	£
Lithuanian Litas	LTL	Lt
Malaysian Ringgit	MYR	RM
Mexican Peso	MXN	$
Moroccan Dirham	MAD	n/a
Namibian Dollar	NAD	$
Nepalese Rupee	NPR	₨
New Zealand Dollar	NZD	$
Norwegian Krone	NOK	kr
Omani Rial	OMR	﷼
Pakistani Rupee	PKR	₨
Panamanian Balboa	PAB	B/.
Philippine Peso	PHP	Ph
Polish Zloty	PLN	zł
Qatari Riyal	QAR	﷼
Romanian Leu	RON	le
Russian Rouble	RUB	ру,;
Saudi Riyal	SAR	﷼
Singapore Dollar	SGD	$
South African Rand	ZAR	R
South Korean Won	KRW	₩
Sri Lankan Rupee	LKR	₨
Swedish Krona	SEK	kr
Swiss Franc	CHF	CHF
Thai Baht	THB	฿
Turkish Lira	TRY	YTL
United Arab Emirates Dirham	AED	n/a
US Dollar	USD	$
Venezuelan bolivar	VEF	Bs
West African Franc	XOF	n/a

 

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