Forex for Dummies

By: EconomyWatch   Date: 27 July 2009

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EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

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Forex trading, and particularly online forex trading, are becoming more and more popular, particularly since the stock markets crashed in 2008. This Forex for Dummies guide will help you to work how to get started.

 

Forex for dummies: What to Start With
 

Since forex trading is executed with quotes, comprehending them is the first step. In a forex quote, the first currency that is listed is called the base currency, which is always valued at one. The rate of the other currency is calculated against one unit of the base currency. For example, in the currency pair EUR/USD, Euro is the base currency and the exchange rate for a moment can be expressed as EUR = 1.2 USD. When a trader deals with quotes, the prices of currencies are expressed in the unit of pips (percentage in points), generally expressed as the fourth decimal point.

The two sides of a quote are:

  • Bid: this is the price at which the base currency gets sold while the counter currency is bought.

  • Ask: this is the price at which the base currency is bought with the counter currency being sold.

Subsequently, a forex guide introduces a trader to forex market terminology and other requirements for trading, such as a broker.

 

Forex for Dummies: Five Points to Remember

Forex is a highly competitive and volatile market. Fortunes swing favors at the drop of a hat. That is why getting acquainted with the industry and its typicality is vital for a better trading experience. Here are some points to help you:

  • Learn the jargon and know the forces at play: This includes following news and any occurrence that may influence the market. Follow the currencies at a macro level as well as news related to interest rates, politics or weather. This phase empowers you to make more sound forex forecasts.

  • Study numbers: Do an analysis of all forms of numbers associated with the forex market. Focus on trends and try to compare those to the present currency movements. Try and study all indicators, graphs, quotes and charts that you can get hold of. The idea is to learn to predict from past data and identify relativity.

  • Money management: First identify your trading style and the budget. Then, weave around a strategy that can give you the best yield. Perfect knowledge of the trends or the jargon will be ineffective without a sound finance management plan.

  • Manage your psyche: Even the best of predictions can go futile if proper control on your psyche is not exercised. Greed, indiscipline, lack of confidence and lack of cross checking of projected trends can all lead to disaster. Therefore, learning how to minimize psychological intervention is crucial to maximizing profits.

  • The trading tools: Without forex brokers one can not start trading. Therefore, research extensively on the broker you choose. While, making the selection, check for:

    • Past record
    • Availability of real-time quotes
    • Leverage and spreads
    • Customer service
    • Commission structure and other charges

One can join various online forums simultaneously and interact with existing traders to get firsthand knowledge of the market. This fosters one’s understanding of various strategies and helps in getting valuable opinions.


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