Learning Forex

By: EconomyWatch   Date: 23 July 2009

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EconomyWatch

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

EconomyWatch, Content Team

 

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Learning forex is critical given the size and volatility of the market. Forex is the exchange of currencies. Money is traded on the forex market. The spot forex market deals in the current prices of currencies. Currencies can be traded any time. All one needs is an Internet connection and an online broker to foray into the forex market.

 

Exchange rates are ratios between two currencies valued against each other. Typically, three alphabets symbolise a currency, the first two representing the country and third denoting the currency. The major currencies traded include USD, EUR and GBP.

 

Learning Forex to Make Money 

A currency is exchanged for another with the expectation of a change in its price. Appreciation in the value of the bought currency translates into profits on selling it. Currencies are quoted in pairs, as forex is buying a currency and selling another. Traders must determine whether they wish to buy or sell. When a trader decides to buy, he is “going long.” When he decides to sell, he is “going short.” “Bid” (the price at which a trader sells the base currency) is always lower than “Ask” (the price at which a trader buys the base currency). The difference between the two prices is called the spread. One can open a demo trading account with a broker to learn about the trading platform without any risk.

 

Learning Forex to Calculate Profits

If the EUR/USD changes from 1.2327 to 1.2328, it has moved one pip. Pip is the unit to measure forex profits or losses. Spot forex trading is done in lots. A lot is a sizeable standard amount (usually $100,000) to gain from increments in pips. If the balance in a trader’s account falls below the margin requirement, the broker closes positions to prevent the account from going negative due to further losses.

 

Learning Forex to Make Orders 

An “order” means how one enters or exits a trade. There are three basic types of orders. A decision to trade at the current market price of a currency is a market order.

An order to buy or sell at a particular price is called a limit order. A stop-loss order prevents additional losses if the price moves against a trader.

 

When learning forex, one must know that all traders lose money in forex trading.

Most of them do not plan and are not trained. Learning forex can help traders avoid making losses resulting from the poor management of funds.

 


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