Learning Forex Trading

Forex trading provides on excellent online trading venue to people who like to speculate on the exchange rate between the currencies of two different countries.

In Forex Trade one buys or sells currencies with a view to earn profit. Trading in Forex market is fairly simple and is almost the same as in other markets. For example a trader purchases 10000 euros in the beginning of a year at eur/usd rate of 9800 and then he exchanges his 10000 euros back in to us dollars at the end of the year at a market rate of 11900 thus making a profit of $2100.

Currencies must be quoted in pairs for example eur/usd, usd/jpy etc. The first currency of the set is always termed as the base currency and the second one is termed as the counter currency. The buying and selling patterns are based on the base currency. For example if a trader buys eur/usd then that means he buys euros on one hand sells dollars on the other hand in an expectation that value of euro will increase in relation to US dollar. The commonly used pairs are eur/usd , usd/jpy , gbp/usd , usd/chf etc where jpy stands for Japanese currency and chf stands for swiss francs. Pairs in which US dollars have no role to play are called cross currencies however the fundamentals of quoting remain the same, for example a quote of eur/jpy 100.25 specifies that 100.25 Japanese equalize to one euro. In forex market quoting is done in the form of ‘pips' which stands for “percentage in point” and is 1/100 th of 1%.

The trader should first determine whether he wants to buy or sell a currency pair. Exactly like in all other markets there are two prices for a currency pair and the difference between these two prices is known as the Cost of Trade.

The margin deposited in Forex market is a good faith deposit rather than a down payment. It is the minimum balance required to place a trade. It acts as collateral for one's trades and is normally 1% of the value of position.